Rotork PLC (RTOXF) (H1 2024) Earnings Call Highlights: Strong Growth in Oil and Gas Drives ...
Revenue: GBP361 million, 8% higher on a reported basis, nearly 12% higher on an OCC basis.
Operating Margin: Increased by 170 basis points to 21.2%.
Adjusted Operating Profit: GBP76 million, 17.1% higher than the prior year.
Return on Capital Employed: 36.9%, over 4% increase year-on-year.
Adjusted Earnings Per Share: 6.9p, an 18% increase on H1 2023.
Net Cash: GBP119 million at the end of the period.
Interim Dividend: 2.75p, 7.8% higher than the prior period.
Oil and Gas Revenue Growth: 20% OCC, with downstream representing 53% of total.
CPI Revenue: 6% lower year-on-year on an OCC basis.
Water and Power Revenue Growth: Over 20% in the first half.
Cash Conversion: 106% for the period.
Share Buyback: GBP18 million worth of shares purchased and canceled.
Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Group sales grew by 11.6% on an organic constant currency basis, with significant growth in oil and gas, and water and power sectors.
Operating margins increased by almost 200 basis points to over 21%, reflecting strong sales and good operating leverage.
Return on capital employed rose to nearly 37%, indicating strong value creation potential.
Cash conversion was strong, maintaining net cash at GBP119 million despite a GBP20 million share buyback.
The Growth+ strategy is showing positive results, with accelerated sales and higher margins, particularly in target segments like electrification in oil and gas.
Negative Points
CPI sales were lower due to non-repeat mining projects, impacting overall growth.
Currency fluctuations negatively impacted revenue by GBP14 million.
The tax rate increased by 80 basis points to 25.3%, driven by higher UK tax rates.
There was a GBP7.6 million expense related to the business transformation program, impacting below operating profit.
Freight costs increased, contributing to a GBP4 million impact on the profit bridge.
Q & A Highlights
Q: Can you discuss the working capital as a percentage of sales and what improvements are expected? A: Ben Peacock, CFO, mentioned that working capital as a percentage of sales has decreased to 26.4%. He aims to improve inventory management further and will provide more details as the business transformation program progresses.
Q: What is the outlook for large project orders and well completion electrification? A: Kiet Huynh, CEO, explained that large project orders have normalized compared to last year's unusually high levels. For well completion, Rotork has secured a significant order to electrify an entire eFrac platform, offering cost savings and reduced infrastructure needs.
Q: Can you provide more details on the CPI division's performance and outlook? A: Kiet Huynh noted that CPI experienced a pause due to reduced mining project activity, particularly in nickel. However, critical HVAC and chemicals segments have shown solid growth, and CPI is expected to contribute strongly to Rotork's financial goals over the next three years.
Q: How is the electrification initiative progressing in oil and gas, and what is the market potential? A: Kiet Huynh highlighted that electrification in oil and gas is a key growth driver, with upstream and midstream electrification representing 8% of group sales. The market potential is still being scoped, but opportunities are emerging globally, especially in Asia Pacific.
Q: What are the expectations for pricing trends and cost management in the second half? A: Ben Peacock stated that pricing increases have returned to normal levels, contributing to revenue growth. Rotork has pricing power to pass on cost increases to customers, and no further price rises are anticipated for the second half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.