Annual Report 2021

Enabling a

sustainable

future

Keeping the world flowing

for future generations

Annual Report 2021

In fulfilling our

Purpose, Rotork is

helping tackle some

of the most important

sustainability issues

of our time

Our environmental ‘handprint’ – the opportunity to drive

positive outcomes through our products and services –

is significant. We play a key role in the energy transition.

All photographs of people used in this report were taken in line with local COVID-19 guidance in place at the time.

Keeping the world flowing

for future generations

Keeping the world

flowing… through

electrification

Rotork is supplying electric PAX actuators

to a natural gas distributor in the New York

City area, to replace all pneumatic devices

on its network.

Keeping the world

flowing… through

automation

Rotork has been selected to provide electric

actuators for the new Baihetan Dam

hydropower plant on the Yangtze River

inChina.

Keeping the world

flowing… through

innovation

Rotork is working with China Baowu Steel

Group, one of the world’s biggest steel

producers, on its ambitious emissions

reduction agenda.

Strategic Report

2 How our Purpose enables a sustainable future

8 Performance highlights

12 Chairman’s statement

14 Rotork at a glance

16 Investment proposition

18 Our market dynamics

20 Business model

22 Chief Executive Officer’s statement

26 Supply chain update

28 Strategic framework

34 Growth Acceleration Programme

38 Key performance indicators

40 Divisional review

46 Sustainability review

74 Non-financial information statement

78 Financial review

82 Risk management

85 Principal risks and uncertainties

93 Viability statement

94 Our stakeholders

Corporate Governance

98 Governance at a glance

100 Chairman’s governance overview

102 Board of directors

104 Corporate governance report

116 Environmental, Social and Governance

(‘ESG’) Committee report

119 Audit Committee report

123 Nomination Committee report

125 Directors’ Remuneration report

151 Directors’ report

155 Statement of directors’ responsibility

for preparing the Annual Report and

financial statements

Financial Statements

158 Independent auditor’s report

166 Consolidated income statement

167 Consolidated balance sheet

169 Consolidated statement of cash flows

170 Notes to the Group financial statements

203 Rotork plc Company balance sheet

205 Notes to the Company financial statements

211 Ten year trading history

212 Share register information

Enabling a sustainable future

Our strategy

Our targets are to deliver (i) mid to high single-

digit sales growth through a combination of

organic growth and acquisitions, and (ii) mid-20s

adjusted operating margins over time through

simplifying our core business, manufacturing

improvements and development of our global

supply chain.

We aim to play our part in improving our world

and making it more sustainable by helping

our customers better their own environmental

performance, while at the same time working

to improve our own ESG performance as well

as that of our suppliers.

Read more on page 30

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Corporate Governance Financial Statements Strategic Report

Keeping the world

flowing… through

automation

How our Purpose enables a sustainable future

Automation for the

hydropower industry

Hydropower is one of the largest sources

of low-carbon electricity today. The

International Energy Agency (IEA) sees

hydropower providing 12% of all renewable

electricity generation by 2050 in its ‘net-zero

by 2050’ scenario. It is expected to play a

key role in providing stability and flexibility

of electricity supply, alongside other

renewables.

Hydropower plants use automation for

turbine control and power plant regulation.

Digital solutions – including the use of

intelligent electric actuators – help increase

operational efficiency, flexibility and

lifespan, while also providing higher levels

of safety performance.

Rotork’s IQ actuators are ideally suited for

hydropower plants; they are reliable, robust

and efficient, and provide data logs that

give insight into the plant’s performance.

Continuous tracking is available at all times,

even without power supply.

Once fully operational in 2022, the Baihetan

Dam hydropwer plant will have capacity

to generate 60 GWh of electricity a year –

enough to meet the electricity demand of

around 50 million people – making it the

second largest hydroelectric power plant

in the world.

Rotork’s actuators drive the water supply

systems within the power station, as well

as drainage, air compression and other

auxiliary systems.

Electricity demand met:

50m

people

Rotork has been

selected to provide

electric actuators for

the new Baihetan Dam

hydropower plant

on the Yangtze River

in China.

2Rotork Annual Report 2021

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Corporate Governance Financial Statements Strategic Report

Zero-methane

electric actuators

help keep 1.5ºC

within reach

Unlike CO

which stays in the atmosphere

for hundreds of years, methane breaks

down within a decade. This makes reducing

methane one of the strongest levers we

have for slowing climate change.

The high-profile Global Methane

Assessment, published in May 2021,

highlights electric actuators as one of

the most important readily-available

technologies to mitigate methane emissions.

Oil and gas extraction, processing and

distribution account for 23% of human-

caused methane emissions. Such emissions

can be eliminated through the use of electric

devices in oil and gas operations and natural

gas distribution networks. One example

solution is Rotork’s PAX actuator.

Oil & gas companies are launching multi-

billion-dollar investment plans to upgrade

their equipment. Rotork is currently

supporting a western Canadian upstream

oil and gas producer to reduce its emissions.

We are supplying intelligent electric actuators

to replace pneumatic devices and enable the

producer to transition to zero emissions in

its operations.

Keeping the world

flowing… through

electrification

More than 100 countries

signed the Global Methane

Pledge at COP26 in

Glasgow, committing

to cut methane emissions

by 30% by 2030.

Rotork is supplying electric PAX actuators to a natural gas

distributor in the New York City area, to replace all of the

pneumatic devices in its network. The pneumatic devices

constantly emit gas into the atmosphere. Our new PAX

actuators are ‘zero-emissions’ and will provide operational

savings of approximately $500,000 a year.

How our Purpose enables a sustainable future continued

4Rotork Annual Report 2021Annual Report 2021

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Corporate Governance Financial Statements Strategic Report

Keeping the world

flowing… through

innovation

China Baowu Steel Group, one of the world’s biggest steel

producers, is driving an ambitious emissions reduction agenda.

China Baowu is pursuing a hydrogen-based metallurgy process

and carbon capture technology, as well as other routes, to

achieve carbon neutrality. Rotork is working with China Baowu

at its pilot hydrogen project, and is proud to be a trusted

supplier of actuators to China Baowu.

How our Purpose enables a sustainable future continued

Rotork Annual Report 20216

Decarbonising

heavy industry

The steel industry’s products are used in every

aspect of our lives: in cars and construction

projects, refrigerators and washing machines,

cargo ships and medical equipment. Demand

for steel is growing, driven by population growth

and increased prosperity. Steel is also a critical

component of renewable energy infrastructure.

According to World Resources Institute data,

the iron and steel sector contributes around

7% of global greenhouse gas emissions.

Achieving large emission reductions in the

sector is therefore imperative to achieving

net-zero globally.

Hydrogen is set to play a big part in lowering

emissions from the steel industry. By using

hydrogen and renewable electricity in the

production process, steel can be produced

with close to zero emissions.

Investment bank Jefferies sees 10% of steel

production being hydrogen-powered by 2030

and 100% by 2050. Demand for electrolysers,

used in the production of green hydrogen,

is also expected to increase materially.

Global steel production per year

by 2050

545m

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Corporate Governance Financial Statements Strategic Report

Annual Report 2021

5.9

6.3

6.4

2021*

2020*

2019*

Financial highlights

Rotork delivered a resilient

performance in 2021 despite

significant supply chain

headwinds

Proposed full year dividend

Rotork is a strong cash generator and recognises the importance of a growing

dividend, subject to the cash needs of the business.

Increased by 1.6%

6.4p

* Dividends as announced. The 2019 final dividend was deferred by six months.

See note 17 on page 188 for details.

8Rotork Annual Report 2021Annual Report 2021

Orders

£614m

Orders were 7.8% higher year-on-year on an

organic constant currency (OCC) basis, driven by

an acceleration in customer activity, particularly

in the second half.

Revenues

£569m

Sales were 2.5% lower year-on-year on an

OCC

basis due to component shortages and

logistics challenges.

Adjusted

operating margin

22.5%

Adjusted margins benefited from continued

execution of the Growth Acceleration Programme

but these benefits were offset by the impact of

reduced volumes.

Return on capital employed

30.1%

ROCE decreased by 240 basis points reflecting

the impact of the reduction in adjusted

operating profit, partly offset by the reduction

in average capital employed.

Order intake

growth resumed

Sales impacted

by supply chain

challenges

Operating margins

remained resilient

Best in class ROCE

KPI

To view our latest results

or for more performance

information visit

www.rotork.com

KPI

1 OCC – organic constant currency removes the results of businesses acquired or disposed of during the period that are not consistently presented in both periods.

The 2021 results are restated at 2020 exchange rates. There are no disposals or acquisitions in 2021 that are not consistently presented in both periods.

2 Adjusted Operating Profit excludes the amortisation of acquired intangible assets and other adjustments, see note 4 of the financial statements.

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Corporate Governance Financial Statements Strategic Report

Non-financial highlights

Rotork made progress on

its ESG & Sustainability

agenda, and set out its

path to net-zero

Reduced environmental impact

We reduced absolute scopes 1 and 2 CO

e emissions by 5% last year. Emissions per

£1m revenue were broadly in line with the prior year (0.4% higher than in 2020).

Read more on page 46

KPI

Score: B

Top 20%

Ranked in the top quintile globally

in our industry

Top

Industry Top Rated

CDP Water SecurityS&P Global CSA

Sustainalytics MSCI

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Corporate Governance Financial Statements Strategic Report

The Rotork team performed well in 2021, which

proved to be another challenging year. The

COVID-19 pandemic refused to subside, despite

the success of vaccines, and it continues to cause

loss and suffering more than two years after

the virus was first identified. Rotork was able to

provide short-term financial help to employees

and ex-employees facing hardship via Rotork

Benevolent Support. The economic effects of

the pandemic continue to be acutely felt, with

economic sectors recovering at different paces,

supply chains struggling to keep up, and inflation

at levels not experienced in many decades.

Whilst oil & gas market activity remained

subdued, particularly in the early part of the year,

Rotork took full advantage of opportunities in

its other end markets. The commercial teams

remained close to their customers and kept them

informed of the challenges in our supply chain

and of higher input prices. The operations teams

did a fantastic job of avoiding plant closures

where possible, whilst ensuring health and

safety, and of managing rapidly evolving supply

chain challenges. Our HR teams coped admirably

with the fast-changing situation regarding

working practices around the world.

Rotork’s role in the climate crisis

The physical effects of climate change were

increasingly self-evident in 2021, with many

unprecedented weather events, such as fires

across western states of the United States

and floods in Germany and China, destroying

homes and claiming lives. In August the

Intergovernmental Panel on Climate Change

published its latest update, confirming

that climate change was widespread, rapid

and intensifying. It is increasingly apparent

that we face not just climate change, but

a climate emergency and that urgent action

is required. One such possible action is a

significant reduction of methane emissions,

as highlighted by the UN in May 2021 in

its Global Methane Assessment.

At COP26, held in November in Glasgow,

world leaders agreed to keep ‘1.5 degrees

alive’, making commitments to net-zero, to

reduce methane emissions and to phase down

unabated coal power. Rotork is well positioned

to help deliver on these commitments as a

global leader in electric actuation systems, with

an offering including low power products that

are sufficiently efficient to be solar powered.

Rotork delivered a good

performance in what was

another challenging year

Martin Lamb

Chairman

Chairman’s statement

Rotork 12 Annual Report 2021

Board update

We were delighted to welcome Kiet Huynh to

the Board and as Chief Executive Officer on

10 January 2022.

During his four years with Rotork Kiet has

excelled in the leadership of both the Chemical,

Process & Industrial division and, more recently,

the Water & Power division, with a clear focus on

driving profitable growth through close attention

to customer needs, a strong commitment to

product and service innovation and a talent for

developing high performing teams. He has the

leadership skills and operational experience to

build on the excellent progress made through

the Growth Acceleration Programme, and to

chart a course for accelerated growth in the

years ahead.

I would like to thank Kevin Hostetler for the

excellent contribution he has made to the

business over the last four years. He implemented

significant changes during his time with Rotork

and hands over a fundamentally much-improved

company to his successor. We wish him and his

family every success on their return to the US.

Sally James retired from the Board at the

conclusion of the AGM on 30 April 2021,

having completed nine years’ service. She

leaves us with our best wishes and gratitude

for her significant contribution to Rotork over

this period. Peter Dilnot took over as Senior

Independent Director on 30 April 2021.

We appointed one new non-executive director

during the year and are pleased to welcome

Karin Meurk-Harvey to Rotork. Karin brings

highly relevant engineering, technology

and digital experience, particularly in high

growth markets.

I am pleased that we have increased the diversity

of the Board this year, strengthening it through

a broader range of perspectives and providing

more diverse role models for talent rising

through the organisation.

Returns to shareholders

Rotork is a highly cash generative business and

recognises the importance of a growing dividend

to our shareholders. We are committed to a

progressive dividend policy, subject to satisfying

cash requirements, which can vary significantly

from year to year.

On 31 March 2020, due to the unprecedented

level of uncertainty presented by COVID-19,

we announced the withdrawal of the

recommendation to pay the 2019 final dividend

of 3.9 pence per share. On 4 August 2020 we

announced that we would pay in September

2020 the deferred dividend and that we would

consider the dividend payable in respect of the

whole of 2020 in March 2021. At that time the

Board recommended a full year dividend of 6.3p

per share for 2020, an increase of 1.6% from

the 2019 full year dividend. The dividend was

paid to shareholders on 21 May 2021.

This year the Board recommends a final dividend

of 4.05p per share. With the 2021 interim

dividend of 2.35p, the total dividend for the

year is 6.40p, a 1.6% increase on the 2020 full

year dividend. This is equivalent to 1.8x times

cover based on adjusted earnings per share

(2020: 2.0x). The final dividend will be payable

on 20 May 2022 to shareholders on the register

on 8 April 2022.

During the second half of 2021, consistent

with our capital allocation policy, we returned

to shareholders £50m via an on-market share

buy-back programme.

Outlook

The outlook for our end markets is improving

and we entered the year with a record opening

order book. However, we do not anticipate

current supply chain disruptions to improve

in the first half of 2022. We remain committed

to the financial objectives of mid to high

single digit revenue growth and mid-20s

adjusted operating margins over time and,

notwithstanding geopolitical uncertainties,

we expect a year of solid progress in 2022.

Martin Lamb

Chairman

28 February 2022

For many processes the easiest route to net-

zero is via the electrification of control systems

(including actuators). We are also well placed

to benefit from the conversion of the world’s

large population of methane emitting actuators,

used extensively in the oil & gas industry, to zero

emission alternatives. For difficult to decarbonise

sectors (such as coal-fired power, but also others,

for example cement and steel production),

hydrogen and carbon capture and storage have

a major part to play. These are actuator intensive

and complex processes which require the

critical/severe service solutions that we offer.

We like to describe the impact that we have

in enabling our customers to improve their

environmental performance as our ‘handprint’.

We believe that our handprint is very sizeable

indeed, encompassing not only methane

emission avoiding solutions, and the hydrogen

and carbon capture solutions referred to

above, but also smart, low power solutions

in water and waste water, natural gas, biofuel

and nuclear applications, to name but a few.

Whilst our ‘footprint’, the environmental impact

arising from our own operations and supply

chain, might be smaller than our handprint,

it is nonetheless of critical importance to our

business and a key focus for our leadership

team. We were pleased to publish our inaugural

Sustainability Report in June 2021, outlining

the commitments we have made to advance

our chosen UN Sustainable Development Goals.

We are also proud to do our part in the race to

net-zero, and announced our greenhouse gas

emissions targets and commitments alongside

our preliminary results in March 2022. These

targets include scope 3, which we reported

for the first time. We have submitted them

to the Science Based Targets initiative and

await their endorsement.

External ESG recognition

Whilst the Rotork team derives great

motivation through its Purpose of keeping

the world flowing for future generations,

it is also extremely pleasing to be recognised

by external agencies. We were particularly

proud to be ranked by S&P Global in the

top quintile globally in the Machinery &

Electrical Equipment industry in its highly

regarded Corporate Sustainability Assessment.

Sustainalytics also recognised our efforts,

awarding us as a Top-Rated ESG Performer.

We also won the UK Investor Relations Society’s

award for ‘Best Communication of ESG’.

Proposed full year dividend

Up 1.6%

6.4p

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Corporate Governance Financial Statements Strategic Report

Rotork at a glance

We are a market-leading global

provider of mission-critical flow

control and instrumentation solutions

Europe, Middle East and Africa

Breakdown

Manufacturing facilities 10

Offices 27

Employees 1,719

Sales £213m

Asia Pacific

Breakdown

Manufacturing facilities 4

Offices 29

Employees 977

Sales £222m

Americas

Breakdown

Manufacturing facilities 3

Offices 11

Employees 502

Sales £134m

Group revenue (£m)

569

Countries served

170

Global employees

3,200

Our Purpose

Our Purpose, ‘Keeping the world flowing for

future generations’, is a powerful motivator

and drives everything we do. We want to make

a positive difference to people’s lives not just

today, but also into the future.

Our strategy

We target mid to high single-digit sales growth

and mid-20s adjusted operating margins

over time through simplifying and improving

our business practices, manufacturing and

global supply chain. We aim to play our part

in improving our world and making it more

sustainable by improving not only our ESG

performance, but also helping improve that

of our customers and our suppliers.

Read more on page 42

46% 28% 26%

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Corporate Governance Financial Statements Strategic Report

1 2 3

Market

leader

Global leader in highly

attractive markets

Rotork is a world leader in electric valve actuators

and related network control systems. The market

in which we operate has high barriers to entry

and is relatively concentrated. Our products

are highly specified and are used in demanding

applications in tough environments. Actuators

are generally considered inexpensive when

compared to the high cost of shutdown.

Investing

for growth

Mid to high single digit

revenue growth targeted

We operate in attractive growth markets that are

benefiting from the mega trends of automation,

electrification and digitalisation that are

transforming industry. We aim to outgrow these

through targeted investment in end-market

alignment, Rotork Site Services expansion, high

growth regions, innovation and new product

development, and into new markets.

Driving

returns

Market leading returns

with room for upside

Our adjusted operating profit margin was 22.5%

in 2021, amongst the highest in the industrial

goods & services sector. We target a return

to the mid-20s over time through continuous

improvement, sourcing and supply chain

initiatives and footprint optimisation. Rotork’s

is an asset light business and our return on

capital employed (ROCE), at 30.1% in 2021,

is ahead of peers.

Adjusted operating

profit margin (%)

22.5%

Investment proposition

Our Purpose, our

strategy, our culture and

our Values, our business

model and our Growth

Acceleration Programme

differentiate us and

will drive superior value

for our stakeholders

Automation

Electrification

Digitalisation

Be easier to do business with

16Rotork Annual Report 2021

4 5 6

20-year basic EPS growth

CAGR

8.2%

Committed to

sustainability

Enabling a sustainable future

Our businesses are well positioned to enable the

low-carbon global economy with products and

services used to electrify flow control processes,

in hydrogen, carbon capture and storage and

battery production. We have a major part

to play in the energy transition too. Our

‘footprint’ might be small, but we recognise

our opportunity to reduce value chain emissions,

including in our ‘handprint’. We have set

emissions targets to deliver net-zero by 2045.

Balance sheet

strength

Rotork is a highly

cash generative group

Rotork’s businesses are highly cash generative–

cash conversion averaged 108% over the last

five years. This cashflow enables us to fund

organic investments and pay a progressive

annual dividend. Our policy is to maintain a

strong balance sheet, giving us the flexibility to

invest and to make acquisitions. At the end of

2021 we had a net cash balance of £114.1m.

Capital allocation

discipline

We have a clear capital

allocation framework

Our capital allocation priorities are: i) organic

development (new markets, innovation and

new product development, IT upgrades);

ii) our progressive dividend policy; and

iii) strategic investments followed by, in the event

in the future we determine we have excess cash,

iv) return of cash. Any return of cash would

currently be executed through a share buyback.

20-year dividend growth

CAGR

8.3%

Net cash balance

£114m

How we enable the

energy transition

Rotork has many years’ experience in

methane emissions reduction and a

full solution suite. According to the

Intergovernmental Panel on Climate Change

(IPCC), a tonne of methane is around 84-86

times stronger than CO

over a 20-year

timeframe. As a world leader in electric

actuation, Rotork is enabling electrification

which is critical to the low-carbon economy.

We are similarly enabling gasification.

The use of gas for electricity generation

and/or heating instead of coal or oil

has significant CO

reduction and

air quality benefits.

Read more on page 44

Demand for water infrastructure

is strong across developing

and developed markets for

health and safety and economic

development reasons. Electricity

demand rises each year,

driven by GDP growth and

electrification (of many sectors,

not just vehicles).

Water markets are generally

highly regulated and the scope

to increase price is limited.

Capital investment is rewarded

however, making automation

projects attractive. In power

generation, investment in

smaller gas plants is more

attractive than in larger

combustion plants.

Leak detection, monitoring and

quality are a major focus of the

water industry and shortages

are driving the development of

smart grids. Large traditional

power plants are deploying

digital solutions to increase asset

efficiency, reduce emissions and

optimise fuel and water inputs.

Increasing regulations relating

to water quality, water re-use

and sludge treatment are

driving water-related capital

expenditure across industry.

Rotork is well placed to benefit,

for example through the

new CK range of waterproof

electric actuators.

The water network

infrastructure requires

modernisation in many

countries. Desalination

investment continues.

Whilst fewer traditional power

plants are being constructed

globally, the installed base

requires maintenance and

modernisation.

Water scarcity is resulting in

greater need for recycling and

desalination. Rising water levels

are necessitating flood defence

investment. Traditional power

stations are installing flue-gas

desulphurisation and switching

to biofuel.

Global mega

trends

Our chosen

markets

Powerful global mega trends

drive our top line growth

Our market dynamics

18Rotork Annual Report 2021

Trend

Population and

middle class growth,

urbanisation

Automation,

energy-efficiency,

electrification

Digitalisation,

industrial internet,

technology

Globalisation,

trade, regulatory

developments

Infrastructure

investment and

modernisation

Climate change,

decarbonisation,

water scarcity

General impact

Global GDP growth continues

– with developing markets

growing faster than developed

markets, and urban areas

growing faster than rural areas.

Upgrade from manual to

automated valves and process

control. Move from less

energy-efficient fluid to electric

powered controls over time.

Condition monitoring, remote

diagnostics, and preventative/

predictive maintenance are

becoming the standard

across industry.

Political developments and the

COVID-19 pandemic appear to

have slowed globalisation, in

some cases necessitating on-

shoring of capacity.

Infrastructure investment is

forecast to grow significantly

faster than GDP for decades.

Whilst Asia dominates, there is

scope for catch-up elsewhere.

Climate change is a global

environmental issue, contributed

to by greenhouse gas emissions

by the transportation, power

and industrial sectors.

Oil & Gas

Read more on page 44

Demand for water infrastructure

is strong across developing

and developed markets for

health and safety and economic

development reasons. Electricity

demand rises each year,

driven by GDP growth and

electrification (of many sectors,

not just vehicles).

Water markets are generally

highly regulated and the scope

to increase price is limited.

Capital investment is rewarded

however, making automation

projects attractive. In power

generation, investment in

smaller gas plants is more

attractive than in larger

combustion plants.

Leak detection, monitoring and

quality are a major focus of the

water industry and shortages

are driving the development of

smart grids. Large traditional

power plants are deploying

digital solutions to increase asset

efficiency, reduce emissions and

optimise fuel and water inputs.

Increasing regulations relating

to water quality, water re-use

and sludge treatment are

driving water-related capital

expenditure across industry.

Rotork is well placed to benefit,

for example through the

new CK range of waterproof

electric actuators.

The water network

infrastructure requires

modernisation in many

countries. Desalination

investment continues.

Whilst fewer traditional power

plants are being constructed

globally, the installed base

requires maintenance and

modernisation.

Water scarcity is resulting in

greater need for recycling and

desalination. Rising water levels

are necessitating flood defence

investment. Traditional power

stations are installing flue-gas

desulphurisation and switching

to biofuel.

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Corporate Governance Financial Statements Strategic Report

Business model

Rotork is a leading provider

of mission-critical flow control

and instrumentation solutions

Driving our growth

We aim to outgrow the attractive growth markets we operate in

through end-market alignment and targeted investment in Rotork Site

Services expansion, high growth regions, innovation and new product

development, and into new markets.

Read more on page 31

The value we created in 2021

We have a strong track record of creating

shareholder value and have increased our

ordinary dividend each year for 20 years.

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Corporate Governance Financial Statements Strategic Report

Rotork is extremely well

positioned for the future. The

flow control markets we serve

have great potential for growth

Kiet Huynh

Chief Executive Officer

Chief Executive Officer’s statement

Introduction

It gives me great pleasure to write my first annual

report statement as Rotork’s Chief Executive

Officer. Rotork is a first-class engineering group

with a strong purpose and a great reputation

for innovative, quality products and a high

level of service. The Group delivered a resilient

performance in 2021. Demand strengthened

as the year progressed and whilst supply chain

challenges impacted revenues, particularly

in the second half, margins and cashflows

proved resilient.

Our people are committed and passionate

and have embraced the important changes we

have made as part of the Growth Acceleration

Programme (GAP). In recent years however the

group has not delivered the rates of sales growth

we had hoped to achieve, in part because of

COVID-19. I am convinced we can deliver on

our growth ambition.

Health, safety and wellbeing

The wellbeing of our people, partners and visitors

is our number one priority at Rotork and our

vision for health and safety is zero harm. During

the year we successfully rolled-out our new

‘Rotork Life Saving Rules’. These are based

on the globally recognised ‘Life Saving Rules’

which are widely used in a number of industries

including oil & gas.

22Rotork Annual Report 2021Rotork

COVID-19 related changes to spending habits

resulted in higher demand for products at the

same time as supply became constrained by

labour and capacity shortages. The outcome

was lower freight availability and significantly

higher rates. We responded by optimising

use of our global network of suppliers and of

production facilities, working closely with our

freight forwarding partners and stepping up our

customer communication. To offset rate increases

we implemented logistics surcharges on the

most impacted routes.

Shortly after the onset of COVID-19, demand

for high-end semiconductors rose as consumers

accelerated the replacement cycle of their

electronic goods. Later, demand from the

auto products sector outpaced the recovery

in auto production, as driver assistance systems

became more common. Rotork responded to

shortages by building tactical inventories where

possible, increasing our direct purchasing of key

semiconductors and electronic components,

and re-engineering our products. The latter takes

time, particularly in the case of certified products.

The prices of commodities such as copper,

aluminium and steel were similarly lifted by

an increase in demand for physical products,

but also by supply restrictions as China made

efforts to reduce industrial emissions. Our Global

Strategic Sourcing teams focused on mitigating

the impact of higher commodity costs through

working with our supply base throughout the

year. Our commercial teams remained in

close contact with our customers at all times,

so any price increases that were required were

understood and did not come as a surprise.

Group revenue was 5.9% lower year-on-year

(2.5% lower OCC). Oil & Gas sales declined

11.0% (7.7% OCC), the result of significantly

reduced deliveries to upstream customers. Sales

to the less cyclical midstream and downstream

sectors (representing 77% of our Oil & Gas

revenues) were slightly down year-on-year on

an OCC basis. CPI sales were 7.7% ahead (OCC),

reflecting strength in the chemicals and process

sectors. Water & Power sales were modestly

lower, the most impacted by electronics and

semi-conductor shortages of Rotork’s divisions.

By geography, Asia Pacific revenues by

destination grew mid-single digits year-on-year

on an OCC basis. Europe, Middle East &

Africa (‘EMEA’) sales were lower, the result

of a significant reduction in Oil & Gas sales.

Americas revenues were modestly lower

on an OCC basis, benefiting from a strong

performance in Latin America.

Rotork Site Services, our global service network

and a key differentiator in our industry, enjoyed

a strong start to 2021. However the second half

was negatively impacted by our own, and our

customers, supply chain and logistics challenges.

Our Lifetime Management and Reliability Services

programmes continue to perform well. Rotork

Site Services is managed as a separate unit within

Rotork’s divisions and continues to contribute

a significant proportion of Group sales.

Adjusted operating profit was 10.1% lower

year-on-year (8.2% lower OCC), reflecting

continued benefits from the Growth Acceleration

Programme (GAP) and our focus on managing

materials inflation, but the benefits compared

to the prior year were more than offset by the

impact of the significantly reduced volumes,

increased logistics costs and operational

inefficiencies. Adjusted operating margins

were 110 basis points lower than the previous

year at 22.5%.

Return on capital employed was 30.1% (2020:

32.5%), with the reduction in capital employed

more than offset by lower adjusted operating

profit. Cash conversion was 108% (130%) with

the lower conversion largely reflecting change in

inventory, in part due to the decision in 2021 to

tactically increase electronic component stocks.

Our balance sheet remains strong, with a net

cash position of £114.1m at the period end.

The methane emissions

reduction opportunity

Awareness of the imperative to reduce

methane emissions hugely stepped up

in 2020 with the US Presidential Election.

It did so again in 2021 with the publication

of the UN’s Global Methane Assessment

which highlighted electric actuators as one

of the key readily available technologies

to avoid these emissions. Rotork has

long been championing solutions to the

emissions challenge – since our foundation

we have been promoting the benefits

of our modern zero or ultra-low emission

flow control products over traditional

‘venting’ ones. Recognising the significant

opportunity that this increase in urgency

and understanding presented us, we

teamed up with external experts to better

understand the opportunities for Rotork.

This study ensured we fully understood

the scale of the opportunity, the drivers

of change, the range of solutions and

the routes to market. The results of the

detailed report confirmed our earlier

view that this is a significant opportunity

for us, and one that we are committed

to seizing.

2021 was another extremely difficult year due

to the COVID-19 pandemic. I am pleased to say

that Rotork once again responded extremely

well to the challenges that presented themselves.

The COVID-19 steering committee continued to

meet each week. The committee, working closely

with local management, monitored day-to-day

developments and shared best practices. Our

health and safety protocols for offices and plants

were effective and helped to minimise disruption.

Despite our best efforts we were not always able

to avoid disruption to production. Generally, our

operations teams were able to minimise this, and

often in selfless and innovative ways.

We recognise the importance of supporting

colleagues’ health and wellbeing. We updated our

wellbeing resources for colleagues during the year

and launched a new global Employee Assistance

Programme. It offers a range of services including

counselling and legal and financial support for

Rotork employees and is made available in all

relevant languages.

Business performance

Group order intake increased 4.1% year-on-year

(7.8% on an organic constant currency or OCC

basis) to £614.1m. All three divisions booked

higher orders on an OCC basis, with Water &

Power and Chemical, Process & Industrial (‘CPI’)

strongly ahead. Oil & Gas saw order growth

return in the second half.

Our customers continue to spend on

automation and environmental projects as well

as maintenance and upgrade activities. Large

project activity remains generally quiet however

there are signs of improvement. The majority

of Rotork’s activity is driven by customers’

operational rather than capital expenditure.

We estimate that maintenance, repair and

small to mid-sized automation/upgrade projects

(individual orders less than £100k) generate

75% of Group orders by value in a typical year,

and that orders above £1m represent only 5%

of Group order intake.

Our operational teams performed well in what

was a very challenging period. The COVID-19

pandemic posed significant challenges for supply

chains around the world in 2021. Lockdowns,

requirements to isolate and people leaving the

workforce disrupted the flow of raw materials

and finished goods. As an international group

with a predominantly out-sourced manufacturing

model, we could not avoid being affected by the

availability and the cost of logistics, components

and commodities.

23www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Chief Executive Officer’s statement continued

Early priorities

In my four years at Rotork I have been a major

contributor to GAP’s design and implementation.

GAP has already considerably improved Rotork’s

infrastructure, operations and processes

enabling us to place increasing emphasis on

customers, culture, innovation and sustainability.

I plan to review and refine the strategy and

if necessary, prioritise certain elements. I am

confident that our efforts will deliver our

growth and profitability ambitions and

benefits for all stakeholders.

Rotork is extremely well placed for the future.

The flow control markets we serve have great

potential for growth and we enjoy leading

market positions. Our product and service

offerings are extremely strong and we have an

exciting innovation pipeline. We benefit from the

strong mega trends of automation, electrification

and digitalisation that are transforming industry.

We have a major part to play in new energies

and technologies that will deliver a low-carbon

economy and enable the transition to it.

A question we are frequently asked is what

proportion of our sales are of products and

services which have particular environmental

or sustainability benefits or which enable the

energy transition and decarbonisation? This

is not a straightforward question, and it can

sometimes be difficult for us to identify the

end use of a product we have sold. Our ‘eco-

transition portfolio’ includes three portfolios:

‘Water & wastewater’, ‘Methane emissions

reduction’ and ‘New energies & technologies

portfolio’ as well as other applications such as

process water management and gasification.

We estimate that the three portfolios mentioned

above represented around 30% of sales in

2021, with other applications also material

but difficult to estimate. We are hugely excited

about the potential of our eco-transition

portfolio of products and services to enable

a sustainable future, and of course

to grow over time.

We have a clear Purpose, Keeping the World

Flowing for Future Generations, and a fantastic

global team of passionate people that are

totally committed to it, whether in our world-

class engineering teams, sales, operations or

our support functions. As a largely outsourced

manufacturing business we are reliant upon

our supply chain. Our suppliers have been

working extremely hard to overcome the well

documented logistics, components shortage

and commodity cost challenges experienced

in the year.

Rotork is in a strong financial position. Our policy

is to maintain a strong balance sheet, giving

us the flexibility to fund organic investments,

pay a progressive annual dividend and make

acquisitions. We have a clear capital allocation

framework and are committed to returning

capital if we believe it is in excess of our

current requirements. We returned £50m to

shareholders via a share buyback during the year.

We will provide an update on our priorities and

our plans to deliver our growth ambition later

in the year. Our immediate priorities are:

– Delivering on our record opening

order book. To do this we will work

in close partnership with our customers

and our suppliers. We will keep up the

momentum in our component purchasing,

product re-engineering and re-certification

efforts. We will revisit our supply chain design

to see if there are opportunities to redesign

certain elements. New paint lines in Bath (UK)

and Rochester (NY) will reduce delivery times,

raise product quality and lower costs and at

the same time improve our environmental

performance overall.

– Continuing to execute GAP. GAP has good

momentum, with many of the principles now

well embedded in the organisation. Our focus

in 2022 is on improving our customer journey

experience, leveraging the voice of customer

work completed in 2021 to prioritise our

new product development efforts, delivering

further sourcing savings and start rolling-out

the D365 ERP system to our manufacturing

facilities. The latter will provide us with more

detailed management information, improve

our processes and deliver additional savings.

Additional focus areas, supporting our growth

ambition, are:

– Greater focus on customer value.

We have made progress in becoming

easier to do business with but we must go

further, putting customer value front and

centre, working as one team. We want to

partner with our customers in tackling their

challenges. To drive this, we will continue

to build on our end market structure and

strengthen our key account management

and value selling propositions.

“Our immediate

priorities are

delivering on our

record opening order

book and continuing

to execute the

Growth Acceleration

Programme.”

24Rotork Annual Report 2021

– Innovation and new product

development. The Group has a long-

established tradition of innovation and of

tackling challenging engineering problems.

As part of GAP we have stream-lined our

new product commercialisation process, and

have a strong pipeline. We want to harness

our engineering tradition and convert the

pipeline to launches, leading with new

products that offer improved efficiency

and which are aligned to the ‘electrification

of everything’ trend.

– Enabling a sustainable future. Our

businesses are well positioned to enable the

low-carbon global economy with products

and services used to electrify flow control

processes, in hydrogen, carbon capture and

storage and battery production. We have

a major part to play in the energy transition

too, for example in reducing methane

emissions, gasification and biofuel production.

Relative to the size of our environmental

handprint, we believe our footprint is small.

We are committed to delivering net-zero

across all three scopes by 2045.

Growth Acceleration Programme

We began to implement our Growth

Acceleration Programme in the second half of

2018. This important five-year programme is

not about a fundamental reinvention of Rotork,

rather refining how we do things and building on

our strong foundations. Despite 2021’s extremely

challenging conditions we made good progress

on each of the pillars.

Commercial Excellence is about sales growth

and to a lesser extent margin enhancement.

One of the major initiatives under this pillar is

sales force re-alignment. Our pivot to an end-

market facing orientation was completed in

2020 and we are very pleased with the results.

Another is the reinvigoration of our innovation

and new product development processes.

There is evidence that innovation may have

suffered during the pandemic, including perhaps

at Rotork. Encouragingly, incremental revenues

from ‘non defend the core’ products grew

year-on-year and were ahead of plan.

Operational Excellence is about both sales and

margins but more about margin enhancement.

We have continued to work to optimise our

footprint and we consolidated several mid-

sized manufacturing facilities during 2021.

Our Continuous Improvement & Lean initiatives

also continued. Across the organisation we

held close to 350 rapid improvement events.

The focus of the Global Strategic Sourcing

team was more on maintaining production

than normal, however the team were able to

secure sourcing savings and stepped-up their

ESG discussions with suppliers.

Investment in our IT and Core Business Processes

accelerated during the year. This workstream

is a major enabler for GAP and the deployment

of new information systems continues at

pace. We have now deployed solutions for

sales, marketing, customer service, human

resources and site services using a common,

global platform based on Microsoft’s D365

technology. These modern, integrated solutions

are delivering new standards of business

efficiency, collaboration and reporting and are

delivering significant business benefits. The

design and integration of the core ERP solution

for our factory and sales offices has now been

completed, ready for our first deployment

in 2022.

Our TCFD journey

We initiated a multi-year project to further

understand the risks and opportunities

presented by climate change, consistent with

the requirements of the Task Force on Climate-

Related Financial Disclosures (‘TCFD’) earlier in

the year. We consider this work as considerably

more than a requirement under the UK Financial

Conduct Authority’s Listing Rules. It is a great

opportunity for us, together with external

experts, to explore the risks and opportunities

that different climate change scenarios might

present to Rotork and to determine how

to position ourselves to take advantage of

opportunities and manage risks.

We have made significant progress in

implementing the recommendations of TCFD

in each of the four thematic areas: governance,

strategy, risk management and targets and

metrics. We have been particularly focused

on undertaking ‘climate scenario analysis’

as recommended under the strategy pillar.

In our current assessment of climate risks and

opportunities, we believe there are significant

opportunities for Rotork. As a next step,

we will work to quantify the potential impact

of both risks and opportunities.

Capital allocation

On 18 August 2021 we announced that,

consistent with our capital allocation policy,

the Board had decided to return cash to

shareholders. We subsequently acquired

and cancelled £50m of our shares via an

on-market buyback programme split into

two tranches. We completed the buyback on

9 November 2021. We retain a strong balance

sheet and remain active in looking for suitable

acquisition opportunities.

Kiet Huynh

Chief Executive Officer

28 February 2022

Revenue

£569m

Adjusted operating profit

£128m

Adjusted operating profit margin

22.5%

Profit before tax

£106m

25www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Supply chain update

Keeping the

world flowing…

through our

supply chain

A global challenge

As an international group with

a predominantly out-sourced

manufacturing model, our supply

chain is key to us delivering our

Purpose of keeping the world

flowing for future generations.

The COVID-19 pandemic posed significant challenges for supply

chains around the world in 2021. Lockdowns, requirements to

isolate and people leaving the workforce disrupted the flow

of raw materials and finished goods. Whilst Rotork’s supply chain

proved resilient, it was still impacted by the challenges. We saw

impacts on the availability and the cost of logistics, components

and commodities.

Logistics

The challenge

COVID-19 related changes to spending habits resulted in

higher demand for products at the same time as supply became

constrained by labour and equipment shortages. The result

was lower freight availability and significantly higher rates.

How we responded

We responded by optimising our use of our global network

of suppliers and of production facilities, working closely with

our freight forwarder partners and stepping up our customer

communication. To offset rate increases we implemented

logistics surcharges on the most impacted routes.

26 Annual Report 2021Rotork

Components

The challenge

Early in the COVID-19 pandemic demand for high end semi-

conductors rose as consumers accelerated electronic goods

replacement. Later, demand from the auto products sector

outpaced the recovery in auto production, as driver assistance

systems became more common.

How we responded

Rotork responded to shortages by building tactical inventories

where possible, increasing our direct purchasing of key semi-

conductors and electronic components, and re-engineering our

products. The latter can take some time, particularly in the case

of highly certified products.

Commodities

The challenge

The price of commodities such as copper, aluminium and steel

was similarly lifted by an increase in demand for physical products,

but also by supply restrictions as countries made efforts to reduce

industrial emissions.

How we responded

Our Global Strategic Sourcing team focused on mitigating the

impact of higher commodity costs through working with our

supply base. Our commercial teams remained in close contact

with our customers throughout the year so any price increases

that were required were understood and did not come as a surprise.

27 Annual Report 2021

Corporate Governance Financial Statements Strategic Report

www.rotork.com

Strategic framework

About this section

In this section we discuss our Purpose,

strategy and sustainability frameworks

and how they fit together. We review

year four of our Growth Acceleration

Programme, a key enabler in fulfilling

our Purpose and building our platform

for growth. Finally, we update on key

initiatives underway and our progress.

Our Growth Acceleration

Programme is designed

to fulfil our Purpose and

deliver our strategic targets

28Rotork Annual Report 2021Annual Report 2021

Industry leading

Brand and reputation

Application engineering and

new product innovation

Site services and lifecycle support

Talent development and

employee engagement

Culture and values

ESG and

Sustainability

Accelerated

growth

End market

alignment

High growth

regions

Higher returns

Cyclical resilience

Cash generation

Capital

allocation

Rotork’s Purpose and values

Our Purpose and sustainability vision are one

and the same: keeping the world flowing for

future generations. We have a major role to

play in a future low carbon world and want

to help drive the transition to this cleaner future.

The Rotork values represent what is important to

us culturally. Our values are: ‘Stronger Together’,

‘Always Innovating’ and ‘Trusted Partner’.

We work together as one team, as One Rotork.

Our strategic framework

Our target is to deliver mid- to high- single

digit revenue growth through a combination

of organic growth and acquisitions. We are

targeting mid-20s adjusted operating margins

over time through simplifying our core business,

manufacturing improvements and development

of our global supply chain. We aim to play our

part in improving the world and making it more

sustainable by helping our customers better

their own environmental performance, whilst

at the same time working to improve our

own environmental and social performance

as well as that of our suppliers.

Read more on pages 34-37

29www.rotork. com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Accelerated

growth

Strategic initiatives

− Targeted geographic expansion. Drive

share in high growth regions including China,

India and South East Asia with focused

commercial activities. Additionally, work

to optimise our go-to-market and channel

alignment in key geographies.

− Commercialise innovative new products.

Accelerate our new product development

processes whilst concentrating our

resources on the most sustainable,

profitable opportunities.

− Help improve customers’ environmental

performance. Support our customer base

reducing their emissions, improving their

water recovery, recycling and treatment,

and lowering their energy consumption.

− Capture exciting new markets. Build on

our existing position in high potential but

early-stage markets such as hydrogen and

carbon capture, utilisation and storage.

− Accelerate our digital future. Leverage

our unrivalled installed base through our

digital offerings such as the recently launched

iAM. Deliver digital infrastructure solutions

utilizing connected actuation technologies.

− Rotork Site Services. Aftermarket and

service is a major opportunity for us. Our

priority is to increase the number of actuators

under annual service agreement, leveraging

our growing installed base.

− Acquisitions. We have the management

bandwidth and the balance sheet strength

to grow by acquisition and are looking to

acquire high-quality businesses in the flow

control area.

Progress in 2021

− Sales were 2.5% lower year-on-year on

an OCC basis due to component shortages

and logistics challenges.

− We launched 5 new products, including

enhancements to the IQ3 product family.

− Our ‘Eco-transition portfolio’ comprises three

portfolios: ‘Water & wastewater’, ‘Methane

emissions reduction’ and ‘Energy transition

& abatement’ as well as other applications

such as process water management and

gasification. We estimate that the three

portfolios above represented around 30%

of sales in 2021, with other applications

also material but difficult to estimate.

− Rotork Site Services invested in

service personnel and in its lifetime

management offerings.

− We have continued to have conversations

and cultivation meetings with a number

of potential acquisition targets.

Strategic framework continued

New products launched

Deliver accelerated

year-on-year growth

in sales and profits

through a combination

of organic growth

and acquisitions

Link to risks: 1, 2, 3, 4, 5, 7, 10

30Rotork Annual Report 2021

Increased

margins

Strategic initiatives

− Footprint optimisation and continuous

improvement. Our ambition is to have world

class manufacturing facilities. To achieve this,

we will continue to optimise our footprint,

with our aim being to have more flexible,

larger facilities. We will also continuously

improve our processes, using mixed-model

lean to raise efficiencies.

− Supply chain and global sourcing.

We target significant supply chain

improvements. We aim to rationalise our

supply base and concentrate our spend

with strategic supply partners. To drive this

change we have contracted third party help.

We also rolled out training and development

to category managers.

− We are in the process of a major

management systems upgrade. Once

complete this will improve the efficiency of

our operations.

Progress in 2021

− Adjusted operating profit margins benefited

from continued execution of GAP but these

benefits were offset by the impact of reduced

volumes and margins slipped by 110 basis

points to 22.5% (from 23.6% in 2020).

− Our footprint optimisation work continues

and we closed three manufacturing sites.

− We continued our lean roll out.

− We made good progress on our sourcing and

supply chain initiatives, for example reducing

the number of suppliers by over 750 since

the launch of GAP.

− We have seen a significant increase in logistics

and commodity costs, reducing net savings.

− Our inventory reduction programme is on

track, with encouraging results to date.

Average stock turn increased.

Footprint optimisation

Manufacturing sites closed in 2021

Deliver sustainably

higher margins

through simplifying

our core business,

targeted manufacturing

improvements and

development of our

global supply chain

Link to risks: 1, 2, 3, 5, 6, 7, 8, 9

31www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability

Strategic framework continued

Rotork’s approach

to sustainability is

embedded in our

Purpose: ‘keeping the

world flowing for future

generations’. Our focus

on sustainability has

the potential to support

a competitive advantage

and create sustainable

value for all of our

stakeholders

Link to risks: 5, 6, 9

Strategic initiatives

− Embed our sustainability framework.

We are working to embed our commitments

across the business and develop programmes

to help drive progress.

− Develop ESG targets to accelerate

progress. The development of our net-zero

roadmap and associated emissions reduction

targets is well underway and being embedded

in all relevant parts of the business.

− Deepen our understanding of climate

impacts. Through our TCFD work, develop

a deeper understanding of climate-related

opportunities and risks, and develop strategies

to seize them.

− Link ESG metrics to executive

remuneration. Successful achievement of

KPIs is linked to senior leaders’ and executives’

bonus opportunities.

− Drive awareness and advocacy of our

ESG story. Participate in ESG ratings and

benchmarks to measure performance and

achieve recognition of progress. Engage

stakeholders in our ESG journey and enable

them to help make a difference.

− Identify opportunities to strengthen

governance. As part of our commitment

to continuous improvement, we are further

developing our policies. We have launched

a new Modern Slavery Policy to help manage

modern slavery and human trafficking

risks. Our new Supplier Code of conduct,

due to be launched in 2022, will demand

higher standards of environmental conduct.

Progress in 2021

− We initiated a multi-year project to further

understand the risks and opportunities

presented by climate change, consistent

with the requirements of the Task Force on

Climate-related Financial Disclosures (‘TCFD’).

− We developed our net-zero roadmap and set

science-based emissions reduction targets.

− We embedded sustainability considerations

into many areas of the business.

− Reduced our scopes 1 & 2 carbon emissions

by 5% and water consumption by 1.4%.

− We increased the ethnic diversity of our Board.

− We achieved top rankings in ESG ratings.

− Employees throughout the world gave their

time and money to charities and good causes.

Carbon emissions reduction

Scope 1 & 2 emissions

-5%

32Rotork Annual Report 2021

Aligned to management’s incentives for 2022

Our sustainability framework is based on three

strategic pillars: Operating Responsibly; Enabling

a Sustainable Future; and, Making a Positive

Social Impact. It covers the way we run our

business, the impact we can have through

our products and services, and the way we

engage with our people and communities.

The framework has been developed around

our chosen UN Sustainable Development Goals

(SDGs). We are targeting five main SDGs, aligned

to the sustainability topics where we have the

greatest potential to support the transition to

a better and more sustainable future for all.

These guide where we focus our efforts to

continue to create sustainable, shared value for

all of our stakeholders. Our ESG Committee also

chose to adopt two further SDGs, to help drive

progress on these issues: Goals 5 and 8.

See the Sustainability Review on page 46 onwards for further details about our approach and strategy.

Our Sustainability Framework

Safe and efficient operations

– Lost time injury rate

– Carbon emissions per £1 million

revenue

Environmental innovation

– Product focus: greater positive

environmental impact

– Customer focus: engagement on

sustainability issues

Culture and engagement

– Employee engagement score

– % employees who believe Rotork

offers an inclusive culture

Operating Responsibly

We aim to run safe, efficient

and sustainable operations.

We will strive for the highest levels of

safety and efficiency within the business

and throughout our supply chain and play

our part in the journey to net-zero carbon

emissions, in line with our Purpose, Values

and ethics.

Key areas of focus

– Playing our part in the transition to

a net-zero carbon future.

– Driving health and safety excellence for

our people and our wider stakeholders.

– Maximising the benefits created in our

supply chain for us and those working

in our supply chain.

– Living our Purpose and Values and

acting ethically in the way we

do business.

Enabling a

Sustainable Future

We want to help drive the

transition to a cleaner

future where environmental

resources are used sustainably.

We will seek out opportunities in energy,

water, power and industrial markets,

and innovate to provide new products

and services, to support a green economy

and a cleaner more sustainable future.

Key areas of focus

– Innovating to develop new products

and applications to support customers’

sustainability objectives.

– Assisting the global energy sector’s

shift from fossil-fuel based systems

to renewable sources.

– Providing products and services that

deliver reliable, energy efficient solutions.

– Contributing to the roll‐out and

modernisation of critical infrastructure

(e.g. for water and energy).

Making a Positive

Social Impact

We aim to support fair,

resilient and thriving societies.

We recognise the relationship between

business growth, quality employment,

and wider social impact. We want to

be a great place to work with a diverse

and inclusive workforce, providing equal

opportunity and fair pay and rewards.

Key areas of focus

– Attracting, developing and retaining

talented people by providing fair

and equal pay and demonstrating our

commitment to diversity and inclusion.

– Supporting customers’ health and

safety initiatives, by helping to protect

their employees.

– Proactive and transparent engagement

with all stakeholders.

– Supporting communities’ development

and resilience to adverse situations.

33www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Keeping the world flowing for future generations

Clear objectives

Our Growth Acceleration Programme is designed to deliver sustainable

mid to high single-digit revenue growth and mid-20s adjusted operating

margins over time. The programme is about building on Rotork’s strong

foundations and refining how we do things through our people, processes

and systems.

Growth Margin

enhancement

Key

enablers

Year-on-year improvement

Despite a challenging economic environment, our Growth Acceleration

Programme continues to deliver planned benefits and is set to accelerate

as it moves into its fifth year.

Year

Four pillars

The programme’s initiatives are grouped into four pillars – Commercial

Excellence, Operational Excellence, Talent & Culture and IT & Core

Business Processes.

Commercial Excellence

− Sales force re-alignment – shifting to an

end-market orientation

− Value Selling training

− Innovation and new product development

− Site Services expansion

Operational Excellence

− Targeted manufacturing improvements

− Supply chain globalisation

− Footprint optimisation

− Inventory reduction

Talent & Culture

− Internalising our performance appraisal and

review processes

− Aligning our strategy, goals, behaviours,

and rewards systems

− Redefining our Rotork culture

IT and Core Business Processes

− Improving and standardising core business processes,

enabling back office leverage

− IT/systems enhancements

− Emphasising operating efficiencies

Success in a challenging year

The Growth Acceleration Programme has considerable momentum

and we made good progress in 2021 despite supply chain challenges.

The benefits of the sales force realignment initiative are apparent from

our Voice of Customer survey and we are working to implement the

additional improvement opportunities the survey identified. We continued

our large facility investment and modernisation programme with the

commissioning of a state-of-the-art paint plant in Bath (UK).

Growth Acceleration Programme

Strategy, portfolio and product line assessment

Simplifying our core business and preparing for acceleration

34Rotork Annual Report 2021

Commercial Excellence

Our objective is to supply the products and

services our customers require whilst being simple

and easy to do business with.

Performance

– Our Voice of Customer survey confirmed that our sales force

realignment initiative has significantly improved our customer

intimacy. It also highlighted other areas where we can deliver

additional customer value and we are working hard to do this.

– We launched 5 new products in 2021, many of which are

helping customers meet their energy and emissions reduction

challenges and reduce operating costs through leveraging

the latest control systems.

– We continued to invest in high-growth regions, recruiting

additional resource in both sales and support functions.

– Rotork Site Services continued to develop its offerings. Rotork

Lifetime Management, Rotork Reliability Services and Intelligent

Asset Management system (‘iAM’) are performing well.

– Sales of our ‘Eco-transition portfolio’ products and services

grew year-on-year on an OCC basis.

Looking ahead

– Drive sales growth through greater focus on customer value,

including delivering on our Voice of Customer survey findings.

– Delivering on our pipeline of innovative new products, leading

with those offering high efficiency and aligned to the important

electrification trend.

– Leverage our unrivalled installed base, including through Lifetime

Management programmes, and through our spares programme.

Acceleration Programme split

Innovation and NPD

Rotork has a long-established

tradition of innovation and

of tackling challenging

engineering problems. We have

stream-lined our new product

commercialisation process, and

have a strong pipeline. We want

to celebrate our engineering

tradition and convert the pipeline

to launches, leading with new

products offering improved

efficiency that are aligned to

the electrification trend.

Growth Margin

enhancement

Key

Growth

Margin enhancement

Key enablers

35www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Growth Margin

enhancement

Growth Acceleration Programme continued

Operational Excellence

Our objective is to improve our operational

efficiency (return on sales and capital employed)

and our cyclical resilience.

Performance

– We continued to invest in the expansion and modernisation

of key sites. Our largest project this year was at the Bath (UK)

factory where we installed a state-of-the-art paint line and made

other process flow changes. These will significantly improve

our operational efficiency, including reducing our lead times.

– We continued to drive mixed-model lean across our factories

and subsidiaries during the year, with close to 350 Rapid

Improvement Events being held involving 1,700 participants.

These events delivered efficiency improvements as well as

releasing floorspace to enable future footprint changes.

– Our procurement teams worked incredibly hard during the

year to successfully maintain supply during a backdrop of

extremely disrupted supply chains. We have continued our

work to optimise our manufacturing footprint and closed several

sites during the year, bringing the total to 17 and reducing our

locations by over 40% since the programme’s 2018 inception.

– Rotork’s inventory optimisation tool enabled our operations

teams to identify further opportunities to reduce inventory levels.

– We completed our supplier ESG & Sustainability survey.

– Our Quality team completed close to 50 improvement projects.

Looking ahead

– Our Global Strategic Sourcing team will work closely with

our chosen suppliers to secure the components we require

to deliver on our record opening order book.

– Engagement with identified key suppliers will be stepped-up,

in-line with our net-zero commitment.

– We will deliver further benefits from our continuous

improvement/lean initiatives.

– Our ‘cost of quality’ programme continues. We expect this

to start to generate customer value and savings in 2022

andbeyond.

Inaugural Rotork

Global Lean Awards

Regional winning teams were

selected from factory and sales

subsidiary locations across the

Americas, Asia and EMEA and

global awards were presented.

Acceleration Programme split

Key

Growth

Margin enhancement

Key enablers

36Rotork Annual Report 2021

Key

enablers

Margin

enhancement

Key

enablers

Talent & Culture

Our objective is to have the team, culture

and performance management approach

to achieve our goals and aspirations.

IT & Core Business Processes

Our objective is Group-wide IT systems

and business processes that improve our

way of working and increase our commercial

and operational efficiency.

Performance

– The strength and resilience of Rotork’s people has been

extraordinary in the challenging time we experienced in 2021.

Our people are truly living our Purpose, ‘keeping the world

flowing for future generations’ and embracing our values

‘Stronger Together’, ‘Always Innovating’ and ‘Trusted Partner’.

– The wellbeing of our people has been especially important.

We updated our wellbeing resources for colleagues during the

year to support staff in managing their physical and mental

welfare. We also launched a new global Employee Assistance

Programme, offering a range of services including counselling

and legal and financial support in numerous languages.

– To ensure we track the development of our extended leadership

team and high-potential employees, each of them has a personal

profile including a development plan which has been reviewed

by the Plc Board and the executive team.

– We delivered another series of value selling training to colleagues

in our end-market divisions in 2021, as well as customer service

training for relevant colleagues.

– Our new Learning@Rotork site offers virtual classroom-style

training, including on topics such as communication and

coaching for people managers. Around 350 managers have

registered for or undertaken training since launch.

Looking ahead

– Following a culture and values review in 2021, focus

on developing a plan to further weave our values into everything

we do; how we deliver change, our people experience and our

wellbeing support.

– Progress on ethnicity initiatives alongside our diversity and

inclusion focus.

Performance

– Our IT workstream is a major enabler for the Growth

Acceleration Programme and the development of new

information systems and services continues at pace.

– We have now deployed solutions for sales, marketing, customer

service, human resources and site services using a common,

global platform based on Microsoft’s D365 technology.

– These modern, integrated solutions are delivering new

standards of business efficiency, collaboration and reporting

and are continuously evolving to deliver significant business

benefits, every day.

– The design and integration of the core ERP for our factories

has now been completed, ready for our first deployment in

2022 to enable a new standard for manufacturing excellence

across thegroup.

Looking ahead

– We are aiming to deliver our first D365 ERP deployment in 2022,

to the Bath factory. The new Bath factory system will form the

blueprint for all factories in future years and integrates ERP,

product management and product configuration applications

to optimise our sales, operations and customer service

capabilities, worldwide.

– The first factory ERP deployment will be followed by the first

‘selling entity’ deployments.

– These major deployments combine to reinforce our vision of a

single and modern architecture to serve our customers better

and underpin our strategy to become a leading digital business

in the flow control industry.

Key

Growth

Margin enhancement

Key enablers

Key

Growth

Margin enhancement

Key enablers

Acceleration Programme split Acceleration Programme split

37www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

-5.9%

-9.7%

-3.8%

2021

2020

2019

22.5%

23. 6%

22.6%

2021

2020

2019

108.0%

129.5%

131.4%

2021

2020

2019

Key performance indicators

Performance Revenue

growth

-5.9%

Adjusted operating

margin

22.5%

Cash

conversion

108.0%

Reasons for choice

Revenue is a key driver for the

business and is reported in detail

for each division and geography.

The measure enables us to track

our overall success and our progress

in increasing our market share by

product and by region.

This measure brings together the

combined effects of pricing, volume

and procurement as well as the

leveraging of our operating assets.

It is also an important check on the

quality of revenue growth.

Our cash conversion demonstrates

our operational efficiency and

enables us to fund future growth.

We consider 85% conversion as

a base level of achievement. This

measure is one of the constituent

parts of the senior management

reward system.

How we calculate

Increase in revenue year-on-year

divided by prior year sales revenue.

Adjusted operating profit shown

as a percentage of revenue. We use

adjusted operating profit as this aids

comparison year to year.

Cash flow from operating activities

before tax outflows, the cash

impact of other adjustments

(including Software as a Service),

and the pension charge to cash

adjustment, as a percentage of

adjusted operating profit.

Comments on results

Group revenue was 5.9% lower

year-on-year as a result of supply

chain restraints. Chemical, Process

& Industrial sales grew, whilst both

Oil & Gas and Water & Power

reported revenue declines.

Margins decreased by 110bps,

with benefits from the Growth

Acceleration Programme and

our focus on managing materials

inflation more than offset by the

impact of the significantly reduced

volumes, operational inefficiencies

and increased logistics costs.

The lower cash conversion

compared to prior year reflects

change in inventory, in part

due to the decision in 2021

to tactically increase electronic

component stocks.

Link to strategy

1 2

3 1

Financial KPIs

Growth of the business, quality of earnings and efficient use

of resources are crucial target areas for Rotork and we employ

a number of performance measures to monitor them.

Accelerated growth

Increased margins

Sustainability

38Rotork Annual Report 2021

30. 1%

32.5%

32%

2021

2020

2019

-9.6%

-3.8%

3. 1%

2021

2020

2019

0.20

0.24

0.25

2021

2020

2019

14.6

14.5

15.5

2021

2020

2019

Return on

capital employed

30.1%

Adjusted

EPS growth

-9.6%

Lost times

injury rates

LTIR

0.20

Carbon

emissions

e per £m

14.6

We use this KPI to monitor the

efficiency of our capital allocation.

We also use this ratio internally,

to help Group management

monitor efficiency within Rotork’s

divisions.

Growth in EPS is a measure of

our profit performance, taking

into account all aspects of the

income statement including

the management of our capital

structure, treasury and the

Group’s tax rate.

LTIR is used as one measure of

the effectiveness of our health

and safety procedures.

Scope 1 & 2 carbon emissions

(CO

e) per £1m reported

revenue. This KPI is a broad

measure of our environmental

efficiency.

Adjusted operating profit as a

percentage of average capital

employed. Capital employed is

defined as shareholders’ funds

less net cash held, with the

pension fund deficit net of related

deferred tax asset added back.

See calculation on page 177.

Increase in adjusted basic EPS

(based on adjusted profit after

tax) year-on-year divided by the

prior year adjusted basic EPS.

LTIR is the number of reportable

injuries resulting in lost time

divided by the number of hours

worked multiplied by 100,000.

Energy usage data (scopes 1

& 2) is converted to equivalent

tonnes of CO

e and reported

as a function of revenue.

2020 data has been restated;

we previously reported

14.1 tonnes. See page 49.

Return on capital employed

decreased during the year, with

the 3.0% reduction in average

capital employed being more

than offset by lower adjusted

operating profit.

Adjusted earnings per share was

9.6% lower year-on-year, slightly

less than the 10.1% reduction in

adjusted operating profits.

Our proactive approach is aimed

at continuously identifying

weaknesses in our safety

processes and removing or

mitigating risks when they

are identified.

Further consolidation of sites

and upgrades in some of

our facilities resulted in a 5%

reduction in our scope 1 and

scope 2 emissions last year.

Emissions per £1m were 0.4%

higher than in the prior year.

3 1

3 2

Non-financial KPIs

We monitor non-financial areas in our businesses,

particularly in the environmental, health and

safety and quality control areas, and we place

strong emphasis within our organisation on

improving our performance here.

39www.rotork .com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Divisional review

Oil & Gas

Industry capital expenditure was slightly

ahead year-on-year, driven by national

oil & gas companies, according to

forecasters. Productivity and emissions

reduction projects continued. Early in

2022 hydrocarbon prices rose to levels

not seen since 2014, reflecting recovering

demand, several years of underinvestment

and geopolitical tensions.

Divisional revenues fell 11.0% year-on-year

(-7.7% OCC), largely the result of supply

chain disruption which delayed deliveries,

particularly in the final quarter. Sales to the

midstream sector were up double-digits

on an OCC basis, benefiting from project

wins in the Middle East. Sales to both the

upstream and downstream sectors were

lower, with the downstream proving to be

less economically sensitive as anticipated.

EMEA sales were significantly lower with

the upstream and downstream sectors

declining. Asia Pacific sales grew, with

downstream and midstream growth more

than offsetting upstream sector declines.

Americas revenues were slightly down OCC,

with growth in the upstream and midstream

sectors more than offset by downstream

declines. Within the Americas, South

America performed particularly strongly.

Rotork Site Services sales were lower year-

on-year reflecting commissioning delays.

Adjusted operating profits were £56.3m,

14.3% lower year-on-year on an OCC basis.

The decline in profits reflected reduced

sales and higher logistics costs, partly

offset by improved labour efficiency, GAP

savings and a reduced level of variable pay.

Adjusted margins fell 160 basis points to

21.7%, reflecting the above factors.

Oil & Gas aims to outperform its markets

through a range of strategic initiatives.

These include leveraging our installed

base (through Rotork Site Services and

our iAM and Lifetime Management

programmes), helping our customers

improve their operational and environmental

performance, and increasing our sales of

low energy consumption and connected

products. We are also making targeted

investments in high growth regions such

as the Middle East and Asia Pacific.

We consider the energy transition to

be a significant opportunity where we

play an important role. The production,

distribution, and utilisation of low and

zero carbon fuels (including hydrogen

and biofuels such as HVO) are valve and

actuator intensive. We have an important

part to play in climate change mitigation

and abatement technologies such as

methane emissions reduction and carbon

capture usage and storage. The focus on

the oil & gas industry’s methane emissions

has stepped-up the policy agenda

further following COP26. We believe that

electrification has an important role to play

in the reduction of our customers’ carbon

emissions across their upstream, midstream

and downstream processes, and that as

world leader in electric actuation we are

well placed to assist them on this journey.

Gasification/fuel switching in the power

generation sector in the US and Europe

and in the residential and industrial sectors

in Asia Pacific is expected to benefit the

midstream sector.

Oil & Gas customers started the year cautiously as regards their

discretionary expenditure, but their confidence picked up as the

yearprogressed.

Divisional highlights

EMEA sales were significantly lower

year-on-year

Asia Pacific revenues grew

Americas sales were slightly ahead OCC

Adjusted operating profit margins

were 21.7%, 160bps lower year-on-year

% of group revenue

Strategy

We are the market leading actuator supplier

to the oil & gas sector, with the broadest

product offering in the industry and the

largest site services team.

We aim to outgrow our market through

leveraging our installed base, focusing on

higher growth geographies and targeted

new product development.

We believe we are well placed to help our

customers to deliver on their ESG targets.

46%

40Rotork Annual Report 2021

We consider the energy

transition to be a

significant opportunity

where we play an

important role

41www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Divisional review continued

Chemical, Process

& Industrial

The division serves a broad range of end

markets and has a higher proportion of

short-cycle sales and a shorter order book

than Rotork’s other divisions. CPI is seeing

the benefits of the economic recovery

as well as earlier GAP initiatives such as

focusing on key niches for profitable

growth. Examples include business wins in

chemicals, mining, steel, pharmaceutical,

semi-conductor, lithium-ion battery and

data centre (HVAC) end markets.

Revenues grew 7.7% year-on-year on an

OCC basis. Asia Pacific sales were up high

single-digits (OCC), with our targeted niches

showing encouraging growth. In EMEA,

sales growth accelerated after a slow start

to the year, resulting in full year revenue

growth being close to that of the division

(OCC). Americas was the fastest growing

geography, with revenues growing close

to double digits OCC, driven by higher

mining and chemicals activity.

The process sector represents a substantial

proportion of CPI overall. Process revenues

were ahead in all regions, with Asia Pacific

enjoying the highest rate of growth.

The division’s adjusted operating profit was

£42.8m, 11.0% up year-on-year. Adjusted

operating margins increased 180bps to

26.7% reflecting the drop-through of

higher sales, beneficial mix and GAP savings

which were partly offset by slightly higher

logistics costs.

CPI aims to outgrow its markets through

focusing on niche sectors and high growth

regions, optimising its channel coverage and

developing the aftermarket. The division

is targeting key sectors including HVAC,

chemicals and basic materials.

The decarbonisation trend presents a

key opportunity for CPI – through new

industrial processes such as hydrogen and

carbon capture usage and storage, as well

as the substitution of high maintenance

and inefficient pneumatic systems with

electric actuators.

Divisional highlights

APAC revenues were up high single-

digits OCC

EMEA sales accelerated after a slow start

to the year

Americas was the fastest growing

geography

Margins rose 180bps despite higher

logistics costs

% of group revenue

CPI delivered a strong sales performance in the first half which was not

repeated in the second half, largely due to supply chain disruption.

Strategy

We target niche applications where

intelligent flow control and process

automation are critical to maximising

operational reliability, efficiency and

growth for our customers.

Growth drivers include technology

(electrification, automation and

digitalisation) and geography (Asia Pacific

economic growth, clean air legislation in

EMEA and Americas).

Our focus markets include petrochemical,

HVAC, new energy technologies and

decarbonisation.

28%

42Rotork Annual Report 2021

CPI is seeing the

benefits of the

economic recovery

as well as earlier GAP

initiatives such as

focusing on key niches

for profitable growth

43www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

The division has the highest proportion of

electric actuator sales amongst Rotork’s

divisions and was the most impacted by

electronics and semi-conductor shortages in

the year. Water & Power is clearly benefiting

from earlier initiatives such as our transition

to an end-market aligned structure and

value selling. Looking ahead, the world’s

governments have identified water

infrastructure investment as a priority,

not only for health and safety reasons but

also for economic development and we

are well placed to support these efforts.

Revenues fell 5.8% year-on-year (-2.7%

OCC) with higher EMEA sales insufficient

to offset lower sales in other geographic

regions. In Asia Pacific, the water sector

achieved solid growth in sales. The Asia

Pacific power sector saw a revenue decline,

despite significant waste-to-energy activity,

due to reduced refurbishment work.

Americas sales were particularly impacted

by supply chain issues however water sales

were slightly ahead (OCC). In EMEA, strong

water sector revenue growth offset slightly

weaker power sales. For the division overall,

water sector sales were ahead mid-single

digits year-on-year on an OCC basis.

The division’s adjusted operating profits

were £40.4m, 14.0% lower year-on-year.

Adjusted margins were 27.2%, down

260bps year-on-year. The margin decline

reflected higher logistics costs, which

disproportionately affected the division, an

adverse product mix as well as an increased

share of common costs, which together

exceeded the savings derived from GAP.

Water & Power aims to outperform its

markets through an optimised channel

strategy, regional expansion and new

product development. The division is

focused on solving its customers’ challenges.

For example, water customers rely on

Rotork’s technologies to achieve higher

water quality standards, lower operational

costs, reduce water leakage and increase

the lifecycle of assets above and under-

ground. In power, our teams are targeting

environmental opportunities such as

waste-to-energy investments, flue-gas

desulphurisation retrofits and seeking

refurbishment opportunities within our

large installed base.

Water & Power’s products and services, and those of its customers, are

generally considered essential, and customer activity has largely continued

without disruption throughout COVID-19.

Divisional highlights

APAC revenues were lower, driven by the

power sector

Americas sales were particularly impacted

by supply chain issues

EMEA revenues were higher driven by the

water sector

Margins down 260bps to 27.2% reflecting

lower volumes and higher logistics costs

Water & Power

% of group revenue

Divisional review continued

Strategy

The water market is forecast to grow 4-5%

a year long-term. There are good upgrade

and service opportunities in power.

We are increasingly focused on specific

areas we have identified as offering the

greatest growth opportunity, such as

digital.

We are working to further optimise our go-

to-market, including through benchmarking

and developing the indirect channel.

26%

44Rotork Annual Report 2021

Water & Power is

clearly benefiting

from earlier initiatives

such as our transition

to an end-market

aligned structure

and value selling

45w ww.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review

We sharpened our focus on our

sustainability agenda in 2021,

recognising its potential to

support a competitive advantage

and create sustainable value

for stakeholders

Our strategy

We published a new sustainability framework early in 2021. It is based on three pillars:

Operating Responsibly; Enabling a Sustainable Future; and Making a Positive Social Impact.

It reflects the way we run our business, the impact we can have through our products and

services, and the way we engage with our people and communities.

Our sustainability framework was developed around our priority sustainability topics and

associated Sustainable Development Goals (‘SDG’s). We sought stakeholders’ views in

determining the materiality of different topics, having undertaken an in-depth analysis of the

SDGs to identify opportunities for shared value creation. Our materiality assessment followed

best practice, involving our leadership team and a broad range of external stakeholders.

Sustainability recognition

S&P

percentile in Machinery

& Electrical Equipment industry

MSCI ESG Rating

Rating AA (leader)

CDP Water

Security

Rating B

CDP Climate

Rating B-

Sustainalytics

Rated ‘Low Risk’, ranking 5

out of

374 companies in industrial machinery.

ISS ESG

Rating C, ranked 2nd decile in our industry

FTSE4Good Member

Percentile rank: 83

Bloomberg ESG

Disclosure score: 56.5

46Rotork Annual Report 202146

Delivering our strategy

We use a range of tools to ensure ESG objectives

are fully integrated within our approach to

business. This includes tying the successful

delivery of social and environmental objectives

to management’s remuneration. Performance

against non-financial KPIs – carbon emissions

per £1m revenue and lost time injury rates – has

been linked to executive directors’ remuneration

for a number of years, thereby incentivising

performance improvements.

In 2021, ESG-related targets became 10% of

the bonus opportunity, up from 5% the prior

year, for the entire senior leadership population

(around 100 people). Performance indicators

were also expanded to include measures

relating to environmental innovation, customer

engagement on sustainability, employee

engagement and culture.

We also drove deeper integration of ESG into

our strategy and core business processes. For

example, we are including ESG considerations

at every checkpoint in our new product

development process. We are also integrating

social and environmental considerations into

our property portfolio management and Voice

of Customer surveys.

Governance

The Board receives regular updates on our ESG

and sustainability performance. The Board is

supported by a dedicated ESG Committee.

Members include non-executive directors Ann

Christin Andersen (Chair), Tim Cobbold (non-

executive director for workplace engagement)

and Karin Meurk-Harvey, who joined Rotork’s

Board in October 2021, as well as members of

the Rotork Management Board. See page 116

for the ESG Committee Chair’s report for 2021.

We also have an extensive suite of ESG policies

which govern our approach. The key policies

are published on our website and described

in the Non-Financial Information Statement

on pages 74-76.

Communications and ratings

We are committed to measuring our

sustainability performance and reporting

transparently on progress. We published our

inaugural Sustainability Report in mid-2021

to augment our ESG communications. We

were pleased to receive the Investor Relations

Society’s ‘Best Communication of ESG’ award

in November 2021 in recognition of our best

practice approach.

We also engage proactively with ESG ratings

agencies. We are scored AA (leader) by MSCI

and retained our CDP ratings of B- for Climate

and B for Water Security in 2021. We also

participated in the prestigious S&P Corporate

Sustainability Assessment for the first time this

year. We were ranked in the 87

percentile of

companies in our industry globally, well ahead

of all UK industrial companies.

Our Sustainability Framework

Operating Responsibly Enabling a

Sustainable Future

Making a Positive

Social Impact

We aim to run safe, efficient

and sustainable operations.

Our commitments

UN SDG

– We will aim to reduce

our lost time injury rate

each year and strive for

a zero harm workplace.

– We will embed

social, ethical and

environmental

considerations into

our Global Supplier

Excellence Programme.

SDG targets:

12.2, 12.5, 12.6

– We will reduce carbon

emissions generated per

£1m revenue and work

to develop a net-zero

roadmap.

SDG targets:

13.1, 13.3

We aim to support fair,

resilient and thriving societies.

Our commitments

UN SDG

– We will develop and

deliver initiatives to

drive greater gender

and ethnic diversity.

SDG target:5.5

– We will contribute to

a fairer society more

broadly, including

by ensuring 100%

of employees are

covered by our Fair

Pay Framework.

SDG targets:

8.5, 8.7

The ESG Committee endorsed targeting these

additional SDGs as part of our strategic approach.

We want to help drive the

transition to a cleaner

future where environmental

resources are used sustainably.

Our commitments

UN SDG

– We will enable

sustainable

management of water

resources and greater

water efficiency for

our customers.

SDG target: 6.4

– We will support

customers’ energy and

emissions reduction

and enable them to

incorporate renewable

energy into their

operations.

SDG target: 7.3

– We will play our part

to enable the global

energy transition and

support a cleaner, more

sustainable future.

SDG targets:

9.1, 9.4

47www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Safety, health and wellbeing

The safety and health of our employees is our

top priority. Our vision for health and safety

is zero-harm.

We launched a new health and safety strategy

during the year to help deliver our vision. Our

strategy is focused on strengthening our health

and safety culture and empowering managers

to lead by example.

We refreshed our Global Health and Safety

Standards to align with internationally recognised

best practice. These consist of 12 new standards

and a set of supporting materials to enable

their successful implementation. We began

the implementation of these during 2021.

We also launched our new Rotork Life Saving

Rules, based on the standards typically used

in the oil and gas industry. We delivered 14

modules of mandatory training, covering all staff

globally. We were pleased to have delivered the

training in full and on time, despite the additional

challenges posed by the COVID-19 pandemic.

We use a combination of leading (proactive) and

lagging (reactive) indicators to assess our health

and safety performance. Our leading indicators

help us anticipate safety risks, before they cause

an accident. In 2021, we completed 1,344

Gemba safety walks and raised 7,805 safety

spots across all Rotork facilities, an increase of

17.5% compared to 2020.

As part of our new strategy, we have set targets

to help track progress against our lagging

indicators. We will aim to reduce our lost time

and recordable injury rates by 20% year-on-year.

In 2021, we recorded a lost-time injury rate of

0.20, compared with 0.24 in 2020. The number

of first aid injuries also reduced from 147 in 2020

to 89 this year. We have also started recording

and calculating our Total Recordable Injury Rate

(‘TRIR’), to meet stakeholder demand. We will

publish our TRIR in our SASB index later in 2022.

Rotork recognises the importance of supporting

colleagues’ health and wellbeing, particularly

in these challenging times. We updated our

wellbeing resources for colleagues during the

year and launched a new global Employee

Assistance Programme, provided by ComPsych.

It offers a range of services including counselling

and legal and financial support for Rotork

employees in all relevant languages. We also

delivered webinars to support colleagues on

a range of mental health topics, as part of

our promotion of World Mental Health Day

in October 2021.

Sustainability review continued

Operating

Responsibly

The starting point of our sustainability strategy is to ensure that we

run our own operations as safely and efficiently as possible, within

a culture of innovation, collaboration and integrity. We also seek to

work with responsible suppliers that mirror our approach to sustainability

and respect our social, environmental and ethical standards.

Our mission

Our commitments

We will aim to reduce our

lost time injury rate each year

and strive for a zero-harm

workplace.

We aim to run safe, efficient

and sustainable operations.

We will reduce carbon

emissions generated per

£1m revenue and work

on developing a net-zero

roadmap.

We will embed social,

ethical and environmental

considerations into our

Global Supplier Excellence

Programme.

Lost-time injury rate

LTIR

0.20

0.24

0.25

0.32

2021

2020

2019

2018

48Rotork Annual Report 2021

Climate change & environment

Our strategy

The climate crisis is an increasing risk for the

world. We recognise the imperative for urgent

action. Rotork is committed to playing its part in

delivering net-zero and is committed to targeting

deep emission cuts, in line with those required

to meet the Paris Agreement goals.

Our net-zero roadmap

We have a good track record of reducing

the environmental impact of our operations.

As the world leader in electric actuation, Rotork

also plays a key role in enabling customers to

reduce their emissions and power consumption.

Going forward, we will drive faster progress

and target greater reductions in emissions

associated with our business. In early 2022,

we set new science-based targets for scopes

1 & 2 and scope 3. We have also committed

to target net-zero by 2035 for scopes 1 & 2

and 2045 for scope 3 emissions.

We undertook an exercise to calculate relevant

scope 3 emissions during 2021. The process of

establishing our scope 3 inventory has provided

greater insight into efficiency opportunities

in our value chain. It has also highlighted

opportunities for us to partner more closely with

customers and suppliers to reduce our collective

emissions and thrive in a low-carbon economy.

Our new near-term science-based targets

cover our most material emissions categories.

See page 73 for full scope 3 emissions data.

Our science-based targets

We have set a science-based target to reduce

scopes 1 & 2 emissions by 42% by 2030.

We have also set a science-based target to

reduce emissions associated with the use of sold

products (targeting a 25% reduction by 2030).

In addition, we have set a target for 25% of

emissions associated with purchased goods and

services to be covered by science-based targets

by 2027. The baseline year for all targets is 2020.

We are working to embed the targets into all

relevant business processes to ensure delivery.

The targets have also been submitted to the

Science-Based Targets initiative for validation.

Energy & emissions performance

We reduced absolute scope 1 and 2 emissions

by 5% in 2021 compared with the prior year.

We emitted 14.6 tonnes CO

e per £1m of

revenue, slightly higher than in 2020 on a

relative basis (2020: 14.5).

We reduced grid electricity usage by 9.9% last

year, or by 32.9% compared with 2017 (our

baseline year). We also achieved a reduction of

3.5% in gas usage, or 15.5% compared with

our baseline. Reductions were primarily achieved

through our site consolidation programme.

We also completed several energy efficiency

projects; manufacturing sites are targeted to

implement an environmental impact reduction

project annually. For example, in Manchester we

replaced lighting with LED lights, and in Winston

Salem we invested in a new air compressor

to reduce energy usage.

In line with best practice, we will introduce dual

emissions reporting in 2022 (market-based and

location-based) in our Sustainability Report.

Case study:

Solar panel installations

We installed solar panels on the roof

of our Schischek facility in Langenzenn,

Germany, this year. The new system

generates 60 kWh; enough to support

50% of the site’s energy requirements.

As part of the investment, electric

charging points were also installed

to enable employees to charge their

electric vehicles during working hours.

We also installed solar panels at our

Melbourne site in Australia during

the year, to increase the share of

renewable energy used by the facility.

GHG Emissions

Energy

Unit of Measure 2021 2020 2019 2018

Electricity used kWh 12,458,000 13,598,000 14,501,917 16,194,145

Gas used Cubic metres 982,287 1,016,741 1,149,779 1,165,313

Emissions

Unit of Measure 2021 2020 2019 2018

Scope 1

Metric tonnes

e 3,686 3,534 4,575 5,597

Scope 2

Metric tonnes

e 4,605 5,237 5,833 6,286

We calculated our full scope 3 inventory during 2021. Our scope 3 emissions in all relevant categories (10/15)

for 2020 are reported on page 73. 2020 is the baseline year for our science-based and net-zero targets.

We report our carbon emissions in line with the DEFRA Environmental Reporting Guidelines, aligned to the

Greenhouse Gas (GHG) Protocol Corporate Standard. These include guidance on compliance with the Large and

Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, which contain the Streamlined

Energy and Carbon Reporting requirements. Emissions and energy data reported here covers our global business.

Scope 1 emissions are direct emissions from sources that are owned or controlled by Rotork, including combustion

of fuel and operation of facilities. Scope 2 emissions are indirect emissions from the purchase of electricity, heat,

steam and cooling purchased for own use. Scope 3 emissions are indirect emissions (not included in scope 2)

that occur in the value chain. Annual energy consumption (kWh) is obtained from both actual (invoices and meter

readings) and estimated (some office energy rates included in monthly charge) sources. Where conversion of

units to kWh is required, the latest conversion factors from the UK Government are used. In line with the SECR

requirement to disclose the proportion of carbon emissions and energy associated with the United Kingdom,

we estimate that 22% of emissions and 27% of energy usage relates to our UK operations. The Group has no

other GHG emissions (such as methane, N

O, Sulphur hexafluoride, HFCs or PFCs) to report.

Independent verification: Electricity, gas and GHG emissions data presented here has been independently verified

by Make UK. Some data for 2020 has been restated following this independent verification. Scope 1 usage figures

have been restated for 2020 as they had been under-reported due to a calculation error. This had a material impact

on figures. Some emissions from transport had not been included in figures previously reported for 2020. This had

a minor impact. In addition, some sites over-reported scope 2 emissions for 2020 and this has also been corrected

in the figures presented here. We previously (in our 2021 Annual and Sustainability Reports) reported 3,217 tonnes

e for scope 1 and 5,286 tonnes for scope 2. These restatements resulted in a change to the intensity ratio (CO

per £m) reported last year and this has also been restated.

49www.rotork. com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Water management

Water consumption across the majority of our

sites is relatively small and is typically limited

to domestic uses, such as for drinking and

sanitary facilities. Some of our sites use water

for production purposes; for paint processes,

cleaning products and pressure testing units.

We set an annual water usage reduction

target and embed this into relevant leaders’

performance scorecards. In 2021, our water

withdrawal was 1.4% lower than in 2020,

despite the reduction in 2020 related to

COVID-19 closures. The reduction was

supported by our site consolidation programme.

Withdrawals in 2021 were 40% lower than

in 2017 (our baseline year). For 2022, we are

targeting a reduction of 1% in our water usage.

We are committed to transparent disclosure of

our water usage and complete the CDP Water

Security questionnaire on an annual basis. We

achieved a score of B in the 2021 assessment.

Waste

We encourage all of our locations to minimise

or eliminate the amount of waste that they

produce. In 2021, total waste produced

increased by 15%. We recycled 67% of our

waste in 2021, compared to 75% in the prior

year. New waste streams were identified during

the year and these have been included in

2021 reported data, impacting our waste and

recycling performance compared with the prior

year. Site refurbishment, inventory rationalisation

and increased production also impacted

2021 figures. For 2022, we are targeting a 1%

reduction in the amount of waste sent to landfill.

Circular economy &

product responsibility

Generally, we operate an assembly-only

philosophy across the Group, meaning that

most of the manufacturing steps required

to produce our products are undertaken

by our suppliers. The main materials we use

in our products – aluminium, copper and steel –

are highly recyclable.

As well as signing up to our Supplier Code of

Conduct, component suppliers are required to

certify their compliance with RoHS and REACH

regulations. RoHS restricts the use of specific

hazardous materials in electrical and electronic

products, while REACH concerns chemicals and

their safe use.

Environmental criteria are embedded in our

new product development process. We are

particularly focused on the environmental

performance of products in their use phase,

where we have the greatest opportunity to

support a positive environmental impact.

In 2021, 4 out of 5 new products launched

deliver improvements in energy efficiency,

emissions reduction and enable the use

of renewable energy. We also provide

a refurbishment service and spares kits

(to replace worn components) for customers,

to maximise the life of products sold.

Sustainability review continued

Operating Responsibly continued

Water and waste

Water

Unit of Measure 2021 2020 2019

Total water withdrawal Cubic metres 32,200 32,653 38,738

Waste

Unit of Measure 2021 2020 2019

Total waste Metric tonnes 2,545 2,205 2,273

Waste recycled Metric tonnes 1,709 1,654 1,579

Sent to landfill Metric tonnes 471 295 592

Of which hazardous Metric tonnes 60 67 264

Sent to energy recovery Metric tonnes 365 255 102

Water data for 2020 has been restated here due to over-reporting by some sites during 2020.

50Rotork Annual Report 2021

We launched our latest Intelligent Asset

Management system in January 2021.

This is a cloud-based system for intelligent

actuators and the flow control equipment

they operate. It monitors and reports on the

condition of valves and flow control assets to

detect anomalies and enable predictive and

preventative maintenance.

We provide detailed advice on the responsible

disposal of products at end of life and encourage

re-use of the raw materials, with specific

guidance for the disposal of batteries, electrical

and electronic equipment, glass, metals, plastics

oil/grease and rubber. We offer customers

a take-back scheme but generally customers

take responsibility for disposal at end of life.

Culture, ethics & governance

We strive to act ethically and responsibly in

the way we do business. Our Values – Stronger

Together, Always Innovating and Trusted Partner

– are reflected in our Code of Conduct and

apply to anyone working on Rotork’s behalf.

During 2021, we launched Code of Conduct

training in several languages to our global

workforce, through online courses and

classroom-based sessions. The training further

embeds key concepts from the Code and re-

emphasises both the importance of speaking

up if wrongdoing is suspected and Rotork’s

no-retaliation policy. Mandatory trade sanctions

refresher webinars were also delivered to

relevant colleagues across the organisation.

In 2022, our training programme will focus

on specific topics within the Code, including

anti-bribery and corruption, conflicts of interest,

fair competition and gifts and hospitality.

Anti-bribery and corruption

Aiming to continuously improve, we took steps

to strengthen our anti-bribery and corruption

controls in 2021. We rolled out a new training

programme, sponsored by senior management,

which emphasises the importance of ethical

behaviour. It was launched with a multi-lingual

CEO message and video. An independent

assessment conducted during the year confirmed

that our anti-bribery and corruption controls

had been significantly enhanced.

Rotork offers a range of channels for colleagues

to raise concerns, including through an

independent third party ‘Speak-Up’ line,

where reports can be made anonymously.

Human rights and modern slavery

Rotork continually looks for ways to support

the promotion of human rights. We respect

internationally recognised human rights, as set

out in the United Nations International Bill of

Human Rights and the International Labour

Organization’s Declaration on Fundamental

Principles and Rights at Work.

In 2021, we took steps to strengthen our

governance in this area. We mandated use of

updated modern slavery clauses in our staffing

agency contracts and implemented a new

Modern Slavery Policy. The policy is supported

by a new training programme that aims to

raise employee awareness of modern slavery

and human trafficking risks in our business and

supply chain. It includes interactive workshops

for colleagues most likely to encounter modern

slavery and human trafficking risks, as well

as mandatory human rights e-learning for

our global online population. Our new policy

also introduces key performance indicators

to measure the effectiveness of our controls.

Supply chain management

We seek to maximise the benefits created in

our global supply chain for us, those working

in our supply chain, our communities and the

environment. We have a reputation for integrity,

fairness, ethical behaviour and paying on time.

We expect suppliers to sign up to our

Supplier Code of Conduct. This describes

expected standards, including promoting

equal opportunities, human rights, freedom

of association, labour rights, environmental

protection and our zero-tolerance approach to

bribery and corruption. It applies to all suppliers

globally and their own supply chains. We will

take appropriate action against any supplier that

fails to adhere to our Code, which can include

the termination of their contract.

Our supplier on-boarding process ensures that

potential suppliers that do not meet minimum

standards criteria are eliminated early from any

formal tendering or engagement process. In line

with our commitment to embed social, ethical

and environmental considerations into our supply

chain optimisation programme, in 2021 we

developed new commodity purchasing strategies

with embedded ESG requirements. These will

be launched during 2022 and will apply to all

sourcing decisions going forward.

Suppliers are requested to undertake

sustainability self-assessments on an annual

basis. We implemented a new system during the

year to automate assessments and ensure timely

completion, as well as timely escalation of any

issues. The system will be rolled out in 2022.

Rotork undertakes due diligence on prospective

suppliers and assessments of existing suppliers

to better understand modern slavery risks in

our supply chain. Supplier auditors and other

colleagues in our sourcing and supplier

management functions, as well as colleagues

in our HR teams, undertook our new modern

slavery training in late 2021 and early 2022.

In 2021, we commenced work to strengthen

our Supplier Code of Conduct, to include higher

expectations around suppliers’ environmental

performance as well as other new social and

ethical requirements. The new version of the

Code is due to be launched in early 2022.

As part of our net-zero roadmap, we are

requesting that suppliers representing 25%

of emissions from purchased goods and

services set science-based targets by 2027.

Conflict minerals

Rotork’s Conflict Minerals Policy sets out our

commitment to not use tantalum, tin, tungsten

and gold that directly or indirectly finances

or benefits armed groups in the Democratic

Republic of the Congo, adjoining countries and

other Conflict Affected and High Risk Areas

(CAHRAs). We exercise due diligence based on

the ‘Responsible Minerals Initiative’ guidance, by

mapping our supply chain using their reporting

templates and following up any concerns raised

via a corrective action management process.

We are launching new training for colleagues

in 2022 to increase awareness about conflict

minerals, the problems associated with them,

how to identify risk of them in the supply chain

and how to respond to requests for Rotork’s

conflict minerals declaration.

51www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Rotork is the global market leader in electric

actuation. The fluid power actuators traditionally

used in oil & gas operations and natural gas

distribution networks are often energy inefficient

and some designs ‘vent’ process gases such

as methane during operation. Rotork’s electric

actuators are a more energy efficient, zero

emission alternative. In addition, Rotork can

support a broad spread of industries as they

make greater use of automation, electrification

and digitalisation to reduce the environmental

impact of their operations.

As part of our commitment to enabling a

sustainable future, we have begun tracking

sales that have a positive environmental impact.

Our ‘eco-transition portfolio’ comprises our

‘Water and wastewater’ portfolio, our ‘Methane

emissions reduction’ portfolio and our ‘New

energies & technologies’ portfolio, as well

as other applications such as process water

management and gasification. These sales

promote environmental or sustainable

characteristics, including water recycling and

preservation, carbon capture, and new capacity

renewable energy generation. We estimate

that ‘eco-transition portfolio’ sales represented

around 30% of sales in 2021, with other

applications also material but difficult to

estimate. We aim to grow our ‘eco-transition

portfolio’ of products and services over

time to play our fullest role in enabling

a sustainable future.

Enabling the global

energy transition

We have a major part to play in new energies

and technologies that will deliver a low-carbon

economy and enable the transition to it. Rotork’s

products have applications in many processes

for low- or no-carbon energies, all of which

are valve and actuator intensive.

Rotork’s products have long been used in

hydrogen processes, for example, where

industry relies on Rotork’s certified equipment

for the production, storage, transportation

and utilisation of hydrogen. Hydrogen and fuel

cell technologies have significant potential to

enable the transition to a clean, low-carbon

energy system. Hydrogen is a versatile energy

carrier that can be used as fuel for power or

transportation or in industry as feedstock.

It produces zero emissions at point of use.

The acceleration of hydrogen initiatives

represents a significant opportunity for Rotork.

IRENA’s ‘Planned Energy Scenario’ forecasts

global hydrogen production increasing to 545m

tonnes per year in 2050, from 70m in 2020.

New hydrogen applications in heavy industry

also represent an opportunity for Rotork to

support decarbonisation. Read on pages 6-7

about how Rotork is enabling low-carbon

steel to be produced via hydrogen-based

steel-making.

Enabling a

Sustainable Future

Rotork has a major role to play in new energies and technologies that support

the transition to a low-carbon economy. Our products have applications in many

processes for low- or no-carbon energies, which are valve and actuator intensive.

Rotork’s products also have applications in processes that help preserve natural

resources such as fresh water, through water recovery, recycling and treatment.

Sustainability review continued

Our mission

Our commitments

We will play our part to enable

the global energy transition

and support a cleaner, more

sustainable future.

We want to help drive the

transition to a cleaner

future where environmental

resources are used sustainably.

We will enable sustainable

management of water

resources and greater water

efficiency for our customers.

We will support customers’

energy and emissions

reduction and enable them to

incorporate renewable energy

into their operations.

52Rotork Annual Report 2021

Enabling green battery production

Rotork is supporting innovative Swedish battery

manufacturer Nothvolt to produce the ‘world’s

greenest battery’ for electric vehicles. Rotork has

provided valve actuators and digital positioners

for Northvolt’s manufacturing facility in northern

Sweden, where production of the battery is due

to begin in 2022. It will be Northvolt’s primary

site for manufacturing, cell assembly

and battery recycling.

Rotork’s actuators will be operating valves

on the battery production line. They are ideally

suited to support the operation due to their

fast control and fail-safe capabilities. Rotork

positioners have also been ordered to support

water and heating systems in the state-of-the-art

building, which will be powered entirely by clean

energy as part of Northvolt’s overall commitment

to sustainability.

Supporting customers’ energy

and emissions reduction

As the world leader in electric actuation,

Rotork is well placed to enable electrification of

processes in all its end markets. Electric actuators

have low power consumption and do not emit

emissions during operation.

One of the main ways the oil & gas industry

can reduce operational emissions is by replacing

systems in its up- and midstream facilities

traditionally powered by process gas with

those powered by electricity. Importantly,

electrification of these facilities can avoid

methane (from process gas) being emitted

into the atmosphere. Methane is a potent

greenhouse gas, so reducing emissions is one

of the strongest levers we have for slowing

climate change.

Rotork’s actuators can also be powered by a

solar panel as an alternative to grid electricity.

Electrification is becoming a major theme in

the industry, as well as in other end markets

served by Rotork.

Electrifying oil & gas operations

Rotork has provided more than 1,000 electric

actuators to the Johan Sverdrup oil field in

the North Sea, operated by energy company

Equinor. The Johan Sverdrup field consists of

four platforms, with another platform due to be

installed in 2022. Equinor required electric flow

control solutions as part of the electrification

of the field.

Rotork’s intelligent IQ3 multi and part-turn

electric actuators provide monitoring and control

of valves across the various platforms, in drilling,

riser and processing activities, as well as in

living quarters. Electric actuators enable energy

efficient control with significantly reduced

emissions, when compared with other flow

control devices.

Case study:

Global Wind Energy Council

(GWEC)

Rotork became a member of the

Global Wind Energy Council (GWEC)

in 2021. GWEC is the international

trade association for the wind power

industry, with members from over

1,500 companies, organisations and

institutions in more than 80 countries

worldwide. Through our involvement,

Rotork is engaging with members to

share market intelligence, innovation

development and best industry

practice to support and strengthen

green energy development.

53www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review continued

Enabling a Sustainable Future continued

Reducing emissions

from gas networks

Rotork supplied and installed electric actuators at

several gas pressure reducing stations for Fluxys

Belgium this year. Rotork has a long-standing

relationship with Fluxys Belgium, which operates

4,000 kilometres of pipeline, a liquefied natural

gas terminal and an underground storage facility

in Belgium.

Our intelligent electric actuators were chosen

as they prevent emissions from being released

during the regulation of pressure within gas

pipelines, as well as providing reliable flow

control. They have been installed to operate

butterfly valves on boilers in stations that reduce

the pressure of natural gas to enable it to flow

through a network which operates at a lower

pressure, or to be transferred into a customer’s

facilities. They replaced actuators which vented

gas into the atmosphere during their operation.

Rotork Site Services, together with local agent

Prodim, retrofitted the electric devices onto

existing valves, and now prevent any emissions

from being released.

Read more on pages 4-5 about how Rotork is

enabling electrification to support a reduction

in methane emissions.

Enabling sustainable management

of water resources

Water crises are recognised as a major global

risk. Almost 25% of the world’s population

already face water crises and by 2030,

700 million people could be displaced by water

scarcity. Extreme weather events caused by

climate change, such as droughts and floods,

are increasing the frequency of water shortages.

Water efficient processes are key to narrowing

the gap between supply and demand of

fresh water. Reusing treated wastewater

is also important for managing water

pollution and creating alternative water sources.

Better water infrastructure and services, and

new technologies such as reverse osmosis

desalination, also play a role in building

resilience to water scarcity and shortages.

Rotork technology plays an important role in

addressing each of these challenges, enabling

the provision of a safe and efficient water supply,

as well as supporting sustainable management

of water. Our technology also assists water

treatment, recycling and desalination processes,

as well as being an integral component of

flood defence infrastructure.

Supporting processes

for safe drinking water

Hundreds of Rotork’s K-TORK rotary vane

actuators were installed at a water treatment

plant in Texas, USA, in 2021. The plant is

supplied by water from the nearby East

and West San Felipe Springs and uses an

ultrafiltration system to process 18.2 million

gallons of water a day. The treated water

serves the population of Del Rio and the nearby

Laughlin Air Force Base. The ultrafiltration

process removes unwanted particles from water

by pushing it through a thin membrane that

eliminates solids and contaminants, resulting

in water suitable for drinking.

The actuators were ordered following a trial

period, during which their accuracy and reliability

was proven. The client chose Rotork actuators

because of the benefits of reduced maintenance

and lower replacement costs compared to their

previous units. K-TORK actuators are ideal for

critical applications of this kind because of their

high cycle and precise modulating output.

54Rotork Annual Report 2021Annual Report 202154

55www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Our mission

Our commitments

We will develop and deliver

initiatives to drive greater

gender and ethnic diversity.

We aim to support fair,

resilient and thriving societies.

We will contribute to a

fairer society more broadly,

including by ensuring 100%

of employees are covered by

our Fair Pay Framework.

Our people and culture

Rotork aims to attract and develop a diverse

range of talented people, by being an employer

of choice, providing fair and equal pay, and

demonstrating our commitment to diversity and

inclusion. Our people strategy is key to retaining

our market-leading position and seizing new

opportunities for growth.

Our culture is defined by our values: Stronger

Together, Always Innovating and Trusted

Partner. They were chosen by our people and

are embedded across our policies and processes,

shaping the way we operate. They help make

Rotork a great place to work and give us a

competitive edge.

We engaged an external agency to undertake

a review of culture and behaviours during the

year. We have used this to input into our plans

for the year ahead, focused on weaving our

values into everything we do; from how we

deliver change to our people experience and

our wellbeing support.

Talent development

We recognise the importance of developing our

people and ensuring they bring a diverse range

of perspectives. We are proud to have a good

mix of long-serving and newer employees.

40% of employees have been with Rotork for

more than 10 years, while 42% joined in the

last five years. Around half of our senior leaders

have been promoted into their current roles

from within Rotork.

All colleagues have regular performance

conversations with their managers. We also

complete a talent review process twice a year,

with outputs reviewed by both the Board and

our executive committee. This allows us to

develop our talent pipeline and ensure the

right development is in place for key individuals.

We continued to strengthen our internal training

capability this year, including through the

launch of a new learning and development site.

Our learning@rotork site offers virtual training

programmes, including induction and mandatory

training. It also offers technical and product

training. Colleagues can book to participate in

sessions at times that are convenient for them.

We delivered a series of value-selling training to

colleagues in our end-market divisions last year.

We also delivered customer service training to

relevant colleagues. The training was delivered

‘live’ in a virtual environment throughout the

year. On average, globally, employees each

completed around 24 hours training last year.

Making a Positive

Social Impact

We endeavour to make a positive social impact by being a good corporate citizen across

our global operations. We make a significant contribution through the high-quality,

inclusive employment we provide. We also add value through our high-quality products,

which are available with extensive certifications, including for safety applications.

The impact of our business is extended through our support for charitable causes.

We align donations to our sustainability goals and colleagues’ interests.

Sustainability review continued

56Rotork Annual Report 2021

We believe apprenticeships and early career

programmes provide a great foundation for

young people. We are refreshing our young

talent and apprentices programme post

COVID-19 and have already commenced

recruitment for 2022. We also continue to

support the community by donating unused

apprenticeship levy for apprenticeships

more generally.

Employee engagement

Employee engagement is an important measure

of our non-financial performance. For 2021,

a portion of senior leaders’ bonus opportunity

was linked to maintaining high levels of

employee engagement through the year.

Our average engagement score was 6.65.

We regularly solicit employees’ views using our

‘Pulse’ surveys. Responses to surveys increased

by 17% in 2021 following the introduction of

QR codes, which enabled colleagues to complete

the survey on personal devices if they preferred.

Survey responses are reported to both the

Management Board and the Board. This enables

them to consider employees’ views in their

decision-making and understand the underlying

themes that matter most to our people.

We also held 10 global induction sessions for

new colleagues in 2021, hosted by our CEO

and non-executive director for workforce

engagement. Colleagues were introduced to our

purpose, values and strategy in these sessions.

Supporting colleagues

through the pandemic

Our COVID-19 Steering Committee met weekly

through the year, as the pandemic continued

to impact the way we worked. The Committee

oversaw a return of the vast majority of our

employees to offices in the second half, having

implemented additional safety measures.

Colleagues were invited to return gradually,

recognising their varying circumstances and

levels of comfort around office-based working.

We implemented a hybrid arrangement

as a transitional return pattern in a number

of countries. We will keep our approach

under review.

Fair pay and benefits

We believe that all colleagues should be

appropriately and fairly rewarded for their

contribution. Our performance and reward

mechanisms are designed to incentivise

colleagues to support the delivery of our

strategy and recognise high performance,

including through our bonus scheme.

Rotork is proud that the majority of employees

own shares in the Group. Colleagues in many

locations receive a gift of Rotork shares each year,

giving them an additional stake in our success.

Rotork is an accredited Living Wage Employer.

Our Fair Pay Framework includes five areas

of focus to support fair and competitive

remuneration. It includes a commitment to

pay more than the real living wage where

that exists in a country.

Collective bargaining

We uphold colleagues’ freedom of association

and recognise their right to collective bargaining.

There are collective bargaining arrangements

in place in several sites and countries in which

we operate. We are committed to open and

constructive engagement with our employees

and their representatives.

Diversity and inclusion

We continue to drive our commitment to

diversity and inclusion and build this into the way

we work. We have made diversity considerations

part of our talent management processes. In our

2021 survey, colleagues scored Rotork 7.5 out

of 10 in believing we offer an inclusive culture.

Gender diversity

We are committed to increasing the number of

women in our organisation at all levels. Globally,

women make up 22.5% of our workforce

(2020: 21.8%). Our gender diversity at main Board

level remains at 37.5%. Among the Executive

Committee (Rotork Management Board) and its

direct reports, females comprise 21.3%.

Rotork champions gender diversity through its

membership of the 30% Club, which aims to

achieve at least 30% representation of women

at Board-level globally. We also partner with

the Women in Engineering Society. In addition,

we disclose gender-related information via the

Bloomberg Gender Reporting Framework.

Our continued progress is reflected in our latest

Gender Pay Report. Our figures show that the

mean pay gap in the UK is in favour of women

(-5.2%) and the median average pay for women

in the UK is now just 1% lower than that of

men (2020: 2.8%/2019: 8.7%). The number

of senior women who have joined or been

promoted continues to have a positive impact

on our figures. During 2021 we welcomed a

new female member to the Rotork Management

Board, Lyndsey Norris, in the role of Managing

Director, CPI. Our full Gender Pay Report is

published on our website at www.rotork.com/

en/careers/diversity-and-inclusion.

Ethnic diversity

Rotork supports the Parker Review target for

all FTSE 250 boards to have at least one member

from an ethnic minority background by 2024.

Rotork met this target during 2021, with the

appointment of Karin Meurk-Harvey to the Board.

We are also seeing progress at the senior

management level. Ethnic diversity at Executive

Committee level and their direct reports has

increased from 20% to 25%. We believe this is

important in providing role models from diverse

backgrounds at senior levels.

Following the introduction of ethnicity

pay analysis and reporting in 2020, we have

again undertaken our annual analysis for 2021.

Our figures show that for 2021 both the mean

and the median pay gap were in favour of ethnic

minority colleagues in the UK, among those

who responded to our survey. Our full Ethnicity

Pay Gap report, showing data for 2019-21,

is included within our Gender Pay Report.

Further information about our workforce will

be included in our 2021 Sustainability Report,

due to be published mid-2022.

57ww w.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Local charitable donations

Rotork colleagues around the world supported

hundreds of charities and good causes

throughout 2021.

– In India, Rotork donated to a range of

projects, including to Sevalaya, a home for

the elderly and abandoned children, funding

solar panels and solar streetlights for the

facility and outside play areas. Rotork India

also donated to various organisations for

medical equipment to help the fight against

COVID-19.

– Rotork made a donation to a Malaysian

charity that supports disabled children

with food, accommodation and daily

living. Rotork chose to support the charity

as its revenues had been impacted by the

COVID-19 pandemic.

– Colleagues at Rotork Actuation Shanghai

(RAS) donated hundreds of boxes of milk and

fruits to the elderly in a neighbouring village.

RAS volunteers celebrated the Double Ninth

Festival as part of an initiative to show their

appreciation for the elderly in the community.

– In the UK we donated £5,000 to the Royal

United Hospital (RUH) in Bath towards their

robotic surgery programme, and £2,000

to the Children’s Literature Festival, among

others. At Christmas we raised funds for

the Bath Foodbank and KidsOut, a charity

supporting children who have escaped

domestic abuse.

– In Germany, Schischek colleagues supported

victims of the devastating flood in 2021

through donations and practical help and

equipment to deal with flood damage.

Colleagues also chose to support a local

hospice and an animal protection association

with donations of €7,500.

– In the US, colleagues raised awareness

and funds for local cancer services, with

employees wearing pink during October for

breast cancer awareness. Colleagues also

donated to the Salvation Army and the local

food bank to provide food to those in need

at Christmas.

Our social contribution

We are committed to making a positive

contribution to the communities in which

we operate around the world. We target an

annual contribution of 0.1% of profits for

our nominated charity partners, and a similar

percentage to local charitable causes around the

world. In keeping with our Values, local teams

are empowered to decide how to distribute

funds and support their local communities.

Our charity partners

Our charity partnerships are aligned to our

Purpose and chosen Sustainable Development

Goals. We donated £125,000 in total to

Renewable World, Pump Aid and WeForest in

2021. In addition, we have channelled almost

£80,000 of funds from individuals, Rotork

charity committees and the Company to our

own charitable foundation, Rotork Benevolent

Support, since establishing it in July 2020. The

foundation supports past and present Rotork

colleagues facing financial hardship, particularly

as a result of the COVID-19 pandemic.

Funds donated to WeForest were used to

restore 45,000 hectares of land in Tigray,

Ethiopia, bringing water back to the region,

halting desertification and lifting communities

out of extreme poverty. Renewable World

used funds to support the Keep Kids in School

Programme to bring clean water, sanitation

and hygiene facilities to schools in Gulmi Durbar,

Nepal. Funds donated to PumpAid supported

water, sanitation, hygiene and nutrition work

at three childcare centres in rural Malawi.

Case study:

Enhancing safety

through our products

Rotork products play an important

role in supporting customers’ safety

objectives. Many of our products

are certified to externally recognised

safety standards. Approximately 50%

of our products in our portfolio are

certified for use in hazardous areas,

and 10% are certified to the highest

safety standards.

Rotork supplied electro-hydraulic

actuators to provide a critical safety

function for a Malaysian mass-transit

railway in 2021. They control vents of

up to five metres wide, which open in

the event of a fire. They also control

the flow of fresh air into the railway,

to support temperature control and

maintain safe levels of oxygen and air

pollutants. The high-quality, corrosion

resistant attributes of Rotork’s

actuators enable them to reliably

perform these critical safety functions.

Making a Positive Social Impact continued

Sustainability review continued

58Rotork Annual Report 2021

We support the purpose of TCFD, which is

to stimulate better climate-related disclosures

that will enable financial and other partners

to gain a clear view of which companies will

endure or even flourish as the environment

changes, regulations evolve, new technologies

emerge and customer behaviour shifts.

Better information about climate risks

and opportunities will then also flow into

companies’ risk management and strategic

planning processes. As this occurs, companies’

and investors’ understanding of the financial

implications associated with climate change

will grow, empowering the markets to channel

investment to sustainable and resilient solutions,

opportunities, and business models.

Our progress during 2021

We made significant progress during 2021 in

implementing the recommendations of TCFD

in each of the four thematic areas: governance,

strategy, risk management and targets and

metrics. We provided detailed disclosures on

key climate-related risks and opportunities in

our inaugural Sustainability Report in mid-2021,

building on earlier disclosures in our 2020

Annual Report.

We also appointed an external partner during

the year, to support our work in implementing

the Strategy pillar of TCFD recommendations.

This has involved evaluating climate risks and

opportunities in qualitative and quantitative

terms under different climate scenarios. This

external expertise, coupled with our continued

focus on driving the TCFD work throughout

the year, has enabled us to make significant

progress. We have found TCFD to be a useful

framework to support the integration of climate-

related considerations into our business model

and enable external communication of how we

are proactively managing identified risks and

seizing climate-related opportunities. We will

continue our focus through 2022, to implement

remaining recommendations, as set out in the

‘next steps’ sections throughout this report.

TCFD Statement of Compliance

Rotork is disclosing in accordance with the

Financial Conduct Authority (FCA) Policy

Statement 20/17 and listing rule LR 9.8.6R(8).

The main disclosures are set out here, within

the TCFD Report, on pages 59- 73. There are

additional disclosures on pages 2-7 and 49.

The disclosures describe activity to date and

future areas of focus to further strengthen

our strategic approach and communication

of climate-related issues. Below is a summary

of the TCFD recommendations which will

not be fully disclosed against in this report,

and an explanation for each as to what actions

are planned to improve reporting in future.

– Strategy – financial planning process:

Through 2021 and into 2022 Rotork has been

building its understanding of the potential

financial impact of climate-related issues

on its business and operations. In 2022,

following the financial quantification of

our priority climate-related risks and

opportunities, we intend to explore the

integration of this analysis into existing

financial systems and processes.

– Strategy – business resilience: In this

report we are disclosing our assessment

of risks and opportunities against three

forward-looking climate scenarios and

across time horizons. We are in the process

of developing this analysis to quantify the

potential financial impact of the most material

risks and opportunities to inform how they

may impact our strategic objectives and our

financial performance and position. See page

63 for our timeline to complete this work.

– Metrics & Targets – climate-related

metrics: Monitoring climate issues through

climate-related metrics and targets is

important for Rotork to be able to reduce

our risk exposure and seize opportunities.

A breakdown of energy usage (renewable

and non-renewable) will be reported in our

Sustainability Report later in 2022. Following

the release of cross-industry, climate-related

metrics from the TCFD in 2021, we also

intend to develop our reporting against the

recommended categories in future reports.

2021 TCFD report

We have worked to implement the recommendations

of the Task Force on Climate-related Financial Disclosures

(‘TCFD’) during the year.

59www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

2021 TCFD report continued

Sustainability review continued

Rotork Management Board

The Management Board sets the group’s

climate strategy and targets, with support

from the ESG team, and approved by the

ESG Committee and the plc Board.

Individual directors

ESG & Sustainability Team

Individual Directors take responsibility

for the management of climate-related

issues and delivery of climate targets

within their areas of the business.

Summary of disclosure

Next steps

– The CEO has overall responsibility

for the delivery of the Environmental,

Social and Governance (ESG) agenda,

which includes addressing climate-

related issues. The CEO reports to the

Board which has responsibility for the

oversight of the effective management

of opportunities and risks related

to climate change.

– The Board is supported by the

ESG Committee, and the Audit

Committee, through its oversight of

the Company’s strategy and policy

for risk management, and the Rotork

Management Board in its oversight

of climate-related issues.

– Individual members of the Rotork

Management Board take responsibility

for the delivery of components of

the climate strategy within their areas

of responsibility.

– For 2021, remuneration-linked ESG

performance metrics were expanded to

include additional measures related to

our new sustainability framework. ESG

measures became 10% of the bonus

opportunity for 2021, up from 5% the

prior year. Three of six measures were

climate- and environment-related,

spanning Rotork’s operations and

its value chain.

– Individual Directors will be given roles

to support the process of setting,

monitoring and achieving climate-

related targets.

– The Terms of Reference for the ESG

Committee and Audit Committee

will be updated to specifically describe

their responsibilities for the oversight

of the management of climate-related

issues, and this will be agreed by

theBoard.

Governance framework for climate

and sustainability topics

Response to the Task Force on

Climate-related Financial Disclosures

Governance

PLC Board

The Board has ultimate accountability for

climate-related issues. It formally reviews

climate and environment opportunities and

risks at its Group Risk Review meetings held

twice a year. Climate-related opportunities

are also formally discussed at the Board’s

annual strategy day, though discussions are

ongoing throughout the year.

ESG Committee

The ESG Committee has responsibility

for overseeing policies, programmes and

performance linked to climate change.

The Committee typically meets three

times a year. During 2021, it oversaw

the further development of Rotork’s

net-zero roadmap as one of its

keyactivities.

Audit Committee

The Audit Committee provides

oversight of the effectiveness of the

risk management framework, including

how climate and environmental risks

are identified and managed.

Remuneration Committee

The Remuneration Committee has

a particular responsibility for ensuring

climate-related targets are appropriately

integrated into remuneration arrangements.

60Rotork Annual Report 2021

Climate and

environment

targets

ESG team:

Responsible for

developing targets and

delivery pathways.

Sourcing

team:

Responsible for

developing impact

reduction strategies in

component sourcing

and transportation.

Engineering

team:

Responsible for

embedding environment

& emissions reduction

targets into product

development.

Divisional

heads & sales

teams:

Responsible for

customer engagement

on climate &

sustainability

solutions.

All

Executives:

Responsible

for embedding

environmental impact

reduction opportunities

within their areas of

responsibility.

Climate-related responsibilities

of the Board

Climate strategy: The Board supports the

ongoing development of Rotork’s business

strategy, and this year, it has been particularly

focused on growth opportunities linked to

decarbonisation, the energy transition and

climate change adaptation across each of the

Group’s divisions. This focus on climate-related

growth opportunities is reflected in our divisional

updates on pages 40-45.

As part of our new sustainability framework,

launched in early 2021, we are targeting

progress towards five climate- and environment-

related UN Sustainable Development Goals

(SDGs). The Board considers how decisions

impact progress toward our chosen SDGs

in its decision-making processes.

Performance: The Board monitors the Group’s

performance against five key financial and

two non-financial performance indicators:

carbon emissions per £1 million revenue and

lost time injury rates. Executive directors’

remuneration was linked to the carbon intensity

performance in 2021, to incentivise performance

improvements. Performance against these

measures is evaluated by the Board, and the

ESG and Remuneration Committees.

Updates: The Board also receives monthly

reports on the Group’s operational energy

and water consumption patterns and progress

towards reduction targets. As Rotork has now

set science-based emissions reduction targets,

the Board and the ESG Committee will now

also receive regular updates on progress

made against the targets and the action plans

for achievement.

Climate risk assessment: The Board reviews

and assesses current and emerging climate and

environment-related risks at Group Risk Review

meetings held twice a year. The Plc Board

provides a top-down view of climate risks

and assesses how risks are being responded

to by management.

Climate-related responsibilities

of management

Targets: Climate strategy and targets are set by

the Rotork Management Board, with support

from the ESG & Sustainability team, and are

approved by the ESG Committee and the Board.

Currently, operational energy, water, and waste

reduction targets are set, and from 2022, targets

will also include science-based greenhouse gas

(‘GHG’) emissions reduction targets. These GHG

targets will cover scopes 1 & 2 and scope 3.

See pages 72-73 for details.

Remuneration: For 2021, remuneration-linked

ESG performance metrics were expanded

to include additional measures related to

our new sustainability framework. The new

climate-related measures were: environmental

innovation, as measured through evidence of

greater positive environmental impact through

our products and services, and increased

customer engagement on sustainability issues.

ESG measures became 10% of the bonus

opportunity for 2021, up from 5% the prior

year, and have been applied to the entire senior

leadership population – around 100 people –

showing a significant expansion in the number

of leaders directly incentivised to support ESG

performance.

Management team responsibilities

Individuals

– Chief Executive Officer: Responsible

for overseeing integration of climate

considerations within the corporate strategy

and M&A-related activity. The CEO is

a member of the ESG Committee.

– Group Finance Director: Responsible

for climate reporting and compliance

with disclosure requirements.

– Group Operations Director: Responsible

for i) overseeing the implementation

of environmental and energy efficiency

projects at our manufacturing sites to deliver

energy, waste and water reduction targets,

and ii) overseeing emissions reduction

opportunities in the upstream value chain,

including engaging with suppliers to set

science-based targets.

– Group Engineering Director: Responsible

for realising product efficiency opportunities

within new product development and

overseeing continuous improvement and

innovation in product design to manage

our demand on resources and limit our

environmental impact.

– Other members of the Management

team: Responsible for supporting the

individuals above and meeting their own

emissions reduction mandates. For example,

our Group HR Director is responsible for the

development and implementation of our fleet

strategy to reduce associated emissions.

Teams

– ESG team: Responsible for developing

the ESG and climate strategy and delivering

related communications and reports.

This includes monitoring and addressing

stakeholder expectations in relation to

climate issues, as well as monitoring broader

ESG and climate-related developments,

risks and opportunities to support the

management team and meet disclosure

requirements.

– Health, Safety and Environment team:

Responsible for setting and adhering to

environmental standards for our operations

and collating environmental performance

data. It is also responsible for overseeing

the implementation of the operational

components of the climate strategy

set by the Board.

– Group Sourcing team: Responsible for

supplier engagement on climate issues and

engaging suppliers to set science-based

targets. In addition, the team is responsible

for analysing and responding to climate-

related risks in our supply base, including

the development of forecasts of climate-

related supply chain disruption issues and

implementation of mitigation strategies

where required.

61www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review continued

2021 TCFD report continued

Assessment of climate-related risks

and opportunities

Climate Scenario Analysis

In 2021, Rotork launched its climate strategy

project to i) develop a net-zero roadmap, with

science-based GHG emissions reduction targets

and ii) better understand material climate-related

risks and opportunities to inform business

strategy and management. A key component

of this project is establishing an ongoing climate

scenario analysis process that will be core to

informing Rotork’s response to TCFD disclosure

recommendations under the ‘Strategy’ pillar.

Rotork defines time horizons as short-term

(0-10 years), medium-term (10-25 years), and

long-term (25+ years). Our analysis considers

climate impacts across these time horizons by

referencing climate scenarios that allow us to

explore different possible futures and assess

potential risks and opportunities. The climate

scenarios we used are taken from a set of

hypothetical scenarios developed by Network

for Greening the Financial System (‘NGFS’).

These include three categories within which

there are six possible scenarios.

– Orderly Transition: Early, ambitious action

to support the transition to a net-zero

emissions economy. This includes a

Net Zero 2050 scenario and a Below 2°C

scenario, reflecting a policy ambition to limit

temperature increase to between 1.5°C

and 1.7°C respectively.

– Disorderly Transition: Late, disruptive,

sudden and/or unanticipated action no earlier

than 2030. This includes a Divergent Net

Zero 2050 scenario and a Delayed Transition

scenario, reflecting a policy ambition to limit

temperature increase to between 1.5°C

and 1.8°C respectively.

– Hot House World: Limited action resulting

in continued global warming and significant

increases in exposure to physical risks.

This includes a Nationally Determined

Contributions scenario and Current Policies

scenario, reflecting a policy ambition to limit

temperature increase to between ~2.5°C

and 3°C+ respectively.

The purpose of climate scenario analysis is first

to conduct a non-financial assessment of the

potential impact of climate-related risks and

opportunities over future climate scenarios and

time horizons (qualitative analysis), and secondly

to assess the potential financial impacts from

the risks and opportunities considered most

material to the business (quantitative analysis).

Our approach spans over two years and is due

to be completed in 2022.

Strategy

Summary of disclosure

Next steps

– We conducted a gap analysis against

TCFD recommendations to identify

actions required for full TCFD

disclosure.

– We undertook systematic scoring and

ranking of climate-related risks and

opportunities across different future

climate-related scenarios, including

a lower than 2°C scenario, and

different time horizons.

– We also undertook extensive internal

stakeholder engagement to identify

and assess potential climate impacts

across Rotork’s business value chain.

– Material climate risks and opportunities

have been prioritised in readiness for

quantification of financial impact.

– Quantify the potential financial impact

of selected material transition risks and

opportunities across climate scenarios.

– Quantify the potential impact to critical

property assets from physical hazards

considering property values and

disruption to production.

– Integrate the results of the climate

scenario analysis into the business

strategy, financial planning and

risk management processes.

– Develop climate transition plans

required to further enhance

resilience and alignment with

a future low-carbon economy.

– Begin to standardise climate scenario

analysis process to enable continuous

assessment of risks and opportunities

to the business.

62Rotork Annual Report 2021

Phase 1 (2021) Phase 2 (2022)

TCFD gap

analysis

Identify actions

to achieve

full disclosure

against TCDF

recommendations

by 2023

Identify

climate risks &

opportunities

Establish a

longlist of risks

& opportunities

based on internal

interviews and

workshops, sector

research and

climate scenarios

Assess

climate risks &

opportunities

Score and

prioritise risks

& opportunities

across climate

scenarios and

time horizons

Integrate

into Rotork

processes

Integrate the

results of the

climate scenario

analysis into

business strategy,

financial

planning and

risk management

processes

Quantify

financial

impact

Quantify the

cashflow impacts

for material

climate risks and

opportunities

Our Climate Scenario Analysis timeline

Process described

1. Risk & Opportunity identification:

Initial research on sectoral and climate

scenario impacts has been supplemented

with extensive internal engagement across

numerous business functions to identify risks

and opportunities and understand those that

are relevant for different functions. Interviews

and workshops were held with teams in

engineering, commercial, strategy, finance,

property, energy, supply chain and sourcing.

This extensive engagement has ensured that

climate risks, opportunities, and potential

impacts have been considered in the context

of Rotork’s operations.

2. Qualitative Risks & Opportunities

Assessment: Identified risks and

opportunities have been scored and

prioritised using three assessment criteria:

vulnerability, magnitude and likelihood. Each

physical and transition risk or opportunity has

been considered across time horizons and

climate scenarios using indicators from IPCC

and NGFS databases (specifically, IPCC WGI

Interactive Atlas, and NGFS IIASA Scenario

Explorer and CA Climate Impact Explorer).

This analysis will enable Rotork to prioritise

the most material risks and opportunities

and their value drivers, from which possible

financial impacts can be modelled in 2022.

Qualitative Climate

Scenario Analysis

The focus over the past year has been

to complete a non-financial assessment,

scoring and ranking of the identified risks

and opportunities. The methodology is shown

on page 71 and the assessment results

are set out on pages 64-68.

Phase 1

(completed in 2021):

63www.rotork. com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review continued

2021 TCFD report continued

Transition Risk Assessment

Policy & Legal

Risk Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Relevance to Rotork (sector & geography)

– Carbon tax to be implemented by 2026 on imported materials

for non-EU manufacturers.

– Following COP26, countries globally will be advancing their

climate policy.

– New York Independent System Operator discussing introduction

of carbon tax.

– Main impacts will relate to supply chain for sourcing decisions,

and operation’s decarbonisation strategy.

Risk drivers

– Increased pricing of GHG emissions, as well as carbon tax

on materials import and transportation.

– Stricter regulation and legislation to decarbonise and on

green credentials in manufacturing.

– Mandates on carbon-intensive activities causing

temporary shutdowns.

Potential financial impacts

– Higher operational costs from expansion of carbon tax coverage.

– Increased costs of compliance with new legislation and regulation

in jurisdictions in which we operate.

– Impact on revenue due to disruption from temporary shutdowns

and delays in the supply chain.

Response

– Incentive to invest in decarbonisation measures.

– R&D in initiatives to transition to greener operations and solutions.

– Work with suppliers to support their reduction in exposure

to carbon taxes.

Market & Technology

Risk Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Relevance to Rotork (sector & geography)

– Governmental climate policies to increase renewables in the energy

mix may increase prices due to investment required, as well as higher

fossil-fuel prices as subsidies are removed.

– Climate Change Levy and Climate Change Agreement introduced

in the UK means tax must be paid on every unit of energy consumed.

– Main impacts will relate to supply chain for sourcing decisions,

and to finance and strategy planning to invest in new technologies

and efficiency measures to reduce resource usage and

environmental impacts.

Risk drivers

– Government action leads to changes in policies and regulations.

– Change in energy costs in the energy transition.

– Increased cost of raw materials due to changes in material availability

and pass through of carbon tax for carbon-intensive materials.

– End-market demand changes as customers face transition,

causing a reduction in demand from parts of certain end markets.

– Capital expenditure for investment needed to achieve

decarbonisation ambitions.

Potential financial impacts

– Increased operational costs and uncertainty related to energy

price changes.

– Higher material costs due to shortages and pass through of

carbon tax.

– Decreased revenue from parts of certain end markets.

– Capital investments in technology and costs to adopt new

lower-carbon processes.

Response

– Investment in R&D for alternative materials.

– Feature future risk of costs relating to GHG emissions in investment

cases to reduce risk exposure.

Risk & Opportunity Scores:

Not assessed against the scenario Low Medium-low Medium-high High Very high

64Rotork Annual Report 2021

Physical Risk Assessment

Chronic physical risks

Reputation

Risk Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Relevance to Rotork (sector & geography)

– Science-based emissions reduction targets are becoming

standard, with the minimum target ambition now being 1.5°C

for scope 1 & 2 targets.

– Sustainability and climate action is becoming an increasingly

important consideration for prospective employees, particularly

in markets with aggressive national climate policy and in those

facing the most severe impacts of climate change.

– Main impacts to the management team in implementing and achieving

decarbonisation plans, as well as to recruiting and retaining talent.

Risk drivers

– Increased stakeholder concern and higher expectations relating to

climate ambition and provision of environmentally positive solutions.

– Investor pressure, risk to investment and access to capital.

– Inability to attract talent if climate ambition is deemed insufficient.

Potential financial impacts

– Reduced revenue if customers opt to deal with competitors with

higher climate ambitions.

– Implementation of strategy threatened if there is an inability to attract

and retain an appropriately skilled workforce, impacting revenue.

Response

– Continue to develop and communicate climate ambitions

and progress towards sustainability goals.

– Invest in employee attraction, engagement and retention.

Slow onset changes

in temperature

Risk Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Relevance to Rotork (sector & geography)

– All sites will be exposed to some level of climate changes in the

future. Location and site preparedness will determine how significant

the risk will be to our operations.

– Main impact is to operations management, supply chain and finance

to ensure appropriate control measures are identified, invested in

and implemented. It will also impact sourcing to enhance supplier

assessment criteria to be able to better understand the extent that

climate change may impact them.

Risk drivers

– Changes in weather patterns, including rainfall, interannual variability

and rising temperatures.

Potential financial impacts

– Increased costs to invest in mitigation and adaptation.

– Business disruption resulting in decreased revenue if appropriate

measures are not taken.

Response

– Implementation of mitigation measures in own facilities to

reduce exposure.

– Assessment of potential impacts on suppliers which could impact

our ability to deliver products.

– Consideration of suppliers’ adaptation and transition plans in

supplier assessments.

65www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review continued

2021 TCFD report continued

Physical Risk Assessment continued

Acute physical risks

Extreme temperatures

Risk Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Relevance to Rotork (sector & geography)

– Extreme cold temperatures could result in future temporary

shutdowns at our sites.

– Extreme temperatures can affect usage of equipment and machinery.

– Extreme heat impacting employee working conditions is a

concern globally.

– Main impact is for operations management to enhance appropriate

climate control measures.

Risk drivers

– Extreme cold temperatures affect working conditions and ice on

roads results in the breakdown of transport links.

– High temperatures and heatwave events affect usage of equipment

and machinery.

– Increasing humidity, compounded by higher temperatures, poses

health and safety risk to employees.

Potential financial impacts

– Transport breakdown impacts upstream and downstream value chain,

and ability to assemble and distribute products, posing a risk to revenue.

– Transport breakdown also impacts employees’ ability to commute

to work, reducing production capacity.

– Revenue impacted as a result of lower production capacity due

to building closures, stoppages as equipment needs to cool down,

or due to reduced capacity and productivity of employees.

– Increased costs of maintenance of capital goods and implementation

of climate control measures.

– Increased insurance premiums if risk is predicted to increase in

the future.

Response

– Continued implementation and further investment in climate control

at our facilities.

– Infrastructure for flexible working to reduce impact if employees are

not able to get to offices.

– Review current continuity plans and strategies to mitigate potential

transportation issues.

Increased rainfall & flood events

Risk Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Relevance to Rotork (sector & geography)

– Floods are a high concern for sites that sit on floodplains, near to

water sources, or that do not have sufficient drainage infrastructure.

– Main impact is to operations management teams to enhance business

continuity plans and to assess feasibility of moving critical operations

to areas with low-risk exposure.

Risk drivers

– Intense rainfall as well as increase in frequency and/or severity

of flood events can result in damage to assets and transport

infrastructure as well as presenting a health and safety risk

for employees.

Potential financial impacts

– Revenue impacted due to delays in logistics.

– Decreased production as sites are evacuated due to safety concerns

or damage to equipment.

– Increased insurance premiums if risk is predicted to increase

in the future.

– Increased capital costs for repairs to damages of facility or

of equipment.

Response

– Assess the suitability of key sites over the medium to long term

as part of the operational footprint strategy.

– Assess suitability of drainage systems and invest in adaptation

solutions as required.

– Enhance current major incident plans to reflect increasing likelihood

of business disruption to critical assets.

Risk & Opportunity Scores:

Not assessed against the scenario Low Medium-low Medium-high High Very high

66Rotork Annual Report 2021

Increase in extreme weather events

Risk Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Relevance to Rotork (sector & geography)

– Some of our sites are based in locations which have been exposed

to hurricanes and snowstorms.

– Some of our suppliers are located in areas which have been

exposed to extreme weather events.

– High winds associated with hurricanes and storms can damage

or cause disruption at ports.

– Main impact is to operations management teams to enhance business

continuity plans and to supply chain in assessing supplier exposure

to physical risks.

Risk drivers

– Frequency and intensity of hurricanes is likely to increase with

the warming of oceans, which may impact both our own facilities

as well as indirectly disrupting operations where suppliers are

impacted. Impacts may be linked to infrastructure damage as

well as power shortages.

– Increase in frequency and/or severity of snowstorms may cause power

outages, and temporary shutdown of local transportation networks.

Potential financial impacts

– Temporary shutdowns impact revenue due to lower

production capacity.

– Disruption to transportation network (roads as well as ports)

causes delays and impacts revenue.

– Increased insurance premiums if risk is predicted to increase

in the future.

Response

– Enhance current major incident plans to consider the future impact

of more frequent and more severe weather events.

– Assess suppliers’ exposure to the risk of extreme weather events

and ability to continue in extreme weather conditions.

Opportunity Assessment

Energy source & efficiency

Opportunity

Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Opportunity drivers

– Implementation of energy efficiency measures to reduce energy

consumption in operations.

– Engagement with customers to consider alternative products

(including those that can be powered directly by renewable electricity)

and to consider switching to renewable energy sources.

– Development of new technologies to facilitate climate

change mitigation.

Potential financial impacts

– Reduced exposure to changes in energy prices, and decreased

operating costs due to energy savings.

– Reputational benefits from decarbonisation progress drives increased

revenue from higher demand.

– Reduction in costs needed to achieve decarbonisation targets,

as emissions associated with the use of sold products decline

as customers switch to renewable energy sources.

67www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review continued

2021 TCFD report continued

Opportunity Assessment continued

Products & markets

Opportunity

Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Opportunity drivers

– Increasing demand for actuators as new and existing technologies

accelerate to support a low-carbon world and the transition to it,

including hydrogen, battery storage, gasification, biofuels etc.

– Increasing demand for our products as customers and end markets

increasingly electrify and automate their operations to decarbonise.

– High-quality Rotork products are resilient under extreme

climate conditions.

– Rotork products can respond to physical climate challenges,

for example products which control the flow of water to mitigate

impacts of flooding.

Potential financial impacts

– Increased revenue from new climate-related applications of

existing products.

– Increased revenue from expanding customer base and demand

for sustainable solutions.

– Increased revenue from accessing new markets.

Resilience

Opportunity

Score

Short

Orderly

Transition

Disorderly

Transition

Hot House

World

Med Long

Opportunity drivers

– Re-design of supply chain to avoid overspending in carbon tax,

and reduce distance between manufacturing plants and customers.

– Build supply chain resilience by using environmental risk assessment

criteria and expecting suppliers to have ‘green’ credentials.

Potential financial impacts

– Increased reliability of supply chain and ability to operate under

various conditions.

– Reduced exposure and potential costs in responding to climate-

related disruption in supply chain for example due to logistics issues

in extreme weathers.

– Reduced lead time from global supply chain and optimised costs,

and increased level of oversight over suppliers’ green credentials.

Risk & Opportunity Scores:

Not assessed against the scenario Low Medium-low Medium-high High Very high

68Rotork Annual Report 2021

During 2022, we will continue to advance

our climate scenario analysis by modelling the

potential financial impacts across forward-

looking business and climate scenarios

from some of our most material risk and

opportunities. The results will be integrated into

our financial planning process and considered

in our business strategy development.

Process described

1. Define impact pathways and select

value drivers for quantification: Our

initial assessment has identified climate value

drivers that will be considered for financial

impact quantification.

2. Model financial impact: For each value

driver, cashflow impacts will be calculated

across a range of climate and business scenarios

(climate scenarios described on page 62). In

this way, Rotork’s strategy can be stress tested

against different possible climate futures.

3. Integrate outcomes: The results of the

assessment will form future climate-related

metrics related to risk and opportunity

impact. They will also be used in processes

relating to risk management, capital

allocation, business strategy development

and financial planning.

Climate opportunity

The role Rotork can play in a green economy

and a cleaner, more sustainable future featured

highly in our materiality assessment in 2021.

Our products will enable the move to a low

carbon world, with applications in transition

fuels such as LNG, natural gas and biofuel.

In the medium term there are also opportunities

to participate in fast developing new sectors

such as hydrogen and carbon capture, usage

and storage.

In addition, there are considerable opportunities

to assist our oil and gas customers in delivering

against their ambitious net-zero commitments,

including through providing products and

services that deliver reliable, energy efficient

solutions that minimise environmental impacts

(for example, through lower emissions,

energy consumption and water usage).

Similar opportunities present themselves

in the power, water and industrial markets.

For example, our products have applications

in the roll-out and modernisation of critical

infrastructure. Water scarcity is resulting in

a greater need for recycling and desalination and

rising sea levels are necessitating flood defence

investment. Climate-related opportunities and

case studies feature highly throughout this

report. Case studies illustrating the role we

can play are set out on pages 2-7 and 52-54.

Our products enable renewable energy,

such as hydropower, to be generated.

See pages 2-3

Our products enable processes to be

electrified and methane emissions

to be avoided.

See pages 4-5

Our products enable decarbonisation of

heavy industry, e.g. through enabling

hydrogen-based steel-making.

See pages 6-7

To be completed in 2022: Quantification of financial

impact from material risks and opportunities

Climate resilience and

transition planning

Rotork is continuing to develop its climate

transition plan to support progress towards

emissions reduction targets. In so doing,

exposure to climate risks will be reduced and

Rotork’s contribution to the energy transition

will be enhanced. We will continue to develop

the transition plan based on a more detailed

assessment of mitigation options across the

value chain.

Suppliers representing 25%

of supply chain emissions

set science-based targets

by 2027.

Engage with suppliers to

support environmental

impact reduction and

setting of science-based

carbon targets.

Near-term science-based

targets to reduce CO

emissions and targeting net-

zero for 2035 (scope 1&2)

and 2045 (scope 3)

Partner with customers to

understand how efficiencies

can be deployed in the use

of our sold products.

Reduce CO

e emissions by

42% by 2030, compared

with 2020.

In 2021, reduce emissions

by 2% per £1m revenue

compared to the prior year.

Target further energy

efficiency improvements in

new product development.

4 out of 5 new products

launched in 2021 deliver

environmental and

efficiency benefits

for customers.

Phase 2

Customers

Suppliers Rotork operations

69www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review continued

2021 TCFD report continued

Risk Management

Climate risk management

responsibilities

The Board considers climate issues in strategic

and financial planning throughout the year;

however, a formal review process is conducted

twice yearly. It is assisted in the assessment of

climate-related matters by the ESG Committee,

the Audit Committee, and the Rotork

Management Board.

The Board is responsible for determining the

nature and extent of the risks it is willing to

take in achieving our strategic objectives. Our

Group risk appetite statement sets the tone

from the top and supports decision-making

to mitigate, control or accept risks. Rotork’s

Purpose, ‘Keeping the world flowing for future

generations’, is embedded in the way we

assess risks. We are committed to generating

stakeholder value through innovation and

sustainable growth and will only take considered

risks that fulfil our strategic objectives and do not

risk our Values, financial stability or our resilience.

We use the three pillars of our sustainability

framework – Operating Responsibly, Enabling a

Sustainable Future, and Making a Positive Social

Impact to guide our decision-making and drive

our success.

Through our Risk Management process, the

Board reviews the acceptable level of exposure

to key risks, balancing threats and opportunities.

This process is depicted in the risk management

section on page 83. The Board defines our

environment risk appetite as “fully committed

to the prevention of pollution, compliance with

all relevant legal and regulatory requirements

and to the continuous improvement of our

environmental performance”. Risk appetite is

defined by a set of key risk dimensions which

are reviewed regularly and formally approved

annually by the Board. This allows environment

risk, and associated climate-related matters, to

be reviewed in relation to other business risks.

We have previously treated climate risk as an

emerging risk. During the year we performed

a series of workshops and qualitative scenario

analysis to understand and analyse the impact of

climate risks and opportunities on our business.

Climate risk is considered in the context of each

of our Principal Risks. The risks that we report

as our Principal Risks are done so on a net basis.

In our current assessment of climate risks and

opportunities, we believe there are significant

opportunities for Rotork. As with all risks, we

will continue to assess if it is appropriate to treat

climate risks as a principal risk.

Climate risk identification

and assessment

Risk Management Framework: Climate-

related risks and opportunities are assessed

and managed using the Group’s overarching

risk management framework (see pages 83-84

for more information). Our established risk

management framework incorporates both a

‘bottom-up’ and a ‘top-down’ risk identification

and review processes. The bottom-up process is

carried out at functional, divisional and regional

levels and the top-down process is performed at

the management and Board level. We also input

views and contributions from our key external

stakeholders, including customers, suppliers

and investors. It is within this framework that

climate risk assessment is integrated. However,

we recognise that climate risk characteristics are

unique and require an adjustment to our typical

risk management processes and treatment.

Horizon Risk Methodology: For many

climate-related risks, either the severity of the

impact or the likelihood may be uncertain,

and typically these risks may materialise over

longer-term time horizons than more traditional

business risks. To account for this, we use a

‘Horizon risk methodology’ to assess those risks

that are more uncertain or intangible, such as

climate change. This methodology uses a wider

timeframe than typically used, with short-term

as 0-10 years, medium-term as 10-25 years

and long-term as 25 years and beyond. The

Horizon risk methodology shows how risks may

materialise in different ways, for instance our

risk exposure may change over time depending

on external interventions such as government

actions and Rotork’s ability to capitalise on

market opportunities.

Climate Risk Identification: Climate-related

risks are identified, monitored and managed

through risk workshops held with all key

functions at least twice a year. The workshops

held in the first half of the year link directly

into the Board strategy review process, where

climate-related risks are escalated as required.

The workshops held in the second half of the

year and the Board risk review feed into the

Annual Operating Plan finalisation. During 2021,

in addition to the established risk management

process, additional cross-function workshops

were convened to identify and contextualise

climate-related risks and opportunities that

Summary of disclosure

Next steps

– Environment risk appetite: “Rotork is

fully committed to the prevention of

pollution, compliance with all relevant

legal and regulatory requirements and

to the continuous improvement of our

environmental performance”.

– Climate risk has been treated as an

emerging risk to date. Climate risk is

considered in the context of each of our

Principal Risks; for example, in terms of

its impact to supply chain disruption. Our

Principal Risks are set out on pages 88-92.

– In our current assessment of climate

risks and opportunities, overall

we believe there are significant

opportunities for Rotork. As with all

risks, we will continue to assess its

potential impact to the business and

influence on our Principal Risks.

– Climate-related risks and response

options are managed using the Group’s

Risk Management Framework which

incorporates both a bottom-up and

top-down assessment. Climate change

is a standing agenda item at risk

workshops held at least twice a year.

– Given the unique characteristics of

climate-related risks, we use our

Horizon risk methodology to assess risks

against longer time horizons relevant

to climate change.

– Risk owners are assigned to the most

material risks and appropriate control

measures are decided based on the

perceived materiality and the agreed

risk appetite.

– Build on our initial assessment of

climate-related risks and opportunities by

quantifying the potential financial impact

for the most material risks identified.

– Further explore how our products

can assist our customers to reduce

their emissions and supporting new

customers’ flow control needs as

energy transition markets evolve.

– On completion of the climate scenario

analysis in 2022, Rotork will better

understand the relative financial

importance of different climate

impacts. This will inform the further

development of risk management

responses to reduce exposure.

70Rotork Annual Report 2021

Our Climate-related Risk & Opportunity Assessment Methodology

Climate risk & opportunity scoring methodology

Vulnerability

Function of exposure, sensitivity,

adaptive capacity

Exposure

Presence of systems that could

be affected

Sensitivity

Degree to which systems could

be affected

Adaptive Capacity

Ability to adjust or respond

Likelihood

Chance of outcome occurring

Magnitude

Size of impact

Climate Change Scenario

Orderly Transition (1.5-2.5°C), Disorderly Transition (2.0-3.5°C), Hot House World (3.0-5.0°C+)

Time Horizon

Short-term (0-10 years), Medium-term (10-25 years), Long-term (25+ years)

affect different functions. The workshop

materials were informed by sector and climate

scenario research which considered physical

climate changes in our geographies, as well

as existing and emerging climate policy. The

potential impacts were discussed and ranked

based on perceived business importance.

These workshops built on existing risk and

opportunity analysis and enabled us to gain

a more granular view on the potential financial

impact to Rotork globally.

Climate Risk Assessment: In accordance with

the TCFD recommendations, our assessment

primarily focused on understanding the potential

financial impact of these risks. To achieve

this, each transition and physical climate risk

or related opportunity has been qualitatively

assessed and scored based on the potential

financial impact. This scoring has been repeated

for different climate scenarios (see page 62 for

selected climate scenarios) and time horizons

(as per Horizon Risk Methodology described

above). The level of potential financial impact is

a function of three criteria including vulnerability

(consisting of level of exposure, sensitivity and

adaptive capacity), likelihood and magnitude.

We also assessed opportunities in terms of

the size of opportunity and ability to execute.

Our scoring methodology uses a 1-5 scale for

each criterion, except for exposure which is

recorded as either exposed (1) or not exposed (0).

This scoring system allows us to gain a granular

view on the impact that the risk could have to

our business and aligns with scoring levels used

in our Standard risk management methodology.

The risk and opportunity assessment results

(see pages 64-68) will be used to inform the

prioritisation of climate risks to be managed.

The next stage of the climate risk assessment

will be the quantification of potential financial

impact for some of the most material risks.

This will be used to inform the continued

development of risk management responses

for incorporation into our climate transition

plan (see page 69).

Risk control and management

When risks are identified, a risk owner is

assigned who is accountable for monitoring

and managing the risk. The CEO has overall

responsibility for climate risk. In some cases,

climate-related risks identified may already sit

as risk drivers to an existing risk. For example,

within our Supply Chain Disruption risk, there

is an element that is related to delays and

unavailability of products related to increased

severity of the physical effects of climate change.

As the impact of this event is disruption to

our supply chain, we currently incorporate this

within Supply Chain Disruption risk, however

it is also recorded as a risk in our climate risk

and opportunity register.

Risk response options are defined and may

relate to existing action plans or may require

new actions. Where a new response is required

to manage a risk, an action owner is assigned

who is accountable for the delivery of the action,

with support from the Risk & Compliance team.

An appropriate action could be to perform

further analysis, to put in place controls and

mitigations, or to address the risk by identifying

other opportunities. The delivery of risk actions

is the responsibility of the risk owner. The delivery

and the effectiveness of new risk action and

existing risk mitigations is reviewed formally

twice a year at the Rotork Management Board

and Plc Board Risk meetings.

Our Climate-related Risk & Opportunity Assessment Methodology

71www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Sustainability review continued

2021 TCFD report continued

Metrics and Targets

GHG Emissions and climate risks

Rotork has calculated and reported CO

emissions relating to its own operations for many

years, in accordance with the GHG Protocol

Corporate Accounting and Reporting Standard.

During 2021, Rotork expanded the measurement

scope to include its full scope 3 inventory, also in

line with the GHG Protocol.

GHG emissions Tonnes CO

e (2020) Associated risks

Scope 1 Direct 3,534

– Price volatility for fossil fuels

Scope 2 Indirect 5,237

– Fluctuation in electricity costs

(renewable and non-renewable)

Scope 3 Other indirect 395,832

– Insufficient decarbonisation

action from suppliers

– Complexity of evidencing

avoided emissions from use

of products by customers

(which are not captured in

typical GHG emissions corporate

accounting methodology)

Total GHG emissions 404,603 – Increase cost of carbon both

through carbon tax and

carbon price

– Faster than expected growth

resulting in an increase in

GHG emissions beyond

planned mitigation

GHG emissions in 2020 (new targets

baseline year)

Scope 1

Scope 2

Scope 3

Summary of disclosure

Next steps

– Rotork has reported operational GHG

emissions (scopes 1 & 2), energy, waste

and water data, trends over time, and

related reduction targets for many

years. CO

e per £ million revenue is a

long-standing key performance metric

and is linked to Executive and senior

leaders’ remuneration.

– Rotork further developed its net-zero

roadmap in 2021. We have developed

science-based targets for scopes 1 & 2

and scope 3 and have submitted them

to the Science-Based Targets initiative

for validation. We have also committed

to target net-zero for scopes 1 & 2 by

2035 and by 2045 for scope 3. The

baseline year for all targets is 2020.

– Scope 3 emissions have been reported

for some categories for a number of

years. In 2021, Rotork calculated its

full scope 3 inventory for 2020, the

baseline year for our new emissions

reduction targets. Emissions in all

relevant categories for 2020 are set

out on the adjacent page. Scope 3

emissions for 2021 will be reported in

our Sustainability Report, due to be

published in mid-2022.

– Emissions are calculated according

to the GHG Protocol. Scopes 1 & 2

emissions are independently verified

by MakeUK. Scope 3 emissions have

been calculated with support from

Corporate Citizenship.

– Achieve validation of our near-term

science-based targets for scopes

1, 2 & 3.

– Develop a strategy for achieving

net-zero as well as a strategy for GHG

removals for residual emissions.

72Rotork Annual Report 2021

Climate-related metrics

Rotork has tracked emissions (scope 1 & 2) per

£1m revenue as one of its key non-financial

performance indicators since 2013 and has a

strong track record of improving its efficiency

year-on-year. In 2021, absolute scope 1 & 2

emissions decreased by 5%. Emissions per £m

revenue increased slightly by 0.4%, with 14.6

tonnes CO

e being produced per £m, compared

to 14.5 tonnes in 2020. CO

e per £1m was one

of the ESG metrics in the bonus opportunity for

Rotork’s Executive and leadership population in

2021 (approximately 100 people).

We use the following metrics to track

performance:

– CO

e emissions by revenue

– Energy consumption:

– Non-renewable electricity

– Renewable electricity

– Gas usage

– Diesel usage

– Water consumption

– Waste

– Opportunity: low-carbon market revenues

(our ‘eco-transition portfolio’)

– Remuneration: CO

e per £1m revenue

Energy, water and waste data is reported

on pages 49-50 of this report. Renewable and

non-renewable energy consumption in 2021

will be reported in our Sustainability Report

later in 2022.

Rotork acknowledges the need to continue to

expand its range of climate-related metrics to

track performance and control the exposure to

risks as well as take advantage of opportunities.

The list below describes planned development of

additional cross-industry, climate-related metrics

in line with the 2021 TCFD implementation

guidance update:

– Climate related risks and opportunities:

During 2022, Rotork will quantify financial

impacts from material risks and opportunities

over forward-looking scenarios. This will

inform metrics against which to track

performance in reducing exposure and

capitalising on opportunities.

– Capital deployment: Rotork is in the

process of refining pathways to achieve

our science-based targets, including in R&D

for product development to capitalise on

opportunities in the transition and in a low-

carbon economy. As part of the development

of our net-zero roadmap we will also assess

investment required to deal with further

abatement and residual emissions.

– Cost of carbon: The process of quantifying

financial impact from climate-related risks

and opportunities in 2022 will help develop

a bespoke cost of carbon for the business.

Climate-related targets

Rotork is setting near-term science-based targets

to reduce CO

e emissions. We are targeting net-

zero for scopes 1 & 2 by 2035 and for scope 3

by 2045. Our scopes 1&2 and scope 3 emissions

reduction targets have been submitted to the

Science-Based Targets initiative for validation.

The baseline year for all targets is 2020.

We have set a market-based target to reduce

scope 1 & 2 emissions by 42% by 2030

compared with 2020. This is an absolute

reduction target, aligned to a 1.5°C pathway.

We will introduce market-based emissions

reporting in our 2021 Sustainability Report,

due mid-2022, as well as disclosing performance

to date. We aim to achieve our target through

renewable energy usage/procurement, energy

efficiency projects across our estate and our

fleet emissions reduction strategy.

For scope 3, we have also set an absolute

reduction target for emissions associated with

the use of sold products. We are targeting to

reduce emissions by 25% by 2030, in line with

a well-below 2°C pathway. We already target

energy efficiency improvements as part of

the new product development process.

4 out of 5 new products launched in 2021

deliver environmental and efficiency benefits for

customers. Our work to calculate our scope 3

inventory has enabled us to identify and prioritise

further opportunities for improvement. We

aim to achieve our target by driving product

developments and initiatives and partnering

more closely with customers to support their

emissions reduction strategies. Our ambition

will also be supported by the progressive

‘greening of the grid’ which will mean that

over time our products will increasingly be

In addition, we have set a supplier engagement

target for emissions associated with purchased

goods and services. We will engage with

suppliers to improve their environmental

performance. We will be requesting that

suppliers representing 25% of supply chain

emissions set science-based targets by 2027.

As in prior years, Rotork has also set an intensity

target to reduce emissions per £1m revenue

year-on-year. For 2021, the target was to reduce

emissions by 2% per £1m revenue compared to

the prior year. This was one of the performance

measures linked to the bonus opportunity for the

senior leadership population. The same target will

again be part of the bonus opportunity for 2022.

Rotork has also set absolute targets to reduce

water use and waste to landfill by 1% in 2022

compared with 2021. Performance against these

targets will be assessed on a monthly basis and

reported externally annually.

Category

Emissions

(tonnes CO

Purchased goods and services

66,917

Capital goods

801

Fuel- and energy-related activities 1,824

Upstream transportation and distribution

22,699

Waste generation in operations 104

Business travel

1,213

Employee commuting

4,449

Downstream transportation and distribution

7,691

Use of sold products

288,900

End of life treatment of products 1,234

1 Emissions were estimated based on mapping spend data against the US EPA’s Environmentally-Extended

Economic Input Output (EEIO) model.

2 Business travel data was calculated using a combination of BEIS conversion factors and the EEIO model.

3 Emissions were estimated based on travel and working from home data.

4 BEIS and IEA emissions factors were applied to the average operational energy usage of products over their life.

Breakdown of scope 3 emissions (2020)

73www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Non-financial information statement

The Non-Financial Reporting Requirements in sections 414A and 414CB of the Companies Act 2006 are addressed in this statement using cross

references to indicate pertinent sections within this report.

This report refers to a range of policies that support our performance across environment, social and governance topics. The majority of the policies

are available to read on our website: www.rotork.com/en/environmental-social-governance/esg-reports-and-policies.

Environmental information

Where material information can

be found in the strategic report Material policies

How we monitor the

effectiveness of policies

Our approach to managing our

environmental impacts is set out on

pages 49-50. See also our TCFD report

on pages 59-73. We set reduction

targets for carbon, energy, waste to

landfill and water usage. We report

progress against them in our Annual

and Sustainability Reports, and in

the GRI and SASB appendices to the

Sustainability Report.

Environment & Energy Policy

This sets out our commitment to protecting the environment, ecosystems

and biodiversity; continually improving our environmental and energy

performance; and complying with all applicable environmental and

energy regulations. It applies to the whole Group, including subsidiaries.

We measure performance against key

environmental metrics and report this

publicly. We also include environmental

obligations in our agreements with

suppliers and monitor performance.

See the non-financial performance

KPIs on page 39 for GHG emissions

per £m revenue performance in 2021

and trends over time.

The Company’s employees

Where material information

is located Material policies

How we monitor the

effectiveness of policies

Our approach to People and Culture is

set out on pages 56-57. Our employee

engagement approach is also covered

in our Section 172 Statement on pages

94-95. Related principal risks, on page

90 and 92, are Health, Safety and the

Environment and Change Management.

Board Diversity & Inclusivity Policy

Sets out the Board’s approach to diversity and inclusion and provides the

framework for the Board’s approach to diversity and inclusion in senior

management roles.

Code of Conduct

Outlines our values – Stronger Together, Always Innovating and Trusted

Partner – and the standards of behaviour we expect of our employees.

Health & Safety Policy

Sets out our commitment to the planning and management of health

and safety for reducing accidents and cases of work-related ill-health.

It applies groupwide, including to all subsidiary businesses and persons

working for or on behalf of the Company.

Speak Up Policy

Outlines our commitment to conducting our business with openness,

integrity and fairness, and encouraging people to report suspected

wrongdoing as soon as possible and without fear of detrimental treatment

as a result of raising a concern. It applies to all individuals working within,

for, or with Rotork, including suppliers.

Our regular ‘Pulse’ surveys assess

employees’ engagement and their views

of Rotork as a place to work. Surveys

include questions on diversity and

inclusion and the pace of change. We

conduct regular audits of our health

and safety system. We track colleague

diversity at different levels within the

organisation, reviewing gender, ethnic

and age diversity among others. We also

monitor the number of contacts made

through our whistleblowing lines and

the outcomes of any investigations.

The Lost Time Injury Rate (LTIR) is one of

our two key non-financial performance

indicators. Performance in 2021 and

trends over time are set out on pages

39 and 48.

74Rotork Annual Report 2021

Social and community matters

Where material information

is located Material policies

How we monitor the

effectiveness of policies

Our contribution to the communities in

which we operate, including charitable

giving, is covered on page 58. Our

approach to supplier management

is on page 51 and covered in our

Sustainability Report.

Supplier Code of Conduct

This code covers our expectations regarding ethical behaviours and

compliance with applicable laws; including promoting equal opportunities,

human rights, freedom of association, labour rights, good environmental

practices, and our zero-tolerance approach to bribery and corruption.

It applies to suppliers globally and is published in seven different languages.

In 2021, we commenced work to strengthen our Supplier Code of

Conduct, to include higher expectations around suppliers’ environmental

performance as well as other new social and ethical requirements.

The new version of the Code is due to be launched in early 2022.

Worldwide Charity Support Policy

This policy sets out how we implement charitable giving, in line with our

corporate responsibility aims. Every location has authority to spend 0.1%

of its prior year’s profit before tax on charitable or good cause activities

chosen by the employees of that location.

Group Tax Strategy

Our overall tax strategy is for full disclosure and cooperation with all tax

authorities. We consider reputational, financial and operational risks in

our approach to tax planning. We are committed to creating an open and

transparent working relationship with tax authorities in the jurisdictions

in which we operate, and to abiding by all applicable laws.

We capture and report data on our

charitable giving and assess the

impact we have made. We audit high

risk suppliers, as required, to ensure

compliance with our Supplier Code

of Conduct.

Respect for human rights

Where material information can

be found in the strategic report Material policies

How we monitor the effectiveness

of policies

Our approach to diversity and inclusion

and respect for human rights is covered

on page 51. Our Modern Slavery

Statement is published on our group

website at www.rotork.com

Modern Slavery Statement

This covers our policy on working to ensure that slavery and human

trafficking is not occurring in any part of our business or supply chain.

Modern Slavery Policy

New Modern Slavery Policy implemented in 2021. It is designed to

raise employee awareness of modern slavery and human trafficking

and includes key performance indicators to measure the effectiveness

of our control measures.

Code of Conduct

Outlines the values and standards of behaviour we expect from

employees, including our approach to protecting human rights and

empowering staff to ‘Speak Up’ if they have a concern.

Respect at Work and Equality of Opportunity

Sets out our commitment to the principle of equal opportunities

to ensure that no employee or job applicant receives less favourable

treatment based on their age, race, nationality, ethnic origin,

disability, sex, sexual orientation, religion or belief or marital status.

Conflict Minerals Policy

This policy sets out the Company’s commitment to not using

tantalum, tin, tungsten and gold that directly or indirectly finances

or benefits armed groups in the Democratic Republic of the Congo

or adjoining countries.

We rolled out new mandatory compliance

and ethics training, including online and

classroom-based Code of Conduct training.

We also introduce new joiners to our

Values during their induction sessions.

We implemented a new face-to-face and

online training programme related to our

new Modern Slavery Policy in 2021.

We also review our suppliers for modern

slavery risks. We engage an independent

intelligence provider to help analyse our

supply base. We follow up with audits

when necessary.

We monitor the number of calls made

to the ‘Speak Up’ line and the outcomes

of any investigations.

We provide awareness training to

employees about conflict minerals via

an e-learning module.

We exercise due diligence based on the

‘Responsible Minerals Initiative’ guidance,

by mapping our supply chain using their

reporting templates for tantalum, tin,

tungsten and gold, and following up any

concerns raised via a corrective action

management process.

75www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Anti-bribery and corruption

Where material information

is located Material policies

How we monitor the effectiveness

of policies

Our People and Culture, on pages 56-57

and our Sustainability Report.

Code of Conduct

This sets out our zero-tolerance approach to bribery and corruption

and the standards of behaviour expected to minimise the risk of

bribery, including in relation to gifts and hospitality. This is supported

by a dedicated gifts and hospitality policy.

Anti-bribery and Corruption Policy

We take a zero-tolerance approach to bribery and corruption.

Our policy and related guidance helps employees understand how

bribery can impact individuals and the Company and how to report

a potential breach.

Supplier Code of Conduct

Outlines our zero-tolerance policy to extortion, bribery and corruption

and never offering, paying, soliciting or accepting bribes in any form.

Employees are required to complete anti-

bribery and corruption courses on a regular

basis. We track training completion rates.

We also rolled out new, mandatory Code

of Conduct training this year, through

a combination of online learning and

classroom-based sessions. See page 51

for more information.

We monitor the Rotork ‘Speak Up’ hotline

and the outcomes of investigations.

Our 2021 Sustainability Report will provide more details about our approach to ESG as well as our performance. It will be published in mid-2022.

We also submit responses to the CDP Climate and Water Security questionnaires annually. Our 2021 responses are publicly available on the CDP website.

Our Sustainability Reports and policies are published at the following address: www.rotork.com/en/careers/diversity-and-inclusion and www.rotork.com/

nl/environmental-social-governance/esg-reports-and-policies.

Non-financial information

Non-financial information Section Pages

Business model Business model 20-21

Key non-financial performance indicators Key performance indicators

Sustainability Review

46-58

Information for funds applying the Sustainable Finance

Disclosure Regulation (SFDR)

Our end-markets

In 2021, 46% of our sales were into Oil & Gas, 28% into Chemical, Process & Industrial and 26% into Water & Power. The most common application of Rotork’s

products and services across all end markets is for the control and management of water, including for water recovery, recycling and treatment processes.

Rotork’s products are an essential component in processes for new energies and technologies that enable climate change mitigation and adaptation.

They also contribute positively to the sustainable use of water resources, as well as having applications in flood protection.

Our ‘eco-transition portfolio’ includes three portfolios: ‘Water & wastewater’, ‘Methane emissions reduction’ and ‘New energies & technologies portfolio’

as well as other applications such as process water management and gasification. We estimate that these three portfolios represented around 30%

of sales in 2021, with other applications also material but difficult to estimate. Eco-transition portfolio sales promote environmental or sustainability

characteristics, specifically methane emissions elimination, water preservation, carbon capture, and new capacity renewable energy generation.

See pages 2-7 for case studies. For the avoidance of doubt, Rotork does not produce nuclear power, own fossil fuel reserves, produce or sell tobacco

or military or other weapons or operate in the gambling sector.

Our business

– ESG ratings: Rotork is highly ranked by numerous ESG ratings agencies, including MSCI, Sustainalytics, S&P Global and CDP. See page 46 for details.

– Alignment to the 2015 Paris Agreement: Rotork has set science-based emissions reduction targets across scopes 1 & 2 and scope 3. We have

also committed to target net-zero by 2035 for scopes 1 & 2 and by 2045 for scope 3. See page 73 for details.

– UN 2030 Agenda for Sustainable Development: As part of Rotork’s new sustainability framework, launched in 2021, we are targeting progress

for UN SDGs 5, 6, 7, 8, 9, 12 and 13. Rotork was also an early signatory of the UN Global Compact. See page 47 for details.

Further details of our ESG performance, including on metrics such as accident frequency rate, gender pay gap, human rights policy, anti-corruption practices

and whistleblowing are set out in the Sustainability Review on pages 48, 51 and 57.

Non-financial information statement continued

76Rotork Annual Report 2021

77www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Financial review

We demonstrated

our resilience once

again in what was

a challenging year

Jonathan Davis

Group Finance Director

Order intake for the year was £614.1m (2020: £590.2m), up 4.1% from

the prior year or 7.8% on an organic constant currency (OCC) basis, with

all divisions reporting growth. Chemical, Process & Industrial (CPI) reported

the strongest growth, followed by Water & Power (W&P) with Oil & Gas

(O&G) only really seeing an improvement towards the end of the year.

Order intake in the second half was 5.2% higher than the first half of

the year and 12.6% higher than the second half of 2020 on an OCC basis.

Group revenue was 5.9% lower (-2.5% OCC) at £569.2m. This was largely

driven by continuing supply chain constraints, in particular the sourcing of

components such as chipsets and electronics. Our CPI division reported

strong growth in the first half, which was then impacted in the second half

by supply chain and COVID-19 disruptions, ending the year 3.8% ahead

(+7.7% OCC) of 2020. W&P revenues fell 5.8% year-on-year (-2.7% OCC)

with higher EMEA sales insufficient to offset lower sales in other regions.

Oil & Gas (O&G) revenues fell 11.0% year-on-year (-7.7% OCC), largely

the result of supply chain disruption which delayed deliveries, particularly

in the final quarter. Sales to the midstream sector were up double-digit

on an OCC basis, benefiting from project wins in the Middle East. Sales

to both the upstream and downstream sectors were lower, with the

downstream, as expected, proving to be more resilient.

78Rotork Annual Report 202178

Rotork Site Services, our global service network and a key differentiator in

our industry, made good progress in the period despite access to customer

sites remaining a challenge in some countries. Revenue is ahead of 2020

on an OCC basis and our lifetime management and reliability services

programmes continue to perform well. Rotork Site Services is managed as

a separate unit within Rotork’s divisions and contributed 21% (2020: 19%)

of Group revenue.

Gross margin reduced 80 basis points to 46.2% (-110bps OCC). Logistics

costs remained at elevated levels throughout the year and whilst the

surcharge introduced in the first half of the year helped mitigate the costs

in the second half, this and the lower revenue were the largest contributors

to the reduction in gross margins. The cost increases related to supply

chain shortages were mitigated throughout the year by the progressive

price increases as intended.

Overheads continued to be carefully managed and reduced by £1.9m

on an OCC basis compared with 2020.

Operating Profit was £105.7m, 6.5% lower year on year. Adjusted

operating profit was £128.1m, a decrease of 10.1% over the prior year,

with the adjusted operating margin decreasing 110 basis points to 22.5%

(Restated

2020: 23.6%). On an OCC basis, adjusted operating profit

decreased 140 basis points from 23.6% to 22.2%, the difference to the

reported numbers reflecting the stronger relative performance of our CPI

business in APAC versus supply chain disruption in Americas and EMEA.

Net finance income was £0.2m (2020: expense of £0.3m) because of a

lower interest cost and a more favourable impact of exchange gains/losses.

The effect of a change in the geographic mix of profits in regions where

we operate drove up the adjusted effective tax rate to 23.8% (2020:

23.4%) resulting in adjusted earnings per share of 11.3p (2020: 12.5p),

a decrease of 9.6%. Statutory earnings per share were 9.2p (2020: 9.8p),

a decrease of 9.6%.

Growth Acceleration Programme

We entered 2021 with the workstreams under the Growth Acceleration

Programme (GAP) well underway and with considerable momentum,

strengthening the foundation of our business. Within the Commercial

Excellence pillar, we continued to restructure the sales back-office

functions, including the closure of our Petaluma office in the US, the

expansion of EMEA activities transferred into our Bath and Lucca centres

of excellence and the establishment of an APAC centre of excellence

in Malaysia. These reorganisation activities and carryover benefits from

previous route-to-market changes delivered a 2021 benefit of £1.7m

and account for £0.3m restructuring costs in the year.

Within the Operational Excellence pillar, the focus on managing our factories

through COVID-19 redirected efforts that might otherwise have been spent

on driving GAP initiatives. The Global Strategic Sourcing (GSS) team had

to focus on managing our supply chain, as COVID-19 affected suppliers to

varying degrees throughout the year, to ensure we maintained the supply

of components required to meet customer deliveries. There were challenges

with both component supply and the logistics of getting the components

to our factories. Continuous improvement and lean initiatives continued

throughout the year with ~350 lean events completed. Continuous

improvement and lean delivered £2.2m of savings in the year. The footprint

optimisation programme continued with the closure of production lines at

the Houston, San Sebastian and Cusago sites. Other Rotork manufacturing

sites will continue to support customers, ensuring no discontinuity with past

service. The in-year benefits of these transfers and those completed part-way

through 2020 were £1.0m of incremental benefits.

2021 saw continued progress in our Growth Acceleration Programme,

with the Group generating savings of £6.8m compared with GAP

restructuring costs of £4.9m, and further investment of £13.6m in our

D365 ERP system, of which £8.5m was expensed in the year in line with

the revised accounting guidance on Software as a Service. This means the

cumulative impact on the income statement of the Growth Acceleration

Programme from 2018 to date has been £30.2m, which exceeds the

cumulative £10.7m restructuring costs. The cumulative cash benefits,

once we include the impact of working capital savings, capital costs

and disposals are now £31.8m.

Adjusted items

Adjusted profit measures are presented alongside statutory results as we

believe they provide a useful comparison of underlying business trends

and performance from one period to the next.

The statutory profit measures are adjusted to exclude amortisation of

acquired intangibles and other items, comprising the net restructuring

costs resulting from the Growth Acceleration Programme and software

costs associated with the new ERP development.

Adjusted earnings reconciliation

£m

Statutory

results Amortisation

Restructuring

costs

Software as

a service

Adjusted

results

Operating profit 105.7 9.0 4.9 8.5 128.1

Profit before tax 105.9 9.0 4.9 8.5 128.3

Tax (25.7) (1.8) (0.6) (2.4) (30.5)

Profit after tax 80.2 7.2 4.3 6.1 97.8

The table above adjusts the statutory results for the significant non-

cash and other adjustments to give adjusted results. Note 2 sets out the

alternative performance measures used by the Group and how these

reconcile to the statutory results. Further details of the restructuring costs

are provided in note 4.

Organic constant currency results

We also present OCC figures to exclude the impacts of currency, acquisitions, business closures and disposals.

£m

2021 as

reported

Constant currency

adjustment

2021 at 2020

exchange rates 2020

Revenue 569.2 20.5 589.7 604.5

Cost of sales (306.4) (12.5) (318.9) (320.2)

Gross profit 46.2% 262.8 8.0 45.9% 270.8 47.0% 284.3

Overheads 23.7% (134.7) (5.2) 23.7% (139.9) 23.5% (141.8)

Adjusted operating profit

22.5% 128.1 2.8 22.2% 130.9 23.6% 142.5

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

2 As a result of IFRIC agenda guidance in April 2021 on Software as a Service (SaaS) and treatment under IAS 38, 2020 has been restated to reflect the updated treatment.

The detail on this restatement can be found in note 1.

79www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Financial review continued

Currency

In 2021 we experienced an overall currency headwind. The major

currencies impacting the income statement are the US dollar and the euro.

The US dollar/sterling average rate of $1.38 (2020: $1.28) was a 10 cent

headwind, whilst the euro/sterling average rate was €1.16 (2020: €1.12),

a 4 cent headwind. With the average sterling rate across the basket of

other currencies, particularly India, Russia and Mexico, strengthening in

2021 this has resulted in a £20.5m or 3.6% headwind reported to revenue.

The impact of currency on the Group is both translational and

transactional. Given the locations in which we have operations and the

international nature of our supply base and sales currencies, the impact

of transaction differences can be very different from the translation impact.

We are able partially to mitigate the transaction impact through matching

supply currency with sales currency, but ultimately, we are net sellers of

both US dollars and euros. It is the net sale of these currencies which we

principally address through our hedging policy, covering up to 75% of

net trading transactions in the next 12 months and up to 50% between

12and 24 months.

In order to estimate the impact of currency, at the current exchange

rates we consider the effect of a one cent movement versus sterling.

A one euro cent movement now results in approximately a £200,000

(2020: £250,000) adjustment to profit and for US dollar, and dollar-related

currencies, a one cent movement equates to approximately a £600,000

(2020: £700,000) adjustment.

Return on capital employed (ROCE)

Our capital-efficient business model and strong profit margins mean

Rotork generates a high ROCE. Our definition of ROCE is based on

adjusted operating profit as a return on the average net assets excluding

net cash and the pension scheme liability, net of the related deferred tax.

The average capital employed decreased 3.0% over the year to £424.8m as

there were no acquisitions in 2021 and we returned £50m of shareholders’

funds through a share buyback. However due to the reduction in adjusted

operating profit, ROCE declined to 30.1% (2020: 32.5%).

Taxation

The Group’s headline effective tax rate increased from 23.8% to 24.2%.

Removing the impact of the non-recurring adjustments provides a more

reliable measure and, on this basis, the adjusted effective tax rate is 23.8%

(2020: 23.4%), with the year-on-year increase largely due to the change

in Indian withholding tax in 2020. The Group expects its adjusted effective

tax rate to remain higher than the standard UK rate due to higher rates

of tax in China, the US, South Korea, Germany, India, and Australia.

The Group’s approach to tax continues to be to operate on the basis of

full disclosure and co-operation with all tax authorities and, where possible,

to mitigate the burden of tax within the local legislation.

Cash generation

Our strong cash generation resulted in a net cash position of £114.1m

at the end of the year (2020: £178.1m). Our cash conversion KPI shows

a conversion of 108.0% of adjusted operating profit into cash which

although still strong is lower than the 129.5% reported in 2020. Cash

outflow on Property, Plant and Equipment was £13.2m (2020: £15.5m),

plus £5.2m in capitalised software (2020: nil) and £8.5m in software which

was expensed in the period (2020: £9.8m). Our Research and Development

(R&D) cash spend has decreased 2% to £12.6m which represents 2.2%

of revenue (2020: £12.9m and 2.1%). We have continued to make good

progress with the development of our strategic products, particularly

electric actuation and the underlying technologies. During the year,

significant R&D resource was diverted to re-engineer existing products

in response to global supply-chain shortages. Dividends of £75.5m,

tax payments of £32.0m, share buyback programme of £50.3m and

purchase of own shares of £7.8m were the other major outflows.

Control of working capital as defined in the cash-flow statement,

using average exchange rates and excluding disposals, is key to achieving

our cash generation KPI. Inventory increased by £6.9m, as we sought to

mitigate the disruption of supply chain constraints whilst trade receivables

reduced, generating a cash inflow of £18.4m. Trade receivables measured

as days’ sales outstanding

, increased slightly from 56 to 57 days. Net

working capital in the balance sheet decreased to 21.8% of revenue

compared with 23.2% in December 2020 and generated a £16.7m inflow

in the cash flow statement.

COVID-19 disruption and geopolitical risk

We have reported previously COVID-19 and geopolitical risk as two areas

of risk that we were monitoring, and which could impact Rotork. These

mirror some of the scenarios we include in our annual viability statement

which can be found on page 93. Our COVID Committee continues to

monitor the external influences of COVID-19 on the business, and also

coordinate the internal response.

Our operational teams have performed well in what was a very

challenging period due to COVID-19. Whilst we made every effort to

keep our production facilities open, we did not hesitate to shut them

if we believed there was any risk to our colleagues, and there were

several closures in the period. The requirement for staff to isolate and

quarantine affected many of our facilities. Similar issues were also faced

by our component and logistics suppliers, causing supply chain delays

and disruption, which were further impacted by the temporary closure

of the Suez Canal in March 2021. As widely reported, these disruptions

have had a very significant impact on logistics costs (particularly sea freight)

and commodities. We have responded by utilising our global network to

mitigate supply chain disruption, which has intensified in the second half

of the year, and have built some tactical inventories. Our Global Strategic

Sourcing team have been focused on mitigating the impact of rising

commodity costs. We expect component supply and costs (including

of electronics) to remain a challenge for the first half of next year,

along with the current level of heightened logistics costs and disruption.

As a global business we continue to monitor the trade position between

all locations where we are based or have customers or suppliers, and have

considered the potential impact of additional trade barriers between these

countries. We will take steps where necessary to mitigate any such changes

but continue to believe they will not materially impact the Group’s results.

We have included scenarios in the viability assessment which models the

impact of all of these current uncertainties. The viability statement can

be found on page 93.

80Rotork Annual Report 2021

Credit management

The Group’s credit risk is primarily attributable to trade receivables, with

the risk spread over a large number of countries and customers, and no

significant concentration of risk. Creditworthiness checks are undertaken

before entering into contracts or commencing trade with new customers,

and in companies where insurance cover operates, the authorisation

process works in conjunction with the insurer, taking advantage of their

market intelligence. We maintained coverage of the credit insurance policy

during the year and have cover in place for virtually all of our companies

at an aggregate of 90% of receivables. This level of coverage was retained

despite the challenges faced in the credit market as a result of COVID-19.

Where appropriate, we use trade finance instruments such as letters of

credit to mitigate any identified risk.

Treasury

The Group operates a centralised treasury function managed by a Treasury

Committee, chaired by myself and also comprising the Group Financial

Controller and Group Treasurer. The Committee meets regularly to consider

foreign currency exposure, control over deposits, funding requirements

and cash management. The Group Treasurer monitors compliance with

the treasury policies and is responsible for overseeing all of the Group’s

banking relationships. A Subsidiary Treasury Policy restricts the actions

subsidiaries can take and the Group Treasury Policy and Terms of Reference

define the responsibilities of the Group Treasurer and Treasury Committee.

The Group uses financial instruments where appropriate to hedge

significant currency transactions, principally forward exchange contracts

and swaps. These financial instruments are used to reduce volatility

which might affect the Group’s cash or income statement. In assessing

the level of cash flows to hedge with forward exchange contracts, the

maximum cover taken is 75% of net forecast flows. The Board receives

treasury reports which summarise the Group’s foreign currency hedging

position, distribution of cash balances and any significant changes to

banking relationships.

The Group has one committed £60m revolving credit facility expiring

in June 2022. At year-end this was undrawn, resulting in £60m

being available.

Retirement benefits

The Group accounts for post-retirement benefits in accordance with

IAS19, Employee Benefits. The balance sheet reflects the net deficit of

these schemes at 31 December 2021 based on the market value of the

assets at that date, and the valuation of liabilities using year-end AA

corporate bond yields. We closed both the main defined benefit pension

schemes to new entrants; the UK scheme in 2003 and the US scheme

in 2009, in order to reduce the risk of volatility of the Group’s liabilities.

In 2018 we further reduced the risk of volatility when we completed the

closure to future accrual of both the UK and US schemes. Members of

the defined benefit schemes were transferred onto the relevant defined

contribution plan operating in their country.

The most recent triennial valuation of the UK scheme took place at

31 March 2019 and showed an actuarial deficit of £28.7m and a funding

level of 86%. A recovery plan was agreed with the Trustees as part of

the 2019 valuation, resulting in required annual contributions from the

Company of £6.8m with effect from 1 April 2020. The annual update to

the actuarial valuation at 31 March 2021 showed the deficit had reduced

to £16.8m and the funding level increased to 92%. An increase in gilt yields

compared with the COVID-19 impacted March 2020, reduced the value

of scheme liabilities whilst investments performed well over the period.

On an accounting basis the deficit in the schemes decreased from £38.5m

to £7.5m during 2021 and the funding level increased from 85% to 97%.

The Company paid total contributions of £7.4m over the year and the

schemes’ assets increased in value by £11.1m. The value of the schemes’

liabilities has reduced by £13.9m (2020: increase of £32.7m) due to the

60 bps increase in discount rate at the year-end to 1.9%, which reflected

the increase in yields on AA corporate bonds over 2021.

The accounting deficit is different to the actuarial deficit as on an

accounting basis we are required to use AA-rated corporate bond yields

to value the liabilities. The UK scheme’s actuarial valuation uses gilt yields

since this most closely matches the investment strategy which is designed

in part to hedge the interest rate and inflation risks borne by the scheme.

Cash contributions are driven by the actuarial valuation.

Dividends

The Board is proposing a final dividend of 4.05p per share. When taken

together with the 2.35p interim dividend paid in September 2021, the

6.40p (2020: 6.30p per share) represents a 1.6% increase in dividends

over the prior year. This gives dividend cover of 1.8 times (2020: 2.0 times)

based on adjusted earnings per share.

Jonathan Davis

Group Finance Director

28 February 2022

1 Days’ sales outstanding is calculated on a count-back method. The sales value including

local sales taxes is deducted from the year-end trade receivables to calculate the

number of days sales outstanding.

2 As a result of IFRIC agenda guidance in April 2021 on Software as a Service (SaaS) and

its treatment under IAS 38, 2020 has been restated to reflect the updated treatment.

The detail on this restatement can be found in note 1 to the accounts.

81www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Managing the risks of our business is essential to our Purpose

of ‘keeping the world flowing for future generations’. Our approach

to risk is intended to protect the interests of all our stakeholders.

How we

manage risk

Risk management

In this section

Risk management

Description of the Company’s risk

management process

Read more on page 87 to 92

82Rotork Annual Report 2021

Managing business risks

As with all businesses, there are certain risks

and uncertainties that may impact Rotork’s

ability to achieve our objectives. The risk

management process is an established way of

identifying and managing risk and is part of

our governance framework as set out in our

Corporate Governance report, see page 105.

The continuous improvement and execution of

a comprehensive and robust risk management

system is of paramount importance to Rotork.

The Group continues to build on the progress

made in recent years on our risk management

framework, further integrating it into business

practices and decision-making. In 2021, key

areas of focus included supply chain disruption,

people, cyber-security, climate-related risks

and health and safety. We utilised our horizon

scanning risk methodology to plot climate-

related risks and other business risks that

have more uncertain impact and likelihood

characteristics. This allows us to visualise risks

across broader timeframes and look at risks that

may materialise at variable rates. We can also

see where risks and opportunities may interact

and what action plans we should put in place

to manage and monitor those risks.

An established functional risk review process

results in a ‘bottom-up’ assessment of Group

risks. The bottom-up assessment process

includes a review with all central functions,

a focus on risk identification, mitigation and

reporting, including emerging risks, risks

associated with ESG and development of further

plans to respond to risks in accordance with risk

appetite. The risks identified in the bottom-up

reviews are consolidated before a ‘top-down’

evaluation is performed by management and

then reviewed by the Board. The consolidation

process looks at all risks identified, the impact

and likelihood of each risk and where common

risk themes have been identified. Using these

factors, the Group risks are then evaluated

against the existing set of Principal Risks and

Uncertainties, and management review if any

changes are required to the Principal Risks

and Uncertainties based on those factors.

Risk management process

Rotork PLC Board

– Oversight of Risk management and internal controls

– Define risk appetite, statements and preferences

– Promote a risk-aware culture that emphasises integrity at all levels of business operations

– Determine our Principal Risks and consider emerging risks, ensuring that risk management is

embedded within the core processes of the Group

Group Risk and Compliance

– Support the Group to identify risks and put in place appropriate mitigations

– Promote a risk-aware culture and adherence to risk appetite

– Report on the status of Principal Risks and emerging risks periodically, including Key Risk

Indicator dashboards

Group Internal Audit

– Provide independent assurance over the risk management framework through audits and other

assurance work performed during the year, which is reported to the Audit Committee

Audit Committee

– Review the risk

management policy

– Review the effectiveness of

internal controls

– Approve the internal audit

assurance plans

ESG Committee

– Promote appropriate risk

management of ESG

matters

– Review how we use

the three pillars of our

sustainability framework

(Operating Responsibly,

Enabling a Sustainable

Future, and Making a

Positive Social Impact) to

guide our decision-making

and drive our success

in line with our risk appetite

Functional Management

– Identify current and emerging risks specific to the relevant function/business unit

– Implement risk management within their designated area of accountability

Rotork Management

Board (RMB)

– Identify, consolidate, report

and manage Principal and

Key Risks

– Report to the Plc Board on

the management of our

Principal and Key Risks

Top-down

risk assessment

Ongoing risk

mitigation reviews and

controls testing

Bottom-up

risk assessment

Divisions and functions

identify, manage and

monitor risks

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Corporate Governance Financial Statements Strategic Report

Risk appetite framework

The Board is responsible for determining the

nature and extent of the risks it is willing to

take in achieving our strategic objectives.

Our Group risk appetite statement sets the tone

from the top and supports decision making.

The risk appetite framework provides qualitative

and quantitative insight on risks and supports

proactive mitigation planning.

Risk appetite

Rotork’s Purpose, ‘Keeping the world flowing

for future generations’, is embedded in the way

we assess risks. We are committed to generating

stakeholder value through innovation and

sustainable growth and will only take considered

risks that fulfil our strategic objectives and do not

risk our Values, financial stability or our resilience.

We use the three pillars of our sustainability

framework – Operating Responsibly, Enabling

a Sustainable Future, and Making a Positive

Social Impact to guide our decision making

and drive our success.

The Board sets the Group’s risk appetite

preference, stating whether we are tolerant,

neutral or averse to a particular risk. These

preferences guide our approach to managing

risk. The risk appetite statements provide

guiding principles to support decision

making at both a Board level and throughout

theGroup.

During 2021, the Board reviewed and

updated the risk appetite framework to

reflect changes to the nature of Rotork’s

business and our operating environment,

including responses to the risks associated

with sustainability, supply chain disruption

and COVID-19.

The Board have also reviewed the application

of risk appetite statements and preferences

by monitoring the Key Risk Indicators

throughout the year.

Review and update the risk

appetite preferences

Identify key decisions

Evaluate decisions

against risk appetite

Review Key Risk Indicators

Risk management continued

Risk management process

Rotork Annual Report 2021

Update on our response

to COVID-19

We continue to monitor the impact

of COVID-19. The most significant

risk linked to the impact of COVID-19

has been in relation to supply

chain disruption as the availability

of key components, such as semi-

conductors, deteriorated. Our business

has put in place various techniques

to manage the impact, including

working with suppliers, identifying

and testing alternatives and putting in

place forward purchasing agreements.

As a global business, travel to sites

has been limited in 2021, but senior

leaders have been able to perform

some travel or increase the level of

virtual communication within the

business. The Plc Board and Rotork

Management Board considered how

COVID-19 impacted our Principal

Risks throughout the year and the

COVID-19 Steering Committee

continued to meet twice a week

throughout the year. The Plc Board

reviewed risk appetite in light of the

impact of COVID-19 and the key

risk indicators were also kept under

review. The Group will continue to

monitor the impact of the pandemic

on our risk profile. See Principal Risks

on pages 87 to 92.

Principal Risks and Uncertainties

Our risk management processes are dynamic.

We continue to assess and prioritise the risks

related to our strategic objectives and their

impact on the Principal Risks detailed below.

These risks are the result of the robust top-

down and bottom-up risk assessment process

previously described. Risks include those that

would threaten the Group’s business model,

future performance, solvency or liquidity.

Emerging risks and opportunities

and horizon scanning

Our risk management process includes

consideration of risks and opportunities that may

impact Rotork in the future. Emerging risks are

risks that are unlikely to materialise in the short

term, risks that cannot be fully assessed yet, or

risks that we are not monitoring but that could

have a significant impact on our ability to achieve

our strategy.

Emerging risks are identified, managed and

monitored based on the information available

and put in place plans to monitor or manage the

risk. In 2021, we reviewed the potential impact

of a number of new and emerging risks and

developed a framework to support our analysis

of those risks. Emerging risks are identified

throughout the year, investigated in detail at our

divisional and functional risk workshops, and

with the Rotork Management Board and Plc

Board formally twice a year.

We believe our ability to identify risks and

opportunities that may pose a future impact

to Rotork and our stakeholders is fundamental

to our successful risk management process.

Horizon scanning is a technique of viewing risks

and opportunities over the medium to longer

term and allows the business to look beyond

the short term and evaluate our strategy against

possible future realities which are then used to

inform future business planning. Our horizon

scanning exercises are performed in conjunction

with our analysis of emerging risks and this

year, we focused on the risks and opportunities

associated with climate change across multiple

time horizons to support our disclosures in

line with TCFD (Task Force on Climate-related

Financial Disclosures). For more information

see pages 59 to 76.

Brexit

Throughout 2021, the risks associated with Brexit

were monitored and mitigating actions put in

place to minimise potential impacts. Following

the UK’s departure from the European Union,

the impact has been well within our expectations

and the actions taken by management are

currently mitigating the risk. Going forward,

we will continue to monitor potential risks in

relation to trade, logistics and supply chain.

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Corporate Governance Financial Statements Strategic Report

Principal Risks

Update on 2021 Principal Risks

In 2021, the risk landscape has been a

complex one, with many risks interconnected.

Four of the Principal Risks show an increase

from 2020. The knock-on impact of

COVID-19, causing an increased level of

supply chain disruption due to the availability

of key components affected our ability to

deliver to customers. COVID-19 appears to

have caused people to re-evaluate how they

work and in certain geographies, the labour

market has been very active. We have put in

place responses to deal with these risks and

management focus has been on the actions

and mitigations to reduce the impact of

those risks as much as possible. A summary

of some of the key reasons for increases

in four of our Principal Risks is provided

as well as some of the key management

actions that were taken to respond to the

increase in those risks. We continue to

monitor heightened geopolitical tensions

and the overall risk score of our ‘Geopolitical

Instability’ risk is consistent with the prior year

but showing as increasing trend. See pages

87 to 92 for more details. Key Risk Indicators

(KRIs) have also been kept under review

during 2021. A KRI dashboard is presented

on a quarterly basis to the Board. Our KRI

dashboard is an important tool to measure

the effectiveness of management actions.

In 2021, KRI thresholds for geopolitical risk

were updated to reflect our growth strategy,

providing more meaningful risk insight to

management and the Board.

Climate change

During 2021 we performed a significant

amount of risk and opportunity analysis in

preparation for our disclosures in line with

TCFD. This began with including climate change

as a specific agenda item in every functional

risk workshop held in the business, and then

by working with an independent third party

to run a series of dedicated risk workshops

with senior leaders in the business. The output

of this work is described in more detail in the

TCFD section of this report on pages 59 to 76.

Following the identification and qualification

of the risks and opportunities in 2021, the next

step is to quantify the risks and opportunities.

Our strategic planning will consider how

best to take advantage of the opportunities,

particularly in supporting our customers to

reduce their emissions, as well as look internally

to minimise our own impact on climate change.

The Group has embedded the identification of

climate-related risks and opportunities into the

Group’s risk management framework. Risks

are identified throughout the normal course of

business and captured in detailed risk registers.

This includes assessment of the physical risks

of climate change and the risks related to the

transition to a low carbon economy. The ESG

Committee has monitored the development of

our ESG Strategy, including the risks associated

with climate change, and during the year we

published our first Sustainability Report which

highlighted risks and opportunities associated

with climate change.

People

Our people are at the centre of everything we

do. During 2021, the return to the workplace

for many of our colleagues and an active

recruitment market in certain locations led

to an increased risk that our activities could

be impacted. Our management response

included flexible working transition practices

where possible, compensation reviews and a

revised approach to recruitment. We continue

to review our approach to remuneration on

a more regular basis than annually, including

recognition which we already link to our

Values. Ways of working and employee

expectations have changed more rapidly

recently than in many years. As we want to

continue to be an employer of choice for future

and current colleagues, we continue to monitor

the engagement of our colleagues, in particular

through our engagement pulse surveys

conducted through the year.

Risk Reason(s) for increase Management actions

Supply chain

disruption

– Availability of key components such as

semi-conductors

– Lower freight availability and significantly

higher rates

– Increase in price of commodities such as

copper, aluminium and steel

– Building tactical inventories

– Optimising network of

global suppliers

– Communicating with

suppliers and logistics

partners

Critical IT

system

failure and

cybersecurity

– Increase in external threat environment

for cyber-attacks, specifically

ransomware attacks

– Continued monitoring of our

environments, vulnerability

and threat analysis and

timely patching

Increased

Competition

– Growth in demand coupled with a

reduction in availability of components

– Greater focus on customer

value, innovation and new

product development

– Price reviews

Growth

Acceleration

Programme

– Supply chain disruption and people

activities increased the risk that the GAP

objectives may not be delivered in the

timeframes originally anticipated

– Supply chain focused actions

as previously described

– Engagement survey and

focus on retention

Principal Risks and Uncertainties continued

86Rotork Annual Report 2021

Low Medium High

HighLow Medium

Economic & market conditions

1. Decline in market confidence

2. Increased competition

3. Geopolitical instability

4. Failure of an acquisition to deliver value

Corporate social responsibility

5. Health, safety & environment

6. Compliance with laws and regulations

Product quality and reliability

7. Major in-field product failure

8. Supply chain disruption

IT security, continuity and system implementation

9. Critical IT system failure and cybersecurity

Change management

10. Growth Acceleration Programme

Principal Risks

Likelihood

Impact

Focus for 2022

In 2022 we will continue to build on

the work performed in 2021, especially

in relation to the risks identified as part

our work on TCFD. We expect supply

chain disruption risks, risks associated

with retention and attraction of staff and

risks associated with cyber-security to

persist in 2022 and we will monitor the

effectiveness of our responses to those

risks. We will focus on our risk culture,

and training will be provided on risk

management. Our work on measuring

emerging risks and horizon scanning

will continue and the risks associated

with climate change will be part of this,

as we build our maturity and scenarios.

Economic & market conditions

Corporate social responsibility

Product quality & reliability

IT security, continuity and system implementation

Change management

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Corporate Governance Financial Statements Strategic Report

Economic and market conditions

Principal risk

Link to strategy

1 2 3

Link to viability scenario

1: Revenue decline

Likelihood Trend

Description

A decline in government and private sector confidence and spending will

lead to cancellations of expected projects or delays to existing expenditure

commitments. This lower investment in Rotork’s traditional market sectors

would result in a smaller addressable market, which in turn could lead to

a reduction in revenue from that sector.

Update

This risk remains unchanged from the prior year. We continue to identify

opportunities in how we can support our customers to reduce emissions and

increase efficiency.

Key mitigating actions

– Product development and innovation to address new markets and new

applications in existing markets.

– Geographic and end-market diversification provides resilience to a

reduction in any one geographic area but may not fully mitigate a change

in the larger end-markets.

– Small to mid-sized orders are generally less likely to come under pressure

during uncertain economic times. We estimate that 75% of Rotork

orders by value are small to mid-sized, i.e. less than £100k.

– Increased focus on service offerings to capitalise on increased demand

for product maintenance.

Risk appetite statement

We will in the long term move to increase the addressable markets which

we serve.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Continue our investment in innovation converting the pipeline into

launches.

– Identify opportunities to support our customers to increase efficiency,

aligned to the electrification of everything trend.

1. Decline in market confidence

Low Medium High

Principal risk

Link to strategy Link to viability scenario

1: Revenue decline

2: One-off costs

Likelihood Trend

Description

Increased competition on price or product offering leading to a loss of sales

globally or market share.

Update

This risk has increased since the prior year, as growth in demand coupled

with a reduction in availability of components has led to the ability to deliver

to customers being a further competitive dynamic.

Key mitigating actions

– R&D investment and organic product development, or acquisition of

companies with new products, to maintain differentiation from the

competition both in terms of the features and quality of our products

and the services we provide.

– Global Strategic Sourcing team securing lower prices and efficiencies

despite difficult market.

– Rotork has production or sales and service operations in many

low-cost countries.

Risk appetite statement

We will invest in R&D in order to retain a differentiated product portfolio

and will support this by providing a leading service element to our offering.

We will invest in new products and technologies where there is evidence of

market opportunity.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Continue our investment in innovation.

– Participate in M&A that provides meaningful value to the business

and our stakeholders.

– Work with our supply chain partners to build strategic partnerships.

– Review how we deliver to customers including moving forward with

our digital strategy.

2. Increased competition

1 2 3

Low Medium High

Accelerated growth

Increased margins

Sustainability

Principal Risks and Uncertainties continued

88Rotork Annual Report 2021

Principal risk

Link to strategy Link to viability scenario

2: One-off costs

Likelihood Trend

Description

Increasing social and political instability, including Brexit, results in disruption

and increased protectionism in key geographic markets. Business disruption

could impact our sales and might ultimately lead to loss of assets located

in the affected region.

Update

This risk is increasing since the prior year as a result of heightened tensions

globally. Rotork continues to monitor geopolitical events.

Key mitigating actions

– Regular review of global markets considering social and political risks and

contingency plans. Market exit strategies developed and implemented

as required.

– Key Risk Indicator monitoring the percentage of revenue from high risk

markets reported quarterly to the Board.

– The geographic spread of Rotork’s operations and customers limits the

impact of any one market on the results of the Group as a whole.

– Group Treasury policy sets cash limits for overseas businesses, restricting

our exposure to any one market. The Treasury Committee assesses

compliance with these limits on a monthly basis.

Risk appetite statement

We will continue to operate a geographically diverse business and actively

pursue opportunities and efficiency of our global supply chain.

Focus for 2022

– Continuation of our existing key mitigating actions.

– Review of plans to deal with the impact of geopolitical tensions in the

territories we do business in.

3. Geopolitical instability

Low Medium High

Principal risk

Link to strategy Link to viability scenario

None

Likelihood Trend

Description

Failure of an acquisition to deliver the growth or synergies anticipated,

either due to unforeseen changes in market conditions or failure to integrate

an acquisition effectively. Significant financial under-performance could

lead to an impairment write-down of the associated intangible assets.

Update

This risk is unchanged. Rotork continues to monitor markets for

suitable opportunities.

Key mitigating actions

– Forecast market conditions are considered during the due diligence

process.

– Due diligence processes provide information to assist management

and minimise likelihood of any surprises.

– During the due diligence process a 100 day plan is prepared to manage

the important initial stages of integration.

– Careful consideration and negotiation of acquisitions by senior

management to ensure the purchase price represents value for money.

– Effective integration and communication of Rotork’s policies

and procedures.

Risk appetite statement

We will pursue acquisition opportunities that are in line with our growth

agenda and review each on its individual merits and expected benefits.

Focus for 2022

– Continuation of our existing key mitigating actions.

4. Failure of an acquisition

to deliver value

Low Medium High

1 2 3 1 2 3

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Corporate Governance Financial Statements Strategic Report

Corporate social responsibility

Principal risk

Link to strategy Link to viability scenario

2: One-off costs

Likelihood Trend

Description

The nature of Rotork’s core business and geographical locations involves

potential risks to the health and safety of our employees or other

stakeholders. A failure of our products or internal processes could have

an impact on the environment.

Update

This risk is unchanged from the prior year. A number of initiatives have been

delivered in the last year including the roll-out of the Rotork Life Saving Rules.

We continue to focus on the health, safety and wellbeing of our colleagues

and customers.

Key mitigating actions

– Compliance with relevant legislation and codes of best practice.

– Robust health and safety policy and training included in all staff

inductions, in addition to regular refresher training.

– Refresh of the global health and safety standards.

– Regular health and safety audits, site checks and reporting.

– Appropriate training is provided for known safety risks.

– Regular communications about accidents at work and visible

key risk indicators.

– Engagement of a third-party to provide international support and

travel advice in all markets and geographies.

– Proactive culture of ‘safety spots’ introduced to help reduce safety issues.

– Internal assurance reviews conducted during the year.

– Monitoring of our energy usage and emissions of our sites and

implementation of more energy efficient solutions.

Risk appetite statement

We are fully committed to ensuring the health and safety of all our employees

and other stakeholders and we are committed to reducing any negative

impact of our environmental footprint.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Implement our refreshed Global Standards. There are twelve in total

which are designed against our risk profile.

– Enhance our environment data collection processes to support the

identification and targeting of high energy usage and emissions across

our group.

– Update our internal assurance programme for greater independence post

COVID-19 and inclusion of the Rotork Life Saving Rules into testing plans.

– As part of the Global Standards programme we will provide additional

specific training to colleagues to enhance their competencies and safety

awareness against our highest risks.

5. Health, safety

and the environment

1 2 3

Low Medium High

Principal risk

Link to strategy Link to viability scenario

2: One-off costs

Likelihood Trend

Description

Failure of our staff or third parties who we do business with to comply

with laws or regulations or to uphold our high ethical standards and Values.

Update

This risk is unchanged from the prior year.

Key mitigating actions

– We are committed to reduce our environmental impact and to comply

with all legal and regulatory requirements.

– A ‘no tolerance’ culture, supported by a tone from the top, reinforcing

our high ethical standards and Values.

– A training programme providing appropriate learning and awareness

on a range of compliance topics to relevant staff.

– Due diligence procedures in place for agents and acquisition targets

before engaging in business relationships.

– Availability and promotion of the ‘Speak Up’ policy and hotline;

no retaliation policy with concerns raised being investigated.

– Monitoring of changes in legislation, including sanctions, with

appropriate safeguards put in place.

– Ongoing assessment of the modern slavery risks arising in our business

against specific KPIs.

– Template contract terms include requirements on third parties to comply

with applicable laws.

Risk appetite statement

We have zero tolerance for non-compliance with relevant laws and

regulations in the markets in which we operate.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Continue with our ongoing training programme on key compliance

topics.

– Further enhance our controls relating to the appointment and monitoring

of third party intermediaries.

– Review our processes and our employees’ understanding of trade

compliance and fair competition, and identify any recommended

improvements.

– Continue to enhance our people’s awareness and confidence in using our

‘Speak Up’ hotline.

6. Compliance with laws

and regulations

1 2 3

Low Medium High

Accelerated growth

Increased margins

Sustainability

Principal Risks and Uncertainties continued

90Rotork Annual Report 2021

Product quality and reliability

Principal risk

Link to strategy Link to viability scenario

3: Loss of profitability

Likelihood Trend

Description

Major in-field failure of a new or existing Rotork product potentially leading

to a product recall, major on-site warranty programme or the loss of an

existing or potential customer.

Update

This risk is unchanged from the prior year.

Key mitigating actions

– An established product design review process pre-launch, using Rotork’s

extensive product launch experience.

– Fitting and commissioning products wherever possible by Rotork

engineers to ensure correct operation when first used.

– Comprehensive set of quality control procedures over suppliers. These

include supplier visits, audits and a scorecard system to measure their

performance.

– Global service coverage ensures that any product failure issues should be

dealt with quickly and efficiently to minimise any reputational impact.

Risk appetite statement

We will maintain robust quality control procedures over components purchased

and over our finished products in all of our manufacturing locations.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Focus on quality throughout the innovation pipeline.

– Leverage our unrivalled installed base through our digital offerings

such as the recently launched iAM.

– Our cost of quality programme will continue and we expect this to

start to generate customer value in 2022 and beyond.

7. Major in-field product failure

Low Medium High

Principal risk

Link to strategy Link to viability scenario

2: One-off costs

Likelihood Trend

Description

Supply chain disruption which may arise such as a tooling failure at a key

supplier, logistics issue, severe weather events impacting key suppliers which

would cause disruption to manufacturing at a Rotork factory.

Update

The availability of key components and the logistical challenges to source key

components has increased this risk. We continue to forecast our component

requirements and work with our supply chain partners.

Key mitigating actions

– Dual sourcing for key components wherever possible provides mitigation

for key suppliers or a tooling failure.

– A Key Risk Indicator measures single sourced critical components and

is reported quarterly to the Board.

– Maintaining safety stock levels sufficient to protect against

short-term disruption.

– Regular monitoring and replacement of our tooling at all suppliers

reduces the risk of a tooling failure.

– Identification of our critical suppliers and components, and improvements

in supply.

– Supply chain due diligence and monitoring of supplier quality.

– Strengthening of our risk monitoring processes, including the ways we

identify and respond to early warning signs of potential supplier failure.

– Building tactical inventories and increasing direct purchasing of

key components.

Risk appetite statement

We will use our purchasing power to optimise our vendor base, ensure value

for money and reduce lead times whilst maintaining quality.

We will maintain robust quality control procedures over components

purchased and over our finished products in all our manufacturing locations.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Work with our suppliers and partners to source key components.

– Re-engineer products and review the adaptability of alternative

components, following robust quality testing processes.

8. Supply chain disruption

Low Medium High

1 2 3 1 2 3

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Corporate Governance Financial Statements Strategic Report

IT security, continuity and system implementation

Change management

Principal risk

Link to strategy Link to viability scenario

1: Revenue decline

Likelihood Trend

Description

Failure to provide, maintain and update the systems and infrastructure

required by the Rotork business. Failure to protect Rotork operations,

sensitive or commercial data, technical specifications and financial

information from cybercrime.

Update

Cyber risk has increased globally with all companies facing a huge increase

in ever more convincing spam. Threat intelligence and patching has played

a key role in the mitigation of this risk.

Key mitigating actions

– Established security controls, policies and procedures. Dedicated security

team using monitoring and defence tools.

– Third party cyber maturity assessments performed regularly.

– Continuously raising cybersecurity awareness through regular training

and simulated phishing attacks.

– All new IT services are designed with a ‘cloud first’ approach to improve

security, resilience and availability.

– All IT services are patched in accordance with vendor support contracts

and external advice.

– A disaster recovery solution (supported by third party service level

agreements) is in place for all critical systems.

– Increased security and authentication controls implemented for all IT users.

– Key risk indicators and a cybersecurity report submitted on a quarterly

basis to the Board.

Risk appetite statement

We will continue to review current external and internal cyber threats and

respond to them to ensure that we have appropriate processes and controls

in place.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Continue to deliver our cybersecurity strategy in line with internationally

recognised standards against an evolving threat landscape.

– Deliver our obsolescence plan, focusing on confidentiality, integrity,

and availability of our data and services.

– Implement the D365 ERP, transitioning to a more modern, resilient and

integrated architecture, optimising business performance and improving

the security and resilience of our factory systems.

9. Critical IT system failure

and cybersecurity

Low Medium High

1 2 3

Principal risk

Link to strategy Link to viability scenario

2: One-off costs

3: Loss of profitability

Likelihood Trend

Description

The Growth Acceleration Programme and other change projects lead to

business disruption or have a negative effect on day-to-day operations.

Update

This risk has increased since the prior year due to a number of external

disruptive factors delaying delivery of certain elements of the Growth

Acceleration Programme.

Key mitigating actions

– Growth Acceleration Programme workstreams are managed by a

dedicated project management office, with a mix of Rotork operational

and specific project management experience.

– There is a defined benefits tracking process to monitor outcomes against

the initial objectives of projects, including monitoring any impact on

day-to-day operations.

– Metrics are in place to predict and monitor capacity concerns across

all workstreams.

– Regular governance forums are in place to deal with risks and issues

in a timely manner.

Risk appetite statement

We will ensure that management capacity is sufficient to implement our

strategy and that business decisions do not negatively influence our day-to-

day business.

Focus for 2022

Alongside the continuation of our existing key mitigating actions we will:

– Improve our customer journey experience.

– Use the voice of customer work completed in 2021 to prioritise our new

product development efforts.

– Deliver further sourcing savings and start rolling out the D365 ERP system

to our manufacturing facilities.

1 2 3

Low Medium High

10. Growth Acceleration Programme

Accelerated growth

Increased margins

Sustainability

Principal Risks and Uncertainties continued

92Rotork Annual Report 2021

Scenario modelled Link to Principal Risks

Scenario 1:

Revenue decline

The Board considered events that would

result in a gradual erosion of revenue and

gross margin which would ultimately reduce

operating cash generation.

Decline in market confidence

Increased competition

Critical IT system failure and cybersecurity

Scenario 2:

One-off costs

Impact of a one-off cost due to a specific

issue, accompanied by a reduction or

downturn in revenue due to a specific

product or specific end market.

This scenario has been tested against the

risks from supply chain disruption and

geopolitical instability, with a significant

cost modelled, and a double-digit decline in

revenue across the 3-year plan period, and

the negative impact on working capital and

cash generation, as manufacturing capability

is impacted by supply chain.

Geopolitical instability

Health, safety and the environment

Compliance with laws and regulations

Supply chain disruption

Growth Acceleration Programme

Scenario 3:

Loss of profitability

One-off cash costs as a result of a specific

issue and a permanent loss of subsequent

profitability which affects operating

cash generation.

Major in-field product failure

Growth Acceleration Programme

Scenario 4:

Reverse stress test

Combination of impacts on the business to

the point where cashflow under modelled

circumstances is exhausted.

Multiple concurrent risks

Assessment of prospects

The Group Strategy (see pages 28 to 37) and Principal Risks (see pages 87

to 92) are well documented. The Group works closely with its customers

on projects with durations ranging from several weeks to several

years, discussing operational plans and longer-term capital expenditure

programmes. The Growth Acceleration Programme, which has progressed

well during the year, is expected to reduce the Group’s cost base and

improve the Group’s longer-term operational and financial performance

and financial position.

Whilst the Board has no reason to believe the Group will not be viable

over a longer period, the directors have assessed the viability of the Group

over a three year period taking account of the Group’s current position

and the potential impact of the Principal Risks.

Three years is considered an appropriate period over which a reasonable

expectation of the Group’s longer-term viability can be evaluated, and

is aligned with our planning horizon at both Group and Divisional level.

The Board has considered whether it is aware of any specific relevant

factors beyond the three year horizon and confirmed that there are none.

Assessment of viability

A robust assessment of the Principal Risks facing the business was

conducted through the year with the review of the risk appetite framework

and risk dashboards contributing to a fuller consideration of those risks

which might impact the business model or future performance. The

assessment has been completed on a same-state basis, and therefore

Principal Risk 4, Failure of an acquisition to deliver value, has been

excluded. The directors have considered each of the remaining Principal

Risks, individually and some in combination, and the potential impact

they could have in severe but plausible scenarios. The scenarios contained

significant one-off financial shocks and significant profit erosion impacting

the Group’s revenue. In particular, the scenarios cover different potential

impacts associated with the COVID-19 virus, disruption to supply chain or

to logistics (whatever the source of that disruption), geopolitical instability,

increasing political protectionism in respect of trade tariffs, failure of the

Growth Acceleration Programme and lower investment in the oil and

gas markets. These events occurring individually or at once have been

considered in the modelling of the different scenarios.

Financial scenario modelling was carried out to assess the impact of

these risks on the Group’s three year plan, including a reverse stress test.

Assumptions were made concerning market activity levels, the impact

of the scenarios on working capital cycles and the mitigating actions that

could be taken to reduce the cash and financial impact of the stress test

scenarios. Further mitigating actions not modelled that could be taken

if needed include curtailment of dividends or capital asset investment.

In coming to this view, the Board has considered the inherent volatility in

exchange rates and oil prices, the current inflationary environment, the

current challenges around the supply chain, and the nature of the industry

and the business cycles involved.

Given the current position of the Group and the likely effectiveness of any

mitigating actions, the Board has assessed the impact these would have

on the business model, future performance, solvency and liquidity over the

period and have a reasonable expectation that the Company will be able

to continue in operation and meet its liabilities as they fall due over a three

year period.

Viability statement

93www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Our approach

Our approach to making Board decisions under

Section 172 is set out below:

Engaging with

our stakeholders

Rotork’s Purpose and underlying culture and Values help ensure

that there is proper consideration of the potential impacts of

Board decisions on our stakeholders, being our shareholders,

employees, customers, suppliers, governments, communities

in which we operate and the environment.

Where relevant, following the decision, further engagement

and dialogue with stakeholders is undertaken, with updates

provided to the Board as necessary.

The Board scrutinises and challenges the quality of the

information presented and receives assurance and further

information where appropriate.

Board decision is taken.

Board paper templates are designed to clearly set out those

key matters which should be brought to the attention of

the Board to inform their decision making. These include:

− information and advice from external professional advisers

on commercial, financial, legal, compliance and social

and environmental issues.

− identification of those groups whose interests will be

materially impacted by the Board’s decision.

− outcome of engagement with stakeholders summarised

where relevant.

Our stakeholders

The interests of our stakeholders have informed the Board’s

decision-making throughout 2021. Key decisions relating to our

strategy and its implementation in relation to all Group companies

are taken by the Board under its Matters Reserved schedule. Those

decisions delegated to the CEO and his senior leadership team are

taken by the Rotork Management Board which meets monthly and

is responsible for implementing the strategy. Decisions made by our

subsidiaries are aligned with the strategy set by the Board and the

operational decisions made by the Rotork Management Board.

94Rotork Annual Report 2021

Section 172 duties Key examples Page

Consequences of decisions

in the long term

Our strategy

Our business model

Board activities

Strong balance sheet

Going concern and viability statement

Principal risks

30-31

20-21

108

167

85-92

Interests of employees

Our people and culture

Our Values

A message from Tim Cobbold, designated non-executive

director for workforce engagement

56-57

111

Fostering business relationships

with suppliers, customers and others

Our customers

Our supply chain

Divisional review

110

51,111

40-45

Impact of operations on the

community and the environment

Engineering, technology and innovation

Environment

Engaging with our communities

6-7

52-55

Maintaining high standards

of business conduct

Our Code of Conduct

Health & Safety policy

Anti-Bribery and Corruption policy

Modern Slavery policy

Acting fairly

between members

Shareholder engagement 110

Section 172 Statement

As a Board, we have a duty to promote the success of Rotork for the

benefit of our members. In doing so, we must have regard for the

interests of our people, the success of our relationships with suppliers

and customers, the impact of our operations on the community and

the environment, the desirability of maintaining a reputation for high

standards of business conduct and the consequences of decisions

in the long-term.

These stakeholder relationships are fundamental to our business

and strategic direction. We have in excess of 3,500 shareholders and

c.3,200 employees. We serve customers in more than 170 countries

and enjoy a global supply base. All these stakeholders are important

to the long term success of the business and strategic direction.

Relationships with our stakeholders support the generation and

preservation of value in the Group, as well as our culture and Values

of ‘Stronger Together’, ‘Always Innovating’ and ‘Trusted Partner’.

The Board receives presentations from management to help it

understand the impacts at operational level and the merits of proposed

business activities over the short, medium and long term. Like any

business, we sometimes have to take decisions that adversely affect

one or more of these groups and, in such cases, we always look

to ensure that those impacted are treated fairly.

Stakeholder considerations are woven throughout all Board

discussions and decisions. The table on pages 110-111 in the Corporate

Governance Report sets out our key stakeholder groups and how

they were engaged with, both directly and indirectly, by the Board

throughout the year on those matters which the directors understand

are important to each group. Examples of decisions taken by the Board

and how stakeholder views and inputs, as well as other Section 172

considerations have been taken into account in its decision-making,

are set out on page 109 of the Corporate Governance Report.

These are incorporated by reference into this Section 172(1) Statement.

Further information on how these duties have been applied can be

found throughout the Annual Report:

The Strategic Report was approved by the Board on 28 February 2022 and signed on its behalf by:

Kiet Huynh

Chief Executive Officer

28 February 2022

95www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Corporate

Governance

The Rotork Board continues to be committed to the highest

standards of governance and stakeholder engagement

96Rotork Rotork Annual Report 2021

In this section

98 Governance at a glance

100 Chairman’s governance overview

102 Board of directors

104 Corporate governance report

116 Environmental, Social and Governance (‘ESG’)

Committee report

119 Audit Committee report

123 Nomination Committee report

125 Directors’ remuneration report

151 Directors’ report

155 Statement of directors’ responsibility for preparing

the Annual Report and financial statements

97www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Governance at a glance

Our Purpose

Rotork’s Purpose, keeping the world flowing for future generations

through providing innovative, high quality engineered solutions and

services for our customers, helps guide our culture alongside our three

Values as described below. The way that Rotork uses its resources to fulfil

its Purpose is set out in our business model on pages 20 to 21.

Our culture, Values and behaviours

The Board has responsibility for reviewing, monitoring and developing

Rotork’s culture and ensures that this aligns with the strategy. Rotork

promotes an open, collaborative culture in the workplace, where we

all act with trust and respect for our colleagues.

Our three Values

Always

innovating

Trusted

partner

Stronger

together

We’re committed

to continuous

improvement,

thinking

differently and

improving for

the future.

We’re a

responsible

business, proud

of our customer

focus. We put

quality and service

at our heart.

We put people first,

we collaborate,

inspire and

support each

other to win

together.

Our Code of Conduct, which applies to all permanent employees,

temporary workers and contractors, sets out the principles that underpin

and guide the way we conduct business. A high level summary of our

Code is set out on page 75.

The Board aims to ensure that our Values are integrated into decision-

making and that policies and procedures, such as the Code of Conduct

and our Anti-Bribery and Corruption Policy maintain these expected

behaviours. Where this is not the case, the Board and management team

take appropriate action. This is achieved through regular updates to the

Board on, for example, compliance matters and reports received through

our ‘Speak Up’ helpline on alleged wrongdoing. The regular employee

surveys also help evaluate the implementation of our Values and culture.

The Board is satisfied that the Company’s Purpose, Values, strategy and

culture are aligned and promote the long-term success of the Company,

generating value to shareholders and other stakeholders.

Corporate governance compliance statement

It is the Board’s view that for the financial year ended 31 December

2021, the Company complied with all of the provisions and applied

the principles of the UK Corporate Governance Code 2018 (the ‘Code’),

with the exception being Provision 38 and the alignment of pension

contribution rates for executive directors with those available to the

workforce. An explanation of how this departure from the Code is being

addressed to ensure compliance by the end of 2022 is set out on page 149

of the Directors’ Remuneration Report.

The Company’s auditor, Deloitte LLP, is required to review whether the

above statement reflects the Company’s compliance with the provisions

of the Code specified for its review by Listing Rule 9.8.10 and to report

if it does not reflect such compliance. No such report has been made.

The Code is publicly available on the website of the Financial Reporting

Council at www.frc.org.uk.

Division of

responsibilities

The roles of the Chairman and

the CEO are separate and there

is an appropriate combination

of executive and independent

non-executive directors on

the Board.

Read more on pages 112

Sustainability

Progressing our net-zero

roadmap; embedding our

near-term emissions reduction

targets into the way we operate

across the business.

Succession planning

Continue the development of

diverse pipelines for succession

to ensure the business benefits

from a wider range of

backgrounds and perspectives.

Sales growth

Board oversight of the

delivery of mid to high single-

digit sales growth through

a combination of organic

growth and acquisitions.

Stakeholders

Continued engagement and

awareness of the need to

balance the concerns and

interests of our stakeholders

when making our decisions.

Focus for 2022

Highlights of 2021

98Rotork Annual Report 2021

021

020

12.5%

021

020

021

020

Highlights at a glance

This exceeds the Hampton-Alexander review target

of 33% female representation on boards by 2020

As at 28 February 2022, ethnic diversity on the

Board stands at 25%, exceeding the Parker Review

recommendation for FTSE 250 companies.

* Martin Lamb, Chairman, was considered independent on appointment.

Board gender

as at 31 December 2021

Board ethnic diversity

as at 31 December 2021

Board tenure

(non-executives, including Chairman)

as at 31 December 2021

Male Other

Female Ethnically diverse

0-3 yrs

4-6 yrs 7+ yrs

Board diversity of skills and experience

(based on practical work experience acquired by way of functions in management or consulting)

Skill/Experience

Kiet

Huynh

Jonathan

Davis

Martin

Lamb

Peter

Dilnot

Ann Christin

Andersen

Tim

Cobbold

Karin

Meurk-

Harvey

Janice

Stipp

Independent

CEO experience

Engineering & innovation

Operations

Health & safety

Finance & banking

Strategy and M&A

Environment & sustainability

Digital, cyber & technology

99www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Chairman’s governance overview

On behalf of the Board,

I am pleased to introduce

Rotork’s Corporate

Governance Report for 2021

The aim of this report is to provide a clear explanation

of Rotork’s governance framework and the practical

application of the principles of good corporate

governance. As a Board, we consider that strong

governance underpins the successful management

of the Group and enables us to focus on the key

strategic issues.

Governance highlights

Applying the principles of the UK Corporate

Governance Code 2018

Task Force on Climate-related Financial

Disclosures – Statement of Compliance

Rotork’s statement of compliance in implementing the

recommendations of the Task Force on Climate-related Financial

Disclosures (‘TCFD’), required to be made under Listing Rule 9.8.6(8)

is set out on pages 59-73.

What we said we would do

Mindful of the benefits of greater gender and ethnicity on our Board,

we stated that a search for an additional non-executive director

would commence during 2021.

What we said we would do

Develop a new sustainability framework based on Operating

Responsibly, Enabling a Sustainable Future and Making a Positive

Social Impact – and develop aligned sustainability goals and reporting.

What we said we would do

Remuneration structure for 2021 would be adjusted to take

account of the greater strategic focus on ESG and to link successful

achievement of objectives to reward.

What we achieved

Karin Meurk-Harvey was appointed to the Board in September with

experience in digital and emerging markets. Additionally, following a

robust search process, Kiet Huynh was appointed to the Board in the

role of CEO in January 2022. Gender and ethnic diversity on the Board

currently stands at 37.5% and 25% respectively.

What we achieved

Further integrated sustainability objectives across the business, with

regular oversight of management’s progress in each ESG focus area.

Achieved external recognition of our approach. We published our

Sustainability Report in June 2021.

What we achieved

Annual bonus targets were adjusted with ESG targets contributing

to 10% of opportunity split across quantitative targets to cover

health and safety, carbon emissions, culture and engagement scores

and qualitative targets focusing on environmental innovation and

customer engagement on sustainability issues.

Martin Lamb

Chairman

100Rotork Annual Report 2021

Introduction

The effective stewardship and governance of the Group remains a

key priority for the Board and is reflected in many aspects of its work.

Promoting the long-term sustainable success of the Company, generating

value for stakeholders and supporting the Rotork Management Board in

developing the Company’s strategy will continue to be the focus of the

Board. 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 continue to have in place a strong team of non-executive directors

with a rich blend of skills, experience and perspectives.

Culture and Values

As part of its responsibility to provide effective leadership to the Group as

a whole, the Board sets the culture and tone from the top. The executive

directors, supported by the non-executive directors, lead by example to

ensure our high standards and expected values, attitudes and behaviours

are understood and consistently applied throughout the group. The Board

monitors corporate culture by regularly receiving People updates and

reviewing the outcomes of Group employee ‘pulse surveys’ which are

conducted twice a year. Tim Cobbold, as our designated non-executive

director for workforce engagement, also brings the employee voice

into the boardroom through sharing updates on his engagement with

employees during the year.

Our Purpose and Values are embedded across the business and represent

the way we live and breathe our culture. They underpin our business

model, are fundamental to the way we work with our employees,

customers, suppliers and other stakeholders and guide the way we

engage with the wider community and environment.

Board changes

The Board keeps its balance of skills, knowledge, experience, independence

and diversity under regular review. There have been a number of changes

since the last Annual Report. Appointments have been subject to a

rigorous process overseen by the Nomination Committee.

Sally James retired from the Board at the conclusion of the AGM held

on 30 April 2021, having completed nine years’ service. Sally made a

significant contribution to the Rotork Board, especially in her role as

Audit Committee Chair and as Senior Independent Director and we have

benefitted greatly from her knowledge, experience and wise counsel.

Janice Stipp, who was appointed to the Board in December 2020,

took over from Sally as Chair of the Audit Committee from 1 May 2021.

With her highly relevant sectoral background and international financial

expertise, Janice brings an effective mix of skills and knowledge to her

leadership of the Audit Committee. Peter Dilnot took over the role of

Senior Independent Director effective from 30 April 2021. With Peter’s

extensive experience at senior executive level in several leading global

industrial businesses, most latterly as Chief Operating Officer of Melrose

Industries plc, he brings sound judgment and a clear focus to our Board

discussions and serves as a valuable sounding board for me in my role

as Chairman.

We were delighted to welcome Karin Meurk-Harvey to the Board on

13 September 2021 who also became a member of the Remuneration,

Nomination and ESG Committees from the same date. Her international

commercial experience in emerging markets and, particularly, in digital

and technology fields will further strengthen the diverse mix of skills

and experience on the Board.

As announced in early August 2021, Kevin Hostetler informed the Board

of his decision to return home to the US with his young family in 2022.

Under my leadership and as Chair of the Nomination Committee, a search

for a new CEO was commenced with both external and internal candidates

being considered. On 10 January 2022, the Company announced the

appointment, with immediate effect, of Kiet Huynh as Chief Executive

Officer, formerly the Managing Director of Rotork’s Water & Power and

CPI divisions. Kiet replaces Kevin who stepped down from the Board and

as CEO. Kevin remains with Rotork and is available to support a smooth

transition of the CEO role. I am delighted to have in place a candidate of

Kiet’s calibre to succeed Kevin as CEO. During his time with Rotork Kiet

has excelled in the leadership of both the CPI division and, more recently,

the Water & Power division, with a clear focus on driving profitable growth

through close attention to customer needs and a strong commitment to

product and service innovation. He has the leadership skills and operational

experience to build on the excellent progress made over the last four years

through the Growth Acceleration Programme, and to chart a course for

accelerated growth in the years ahead. I would like to thank Kevin for his

excellent contribution to the business. He hands over a fundamentally

much-improved business to his successor. We wish him and his family

every success on their return to the US.

Stakeholder engagement

We continued to seek to balance the needs of all our stakeholders

throughout the year, whether they are our employees, customers,

suppliers, shareholders, or the governments and the communities in

which we operate, alongside our commitments to making a positive

contribution in support of a healthy and sustainable planet. As a trusted

partner, working together with all our stakeholders to understand their

different perspectives during this challenging year has been crucial for

the Board.

Details of the ways we have engaged with stakeholders to understand

their views can be found on pages 110 to 111. A statement on how the

directors have had regard to the matters set out in section 172 of the

Companies Act 2006 can be found on page 95.

Environmental, Social and Governance (‘ESG’)

The Board-level Environmental, Social and Governance Committee,

under the leadership of Ann Christin Andersen has, through its activities

during the year, provided oversight, direction and target-setting on

ESG matters for implementation throughout the business. The ESG

Committee’s strategic influence is wide-ranging, thereby helping Rotork

to focus on operating responsibly, being environmentally sustainable and

contributing positively to society. Further details of the remit of the ESG

Committee and its activities can be found from page 116.

Compliance with the Code and other requirements

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 continue to communicate our Purpose, Values and strategy

across the business holding virtual town halls with employees across the

globe on our Purpose, ‘keeping the world flowing for future generations’,

which reflects our commitment to being a sustainable long term business.

The Company’s Corporate Governance compliance statement for 2021

is set out on page 98.

Martin Lamb

Chairman

28 February 2022

101www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

N E —

Board of directors

Chairman Executives

—

Nomination Committee

Audit Committee

Remuneration Committee

ESG Committee

None

Denotes Chair

Martin Lamb (62)

Chairman

Appointed to the Board

June 2014

Skills, competencies

and 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 34 years. He was a

non-executive director of Severn

Trent plc and Spectris plc and has

served on the boards of a variety

of engineering businesses in a

non-executive capacity, both in

the public and private equity arena.

External appointments

− Non-executive director of Evoqua

Water Technologies Corporation

Kiet Huynh (43)

Chief Executive Officer

Appointed to the Board

January 2022

Skills, competencies

and experience

Kiet joined Rotork in 2018 as

Managing Director responsible

for the Instruments division.

Following the Group’s divisional

realignment in 2019, he has led

both the Chemical, Process &

Industrial and the Water & Power

divisions. Kiet has more than 15

years’ experience working as a

senior executive for world-leading

industrial companies, beginning his

career at IMI plc before moving on

to Trelleborg. Kiet was appointed

as CEO on 10 January 2022.

External appointments

− None

Jonathan Davis (55)

Group Finance Director

Appointed to the Board

April 2010

Skills, competencies

and 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 Group Finance Director in 2010.

External appointments

− None

Peter Dilnot (52)

Senior Independent

Non-executive director

Appointed to the Board

September 2017

Skills, competencies

and experience

Peter joined Melrose Industries Plc

as Chief Operating Officer in 2018

and became Interim Chief Executive

Officer of GKN Aerospace, which

is part of the Melrose Group, in

October 2020. He was appointed

to the Board of Melrose Industries

plc as an executive director on

1 January 2021. Prior to this, 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 based in both London

and Chicago.

External appointments

− Executive director of Melrose

Industries plc

N A R

Non-executives

102Rotork Annual Report 2021

Non-executives

Composition as at 28 February 2022. Throughout 2021, Kevin Hostetler

held the role of Chief Executive Officer. Kevin stepped down from the Board

on 10 January 2022. Sally James also served on the Board until 30 April.

Ann Christin Andersen (55)

Non-executive director

Appointed to the Board

December 2018

Skills, competencies

and experience

Ann Christin Andersen is a non-

executive director with more than

30 years’ experience of the oil

and gas industry. An engineer by

profession, she has been Chief

Digital Officer for TechnipFMC.

She has served as chair and

non-executive director on a

number of companies over

the past several years.

External appointments

− Non-executive director of

The Drilling Company of 1972

AS (‘Maersk Drilling’)

− Non-executive director

of Ferrexpo PLC

− Non-executive Chair of

Glitre Energi AS (unlisted)

− Non-executive Chair of

Quantafuel AS

N A ER

Tim Cobbold (59)

Non-executive director responsible

for workforce engagement

Appointed to the Board

December 2018

Skills, competencies

and 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 and

Senior Independent Director of

TI Fluid Systems plc (becoming

Chair on 18 May 2022)

N A ER

Karin Meurk-Harvey (56)

Non-executive director

Appointed to the Board

September 2021

Skills, competencies

and experience

Karin has an international

background in engineering,

technology and telecoms

spanning over 30 years, adding

commercial expertise to Rotork’s

Board, particularly in high-growth

technology/digital markets.

Between 1996 and 2013, Karin

held a number of senior roles with

Ericsson and has also served as a

non-executive director of Korala

Associates Ltd, a privately-owned

ATM software business.

External appointments

− Chief Commercial Officer

Smart DCC Ltd

N ER

Janice Stipp (62)

Non-executive director

Appointed to the Board

December 2020

Skills, competencies

and experience

Janice brings highly relevant

sectoral and financial expertise to

the Rotork Board, together with

a global perspective, particularly

in Asia. Janice was formerly Senior

Vice President and Chief Financial

Officer of Rogers Corporation, a

US speciality engineered materials

technology and manufacturing

company. Prior to this, Janice held

senior financial positions in various

international manufacturing and

engineering companies.

External appointments

− Non-executive director

of Sappi Ltd

− Non-executive director

of ArcBest Corporation

N A R

103w ww.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

N R EA

Corporate governance report

Our governance framework

Rotork Management Board

Led by the Chief Executive Officer, the Rotork Management

Board comprises the Company’s senior leadership team below

Board level and facilitates the execution of the strategy through

running the day-to-day operational management of the business.

Nomination Committee

Martin Lamb

Chair

To keep under review the

composition, structure

and size of, and succession

to, the Board and its

Committees. To oversee

succession planning for

senior executives and the

Board, leading the process

for all Board appointments.

To evaluate the balance

of skills, knowledge,

experience and diversity

on the Board.

Read more on page 119

Chairman

Responsible for the leadership of

the Board and for ensuring that

it operates effectively through

productive debate and challenge.

Board committees

Responsible for overseeing and

making recommendations to the

Board on their respective specialist

areas as set out below.

* In addition, the Disclosure Committee of the Board oversees the disclosure of market sensitive information and other public announcements.

104Rotork Annual Report 2021

Board leadership and Company Purpose

The Board is responsible for determining the Company’s strategy,

Purpose, culture and Values, reflecting in particular the generation

of long term value for shareholders and Rotork’s role in a sustainable

future. It oversees the execution of its strategy by management and the

governance and control framework underpinning the Company. The Board

is assisted by four principal committees (Audit, Nomination, Remuneration

and Environmental, Social and Governance), each of which is responsible

for reviewing and dealing with matters within its terms of reference.

The activities and decisions made at the committee meetings are reported

to the subsequent Board meeting.

This year’s strategy meeting held in June examined Rotork’s strategy

through to 2026. Our strategy and business model is covered on pages

20 to 21 of the Strategic Report. The Board is confident that the necessary

resources are in place for the business to meet its strategic objectives.

The Board is also responsible for the review and oversight of the effective

management of risk, whilst delegating oversight of the controls framework

to the Audit Committee. The Board rigorously challenges strategy,

performance, responsibility and accountability to ensure that decisions

are made effectively and in the long term interests of the business.

In its duty to promote the long-term success of Rotork, the Board

recognises that its responsibilities extend not only to the creation of

value for its shareholders but also to the Company’s wider stakeholders,

including employees, customers, suppliers, the governments and

communities in which it operates, as well as the environment. In so doing,

the Board has also sought to understand the views of these other key

stakeholders. Pages 110 to 111 describe how their interests have been

considered at Board-level discussions. Tim Cobbold is the designated

non-executive director dedicated to improving employee engagement

and details of the work he has undertaken in fulfilment of this role can

be found on page 111.

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. As the

Senior Independent Director, Peter Dilnot provides a sounding board

for the Chairman in addition to acting as an intermediary for other

directors and shareholders. In December 2021, he met with other

non-executive directors, without the Chairman present, to appraise

the Chairman’s performance.

Until her retirement from the Board on 30 April 2021, Sally James chaired

the Audit Committee with Janice Stipp taking over as Audit Committee

Chair from 1 May 2021. Ann Christin Andersen chairs the Environmental,

Social and Governance Committee. Tim Cobbold chairs the Remuneration

Committee as well as being the designated non-executive director

responsible for supporting increased engagement with the workforce

and for bringing the voice of the workforce into the boardroom.

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.

The roles of the Chairman, Chief Executive Officer, Senior Independent

Director, Group Finance Director as well as the members of the Rotork

Management Board are set out in the table on page 106.

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 has exceeded their nine-year recommended term of service. Sally

James, who served as a non-executive director during the year, retired from

the Board on 30 April 2021, prior to the conclusion of her nine-year term

of office.

The Board considers all non-executive directors, Tim Cobbold, Peter

Dilnot, Ann Christin Andersen, Karin Meurk-Harvey and Janice Stipp to be

independent. Martin Lamb, Chairman, was considered to be independent

on appointment.

105www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Rotork Board Responsibility

Martin Lamb

Non-Executive Chairman

Leading the Board and setting its agenda; setting high standards of integrity and

ensuring effective governance is maintained; supporting and guiding the CEO;

overseeing Group performance; representing the Group and leading relations

with shareholders to understand their perspectives.

Kiet Huynh

Chief Executive Officer

Overall management of the Group and leadership of the Rotork Management

Board delivering the Group strategy, leading operational management, business

development, growth opportunities; influencing and developing succession planning;

managing Investor Relations.

Jonathan Davis

Group Finance Director

Reports to the Board on the Group financial performance; supports the CEO in

delivering the Group strategy and in managing investor relations; implements

Board decisions; responsible for compliance with financial policy and controls.

Non-executive Directors:

Sally James

Senior Independent Director

Peter Dilnot

Senior Independent Director

Provides a sounding board for the Chairman and acts as an intermediary for

other directors and shareholders; leads the annual performance evaluation

of the Chairman; ensures the orderly succession of the Chairman’s role.

Tim Cobbold

Designated Non-executive director

for workforce engagement

Provides an effective engagement mechanism for the Board to understand the

views of the workforce; brings the views and experiences of the workforce into the

boardroom; ensures that the views of the workforce are considered in the Board’s

decision making.

Ann Christin Andersen

Karin Meurk-Harvey

Janice Stipp

Independent 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; ensure balance in the Board’s

decision making process.

Stuart Pain

Group General Counsel & Company Secretary

Advises the Board on legal and corporate governance matters and supports the Board

in applying the Code, complying with UK listing obligations and other statutory and

regulatory requirements; ensures Board members have access

to the information they need.

1 Until 10 January 2022, Kevin Hostetler held this office. Kiet Huynh was appointed CEO from 10 January 2022.

2 Sally James retired from the Board on 30 April 2021. Peter Dilnot was appointed Senior Independent Director from 1 May 2021.

Rotork Management Board Responsibility

Paul Burke

Chief Information Officer

Kathy Callaghan

Group HR Director

Jonathan Davis

Group Finance Director

Kiet Huynh

Chief Executive Officer

Neil Manning

Managing Director, Oil & Gas and Site Services

Lyndsey Norris

(Interim) Managing Director, Chemical, Process & Industrial

Stuart Pain

Group General Counsel & Company Secretary

Mike Pelezo

Site Services Director

Grant Wood

Operations Director

The Rotork Management Board comprises the Company’s senior leadership team

below Board level and facilitates the execution of the strategy through running the day-

to-day operational management of the business. Members of the Rotork Management

Board attend Board meetings by invitation to update the Board on operational matters

of importance.

1 Throughout 2021, Kiet Huynh held the role of Managing Director, Water & Power and Chemical, Process & Industrial.

Corporate governance report continued

106Rotork Annual Report 2021

Board effectiveness

Board meetings

The Board meets regularly during the year as well as on an ad hoc basis,

as business needs dictate. The Board met formally seven times during the

year, with video calls held in other months for updates on key matters

relating to trading and financial performance. Meeting attendance is

shown opposite. The Chairman, Chief Executive Officer and Group General

Counsel & Company Secretary agree a structured agenda ahead of each

Board meeting. Board activities are structured to help the Board achieve

its goals and to provide support and advice to the executive management

team on the delivery of strategy within a robust governance framework.

Throughout the year, the Board has received regular in-depth progress

reports and presentations on current trading and financial performance

and presentations from the Chief Executive Officer, Group Finance

Director and from the wider executive management team, particularly

regarding emerging issues relating to our supply chain, progress on the

Growth Acceleration Programme and the development of our people.

Other regular reports have included health and safety, legal, compliance

and governance updates, investor relations activities, environmental

and sustainability issues, risk management reviews and cyber security

updates. If a director is unable to attend a meeting due to exceptional

circumstances, he/she still receives the papers in advance of the meeting

and has the opportunity to discuss with the relevant Chair any matters on

the agenda they wish to raise. Feedback is provided to the absent director

on the decisions taken at the meeting.

The Chairman meets privately with the Senior Independent Director and

with the non-executive directors on a regular basis.

Board meeting attendance in 2021

Member

since

Eligible

Meetings

(Max: 7) Attendance

Martin Lamb,

Chairman June 2014 7 7

Sally James,

Senior Independent Director

(i)

May 2012 2 2

Peter Dilnot,

Senior Independent Director

September

2017 7 7

Kevin Hostetler,

Former Chief Executive Officer

February

2018 7 7

Jonathan Davis,

Group Finance Director April 2010 7 7

Ann Christin Andersen,

Non-executive director

(ii)

December

2018 7 6

Tim Cobbold,

Non-executive director

December

2018 7 7

Karin Meurk-Harvey,

Non-executive director

(iii)

September

2021 2 2

Janice Stipp,

Non-executive director

December

2020

7 7

(i) Sally James retired from the Board on 30 April 2021.

(ii) Ann Christin Andersen was unable to attend the December Board meeting

due to an exceptional and unexpected family circumstance.

(iii) Karin Meurk-Harvey joined the Board on 13 September 2021.

107www.rotork. com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Insight into the Boardroom

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:

Strategy and

Operations

Set the Group’s strategy to 2026 in line with vision of ‘keeping the world flowing for future generations’

and monitored progress.

1 2 3 4 6

Received regular updates and agreed initiatives to enhance health and safety systems and increase awareness. 2 6

M&A strategy. 1 4

Reviewed operational issues arising from across the Group’s businesses, including supply chain issues. 2 3 4 6

Reviewed People engagement initiatives and received regular People and talent updates and continued

monitoring our culture.

2 5 6

Regularly monitored progress made against set targets in the Growth Acceleration Programme. 1 2 3 4 5 6

Received updates on the implementation of the D365 programme and the Group’s cybersecurity strategy. 1 2 3 4

Approved sustainability pillars. 1 2 3 4 5 6

Approved capital expenditure. 1 3 4

Contract approvals. 1 3 4

Financial

Received regular financial performance updates from across the Group. 1 3 4

Reviewed and considered actual and forecast trading performance against the agreed budget and implications

on long-term performance. Approved 2022 budget.

1 2 3 4 5

Considered year-end results, half-year and trading updates. 1 3 4

Reviewed cash flow, liquidity, long term viability and going concern; agreed final and interim dividends. 1

Considered use of cash and agreed share buy-back. 1

Risk

Conducted a full year risk review and, in the light of the Group’s risk appetite, discussed the principal and

emerging risks.

1 2 3 4 5 6

Reviewed the Group’s insurance renewal strategy. 1 2 3 4 5 6

Governance,

Legal,

Compliance

and IR

Received regular updates on reports received through the ‘Speak Up’ hotline and follow-up investigations

and actions. Received reports on compliance matters, including training rollout and completion rates.

1 2 5

Carried out an internal evaluation of the Board’s effectiveness. 1

Reviewed the Board’s composition and diversity and considered the succession plan. 1 2

Shareholder engagement and IR updates. 1

Committee terms of reference reviews. 1 2 5

1 Shareholders

2 Employees

3 Suppliers

4 Customers

5 Community

6 Environment

Corporate governance report continued

108Rotork Annual Report 2021

Consideration of stakeholder interests in decision making

Our section 172 Statement and an explanation of our approach is given on pages 94-95. To add more colour to our section 172 Statement, the following

pages provide an insight into how we interact with our stakeholders and how we consider their interests when making key decisions. Stakeholder

considerations are woven throughout all Board papers, discussions and decisions. Like any business, sometimes we have to take decisions that adversely

affect one or more of these groups and, in such cases, we always look to ensure that those impacted are treated fairly.

Case studies:

Examples of how the Board considered the interests of its key stakeholders

when making decisions

Share buyback

Consistent with our capital allocation policy, the Board decided to return a prudent level of cash

to shareholders while retaining a strong balance sheet. The programme demonstrated that Rotork

remains a highly cash generative business with a strong cash position that provides the business

with considerable financial flexibility.

As part of these discussions, the Board considered opportunities for alternative uses of the cash,

including the capital expenditure needs of the business, employee and pension considerations.

Sustainability

framework

Investors are looking for companies to prioritise climate and environment actions, drive

diversity and inclusion and to ensure strong ESG integration, governance and communication.

Our sustainability framework, based on the three pillars of Operating Responsibly, Enabling a

Sustainable Future and Making a Positive Social Impact guides the way we manage our business,

focusing on i) running safe, efficient and sustainable operations; ii) helping to drive the transition

to a cleaner future; and iii) supporting thriving, fair and resilient communities.

ESG performance is also an important part of the executive directors’ personal strategic objectives

and features in the annual bonus scheme for senior leaders.

We continue to work with customers to help them reduce their emissions and manage their

consumption of resources. Our comprehensive product and services portfolio and industry

knowledge mean that customers rely on us to help them deliver reliable, energy efficient

solutions that minimise their environmental impact.

The Board continues to oversee improving the health and safety for our employees, and

safeguarding the environment as part of running responsible operations.

Investing in job creation, utilising local talent and supply chains. Helping to support and grow

the communities in which we operate at the grassroots-level and establishing Rotork as a global

company with local roots.

Pro-active

management

of supply

chain issues

In response to supply chain delays and disruptions which, in common with our peers,

had a significant impact on commodity availability and logistics costs, we utilised our global

network to mitigate supply chain disruption and in some cases have built greater contingency

in our inventories.

Our Global Strategic Sourcing team focussed on mitigating the impact of rising commodity costs

through our continued investment in maintaining positive relationships with our supply base.

Through the lessons learned from the supply chain challenges, we have further developed our

global supply chain to improve efficiency, simplify our core business and focus on manufacturing

improvements with a view to targeting mid-20s adjusted operating margins over time for all

our investors.

Through the pro-active management of mitigating the impact of the supply chain and logistics

challenges, we have taken the opportunity to further embed social, ethical and environmental

considerations into our Global Supplier Excellence Programme.

109www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Board oversight of stakeholders

Shareholders

All Board decisions are made with the long-term success of Rotork in focus, which ultimately benefits our shareholders.

All shareholders, whether they are individual or institutional, are treated fairly. They have equal access to information.

We endeavour to provide a complete view of our business in the Annual Report and Accounts which is available in electronic

form to shareholders on our corporate website and also in hardcopy form. Our corporate website also contains a variety of

resources for investors including current webcasts, presentations and press releases, as well as Annual and Interim Reports,

corporate governance matters, general shareholder information and our financial calendar.

At our 2021 AGM all proposed resolutions were passed. Votes in favour ranged from 87.37% to 100%. Due to the impact

of COVID-19 and the Company’s need to safeguard shareholders’ and employees’ health, our 2021 AGM was once again

held with the minimum attendance necessary to form a quorum. However, in an effort to maintain engagement and provide

shareholders with equivalent access to the Board as in previous AGMs, a dial-in facility was put in place for shareholders to

listen to the AGM proceedings and provided a link for shareholder questions to be submitted in advance. In the absence of

any further COVID-19 restrictions, we intend to hold a physical AGM in April 2022 in Bath, full details of which are set out

in the Notice of Meeting accompanying this Annual Report and which is available on our website.

We enjoy an active dialogue with our investors and the investment community. Our Chairman, Chief Executive Officer,

Group Finance Director and our Investor Relations Director regularly communicate with existing and potential shareholders,

and over the course of the year have engaged with investors representing over half of our issued share capital. In 2021,

despite the continuing restrictions imposed by COVID-19, they attended (either in person and virtually) over 100 meetings

with over 160 separate institutions and have also participated in several in person and virtual shareholder events. The CEO

succession process was an important subject of discussion in meetings during the year, as were our ESG & Sustainability

initiatives. The views expressed by investors are shared with the full Board at each Board meeting and with the relevant

committees, enabling the Board to take these views into account in its wider decision making.

In addition, at the beginning of 2021, Tim Cobbold as Remuneration Committee Chair, wrote to our top 20 institutional

shareholders holding 56% of our issued share capital, to update them on executive remuneration matters ahead of our

2021 AGM. Further details on this shareholder engagement programme can be found on page 130.

Employees

Both the Chief Executive Officer’s regular reports and the People updates presented by the Group HR Director during the year,

present the views of our employees and wider workforce. These views are expressed not only via our employee forums, pulse

surveys, town halls and our direct CEO communication mechanism (now ‘Ask Kiet’) and management line but also through

our designated non-executive director for workforce engagement, Tim Cobbold, who also brings the employees’ voice into the

Boardroom. Tim has continued to engage in employee matters during the year, despite the practical challenges due to COVID-19.

This included participating in new starter inductions, reviewing our staff engagement surveys, responding to emails and

attending employee forums, albeit some remotely by video conference, including those held by our colleagues in India. Further

details on Tim’s engagement with employees during 2021 are set out below. Other non-executive directors, Karin Meurk-Harvey

and Janice Stipp also engaged with employees during their in-person visits and workshops held at our facilities in Bath, Leeds and

Winston-Salem with Peter Dilnot, Senior Independent Director, also attending an online global induction session for new staff.

These provided an opportunity for employees to ask questions and air their views or concerns directly to Board members.

Customers

Interaction with our customers remains a key topic in Board discussions and especially so in the light of the supply chain

challenges we faced during 2021. Putting the customer at the centre of our business remains a strategic priority of our

Growth Acceleration Programme. As our dedicated end market organisations continue to increase contact and intimacy

with our customers, we are expanding our capabilities to deliver greater customer satisfaction throughout the selling process.

For the initial contact stage we have invested in a digital sales enablement platform that allows us to present our products

to our customers in personalised formats. This helps to quickly relate their application needs to our solutions. We have also

developed closer partnership alignments with some of our key customers, which has included the creation of global distribution

hubs to support faster lead times. Whilst we continue to face the global supply chain challenges, we understand that quick

and transparent communications with our customers is vitally important for their business planning. All of these improvements

are helping us to become a trusted partner to our customers and the supplier of choice.

Community

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.

Rotork supports charitable giving at both local and global level. The local charity committees at each of the Rotork sites support

charitable causes that are important to the employees locally. In addition to local sponsorship programmes, Rotork partners

with three global charities: Renewable World, Pump Aid and WeForest. Between them, these charities serve to emphasise

Rotork’s commitment to the environment and assist communities. Further details can be found on page 58.

Our charity, Rotork Benevolent Support, which was established in 2020, has continued to provide short-term financial support

to employees, ex-employees, and their families facing financial hardship, especially as a result of the COVID-19 crisis.

Corporate governance report continued

110Rotork Annual Report 2021

Suppliers

Supplier relationships are essential to the success of Rotork. During 2021 we have continued the work to identify those suppliers

who are most critical to our performance and have built a multi-year category and supplier engagement strategy based on a

strong Supplier Relationship Management focus. In doing so, we are targeting to exceed the expectations of our customers in

striving to deliver the highest possible levels of performance from across our supply base. Our plan ensures that we secure long

term agreements with our most critical suppliers and deliver stability and repeatability with all of our suppliers. We continually

review 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 in 2021 to combat modern slavery are detailed in our 2021 Modern Slavery Statement which can

be found on the Rotork corporate website at https://www.rotork.com/en/investors/modern-slavery-statement.

In 2022, we are planning to launch a new version of our Supplier Code of Conduct to highlight our ever increasing focus on

environmental topics such as emissions reduction, as well as setting out our core Values and expectations of suppliers that

provide goods and services to Rotork. The current version can be found at www.rotork.com/en/about-us/terms-and-conditions/

suppliers/supplier-code-of-conduct.

Environment

In recognition of the increasing importance of ESG and sustainability matters, both within the business and across our key

stakeholder groups, the Board level ESG Committee assists the Board in defining and executing the Company’s sustainability

strategy. This includes soliciting and understanding the views of stakeholder groups (including customers, employees, suppliers,

investors and communities) on ESG matters and ensuring that ESG priorities are an integral part of the Company’s corporate

strategy. During the year, the Committee has overseen the implementation of Rotork’s sustainability framework which is

based on the three pillars of ‘Operating responsibly’, ‘Enabling a sustainable future’, and ‘Making a positive social impact’.

The Committee also challenges management’s performance against Rotork’s long-term ESG goals, initiatives and

commitments. Further details on how the Committee has provided leadership and direction on these key issues can

be found on page 116. In June 2021, under the Committee’s oversight, we published our first standalone Sustainability

Report which details the Group’s non-financial performance for 2020.

– Direct, two-way communications – between employees and myself

as the designated NED to enable direct communication outside existing

lines of communication.

This year we have continued the ‘Ask Tim’ email approach, whereby

I receive emails from employees on any issues they wish to raise.

I respond personally to each of these and follow up with the executive

management on actions, as appropriate. On several occasions during

the year, I contacted all employees with access to email directly, one

of these was on Mental Health Day, expressing the Board’s support

and understanding of the many challenges employees have been

facing, particularly linked to COVID-19 and in support of our newly

launched global Employee Assistance Programme (‘EAP’). I wrote to

employees directly this year to explain the salary review and bonus

decisions we had taken in 2020 and the plan for 2021, to highlight our

first ever ethnicity pay report and to reaffirm our commitment to our

Fair Pay Framework and Real Living Wage approach. I received multiple

emails in reply from employees. We now include a wider workforce

compensation update at each of our Remuneration Committee

meetings, given the importance of the topic to our decision-making.

By doing so, we proactively review the remuneration outcomes of

senior management, including the executive directors, in the light of

the outcomes for the wider workforce. This has also led to a greater

attention on the remuneration of those who are paid least in the

organisation, where we had made some significant improvements

and also identified some unintended anomalies that have been

addressed. Ann Christin Andersen, Chair of the Environmental,

Social and Governance (‘ESG’) Committee, also wrote to employees

on World Earth Day explaining further our commitments and plans

on this important topic and we received a number of direct emails

from employees with suggestions which have subsequently been

discussed by the Board.

– Face to face meetings – with employees and members of the Board,

including the designated NED, to allow for more personal interactions

and to help create a level of intimacy between Board members and the

individual employees.

Stakeholders in the Boardroom – a message from

Tim Cobbold, designated non-executive director

for workforce engagement

The Board recognises that it has a key role to ensure that a healthy culture,

as embodied in our Values, is in place to underpin the Group’s strategy and

drive long-term sustainable value for our shareholders, whilst contributing

appropriately to the needs of the business’s other stakeholders. In particular,

the Board works with the Group’s senior management to create and

maintain an inclusive, innovative, dynamic workplace in which colleagues

can develop with the business. The impact on and views of our employees

are taken into account in our decision-making processes.

During 2021, as Rotork’s designated non-executive director (NED) for

workforce engagement, I and the rest of the Board, continued to build

ways to hear and understand the views and opinions of our people

and incorporate them into the Board and management processes and

decision-making. This role combines well with my responsibilities as

Chair of the Remuneration Committee, providing a valuable linkage and

insight between the workforce and remuneration matters at all levels

across the business and also helping the Remuneration Committee fulfil

its responsibilities of oversight of pay and remuneration across Rotork’s

wider workforce.

I see the purpose of my role to strengthen the links between the Board

and our people throughout the business, with the key aims being:

– to enable the Board to better take into account our employees’

views as it considers proposals, discusses issues and makes decisions.

– to develop and improve the two-way communication between

employees and the Board so there are reliable mechanisms for the

workforce to share their views, both directly and indirectly, with the

Board and for the Board to demonstrate how their feedback has been

incorporated into decision-making in the business.

Our framework takes into account the dispersed and global nature of

Rotork’s workforce and comprises three streams of activities to enable

us to maximise the reach of our approach to cover, as much as possible,

all employees in a meaningful way:

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Corporate Governance Financial Statements Strategic Report

The continued impact of COVID-19 has meant that most of our

interactions continued to be online. Peter Dilnot and I joined global

online induction sessions for new employees and Karin Meurk-Harvey,

a Remuneration Committee member, discussed pay and performance

with managers globally at one of our online Performance and Reward

workshops. I was also able to chair two online focus group sessions

with colleagues in India, affording me the opportunity to hear directly

their specific ‘on the ground, in India’ challenges, conscious that travel

restrictions had prevented any senior management visits for some

time. By way of example, those meetings highlighted concerns about

the accessibility of some of the Rotork Training and Learning tools

that had been developed as part of Learning at Rotork. As a result,

the communication surrounding this important provision was revised.

It was of particular value to be able to reinstate in-person visits to

Rotork’s sites. I visited our Leeds facility, Janice Stipp visited the

Winston- Salem plant and Karin Meurk-Harvey, the Bath site. During

these visits, particular attention is given to meeting colleagues at all

levels and particularly those at lower levels whose views aren’t so

naturally expressed or transmitted through conventional channels.

There is no doubt that the insight and intimacy that these visits create is

reflected in Board discussions and provide a useful triangulation point

with the output of traditional communications methods. Consequently,

in 2022, with more flexibility allowed as COVID-19 recedes, all Board

members have agreed to visit at least one facility during 2022.

– Group Employee Surveys – to inform, in a data driven way,

the view of the workforce on specific topics in a repeatable manner,

with response rates indicating the degree of engagement.

There were two Group Employee surveys in 2021 and I review the

topics and questions as well as the results of these surveys. The

response rate increased by 17% in 2021 which reflects good progress

in the engagement of, and with, the workforce. The outputs of these

surveys provide the Board with valuable insight into the views of

employees and inform decision-making. By way of example, in order

to inform a review of the overall employment packages offered to

employees at a time when demand for talent is high, the most recent

survey focussed on the value employees attach to individual elements

of the benefits package we provide. Both flexible working and holiday

provision figured highly as well as concerns about base pay in the

current inflationary environment. There were also 2,500 verbatim

comments. This employee view is being incorporated into the current

review of pay and benefits. We also asked for views on recognition

aligned to our Values, learning and development and our approach to

performance management in our surveys this year and will be making

some adjustments as a result of the responses. The surveys also include

a number of standard questions, covering, for example, the applicability

of our Values and the diversity and inclusivity of our culture which, in

time, will allow us to establish a trend. Informed by this information

we have appointed a diversity and inclusion leader who will also take

responsibility to re-establish and accelerate our graduate and apprentice

programmes, given the demand for talent, following the COVID-19

necessitated suspension.

The Board asked PwC to undertake a Culture Audit in 2021, the first

time this has been completed at Rotork. This provided the Board with

further insight into how the Rotork culture is developing and how

effectively the link to our Values manifests itself across the business.

This independent review also provides a triangulation point to complement

the cultural insight gained from the Board site visits and the flow through

the usual channels.

I meet regularly with the Group HR Director and Communications Director,

who maintains the grid of our activities and ensures that we continue

to maintain focus on engagement, to discuss progress and make any

adjustments during the course of the year or to respond to topical issues.

During these reviews we also review the whilstleblowing data.

I feel we have continued to make good progress in strengthening the

engagement between the Board and our workforce and, through the

Board, HR and Communications teams working together, we have

developed effective ways of engaging with our employees and bringing

a clearer employee voice to the Boardroom in Rotork. Going into 2022,

I look forward to working together with Kiet Huynh, our new CEO, in

reaching out to more employees than ever before as I and my fellow Board

members are able to undertake more in-person visits to Rotork sites and

factories than was possible this year, strengthening further our valuable

two-way feedback approach between the Board and our employees.

Engagement with operations

To deepen the Board’s understanding of the business and current

challenges being faced, members engage directly with operational

management. As well as regularly receiving presentations from the Rotork

Management Board in formal meetings, the Board typically meets with

them at least twice a year, although due to the restrictions imposed by

COVID-19, only limited informal opportunities have been possible during

2021. Once restrictions are eased post-COVID, opportunities will be sought

for the Board and management to engage on a more informal basis

outside the Boardroom setting. This will enhance the visibility of the Board

and increase their working knowledge of operations and market dynamics.

Composition, succession and evaluation

The Board consists of eight Board members, six of whom are non-

executive directors. As at 28 February 2022, female representation on

our Board was 37.5% with ethnic diversity representation being 25%.

The Board members come from a variety of professional backgrounds

including engineering, manufacturing and finance, and collectively possess

significant managerial experience, as well as experience of being executive

directors of other public limited companies. A more detailed analysis of

Board composition, skills and experience can be found on pages 99 and

102-103. In line with Provision 18 of the Code, each director is subject

to annual re-election at the AGM.

The Board delegates certain matters to specific committees for more

in-depth consideration, including to the Nomination, Audit, Remuneration

and Environmental, Social and Governance (‘ESG’) Committees. Each

Committee has formal, written terms of reference which are available

to download from the Rotork website at www.rotork.com and which are

reviewed annually. All Committees have at least three independent non-

executive directors within their composition, with the ESG Committee

also comprising two members of the Rotork Management Board. The

Company also has a Disclosure Committee. The Group General Counsel

& Company Secretary acts as secretary to the Committees. The number

of Board meetings can be found on page 107. The number of meetings

of the Audit, ESG, Nomination and Remuneration Committees can be

found on pages 119, 116, 123 and 138 respectively.

Time commitment

All directors are expected to attend all meetings of the Board and any

committees on which they serve. They are also expected to attend the

AGM and Board away days. Directors are also expected to devote sufficient

time to prepare for each Board and Committee meeting.

Corporate governance report continued

112Rotork Annual Report 2021

Case study:

Director’s Induction

Following appointment, each director receives a comprehensive

and formal induction to familiarise them with their duties and

Rotork’s business operations and risk and governance arrangements.

As new directors they need to quickly absorb a great deal about

the business if they are to fulfil their roles effectively from the start.

Our tailored inductions offer a swift and thorough way to help them

understand our business, markets, culture and relationships and to

establish a link with our workforce. Through these interactions they

were able to gain an insight into the Rotork culture and our Values.

Both Janice Stipp and Karin Meurk-Harvey who joined the Board

in December 2020 and September 2021 respectively undertook

our induction programmes. The programme included:

– site visits, including to our factories in Bath and Winston-Salem,

in accordance with COVID-19 restrictions, which allowed them

to get to know the regional and local leadership teams and to

discuss a wide range of topics, including the local organisation

structure, growth plans, strategic priorities, risks and the

competitive landscape.

– Janice and Karin also spent time with our Engineering and

New Product Development teams, where they gained insight

into technology as well as our product development pipeline.

Visiting our sites and facilities enabled them both to explore

our complex processes and approach to process safety and

behavioural safety.

– Access to a Board induction pack available through the

Board materials portal to assist with understanding Rotork’s

history, culture, business, markets, strategy and risk

management framework.

– Briefing meetings (both online and face-to-face where possible)

with the Chairman, all directors, members of the Rotork

Management Board and certain of their direct reports.

– Meetings with the external auditors, brokers and

remuneration consultants.

– Specific information and training sessions with the Group

General Counsel & Company Secretary regarding Directors’

duties, responsibilities, corporate governance practices, Listing

Rules obligations and key policies.

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.

The Chairman, through the Nomination Committee under its terms of

reference, monitors the time commitment of non-executive directors with

no issues having been identified during the year.

Information and support

All non-executive directors 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.

The Board has a procedure for directors, if deemed necessary, to take

independent professional advice at the Company’s expense in the

furtherance of their duties. All directors have access to the advice of the

Group General Counsel & Company Secretary who supports the Board

on legal and corporate governance matters, including compliance with

the Company’s Listing Rules obligations and other regulatory or statutory

requirements. Together with the CEO and the Group General Counsel &

Company Secretary, the Chairman ensures that the Board is kept properly

informed and is consulted on all issues reserved for it. Board papers and

other information are distributed in a timely fashion to allow directors

to be properly briefed in advance of meetings.

In accordance with the Company’s articles of association, directors as well

as the Group General Counsel & Company Secretary, have been granted

an indemnity by the Company to the extent permitted by law in respect

of liabilities incurred as result of their office. The indemnity would not

provide any coverage where they are proved to have acted fraudulently

or dishonestly. The Company has also arranged appropriate insurance

cover in respect of legal action against its directors and officers.

Ongoing professional development

In order to facilitate greater awareness and understanding of Rotork’s

business and the environment in which it operates, directors are given

regular updates on changes and developments in the business. Over the

course of the year, directors will continually update and refresh their skills

and knowledge and seek independent professional advice when required.

Conflicts of interest

Procedures are in place to identify and manage declared actual and

potential conflicts of interest which directors (or their connected persons)

may have and are obliged to avoid under their statutory duties and the

Company’s articles of association. The Board considers each director’s

situation and decides whether to approve any conflicts based on the

overriding principle that a director must at all times be able to consider

and exercise independent judgment to promote the success of the

Company. This procedure has operated effectively throughout the year.

Authorisations given by the Board are reviewed on a regular basis.

No director has declared any material conflicts of interests.

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 is to ensure the Board and its

committees continue to be effective and all members continue to have

sufficient time and commitment to fulfil their duties. 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 as part of this evaluation process.

113www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

2020 internal Board evaluation

Areas identified for

development Actions taken in 2021

Increased focus on succession

planning for Board, RMB

and senior management

level (including talent

management, diversity).

The Board and Nomination Committee

continued to facilitate the regular review

of succession plans for each of the

identified categories, including two

deep dives held during the year.

Facilitate more effective

debate on strategy/M&A.

Following the annual strategy day held

in June, the Board regularly discussed

its implementation, including alignment

with longer-term sustainability issues.

A dedicated session was held at the

December Board meeting.

Bring more external views

into Board meetings.

Agenda time was allocated for external

presentations, including external advisers

on sustainability, M&A and executive

remuneration. Directors also shared their

experiences from other Board roles or from

their executive careers in other companies.

Continue the work to

increase the access of Rotork’s

management to the Board

and further develop employee

engagement with non-

executive directors.

Members of the RMB, senior management

and High Potentials have regularly

presented at Board meetings during

the year, for example on sustainability,

compliance, risk, finance transformation,

cyber security and pricing strategy. Post-

COVID, events will be arranged to facilitate

more informal opportunities to meet with

the Board.

2021 internal Board evaluation

This year, led by the Chairman with support and guidance from the

Group General Counsel & Company Secretary, the process was conducted

internally to assess progress against the actions recommended by the

2020 internal evaluation. The process was undertaken in November 2021

by way of anonymous questionnaires targeted at the agreed key action

areas, with input from all Board members.

The Group General Counsel & Company Secretary collated and

analysed the results, discussing them with the Chairman prior to feedback

being provided at the December 2021 Board meeting. Subsequently,

the Board agreed an action plan for implementation in the year ahead

as set out below.

Areas identified

for development Actions to be taken in 2022

Embed the new CEO in his

new role with support as

needed from Board members.

Develop and implement a structured

induction programme for Kiet Huynh.

Board members to be available to support

outside of meetings.

Focus on delivering growth,

including revitalising the

product portfolio.

Our 2022 strategy meeting will focus

on refining our strategy to accelerate

growth, including new product

development and innovation.

Continue with engagement

with the RMB and our People,

to enhance the Board’s

understanding of the issues

affecting the business and

how our employees are

addressing them.

We will review how more opportunities

can be created during the year for the

Board to engage, both formally and

informally, with the RMB and our People.

Chairman’s performance evaluation

Led by Peter Dilnot, as the Senior Independent Director, a review of

the Chairman’s performance was undertaken by means of an online

questionnaire and private meetings held between Peter and the non-

executive and executive directors. The outcome was then shared with

the Chairman. The Chairman continues to be highly regarded and

is considered to promote effective decision-making and constructive

debate to ensure the Board works as a team.

2022 external evaluation

With internal evaluations having been carried out in each of the last

two years, an external evaluation of the Board and its committees

will be conducted in 2022 as the beginning of a new three-year cycle.

Details of the findings from the external evaluation will be provided

in next year’s annual report.

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 integrity of

financial and narrative statements and considers whether the assessment

of Rotork’s position and prospects are fair, balanced and understandable

and then recommends these statements to the Board for approval.

The established risk review process produces a ‘bottom up’ assessment of

the risks facing the Group, reflecting the views of the commercial divisions

and functional teams. These are consolidated before a ‘top down’ review is

performed by management and then by the Board to ensure the corporate

risks are 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 highlights areas 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.

During 2021, an in-house Head of Risk and Compliance was appointed.

PwC now leads the group’s third line of defence internal audit function.

From 1 May 2021, Janice Stipp has taken the role of Audit Committee

Chair, replacing Sally James. Janice has been on the Committee throughout

2021 and 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. Further details of how the roles and responsibilities of the Audit

Committee have been discharged are on pages 119-122.

The Board is required 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 82-92.

Corporate governance report continued

114Rotork Annual Report 2021

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 2021, the Board and Audit Committee regularly considered matters

relating to the Group’s risk management and internal control systems.

This year, three areas which received particular focus were:

– the continued impact of COVID-19 on the Group and particularly

on our supply chain and our people;

– the finance transformation programme, including new ERP

development; and

– the impact of the proposed Business, Energy & Industrial Strategy

(‘BEIS’) audit reforms which were each discussed at several meetings

during the year.

Throughout the year, the Board received reports on the impact of COVID-19

and, in particular, the impact of this and other external factors on global

logistics and the supply chain. The COVID-19 Steering Committee continued

to meet throughout the year to consider the ongoing impact of the

pandemic in each of the countries in which we operate. The Board has

monitored the impact of disruption and changing working patterns on

our internal controls, and overseen return to work procedures. Challenges

with logistics and supply chain have been managed by dedicated teams who

have reported on a regular basis to the management team and to the Board.

At each Audit Committee meeting during the year, progress with

various elements of the finance transformation programme has been

discussed. The focus for each meeting has varied, as needed, as this

broad programme of work incorporates two major systems changes:

implementation of a standardised Business Controls Framework and the

change to a new target operating model over time.

Following publication of the BEIS white paper ‘Restoring trust in audit and

corporate governance’ in March 2021, the Audit Committee reviewed the

potential requirements in order to make a provisional assessment of our

preparedness. Once the final requirements and implementation time are

known, this will then allow for the completion of a more detailed plan.

Further details of reports undertaken and reviewed are set out in the

Audit Committee report on pages 119-122.

The Audit committee has confirmed to the Board that the systems, which

were in place for the year under review, and up to the date of approval

of the report, are effective and are in accordance with the Code and the

FRC Guidance on Risk Management, Internal Control and Related Financial

and Business Reporting, and are regularly reviewed.

Main features of the Group’s risk

management process

The Board is responsible for determining the nature and extent of the risks

it is willing to take in achieving our strategic objectives.

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. The bottom-up assessment process includes a review with all

central functions, a focus on risk mitigation reporting, and development

of plans to respond to risks in accordance with risk appetite.

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 2021, emerging risks, and the

Board’s risk appetite, are covered on pages 82-92.

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. The Chairman and executive directors attend Audit Committee

meetings with other members of the senior leadership team presenting

or attending as necessary.

Key elements of the control environment, which form part of the review

of the effectiveness of risk management and internal control and which

enable Rotork to respond appropriately to all types of business risks, include:

– The Rotork Values and behaviours;

– The Code of Conduct 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, including 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, the results of which are reported to the Board; and

– Defined controls and assurance processes over, for example,

financial reporting and health & safety procedures.

During the year, work on some aspects of the broader finance

transformation programme have progressed to plan although others

have slowed as certain activities were prioritised elsewhere, as follows:

– The financial Business Control Framework project continued throughout

the year. This programme will improve the quality and consistency

of controls across all locations and has informed the controls which

are embedded in the new Enterprise Resource Planning (ERP) system.

It has also provided a good foundation for the work to come as we

move towards compliance with the anticipated regulations which

will flow from the BEIS white paper ‘Restoring trust in audit and

corporate governance’;

– The mid-year appointment of a Head of Risk and Compliance,

establishes a formal second line of defence capability;

– Work on development of the new ERP system continued; and

– The ERP system, together with the design of the new reporting toolset,

provide the bedrock for most of the other target operating model

changes and so have been the key focus in 2021. Work on other

aspects of the target operating model will continue in 2022.

Remuneration

The responsibility for determining remuneration arrangements for the

Chairman and executive directors, as well as oversight over all aspects

of workforce remuneration, has been delegated to the Remuneration

Committee, chaired by Tim Cobbold. Five meetings of the Remuneration

Committee took place in 2021.

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 2021 can be found at pages 125-150.

115www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

I am pleased to present the second annual report of Rotork’s

Environmental, Social and Governance (‘ESG’) Committee.

During the year, the Committee oversaw substantial progress

in driving forward our ESG and sustainability strategy. We

are integrating ESG and sustainability at all levels of the

business in line with our strategic areas of focus – Operating

Responsibly, Enabling a Sustainable Future, and Making a

Positive Social Impact – and linking successful achievement

of objectives to remuneration.

Our increased focus on ESG has been recognised by

stakeholders, as well as by ESG ratings agencies. We

appreciate the independent assessment of our performance

that they provide. However, we recognise we have more

to do. We are committed to accelerating progress and

engaging openly with stakeholders to understand their

expectations. Looking ahead, the Committee will continue

to focus on supporting and encouraging the strong

momentum behind this increasingly important agenda.

We see this as key to delivering our Purpose.

The ESG Committee is responsible for:

– recommending the overarching ESG vision to the Board

in order to ensure that ESG priorities are embedded

in the Group’s strategy and, in so doing, agree the

annual plan and targets relating to ESG matters; this

includes setting ESG performance targets as part of

the executive directors’ personal strategic objectives;

– agreeing a process for determining which goals are

material and significant for the business and taking

on board management’s views on what are considered

to be the most meaningful areas of focus;

– acting as a focal point to gather and discuss relevant

insights from a variety of sources on ESG matters

before sharing with the Rotork Management Board

and the business;

– ensuring development of, and regular updates to,

a suitable transformation map and dashboard that

measures progress on the annual targets (informed by,

and aligned to, the Remuneration Committee targets

and incentive arrangements);

– reviewing the Company’s performance against its

annual plan and ESG targets including challenging

management’s performance against the Company’s

long-term ESG goals, targets (including KPIs), initiatives

and commitments;

– guiding the Company’s ESG communication strategy

and reviewing the detail of external communications

on ESG matters on behalf of the Board; and

– ensuring that ESG priorities are reflected in the

Company’s culture through its Purpose, vision,

Values and behaviours as well as its Code of Conduct.

Environmental, Social and Governance

(‘ESG’) Committee report

Committee composition and meetings

In 2021, the Committee comprised three independent non-executive

directors (including myself as Chair), the Chief Executive Officer,

the Strategy and Mergers & Acquisitions Director and the Group

HR Director. Karin Meurk-Harvey joined the ESG Committee during

the year, having been appointed to the Board on 13 September

2021. Karin is a very welcome addition to the ESG Committee.

Her appointment strengthens the Committee’s commercial

expertise, particularly in high-growth markets and digital, as well as

broadening its diversity. The Investor Relations Director and Head

of ESG & Sustainability also attend by invitation. The Group General

Counsel & Company Secretary acts as secretary to the Committee.

The Committee normally meets three times a year. Details of the

Committee members and their attendance at the meetings held

during the year are set out below. The Chair reports to the Board

on the key issues covered at each meeting.

Member

since

Eligible

Meetings

(max: 3) Attendance

Ann Christin Andersen,

Committee Chair

October

2020

3 3

Tim Cobbold,

Non-executive director

October

2020

3 3

Kevin Hostetler,

Chief Executive Officer

October

2020

3 3

Vijay Rao, Strategy and M&A

Director

October

2020

3 3

Kathy Callaghan,

Group HR Director

October

2020

3 3

Karin Meurk-Harvey

September

2021

1 1

1 Karin Meurk-Harvey joined the ESG Committee on 13 September 2021. Kevin

Hostetler stepped down from the Board and from the Committee on 10 January

2022. Kiet Huynh, who was appointed Chief Executive Officer on 10 January

2022, was appointed to the Committee from the same date and attended his

first meeting in February 2022. Vijay Rao stepped down on 31 January 2022.

Ann Christin Andersen

Chair of the ESG Committee

116Rotork Annual Report 2021

Operating

Responsibly

We aim to run

safe, efficient

and sustainable

operations.

Enabling a

Sustainable

Future

We want to

help drive

the transition

to a cleaner

future where

environmental

resources are

used responsibly.

Making

a Positive

Social Impact

We aim to

support thriving,

fair and resilient

communities.

ESG roadmap and goal setting

In October, the Committee undertook a review of management’s progress

against the agreed ESG roadmap for 2021 and offered guidance on future

areas of focus. Among the key topics discussed at this meeting was the

further development of the Company’s net-zero roadmap.

The Committee reviewed management’s proposed strategy to achieve

further reductions in scope 1 and 2 emissions in line with climate science,

whilst recognising that Rotork had reported on scope 1 and 2 emissions for

many years and achieved significant emissions reductions. The Committee

also endorsed management’s approach for the calculation and reporting of

Rotork’s scope 3 emissions, in anticipation of setting appropriate emissions

reduction targets.

The Committee subsequently approved Rotork’s net-zero target dates

and the near-term emissions reduction targets that will support its journey

towards them. Rotork has set a science-based target to reduce scope 1

and 2 emissions – those arising from its operations – by 42% by 2030.

The Company has also set targets to reduce emissions in its value chain,

committing to reducing emissions associated with the use of sold products

by 25% by 2030, and to have 25% of its suppliers committed to science-

based targets by 2027. Further details are set out on page 62.

COP26 in November 2021 represented a major step forward in helping to

make the Paris Agreement a reality and I am proud that Rotork is playing

its part by delivering deep emissions cuts this decade. Agreements made

at COP26 will also generate significant opportunities for Rotork. Rotork’s

products and services are an essential component of the processes that

will help the energy sector and heavy industry decarbonise and reduce

emissions of other greenhouse gases.

The ‘Breakthrough Agenda’ aims to accelerate the production of clean

technologies. Among the first sectors to be targeted are green steel and

hydrogen. The case study on pages 6-7 shows the integral role of electric

actuation in these, and the anticipated growth of these sectors.

Activities of the Committee during the year

The Committee met three times during the year.

Sustainability Framework

At its meeting in February 2021, the Committee approved Rotork’s

sustainability framework. The framework was developed around an in-

depth assessment of the UN Sustainable Development Goals (SDGs) Rotork

is best-placed to support, and a formal materiality assessment process to

confirm priority sustainability topics and associated SDGs. The sustainability

framework consists of three pillars:

1. Operating Responsibly

This reflects our focus on safety and operational eco-efficiency, as well

as high ethical standards, strong governance and effective management

of ESG within our supply chain. Our commitments under this pillar target

progress for the SDGs Responsible consumption and production (12)

and Climate action (13).

2. Enabling a Sustainable Future

This reflects the significant opportunity Rotork has to help to drive the

transition to a cleaner future, where environmental resources are used

responsibly. We believe Rotork’s products and services play a major role in

new energies and technologies that will support the energy transition and

a low-carbon economy. They also play a major role in water management.

Rotork supports SDGs Clean water and sanitation (6), Affordable and clean

energy (7) and Industry, innovation and infrastructure (9) under this pillar.

3. Making a Positive Social Impact

This focuses on the positive contribution we make through our high

quality, inclusive employment practices, engagement with stakeholders

and contributions to local communities. It recognises the value of our

brand to our sustained success in attracting and retaining the best talent,

maintaining our market leading position and securing the ongoing support

of our shareholders and other stakeholders. As part of this area of focus

Rotork is progressing SDGs Gender equality (5) and Decent work and

economic growth (8).

The pillars of our framework articulate the key themes that have the

greatest influence on Rotork’s ability to drive superior value for shareholders,

today and for the future. These areas of focus support the management

of opportunities and risks, acceleration of productivity and growth,

and allocation of investments. I am really pleased by the work undertaken

and I am impressed by the extent to which the leadership team is applying

an ESG lens to both its strategic and operational decision-making.

At meetings held during the year, the Committee received updates

from management on commitments and goals set for each pillar to

drive continued progress. The Committee recognises the need to develop

increasingly quantitative measures to track and report on progress, as the

Group’s ESG and sustainability strategy evolves and continues to mature.

Sustainability Report

The Committee reviewed and approved Rotork’s first annual Sustainability

Report. It was published on 25 June 2021 (available at: www.rotork.com/

en/environmental-social-governance/environment). The report details

Rotork’s non-financial performance for the year ended 31 December

2020, providing detailed disclosures on material ESG topics. It was

prepared in accordance with Global Reporting Initiative (‘GRI’) Standards

and the Sustainability Accounting Standards Board (‘SASB’) framework.

I was delighted that our sustainability reporting received the ‘Best

Communication of ESG’ award from the Investor Relations Society

in November 2021. It has also helped underpin strong performance

in ESG ratings in 2021, including leading rankings in S&P’s Corporate

Sustainability Assessment and Sustainanalytics. See page 46 for details.

Our next Sustainability Report is due to be published in mid-2022.

Our Sustainability Framework

Our framework is founded on the three pillars

117www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Looking ahead

Significant progress has been achieved in 2021. We have set the bar high

and I am delighted to see that Rotork is delivering on its commitments to

stakeholders. We have more work to do but we are making good progress.

Rotork can play a pivotal role in the most urgent sustainability issues of

our time and I am proud to be a part of that journey.

I would like to thank members of the ESG Committee and Rotork

management for their constructive inputs and personal commitment to this

crucial agenda.

Ann Christin Andersen

Chair of the ESG Committee

28 February 2022

The ‘Global Methane Pledge’, also agreed at COP26, commits signatories

to reduce methane emissions by 30% by 2030. The oil & gas sector is a

major emitter of methane emissions, but by replacing pneumatic devices

with electric actuators, such as those produced by Rotork, these emissions

can be cut to close to zero. The case study on page 4-5 illustrates Rotork’s

role, both in oil & gas operations and gas distribution networks.

Finally, the ‘Global Coal to Clean Power Transition Statement’ commits

signatories to accelerate a transition away from unabated coal power

generation. One important way of abating emissions from coal power

generation is through Carbon Capture Utilisation and Storage (‘CCUS’).

CCUS processes are flow control equipment intensive, representing another

opportunity for us to enable the energy transition.

Further details of progress achieved during the year in each pillar of

our sustainability framework can be found within the Strategic Report

on pages 46-58.

TCFD reporting

In light of the increasing importance of climate-related issues, the

Committee, and later the Board, participated in deep dive sessions on

the requirements of TCFD during the year. These sessions were delivered

by external experts and outlined the benefit of implementing the TCFD

recommendations, both for businesses and financial partners, as well

as the required disclosures. The Committee endorsed the practical and

thorough approach being taken by management in integrating TCFD

recommendations. Rotork’s TCFD report can be found on pages 59-73.

Linking ESG strategy to remuneration

During the course of 2021, and in the early part of 2022, the Committee

oversaw efforts to align the ESG strategy with management incentives.

It worked closely with the Remuneration Committee to set relevant and

meaningful ESG objectives. For 2021, the annual bonus was adjusted to

include 10% of the maximum opportunity based on ESG performance,

with quantitative targets set to cover health and safety (LTIR), normalised

carbon emissions (scopes 1 and 2), culture and engagement scores

(including inclusivity) and qualitative objectives focusing on environmental

innovation and on customer engagement on sustainability issues.

Going forward into 2022, the Committee has reviewed and recommended

to the Remuneration Committee that the same ESG metrics introduced

in 2021 will apply to the 2022 bonus opportunity for the executive and

senior leadership teams for 2022. Further details on ESG-related targets,

measures and the 2021 outturn can be found within the Directors’

Remuneration Report on page 141-142.

Environmental, Social and Governance

(‘ESG’) Committee report continued

118Rotork Annual Report 2021

Principal responsibilities

The principal responsibilities of the Audit Committee

are to review and report to the Board on the:

– Integrity of financial reporting.

– Application of significant accounting policies

and judgements.

– Internal audit programme, its remit, resourcing

and effectiveness.

– Adequacy and effectiveness of the Company’s

internal controls and risk management systems.

– Appointment, independence and remuneration

of the external auditor.

– Effectiveness of the external audit process.

Activities of the Audit Committee during the year

Financial reporting

– Reviewed the Annual Report and Accounts (including whether they are

fair, balanced and understandable and new disclosures related to TCFD),

the Corporate Governance Report and results announcements.

– Reviewed material judgements and estimates, going concern

assumptions and the viability statement in the Annual Report

and Accounts.

– Reviewed the half-year accounts including material judgments,

estimates and half-year results announcement.

– Reviewed the external auditor’s report on the year-end accounts

and proposed full year external audit scope, key risks, materiality

and all matters associated with the financial year-end.

Internal controls and risk management

– Reviewed processes and procedures for risk management and

the effectiveness of the internal controls framework.

– Reviewed the development of the Business Control Framework

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

– Reviewed significant internal control reports, findings and

management responses.

– Discussed compliance with Group policies.

– Reviewed and approved the Group Risk Management Policy.

– Reviewed anti-bribery and corruption procedures, compliance

and whistleblowing activity and the gifts and hospitality policy.

External audit

– Reviewed and approved the external audit plan and scope of the

external auditor’s work.

– Considered and reported to the Board on the external auditor’s

independence, objectivity and effectiveness of the audit process.

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

the control environment and fraud risk management.

– Reviewed and approved non-audit services undertaken by the

external auditor and the policy on non-audit work.

– Considered audit fees and engagement terms.

– Considered the re-appointment of the external auditor.

– Reviewed the effectiveness of the external audit process.

Committee membership & meeting attendance

All Audit Committee members are independent non-executive

directors. On 30 April 2021, Sally James, who had served as a

member of the Committee since her appointment in 2012 and as

Committee Chair since September 2020, retired from the Board

at the conclusion of the 2021 AGM. Janice Stipp was appointed

as Committee Chair from 1 May 2021. There have been no other

changes to the membership of the Committee during the year.

Member

since

Eligible

Meetings

(max: 4) Attendance

Sally James, Committee Chair

05/12 1 1

Janice Stipp, Committee Chair

12/20 4 4

Peter Dilnot 09/17 4 4

Ann Christin Andersen

12/18 4 3

Tim Cobbold 12/18 4 4

1 Sally James retired from the Board and as Committee Chair on 30 April 2021

and accordingly only attended the February 2021 meeting.

2 Janice Stipp was appointed Committee Chair with effect from 1 May 2021.

3 Ann Christin Andersen was unable to attend the December meeting due

to an exceptional and unexpected family circumstance.

Janice Stipp and Tim Cobbold hold professional accounting

qualifications and are deemed to have recent and relevant financial

experience. All Committee members have experience of working

in complex global industrial products businesses, a number of which

share common end markets with Rotork. The biographies and

skillsets of each member of the Audit Committee can be found

on pages 99 and 102-103.

The Audit Committee operates under formal terms of reference

which are reviewed annually and were last updated in February 2021.

A copy of the terms of reference is available on the Rotork website

at Rotork: Audit Committee Terms of Reference.

Janice Stipp

Chair of the Audit Committee

Audit Committee report

119www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Audit Committee report continued

Internal audit

− Reviewed and approved the internal audit programme.

− Reviewed the maturity and effectiveness of internal audit, its remit

and resourcing.

− Reviewed the policy on the independence of the internal auditor.

− Approved the Internal Audit Charter.

− Discussed and monitored progress on implementing recommended

actions, including overdue actions.

Other work

− Reviewed progress of the finance transformation programme.

− Reviewed Audit Committee effectiveness and terms of reference.

− Approved the Audit Committee’s schedule of work for 2022.

I am pleased to present the report of the Audit Committee for the year

ended 31 December 2021. This year the key areas of focus for the Audit

Committee, in addition to its usual schedule of work, have been:

– Reviewing progress of the finance transformation programme.

This multi-year programme has made progress in some areas whilst

other aspects were deferred, as work on the development of the

new ERP system and reporting toolset were prioritised. These system

implementations will improve resilience and security and enhance the

quality and consistency of financial analysis provided to the business

whilst, at the same time, improve the efficiency of the finance function.

– Reviewing progress with the Business Control Framework

project and development of a stronger second line of defence.

The Business Control Framework activities progressed to plan during

the year with all Group companies now reporting against the agreed

key controls. These have also been designed into the new ERP system,

where practical, to ensure consistent adoption as the system is

implemented. This work also provides a solid start in our preparation for

the work to come as we move towards compliance with the regulations

we anticipate will result from the Business, Energy & Industrial Strategy

(‘BEIS’) white paper ‘Restoring trust in audit and corporate governance’.

– Reviewing the change to our assurance model and

establishment of a separate second line of defence. The internal

Head of Risk and Compliance now supports our risk management

processes and reporting and manages the financial compliance reviews

around the world. PwC retain responsibility for internal audit, the third

line of defence.

Governance

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 119. The Chairman, Chief Executive Officer, Group

Finance Director, Group Financial Controller, Head of Internal Audit,

Head of Risk and Compliance, the Group General Counsel and Company

Secretary and representatives of the external auditor (including the lead

audit partner) also attend meetings by invitation.

As Chair of the Committee, I additionally hold regular meetings with the

Group Finance Director, the external audit partner, the outsourced Head

of Internal Audit, Head of Risk and Compliance and other members of the

management team, as Sally did during her tenure. 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 risk and compliance team, the internal audit team and the external

auditors. Through face-to-face discussions and detailed written

reports the Committee is able to challenge, scrutinise and ask questions

where clarification or discussion is required. Meetings were also held

with the external auditor and the Head of Internal Audit without

management present.

Further details of the work undertaken by the Audit Committee during

2021 is set out on page 119.

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, which this year included

consideration of the change in accounting policy in respect of

Software as a Service arrangements following the IFRIC Interpretations

Committee agenda decision; further details are shown in note 1 to the

financial statements.

– 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 and 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 statements, the Committee receives

reports from members of the finance 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 judgements

and estimates and how they are being recorded and disclosed in the

financial statements.

120Rotork Annual Report 2021

The policy permits the use of the external auditor only for services

identified on the list contained in the Revised Ethical Standard. Prior

to commencing any activity the external auditor will assess whether it

meets the requirements of their independence checks. If those checks

are satisfied the Chair of the Audit Committee will then have the delegated

authority to approve or reject each activity. Any work that is approved

is reported at the next Audit Committee meeting.

An analysis of fees paid to Deloitte, including the split between audit and

non-audit is included in note 8 of the financial statements.

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. The work started in prior years to improve

accountability, consistency between locations and the development of

a stronger second line of defence has progressed through the year with

the appointment of an internal Head of Risk and Compliance to lead

the second line of defence. Despite physical access remaining limited

throughout the year, the methods of remote working established last

year continued to work effectively.

The Audit Committee received reports at each meeting on progress with

the work, including reports from the external auditor. Plans for 2022 were

approved by the Audit Committee in December 2021 and progress will

be monitored in the coming year.

In the middle of the year, the appointment of an internal Head of Risk

and Compliance to take responsibility for risk management and financial

compliance reviews created a distinct second line of defence team. The

core team is supplemented by Rotork finance staff from other parts of the

business who received training from the compliance team during the year

on the compliance review process and reporting requirements to enable

them to contribute to the work programme. This combined team has

delivered financial compliance reports for 25 of our global locations during

2021. These were undertaken remotely because COVID-19 prevented

international travel. Guidance is provided to the compliance team on the

nature and extent of testing to be undertaken including, for the second

year, how to manage the process remotely and to ensure the team focus

their efforts in key areas of risk, tailored by site.

The Audit Committee receives reports on financial compliance review

activity, any significant matters arising and the management responses.

During the year, recommendations were made for improvement to

controls, which management is charged with implementing, none of which

related to significant failings or weaknesses. The status and effectiveness

of actions are monitored by the Head of Risk and Compliance and regularly

reported to the Audit Committee. This was the first full year of operation

of the revised finance team reporting lines, with the finance function

reporting through the finance team throughout the world. This structure is

now fully embedded and we are seeing improved accountability in respect

of improvement actions arising from financial compliance reviews. The

number of overdue actions has fallen again this year as a consequence of

greater levels of finance team accountability and the continued rigour of

the ‘follow up’ process.

The principal matters of judgement and estimation considered by the

Audit Committee in relation to the 2021 accounts and how they were

addressed were:

– Retirement benefit schemes. At 31 December 2021, the Group

operated 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

IAS 19 is shown in note 24 of the financial statements and the Audit

Committee is satisfied they are complete and accurate.

External auditor

The year under review marks the eighth year during which Deloitte LLP

has been the Group’s external auditor following a formal tender process

in 2014. The 2021 year end audit will be the third year that David Griffin

has acted as Deloitte LLP’s lead audit partner for Rotork. Whilst the

opportunities for David and the Deloitte senior team to visit Rotork locations

this year have been limited, they have been able to do this in the past having

been part of the audit team for a number of years and have also used

technology to communicate with and supervise the broader team.

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.

– The independence and objectivity of the external auditor including

the level of challenge provided to management.

– 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 is 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 2022

financial year and Deloitte’s continuing appointment will be subject to

shareholder approval at the 2022 AGM. As this is the eighth year-end since

Deloitte took over as external auditors we will begin a process to re-tender

our external audit service provider during 2022 or 2023.

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.

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 reflects the FRC’s Revised Ethical Standard 2019 on permitted

non-audit services.

121w ww.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

In selecting risk-based internal audits for the 2022 plan, the team has

focused on those risks where reliance on mitigations is most significant

whilst ensuring a broad coverage of areas over a multi-year cycle. The

compliance and risk team has determined the sites to be subject to

second line review in 2022 based on a thorough risk-assessment using

a number of criteria. The Audit Committee reviewed and approved the

2022 programme at its December 2021 meeting.

Other matters

In accordance with its terms of reference, the Audit Committee carried out

a review of its effectiveness including how it discharged its responsibilities.

In 2019, Independent Audit, as the appointed external board evaluator,

interviewed the Committee members, Board members, members of

Rotork’s management team, the internal auditors and external advisors as

part of this process. In 2020 and 2021 an internally-facilitated questionnaire

was used to reflect on progress in the year from the previous work and the

output from this was discussed in December 2021 and recommendations

agreed. An external evaluation process will be used once again in 2022.

The Audit Committee continued to monitor progress to report in line

with the recommendations from the TCFD and received reports on the

recommendations and considered assurance requirements over disclosures.

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. This included

a meeting to consider the proposals of the BEIS white paper ‘Restoring

trust in audit and corporate governance’ and later in the year PwC carried

out a high-level review of readiness for possible implementation of the

recommendations of the white paper.

Areas of focus for 2022

Key areas of focus for the coming year, in addition to the usual schedule

of work are:

– To begin planning for a tender of the external audit service provider.

– To review ongoing progress with the finance transformation

programme.

– To review implementation and roll-out of the ERP system and the

impact of the integrated controls 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 arising from the BEIS consultation on

‘Restoring trust in audit and corporate governance’.

Finally I would like to thank Sally for her excellent leadership of this

Committee in the two terms she served as Audit Committee Chair.

There have been considerable improvements during the time Sally has

led, or been a member of, the Committee and she has played a significant

role in these positive developments.

Janice Stipp

Chair of the Audit Committee

28 February 2022

The risk and compliance team continue to manage the process for sites to

confirm the operation of key financial controls. The process was developed

this year and carried out in a number of steps. Firstly, as part of the

Business Control Framework activity, a self-assessment was carried out

over all controls. This provides insight into key areas of risk and is verified

during the financial compliance reviews. In the fourth quarter a separate

confirmation process was deployed to confirm operation of key controls in

advance of the year-end and to provide an update on the earlier Business

Control Framework activity.

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.

The Risk Management Policy documents the Group’s risk management

processes and the connections between those various processes and

the day-to-day operations of the Group. Each member of the executive

team who is a designated risk owner has responsibility for producing and

updating detailed ‘get to green’ plans to respond to risks in accordance

with risk appetite. These plans are updated to reflect the changing risk

environment as well as any changes in risk appetite. Work on these plans

will continue in 2022.

PwC continued to provide internal audit services throughout 2021. The

function is led by an experienced Head of Internal Audit from PwC who,

until the appointment of the Head of Risk and Compliance, also led the risk

management and financial compliance activities. Risk-based internal audit

reviews have been completed during 2021 covering the following areas:

– IT access rights management.

– GAP savings and benefits realisation.

– Treasury management.

– Culture and behaviours.

With the Committee’s approval, a further two proposed 2021 reviews were

not undertaken. The first, in relation to the product development life cycle

was deferred as a result of constraints in management capacity as a result

of the well-publicised supply chain and logistics challenges. The second

review, of IT obsolescence management, was not completed as resources

were prioritised for the development of the new ERP system. The internal

audit function instead prepared an initial assurance map over the risk of

product quality failure which has helped focus planned work (including

over the development life-cycle) in 2022. Internal audit also undertook

additional activities: firstly a high-level assessment of the Group’s readiness

for a potential future internal financial controls regime and secondly,

attendance from July 2021 at the monthly ERP steering meeting.

The Audit Committee receives updates on internal audit activity, any

significant matters arising and the management response. The status

of actions are monitored by internal audit and regularly reported to the

Audit Committee.

In early 2021 a review of all internal audit open actions was carried out

with plans to close out existing actions agreed or alternative actions

recommended where considered appropriate. At the same time,

a new process to escalate open actions was introduced. These activities

significantly reduced the number of open actions.

Audit Committee report continued

122Rotork Annual Report 2021

The Nomination Committee is responsible for:

– Leading the process for Board appointments and making

recommendations for appointments to the Board.

– Ensuring plans are in place for orderly succession

to both the Board and senior management positions

and overseeing the development of a diverse pipeline

for succession.

– Reviewing the structure, size and composition and

balance of the Board, including its balance of skills,

diversity, knowledge and experience.

– Making recommendations to the Board on the

composition of the Board’s committees.

– Assessing each year whether non-executive directors

continue to be independent.

– Reviewing the Company’s policy on diversity and

inclusion, its objectives and linkage to strategy,

how it has been implemented and progress made

on achieving the objectives.

Committee membership & meeting attendance

The Committee, under the chairmanship of Martin Lamb, currently

comprises all independent non-executive directors. Together, they

bring a diverse and complementary range of backgrounds, personal

attributes and experience to discharge the Committee’s duties

effectively. The skills and experience of the Committee members

are set out on pages 99 and 102-103. The Committee met five times

during the year and members’ attendance at the meetings is set out

below. The Chief Executive Officer, Group Finance Director, Group

HR Director and the Group General Counsel & Company Secretary

also attend the meetings by invitation.

Member Member since

Eligible

Meetings

(max: 5) Attendance

Martin Lamb, Committee Chair June 2014 5 5

Sally James

May 2012 2 2

Peter Dilnot

September

2017 5 5

Ann Christin Andersen

December

2018 5 5

Tim Cobbold

December

2018 5 5

Karin Meurk-Harvey

September

2021 2 2

Janice Stipp December

2020

5 5

1 Sally James retired from the Board on 30 April 2021 and accordingly only

attended the February and April meetings.

2 Karin Meurk-Harvey was appointed as a Committee member with effect

from 13 September 2021.

The terms of reference of the Nomination Committee were reviewed

in October 2021. A copy of the current terms of reference are

available on Rotork’s website at www.rotork.com/en/investors/

corporate-governance.

Martin Lamb

Chair of the Nomination Committee

The role of the Committee

The Committee evaluates and examines the skills and characteristics

needed to ensure the Board and senior management has the right balance,

knowledge and attributes to operate effectively in the execution of its

business strategy, and in the delivery of the long-term success of the

Company. Board and Committee composition is formulated to ensure a

full range of diverse experience and that business is conducted with the

utmost integrity and in full alignment with the Company’s culture, Purpose

and Values. It also reviews the succession needs of the Company and puts

in place the appropriate processes for nominating, training and evaluating

directors, taking into account the need for diversity and inclusion.

Activities of the Nomination Committee during the year

– Led the recruitment and appointment process for a new

Chief Executive Officer.

– Oversaw the selection process and appointment of an additional

independent non-executive director.

– Reviewed the talent management process and personal profiles

development and succession plans for Rotork’s senior leaders.

– Reviewed the latest findings of the Hampton Alexander review

and developments in UK Gender and Ethnicity Pay reporting.

– Considered the appointments to the Board Committees following

the change in Board composition.

Succession planning

Succession planning for the Board and senior management is continuous.

During the year, the Nomination Committee considered the need

to maintain an appropriate balance of skills and experience within

the Company to ensure progressive refreshing of the Board and

senior management.

At the Committee’s October meeting, in fulfilment of its role to oversee

the Group’s global talent review and executive succession process, the

Committee received a comprehensive presentation from management

on how talent was identified, developed and managed across the senior

management team for some 100 individuals, also taking into account

diversity and ethnicity considerations. The Committee also had the

opportunity to review the personal profiles and development plans for

those high-potential successor candidates identified for key future roles

within Rotork, focusing on the key leadership roles required to take the

business forward.

Nomination Committee report

123www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

to ensure a rounded Board and considering the different skills, experiences

and perspectives each candidate can bring. Recruitment and selection for

Board members ensures equality of opportunity for all applicants and an

unbiased approach will be taken when interviewing. Objectives on diversity

are set by the Board on a regular basis and the policy is reviewed annually.

The Board is committed to the terms of the 30% Club, of which it is

a member, and to the objectives of the Hampton-Alexander Review.

As at 31 December 2021 and the date of this Annual Report, there

were three female directors at Board level, equating to 37.5% female

Board representation, which exceeds the measure recommended by

the Hampton-Alexander Review. The Board also supports the Parker

Review target for all FTSE 250 boards to have at least one Board member

from an ethnic minority background by 2024. Rotork met this target

during 2021 with the appointment of Karin Meurk-Harvey to the Board.

Karin’s international commercial experience in emerging markets and

in the application of new technology will further strengthen the diverse

mix of skills and experience on the Board. Since the year-end, we have

also appointed Kiet Huynh as CEO. He brings to the Board substantial

experience in the flow control and instrumentation sectors and we look

forward to his leading Rotork in driving growth and leveraging the benefits

of the Growth Acceleration Programme. As at 28 February 2022, ethnic

representation on the Board was 25%. Details of the percentage of

women in senior leadership positions and within the Group, together

with details of our ethnic diversity targets and achievements are set out

on page 57.

Internal board evaluation process

During the year an evaluation of the Board, its Committees and the

Chairman was undertaken in line with the Committee’s terms of reference.

The evaluation process was internally facilitated by the Group General

Counsel & Company Secretary. Further details on the full evaluation

process can be found on pages 113-114.

Re-election of directors

Led by the Committee Chair, it was concluded that, based on an

assessment of the individual skills, relevant experience, contributions

and time commitment of the non-executive directors and taking into

account their other offices and interests held, all non-executive directors

remain independent, committed to their role and continue to be highly

effective members of the Board. The Board is mindful of the number of

external appointments held by Ann Christin Andersen and continues to

be satisfied that she has time to discharge her duties to Rotork effectively.

Ann Christin has provided invaluable guidance and support on Rotork’s

ESG priorities. The Board is recommending the election or re-election to

office of all continuing directors at the 2022 AGM. Details of the service

agreements for the executive directors and letters of appointment for the

non-executive directors are set out in the Director’s Remuneration Report

on page 137.

Nomination Committee evaluation

The Committee carried out an internally facilitated review of its

performance as part of the overall internal Board and Committee

evaluation in 2021 and its findings were discussed by the Committee

and the Board. It was concluded that the Committee continued to fulfil

its duties effectively. Whilst recognising that the succession planning

process had greatly improved, the Committee plans to review in more

detail the training and development programs for key individuals and

the development of more diverse pipelines for succession to ensure the

Company benefits from a wide range of skills, experience, backgrounds

and perspectives.

Martin Lamb

Chair of the Nomination Committee

28 February 2022

Chief Executive Officer appointment

Following the announcement, made in August, of Kevin Hostetler’s

decision to resign as Chief Executive Officer, the Committee commenced

a rigorous recruitment process to appoint a new Chief Executive and

engaged Egon Zehnder to act as Rotork’s executive search consultants.

Other than supporting historic Board and senior executive appointments,

Egon Zehnder has no other connection with the Group or the directors.

The Committee appointed a sub-committee to oversee the recruitment

process and worked closely with Egon Zehnder in compiling long and short

lists of external and internal candidates with regular updates being held

via calls, face-to-face meetings where possible and via video conference.

The final shortlisted candidates also met all of the non-executive directors

individually or in small groups, and gave a presentation to the Nomination

Committee as a whole in December 2021. Following this process, Kiet

Huynh, who has been with Rotork since 2018 and has led both the CPI

division and, more recently, the Water & Power division, was selected and

recommended to the Board as the preferred candidate. Kiet was appointed

by the Board to take office from 10 January 2022. Kevin stepped down

from the Board and as CEO from the same date but will remain available

until 30 June 2022 to support a smooth transition.

Non-executive director appointment

On 30 April 2021, having not sought re-election at the AGM, Sally James

stepped down from the Board following her nine years’ service. Sally

has made a significant contribution to the Rotork Board, especially in

her roles of Senior Independent Director and Audit Committee Chair.

The Board has benefitted greatly from her knowledge and experience.

On the Committee’s recommendation, the Board appointed Peter Dilnot

as the Company’s Senior Independent Director and we continue to

benefit from his wise counsel in this role.

With the need having been identified for an additional non-executive

director with international commercial experience, particularly in the

emerging markets and with digital experience, Lygon Group were

engaged in April to act as Rotork’s search consultants for this appointment.

Lygon has no other connection with the Group or the directors. The

Committee considered a list of potential candidates provided by Lygon

and took into account the balance of skills, knowledge, independence,

diversity and experience of the Board, together with an assessment of

the time commitment expected. The preferred candidate was interviewed

individually by all members of the Committee. Following this process

the Committee recommended to the Board that Karin Meurk-Harvey be

appointed as a non-executive director with effect from 13 September 2021

and that she become a member of the Remuneration, Nomination and

ESG Committees from the same date. Karin’s other public commitments

were disclosed to the Board before her appointment and are provided on

page 103.

Chairman succession planning

As my role as Chairman will be coming to an end in 2023 after nine years,

planning for my successor will commence during the year.

Diversity and inclusion

The Board Diversity and Inclusion Policy (www.rotork.com/en/documents/

publication/24261) provides a high-level indication of the Board’s

approach to diversity and inclusion in senior management roles which is

governed in greater detail through the Group’s policies. The Committee is

committed to succession planning for the Board and senior management

team to ensure the right diverse mix of skills, experience, knowledge and

background is achieved. There has been progressive discussion about

talent management, succession planning and diversity of the Board and

at senior management level during the year, as mentioned above during

October’s talent and succession planning review. In considering diversity,

whilst gender plays an important role, the Board also takes into account

social and ethnic background, and other cognitive and personal strengths.

New appointments are made on merit, embracing diversity and inclusion,

Nomination Committee report continued

124Rotork Annual Report 2021

Rotork’s key remuneration principles

The Remuneration Committee is committed towards

remuneration being:

– Performance driven, competitive and fair;

– Motivating, affordable and proportionate;

– Aligned to shareholders’ interests; and

– Globally relevant and transparent.

Tim Cobbold

Chair of the Remuneration Committee

Directors’ Remuneration report

The Remuneration Committee is responsible for:

– Within the approved policy, determining individual

remuneration packages for the executive directors,

Chairman and, on the advice of the Chief Executive

Officer, 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 there are procedures in place to

monitor fairness of application. In this regard, the

Remuneration Committee reviews internal relativities,

pay ratios and gender and ethnicity pay gaps, and

invites the Group HR Director to its meetings to

provide a broader picture of workforce remuneration

across the Group.

– Taking into account guidance issued by shareholders,

their representative bodies and proxy agencies

(including the Investment Association, Institutional

Shareholder Services and Glass Lewis).

– Taking into consideration any views expressed

by shareholders during the year (including at the

AGM) and encouraging 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.

125www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

The Committee’s approach to Remuneration in 2021

The Committee’s approach to remuneration in 2021 across Rotork in

general and for the executive directors and senior managers, for whom

the Committee is explicitly responsible, was guided by Rotork’s Key

Remuneration Principles. In particular, the approach was based on a

sensitive appreciation of the business’s performance, the experience of

shareholders during the period and the employee experience during the

year. The Committee’s specific considerations are described below.

Business performance

In the Committee’s view, Rotork continued to perform well despite the

ongoing challenges of COVID-19 and particularly the ensuing supply

chain issues. These supply chain issues manifested themselves during the

year and, whilst significant actions were taken to mitigate their impact,

these were not sufficient to avoid a material adverse impact on revenue,

profit and cash generation during the year. This impact manifested itself

in terms of input price inflation and in shortages, particularly of chipsets,

contributing to significant material cost increases and lead time extensions.

Importantly, order intake continued to grow as economies rebounded from

declines in 2020.

– On a reported basis 2021 adjusted operating profit was £128.1m, down

10.1% on 2020 with revenues 5.9% lower. On a constant currency

basis, 2021 adjusted operating profit at £130.8m was 8.2% lower.

Adjusting operating margins were 110 bps lower as higher supply chain

costs impacted.

– The book to bill ratio at 1.08 was exceptionally high as order flow, up

7.8% on a constant currency basis, remained strong. The Committee

noted the orderbook at 31 December 2021 at £220.1m was materially

higher than in earlier periods, demonstrating the underlying health of

the business notwithstanding the shorter term supply chain issues.

– Operating cashflow was good, though also affected by supply chain

issues with conversion at 108%. Working capital reduced year-on-year,

largely due to the reduction in revenue.

The Committee’s conclusion was that the business had continued to

perform well given the supply chain issues that inevitably translated into a

weaker financial performance than had been expected and lower than in

2020. The Committee’s view was that this weaker performance should be

reflected in the overall level of remuneration for the executive directors and

other senior managers.

Shareholder experience

2021 proved to be a positive year in stock markets generally as economies

recovered and returned to growth from the lows and declines of 2020.

Rotork’s share price grew by 12.3% from 318.0p at 31 December 2020 to

357.2p at 31 December 2021 though it should be noted that at the time of

writing the share price had fallen back to 308.6p.

The Committee knows that dividends are an important part of the business

case for many shareholders. The full year dividend for 2020 was paid

following the 2021 AGM and an interim dividend of 2.35p was declared

and paid in the second half of the year as is usual. Looking forward, the

Board is recommending the payment of a final dividend of 4.05p at the

2022 AGM such that the full dividend for 2021 of 6.40p is in line with the

stated dividend policy.

In the Committee’s view the shareholder experience during the year has

been positive and Rotork has demonstrated its resilience for a second year

in which it has faced significant headwinds.

Annual Statement by the Chair

of the Remuneration Committee

Dear Shareholder

2021 proved to be another exceptional year with the ongoing impact of

the COVID-19 pandemic continuing to provide significant challenges for

all those (and their families) connected with the business. Their health and

safety remained the overriding priority for the business through the year.

These COVID-19 challenges were compounded by the extraordinary supply

chain issues that developed and grew in significance through 2021 and

which will continue into 2022. These supply issues were commonplace for

many businesses in many industries and, despite a significant number of

effective mitigating actions, Rotork has been materially affected. Despite

these challenges, the business has continued to focus on the Growth

Acceleration Programme which continued to deliver value for shareholders.

The Committee was mindful of these realities and their consequences for all

stakeholders as it considered all aspects of remuneration through the year.

Priorities and activities for the Committee in 2021 included:

– The Committee, conscious of ensuring the right pay culture in the

business, remained aware of the remuneration related trends that

accelerated in 2021 and, to that end, extended and developed its

oversight of the employment terms and conditions in the wider

workforce, in particular in ensuring the application of the Key

Remuneration Principles, and specifically the Fair Pay Framework

throughout. The Committee was also conscious that, following societal

changes accelerated by the pandemic, many employees have become

much more interested in (and attach greater value to) flexibility,

including home/office working, and health benefits. In considering

these employment changes, the Committee has become more holistic

and broad ranging in its deliberations. More detail on this is provided

below in the section on Wider Workforce Remuneration Matters.

– The Committee reviewed the rationale for a structural change to

Rotork’s long term incentives structures and agreed an approach

for a comprehensive review as part of the wider review of the

Remuneration Policy in 2023 and the shareholder consultation

to take place during 2022.

– The Committee paid particular attention to the significant

developments in the business in working towards a coherent ‘net-zero’

strategy following the publication of Rotork’s first Sustainability Report

in 2021. The Committee is clear that specific, quantitative targets for

ESG improvement that are linked to delivering our business strategy,

should become a significant element of the long-term incentive

structures provided there is sufficient integrity in, and assurance

of, the measures used to assess improvement.

– As part of the implementation of the CEO succession plan that led

to the appointment of Kiet Huynh in January 2022, the Committee

reviewed and approved Kiet’s remuneration package and the terms

of Kevin Hostetler’s departure as a good leaver in a managed

succession process. More details are provided below in the section

on CEO Succession.

– During the first quarter of 2021, the Committee engaged with

shareholders regarding the 2020 remuneration outcomes for the

executive directors ahead of the 2021 AGM. From responses received,

shareholders were broadly supportive of the approach being taken

which was reflected in the AGM voting of 93.12% in support of the

2020 directors’ remuneration report.

Directors’ Remuneration report continued

126Rotork Annual Report 2021

Annual bonus

The Annual Bonus targets for 2021 were based on annual profit (EBITA),

cash generation, ESG measures including lost time injury rate (LTIR),

and individual personal objectives. In order to increase the alignment of

incentives with the business strategy, the weighting on ESG measures

for 2021 increased by 5% of maximum opportunity to 10% (including

the Health and Safety performance measure (LTIR) of 5%), with a

corresponding decrease in the weighting of personal objectives to 15%.

ESG performance measures and targets were agreed by both the ESG

Committee and the Remuneration Committee. The weighting for profit

(60% of opportunity) and cash generation (15% of opportunity) was

unchanged. As reported in the 2020 Remuneration report, at the time

of setting the targets there was considerable general business uncertainty

so a wider range between threshold and maximum for the profit element

of the Annual Bonus targets was set.

Having reviewed the performance of the business against these targets,

including the personal objectives, set at the start of the year, the

Committee decided that the level of payout, expressed in percentage

of maximum opportunity, should be 48.7% for both Kevin Hostetler and

Jonathan Davis with no need for discretion to be applied. In approving

this level of payout, the Committee noted that at this level:

– The 2021 pay out results in an award, as a percentage of maximum

opportunity, 20.2 percentage points lower than in 2020 on profits

(EBITA) 7% lower on a constant currency basis.

– Bearing in mind the increased bonus opportunity implemented for the

first time in 2021, the payout results in an award for Kevin Hostetler and

Jonathan Davis of 73.1% and 60.9% of salary respectively compared

to 86.1% and 68.9% respectively in 2020. This lower absolute payout

reflects the weaker financial performance of the business in 2021.

– The 2021 payout for employee groups in the wider workforce averaged

46.3% of maximum opportunity with significant variance due to the

performance of the local elements of individual schemes than we have

seen in previous years.

The Committee was therefore satisfied that the bonus award to the

executive directors is aligned with Rotork’s Key Remuneration principles

and to the performance of the business and is appropriate and fair in

comparison with the wider workforce.

Under the Remuneration Policy, any bonus awarded to executive directors

greater than 60% of maximum opportunity is deferred in shares for three

years under the Deferred Annual Bonus Plan. Accordingly, in respect of

2021, there will be no bonus deferred in shares under the Deferred Annual

Bonus Plan.

LTIP

The Committee, as in 2020, decided that for all inflight LTIP awards (2019,

2020 and 2021) there would be no COVID-19 or other business-related

adjustments to targets.

The outturn for the 2019 LTIP award, which vests in May 2022, is

based equally on growth in adjusted earnings per share (EPS), relative

total shareholder return (TSR) over three years and the rate of growth

in economic profit (a capital returns measure) over the three years to

December 2021.

The outcomes on each of the performance measures over the three year

period were as follows. Adjusted EPS did not grow during the period

versus a requirement of 9% growth for threshold vesting. As a result,

this measure was not met. Economic profit declined over the measurement

period and did not reach the threshold level for payment. This tranche

of the award also lapses in full. Rotork’s relative TSR ranking within its

comparator group was sufficient for vesting of the TSR tranche at 28%.

This resulted in an overall level of vesting of 9.4% for the LTIP 2019 award.

Employee experience

Led by the Board and senior management, Rotork’s approach continues

to be to protect the health (including mental health) and financial

well-being of employees through this period, mindful of obligations

to other stakeholders.

The Committee is also very aware of rising costs and inflation in many

countries and the impact of this on the financial situation of employees,

particularly for those at the lower paid levels and has considered that

context within its decision making.

– The 2021 annual salary review, which would have been due ordinarily

in April 2021, was brought forward to 1 January 2021 for all employees

other than executive directors.

– All employees in Rotork continue to participate in a bonus scheme

with targets based on a combination of the performance of their local

business and the performance of the Group.

– The business continued to support the physical and mental health of

employees during an ongoing challenging pandemic year. In particular,

we introduced a global Employee Assistance Programme (EAP).

– Rotork Benevolent Support, to which Rotork contributes, continued to

support employees, ex-employees and their families through hardship,

particularly those impacted by COVID-19.

– Pulse engagement surveys of the workforce provided a favourable

view of the business’s response to COVID-19 and the theme of our

December survey included employees providing their input on benefits

enabling us to understand those valued the most.

– In recognition of our responsibility to help reduce inequality and to

contribute to a fairer society more broadly, Rotork committed to a

Real Living Wage Policy in 2020 and, since then, has ensured that

no employee is paid below this level where it exists in a country.

Rotork is an accredited Real Living Wage Employer.

Our Fair Pay Framework continues to guide Rotork’s reward policies,

procedures, systems and decision-making globally in support of the

commitment to deliver fair and competitive remuneration in line with

the remuneration principles. This provides assurance that processes are

non-discriminatory and operate to help reduce any gender or ethnicity pay

gaps. All new employees are made aware of the Framework in their global

induction and all managers globally have attended a Performance and

Reward workshop to ensure they understand the approach and how

to implement this fairly.

Overall, the Committee’s assessment of the employee experience is that

Rotork has acted responsibly towards all employees and has proactively

supported their health (including mental health) and financial wellbeing

during 2021 as well as ensuring our frameworks and approaches support

wider societal expectations.

Remuneration outcomes for 2021

Salary review

Salaries are normally reviewed and any changes take effect from 1 April in

each year. However, for 2021, given that there were no salary reviews for

the previous year due to the impact of COVID-19, the decision was taken

to bring forward the 2021 salary review, which was planned to be effective

from 1 April 2021, to 1 January 2021 for all employees, except for the

executive directors. In line with the average increase level awarded to the

wider UK workforce, the executive directors received a salary increase of

2.6%, effective from 1 April 2021. The Chairman’s fee was also increased

by 2.6% with the non-executive directors’ base fee and the supplementary

fees for the Committee Chairs and workforce engagement director

increasing by 2.5% – all effective from 1 April 2021.

127www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

wider workforce in that period. The timing and size of any increases will be

at the sole discretion of the Committee, considering both individual and

business performance, save that the level will not exceed his predecessor’s

base salary, adjusted for increases awarded to the wider workforce in

the intervening period. Variable pay awards (Annual Bonus and LTIP) will,

under the Remuneration Policy, be based on the prevailing base salary

earned in the performance year for Annual Bonus and at the time of award

for the LTIP. Shareholders should therefore note that it is possible that in

the future, Kiet will benefit from a base salary increase which will exceed

that offered to the wider workforce as his salary is increased progressively

to the ‘rate for the role’.

Outgoing CEO

It was decided that Kevin Hostetler should be treated as a good leaver

given the planned and managed approach to succession to which he

proactively contributed. In particular, by working with us, he facilitated

a thorough recruitment process to be run and, in agreeing to stay as

an employee, provides ongoing support to Kiet in the period through

to June 2022. We are pleased that this carefully managed process has

enabled the internal promotion of the right candidate and avoided the

need for a lengthy external appointment process. Full details of Kiet’s

entitlement are provided on page 140. This is in line with the approved

Remuneration Policy and ensures that bonus deferral, LTIP performance

testing, time prorating, the two year holding period and post-cessation

shareholding requirements continue to apply. These details were formally

confirmed by the Committee in a meeting in January 2022, shortly ahead

of the announcement of Kiet’s appointment.

Remuneration in 2022

The structure of remuneration in 2022 will be consistent with 2021.

There will be no changes to the structure of the LTIP incentives.

The arrangements for ESG related targets, which are currently included

within the Annual Bonus opportunity, will also remain the same. However,

in 2022, ahead of the 2023 Remuneration Policy review referred to earlier,

the Committee will revisit the role and extent of ESG in the structure

of remuneration, in particular its likely value as part of the longer-term

incentives rather than as a part of the Annual Bonus. The Committee’s view

is that doing so will align the ESG incentive more closely with the business

strategy and, within that, the developing net-zero strategy in the business.

The view of the Committee is that ESG measures must be quantifiable and

subject to satisfactory assurance as to their integrity. The intention is that

this is developed during 2022, ahead of implementation in 2023 as part of

the new Policy.

Salary review

Kiet Huynh’s basic salary will not be increased in 2022. Jonathan Davis will

receive a basic salary increase of 3.3%, in line with the wider workforce,

effective from 1 April 2022. This aligns with the Remuneration Policy that

salaries will normally only increase in line with the wider workforce. The

fee for the Chairman will also increase by 3.3%, with the non-executive

director base fee and supplementary fees for the Senior Independent

Director, ESG Committee Chair and the workforce engagement director

also increasing by 3.3%. Fees for the Audit and Remuneration Committee

Chairs will increase to £11,000, all effective from 1 April 2022.

The Committee has followed closely the inflationary pressures on pay

that developed in nearly every business location across the world during

2021 (and which are continuing into 2022). Action has been taken in the

business, with the Committee’s support, to ensure that pay levels remain

locally competitive and this has resulted in many employees receiving pay

increases ahead of those of the executive directors.

In April 2021, an annual LTIP award was made to the executive directors,

a group of senior managers and a number of less senior, high performing

and talented employees. The structure of the performance conditions

was consistent with prior awards under the rules of our LTIP which were

approved in 2019. For the 2021 LTIP awards, as explained last year, the

Committee approved the implementation of the postponed increased

award levels for the CEO and GFD at 200% of salary for the CEO and

175% of salary for the GFD. The Committee will, at vesting, as part of its

normal review of formulaic remuneration outcomes, explicitly look at the

value of these awards relative to the shareholder and employee experience

over the same period. All recipients accepted this in writing, as a condition

of receipt of the award.

Dividend equivalents

As approved under the Remuneration Policy, during 2021 the Committee

exercised its discretion to award dividend equivalents to all participants

including executive directors under the rules of the 2019 LTIP (which have

been approved by shareholders). Although this is the first time that the

Committee has done so, the Committee’s view is that dividends are an

important part of the return to shareholders and that, as one of the primary

benefits of share-based payments is to align executive directors with

shareholders, it is appropriate and right to award them. The Committee

intends, unless it later decides otherwise, that dividend equivalents will be

awarded on an ongoing basis. Consequently, the Committee’s decision

applies to all inflight LTIP awards, as well as any future LTIP awards.

Overall level of remuneration in 2021

The Committee carefully considered the extent to which the overall

remuneration outturn for executive directors, taking the salary review,

Annual Bonus and 2019 LTIP outturns together, reflected the substantive

performance of the business and both the shareholder and employee

experience in the year. The Committee was satisfied that the overall

outcome was fair, appropriate and proportionate and in line with the

pay culture and approach within Rotork.

Full details of the targets and performance against those targets for both

the Annual Bonus Plan and the 2019 LTIP are set out on pages 141-143.

CEO succession

Although the CEO succession was finalised in January 2022 with Kiet

Huynh’s appointment, Kevin Hostetler’s intended departure was agreed in

August 2021. Therefore, during 2021, the Committee considered carefully

both the remuneration arrangements for the outgoing CEO and the

package for the new CEO.

New CEO

In the Committee’s view, the appropriate remuneration package for the new

CEO is the package in place for the outgoing CEO as it is ‘the rate for the role’

and has been approved by shareholders and is in line with the Remuneration

Policy. The new CEO’s package has therefore been structured in the same

way, with the same maximum Annual Bonus and LTIP opportunities and

with the same shareholding guidelines. As a new executive director, pension

contributions will be set in line with the wider UK workforce (currently 10.24%)

and in accordance with the Remuneration Policy.

However, in terms of base salary, mindful of both the current business

environment and Kiet Huynh being a first time CEO appointment, his

starting base salary was set at £550,000, 11.9% lower than the base salary

of his predecessor. It is the Committee’s intention that Kiet’s salary will

be increased, over a period of approximately two years, to the level of his

predecessor’s salary in 2021, adjusted for any increases awarded to the

Directors’ Remuneration report continued

128Rotork Annual Report 2021

LTIP

In line with the Remuneration Policy, the maximum opportunity for Kiet

Huynh and Jonathan Davis will be 200% and 175% of salary respectively.

The structure of the 2022 LTIP performance conditions will be the same

as in 2021 and performance metrics will be as set out below. The adjusted

EPS growth rates, TSR relative targets and economic profit measure (ROIC)

remain unchanged in approach.

– Adjusted EPS (33% of opportunity) – the threshold and maximum set at

9% and 35% growth over the 2021 adjusted EPS by 2024 respectively.

– TSR (33% of opportunity) – in line with market standards for this

measure the maximum outturn will be achieved if TSR is in the top

quartile relative to the constituents of the FTSE 350 Industrial Goods

and Services Sector.

– Economic profit (33% of the opportunity) – performance will be

measured against the long-term plan for the business. Maximum award

will require a growth rate in the economic profit over the period of

13.4% CAGR equivalent to growth of more than 15% CAGR in profit

after tax.

These awards will attract dividend equivalents in the form of additional

shares and will be subject to the same post-vesting holding period

requirements. The awards will be made in the normal course following the

publication of the results and subject to the executive directors agreeing in

writing to all the conditions under which awards are made including to the

post-cessation of employment shareholding arrangements that will apply

to these awards.

Wider workforce remuneration matters

Our Key Remuneration Principles provide the foundation for a fair pay

agenda at Rotork and this has been reflected in our approach to pay

and remuneration during 2021.

We look to apply the Key Remuneration Principles, along with our Fair

Pay Framework consistently through the business and we seek to ensure

there is consistency in how we structure pay so that performance measures

and incentives reinforce the right behaviours in the business. If specific

actions are necessary to satisfy governance expectations or are required

under the Directors’ Remuneration Policy, these are made once the right

remuneration structure for the business has been set.

Our Fair Pay Framework helps ensure standards are met throughout our

operations globally, including ensuring our approaches and decisions are

non-discriminatory.

The Committee keeps the business’s performance on any potentially

discriminatory factors under regular review. Whilst there has been no

evidence of deliberate or wilful discrimination, the Committee will continue

to monitor the potential consequences of bias in remuneration decision-

making. Gender Pay gap metrics are reviewed each year before they are

published, as is the gender-based distribution of pay increase, promotions

and bonus awards. We have also focused our attention on pay and

ethnicity and the Committee reviews these metrics in addition to gender

related metrics now. We are again publishing our Ethnicity Pay Gap where

we have seen positive results.

Pensions

In accordance with the Remuneration Policy, the rate of pension allowance

awarded to Kevin Hostetler and Jonathan Davis reduced to 20% and

15% respectively with effect from 1 January 2022. From 1 January 2023

Jonathan Davis’ pension allowance will align to the contribution available

to the majority of the wider workforce, currently 10.24%. Rotork passes on

savings of National Insurance from sacrificed salary to employees, making

the majority pension contribution rate to 10.24% at current NI contribution

levels. In line with government plans, we expect this rate to increase to

10.35% on 1 April 2022 for the wider workforce and for the rate for the

executive directors to align accordingly. Kiet Huynh’s pension allowance

was aligned with the wider workforce rate on appointment.

Annual bonus

The maximum opportunity for Kiet Huynh and Jonathan Davis will be

150% and 125% of salary respectively. The performance metrics will be:

– EBITA Performance (60% of opportunity) – the bonus plan is based

on the 2022 Budget approved by the Board.

– Cash Generation (15% opportunity) – the target to achieve maximum

outturn will remain at 110% (it was increased to this level in 2020)

reflecting the importance of the sustained focus on cash generation.

The Growth Acceleration Programme is funded from Rotork’s own

cash resources.

– ESG (10% of opportunity) – measures will be aligned to the three

pillars of the ESG strategy, as set by the ESG Committee. Half of the

opportunity will continue to be based on Health and Safety (LTIR) with

a target set on the basis of 2021 performance and a maximum that

requires maintaining the improvement. As in 2021, an additional 5%

will be split across quantitative targets set to cover normalised carbon

emissions; culture and engagement scores (including inclusivity);

and qualitative targets focusing on environmental innovation,

particularly in relation to products and on customer engagement

on sustainability issues.

– Strategic Personal Objectives (15% of opportunity) –these will be set

for both executive directors with a focus on the strategic development

of the business with a continued focus on the Growth Acceleration

Programme, including leveraging the new sector-based organisation,

and on the new IT System and control environment development

and implementation.

In accordance with the Remuneration Policy, any payout in excess of 60%

of the maximum opportunity will be deferred in shares under the Deferred

Annual Bonus Plan.

As is usual, executive directors will be invited to participate and must

agree in writing to all the conditions pertaining to the Annual Bonus Plan,

including those relating to the post-cessation of employment shareholding

arrangements that will apply to any bonus deferred in shares.

129www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Engagement with shareholders

Since assuming the role of Chair of the Remuneration Committee, I have

been keen to maintain a high level of engagement with shareholders.

In early January 2021 we contacted our 20 largest shareholders

representing over 56% of our issued share capital, as well as the

Investment Association, ISS and Glass Lewis, to share with them the key

decisions the Committee took in 2020 and the principles of the approach

for determining 2020 outturns and setting 2021 targets. A small number

of shareholders responded, and most were supportive of the approach

we took, as reflected in the approval of the Remuneration Report by

93.12% at the 2021 AGM.

The Committee will be undertaking a review of the Directors’

Remuneration Policy during 2022 with a view to proposing a new Policy

to shareholders for approval at the 2023 AGM. As part of the policy

review and in line with my commitment to engagement with shareholders,

I will initiate a consultation process during 2022 to gather shareholders’

views on how the Remuneration Policy might evolve. In doing so, together

with the Committee, I seek to navigate a path that delivers remuneration

approaches that we are sure are right for the business in the long-term

which includes, for the avoidance of doubt, good alignment with

remuneration for the wider workforce, and which are recognised

and supported as such by a significant majority of our shareholders.

Composition of the Committee

Sally James retired as a member of both the Board and Committee in

April 2021, following the conclusion of her nine years’ tenure. I would like

to record here my thanks to Sally for her valuable work and counsel on the

Committee. We welcomed Peter Dilnot back to the Committee, effective

from 30 April 2021, who has brought a strengthened knowledge of the

UK remuneration environment to our discussions which complements

Ann Christin’s European perspective as well as Janice’s US outlook.

In September, Karin Meurk-Harvey joined the Committee, and we welcome

her valuable input to the Committee’s discussions.

Committee performance

In accordance with good governance, the Committee evaluated

its performance during 2021. As is usual, opportunities for greater

focus and improvement were identified, including the Committee’s

extended oversight of emerging retention issues arising from a more

competitive labour market throughout the business and ensuring a

heightened attention to diversity and inclusion. However, noting the

continuing challenging nature of remuneration, at all levels, in the current

environment, it is very pleasing to report that the Committee is regarded

as operating effectively and to a high level.

Tim Cobbold

Chair of the Remuneration Committee

28 February 2022

Recruitment processes are reviewed to remove any bias in order to

give the business access to all talent and to ensure no bias to all

potential employees.

The Company considers employee share ownership to be a key part

of the Company’s overall remuneration strategy and which enables the

Company to align the interests of employees and shareholders and to

recruit, retain and motivate employees at all levels within the Group.

The Company delivers a profit-sharing programme to many employees

globally and continues to review its expansion. The Committee believes

that the programme provides a meaningful incentive to our employees

in promoting share ownership at all levels in the Group with over half

of our employees being shareholders.

As part of this programme, we are planning to extend the operation of

the Share Incentive Plan (SIP) for a further period of ten years. Further

details on the renewal of the SIP are given in our Notice of AGM.

Notwithstanding the considerable progress that has been made,

we set ourselves high standards and will continue to review and

update our approaches and continue to commit to doing the right thing.

More details are provided in the ‘Making a positive social impact’ section

on pages 56-57.

Bringing the employee voice into the Boardroom

In addition to my role as Chair of the Remuneration Committee, I am

the designated non-executive director for workforce engagement

which provides a useful linkage to the wider remit of the Remuneration

Committee itself. Details on how I and my fellow Board members have

engaged with Rotork’s employees during the course of the year are set

out on pages 111-112. There is no doubt that this process of engagement

has fed through into the Committee’s discussions on the approach

to remuneration across the business and I wrote to all employees on

remuneration matters during the year with this topic also being a feature of

our December pulse survey for employee feedback. As we come towards

the end of the COVID-19 pandemic, the Committee is conscious that it

needs to understand the employee view on the developing remuneration/

employment issues around flexibility, home/office working

as well as understanding the inflationary pressures on wages and reflect

these in our future approaches. It is becoming clear from our surveys of

the wider workforce that other, non-remuneration related, elements of

an employee’s relationship with the Company have gained importance.

Directors’ Remuneration report continued

130Rotork Annual Report 2021

Our Remuneration Policy in 2021

Purpose Element Kevin Hostetler (Former Chief Executive Officer) Jonathan Davis (Group Finance Director)

Attract and retain

high-calibre executive

directors

Salary £620,000 £357,000

Benefits Standard benefits plus relocation arrangements

agreed in connection with his appointment

Standard benefits

Pension

(i)

Pension allowances were fixed from 1 January 2021 at their 2019 absolute values,

i.e. £152,100 and £70,119 for the Chief Executive Officer and Group Finance Director

respectively. From 1 January 2022, these allowances fell to 20% and 15% of salary respectively.

Drive and reward short-

term performance

Annual bonus 150% of salary maximum (90% salary

on-target)

125% of salary maximum

(75% salary on-target)

Based on profit, cash generation, ESG and personal targets.

Incentivise long-term

value creation and

provide alignment

with shareholders

Long term incentive

plan (LTIP)

(ii)

200% salary performance share award 175% of salary performance share award

Based on adjusted earnings per share (EPS), relative total shareholder return (TSR) and growth

in economic profit assessed over a three-year performance period. A two-year post-vesting

holding period also applies, together with malus and clawback provisions.

Provide alignment

with shareholders

Shareholding

requirements

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 apply

for two years after cessation of employment (but does not apply to shares held which were

purchased with the executive’s own funds) subject to the shares having been acquired from

share awards made after the approval of the 2020 remuneration policy.

Total remuneration opportunity at

on-target performance

£1,516,020 £791,960

Actual total remuneration for 2021 £1,380,000 £709,000

(i) During the year, the Committee calculated the published wider workforce pension rate to be 10.24%.

(ii) During the year, the Committee exercised its discretion to apply dividend equivalents, in the form of additional shares, both to inflight and any future LTIP awards to be granted

to the executive directors. This decision was taken in the light of the application of dividend equivalents being envisaged at the last Remuneration Policy review and included within

the Policy but through oversight was not implemented at the time and is also in line with the treatment for other employees’ awards.

Performance outcomes for the 2021 financial year

The table below sets out how the annual bonus and LTIP awards have vested in the year based on performance against target.

Kevin Hostetler Jonathan Davis

2021 annual bonus Profit (60%)

Cash generation (15%)

ESG (10%)

Personal and strategic (15%)

17.1% achieved

13.8% achieved

8.3% achieved

KH: 9.5% achieved

JD: 9.5% achieved

48.7% of

maximum awarded

48.7% of

maximum awarded

2019 LTIP award EPS growth (33%)

TSR (33%)

Economic profit (33%)

0% of maximum

28.0% of maximum

0% of maximum

9.4% of

maximum vesting

9.4% of

maximum vesting

Remuneration at a glance

131www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

How our Remuneration Policy supports Rotork’s strategy

Our directors’ Remuneration Policy has been developed to enable Rotork to recruit and reward appropriately an executive team of the calibre required to

lead our global business to deliver the superior outcomes for all our stakeholders. We aim to pay competitively against the talent pools from which we

recruit with a significant proportion of pay linked directly to the performance of the business and delivered in Rotork’s shares to ensure strong long-term

alignment with shareholders.

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. The introduction of explicit ESG measures reflects the strategic importance of ESG in Rotork.

Strategic priorities Bonus LTIP

Innovation Strategic targets Economic profit (ROIC) measure

Operational excellence Cash generation measure

& Personal performance targets

Growth Profit measure Total Shareholder Return measure

Earnings per share measure

Sustainability ESG (including Safety) measures

Deferral into shares

Malus and clawback provisions

Five-year time horizon (three-year performance

period and two-year holding period)

Malus and clawback provisions

Performance measures

Performance measures are used to determine the extent of any awards made under the variable elements of the executive directors’ remuneration, both

annual bonus and LTIP. 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, specifically ESG.

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

Measure Used in Purpose

Adjusted operating profit Annual bonus Maintain focus on annual profits.

Cash generation Annual bonus Maintain discipline on managing inventory and receivables.

ESG Measures Annual bonus Focus on safety, emissions, employee engagement, diversity and product environmental impact

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.

Adjusted earnings per share LTIP Adjusted EPS is a key measure for analysts who cover Rotork and reflects long-term growth

in profits.

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

Economic Profit LTIP Captures the cost of the capital required to operate the business and instils discipline around

capital usage into financial decision-making.

Remuneration at a glance continued

132Rotork Annual Report 2021

This section sets out an overview of Rotork’s directors’ Remuneration Policy which was approved by shareholders in a binding vote at the AGM held on

24 April 2020 and became effective on that date. The Committee’s intention is that the current policy will operate for the three-year period to the AGM

in 2023, unless approval for a new policy is sought sooner.

A copy of the directors’ Remuneration Policy is set out in full within the 2019 Annual Report and can be found online at www.rotork.com/en/documents/

publication/24348

Element of

remuneration

Purpose and how

it supports the strategy How the element operates Maximum amounts payable Framework used to assess performance

Base salary To attract and retain

executive directors

of the right calibre

and provide a core

level of reward for

the role.

Salary levels (and subsequent

salary increases) are set after

taking into account the

responsibilities of the role,

the value of the individual in

terms of skills, experience and

personal contribution, Company

performance, internal relativities

and pay conditions, and external

market data (benchmarked against

companies of a similar size and

complexity and other companies

in the same industry sector).

The 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).

Details of the current salaries

of the executive directors are

set out in the Annual Report on

Remuneration.

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).

N/A

Benefits To attract and retain

executive directors of

the right calibre by

providing a market

competitive level of

benefit provision.

The range of benefits that

may be provided is set by the

Remuneration Committee after

taking into account local market

practice in the country where

the executive director is based.

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).

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.

N/A

Overview of the Policy report

133www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Element of

remuneration

Purpose and how

it supports the strategy How the element operates Maximum amounts payable Framework used to assess performance

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.

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.

N/A

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.

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.

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.

LTIP To incentivise long

term value creation

and alignment with

shareholder interests.

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 includes the ability

to award dividend equivalents

on shares that vest) 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.

The maximum LTIP opportunity is

200% of salary.

Details of the current award levels

are set out in the Annual Report

on Remuneration.

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.

Overview of the Policy report continued

134Rotork Annual Report 2021

Element of

remuneration

Purpose and how

it supports the strategy How the element operates Maximum amounts payable Framework used to assess performance

Shareholding

guideline

To provide alignment

with shareholders by

requiring executives

to build and maintain

a meaningful

shareholding

in Rotork.

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).

N/A N/A

Chairman

and non-

executive

directors’

fees

To attract and retain

non-executive

directors of the

right calibre.

Fees for the Chairman and

non-executive directors are

reviewed periodically.

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).

The maximum aggregate fee level

is as specified in the Group’s Articles

of Association (currently £1,000,000).

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.

N/A

135www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

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.

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. Details of the remuneration package for Kiet Huynh

as the new, internally appointed, CEO are given on page 140.

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.

Overview of the Policy report continued

Malus and clawback

The payment of any bonus is at the ultimate discretion of the

Remuneration Committee which 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

136Rotork Annual Report 2021

Executive directors’ service contracts

Name Date of appointment to Board Date of service contract Notice period (rolling)

Kiet Huynh 10 January 2022 8 January 2022 12 months by either party

Kevin Hostetler 12 February 2018 1 January 2018 as amended by Deeds

of Variation dated 4 March 2020 and

8 January 2022

12 months by either party

Jonathan Davis 1 April 2010 19 November 2009 as amended by

a Deed of Variation dated 4 March 2020

12 months by either party

Non-executive directors’ terms of engagement

Name Date of appointment to the Board Date of most recent letter of appointment

Martin Lamb (Chairman) 2 June 2014 3 April 2019

Ann Christin Andersen 1 December 2018 16 November 2018

Tim Cobbold 1 December 2018 9 November 2018

Peter Dilnot 1 September 2017 28 April 2021

Karin Meurk-Harvey 13 September 2021 10 September 2021

Janice Stipp 1 December 2020 24 November 2020

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.

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.

137www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

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 Rotork Management Board (‘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.

In so far 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 and

appropriately rewards the leadership team required to successfully

run a complex global business.

The terms of reference of the Remuneration Committee can be

found on the Company’s website at www.rotork.com/en/investors/

corporate-governance

Priorities and activities of the Remuneration

Committee during 2021

Considered the continuing impact of COVID-19

on the remuneration arrangements in 2021

– Developed the approach to the remuneration structure for 2021.

– Consulted with shareholders.

Reviewed our remuneration to ensure it

delivers a package that is proportionate to the

opportunity for shareholders and aligned with

their interests

– 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.

Set pay at a competitive level against the

external market and ensured 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.

– Ensured that decisions on pay were in line with the Fair Pay

Framework which guides Rotork’s reward policies, procedures,

systems and decision making globally in support of the

commitment to deliver fair and competitive remuneration in line

with the remuneration principles.

– Set basic salary for executive directors and members of the RMB

for 2021.

– Reviewed the fee payable to the Chairman.

Annual Report on Remuneration

This part of the report has been prepared in accordance with Part 3 of

The Large and Medium-sized Companies and Groups (Accounts and

Reports) Regulations (as amended) and Rule 9.8.6 of the Listing Rules.

The Annual Statement and Annual Report on Remuneration will be

put to a single advisory vote at the AGM on 29 April 2022.

Committee Membership and Governance

The Committee currently comprises five independent non-executive

directors, namely, Tim Cobbold (Chair), Peter Dilnot, Ann Christin

Andersen, Janice Stipp and Karin Meurk-Harvey (who joined the Board on

13 September 2021). Sally James was also a Committee member until her

retirement from the Board on 30 April 2021. The Group General Counsel

& Company Secretary acts as secretary to the Remuneration Committee.

The Remuneration Committee met five times during 2021 with attendance

set out as follows.

Member Member since

Eligible Meetings

(max:5) Attendance

Tim Cobbold, Chair December 2018 5 5

Sally James

(i)

May 2012 1 1

Peter Dilnot

(ii)

May 2021 4 3

Ann Christin Andersen

(iii)

December 2018 5 4

Karin Meurk-Harvey

(iv)

September 2021 3 3

Janice Stipp December 2020 5 5

(i) Sally James stepped down from the Board with effect from 30 April 2021.

(ii) Peter Dilnot was appointed as a member of the Committee with effect from

1 May 2021. Peter was unable to attend the formal December meeting but received

the papers in advance and provided feedback to the Committee Chairman. Peter also

attended a number of additional calls/meetings as part of the CEO selection process.

(iii) Ann Christin Andersen was unable to attend the December meeting due to an

exceptional and unexpected family circumstance. She received the papers in advance

and provided feedback to the Committee Chairman.

(iv) Karin Meurk-Harvey was appointed to the Board and as a member of the

Committee with effect from 13 September 2021.

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 Committee invites the Group HR Director and the

Head of Reward to its meetings to provide this wider context and to ensure

that all its decisions remain aligned with Rotork’s Values and culture, which

we seek to nurture within the business. The Chairman is also invited to

attend meetings and provides input and recommendations relating to the

performance and remuneration of the Chief Executive Officer. The Chief

Executive Officer and Group Finance Director are invited to attend parts

of certain meetings but are not present when their own remuneration

is considered. A representative from Korn Ferry, the Committee’s

remuneration advisers, also attends to provide independent remuneration

and ancillary governance advice.

138Rotork Annual Report 2021

Priorities and activities of the Remuneration

Committee during 2021 continued

Determined pay outcomes that are

performance-driven

– Determined bonus performance outcome against 2020 targets

and approved bonus payments.

– Determined LTIP vesting outcome against 2018 performance targets

and approved vesting.

– Reviewed incentive plan outcomes and evaluated whether discretion

should be applied.

Ensured 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 2021.

Remuneration background relating to Executive Director changes post 31 December 2021

Resignation of Kevin Hostetler as Executive Director and Chief Executive Officer

As announced on 10 January 2022, Kevin Hostetler stepped down from the Board and as Chief Executive Officer with effect from 10 January 2022.

Kevin will continue to provide support to the incoming Chief Executive Officer, Kiet Huynh, until his employment with Rotork ceases on 30 June 2022

(‘Departure Date’).

Kevin will continue to receive his current salary of £624,218 per annum (subject to annual review in line with the wider workforce) and benefits (including

pension contribution of 20%) monthly up until the Departure Date. Kevin will also be entitled to certain benefits in connection with his loss of office

in line with the Company’s Directors’ Remuneration Policy, including equivalent relocation benefits to those incurred on appointment, a maximum of

£10,000 plus VAT per annum towards UK and US tax advice in relation to remuneration received in the relevant tax years and £5,000 plus VAT towards

legal fees incurred in connection with his departure.

Kevin’s 2021 annual bonus award is £453k. Kevin will be eligible to be considered for a pro rata 2022 annual bonus award based on his contribution

during 2022. The maximum bonus opportunity in relation to the 2022 financial year will be £468,164 (subject to annual salary review in line with the

wider workforce). Any amount either awarded in relation to 2022, or subject to deferral in shares under the rules of the Deferred Annual Bonus Plan

(‘DABP’) will be disclosed in the 2022 Directors’ Remuneration Report.

Kevin has been granted good leaver status, in accordance with the respective share plan rules, in respect of his existing DABP awards, and the 2020

and 2021 LTIP awards that are due to vest after his Departure Date. Any vesting of Kevin’s existing LTIP awards will be pro-rated for the period until

the Departure Date and will be subject to the achievement of the required performance conditions and the relevant rules. The 2019 LTIP vested at

9.4% with 29,611 shares vesting on 16 May 2022.

Details of Kevin’s outstanding awards under the DABP and LTIP are as follows:

Award

Number of shares

subject to award

Maximum number

of shares which could vest Vesting date End of holding period

2018 DABP 71,783 71,783 05/03/2022 n/a

2019 DABP 59,362 59,362 03/03/2023 n/a

2020 DABP 18,533 18,533 08/03/2024 n/a

2019 LTIP 315,015 29,611 16/05/2022 16/05/2024

2020 LTIP 412,941 306,972 07/04/2023 07/04/2025

2021 LTIP 336,951 142,473 24/03/2024 24/03/2026

Any vesting of his share awards, together with such dividend entitlements to be settled in the form of additional shares, will continue to be subject to the

above post-vesting holding requirements and will be disclosed, as required, in the appropriate Directors’ Remuneration Report.

– Approved the increase in the percentage of the annual bonus

targets linked to ESG from 5% to 10%.

– Approved executive directors’ personal objectives for 2021.

– Set LTIP performance targets and award levels for executive directors

and other members of senior management for the 2021 LTIP.

Maintained transparency and clarity in

everything we do

– Engaged with shareholders on the approach taken by the

Committee for determining the 2020 outturns and setting

2021 targets.

– Approved the Directors’ Remuneration Report 2020.

Post 31 December 2021, the Committee reviewed and determined the

remuneration arrangements relating to the departure of Kevin Hostetler

and the appointment of Kiet Huynh as an Executive Director and

as Chief Executive Officer, both with effect from 10 January 2022.

Details of those remuneration arrangements are set out below.

139www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Kevin will receive an LTIP award under the rules of the 2019 Long Term Incentive Plan at the normal annual grant date, anticipated to be in late

March 2022. After prorating to the Departure Date, the maximum number of shares which could vest will have a grant value of no more than

approximately 18% of his salary.

As an employee leaving Rotork, with effect from the Departure Date, Kevin will no longer participate in the Company’s Share Incentive Plan (‘SIP’) and

shares held in the SIP trust (the ‘Trust) on his behalf will be removed from the Trust. However, the post departure shareholding requirements for executive

directors will apply in relation to share awards made after 24 April 2020 (up to 350% of salary for two years).

Other than as set out above, no other remuneration payment or any payment for loss of office of the type specified in Section 430(2B) Companies Act

2006 will be made to Kevin Hostetler. The relevant remuneration information will be included in Rotork’s Directors’ Remuneration Report in subsequent

years, as appropriate.

Appointment of Kiet Huynh as Executive Director and Chief Executive Officer

Kiet Huynh joined the Company in 2018 as Managing Director responsible for the Instruments division. Following the Group’s divisional realignment in

2019, he has led both the Chemical, Process & Industrial and the Water & Power divisions. Kiet was appointed an Executive Director and Chief Executive

Officer in succession to Kevin Hostetler on 10 January 2022. Kiet’s service contract is in line with the Company’s standard form at this level, including

a 12-month notice period.

Effective from his appointment date of 10 January 2022, Kiet will receive an annual salary of £550,000. It is the intention of the Committee,

and dependent on both his individual and Company performance, to increase his salary to the level of the outgoing CEO’s salary plus the impact of

workforce increases and in line with the market, likely over a 2 year period. Otherwise, the CEO’s salary will be reviewed annually in the light of the

shareholder approved remuneration policy at that time and without any undertaking by the Company that his salary will be increased. The first review

is not intended to be before 1 April 2023.

Benefits comprise car and fuel allowance (which can only be used towards acquiring an electric, hybrid or low emission vehicle), personal accident and

private medical insurance and life assurance.

In compliance with the 2018 UK Corporate Governance Code and Remuneration Principles, a commitment has been made to align existing executive

directors’ pensions to the level of the majority of the workforce, currently 10.24%, by the end of 2022. Effective from Kiet’s appointment date of

10 January 2022, the wider workforce pension contribution level will apply.

In line with the current Remuneration Policy, the level of Kiet’s participation in the discretionary annual bonus scheme is currently an opportunity of up

to 150% of basic salary. Any bonus earned above 60% of the maximum opportunity will be deferred in shares for three years and in accordance with

the rules of the DABP. A description of the 2022 bonus performance targets and measures can be found on page 149.

Kiet is entitled, at the Company’s sole discretion, to participate in the Company’s long-term incentive plan, subject to the rules of the relevant scheme

from time to time in place. The level of participation is currently up to 200% of basic salary; however, this level and the granting of any awards or shares

is non-contractual and shall be determined by the Committee at its discretion and made in line with the Directors’ Remuneration Policy and the terms

of the plan from time to time.

As an executive director, Kiet will be subject to the Company’s share ownership guidelines. He is currently subject to a requirement during his period of

employment to build and maintain a shareholding in Rotork equivalent to the combined annual award opportunity under his bonus and LTIP (350% of

salary). It is expected that this requirement will be achieved within five years of appointment. Following the cessation of employment, Kiet will be required

to retain for a further two years any shares held that have vested to him under the Group’s share plans (subject to the maximum holding requirement

of 200% of final salary). The Committee retains absolute discretion to reclaim or withhold some or all of any bonus or LTIP or lapse or reduce an award

prior to vesting, for clawback and malus, in accordance with the Directors’ Remuneration Policy.

Kiet is entitled to participate in the appropriate all-employee share plans operated by the Company from time to time, subject to the rules of such plans

from time to time. These currently include the SIP Partnership, Free Share Schemes and Sharesave Scheme.

Annual Report on Remuneration continued

140Rotork Annual Report 2021

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

The tables below set out the single figure remuneration for the directors of Rotork for the year ended 31 December 2021.

Executive directors

Salary Benefits

(i)

Annual bonus

(ii)

LTIP

(iii)

Pension and

related benefits

Total remuneration Total fixed pay Total variable pay

Name

2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

Kevin Hostetler 620 608 51 48 453 524 104 1,045 152 152 1,380 2,377 823 808 557 1,569

Jonathan Davis 357 351 14 14 218 242 50 502 70 70 709 1,179 441 435 268 744

(i) The benefit value consists of a car and fuel (or a car and fuel allowance) and private medical insurance.

(ii) Of the maximum bonus opportunity, Kevin Hostetler and Jonathan Davis were paid £453k and £218k in cash respectively.

(iii) The 2021 figure relates to the vesting of the 2019 LTIP award based on performance to 31 December 2021. These awards are not eligible to vest until 16 May 2022 and, as such,

an indicative share price of 352.4p (being the average closing share price over the three-month period to 31 December 2021) has been used for the purpose of valuing these awards.

This value will be restated in next year’s report. Of the £104k and £50k, 19% relates to an increase in the value of the underlying shares over the period. The 2020 figure relates

to the vesting of the 2018 LTIP award based on performance to 31 December 2020. 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 363.6p.

Total pension entitlements (audited)

No director participates in, or has a deferred benefit under, a defined benefit pension scheme.

Payments to former directors and for loss of office

No payments were made to former directors or for loss of office during the year.

Other directors (£000s)

Base fees Additional fees/remuneration Total remuneration

Name

2021 2020 2021 2020 2021 2020

Ann Christin Andersen 57 56 7 5 64 61

Tim Cobbold 57 56 17 17 74 73

Peter Dilnot 57 56 7 – 64 56

Sally James

(i)

19 56 7 13 26 69

Karin Meurk-Harvey

(ii)

16 – – – 16 –

Janice Stipp

(iii)

57 5 7 – 64 5

Martin Lamb 239 234 – – 239 234

(i) Retired from the Board on 30 April 2021.

(ii) Appointed to the Board on 13 September 2021.

(iii) Appointed to the Board on 1 December 2020.

The additional fees referred to above are the supplementary fees paid in cash to the Chairs of the Audit, Remuneration and ESG Committees,

the Senior Independent Director and the non-executive director responsible for workforce engagement. During the year, Peter Dilnot was appointed

Senior Independent Director, replacing Sally James in this role. 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 2021

Bonuses in 2021 were based 60% on annual profit, 15% on cash generation, 10% ESG measures (including lost time injury rate), and 15% on personal

strategic objectives. Details of performance achieved against the targets set are shown below.

Performance

required to

trigger bonus

payment

Performance

required at

maximum

% payable

at maximum

performance

Performance

outcome

% bonus

awarded*

Annual profit target £117m £157m 60% £128m 17.1%

Cash generation 85% 110% 15% 108% 13.8%

ESG measures:

Carbon emission reduction, environmental innovation and culture

and engagement See below See below 5% See below 3.3%

Lost time injury rate 0.29 0.24 5% 0.20 5.0%

Total 85% 39.2%

141www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

ESG measures comprise: (i) Environmental innovation (2%) and reducing carbon emissions (1%) year on year by 2% per £1m of revenue. The emissions

target was not met but the innovation performance was sufficient to deliver the full 2% and (ii) employee engagement & culture (2%). The engagement

score of 6.65 fell between the 6.5 to 7.0 range delivering 0.3% of bonus and the culture score of 7.5 outperformed the target range of 6.5 to 7.0,

delivering 1% of bonus.

Personal strategic objectives, which accounted for 15% 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 the performance against them are summarised in the table below.

Kevin Hostetler Performance summary

% payable at

maximum

% bonus

awarded

Business strategy & vision – drive growth Continued to drive execution on previously identified strategic

growth initiatives; further developed Rotork’s position and

opportunities on decarbonisation and the digital future. The M&A

roadmap was maintained.

3.0% 2.5%

Growth Acceleration Programme, including: 12.0% 7.0%

– IT Systems Deployment Whilst the core ERP project has progressed during the year, the

deployment date has been revised to 2022.

– Culture, Performance and Health & Safety An enhanced Safety Program was launched, alongside the

embedding across the business of the revised Rotork Life-Saving

Rules. A comprehensive talent review of the senior leaders

population was undertaken at Board level. LTIR targets were met.

– Innovation, R&D and Sustaining Engineering Whilst the New Product Development funnel was maintained,

some programs were delayed due to redirection of resource to

manage supply chain issues.

– Enhancing our Operating Performance Two sites in Spain and Italy were closed in 2021. Procurement

savings were not achieved in full due to disruption in the chipsets

supply chain. Similarly, reduction in inventory targets were not met

due to global logistics and supply chain constraints and a decision

to build strategic inventory in some places.

– Engaging Our Customers End market surveys were completed. Alignment and consolidation

of back office operations were achieved to plan. Voice of the

Customer program launched.

Total 15.0% 9.5%

Jonathan Davis Performance summary

% payable at

maximum

% bonus

awarded

Development and implementation of financial

systems, including:

7.0% 3.5%

– Development of detailed design of finance

target operating model and shared service proof

of concept

Continued the development of the new target operating model

and commenced shaping the changes in conjunction with the D365

and OneStream projects.

– Creation of FP&A centre of expertise FP&A team has been expanded.

– Finance function development In addition to implementing a formal second line of defence

function and growing the FP&A team, the finance function has

been strengthened through new appointments.

1.0% 1.0%

Tax strategy review Successful completion of the review process and implementation

of the selected recommendations.

2.0% 2.0%

Growth Acceleration Programme, including: 5.0% 3.0%

– IT Systems Deployment Whilst the core ERP project has progressed during the year,

the deployment date has been revised to 2022.

– Three lines of defence A separate Risk and Compliance team to take responsibility for

the second line of defence has now been established.

– Enhancing our Operating Performance Procurement savings were not achieved due to disruption in the

chipsets supply chain. Similarly, reduction in inventory targets were

not met due to global logistics and supply chain constraints and

a decision to build strategic inventory in some places.

Total 15.0% 9.5%

Annual Report on Remuneration continued

142Rotork Annual Report 2021

Having reviewed the performance of the business against these targets, including the personal objectives, set at the start of the year the Committee

decided that the level of payout, expressed in percentage of maximum opportunity, should be 48.7% for both Kevin Hostetler and Jonathan Davis with

no need for discretion to be applied. As a result, the bonus for Kevin Hostetler and Jonathan Davis for 2021 paid out at 73.1% and 60.9% of salary

in cash respectively. There is no deferral into shares for 2021 as the bonus levels to reach the threshold were not met.

Deferred Annual Bonus Plan (DABP) awards (audited)

Any bonus earned above a threshold of 60% of the maximum is deferred into share awards under the Deferred Annual Bonus Plan, vesting on the

third anniversary of grant. No further performance conditions apply; DABP awards are subject to continued employment only and dividend equivalents

may be paid on the deferred shares on vesting.

The following DABP awards were made on 8 March 2021 (based on performance in relation to the 2020 financial year):

Share awards

granted

Basis on which

awards made

Face value of

awards (£)

(i)

Vesting

date

Kevin Hostetler 18,533 11.1% of salary 67,685 8 March 2024

Jonathan Davis 8,544 8.9% of salary 31,203 8 March 2024

(i) The share price used to determine the number of shares under the award was 365.2p being the share price immediately prior to the date of the award.

LTIP awards vesting based on performance to 31 December 2021 (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 adjusted EPS, relative TSR compared to a peer group and economic profit growth. The economic profit metric 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. 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 LTIP awards granted on 16 May 2019 had a performance period from 1 January 2019 to 31 December 2021 and were subject to the following

performance targets:

Measure Weighting Performance period Threshold target Stretch target Performance outcome

Earnings per share

33% 01/01/2019 – 31/12/21 9% (15% vesting) 35% (100% vesting) EPS did not grow during the period

and was below the minimum target

resulting in 0% vesting for this part

of the award.

TSR relative to the

constituents of the FTSE

350 Industrial Goods and

Services Sector

33% 01/01/2019 – 31/12/21 Median ranking Upper quartile ranking

or above

Rotork’s relative TSR ranking within

its comparator group was sufficient

for the vesting of this tranche

at 28%.

Economic profit growth 33% 01/01/2019 – 31/12/21 0% growth on three

times the 2018

economic profit

55% growth on

three times the 2018

economic profit

Economic profit declined over

the measurement period and

did not reach the threshold level

for payment.

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

During the performance period, adjusted EPS was below the minimum target of 9%. Economic profit growth (growth in profit ahead of the return

demanded by the weighted average cost of capital) declined over the measurement period and did not reach the threshold level for payment. Relative

TSR performance in the period was sufficient for vesting at 28%. The Remuneration Committee, therefore, determined that 9.4% of the shares awarded

under the 2019 LTIP cycle would vest with the outcome for the executive directors being:

Grant date

Number of shares

under award

Number of

shares vesting

Number of

shares lapsing Vesting date

Kevin Hostetler May 2019 315,015 29,611 285,404 16 May 2022

Jonathan Davis May 2019 151,274 14,219 137,055 16 May 2022

1 During the year, the Committee exercised its discretion to apply dividend equivalents, in the form of additional shares, to the inflight and any future LTIP awards to be granted to the

executive directors. This decision was taken in the light of the application of dividend equivalents being envisaged at the last remuneration policy review but not implemented and is

also in line with the treatment for other employees’ awards. The number of shares resulting from the application of dividend equivalents for the executive directors will be disclosed at

the time of vesting.

143www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Share awards granted in 2021 (audited)

LTIP awards (audited)

The following LTIP awards were made to the executive directors on 24 March 2021. These grants were made at the levels permitted under the current

Remuneration Policy.

Share awards

made during 2021

(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 336,951 200% of salary 1,216,393 13.3% 31 December 2023 24 March 2024

Jonathan Davis 169,899 175% of salary 613,335 13.3% 31 December 2023 24 March 2024

(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 awards was 361p, being the average share price over the five dealing days 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 Adjusted 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

c 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 2020 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.

The structure of the performance conditions was consistent with previous awards made in 2020 with no COVID-19 related adjustment to targets.

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 2021 are set out below.

Free share awards made during the year

Date of grant Number Basis on which award made

Face value of

award

Kevin Hostetler 9 April 2021 991 Non-performance based £3,600

Jonathan Davis 9 April 2021 991 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.

Annual Report on Remuneration continued

144Rotork Annual Report 2021

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

Awards

held at

31 December

2020

Granted

in the

year

Lapsed

in the

year

Awards

exercised

in the year

Awards

held at

31 December

2021

Performance

period

Exercise

price Date of grant Vesting date

End of holding

period

Kevin Hostetler

LTIP

(iv)

340,393 – 53,102 287,291 –

1 Jan 2018-

31 Dec 2020

(i)

– 7 March 2018 7 March 2021 N/A

LTIP

(iv)

315,015 – – – 315,015

1 Jan 2019-

31 Dec 2021

(ii)

– 16 May 2019 16 May 2022 16 May 2024

LTIP

(iv)

412,941 – – – 412,941

1 Jan 2020-

31 Dec 2022

(iii)

– 7 April 2020 7 April 2023 7 April 2025

LTIP

(iv)

– 336,951 – – 336,951

1 Jan 2021-

31 Dec 2023

(iii)

– 24 March 2021 24 March 2024 24 March 2026

DABP

(iv)

71,783 – – – 71,783 N/A – 5 March 2019 5 March 2022 N/A

DABP

(iv)

59,362 – – – 59,362 N/A – 3 March 2020 3 March 2023 N/A

DABP

(iv)

– 18,538 – – 18,538 N/A – 8 March 2021 8 March 2024 N/A

SIP 1,367 – – 1,367 N/A – 6 April 2020 6 April 2023 N/A

SIP – 991 – 991 N/A – 9 April 2021 9 April 2024 N/A

SAYE

(v)

7,058 – 7,058 – – N/A 255p 1 October 2019 1 June 2023 N/A

Total 1,207,919 356,480 60,160 287,291 1,216,948

Jonathan Davis

LTIP

(v)

163,461 – 25,500 137,961 –

1 Jan 2018-

31 Dec 2020

(i)

– 7 March 2018 7 March 2021 N/A

LTIP

(v)

151,274 – – – 151,274

1 Jan 2019-

31 Dec 2021

(ii)

– 16 May 2019 16 May 2022 16 May 2024

LTIP

(v)

198,300 – – – 198,300

1 Jan 2020-

31 Dec 2022

(iii)

– 7 April 2020 7 April 2023 7 April 2025

LTIP

(v)

– 169,899 – – 169,899

1 Jan 2021-

31 Dec 2023

(iii)

– 24 March 2021 24 March 2024 24 March 2026

DABP

(v)

14,697 – – 14,697 – N/A – 7 March 2018 7 March 2021 N/A

DABP

(iv)

36,790 – – – 36,790 N/A – 5 March 2019 5 March 2022 N/A

DABP

(iv)

26,744 – – – 26,744 N/A – 3 March 2020 3 March 2023 N/A

DABP

(iv)

– 8,544 – – 8,544 N/A – 8 March 2021 8 March 2024 N/A

SIP 1,274 – – 1,274 – N/A – 6 April 2018 6 April 2021 N/A

SIP 1,204 – – 1,204 N/A – 8 April 2019 8 April 2022 N/A

SIP 1,367 – – – 1,367 N/A – 6 April 2020 6 April 2023 N/A

SIP – 991 – – 991 N/A – 9 April 2021 9 April 2024 N/A

Total 595,111 179,434 25,500 153,932 595,113

(i) 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. As described in last year’s report, the EPS target was met in full with the TSR and economic profit targets

achieved at above threshold. Accordingly, for Kevin Hostetler, 287,291 shares vested and, for Jonathan Davis, 137,961 shares vested in March 2021. These vested awards are subject

to a two-year post-vesting holding period during which time they may not be sold.

(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, only the TSR target was met at 28%. Accordingly, for Kevin Hostetler, 29,401 shares will become eligible to vest and, for Jonathan Davis,

14,118 shares will become eligible to vest in May 2022.

(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.

(iv) Conditional share awards.

(v) Nil cost options.

145www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

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 2021.

Unconditionally

owned shares

(i)

Unvested

DABP Awards

(ii)

SIP

(iii)

% of salary

shareholding

achieved

(iv)

Unvested

LTIP Awards

subject to

performance

targets

Executive directors

Kevin Hostetler 289,668 83,083 2,358 210% 1,064,907

(v)

Jonathan Davis 450,624 48,217 3,562 488% 519,473

(vi)

Non-executive directors

Ann Christin Andersen 2,000 – – N/A –

Tim Cobbold – – – N/A –

Peter Dilnot – – – N/A –

Janice Stipp – – – N/A –

Martin Lamb 152,414 – – N/A –

(i) Includes shares held by connected persons, SIP partnership shares, SIP free shares released from the three-year trust period and vested LTIP awards which are subject to the two-year

holding period.

(ii) DAPB awards (shown net of estimated tax and national insurance) attract an entitlement to accrued dividends during the holding period but are only available upon release.

The satisfaction of the entitlement can be in shares or cash as determined by the Remuneration Committee at the time of the release confirmation.

(iii) SIP free awards held in the three-year trust period.

(iv) The share price used to determine the percentage of the shareholding of salary achieved is 346.7p, being the 12 month average share price as at 31 December 2021. The shareholding

guideline for the executive directors is 350% of salary for the Chief Executive and 300% of salary for the Group Finance Director to be achieved within five years. A post-cessation

holding requirement of 200% of salary was introduced under the policy and is applicable only to share based awards granted after the approval of the policy on 24 April 2020.

In order to ensure adherence to the post-cessation holding requirements executive directors will, as a condition of receiving any and each share-based award, formally accept the

post-cessation requirements in writing.

(v) An LTIP award over 336,951 shares was granted to Kevin Hostetler on 24 March 2021.

(vi) An LTIP award over 169,899 shares was granted to Jonathan Davis on 24 March 2021.

There has been no change in the directors’ interests in the ordinary share capital of the Company between 31 December 2021 and 28 February 2022,

except in the case of Jonathan Davis’ monthly purchases of partnership shares under the SIP.

TSR performance graph

This graph shows the value, by 31 December 2021, of £100 invested in Rotork plc on 31 December 2011, compared with the value of £100 invested in

the FTSE 350 Industrial Goods & Services Index 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.

Annual Report on Remuneration continued

Rotork plc

FTSE 350 Industrial

Goods & Services Index

Dec 11 Dec 21Dec 20Dec 19Dec 18Dec 17Dec 16Dec 15Dec 14Dec 13Dec 12

£50

£100

£150

£200

£250

146Rotork Annual Report 2021

Historic Chief Executive remuneration table

Year Chief Executive

Chief Executive

single figure

remuneration

(£000s)

Annual cash

bonus as a

percentage

of maximum

opportunity

LTIP vesting rate

as a percentage

of maximum

opportunity

2021 Kevin Hostetler 1,380 48.7% 9.4%

2020 Kevin Hostetler 2,203 69.7% 84.4%

2019 Kevin Hostetler 1,422 82.0% N/A

2018 Kevin Hostetler

(i)

1,193 90.9% N/A

2018 Martin Lamb

(ii)

353 N/A N/A

2017 Martin Lamb

(ii)

282 N/A N/A

2017 Peter France

(iii)

681 72.0% 0%

2016 Peter France 835 45.5% 0%

2015 Peter France 696 23.4% 0%

2014 Peter France 1,092 66.0% 37.0%

2013 Peter France 1,452 94.4% 67.0%

2012 Peter France 1,539 91.3% 75.5%

(i) Kevin Hostetler was appointed to the role of Chief Executive on 12 March 2018.

(ii) 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 directors

The table below shows the percentage change in remuneration (based on salary/fee, benefits and bonus) between 2021 and 2020 and between 2020

and 2019 of the directors in the Group compared to the percentage change for the average UK employee. Karin Meurk-Harvey and Janice Stipp were

appointed to the Board in September 2021 and December 2020 respectively.

Percentage change FY21 to FY20 Percentage change FY20 to FY19

Role

Salary/Fee Benefits Bonus Salary/Fee Benefits Bonus

Executive Directors

Kevin Hostetler Chief Executive Officer 1.9 4.6 (13.5) 0.7 7.5 (15.3)

Jonathan Davis Group Finance Director 1.9 0.0 (10.1) 0.7 0.0 (14.8)

Non-executive Directors

Martin Lamb Chairman 1.9 N/A N/A 0.0 N/A N/A

Ann Christin Andersen Non-executive Director 1.9 N/A N/A 0.0 N/A N/A

Tim Cobbold Non-executive Director 1.9 N/A N/A 0.0 N/A N/A

Peter Dilnot Non-executive Director 1.9 N/A N/A 0.0 N/A N/A

Karin Meurk-Harvey Non-executive Director N/A N/A N/A N/A N/A N/A

Janice Stipp Non-executive Director 1.9 N/A N/A N/A N/A N/A

Average UK employee 4.0 2.6 (16.6) 0.3 3.7 1.0

147www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Relative importance of spend on pay

The following table shows actual expenditure of the Group and change in spend between current and prior financial periods on remuneration paid to

all employees against distributions to shareholders.

2021 2020

Percentage

change

Employee remuneration (£000s) 125,315 134,747 -7.0%

Dividends (£000s)

(i)

75,515 33,926 122.6%

(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 – 2021 financial years.

Year Method

25th percentile

pay ratio

Median

pay ratio

75th percentile

pay ratio

2021 Option B 43:1 38:1 28:1

2020 Option B 45:1 37:1 28:1

2019 Option B 48:1 43:1 27:1

2018 Option B 49:1 45:1 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 2021 pay ratios. The main changes

are due to the variable pay outturns in the last few years.

Year

CEO

£000

25th percentile

£000

Median

£000

75th percentile

£000

Total salary

620 25 30 42

Total remuneration (single figure)

(i)

1,380 32 35 48

(i) Full time equivalent.

Statement of voting at general meeting

The Committee is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial votes

against resolutions in relation to Directors’ remuneration, the Company seeks to understand the reasons for any such vote and will report any actions

in response to it. The following table sets out actual voting at the AGM held on 24 April 2020 in respect of the Remuneration Policy and at the AGM

held on 30 April 2021 in respect of the Annual Report on Remuneration for the year ended 31 December 2020.

Resolution Votes cast ‘for’ %

Votes cast

‘against’ %

Votes

‘withheld’ %

To approve the Remuneration Policy 682,875,938 95.97 28,701,772 4.03 8,566,067 0

To approve the Annual Report on Remuneration 2020 682,957,254 93.12 50,451,380 6.88 6,837,444 0

Advisers to the Remuneration Committee

Korn Ferry has acted as adviser to the Committee since July 2020. Korn Ferry is a member of the Remuneration Consultants’ Group and a signatory to

its Code of Conduct. The Committee keeps the independence of the advice provided under review and remains satisfied that Korn Ferry is sufficiently

independent to act as remuneration adviser to the Remuneration Committee. Korn Ferry provides additional advice to the Company.

In 2021, the Company paid £158,570 (2020: £102,948) to Korn Ferry for services to the Remuneration Committee. Figures exclude VAT and disbursements.

Annual Report on Remuneration continued

148Rotork Annual Report 2021

How we will operate the Policy in 2022

Salary Jonathan Davis’ salary will increase effective from 1 April 2022 by 3.3% to £371,580 which is no greater than that of the average

2022 increase for the UK workforce.

Effective from his appointment date of 10 January 2022, Kiet Huynh will receive an annual salary of £550,000. It is the intention of

the Committee, and dependent on both his individual and Company performance, to increase his salary to the level of the outgoing

CEO’s salary plus the impact of workforce increases and in line with the market, likely over a two-year period. Otherwise, the CEO’s

salary will be reviewed annually in the light of the remuneration policy in force at that time. The first review is not intended to be

before 1 April 2023.

Benefits Benefits comprise a car and fuel allowance, personal accident and private medical insurance and life assurance.

Pension A commitment has been made to align existing executive directors’ pensions allowance to the level of the majority of the

workforce, 10.24%

(i)

, by the end of 2022. From 1 January 2022, the allowance for Jonathan Davis will fall to 15% of salary and,

with effect from 1 January 2023, his employer pension contribution will be reduced to the wider workforce level of 10.24%. For

Kiet Huynh, who was appointed on 10 January 2022 as an Executive Director and CEO, the wider workforce pension contribution

level of 10.24% applies from that date. We anticipate, dependent on National Insurance contributions changing on 6 April 2022,

for the majority wider workforce pension level to increase to 10.35% and this would then be applied as our published majority

workforcelevel.

LTIP The LTIP award levels for 2022 will be 200% of salary for Kiet Huynh and 175% of salary for Jonathan Davis. The awards will be

subject to the following performance conditions:

– 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 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 relative TSR performance with 25% vesting at median increasing to full vesting for upper quartile

performance or above.

– 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 2021 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 awards will be granted following the publication of the results and will be made subject to executive directors agreeing

in writing to all the conditions under which the awards are made, including the post-cessation of employment shareholding

arrangements that will apply to these awards. The executive directors will be required to retain any shares vesting under the awards

(net of tax) until the fifth anniversary of grant.

Annual bonus The maximum opportunity for Kiet Huynh and Jonathan Davis will be 150% and 125% of basic salary respectively. Any bonus

earned above 60% of the maximum opportunity will be deferred in shares for three years. Bonuses will be based on:

– EBITA Performance (60% of opportunity); the plan is based on the 2022 Budget approved by the Board and the challenging

nature of the targets and stretch elements will be maintained.

– Cash Generation (15% opportunity); the target to achieve maximum outturn will remain at 110%, reflecting the value of

a sustained focus on cash generation. The Growth Acceleration Programme is funded from Rotork’s own cash resources.

– ESG (10% of opportunity) – measures will be aligned to the three pillars of the ESG strategy. Half of the opportunity will

continue to be based on Health and Safety (LTIR) with a target set on the basis of 2021 performance and a maximum that requires

maintaining the historical improvement in LTIR. The remaining 5% will be split across quantitative targets set to cover normalised

carbon emissions; culture and engagement scores (including inclusivity); and qualitative targets focusing on environmental

innovation, particularly in relation to products and on customer engagement on sustainability issues.

– Strategic Personal Objectives (15% of opportunity) – these will be set with a focus on the continued strategic development

of the business with a focus on continuing delivery of the Growth Acceleration Programme and new IT systems.

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. The executive directors will

be invited to participate and must agree in writing to the conditions pertaining to the Annual Bonus Plan, including those relating

to the post-cessation of employment shareholding arrangements that will apply to any bonus deferred in shares.

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 Officer and Group Finance Director respectively) to be achieved within five years.

A requirement to hold shares for a period of two years post-cessation will apply, as described in the Policy, and is applicable only

to share based awards made after Policy which was approved on 24 April 2020. In order to ensure adherence to the post-cessation

holding requirements, executive directors will, as a condition of receiving any and each share-based award, formally accept the

post-cessation requirements in writing going forwards.

149www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Annual Report on Remuneration continued

Non-executive

director fees

An increase of 3.3% to both the Chairman’s fee and the base Board fee has been approved, no greater than that of the average

2022 increase for the UK workforce as follows:

Chairman: £247,920, effective 1 April 2022;

Base Board fee: £59,290, effective 1 April 2022.

Similarly, increases have been approved to the supplementary fees payable to those directors with additional responsibilities,

and effective 1 April 2022. These fees will be:

Additional fee for chairing the Audit Committee £11,000

Additional fee for chairing the Remuneration Committee £11,000

Additional fee for the role of Senior Independent Director £10,588

Additional fee for chairing the ESG Committee £7,410; and

Additional fee for undertaking the role of workforce engagement director £7,410

(i) During the year, the Committee approved the change in the published wider workforce pension rate to 10.24%.

On behalf of the Board

Tim Cobbold

Chair of the Remuneration Committee

28 February 2022

150Rotork Annual Report 2021

Company status

Rotork plc is incorporated as a public limited company and is registered in

England and Wales with the registered number 00578327. Its registered

office is Rotork House, Brassmill Lane, Bath, BA1 3JQ. It has a premium

listing on the London Stock Exchange main market for listed securities

(LON:ROR) and is a constituent member of the FTSE 250 Index. Our

registrars are Equiniti Limited, located at Aspect House, Spencer Road,

Lancing, West Sussex, BN99 6DA.

Results and dividends

The results for the year ended 31 December 2021 are set out in the

financial statements on pages 166-169.

The Board has recommended a final dividend for the year of 4.05p per

ordinary share (2020: 6.30p) which, together with the interim dividend of

2.35p per ordinary share paid on 24 September 2021, gives a total dividend

for the year of 6.40p per ordinary share. Subject to shareholder approval,

the final dividend will be paid on 20 May 2022 to ordinary shareholders

on the register at the close of business on 8 April 2022.

Directors

The directors in office at the date of this report and their biographies and

other details, are set out on pages 102-103. During 2021, Kevin Hostetler,

former Chief Executive Officer, served as a director. Kevin stepped down

from the Board with effect from 10 January 2022 with Kiet Huynh being

appointed to the Board in this role from the same date. Also during

the year, Sally James retired from the Board as non-executive director

on 30 April 2021 with Karin Meurk-Harvey being appointed as a non-

executive director from 13 September 2021.

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 Act. The Company has granted indemnities to each Director in

respect of any liabilities incurred in relation to acts or omissions arising in

the ordinary course of their duties, but only to the extent permitted by law.

The Company also purchases and maintains insurance for the directors

and officers of the Company in respect of potential legal action instigated

against its directors, as permitted by section 233 of the Act.

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.

The directors present their report which incorporates the management

report required under the Disclosure Guidance and Transparency Rules

(DTRs) for listed companies and the audited accounts for the year ended

31 December 2021 as set out on pages 166-211. In compiling this report,

the directors have consulted with the management of the Group.

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, information relating to the research and development

activities of the Company and its subsidiaries, together with a description

of the principal risks and uncertainties that they face, is set out in the

Strategic Report on pages 2-95 and is incorporated into this directors’

report by reference.

Corporate governance statement and TCFD

disclosures

The corporate governance statement, required under Rule 7 of the DTRs,

explaining how Rotork complies with the Code is set out on page 98 and

is incorporated into this directors’ report by reference. A description of the

composition and operation of the Board and its Committees is set out on

pages 104-115 and is incorporated into this Directors’ Report by reference.

Rotork’s statement of compliance in implementing the recommendations

of the Task Force on Climate-related Financial Disclosures (TCFD), required

to be made under Listing Rule 9.8.6(8), is set out on pages 59-73.

Additional disclosures

The Strategic Report can be found on pages 1-95, and encompasses our

corporate responsibility report. A complete list of the Group’s subsidiaries

has been included on pages 207-209 to comply with section 409 of the

Companies Act 2006 (the ‘Act’). Other information that is relevant to this

report, and is incorporated by reference, including information required in

accordance with the Act and Listing Rule 9.8.4R, can be located as follows:

Listing Rule Statement Detail Page reference

9.8.4R(4) Details of long-term

incentive schemes

Note 25 to the financial

statements and the

Directors’ Remuneration

Report on pages 143-144

9.8.4R(12) Shareholder waivers

of dividends

Note 17 to the financial

statements

9.8.4R(13) Shareholder waivers

of future dividends

Note 17 to the

financial statements

9.8.4R(1-2), (5-11)

and (14)

Not applicable N/A

Principal activity

The Company manufactures industrial flow control equipment and

instrumentation for oil and gas, water and wastewater, power, chemical,

process and industrial applications. It operates globally serving customers

in 170 countries through a network of offices and manufacturing facilities.

The Company employs 3,200 employees worldwide and is headquartered

in Bath, UK.

Directors’ report

151www.rotork.co m Annual Report 2021

Corporate Governance Financial Statements Strategic Report

FTSE4Good

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

responsibility is given on pages 48-58 of the Strategic Report.

Charitable Donations

Rotork supports its chosen charities, Pump Aid, Renewable World and

WeForest. In addition, a variety of local donations are made to charitable

causes relevant to communities around Rotork’s operating sites. Donations

are also made to the Rotork Benevolent Support fund, a charity that was

established to provide short-term financial support to employees, and ex-

employees, and their families facing financial hardship, especially as a result

of the COVID-19 crisis. Further details are given on page 58.

Political donations or political expenditure incurred

No political donations were made, or political expenditure incurred, during

the year. The Group has a policy of not making political donations in any

part of the world and this will continue. However, it is possible that certain

routine activities undertaken by the Company and its subsidiaries might

unintentionally fall within the wide definition of matters constituting

political donations and expenditure in the Act. Accordingly, the Company is

seeking authority at the 2022 AGM to ensure that it does not inadvertently

commit any breaches of the Act through the undertaking of routine

activities which would not normally be considered to comprise political

donations or expenditure. Further details of the proposed ordinary

resolution are provided within the AGM Notice.

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

financial statements.

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 2021

are summarised in note 17 of the financial statements. Ordinary shares

of 0.5p each represent over 99.9% of the Company’s total share capital

and £1 non-redeemable 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 30 April 2021, 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 2022 AGM and appropriate renewals will be sought.

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 that the Group adheres to.

Code of Conduct

The latest version of our Code of Conduct was introduced in 2019 and sets

out the standards of behaviour that Rotork expects from anyone acting

on Rotork’s behalf. This is supplemented by a range of additional policies

that sit beneath the Code of Conduct, covering Confidentiality, Conflicts

of Interest, Speak-Up, Fair Competition, Gifts and Hospitality, Anti-Bribery

and Corruption, Data Protection, Modern Slavery and Trade Sanctions.

A high level summary of the main policy is set out on pages 74-76

Our Suppliers’ Code of Conduct 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.

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. An independent anonymous Speak-

Up line is provided to assist in facilitating the reporting of any concerns

confidentially. The Company has a strict no-retaliation policy in place

to protect those raising concerns.

All Speak-Ups are investigated thoroughly, however communicated.

At each meeting of the Board, directors review any Speak-Up concerns

the Company has received.

Anti-Bribery and Corruption

Rotork has a zero tolerance policy to bribery and corruption worldwide,

irrespective of country or business culture. Both our Code of Conduct

and Anti-Bribery and Corruption Policy make it clear that our employees

will never offer, pay or solicit bribes in any form. Our Group Gifts and

Hospitality Policy, which was updated in December 2021, 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.

As part of our process for the appointment of our agents, controls

are in place to monitor how they operate in accordance with our

Code of Conduct.

Modern Slavery Act

In December 2021, the Board approved an updated Modern Slavery

Act Statement which can be found on the Rotork website at https://

www.rotork.com/en/investors/modern-slavery-statement. The updated

statement was considered to reflect Rotork’s approach to identifying,

monitoring and eradicating human slavery and trafficking in its business

and supply chain, together with the improvements made during the year.

Directors’ report continued

152Rotork Annual Report 2021

Greenhouse gas emissions

The disclosures concerning greenhouse gas emissions required by law are

set out in the key performance indicators on page 49.

Disabled persons and employee engagement

The disclosures concerning the Group’s policies on the employment of

disabled persons and how we engage with our employees are set out on

pages 56-57.

Engagement with suppliers and customers

For details on how we have engaged with our suppliers and customers,

see page 110 -111.

Relations with shareholders

The Board supports the aims of the Code and the UK Stewardship Code

to promote engagement and interaction between listed companies and

their major shareholders.

The Board welcomes the opportunity for investors and shareholders to

engage directly with the Chairman and Senior Independent Director

and also with the Chief Executive Officer and Group Finance Director.

Information on how the Board has engaged with its shareholders is set

out on page 110. A range of online and virtual investor relations events

following the publication of the full-year and half-year results has been

scheduled for 2022.

Substantial shareholders

As at 31 December 2021, the Company had been notified under DTR5

of the following interests in its shares representing 3% or more of

the voting rights in its issued share capital. On 7 February 2022, Fiera

Capital Corporation made a further notification to the Company, being a

disclosure of a 5.03% interest. There were no changes of interests in shares

notified between 31 December 2021 and 28 February 2022.

Identity

Number of voting

rights (direct

and indirect)

% of

voting

rights

Fiera Capital Corporation 44,007,436 5.04

Liontrust Investment Partners, LLP 43,687,367 5.02

Blackrock, Inc 35,264,819 4.04

Disclosure of information to the auditor

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 auditor is unaware; and each

director has taken all the steps that they ought to have taken as a director

to make themselves aware of any relevant audit information and to

establish that the Company’s auditor is aware of that information.

‘Going concern’ basis of preparation

After making enquiries, the directors have a reasonable expectation that

the Group has adequate resources to continue in operational existence

for the foreseeable future. For this reason, they continue to adopt the

going concern basis in preparing the financial statements. In forming

this view, the directors have considered trading and cash flow forecasts,

financial commitments, the significant order book with customers spread

across different geographic areas and industries and the significant net

cashposition.

In accordance with the authority given by shareholders at the 2021 AGM

to purchase ordinary shares within the agreed pre-set parameters as

mentioned above and consistent with our capital allocation policy to return

a prudent level of cash to shareholders while retaining a strong balance

sheet, the Board decided to undertake a share repurchase programme.

Between 19 August and 9 November 2021, 14,403,732 ordinary shares

(1.6% of issued share capital) were repurchased for a total consideration

of £49,999,960. All of the shares purchased in the programme were

cancelled. The Company does not hold any shares in treasury.

JTC Employer Solutions Limited is a shareholder which acts as the trustee

of Rotork’s Employee Benefit Trust (EBT). It is used to purchase Company

shares in the market from time to time and hold them for the benefit of

employees, including satisfying outstanding awards under the Company’s

various employee share plans. The EBT purchased a total of 1,022,286

shares in the market during the year for an aggregate consideration of

£3,599,984 (including dealing costs) and released 1,581,522 shares to

satisfy share plan awards. As at 31 December 2021, the EBT held 1,497,841

Rotork plc ordinary shares (0.17%) of the issued share capital) in trust.

A dividend waiver is in place from the trustee in respect of the dividends

payable by the Company on the shares held in the EBT. Further details can

be found in note 17 to the financial statements.

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.

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 and were last updated

and approved by shareholders at the AGM held on 30 April 2021.

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.

153www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Directors’ report continued

Viability Statement

In line with the Code, the directors have carried out a rigorous review of

the prospects of the current business, and its ability to meet its liabilities

through to at least the end of December 2024. For further information,

see page 93 which is incorporated into this Directors’ Report by reference.

Post-balance sheet events

There have been no material post-balance sheet events for the year ended

31 December 2021.

Annual General Meeting

The AGM will be held on 29 April 2022. Full details of the resolutions to

be proposed at the AGM as well as shareholders’ rights with respect to

attendance, participation in the meeting and the process for submission

of proxy votes in advance of the meeting, are set out in the Notice of AGM.

Additional information for shareholders can be found on the Rotork

website at www.rotork.com.

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 Audit Committee to determine their remuneration, are to be proposed

at the forthcoming AGM.

The Directors’ Report was approved by the Board on 28 February 2022.

By order of the Board

Stuart Pain

Group General Counsel & Company Secretary

28 February 2022

154Rotork Annual Report 2021

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 financial statements

for each financial year. Under that law, the directors are required to

prepare the group financial statements in accordance with UK-adopted

international accounting standards. The directors have also chosen to

prepare the parent company financial statements in accordance with

Financial Reporting Standard 101 Reduced Disclosure Framework.

Under company law, the directors must not approve the financial

statements unless they are satisfied that they give a true and fair view

of the state of affairs of the Company and of the profit or loss of the

Company for that period. In preparing these financial statements,

International Accounting Standard 1 requires that directors:

– Properly select and apply accounting policies;

– Present information, including accounting policies, in a manner that

provides relevant, reliable, comparable and understandable information;

– Provide additional disclosures when compliance with the specific

requirements in IFRSs are insufficient to enable users to understand

the impact of particular transactions, other events and conditions

on the entity’s financial position and financial performance; and

– Make an assessment of the company’s ability to continue as a

going concern.

The directors are responsible for keeping adequate accounting records that

are sufficient to show and explain the Company’s transactions and disclose

with reasonable accuracy at any time the financial position of the Company

and enable them to ensure that the financial statements comply with the

Companies Act 2006. They are also responsible for safeguarding the assets

of the Company and hence for taking reasonable steps for the prevention

and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the

corporate and financial information included on the Company’s website.

Legislation in the United Kingdom governing the preparation and

dissemination of financial statements may differ from legislation

in other jurisdictions.

Directors’ Responsibility statement pursuant to

the Disclosure Guidance and Transparency Rules

Each of the directors, whose names and functions are listed on pages

102-103 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.

Kiet Huynh

Chief Executive Officer

28 February 2022

155www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Financial

Statements

156Rotork Annual Report 2021Rotork

157www.rotork.com Annual Report 2021

Corporate Governance Strategic Report

www.rotork.com

Financial Statements

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 2021 and of the Group’s profit for the year then ended;

– the Group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards;

– 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.

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 notes 1 to 30, and (a) to (i).

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law, and United Kingdom

adopted international accounting standards. 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

fulfiled 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 we have not provided any non-audit services prohibited by the FRC’s Ethical

Standard 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 matters that we identified in the current year were:

– The timing of revenue recognition; and

– Accounting for Software as a Service costs.

Within this report, key audit matters are identified as follows:

Newly identified

Increased level of risk

Similar level of risk

Decreased level of risk

Materiality

The materiality that we used for the Group financial statements was £6.5 million which was determined on the

basis of profit before tax adjusted for ‘Other adjustments’, defined in note 4 to the financial statements.

Scoping

Our audit scope covered 81% of group revenue, 82% of group profit before tax, and 88% of group net assets.

Our component scoping is consistent with the prior year, with audit work once again being performed by

a combination of our group audit team and component audit teams.

Significant changes

in our approach

We have identified a new key audit matter in the year as a result of the change in accounting policy related

to Software as a Service costs, and the subsequent restatement of the 2020 financial statements.

There have been no other significant changes in our approach.

158Rotork Annual Report 2021

4. Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the

financial statements is appropriate.

Our evaluation of the directors’ assessment of the Group’s and Parent Company’s ability to continue to adopt the going concern basis of

accounting included:

– Evaluation of the available financing facilities including the nature of facilities, and repayment terms as well as relevant covenants, set out in note 26

to the financial statements;

– Assessment of whether the cash flow forecasts over the outlook period are reasonable including evaluation of the potential ongoing impact of

COVID-19 and disruption to key supply chains and international logistics;

– Evaluation of the headroom forecast by management over both liquidity positions and covenant compliance;

– Assessment of the sufficiency of the sensitivity analysis performed by management;

– Testing of the clerical accuracy of those forecasts and our assessment of the historical accuracy of forecasts prepared by management; and

– Assessment of the appropriateness of the disclosure provided in note 1 to the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,

may cast significant doubt on the Group’s and Parent Company’s ability to continue as a going concern for a period of at least twelve months from when

the financial statements are authorised for issue.

In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention

to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern

basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

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 generated revenue of £569 million during the year (2020: £605 million) relating to the manufacture and delivery

of products and provision of services. Revenue growth is a key performance indicator for the business. In applying IFRS 15

Revenue from Contracts with Customers there is judgement required in determining the timing of the transfer of control of

products and services to customers, which impacts the amount of revenue recognised in the Group’s financial statements.

This judgement could be the subject of management bias or error and so we considered that the timing of the cut-off

of revenue recognition represents a key audit matter, and a risk of potential fraud in respect of revenue recognition.

The determination of whether control of products and the provision of services has passed to a customer requires the

consideration of a number of factors, which include consideration of the specific delivery terms of the arrangement and

whether certain 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 note 1 to the financial statements.

159www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

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 that revenue

is recorded in the inappropriate period;

– developed an understanding of how current global supply chain disruption could impact the timing of delivery

of the Group’s products to their customers;

– obtained an understanding of the relevant shipping terms utilised by the Group as well as assessed the likely

length of time required to ship to customer locations, and how this impacts the timing of revenue recognition; and

– assessed the processes that management follow in recording sales from manufacturing facilities to sales offices,

and eventually to third parties.

Having identified transactions of interest we have performed the following:

– 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 and services at year end. This included

challenging management on whether control had passed in line with the requirements of IFRS 15; and

– specifically in the case of bill-and-hold sales, amongst other things, assessed the extent to which there is evidence the

customer controlled the product before year-end including whether there was a substantive reason for the customer

requesting the arrangement.

Key observations

We are satisfied that the timing of revenue recognition is appropriate.

5.2. Accounting for Software as a Service (“SaaS”) costs

Key audit matter

description

As described on page 34, the Group continues to execute its Growth Acceleration Programme. A key part of that

programme relates to the roll-out of a new group-wide ERP system based on a SaaS solution, which represents a significant

and multi-year programme of activity and impacts a broad range of functions with the Group including sales, customer

services, human resources, site services and finance. The costs of developing and integrating this ERP system are significant

and the Group started recognising costs associated with this programme in 2019. A significant portion of these costs

relate to the configuration and customisation of a cloud-based solution. By their nature, large and complex multi-year IT

transformation programmes incur a high level of costs and therefore judgement is required in determining whether the

costs incurred should be capitalised in accordance with IAS 38 Intangible Assets. In particular, such programmes that

integrate existing and develop new on-premise software require careful consideration.

Management has considered the April 2021 IFRIC agenda conclusion regarding accounting for costs associated with SaaS

arrangements and as a result has changed their accounting policy to be consistent with the agenda decision. This change

in accounting policy has led to a restatement of results for the comparative period, as well as a change to the way software

costs incurred in the period are recognised and measured.

In accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, the restatement has reduced

opening net assets at 1 January 2021 by £10.9 million and reduced the profit before tax for the year ended 31 December

2020 by £9.5 million. Further details of this restatement are included within note 1 to the financial statements. The costs

that have been expensed as part of this transformation programme have been classified as adjusting items, as disclosed

in note 4 to the financial statements.

In the current period, the Group has capitalised a further £5.2 million of software costs, resulting in total software assets

of £9.6 million at 31 December 2021. Further details are included in note 11 to the financial statements.

Our key audit matter relates to both the restatement of the comparative period results, as well as the capitalisation of costs

associated with the SaaS solution in the period. We have recognised this as a key audit matter, and a potential risk of fraud,

due to the complexity of the judgement involved and the fact that this judgement could be the subject of management

bias or error, particularly given the impact such costs have and will have on the Group’s reported earnings in the current

and future years.

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

160Rotork Annual Report 2021

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:

– Evaluated the Group’s new accounting policy for consistency with the IFRIC agenda decision;

– Understood and evaluated the process that management implemented in assessing the appropriate accounting

for such costs;

– Obtained an understanding of the different categories of cost utilised in the Group’s analysis of IT transformation

programme costs, and evaluated the accounting treatment that management have applied to each of those

categories against the requirements of IAS 38 Intangible Assets as it relates to internally generated assets;

– For a sample of costs incurred in the current and previous periods we performed detail testing in order to conclude

whether the nature of those costs was accurately represented and accounted for. In making this assessment,

we inspected the contractual arrangements and associated scope of work with the Group’s software integration

partner and other suppliers and corroborated our understanding of the nature of the work provided by such suppliers

with representatives of the Group’s IT function; and

Specifically in relation to the restatement:

– Considered the potential for management to exert bias in their recognition of such costs (for example, by seeking

to expense more costs than would be appropriate through adjusting items so as to reduce future amortisation costs

and increase future reported profit) and, with that consideration in mind, challenged whether management had sought

to overstate costs that, in their view, should have been expensed; and

– Assessed the disclosures prepared by management, in consideration of the disclosure requirements of IAS 8 and IAS 1

Presentation of Financial Statements.

Key observations

We are satisfied that the accounting for SaaS costs including the restatement resulting from the change in accounting

policy, is appropriate.

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:

Group financial statements Parent Company financial statements

Materiality

£6.5 million (2020: £6.0 million) £3.2 million (2020: £3.0 million)

Basis for

determining

materiality

5% of profit before tax adjusted for ‘Other adjustments’.

In the year ended 31 December 2021 the adjustments to

statutory pre-tax profit are consistent with those presented

in note 4 to the financial statements. This basis is consistent

with the year ended 31 December 2020.

Parent Company materiality equates to less than 1% of

net assets (2020: 1% of net assets), which is capped at less

than 50% (2020: capped at 50%) of group 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.

Consistent with last year we have adopted this measure,

as defined above, as it provides a consistent year-on-year

basis for determining materiality.

Net assets are considered to be an appropriate

benchmark for the Parent Company given that it is

mainly a holding company.

161www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Group materiality £6.5m

Component materiality range £2.0m to £2.7m

Audit Committee reporting threshold £0.3m

PBT adjusted for

‘Other adjustments’

£119.3m

Group materiality

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 financial statements Parent Company financial statements

Performance

materiality

70% (2020: 70%) of Group materiality 70% (2020: 70%) of Parent Company materiality

Basis and rationale

for determining

performance

materiality

In setting performance materiality we considered:

– The quality of the control environment in the Group and in the component finance teams and the extent to which

this has been impacted by COVID-19 and remote working;

– The low number of corrected and uncorrected misstatements identified in previous audits; and

– The level of consistency in key management personnel.

We have not identified any significant changes in the above assessment which results in a consistent performance

materiality determination in 2021 and 2020.

6.3. Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.3 million (2020: £0.3 million), as well

as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure

matters that we identified when assessing the overall presentation of the financial statements.

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. Based on that assessment, we focused our group audit scope primarily on the audit work at 15 components

(2020: 16) which were subject to a full scope audit and on a further 9 components (2020: 7) which were subject to specified audit procedures.

These 24 components (2020: 23 components) include the principal business units within the Group’s three reportable segments across 14 countries

and account for 81% of the Group’s revenues (2020: 79%), 82% of profit before tax (2020: 86%) and 88% of net assets (2020: 87%). They were also

selected to provide an appropriate basis for undertaking audit work to address the risks of material misstatement identified above. In selecting which

business units to include within the scope of our audit we considered both quantitative and qualitative factors and a change in selected units from the

prior year to introduce an element of unpredictability in scoping. 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 (2020: £1.9 million to £2.5 million). At the group

level, we also tested the consolidation process and carried out analytical procedures to re-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.

19%

2 1%

60%

18%

75%

12%

83%

Revenue Profit before tax Net assets

Full audit scope

Specified audit procedures

Review at group level

Full audit scope

Specified audit procedures

Review at group level

Full audit scope

Specified audit procedures

Review at group level

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

162Rotork Annual Report 2021

7.2. Our consideration of the control environment

The Group operates a diverse IT infrastructure globally. With the involvement of IT audit specialists we obtained an understanding of the relevant IT

environment including in some instances performing general IT control (“GITC”) testing. We did not place reliance on those controls for the purposes

of our substantive audit procedures. The Group is currently undergoing significant investment in its IT and Core Business Processes not least through

development of a global platform based on Microsoft D365 technology. That investment, and the comparative diverse infrastructure that currently

operates around the Group, led us to our audit strategy of performing a mostly substantive audit.

For all components we obtained an understanding of the relevant controls associated with the financial reporting process, areas of significant risk,

and in relation to significant accounting estimates. In a small number of locations we were able to rely on certain controls relating to revenue and trade

receivables, inventory, cost of sales and payables, and payroll account balances.

7.3. Our consideration of climate-related risks

As described on page 62, the Group has assessed the risks and opportunities associated with various future climate-related scenarios and its own

commitment to transition to an operating model that has a reduced level of GHG emissions. We have considered the Group’s assessment of the impact

of these risks and opportunities on the financial statements and their conclusion that there is no material impact on the carrying value of the Group’s

assets and liabilities at the balance sheet date. We also read the climate-related narrative in the Sustainability review to consider whether it is materially

consistent with the financial statements and our knowledge obtained in the audit.

7.4. Working with other auditors

Due to the significance to the Group audit of the components’ operations subject to full scope audits, we exercised oversight over our component audit

teams. In light of the travel restrictions and widespread lockdowns resulting from the COVID-19 pandemic both during 2021 and immediately after the

2021 year end we were not able to complete our normal programme of planned visits in the year. In response to the restrictions we have transitioned to

a remote oversight approach through a number of measures, as appropriate to each component, including more frequent dialogue and increased usage

of video conferencing. Where necessary we have ensured that we have utilised local language expertise within the Group audit team.

8. Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.

The directors are responsible for the other information contained within the annual report.

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.

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 course of 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 this gives rise to a material

misstatement in the financial statements themselves. 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.

We have nothing to report in this regard.

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.

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.

11. Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,

outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting

irregularities, including fraud is detailed below.

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Corporate Governance Financial Statements Strategic Report

11. Extent to which the audit was considered capable of detecting irregularities, including fraud continued

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;

– the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error;

– 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; and

– the matters discussed among the audit engagement team including significant component audit teams and relevant internal specialists, including

tax, valuations, pensions, IT, and impairment specialists regarding how and where fraud might occur in the financial statements and any potential

indicators of fraud.

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 key audit matter associated with the timing of revenue recognition, consistent with the previous period. The complexity

and judgement involved with the restatement and current period treatment of the SaaS costs meant that we also identified potential for fraud in

that key audit matter. 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 frameworks 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, UK Corporate Governance code, employment law, pensions legislation

and tax legislation in relevant jurisdictions.

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 key audit matters set out in section 5 related to the potential risk of fraud. The key audit matters

section of our report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters.

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.

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.

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

164Rotork Annual Report 2021

13. Corporate Governance Statement

The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate

Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance

Statement is materially consistent with the financial statements and our knowledge obtained during the audit:

– the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties

identified set out on page 153;

– the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate

set out on page 93;

– the directors’ statement on fair, balanced and understandable set out on page 120;

– the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 114;

– the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 121;

and

– the section describing the work of the audit committee set out on page 119.

14. Matters on which we are required to report by exception

14.1. 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.

14.2 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.

15. Other matters which we are required to address

15.1. Auditor tenure

Following the recommendation of the audit committee, we were appointed by the Board 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 8 years, covering the years ending 31 December 2014 to 31 December 2021.

15.2. 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).

16. 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.

As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements form part of

the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in accordance

with the ESEF Regulatory Technical Standard ((‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual financial report has been

prepared using the single electronic format specified in the ESEF RTS.

David Griffin FCA

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

28 February 2022

165www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Notes

2021

£000

(Restated)

2020

£000

Revenue 3 569, 160 60 4,5 4 4

Cost of sales (3 0 6 , 39 4) (320,234)

Gross profit 2 6 2 ,7 6 6 2 8 4 , 310

Other income 5 5 87 1, 5 8 1

Distribution costs (5, 397) (5,271)

Administrative expenses (1 52, 064) (16 6 , 8 0 7)

Other expenses 5 (18 2) (710)

Adjusted operating profit 2,3 128 ,0 8 0 14 2, 5 4 3

Adjustments

Amortisation of acquired intangible assets 3 (9 , 0 0 1) (1 4 ,11 0)

Other adjustments 4 (13 , 3 6 9) (15 , 3 3 0)

Operating profit 3 10 5,710 11 3 , 1 0 3

Finance income 7 2,442 2, 39 4

Finance expense 7 (2 , 2 2 1) (2 , 9 31)

Profit before tax 8 105 ,931 112 , 5 6 6

Income tax expense 9 (25, 686) (2 6,808)

Profit for the year 80,245 85 ,75 8

Basic earnings per share 18 9. 2p 9.8p

Adjusted basic earnings per share 2,18 11. 3p 12 . 5p

Diluted earnings per share 18 9. 2p 9.8p

Adjusted diluted earnings per share 2,18 11. 2p 12 . 5p

1 See note 1 for details of the prior period restatement

Consolidated statement of comprehensive income

For the year ended 31 December 2021

2021

£000

(Restated)

2020

£000

Profit for the year 80,245 85 ,75 8

Other comprehensive income

Items that may be subsequently reclassified to the income statement:

Foreign exchange translation differences (8,899) (3 , 9 13)

Effective portion of changes in fair value of cash flow hedges net of tax (8 8) (12)

(8 ,98 7) (3 ,925)

Items that are not subsequently reclassified to the income statement:

Actuarial gain/(loss) in pension scheme net of tax 19,469 (14 , 8 3 6)

Income and expenses recognised in other comprehensive income 10, 4 8 2 (1 8 , 7 6 1)

Total comprehensive income for the year 9 0 ,7 27 66, 997

1 See note 1 for details of the prior period restatement

Consolidated income statement

For the year ended 31 December 2021

166Rotork Annual Report 2021

Notes

2021

£000

(Restated)

2020

£000

(Restated)

2019

£000

Non-current assets

Goodwill 10 216,77 8 223, 537 222 ,052

Intangible assets 11 2 5 ,7 22 2 5 ,1 4 5 4 0, 8 4 8

Property, plant and equipment 12 7 7, 7 9 8 86,082 83,9 95

Deferred tax assets 13

10,183

20, 232 15 , 7 7 6

Total non-current assets 330 , 4 81 3 54, 996 3 6 2, 6 71

Current assets

Inventories 14 6 8 , 4 47 6 1, 4 6 7 73,9 0 5

Trade receivables 15 9 4 ,1 8 9 112 , 5 6 5 12 9 , 3 9 0

Current tax 15 9,558 7,1 8 0 4,8 30

Derivative financial instruments 23 1,89 6 1, 5 8 2 2 ,19 6

Other receivables 15 35,824 2 5 ,868 2 7, 5 5 8

Assets classified as held for sale 15 2 ,88 4 1 , 11 9 –

Cash and cash equivalents 16 12 3 , 4 74 18 7, 2 0 4 11 7, 6 1 2

Total current assets 336 , 272 3 9 6,9 85 355 , 4 91

Total assets 666, 75 3 7 51, 9 8 1 7 1 8 ,1 6 2

Equity

Issued equity capital 17 4 ,302 4 , 370 4,363

Share premium 18 , 82 8 16 , 8 26 14 , 5 21

Other reserves 12 , 019 2 0,93 4 24 , 8 59

Retained earnings 49 8 ,9 31 5 28 , 6 24 4 9 1 , 4 51

Total equity 53 4 ,08 0 5 70,7 5 4 5 3 5 ,19 4

Non-current liabilities

Interest bearing loans and borrowings 19 5,464 5,39 6 6 ,7 91

Employee benefits 20 11, 3 3 6 42, 8 4 6 33 ,5 76

Deferred tax liabilities 13 1,5 80 9 , 5 51 11, 0 7 8

Derivative financial instruments 23 10 6 – 12 4

Provisions 21 1,5 59 1,7 2 0 1, 9 6 4

Total non-current liabilities 20 ,0 45 5 9 , 513 53, 533

Current liabilities

Interest bearing loans and borrowings 19 3,8 72 3,75 4 4 ,7 52

Trade payables 22 38,80 0 33,5 6 0 4 1,1 9 5

Employee benefits 20 14 , 4 4 0 23, 6 45 24,7 3 4

Current tax 22 12 , 2 2 6 14 ,7 6 5 13 , 2 7 0

Derivative financial instruments 23 – 16 8 52

Other payables 22 3 7 ,986 41, 3 3 4 4 0 ,5 81

Provisions 21 5,304 4,4 88 4 , 8 51

Total current liabilities 112 , 6 2 8 121, 7 14 12 9 , 4 3 5

Total liabilities 132 , 673 1 8 1, 2 2 7 18 2 , 9 6 8

Total equity and liabilities 666, 7 53 7 51, 9 8 1 7 1 8 ,1 6 2

1 See note 1 for details of the prior period restatement.

These financial statements were approved by the Board of Directors and authorised for issue on 28 February 2022 and were signed on its behalf by:

K Huynh and JM Davis

Directors

Consolidated balance sheet

At 31 December 2021

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Corporate Governance Financial Statements Strategic Report

Consolidated statement of changes in equity

For the year ended 31 December 2021

Issued

equity

capital

£000

premium

£000

Translation

reserve

£000

Capital

redemption

reserve

£000

Hedging

reserve

£000

Retained

earnings

£000

Total

£000

Balance at 31 December 2019 (Restated)

4,363 14 , 5 21 22, 2 87 1, 6 4 4 928 4 9 1, 4 51 5 3 5 ,1 9 4

Profit for the year (Restated)

– – – – – 85,7 5 8 85 ,75 8

Other comprehensive income

Foreign exchange translation differences – – (3 , 913) – – – (3 , 9 13)

Effective portion of changes in fair value of cash flow hedges – – – – 6 – 6

Actuarial loss on defined benefit pension plans – – – – – (18 , 5 70) (18 , 5 7 0)

Tax on other comprehensive income – – – – (18) 3 ,73 4 3 ,7 16

Total other comprehensive income – – (3 , 913) – (12) (14 , 8 3 6) (1 8 , 7 61)

Total comprehensive income (Restated)

– – (3 , 913) – (12) 70,92 2 66, 99 7

Transactions with owners, recorded directly

in equity

Equity settled share-based payment transactions – – – – – (30 6) (30 6)

Tax on equity settled share-based payment transactions – – – – – (65) (65)

Share options exercised by employees 7 2,305 – – – – 2 , 3 12

Own ordinary shares acquired – – – – – (3,6 4 5) (3,6 45)

Own ordinary shares awarded under share schemes – – – – – 4 ,19 3 4 ,1 9 3

Dividends – – – – – (33,926) (33 ,926)

Balance at 31 December 2020 (Restated)

4 ,370 16 , 82 6 18 , 3 74 1,6 4 4 916 5 28 ,62 4 57 0 ,7 5 4

Profit for the year – – – – – 8 0,245 80,245

Other comprehensive income

Foreign exchange translation differences – – (8,899) – – – (8,899)

Effective portion of changes in fair value of cash flow hedges – – – – (10 9) – (10 9)

Actuarial gain on defined benefit pension plans – – – – – 24,04 0 24, 040

Tax on other comprehensive income – – – – 21 (4 , 5 7 1) (4 ,5 5 0)

Total other comprehensive income – – (8,899) – (88) 19,4 69 10, 4 8 2

Total comprehensive income – – (8,899) – (8 8) 9 9 ,71 4 9 0 ,7 27

Transactions with owners, recorded directly

in equity

Equity settled share-based payment transactions – – – – – (1, 9 8 2) (1 , 9 8 2)

Tax on equity settled share-based payment transactions – – – – – 633 633

Share options exercised by employees 4 2 ,0 0 2 – – – – 2 ,0 06

Own ordinary shares acquired – – – – – (7, 8 0 9) (7, 8 0 9)

Own ordinary shares awarded under share schemes – – – – – 5 ,455 5, 455

Share buyback programme (7 2) – – 72 – (50,3 24) (50,324)

Dividends – – – – – (75 , 3 8 0) (75 , 38 0)

Balance at 31 December 2021 4, 302 18 , 8 28 9 , 475 1,716 828 49 8 ,9 31 534 ,0 8 0

1 See note 1 for details of the prior period restatement.

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

168Rotork Annual Report 2021

Notes

2021

£000

2021

£000

(Restated)

2020

£000

(Restated)

2020

£000

Cash flows from operating activities

Profit for the year 80,245 85 ,75 8

Adjustments for:

Amortisation of acquired intangibles 9,0 01 1 4 ,11 0

Other adjustments 4 13, 3 6 9 15 , 3 3 0

Amortisation and impairment of development costs 1,6 57 2,9 6 7

Depreciation 15 ,67 3 16 , 3 13

Equity settled share-based payment expense 3, 333 3, 68 5

Loss on sale of property, plant and equipment – 14 6

Finance income (2 , 4 4 2) (2, 39 4)

Finance expense 2 , 221 2, 931

Income tax expense 25, 686 2 6 ,808

14 8 ,74 3 165,654

(Increase)/decrease in inventories (8, 33 0) 12 , 5 6 1

Decrease in trade and other receivables 5 ,9 4 4 14 , 6 7 2

Increase/(decrease) in trade and other payables 2,583 (7, 1 9 5)

Cash impact of other adjustments (13 , 3 4 6) (16 , 2 5 0)

Difference between pension charge and cash contribution (7 ,562) (10,109)

Decrease in provisions (937) (4 83)

Decrease in employee benefits (9, 6 32) (622)

11 7, 4 6 3 15 8 , 2 2 8

Income taxes paid (3 2 , 0 21) (3 0 ,781)

Net cash flows from operating activities 85,442 1 27 , 4 47

Investing activities

Purchase of property, plant and equipment (1 3 ,17 0) (1 5,466)

Purchase of intangible assets (5 ,1 7 4) –

Development costs capitalised (1, 8 0 6) (1, 2 9 8)

Sale of property, plant and equipment 3,808 27 2

Disposal of businesses – 3, 8 07

Settlement of hedging derivatives 4 ,1 0 2 (3 ,1 5 7)

Interest received 857 1, 3 8 9

Net cash flows from investing activities (1 1,383) (14 , 4 5 3)

Financing activities

Issue of ordinary share capital 2 ,0 06 2 , 3 12

Own ordinary shares acquired (7, 8 0 9) (3,6 45)

Share buy back programme (50,3 24) –

Interest paid (8 81) (95 4)

Decrease in bank loans (67) (69)

Repayment of lease liabilities (4,9 0 4) (5, 1 68)

Dividends paid on ordinary shares (75,5 15) (33,926)

Net cash flows from financing activities (1 3 7, 4 9 4) (41, 4 5 0)

Net increase in cash and cash equivalents (63 , 4 35) 71, 5 4 4

Cash and cash equivalents at 1 January 1 8 7, 2 0 4 117 , 6 1 2

Effect of exchange rate fluctuations on cash held (295) (1 ,952)

Cash and cash equivalents at 31 December 16 12 3 , 4 74 18 7, 2 0 4

1 See note 1 for details of the prior period restatement.

Consolidated statement of cash flows

At 31 December 2021

169www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

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 2021 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 in accordance with international accounting standards in conformity with the

requirements of the Companies Act 2006 and UK-adopted international accounting standards.

The consolidated financial statements have been prepared under the historical cost convention subject to the items referred to in the derivative financial

instruments accounting policy below.

New accounting standards and interpretations

i. Amendments

A number of amended standards became applicable for the current reporting period. The application of these amendments has not had any material

impact on the disclosures, net assets or results of the Group.

New standards and interpretations not yet adopted

i. Amendments

Further narrow scope amendments have been issued which are mandatory for periods commencing on or after 1 January 2022. The application of these

amendments will not have any material impact on the disclosures, net assets or results of the Group.

Change in accounting policy – Software as a Service (‘SaaS’) arrangements

The Group has changed its accounting policy related to the capitalisation of certain software costs; this change follows the IFRIC Interpretation

Committee’s agenda decision published in April 2021, which clarifies the accounting treatment of the costs of configuring or customising application

software under Software as a Service arrangements.

The Group’s accounting policy has historically been to capitalise costs directly attributable to the configuration and customisation of SaaS arrangements

as assets in the Balance Sheet. Following the adoption of the above IFRIC agenda guidance, current SaaS arrangements, principally relating to the Group’s

ongoing transformation programme as referred to on page 34, were identified and assessed to determine if the Group has control of the software and

associated configured and customised elements. For those arrangements where the Group does not have control of the developed software, the Group

derecognised the asset previously capitalised.

This change in accounting policy led to adjustments in the 31 December 2020 and 31 December 2019 balance sheets amounting to a £14,538,000

(2019: £5,067,000) reduction in property, plant and equipment, a £3,608,000 (2019: £1,194,000) increase in deferred tax assets and a £332,000 (2019:

£846,000) increase in deferred tax liabilities. This change also led to adjustments to the income statement for the years ended 31 December 2020 and

31 December 2019 amounting to a £9,471,000 (2019: £5,067,000) increase in Software as a Service configuration costs within other adjustments and

a decrease of £1,901,000 (2019: £861,000) in income tax expense.

Accordingly, the prior period Balance Sheets at 31 December 2020 and 31 December 2019 have been restated in accordance with IAS 8, and,

in accordance with IAS 1 (revised), a Balance Sheet at 31 December 2019 is also presented, together with related notes. The tables on the

following page show the impact of the change in accounting policy on previously reported financial results.

Notes to the Group financial statements

For the year ended 31 December 2021

170Rotork Annual Report 2021

Impact on the consolidated balance sheet

(As previously

reported)

2020

£000

Impact of

restatement

£000

(Restated)

2020

£000

Property, plant and equipment 100,620 (14,538) 86,082

Deferred tax assets 16,624 3,608 20,232

Other assets 645,667 – 645,667

Total assets 762,911 (10,930) 751,981

Retained earnings 540,400 (11,776) 528,624

Deferred tax liabilities 8,705 846 9,551

Other equity and liabilities 213,806 – 213,806

Total equity and liabilities 762,911 (10,930) 751,981

Impact on the consolidated income statement and statement of comprehensive income

(As previously

reported)

2020

£000

Impact of

restatement

£000

(Restated)

2020

£000

Adjusted operating profit 142,543 – 142,543

Adjustments

– Amortisation of acquired intangible assets (14,110) – (14 ,110)

– Other adjustments (5,859) (9,471) (15,330)

Operating profit 122,574 (9,471) 113,10 3

Profit before tax 122,037 (9,471) 112,566

Income tax expense (28,709) 1,901 (26,808)

Profit for the year 93,328 (7,570) 85,758

Total comprehensive income for the year 74,567 (7,570) 66,997

Impact on basic and diluted earnings per share

(As previously

reported)

2020

Impact of

restatement

(Restated)

2020

£000

Basic earnings per share 10.7p (0.9)p 9.8p

Adjusted basic earnings per share 12.5p – 12.5p

Diluted earnings per share 10.7p (0.9)p 9.8p

Adjusted diluted earnings per share 12.5p – 12.5p

Impact on statutory tax rate and effective tax rate on adjusted profit before tax

(As previously

reported)

2020

£000

Impact of

restatement

£000

(Restated)

2020

£000

Profit before tax 122,037 (9,471) 112,566

Total tax charge for the year (28,709) 1,901 (26,808)

Profit after tax 93,328 (7,570) 85,758

Effective tax rate 23.5% 20.1% 23.8%

Impact on the consolidated statement of cash flows

(As previously

reported)

2020

£000

Impact of

restatement

£000

(Restated)

2020

£000

Net cash flows from operating activities 137,260 (9,813) 127,447

Net cash flows from investing activities (24,266) 9,813 (14,453)

Net cash flows from financing activities (41,450) – (41,450)

Cash and cash equivalents at 31 December 187,204 – 187,204

No impact on the overall increase in cash and cash equivalents for the year.

171w ww.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

1. Accounting policies continued

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

The directors have reviewed the current financial position of the Group, which has net cash of £123m; the significant order book, which contains

customers spread across different geographic areas and industries; and the trading and cash flow forecasts for the Group. The directors have reverse

stress tested the forecasts and are satisfied that the downside scenarios are considered remote and that the Group would continue to have headroom

on existing facilities. The Group also has a number of mitigating actions that it can take at short notice to preserve cash, for example reduction in capital

programmes, dividend deferral and reductions in discretionary spend.

Based on the factors detailed above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational

existence for the foreseeable future and at least 12 months from the date of this report. For this reason, they continue to adopt the going concern basis

in preparing the financial statements. In forming this view, the on-going impact of COVID-19 on the Group has been considered.

Consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the year to 31 December 2021.

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.

The transaction price is determined and known at the point of initial sale.

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

transferred, generally at a point of time on despatch of goods, in line with the International Chamber of Commerce International Commercial terms

(incoterms). This is the agreed point in time when the customer has accepted and has legal title to the goods, there is a present right to payment for

the goods, and they can determine its future use and location.

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 on-site and 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 stage of completion is assessed by reference to the transfer of control

over time, which usually corresponds to the contractual agreement with each separate customer and the costs incurred on the contract to date in

comparison with the total forecast costs of the contract. 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.

Notes to the Group financial statements continued

For the year ended 31 December 2021

172Rotork Annual Report 2021

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.

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 have been proven, and the decision to complete the development has been taken and resources made available, are capitalised. The

expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised development expenditure

is stated at cost less accumulated amortisation and impairment losses. Development expenditure has an estimated useful life of up to five years and

is written off on a straight-line basis.

ii) Software as a Service

For ‘Software as a Service‘ (‘SaaS‘) arrangements, the Group capitalise costs only relating to the configuration and customisation of SaaS arrangements

as intangible assets where control of the software and associated configured and customised elements exists.

iii) 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 4 to 10 years

Customer relationships 2 to 8 years

Other – product design patents 4 to 8 years

Other – order backlog 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 2% to 4%

Short leasehold buildings period of lease

Plant and equipment 10% to 33%

Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment losses.

173www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

1. Accounting policies continued

Leases

i) The Group as a lessee

For any new contracts entered into, 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 income statement 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 the income statement 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.

Interest-bearing loans and borrowings

Obligations for loans and borrowings are recognised when the Group becomes party to the related contracts and are measured initially at fair value

less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost.

Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. Borrowings are classified as current

liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Taxation

Income tax on the profit for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that

it relates to items recognised directly in equity 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.

Notes to the Group financial statements continued

For the year ended 31 December 2021

174Rotork Annual Report 2021

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.

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 the length of service, the value of the awards

can be up to £3,600. Shares awarded under these schemes are issued by the trustee at the cost of purchase. The costs of providing these plans are

recognised in the income statement over the period in 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 the criteria are met and service is undertaken.

175www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

1. Accounting policies continued

Derivative financial instruments

The Group uses forward exchange contracts and swaps to hedge its exposure to foreign exchange risk arising from operational and financing activities.

These are the only derivative financial instruments used by the Group. In accordance with its Treasury Policy, the Group does not hold or issue contracts

for trading purposes. Forward exchange contracts that do not qualify for hedge accounting are accounted for as trading instruments.

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.

As described on page 62, we have considered the impact of climate change and climate-related risks and concluded that there is no material impact

on the key accounting policies, estimates and judgements that form the basis of these financial statements.

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.

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.

Notes to the Group financial statements continued

For the year ended 31 December 2021

176Rotork Annual Report 2021

b. Adjusted profit before tax

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

2021

(Restated)

2020

Profit before tax 105,931 112,566

Adjustments:

Amortisation of acquired intangible assets 9,001 14,110

Gain on disposal of property (1,569) –

Software as a Service configuration costs 8,493 9,471

Redundancy costs 3,871 5,744

Other restructuring costs 2,574 115

Adjusted profit before tax 128,301 142,006

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:

2021

(Restated)

2020

Net profit attributable to ordinary shareholders 80,245 85,758

Adjustments:

Amortisation of acquired intangible assets 9,001 14,110

Gain on disposal of property (1,569) –

Redundancy costs 3,871 5,744

Other restructuring costs 2,574 115

Software as a Service configuration costs 8,493 9,471

Tax effect on adjusted items (4,785) (6,385)

Adjusted net profit attributable to ordinary shareholders 97,830 108,813

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.

f. Return on capital employed

The return on capital employed ratio is used by management to help ensure that capital is used efficiently.

2021

(Restated)

2020

Adjusted operating profit 128,080 142,543

Capital employed

Shareholders’ funds 534,080 570,754

Cash and cash equivalents (123,474) (187,20 4)

Interest bearing loans and borrowings 9,336 9,150

Pension deficit net of deferred tax 6,023 30,965

Capital employed 425,965 423,665

Average capital employed 424,815 438,367

Return on capital employed 30.1% 32.5%

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.

177www.rotork .com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Notes to the Group financial statements continued

For the year ended 31 December 2021

2. Alternative performance measures continued

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 2021 results are restated at 2020 exchange rates. There are no disposals or acquisitions in 2021 that are not consistently presented in both periods.

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

31 December

2021

Currency

adjustment

OCC

31 December

2021

Revenue 569,160 20,530 589,690

Cost of sales (306,394) (12,540) (318,934)

Gross margin 262,766 7,990 270,756

Overheads (134,686) (5,239) (139,925)

Adjusted operating profit 128,080 2,751 130,831

Interest 221 (39) 182

Adjusted profit before tax 128,301 2,712 131,013

Adjusted taxation (30,471) (635) (31,106)

Adjusted profit after tax 97,830 2,077 99,907

3. Operating segments

The three identifiable operating segments where the financial and operating performance is reviewed monthly by the chief operating decision maker

are as follows:

– Oil & Gas

– Water & Power

– Chemical, Process & Industrial

Each of our customers is allocated to a division. Sales to that customer, along with all directly associated costs of that sale, are reported under the division

to which that customer is allocated. Where some of our customers sell into multiple end markets, a lead end market is identified. Sales to these customers

will generally be allocated to the lead end market unless the sale is of significance and an alternative end market has been identified, in which case it will

be reported under the alternative end market.

For all costs not directly attributed to a sale, these are allocated across the three divisions within each of our businesses. There are some costs which

are directly attributable to a division, but most support costs and facility costs are not directly attributable to a division and are generally allocated

based on split of revenue. Amortisation of acquired intangible assets is allocated based on the split of revenue of the entity to which the asset relates.

Unallocated expenses comprise corporate expenses and remain the same as they were under the previous product division structure.

178Rotork Annual Report 2021

Geographic analysis

Rotork has a worldwide presence in all three 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:

Oil & Gas

2021

Chemical,

Process &

Industrial

2021

Water & Power

2021

Unallocated

2021

Group

2021

Revenue from external customers 260,153 160,454 148,553 – 569,160

Adjusted operating profit* 56,342 42,775 40,430 (11,467) 128,080

Amortisation of acquired intangible assets (6,381) (1,782) (838) – (9,001)

Segment result 49,961 40,993 39,592 (11,467) 119,079

Other adjustments (13,369)

Operating profit 105,710

Net finance income 221

Income tax expense (25,686)

Profit for the year 80,245

Oil & Gas

2020

Chemical, Process &

Industrial

2020

Water & Power

2020

Unallocated

2020

Group

2020

Revenue from external customers 292,173 154,605 157,766 – 604,544

Adjusted operating profit* 67,949 38,553 47,037 (10,996) 142,543

Amortisation of acquired intangible assets (7,38 0) (5,785) (945) – (14,110)

Segment result 60,569 32,768 46,092 (10,996) 128,433

Other adjustments (15,330)

Operating profit 113,103

Net finance expense (537)

Income tax expense (26,808)

Profit for the year 85,758

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

Oil & Gas

2021

Chemical,

Process &

Industrial

2021

Water & Power

2021

Unallocated

2021

Group

2021

Depreciation 7,161 4,420 4,092 – 15,673

Amortisation:

– Acquired intangible assets 6,381 1,782 838 – 9,001

– Development costs 817 457 383 – 1,657

Oil & Gas

2020

Chemical, Process &

Industrial

2020

Water & Power

2020

Unallocated

2020

Group

2020

Depreciation (Restated) 7,491 4,184 4,296 – 15,971

Amortisation:

– Acquired intangible assets 7,38 0 5,785 945 – 14,110

– Development costs 1,204 673 565 – 2,442

Impairment of development cost assets – 525 – – 525

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.

179www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Notes to the Group financial statements continued

For the year ended 31 December 2021

3. Operating segments continued

Geographic analysis continued

Geographical analysis:

Revenue by location of subsidiary 2021 2020

UK 55,971 66,077

Italy 49,150 62,176

Rest of Europe 102,501 106,940

USA 96,565 109,929

Other Americas 40,152 35,965

China 98,011 80,431

Rest of World 126,810 143,026

569,160 604,544

2021

Europe

2021

USA

2021

Other

Americas

2021

Rest of

World

2021

Group

2021

Non-current assets:

– Goodwill 61,342 62,666 53,366 725 38,679 216,778

– Intangible assets 22,890 1,464 817 – 551 25,722

– Property, plant and equipment 22,243 22,224 13,871 768 18,692 77,798

(Restated) UK

2020

Europe

2020

USA

2020

Other

Americas

2020

Rest of

World

2020

Group

2020

Non-current assets:

– Goodwill 61,342 66,940 52,830 728 41,697 223,537

– Intangible assets 19,392 1,877 2,355 – 1,521 25,145

– Property, plant and equipment 25,635 29,884 11,257 1,225 18,081 86,082

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:

2021

(Restated)

2020

Gain on disposal of property 1,569 –

Redundancy costs (3,871) (5,744)

Other restructuring costs (2,574) (115)

Software as a Service configuration costs (8,493) (9,471)

Other adjustments (13,369) (15,330)

Growth Acceleration Programme

The Growth Acceleration Programme, which the Group began to implement in the second half of 2018, is designed to fulfil the Group’s purpose and

deliver its strategic targets. The Group is in the fourth year of the five-year programme and delivers initiatives under the following pillars: Commercial

Excellence, Operational Excellence, Talent & Culture and IT & Core Business Processes.

i) Gain on disposal of property

The £1,569,000 (2020: £nil) gain on disposal of properties relates to the sale of two properties in the period as a result of the ongoing review of the

global footprint.

ii) Redundancy and Other restructuring costs

A further £3,871,000 (2020: £5,744,000) redundancy costs have been incurred as a result of the progress made with the Growth Acceleration

Programme. In 2021 it was announced that the Group’s operations in Cusago, Italy would cease during the second half of 2021, other Rotork

manufacturing sites will continue to support customers, ensuring no discontinuity with past service. The closure of the Cusago facility resulted

in redundancy costs and other restructuring costs totalling £4,013,000.

180Rotork Annual Report 2021

iii) Software as a Service configuration costs

During the year £8,493,000 (2020: £9,471,000) of configuration costs were incurred on the development of cloud-based software as part of the

D365 ERP system implementation under the Growth Acceleration Programme, these costs were expensed as they do not meet the capitalisation criteria

under IAS 38.

Income statement disclosure

All adjustments are included in administrative expenses. The adjustments are taxable or tax deductible in the country in which the expense is incurred.

5. Other income and expense

2021 2020

Gain on disposal of property, plant and equipment 133 80

Other 454 1,501

Other income 587 1,581

2021 2020

Loss on disposal of property, plant and equipment 133 226

Other 49 484

Other expense 182 710

6. Personnel expenses

2021 2020

Wages and salaries (including bonus and incentive plans) 125,315 134,747

Social security costs 17,781 18,798

Pension costs (note 24) 5,855 6,895

Share-based payments (note 25) 3,333 3,685

(Decrease)/Increase in liability for long term service leave (42) 32

152,242 164,157

2021 2020

Average monthly number of employees during the year:

Sales, marketing and market focused staff

– Oil and Gas 132 109

– Chemical, Process and Industrial 79 69

– Water and Power 93 75

Manufacturing and other shared functions 2,992 3,254

3,296 3,507

UK 860 909

Overseas 2,436 2,598

3,296 3,507

181www.rotork. com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

7. Finance Income and Expense

Recognised in the income statement

2021 2020

Interest income 1,123 1,517

Foreign exchange gains 1,319 877

Finance income 2,442 2,394

2021 2020

Interest expense (818) (872)

Interest expense on lease liabilities (note 27) (404) (499)

Net interest charge on pension scheme liabilities (note 24) (522) (609)

Foreign exchange losses (477) (951)

Finance expense (2,221) (2,931)

Recognised in other comprehensive income

2021 2020

Effective portion of changes in fair value of cash flow hedges 1,023 1,131

Fair value of cash flow hedges transferred to income statement (1,132) (1,125)

Foreign currency translation differences for foreign operations (8,899) (3,913)

(9,008) (3,907)

Recognised in:

Hedging reserve (109) 6

Translation reserve (8,899) (3,913)

(9,008) (3,907)

8. Profit before tax

Profit before tax is stated after charging/(crediting) the following:

Notes 2021

(Restated)

2020

Depreciation of property, plant and equipment:

– Owned assets i 11,032 11,287

– Assets held under lease contracts i 4,641 4,684

Amortisation:

– Other intangibles iii 9,001 14,110

– Development costs iii 1,657 2,967

Impairment of development cost assets iii – 525

Impairment of property, plant and equipment iii 707 –

Inventory write downs recognised in the year ii 1,303 2,718

Product research and development expenditure iii 10,815 11,673

Exchange differences realised iv (842) 73

Audit fees and expenses paid to Deloitte:

– Audit of the Group financial statements 988 1,002

– Audit of financial statements of subsidiaries of the Company 274 268

Total audit fees and expenses 1,262 1,270

Amounts paid to Deloitte and its associates in respect of:

– Other assurance services 60 58

60 58

Total fees 1,322 1,328

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

Notes to the Group financial statements continued

For the year ended 31 December 2021

182Rotork Annual Report 2021

9. Income tax expense

2021 2021

(Restated)

2020

(Restated)

2020

Current tax:

UK corporation tax on profits for the year 2,029 2,711

Adjustment in respect of prior years (615) (966)

1,414 1,745

Overseas tax on profits for the year 26,277 28,034

Adjustment in respect of prior years (295) (232)

25,982 27,8 02

Total current tax 27,396 29,547

Deferred tax:

Origination and reversal of other temporary differences (1,170) (1,618)

Impact of rate change (592) (1,103)

Adjustment in respect of prior years 52 (18)

Total deferred tax (1,710) (2,739)

Total tax charge for year 25,686 26,808

Profit before tax 105,931 112,566

Profit before tax multiplied by the blended standard rate of

corporation tax in the UK of 19.0% (2020: 19%) 20,127 21,388

Effects of:

Different tax rates on overseas earnings 7,381 7,613

Permanent differences 1,591 578

Losses not recognised (128) 292

Tax incentives (1,835) (744)

Impact of rate change (592) (1,103)

Adjustments to tax charge in respect of prior years (858) (1,216)

Total tax charge for year 25,686 26,808

Effective tax rate 24.2% 23.8%

Adjusted profit before tax (note 2b) 128,301 142,006

Total tax charge for the year 25,686 26,808

Amortisation of acquired intangible assets 1,784 3,010

Software as a service configuration costs 2,400 1,901

Other adjustments (note 4) 601 1,474

Adjusted total tax charge for the year 30,471 33,193

Adjusted effective tax rate 23.8% 23.4%

A tax credit of £631,000 (2020: £65,000) in respect of share-based payments has been recognised directly in equity in the year.

The effective tax rate for the year is 24.2% (2020 restated: 23.8%). The adjusted effective tax rate is 23.8% (2020 restated: 23.4%) 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 increased from 23.4% in 2020 to 23.8% in 2021, principally because of an increase in the proportion of the Group

profits arising in higher tax jurisdictions internationally. The Group expects its adjusted effective tax rate to continue to move in line with the trends in

corporate tax rates in the jurisdictions 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, Germany, South Korea, India, Australia and the US.

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 £258,167,000 (2020: £256,554,000).

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Corporate Governance Financial Statements Strategic Report

10. Goodwill

2021 2020

Cost

At 1 January 2 45 ,113 243,696

Exchange adjustments (6,743) 1,417

At 31 December 238,370 245,113

Provision for impairment

At 1 January 21,576 21,644

Exchange adjustments 16 (68)

At 31 December 21,592 21,576

Net book value 216,778 223,537

Cash generating units

Goodwill acquired through business combinations has been allocated to groups of cash-generating units (CGUs) that are expected to benefit from that

business combination. For the Group, these are considered to be the Oil and Gas, Water and Power, and Chemical, Process and Industrial divisions. On

this basis, the value in use calculations exceeded the CGU carrying values after applying sensitivity analysis.

Cash generating unit

Discount rate

2021

Discount rate

2020 2021 2020

Oil and Gas 11.2% 11.8% 87,597 89,936

Chemical, Process and Industrial 11.4% 12.1% 113,680 117,232

Water and Power 11.4% 12.1% 15,501 16,369

Total Group 216,778 223,537

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, reflects the growth rates within the budget and

3 year plans.

In the period after the three year plan growth rates are forecast at 4% (2020: 4%) per annum for the next two years and at 2% (2020: 2%) for the

long-term growth rate.

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.

There are no reasonably possible changes in assumptions that would lead to an impairment.

Notes to the Group financial statements continued

For the year ended 31 December 2021

184Rotork Annual Report 2021

11. Intangible assets

Acquired intangible assets

Software

Product

development

costs Brands

Customer

relationships Other Total

Cost

31 December 2019 – 20,402 50,872 116,693 21,870 209,837

Additions – 1,262 – – – 1,262

Exchange Adjustments – 105 210 100 197 612

31 December 2020 – 21,769 51,082 116,793 22,067 211,711

Additions 5,174 1,806 – – – 6,980

Transfer from property, plant and equipment 4,450 – – – – 4,450

Exchange adjustments – (185) (1,238) (3,022) (646) (5,091)

31 December 2021 9,624 23,390 49,844 113,771 21,421 218,050

Amortisation

31 December 2019 – 12,297 42,147 94,519 20,026 168,989

Charge for the year – 2,442 3,212 9,579 1,319 16,552

Impairment charge – 525 – – – 525

Exchange Adjustments – 43 169 92 196 500

31 December 2020 – 15,307 45,528 104,190 21,541 186,566

Charge for the year – 1,657 1,596 6,879 526 10,658

Exchange adjustments – (97) (1,190) (2,963) (646) (4,896)

31 December 2021 – 16,867 45,934 108,106 21,421 192,328

Net book value

31 December 2020 – 6,462 5,554 12,603 526 25,145

31 December 2021 9,624 6,523 3,910 5,665 – 25,722

Other acquired intangible assets represent order books and intellectual property.

The amortisation charge is recognised within administrative expenses in the income statement.

Included in the net book value of software are assets in the course of development, which are not amortised, with a cost of £9,624,000.

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Corporate Governance Financial Statements Strategic Report

12. Property, plant and equipment

Land and

buildings

Plant and

equipment Total

Cost

31 December 2019 (Restated) 74,434 117,581 192,015

Additions 8,484 10,662 19,146

Disposals (500) (5,157) (5,657)

Assets classified as held for sale (1,365) (134) (1,499)

Exchange adjustments 336 986 1,322

31 December 2020 (Restated) 81,389 123,938 205,327

Additions 7,641 10,882 18,523

Disposals (2,697) (7,335) (10,032)

Transfer to intangible assets – (4,450) (4,450)

Assets classified as held for sale (5,182) (581) (5,763)

Exchange adjustments (2,423) (2,768) (5,191)

31 December 2021 78,728 119,686 198,414

Depreciation

31 December 2019 (Restated) 24,868 83,152 108,020

Charge for the year 4,903 11,068 15,971

Disposals (376) (4,812) (5,188)

Assets classified as held for sale (335) (45) (380)

Exchange adjustments 15 807 822

31 December 2020 (Restated) 29,075 9 0 ,170 119,245

Charge for the year 5,378 10,295 15,673

Disposals (2,581) (6,469) (9,050)

Impairment 87 620 707

Assets classified as held for sale (2,400) (477) (2,877)

Exchange adjustments (771) (2,311) (3,082)

31 December 2021 28,788 91,828 120,616

Net book value

31 December 2020 (Restated) 52,314 33,768 86,082

31 December 2021 49,940 27,858 77,798

Net book value of land and buildings can be analysed between:

2021 2020

Land 6,058 6,957

Buildings 43,882 45,357

Net book value at 31 December 49,940 52,314

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 £707,000 in 2021 arose as a result of the ongoing review of the global footprint.

Included in the net book value of plant and equipment are assets in the course of construction, which are not depreciated, with a cost of £1,570,000

(2020: £4,921,000). Depreciation of these assets will commence when the assets are ready for their intended use.

13. Deferred tax assets and liabilities

Assets

2021

Liabilities

2021

Net

2021

(Restated)

Net

2020

(Restated)

Net

2020

(Restated)

Net

2020

Property, plant and equipment 6,701 (1,091) 5,610 4,111 (1,538) 2,573

Intangible assets 11 (6,513) (6,502) 3 (6,401) (6,398)

Employee benefits 3,901 – 3,901 10,040 – 10,040

Inventory 4,862 – 4,862 4,930 – 4,930

Other items 4,103 (3,371) 732 3,006 (3,470) (464)

Net tax assets/(liabilities) 19,578 (10,975) 8,603 22,090 (11,40 9) 10,681

Set off of tax (9,395) 9,395 – (1,858) 1,858 –

10,18 3 (1,580) 8,603 20,232 (9,551) 10,681

Notes to the Group financial statements continued

For the year ended 31 December 2021

186Rotork Annual Report 2021

Movements in the net deferred tax balance during the year are as follows:

2021

(Restated)

2020

Balance at 1 January (Restated) 10,681 4,698

Credited to the income statement 1,118 1,636

Credited/(charged) directly to equity in respect of share-based payments 631 (66)

Impact of rate change 592 1,103

(Charged)/credited directly to equity in respect of pension schemes (4,571) 3,734

Credited/(charged) directly to hedging reserves in respect of cash flow hedges 21 (18)

Exchange differences 131 (406)

Balance at 31 December (Restated) 8,603 10,681

A deferred tax asset of £10,183,000 (2020: £20,232,000) has been recognised at 31 December 2021. 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 (2020: £7,632,000), due to uncertainty over the offset against

future capital profits in the companies concerned. There is no expiry date in relation to this asset.

14. Inventories

2021 2020

Raw materials and consumables 52,083 46,101

Work in progress 3,871 3,630

Finished goods 12,493 11,736

68,447 61,467

Included in cost of sales was £173,536,000 (2020: £187,507,000) in respect of inventories consumed in the year.

15. Trade and other receivables including assets held for sale

2021 2020

Current assets:

Trade receivables 98,764 117,253

Less provision for impairment of receivables (4,575) (4,688)

Trade receivables – net 94 ,189 112,565

Corporation tax 9,558 7,180

Current tax 9,558 7,180

Other non-trade receivables 5,825 3,348

Other taxes and social security 12,199 13,629

Prepayments 17,800 8,891

Other receivables 35,824 25,868

Land and buildings 2,780 1,030

Plant and equipment 104 89

Assets held for sale 2,884 1,119

As at 31 December 2021, non-current assets relating to a property in Melle, Germany were classified as held for sale.

16. Cash and cash equivalents

2021 2020

Bank balances 82,945 95,740

Cash in hand 35 49

Short term deposits 40,494 91,415

Cash and cash equivalents in the consolidated statement of cash flows 123,474 187,20 4

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Corporate Governance Financial Statements Strategic Report

17. Capital and reserves

0.5p Ordinary

issued

and fully

paid up

2021

£1 Non-

redeemable

preference

2021

0.5p Ordinary

issued

and fully

paid up

2020

£1 Non-

redeemable

preference

2020

At 1 January 4,370 40 4,363 40

Issued under employee share schemes 4 – 7 –

Cancelled following share buyback programme (72) – – –

At 31 December 4,302 40 4,370 40

Number of shares (000) 860,276 873,955

The ordinary shareholders are entitled to receive dividends as declared and are entitled to vote at meetings of the Company.

Share issue

The Group received proceeds of £1,528,000 (2020: £2,312,000) in respect of the 816,422 (2020: 1,417,104) ordinary shares issued during the year:

£4,000 (2020: £7,000) was credited to share capital and £1,524,000 (2020: £2,305,000) to share premium. Further details of the share awards are shown

in note 25.

Share buyback programme

During the year, the Group bought back a total of 14,403,732 Ordinary shares of 0.5p each for a total value of £50,324,000 including costs of £324,000.

The average price paid for these repurchased shares was 348.1p. These repurchased shares were then cancelled in the same period.

Share forfeiture

During the year the Group had a share forfeiture programme following the completion of a tracing and notification exercise to any shareholders who

have not had contact with the Company over the past 12 years, in accordance with the provisions set out in the Company’s Articles of Association. Under

the share forfeiture programme, the shares and dividends associated with shares of untraced members are forfeited and resold in the market, with the

resulting proceeds transferred to the Group. During the year, the Group received £478,000 proceeds from sale of untraced shares and £135,000 write-

back of unclaimed dividends on those shares, which are reflected in share premium and retained earnings respectively.

Own shares held

Within the retained earnings reserve are own shares held. The investment in own shares held is £5,291,000 (2020: £2,937,000) and represents 1,500,000

(2020: 997,000) 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.

Preference shares

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.

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:

2021

Payment date 2021 2020

6.30p final dividend for 2020 (final dividend for 2019 was postponed) 21 May 54,996 –

2.35p interim dividend for 2021 (interim dividend for 2020: 3.90p) 24 September 20,519 33,926

75,515 33,926

Notes to the Group financial statements continued

For the year ended 31 December 2021

188Rotork Annual Report 2021

The Company has exercised its authority in accordance with the provisions set out in the Company’s Articles of Association that the balance of unclaimed

dividends over past 12 years be forfeited. During the year £135,000 of unclaimed dividends have been adjusted for in retained earnings, resulting in

a dividends movement in the statement of changes in equity of £75,380,000.

The recommendation to pay a 3.90 pence per share final dividend in respect of 2019 was withdrawn on 31 March 2020 in response to the uncertainty

arising from the COVID-19 pandemic. The Board decided to pay this dividend as an interim dividend of 3.90 pence which was paid to shareholders in

September 2020. In March 2021 a dividend, reflecting the combined interim and final dividend, was proposed in respect of the year to 31 December

2020 and was paid in May 2021. The Company has now returned to the regular schedule of dividends payments.

After the balance sheet date the following dividends per qualifying ordinary share were proposed by the directors. The dividends have not been

provided for.

2021 2020

Final proposed dividend per qualifying ordinary share

4.05p 34,780 –

6.30p – 55,059

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 869.5m shares (2020: 871.7m shares) being the weighted average number of ordinary shares in issue (net of own

ordinary shares held) for the year.

2021

(Restated)

2020

Net profit attributable to ordinary shareholders 80,245 85,758

Weighted average number of ordinary shares

Issued ordinary shares at 1 January 872,958 871,401

Effect of own shares held (28) 17

Effect of Share Buyback Programme (3,694) –

Effect of shares issued under Sharesave plans 220 244

Weighted average number of ordinary shares during the year 869,456 871,662

Basic earnings per share 9.2p 9.8p

Adjusted basic earnings per share

Adjusted basic earnings per share is calculated for both the current and previous years using the profit attributable to the ordinary shareholders for the

year after adding back the after tax impact of the adjustments. The reconciliation showing how adjusted net profit attributable to ordinary shareholders

is derived is shown in note 2.

2021 2020

Adjusted net profit attributable to ordinary shareholders 97,830 108,813

Weighted average number of ordinary shares during the year 869,456 871,662

Adjusted basic earnings per share 11.3p 12.5p

Diluted earnings per share

Diluted earnings per share is based on the profit for the year attributable to the ordinary shareholders and 870.5m shares (2020: 873.3m 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).

2021

(Restated)

2020

Net profit attributable to ordinary shareholders 80,245 85,758

Weighted average number of ordinary shares (diluted)

Weighted average number of ordinary shares for the year 869,456 871,662

Effect of Sharesave options 711 561

Effect of LTIP share awards 372 1,101

Weighted average number of ordinary shares (diluted) during the year 870,539 873,324

Diluted earnings per share 9.2p 9.8p

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Corporate Governance Financial Statements Strategic Report

18. Earnings per share continued

Adjusted diluted earnings per share

2021

(Restated)

2020

Adjusted net profit attributable to ordinary shareholders 97,830 108,813

Weighted average number of ordinary shares (diluted) during the year 870,539 873,324

Adjusted diluted earnings per share 11.2p 12.5p

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.

Notes 2021 2020

Non-current liabilities

Preference shares classified as debt 40 40

Bank loans 620 728

Lease liabilities 27 4,804 4,628

5,464 5,396

Current liabilities

Bank loans 65 69

Lease liabilities 27 3,807 3,685

3,872 3,754

Total interest bearing loans and borrowings 9,336 9,150

Terms and debt repayment schedule

The terms and conditions of outstanding bank loans and preference shares were as follows:

Currency Interest rates Year of maturity 2021 2020

Non-redeemable preference shares Sterling 9.5% – 40 40

Bank loans Euro 2.35% 2032 685 797

725 837

Repayment profile

Bank loans are payable as follows:

Principal

2021

Interest

2021

Minimum

payments

2021

Principal

2020

Interest

2020

Minimum

payments

2020

Bank loans less than one year 65 16 81 69 18 87

Bank loans more than one and less than five years 261 47 308 728 99 827

Bank loans more than five years 359 24 383 – – –

685 87 772 797 117 914

Information on leases and the lease repayment profile are shown in note 27.

Notes to the Group financial statements continued

For the year ended 31 December 2021

190Rotork Annual Report 2021

20. Employee benefits

2021 2020

Recognised liability for defined benefit obligations:

Present value of funded obligations 233,135 252,959

Fair value of plan assets (225,510) (214,442)

7,625 38,517

Other pension scheme liabilities 261 243

Employee bonuses 10,717 19,676

Long Term Incentive Plan 143 560

Employee indemnity provision 2,033 2,474

Other employee benefits 4,997 5,021

25,776 66,491

Non-current 11,336 42,846

Current 14,440 23,645

25,776 66,491

Defined benefit pension scheme disclosures are detailed in note 24.

21. Provisions

Contingent

consideration

Warranty

provision

Restructuring

provision Total

Balance at 1 January 2021 183 5,213 812 6,208

Exchange differences (10) (54) (1) (65)

Charge to the income statement 88 351 1,562 2,001

Provisions utilised during the year (22) (1,036) (223) (1,281)

Balance at 31 December 2021 239 4,474 2 ,15 0 6,863

Maturity at 31 December 2021

Non-current 75 1,484 – 1,559

Current 164 2,990 2,150 5,304

239 4,474 2 ,150 6,863

Maturity at 31 December 2020

Non-current – 1,720 – 1,720

Current 183 3,493 812 4,488

183 5,213 812 6,208

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

2021 2020

Trade payables 38,800 33,560

Corporation tax 12,226 14,765

Current tax 12,226 14,765

Other taxes and social security 7,673 10,086

Payments on account 9,772 9,779

Other payables and accrued expenses 20,541 21,469

Other payables 37,986 41,334

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Corporate Governance Financial Statements Strategic Report

Notes to the Group financial statements continued

For the year ended 31 December 2021

23. Derivative financial instruments

2021

Assets

2021

Liabilities

2020

Assets

2020

Liabilities

Forward foreign exchange contracts – cash flow hedges 1,18 6 106 1,235 168

Foreign exchange swaps – cash flow hedges 710 – 347 –

Total 1,896 106 1,582 168

Less non-current portion:

Forward foreign exchange contracts – cash flow hedges – 106 – –

Current portion 1,896 – 1,582 168

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 2021 are recognised in the income statement in the period or periods during which the

hedged forecast transaction affects the income statement.

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.

Whether measured by assets or liabilities, the UK Scheme is more than 90% of the overall value of the two defined benefit Schemes.

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.

The impact of the requirement to equalise benefits of men and women for unequal GMPs was estimated to be a 0.5% addition to liabilities in 2018 and

was introduced as a past service cost in the 2018 income statement. This allowance has been judged sufficient to allow for the equalisation of previous

transfers out and so has been retained for the 2020 and 2021 year-ends.

192Rotork Annual Report 2021

Movements in the present value of defined benefit obligations

2021 2020

Liabilities at 1 January 252,959 223,222

Administration costs 42 223

Interest cost 3,568 4,882

Benefits paid (9,675) (7,136)

Actuarial loss (13,961) 32,727

Currency loss/(gain) 202 (959)

Liabilities at 31 December 233,135 252,959

Movements in fair value of plan assets

2021 2020

Assets at 1 January 214,442 193,646

Interest income on plan assets 3,046 4,273

Employer contributions 7,432 10,308

Benefits paid (9,675) (7,136)

Return on plan assets, excluding interest income on plan assets 10,079 14,157

Currency gain/(loss) 186 (806)

Assets at 31 December 225,510 214,442

Expense recognised in the income statement

2021 2020

Administration costs 42 223

Net interest cost 522 609

564 832

The expense is recognised in the following line items in the income statement

2021 2020

Cost of sales 16 84

Administrative expenses 26 139

Other income – –

Net finance expense 522 609

564 832

Remeasurements over the year

2021 2020

Experience adjustments on plan assets 10,079 14,157

Experience adjustments on plan liabilities (2,683) 4,985

Actuarial gain/(loss) from changes to financial assumptions 16,475 (36,808)

Actuarial gain/(loss) from changes to demographic assumptions 169 (904)

Experience adjustments on currency (16) 153

24,024 (18,417)

Reconciliation of net defined benefit obligation

2021 2020

Net defined benefit obligation at the beginning of the year 38,517 29,576

Current service costs – –

Administration costs 42 223

Net financing expense 522 609

Remeasurements over the year (24,024) 18,417

Employer contributions (7,432) (10,308)

7,625 38,517

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Corporate Governance Financial Statements Strategic Report

24. Pension schemes continued

i) Defined benefit pension schemes continued

Liability for defined benefit obligations

The principal actuarial assumptions at 31 December 2021 (expressed as weighted averages):

UK scheme

(% per annum)

US scheme

(% per annum)

Weighted average

(% per annum)

2021 2020 2021 2020 2021 2020

Discount rate 1.9 1.3 3.0 2.7 2.0 1.4

Rate of increase in salaries n/a n/a n/a n/a n/a n/a

Rate of increase in pensions (post May 2000) 3.2 2.8 0.0 0.0 2.9 2.5

Rate of increase in pensions (pre May 2000) 4.6 4.6 0.0 0.0 4.2 4.2

Rate of inflation 3.3 2.9 n/a n/a 3.3 2.9

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’ quoted assets were as follows:

2021

Fair value

2020

Fair value

Equities 36,339 37,042

Targeted return 56,434 53,155

Property 3,681 5,238

Multi-asset credit (quoted) 21,176 19,316

LDI/absolute return bonds 89,396 81,615

US deposit administration contract 18,484 18,076

Total 225,510 214,442

Actual return on the Schemes’ assets 13,125 18,430

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 has been increased by the use of liability driven investment

(LDI) funds. Currently the Scheme has hedged around 65% of both the interest rate risk and the inflation risk of its liabilities, as measured on a low risk

gilts basis.

The only change made to the demographic assumptions at the 2021 year-end is that future improvements in mortality are now based on the CMI_2020

projection model, albeit with no allowance for 2020’s actual experience which reflected the impact of the pandemic (2020: CMI_2019).

By way of example the respective mortality tables indicate the following life expectancy:

2021 Life expectancy at age 65 2020 Life expectancy at age 65

Current age

Male Female Male Female

65 23.2 23.7 23.0 23.5

45 24.5 25.2 24.4 25.0

Sensitivity analysis on the Schemes’ liabilities

Adjustments to assumptions

Approximate

effect on

liabilities

Discount rate

Plus 1.0% p.a. (41,300)

Minus 1.0% p.a. 50,900

Inflation

Plus 0.5% p.a. 13,700

Minus 0.5% p.a. (13,000)

Life expectancy

Increase of one year in assumed life expectancy 10,700

The above sensitivities are approximate and only show the likely effect of an assumption being adjusted whilst all other assumptions remain the same.

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.

Notes to the Group financial statements continued

For the year ended 31 December 2021

194Rotork Annual Report 2021

Effect of the Schemes on the Group’s future cash flows

The Group is required to agree a Schedule of Contributions with the Trustee 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 2019, the Group is paying agreed deficit contributions of £6,800,000

a year until 30 September 2023 and then £5,500,000 until 31 March 2025. However, the level of deficit contributions will be reviewed at the next

valuation, which will be carried out with an effective date of 31 March 2022.

The Group estimates that cash contributions to the Group’s defined benefit pension schemes during 2022 will be £6,840,000 (2021: £7,432,000).

The weighted average duration of the defined benefit obligation for the UK Scheme 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 £5,855,000 (2020: £6,895,000).

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:

2021 2020

Sharesave plan (a) 816 482

Long Term Incentive Plan (b) 223 1,140

OPLSS/SIP profit linked share scheme 2,294 2,063

Total expense recognised as employee costs (note 6) 3,333 3,685

Volatility assumptions for equity-based payments

The expected volatility of all equity compensation benefits is based on the historic volatility (calculated based on the weighted average remaining life

of each benefit), adjusted for any expected changes to future volatility due to publicly available information.

a) Sharesave plan

UK employees are invited to join the Sharesave plan when an offer is made each year. All the offers to date were made at a 20% discount to market price

at the time. There are no performance criteria for the Sharesave plan. Employees are given the option of joining either the 3 year or the 5 year scheme.

3 year scheme 5 year scheme

2021 2020 2021 2020

Grant date 6 October 9 October 6 October 10 October

Share price at grant date 339p 298p 339p 298p

Exercise price 283p 243p 283p 243p

Shares granted under scheme 478,490 674,240 149,248 216,320

Vesting period 3 years 3 years 5 years 5 years

Expected volatility 33.3% 33.0% 33.3% 33.0%

Risk free rate 0.50% (0.07)% 0.68% (0.02)%

Expected dividends expressed as a dividend yield 2.55% 1.31% 2.55% 1.31%

Probability of ceasing employment before vesting 2% 2% 2% 2%

Fair value 81p 84p 90p 95p

Movements in the number of share options outstanding and their weighted average prices are as follows:

2021 2020

Average

option price

per share Options

Average

option price

per share Options

At 1 January 232p 2,909,674 149p 3,691,109

Granted 283p 627,738 243p 890,560

Exercised 187p (816,422) 161p (1,417,104)

Forfeited 246p (378,983) 248p (254,891)

At 31 December 252p 2,342,007 231p 2,909,674

Of the 2,342,007 outstanding options (2020: 2,909,674), 232,000 are exercisable (2020: 334,000).

The Group received proceeds of £1,528,000 in respect of the 816,422 options exercised during the year: £4,000 was credited to share capital and

£1,524,000 to share premium. The weighted average share price at date of exercise was 348p (2020: 300p).

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25. Share-based payments continued

Volatility assumptions for equity-based payments continued

The weighted average remaining life of 1,549,121 (2020: 1,735,589) awards outstanding under the 3 year plan is 1.8 years. The weighted average

remaining life of 792,866 (2020: 1,174,085) awards outstanding under the 5 year plan is 2.7 years.

b) Long Term Incentive Plan

The Long Term Incentive Plan (LTIP) is a performance share plan under which shares are conditionally allocated to selected members of senior

management at the discretion of the Remuneration Committee on an annual basis. Following shareholder approval of the LTIP at the Company’s AGM

on 18 May 2000, awards over shares are made to executive directors and senior managers each year.

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. From 2017 onwards, a third of these awards vested under a TSR performance condition, a third under an EPS performance

condition and a third under a Return on Invested Capital (ROIC) 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

2018, 2019 and 2020 awards, the awards will vest by comparing the average ROIC over the performance period against a set of pre-defined targets.

The performance period for the 2018 awards ended on 31 December 2020. Messrs. PricewaterhouseCoopers LLP as independent actuaries certified

to the Remuneration Committee that there was an 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% over the performance period and the Group’s growth in economic profit was 13.7%. These awards vested

during 2021.

The performance period for the 2019 awards ended on 31 December 2021. Messrs. PricewaterhouseCoopers LLP as independent actuaries certified to

the Remuneration Committee that there was a 9.4% vesting of this award as the Company was in the 51st percentile relative to the comparator group.

The EPS and ROIC elements of the scheme did not vest as the performance criteria was not met. These awards will vest during 2022.

2021 2020

Grant date 24 March 07 April

Share price at grant date 362p 239p

Shares granted under scheme 1,162 ,633 1,726,334

Vesting period 3 years 3 years

Expected volatility 35.4% 35.8%

Risk free rate 0.6% (0.1)%

Expected dividends expressed as a dividend yield 0.0% 0.0%

Probability of ceasing employment before vesting 5% p.a. 5% p.a.

Fair value of awards under TSR performance conditions 181p 176p

Fair value of awards under EPS and ROIC performance conditions 357p 318p

Outstanding

at start

of year

Granted

during year

Vested

during year Lapsed

Outstanding

at end

of year

2018 Award 981,204 – (863,984) (117,220) –

2019 Award 1,218,889 – – (27,798) 1,191,091

2020 Award 1,687,558 – – (117,462) 1,570,096

2021 Award – 1,162,633 – (58,961) 1,103,672

3,887,651 1,162,633 (863,984) (321,441) 3,864,859

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.

Notes to the Group financial statements continued

For the year ended 31 December 2021

196Rotork Annual Report 2021

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:

Carrying amount

2021 2020

Trade receivables 94 ,189 112,565

Other receivables 35,824 25,868

Cash and cash equivalents 123,474 187,20 4

253,487 325,637

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:

Carrying amount

2021 2020

Sterling 12,204 16,618

US dollar 19,369 21,697

Euro 30,327 38,164

Other 32,289 36,087

94 ,189 112,566

Provisions against trade receivables

The following table shows the expected credit loss (ECL) that has been recognised for trade receivables:

Gross

2021

Provision

2021

Gross

2020

Provision

2020

Not past due 69,708 (20) 82,849 (3)

Past due 0–30 days 13,829 – 18,481 –

Past due 31–60 days 5,709 (65) 6,314 (94)

Past due 61–90 days 2,672 (54) 3,468 (42)

Past due more than 91 days 6,846 (4,436) 6,142 (4,549)

98,764 (4,575) 117,25 4 (4,688)

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Notes to the Group financial statements continued

For the year ended 31 December 2021

26. Financial instruments continued

Provisions against trade receivables continued

b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to

ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without

incurring unacceptable losses or risking damage to the Group’s reputation.

The Group is highly cash generative, and uses monthly cash flow forecasts to monitor cash requirements and to optimise its return on investments.

Typically the Group ensures that it has sufficient cash on hand to meet foreseeable operational expenses; it also maintains a £5,000,000 uncommitted

overdraft facility (2020: £5,000,000) on which interest would be payable at base rate plus 1.35% and a €5,000,000 uncommitted overdraft facility

(2020: €5,000,000) on which interest would be payable at base rate plus 1.1%.

The Group holds a £60,000,000 committed Revolving Credit Facility and arranged a new £60,000,000 committed Revolving Credit Facility which matures

in June 2022. At year end this committed facility was fully undrawn, 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:

Analysis of contractual cash flow maturities

31 December 2021

Carrying

amount

Contractual

cash flows

Less than

12 months 1–2 years 2–5 years

More than

5 years

Bank loans 685 772 81 79 229 383

Lease liabilities 8,611 9,416 4 ,155 2,913 2,348 –

Trade and other payables 76,786 76,786 76,786 – – –

Contingent consideration 239 239 164 75 – –

Foreign exchange contracts 106 106 – 106 – –

Non-redeemable preference shares 40 40 – – – 40

86,467 87,359 81,186 3,173 2,577 423

Analysis of contractual cash flow maturities

31 December 2020

Carrying

amount

Contractual

cash flows

Less than

12 months 1–2 years 2–5 years

More than

5 years

Bank loans and overdrafts 797 914 85 85 744 –

Finance lease liabilities 8,302 9,612 4,236 2,832 2,427 117

Trade and other payables 74,894 74,894 74,894 – – –

Contingent consideration 183 183 183 – – –

Foreign exchange contracts 168 168 168 – – –

Non-redeemable preference shares 40 40 – – – 40

84,384 85,811 79,566 2,917 3,171 157

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 £88,610,000 (2020: £111,546,000) and the gross inflow is £90,400,000

(2020: £112,960,000).

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.

198Rotork Annual Report 2021

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 2021 was a

£1,790,000 asset (2020: £1,414,000 asset) comprising an asset of £1,896,000 (2020: £1,582,000) and a liability of £106,000 (2020: £168,000). Forward

exchange contracts in place at 31 December 2021 mature in 2022 and 2023.

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 2021 of £200,000 (2020: £250,000) 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 2021

of £600,000 (2020: £700,000). Larger changes would have a linear impact on operating profit. 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:

Average rate Closing rate

2021 2020 2021 2020

US dollar 1.38 1.28 1.35 1.37

Euro 1.16 1.12 1.19 1.12

ii) Interest rate risk

The Group does not undertake any hedging activity in this area.

All cash deposits are made at prevailing interest rates and the majority is available with same day notice, though deposits are sometimes made with

a maturity of no more than three months. The main element of interest rate risk concerns sterling, US dollar, euro and renminbi deposits, all of which

are on a floating rate basis.

The interest rate profile of the Group’s financial liabilities (excluding leases) at 31 December was as follows:

2021 2020

Fixed rate financial liabilities 40 40

Floating rate financial liabilities 685 797

725 837

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 and floating rate financial liabilities are 9.5% (2020: 9.5%) and 2.35% (2020: 2.35%) respectively.

The maturity profile of the Group’s financial liabilities (excluding leases) at 31 December was as follows:

2021 2020

In one year or less 65 69

In more than one year but not more than two years 65 69

In more than two years but not more than five years 196 659

In more than five years 399 40

Total 725 837

199www.rotork. com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Notes to the Group financial statements continued

For the year ended 31 December 2021

26. Financial instruments continued

Provisions against trade receivables continued

d) Capital risk management

The primary objective of the Group’s capital management is to ensure it maintains sufficient capital in order to support its business and maximise

shareholder value. The Group has an asset-light business model and uses cash generated from operations to either invest organically or by acquisition.

The Group manages its capital structure and makes adjustments to it in light of changes in economic and market conditions. To maintain or adjust the

capital structure, the Group may adjust the dividend payment to shareholders or issue new shares.

The Group defines capital as net 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.

Notes 2021 2020

Total borrowings including lease liabilities 19 (9,336) (9,150)

Total cash and cash equivalents 16 123,473 187,20 4

Group net cash 114 ,137 178,054

Reconciliation of changes in assets and liabilities arising from financing activities

Repayment of borrowings 67 69

Net (increase)/decrease in lease liabilities (298) 2,452

Effect of exchange rate fluctuations 44 (128)

Changes in financial liabilities arising from financing activities (187) 2,393

Net (decrease)/increase in cash and cash equivalents (63,730) 69,592

Net (decrease)/increase in net cash (63,917) 71,985

Net cash at start of year 178,054 106,069

Net cash at end of year 114 ,137 178,054

e) Fair values

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, were as follows:

Carrying

amount

2021

Fair value

2021

Carrying

amount

2020

Fair value

2020

Loans and receivables

Trade receivables 94 ,189 94 ,18 9 112,565 112,565

Other receivables 35,824 35,824 25,868 25,868

Financial assets

Cash and cash equivalents 123,473 123,473 187,204 187,204

Designated cash flow hedges

Foreign exchange contracts:

Financial assets 1,896 1,896 1,582 1,582

Financial liabilities (106) (106) (168) (168)

Financial liabilities at amortised cost

Bank loans (685) (685) (797) (797)

Trade and other payables (76,786) (76,786) (74,894) (74,894)

Contingent consideration (239) (239) (183) (183)

Preference shares (40) (40) (40) (40)

Lease liabilities (8,611) (8,611) (8,313) (8,313)

168,915 168,915 242,824 242,824

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.

200Rotork Annual Report 2021

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 the majority of the contingent consideration is contractually due for payment within 12 months, the notional amount is deemed to reflect 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 £77,798,000 at

31 December 2021.

2021

Land and

buildings

Plant and

equipment Total

Balance at 1 January 5,729 2,338 8,067

Depreciation charge for the year (3,387) (1,254) (4,641)

Additions to right-of-use assets 4,454 610 5,064

Right-of-use assets disposed of – (34) (34)

Foreign exchange differences (84) (115) (199)

Balance at 31 December 6,712 1,545 8,257

Lease liabilities

2021 2020

Maturity analysis – contractual undiscounted cash flows

Less than one year 4 ,155 4,236

One to five years 5,261 5,259

More than 5 years – 117

Total undiscounted lease liability at 31 December 9,416 9,612

Interest cost associated with future periods (805) (1,299)

Lease liabilities included in statement of financial position at 31 December 8,611 8,313

Current 3,807 3,685

Non-current 4,804 4,628

Amounts recognised in the income statement

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.

2021 2020

Leases under IFRS 16

Interest on lease liabilities 404 499

Expenses relating to short-term leases and leases of low-value assets 1,645 1,821

Depreciation of right-of-use assets 4,641 4,684

Amounts recognised in statement of cash flows

2021 2020

Total cash outflow for leases 5,759 6,505

201www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Notes to the Group financial statements continued

For the year ended 31 December 2021

28. Capital commitments

Capital commitments at 31 December for which no provision has been made in these accounts were:

2021 2020

Contracted 3,433 7,699

29. Contingencies

2021 2020

Performance guarantees and indemnities 4,000 5,261

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 207

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.

Key management emoluments

The emoluments of those members of the Rotork Management Board, including directors, who are responsible for planning, directing and controlling

the activities of the Group were:

2021 2020

Emoluments including social security costs 4,739 4,680

Post-employment benefits – 25

Pension supplement 378 466

Share-based payments 165 747

5,282 5,918

202Rotork Annual Report 2021

Rotork plc Company balance sheet

At 31 December 2021

Notes

2021

£000

(Restated

)

2020

£000

Non-current assets

Property, plant and equipment c 17 –

Investments d 43,205 43,205

Amounts owed by Group undertakings

357,791 363,579

Deferred tax assets e 502 503

401,515 407,287

Current assets

Amounts owed by Group undertakings

6,640 3,371

Other receivables f 868 588

Cash and cash equivalents – 2,464

7,508 6,423

Total assets 409,023 413,710

Equity

Share capital i 4,302 4,370

Share premium 18,828 16,826

Capital redemption reserve 1,716 1,644

Retained earnings 310,753 376,709

335,599 399,549

Non-current liabilities

Preference share capital 40 40

40 40

Current liabilities

Trade payables 182 316

Current tax 2,662 2,276

Amounts owed to Group undertakings 66,769 6,574

Other payables g 3,771 4,955

73,384 14,121

Total equity and liabilities 409,023 413,710

1 Following a review of the Amounts owed by Group undertakings to the Company, management have reclassified 2020 balances not deemed to be current based on an assessment

of the expected settlement dates. The Amounts owed by Group undertakings previously presented for non-current and current assets were £nil and £366,950,000 respectively.

The Company reported a total comprehensive income for the financial year of £64,084,000 (2020: £132,436,000).

These Company financial statements, company number 00578327, were approved by the Board of Directors on 28 February 2022 and were signed on

its behalf by:

K Huynh and JM Davis

Directors

203www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Rotork plc Company statement of changes in equity

At 31 December 2021

Capital

£000

premium

£000

Capital

redemption

reserve

£000

Retained

earnings

£000

Total equity

£000

Balance at 31 December 2019 4,363 14,521 1,644 277,957 298,485

Total comprehensive income for the year – – – 132,436 132,436

Equity settled share-based payment transactions – – – (306) (306)

Share options exercised by employees 7 2,305 – – 2,312

Own ordinary shares acquired – – – (3,645) (3,645)

Own ordinary shares awarded under share schemes – – – 4,193 4,193

Dividends – – – (33,926) (33,926)

Balance at 31 December 2020 4,370 16,826 1,644 376,709 399,549

Total comprehensive income for the year – – – 64,084 64,084

Equity settled share-based payment transactions – – – (1,982) (1,982)

Share options exercised by employees 4 2,002 – – 2,006

Own ordinary shares acquired – – – (7,809) (7,8 09)

Own ordinary shares awarded under share schemes – – – 5,455 5,455

Share buyback programme (72) – 72 (50,324) (50,324)

Dividends – – – (75,380) (75,380)

Balance at 31 December 2021 4,302 18,828 1,716 310,753 335,599

204Rotork Annual Report 2021

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:

– IFRS 2 Share Based Payments in respect of Group settled share based payments; and

– The disclosures required by IFRS 7 and IFRS 13 regarding financial instrument disclosures have not been provided.

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.

205www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Notes to the Company financial statements continued

a) Accounting policies continued

Deferred taxation

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts

used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets

or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries

to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of

realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference

can be utilised.

Dividends

Interim dividends are recorded in the financial statements when they are paid. Final dividends are recorded in the financial statements in the period

in which they are approved by the Company’s shareholders.

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 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

2021 2020

Wages and salaries (including bonus and incentive plans) 4,599 5,521

Social security costs 515 690

Pension costs 142 111

Share-based payment charge 15 183

5,271 6,505

During the year there were 29 (2020: 28) employees of Rotork plc including the two (2020: 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 125 to 150.

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.

Outstanding

at start

of year

Granted

during year

Vested

during year Lapsed

Outstanding

at end

of year

2018 Award 540,421 – (318,152) (222,269) –

2019 Award 504,714 – – – 504,714

2020 Award 701,514 – – (10,407) 691,107

2021 Award – 542,929 – – 542,929

1,746,649 542,929 (318,152) (232,676) 1,738,750

The weighted average remaining life of awards outstanding at the year end is one year.

206Rotork Annual Report 2021

c) Property, plant and equipment in the Company balance sheet

Plant and

equipment Total

Cost

At 1 January 2021 221 221

Additions 18 18

At 31 December 2021 239 239

Depreciation

At 1 January 2021 221 221

Charge for year 1 1

At 31 December 2021 222 222

Net book value 17 17

At 31 December 2021 – –

At 31 December 2020 – –

d) Investments in the Company balance sheet

Shares in Group companies

2021 2020

At 1 January and 31 December 43,205 43,205

The Company has the following investments in wholly owned subsidiaries. The principal activities of all the subsidiary undertakings are those of the

Group, except as indicated below:

Dormant company

Holding company

Active non-trading company

Subsidiary Incorporated in Registered address

100% owned by Rotork plc

G.H. Chaplain & Co (Engineers) Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Analysis Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Cleaners Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Control and Safety Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Instruments Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Nominees Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Widcombe (Developments) Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Controls Limited England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Overseas Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

100% owned by Rotork Controls Limited

Rotork Actuation (Shanghai) Co Limited China Building G, No.260 Liancao Road, Minhang District, Shanghai, PRC 201108

Rotork Trading (Shanghai) Co Limited China Room E, 3/f Tower D, Westlink, No. 2337 Gudai Road, Minhang District

Shanghai, 201199, China

Rotork Controls (India) Private Limited India 28B, Ambattur Industrial Estate (North Phase), Ambattur,

Chennai 600 098, India

Rotork UK Limited England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Valvekits Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Americas Holdings Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

100% owned by Rotork Overseas Limited

Rotork Australia Pty Limited Australia 21-23 Décor Drive, Hallam, VIC, 3803, Australia

Rotork Controls Comercio De Atuadores LTDA Brazil Condomínio Industrial Veccon Zeta Estrada Mineko Ito n˚ 4.30, Sumaré,

São Paulo, 13178-542, Brazil

Rotork Controls (Canada) Limited Canada 3-6705 Milcreek Drive, Mississauga, Ontario, L5N-5M4, Canada

Rotork Andina SpA Chile Avenida Presidente Kennedy, 4700 Oficina 901 Las Condes, Santiago, Chile

Bifold Group Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Midland Limited England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Rotork Motorisation SAS France 75, rue Rateau 93126 La Courneuve Cedex, France

Rotork Controls (Deutschland) GmbH

Germany Siemensstr. 33, 40721 Hilden, Germany

207www.rotork.com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

Subsidiary Incorporated in Registered address

100% owned by Rotork Overseas Limited

Rotork Germany Holdings GmbH

Germany Mühlsteig 45, 90579 Langenzenn, Germany

Rotork Limited Hong Kong Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong

Rotork Italy Holdings Srl

Italy Corso di Porta Vittoria 9, 20122, Milano, Italy

Rotork Japan Co Limited Japan 2-2-24 Sengoku, Koto-ku, Tokyo, 135-0015 Japan

Rotork Middle East FZE Jebel Ali Free Zone PUB-LC 07, near R/A 08, PO Box 262903, Jebel Ali Free Zone, Dubai,

United Arab Emirates

Rotork (Malaysia) Sdn Bhd Malaysia 1-17-1, Menara Bangkok Bank, Berjaya Central Park, No 105,

50450 Jalan Ampang, Kuala Lumpur, Malaysia

Rotork Actuation Sdn Bhd Malaysia No 32, Jln Anggerik Mokara 31/47, Kota Kemuning, 40460 Shah Alam,

Malaysia

Rotork BV Netherlands Mandenmakerstraat 45, 3194, DA Hoogvliet, Netherlands

Rotork Gears Holding BV

Netherlands Nijverheidstraat 25, 7581 PV Losser, Netherlands

Robusta Miry Brook BV

Netherlands Herikerbergweg 88, 1101CM, Amsterdam, Netherlands

Rotork Norge AS Norway Ormahaugvegen 3, 5347 Ågotnes, Norway

Rotork Polska Zoo Poland Tarnogórska 241, 44-100 Gliwice, Poland

Rotork Rus Limited Russia 2nd Floor, Offices #203-205, Otradnaya Street 2B, Building 3, 127273

Moscow, Russia

Rotork Controls (Singapore) Pte Limited Singapore 426 Tagore Industrial Avenue, Sindo Industrial Estate, Singapore 787808

Rotork Africa (Pty) Limited South Africa 136 Kuschke Street, Meadowdale, Germiston, Gauteng 1601 South Africa

Rotork Controls (Korea) Co Limited South Korea Room 509, 42 Jangmi-ro, Bundang-gu, Seongnam-si, Gyeonggi-do, 13496,

Korea, Republic of

Rotork YTC Limited South Korea 81 Hwanggeum-ro, 89 Beon-gil, Yangchon-eup, Gimpo-si, Gyeonggi-do,

1048, Korea, Republic of

Rotork Controls (Iberia) SL Spain Larrondo Beheko Etorbidea, Edificio 2, 48180 Loiu Bizkaia, Spain

Rotork Sweden AB Sweden Box 80, 791 22 Falun, Sweden

Rotork AG

Switzerland Fuchsacker 678, 9426 Lutzenberg, Switzerland

Rotork Inc

USA 675 Mile Crossing Blvd., Rochester NY 14624, United States

Rotork Controls de Venezuela SA Venezuela Av. Casanova Torre banco plaza, piso 3 Ofic. 3D. Sabana Grande.

Caracas – Venezuela

Rotork Turkey Akıs¸ Kontrol Sistemleri Ticaret

Limited Sirketi

Turkey Aydınli Mh. Melodi Sk., Bilmo Küçük Sanayi Sitesi, No:35/1-2, Tuzla, Istanbul,

34953, 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 Room C-02, 1/F, West Area No. 2 Building, No. 29 Jiatai Road,

Free Trade Zone, Shanghai, China

100% owned by Rotork UK Limited

Prokits Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Flowco Limited England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

100% owned by Rotork Italy Holdings Srl

Rotork Controls Italia Srl Italy Viale Europa n.17 – 20047 Cusago, Milano Italy

Rotork Instruments Italy Srl Italy Viale Europa n.17 – 20047 Cusago,Milano Italy

Rotork Fluid Systems Srl Italy Via Padre Jacques Hamel, 55016 Porcari, Lucca Italy

Rotork Gears Srl Italy Viale Europa n.17 – 20047 Cusago, Milano Italy

100% owned by Rotork Gears Holding BV

Rotork Gears BV Netherlands Nijverheidstraat 25, 7581, PV Overijssel, Netherlands

Notes to the Company financial statements continued

d) Investments in the Company balance sheet continued

Shares in Group companies continued

208Rotork Annual Report 2021

Subsidiary Incorporated in Registered address

100% owned by Rotork Inc

Rotork (Thailand) Limited Thailand 35/8 Soi Ladprao 124 (Sawasdikarn), Ladprao Road, Plubpla Sub-district,

Bangkok Metropolis, Wangtonglang District, Thailand

Rotork Controls Inc USA 675 Mile Crossing Blvd., Rochester, NY 14624, USA

Remote Control Inc USA 77 Circuit Drive. North Kingstown, RI 02852, USA

Ranger Acquisition Corporation

USA The Corporation Trust Company, Corporation Trust Center, 1209 Orange St.,

Wilmington, DE 19801 USA

100% owned by Ranger Acquisition Corp

Fairchild Industrial Products Company

USA 3920 West Point Blvd, Winston-Salem, NC 27103, USA

100% owned by Fairchild Industrial Products Company

Fairchild Industrial Products (Sichuan) Company

Limited

China Room 1201, Complex Square, No.88 West Shenghe No.1 Road,

High Tech Zone, Chengdu, Sichuan, China. 610041

Fairchild India Private Limited India 56-C/BB, Janakpuri, New Delhi-110058 IN, India

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 England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

MTS Precision Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Marshalsea Hydraulics Limited

England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

Bifold Company (Manufacturing) Limited

England and Wales 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 Germany Rastenweg 10, 53489 Sinzig, Germany

Schischek GmbH Germany Mühlsteig 45, 90579 Langenzenn, Germany

Rotork GmbH Germany Mühlsteig 45, 90579 Langenzenn, Germany

100% owned by Rotork AG

Schischek Limited England and Wales Rotork House, Brassmill Lane, Bath, BA1 3JQ

100% owned by Robusta Miry Brook BV

Rotork Servo Controles de Mexico S.A. de C.V Mexico Centeotl 223, Colonia Industrial San Antonio, Delegación Azcapotzalco,

Federal District, 02760, Mexico

100% owned by Rotork Controls (Iberia) SL

Actuation Iberia S.L.

Spain C/ Ercilla, 21., 48009, Bilbao (Vizcaya), Spain

209www.rotork .com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

e) Deferred tax assets and liabilities in the Company balance sheet

Deferred tax assets and liabilities are attributable to the following:

Assets

2021

Liabilities

2021

Net

2021

Assets

2020

Liabilities

2020

Net

2020

Tangible fixed assets 8 – 8 8 – 8

Provisions 494 – 494 495 – 495

502 – 502 503 – 503

Movements in the net deferred tax balance during the year are as follows:

2021 2020

Balance at 1 January 503 283

Credited to the income statement 44 220

Impact of rate change (45) –

502 503

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 £258,167,000 (2020: £256,554,000).

f) Other receivables in the Company balance sheet

2021 2020

Prepayments 765 524

Other receivables 103 64

868 588

g) Other payables in the Company balance sheet

2021 2020

Other taxes and social security 447 154

Other payables 1,825 3,317

Accruals 1,499 1,484

3,771 4,955

The Company has a £17,000,000 gross overdraft facility (2020: £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.

The Company holds a £60,000,000 committed Revolving Credit Facility and arranged a new £60,000,000 committed Revolving Credit Facility which

matures in June 2022. The facilities are available to the Company, Rotork Controls Limited and Rotork Overseas Limited. At year end this committed

facility was fully undrawn, 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.

Notes to the Company financial statements continued

210Rotork Annual Report 2021

2021

£000

(Restated

)

2020

£000

(Restated

)

2019

£000

2018

£000

2017

£000

2016

£000

2015

£000

2014

£000

2013

£000

2012

£000

Revenue 569,160 604,544 669,344 695,713 642,229 590,078 546,459 594,739 578,440 511,747

Cost of sales (306,394) (320,234) (357,718) (384,253) (358,090) (328,410) (296,944) (309,280) (304,066) (272,199)

Gross profit 262,766 284,310 311,626 311,460 284,139 261,668 249,515 285,459 274,374 239,548

Overheads (157,056) (171,207) (189,683) (188,542) (198,167) (167,891) (145,129) (143,232) (135,109) (115,081)

Operating profit 105,710 113,103 121,943 122,918 85,972 93,777 104,386 142,227 139,265 124,467

Adjusted

operating

profit 128,080 142,543 151,005 146,015 130,162 120,588 125,272 157,167 151,412 131,866

Amortisation of

acquired intangible

assets (9,001) (14,110) (18,841) (20,284) (27,183) (26,811) (20,886) (14,940) (12,147) (7,399)

Other adjustments (13,369) (15,330) (10,221) (2,813) (17,007) – – – – –

Operating profit 105,710 113,103 121,943 122,918 85,972 93,777 104,386 142,227 139,265 124,467

Net interest 221 (537) (2,953) (2,170) (5,386) (2,707) (2,517) (1,062) (1,268) (273)

Profit before taxation 105,931 112,566 118,990 120,748 80,586 91,070 101,869 141,165 137,997 124,194

Tax expense (25,686) (26,808) (29,096) (29,004) (24,973) (23,897) (27,012) (37,963) (38,488) (34,879)

Profit for the year 80,245 85,758 89,894 91,744 55,613 67,173 74,857 103,202 99,509 89,315

Dividends 75,515 33,926 52,287 48,288 45,218 43,876 43,765 42,702 38,735 33,924

Basic EPS 9.2p 9.8p 10.3p 10.5p 6.4p 7.7p 8.6p 11.9p 11.5p 10.3p

Adjusted

EPS 11.3p 12.5p 13.0p 12.6p 10.6p 10.0p 10.4p 13.2p 12.5p 10.9p

Diluted EPS 9.2p 9.8p 10.3p 10.5p 6.4p 7.7p 8.6p 11.9p 11.4p 10.3p

1 See note 1 of the Financial Statements for details of the prior period restatement.

2 Adjusted is before the amortisation of acquired intangible assets, the disposal of property and other adjustments.

Ten year trading history

211www.rotork .com Annual Report 2021

Corporate Governance Financial Statements Strategic Report

The tables below show the split of shareholder and size of shareholding in Rotork plc.

Ordinary shareholder by type

Number of

holdings %

Number of

shares %

Individuals 2,802 78.1 21,226,444 2.5

Bank or nominees 732 20.4 832,255,171 96.7

Other company 32 0.9 2,782,324 0.3

Other corporate body 22 0.6 4,012,442 0.5

3,588 100.0 860,276,381 100.0

Range

Number of

holdings %

Number of

shares %

1-1,000 1,114 31.1 494,024 0.1

1,001-2,000 478 13.3 707,40 6 0.1

2,001-5,000 603 16.8 1,991,803 0.2

5,001-10,000 430 12.0 3,105,313 0.3

10,001-50,000 555 15.5 12,217,799 1.4

50,001-100,000 102 2.8 7,518,063 0.9

100,001 + 306 8.5 834,241,973 97.0

3,588 100.0 860,276,381 100.0

Source: Equiniti

Dividend information

In respect of each of the last five years, the table below details the amounts of interim and final dividends declared or, in the case of the 2021 final

dividend, proposed and subject to shareholder approval at the 2022 AGM.

Interim

dividend (p)

Final

dividend (p)

Total

dividends (p)

2021 2.35 4.05

6.40

2020

– 6.30 6.30

2019

2.30 3.90 6.20

2018 2.20 3.70 5.90

2017 2.05 3.35 5.40

Financial calendar

1 March 2022 Preliminary announcement of annual results for 2021

7 April 2022 Ex-dividend date for final proposed 2021 dividend

8 April 2022 Record date for final proposed 2021 dividend

20 May 2022 Payment date for final proposed 2021 dividend

29 April 2022 Announcement of trading update

29 April 2022 Annual General Meeting to be held at Bailbrook House Hotel, Eveleigh Avenue, London Road West, Bath, Somerset, BA1 7JD

2 August 2022 Announcement of interim financial results for 2022

23 November 2022 Announcement of trading update

1 Subject to shareholder approval at the 2022 AGM

2 On 31 March 2020, the Board decided to withdraw the recommendation to pay the 2019 final dividend of 3.90p per share. This was to reflect the exceptional set of circumstances

imposed by COVID-19 at the time. The Board subsequently decided to pay the 3.90p per share in full in September 2020 as an interim dividend. To aid year-on-year comparisons

the table above presents this dividend as the 2019 Final dividend reflecting the year to which it related.

Share register information

212Rotork Annual Report 2021

CBP010918

Group General Counsel & Company Secretary

Stuart Pain

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 Advisers

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

Auditor

Deloitte LLP

2 New Street Square

London EC4A 3BZ

Financial Public Relations

FTI Consulting

200 Aldersgate

Aldersgate Street

London EC1A 4HD

Corporate directory

www.rotork.com

Annual Report 2021