4th Aug 2015 11:35
LONDON (Alliance News) - FTSE 250-listed Rotork PLC on Tuesday said its pretax profit and revenue both declined in the first half as the group continues to suffer the effects of the downturn in the oil and gas industry, and said it has struck a deal to acquire a unit of fellow UK-listed engineer Spirax-Sarco Engineering PLC.
The company, which makes actuators for gearboxes and pneumatic instruments, said its pretax profit was down to GBP56.3 million from GBP61.5 million in the first half. Revenue declined to GBP274.2 million from GBP278.5 million, and order intake sunk 9.5% to GBP274 million from GBP302.7 million.
The main revenue declines came in its controls and fluid systems business, both of which are heavily exposed to the oil and gas industry. Revenue in its gears and instruments divisions was higher, as both have less oil and gas exposure. The group said it has a "lean business model" and has been accelerating cost-cutting plans in response to the impact the oil and gas market slowdown is having.
"The continued weakness of the oil price and geopolitical uncertainty in some of our key markets resulted in a challenging trading environment during the first half, with lower overall activity levels and an increased number of project deferrals and cancellations," said Chief Executive Peter France.
"As in previous years, we anticipate that our results will be weighted to the second half. Although we expect the oil and gas market to remain challenging, and the timing of order placement remains difficult to forecast, based on our current order book and project visibility, the board expects overall performance to be in line with management expectations for the full year," France added.
In order to sweeten the pill for investors, Rotork said it has increased its interim dividend payout by 1.6% to 1.95 pence per share.
Rotork shares were up 2.1% to 220.50 pence midday Tuesday, one of the best performers in the FTSE 250.
Separately, Rotork said it has struck a deal with Spirax-Sarco to acquire M&M International Srl, a Bergamo, Italy-based solenoid valves, piston-actuated valves and automatic drain valves manufacturer for flow control industries. Rotork will pay EUR9.7 million in cash to Spirax-Sarco for M&M, to be funded from existing facilities, and will integrate the business into its Instruments division.
Rotork Controls, the group's electrical actuators and control systems business, saw revenue fall by 3.1% in the half, with order intake slumping 11%. The fall in revenue was down to oil and gas sector sales, which declined in all regions and offset an otherwise solid performance in the US, boosted by the strong dollar, and in line trading in the Middle East and Europe.
The group's Fluid Systems business, which makes pneumatic and hydraulic actuators, was even harder hit, given it is the most exposed division at the company to the embattled oil and gas sector. Revenue dropped 13% in the half, while order intake was down to 20%. Further, the adjusted operating margin for the division was hammered, falling 610 basis points to 10.1% as the fall in revenue was weighted to higher-margin products.
Rotork said, however, that despite the declining revenue and difficulty in forecasting the timing of orders, it did secure liquefied natural gas orders towards the end of the second quarter which meant its order book in the division was broadly flat against the start of the year.
The group's Gears business, which makes gearbox assemblies and valve adaptation kits, and its Instruments arm, which manufactures flow control products, both saw revenue rise in the half, however, driven by by acquisitions and solid trading environments.
Gears revenue was up 3.7% in the half, with sales growth across its product range, even if the weakness of the euro held back reported revenue growth in the period. Instruments, meanwhile, was given a large boost by the contributions from South Korean valves company YTC and the Midland control equipment business, both of which were brought on board in 2014. Revenue in the division was up 59% on the back of the acquisitions, but up 1.1% on an organic basis.
Investec analyst Michael Blogg said the results were ahead of the broker's expectations in terms of revenue, operating profit and margins. Despite Rotork's warning about the challenging market conditions it faces, Blogg said the business is strong enough to withstand the challenges and emerge in good shape once the recovery happens.
By Sam Unsted; [email protected]; @SamUAtAlliance
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