Rotork PLC (RTOXF) (H1 2024) Earnings Call Highlights: Strong Growth in Oil and Gas Drives ...

GuruFocus News
3 min read

In This Article:

  • 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.

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