29th Apr 2016 11:41
LONDON (Alliance News) - Actuators manufacturer Rotork PLC added to the marginally brighter picture for companies servicing the oil and gas industry on Friday as it said order intake increased in the first quarter and revenue edged higher thanks to acquisitions and favourable currency translation.
Breaking a track record of revenue growth and robust margins across its business, 2015 marked a turn to the worse for Rotork, resulting from its high exposure to the weakened oil and gas industry. As oil and gas operators trimmed spending, cancelled projects and generally slashed costs, Rotork suffered knock-on effects on order intake and pricing, given it generated half its revenue from the sector.
The problems have hit a large number of companies supplying services to the oil and gas industry, but Rotork's woes were particularly acute. Where other engineers were able to offset some of the order declines with aftermarket revenue, Rotork's actuators have a relatively simple function. This cuts the opportunity for Rotork to replace the revenue lost from order declines with high-margin repair services.
Oil and gas markets continued to be challenging, Rotork said on Friday, with evidence of softness emerging in the mid-stream sector too. Power sales were hit as well by continued weakness in China, but Rotork said it saw good activity in water and industrial markets in the first quarter to the end of March.
Overall, order intake in the first quarter grew 2.5% year-on-year and revenue rose 0.7%, benefiting from contributions from acquisitions and favourable exchange rates. Currency moves contributed 3.1% to order intake growth and 3.0% to revenue, Rotork said, while acquisitions boosted order intake by 8.4% and revenue by 9.2%.
Stripping out those effects, organic constant currency order intake declined 9.0% in the quarter, while revenue fell 12%, the company said.
Rotork said its order book at April 3 was GBP189.3 million, 14% higher than at December 31.
The company continued its acquisition drive on Friday, agreeing a USD25.0 million deal to buy US and Italy-focused manufacturer Mastergear. Mastergear makes manual and motorised gearboxes for valves used in oil and gas, water distribution and treatment, chemical processing and industrial markets.
"Mastergear has a well-regarded product portfolio that will enable Rotork to offer its customers a more comprehensive range of products and services," said Rotork Chief Executive Peter France.
Rotork maintained expectations for the full year and said results would be weighted slightly to the second half, in line with its traditional pattern. Rotork said it continues to make progress on cutting costs out of the business and is considering further options to reducing expenditure even more.
Rotork's affirmation of its guidance came after Weir Group PLC, the industrial valves and pumps maker which also has a substantial exposure not just to oil and gas but also to the equally sluggish mining market, said on Thursday its first quarter came in ahead of expectations, sending its shares higher.
Like Rotork, Weir has embarked on a programme of cost cutting in a bid to mitigate the pressure on original equipment orders and the progress made on this, together with Weir maintaining its guidance for the full year, pleased investors.
Rotork shares were up 6.9% to 191.80 pence on Friday, one of the best performers in the FTSE 250. Weir shares were up 0.9% at 1,224.00p, having added 9.1% on Thursday.
Rotork Controls, the electrical actuators and control systems division, saw order intake decline 5.6% in the first quarter year-on-year, broadly in line with trends in the second half of 2015. The declines were driven by weakness in the North American midstream oil and gas sector and by ongoing softness in the Chinese power market. Rotork said it saw growth in upstream and downstream oil and gas orders, plus good water and industrial performances.
Fluid Systems, the company's pneumatic and hydraulic actuators unit and, along with Controls, the other Rotork division most exposed to the oil and gas weakness, saw order intake in the quarter decline 6.6% year-on-year. Industrial and power sales both declined modestly in the quarter but water again proved robust, Rotork said.
Rotork Gears, the company's gearbox supply business, saw order intake grow 15%, helped by growth in industrial applications by the acquisition of Roto Hammer, the US maker of custom-designed chain wheel manual valve operators Rotork bought in September last year. Water, power and industrial orders all grew in the quarter.
Rotork Instruments, which makes flow, pressure control and diagnostic products, benefited from a series of acquisitions the company made, pushing first quarter order intake up 54% year-on-year. Organic order intake for the division fell 6.4% due to its exposure to oil and gas and the timing of a large order booked the prior year, Rotork said.
By Sam Unsted; [email protected]; @SamUAtAlliance
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