3rd Mar 2015 12:38
LONDON (Alliance News) - Shares in manufacturing company Rotork PLC gained ground Tuesday after it said its pretax profit rose in 2014 as revenue was buoyed by strong sales in the power market, and it said that growth in other sectors would help offset the challenging energy markets it is expecting in the current year.
The FTSE 250-listed company, which makes actuators and flow control products, said its pretax profit for the year was GBP141.2 million, up from GBP138 million in 2013, as revenue rose to GBP594.7 million from GBP578.4 million on the back of a 16% increase in sales to the power market.
Shares in the company were up 6.4% to 2,603.00 pence Tuesday, one of the best performers in the FTSE 250.
Rotork said its order intake for the year was up 2.9% to GBP595.6 million, while its adjusted operating margin improved by 20 basis points to 26.4%. The increase in revenue was driven by solid performance in its Fluid Systems and Gears business, with a broadly flat performance in its Controls arm and an acquisition-driven revenue surge in its Instruments business.
The company has recommended a final dividend of 30.9 pence per share, up 3% year-on-year, making its total dividend 50.1 pence per share, up from 48.05 pence a year earlier.
"2014 was another successful year for Rotork. The continued expansion of our product portfolio, international sales channels and our broad end-market exposure enabled us to achieve record results," said Chief Executive Peter France.
"Whilst our end markets in the upstream oil and gas sector may become more challenging in the near term, our other global markets remain active. Our geographic reach, end market exposure and diverse product portfolio provide the Board with confidence of achieving further progress in the coming year," France added.
Revenue in the Rotork Controls business increased 0.6% in the year, with a strong performance in North and Latin America offsetting weakness in the Far East and a decline in revenue in Australia against a strong comparable. The group said oil and gas remains its largest end market in the North and Latin American markets, compared to a more balanced mix in the Far East, where power is its dominant end market.
Rotork said it expects the upstream sector of the oil and gas industry to bear the brunt of the weakness in oil prices. Though 51% of its Controls revenue is derived from the oil and gas industry, Rotork said its market exposure is diversified into sub-sectors, with a large number of its actuators supplied into both midstream and downstream segments, which have been more shielded from the soft pricing environment. A significant proportion of its revenue also comes from retrofit, upgrade of replacement work, where spending is again less sensitive to oil price fluctuations.
The oil and gas industry also is the primary end market for the Rotork Fluid Systems business, where revenue fell 3.6% in 2014. Oil and gas contributes 72% of the division's revenue, with a relatively even split between up, mid and downstream markets, and the proportion of revenue derived from the market has fallen 5% year-on-year as Rotork expanded its presence in water, general industrial and power markets.
The revenue decline in the division was primarily down to weakness in its Eastern Europe business, hit by project delays and, in the latter part of the year, by sanctions imposed on Russia and the depreciation of the ruble. It expects this to remain a headwind for the division this year. Latin America was the division's strongest market, partly due to deliveries on the first phase of the SCADA pipeline project in Mexico.
Gears division revenue rose 3.2% year-on-year, boosted by strong growth in its Far East business but offset somewhat by a decline in sales in the Middle East and Africa against a strong comparable. The end-market exposure of Gears is also towards the oil and gas industry, with 57% of its revenue coming from this market, albeit spread across sub-sectors.
The best performance came in Rotork's Instruments arm, where revenue increased 84% on the back of the contributions of two acquisitions it made in the year: Korean valve positioners and accessories company Young Tech Co and UK-based valve control systems company Xylem Flow Control.
Broker Liberum said Rotork's results were in line with its estimates, but it warned that energy market conditions will continue to be difficult in 2015, noting Rotork has acknowledged that the oil and gas sector could prove more challenging in the near-term.
Liberum retained its Sell rating on the company and a 1,910 pence price target.
Investec put its estimates, target price and recommendation under review after the results, saying it expects some trimming to broker estimates due to the potential challenges the oil and gas market will pose for Rotork, though it said the scale of any forecast downgrades is unlikely to scare investors.
Investec said Rotork's exposure to upstream oil and gas is the focus, but said the company has "undertaken to react quickly to any deterioration" and noted the company still expects to make progress this year.
By Sam Unsted; [email protected]; @SamUAtAlliance
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