CONTROLLING A COMPLEX WORLD HALF YEAR RESULTS AUGUST 2016 CHAIRMAN MARTIN LAMB CHIEF EXECUTIVE PETER FRANCE FINANCE DIRECTOR JONATHAN DAVIS

Transcription

1 CONTROLLING A COMPLEX WORLD 2 AUGUST 2016 CHAIRMAN MARTIN LAMB CHIEF EXECUTIVE PETER FRANCE FINANCE DIRECTOR JONATHAN DAVIS

2 2 AUGUST AUGUST 2016 CHAIRMAN MARTIN LAMB CHIEF EXECUTIVE PETER FRANCE FINANCE DIRECTOR JONATHAN DAVIS INTRODUCTION MARTIN LAMB, CHAIRMAN HALF YEAR SUMMARY PETER FRANCE, CHIEF EXECUTIVE FINANCIAL& DIVISIONALREVIEW JONATHAN DAVIS, FINANCEDIRECTOR OPERATING REVIEW PETER FRANCE, CHIEF EXECUTIVE Q & A 1

3 2 AUGUST 2016 HALF YEAR SUMMARY PRESENTED BY: Chief Executive PeterFrance HALF YEAR SUMMARY Order intake +2.0% Order book of 203m +22.2% from Dec 2015 Revenue 3.7% lower Margins impacted Cost management programme on track Acquisition of Mastergear Good cash generation 131.5% cash conversion Strong balance sheet Interim dividend maintained at 1.95p 3

4 2 AUGUST 2016 FINANCIAL REVIEW PRESENTED BY: Finance Director Jonathan Davis FINANCIAL REVIEW H H % OCC 1 % ORDER INTAKE 279.4m 274.0m +2.0% -10.2% ORDER BOOK 203.1m 175.9m +15.4% -3.1% REVENUE 263.9m 274.2m -3.7% -15.3% ADJUSTED 2 OPERATING PROFIT 50.7m 65.0m -22.0% -32.5% ADJUSTED 2 EPS 4.25p 5.44p -21.9% -32.5% INTERIM DIVIDEND 1.95p 1.95p OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit & EPS are stated before the amortisation of acquired intangible assets. 5

5 2 AUGUST 2016 ORDER BOOK GROWTH ( M) OCC +9% Dec 15 to Jun 16-3% Jun 15 to Jun Reported +22% Dec 15 to Jun % Jun 15 to Jun 16 Jun 2015 rates Dec 2015 rates Jun m 181m 203m Controls Fluid Systems Gears Instruments Jun2015 Dec 2015 Jun m 166m 203m 6 CURRENCY & ACQUISITIONS ( M) 2016 AT OCC 1 ACQN AT 2015 RATES FX TO GET CC 2016 AS REPORTED 2015 Order intake % +8.3% +3.9% +2.0% Revenue % +7.9% +3.7% -3.7% Adjusted 2 operatingprofit % +6.1% +4.4% -22.0% Adjusted 2 operatingmargin 18.9% 18.9% 19.2% 23.7% -480bps bps +30bps -450bps ~7% full yearcurrency impact (to revenueand adjusted operatingprofit) if 30June exchangerates apply to the whole of H2 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit & margin are stated before the amortisation of acquired intangible assets. 7

6 2 AUGUST 2016 COST MANAGEMENT PROGRAMME ( M) 2015 Initiatives TARGET ACHIEVED 2015 H IMPACT H IMPACT FY 2016 IMPACT BALANCE 2017 Material costs Overheads Total Initiatives Material costs Overheads Total OCC ADJUSTED OPERATING PROFIT BRIDGE ( M) Adjusted operating profit Lower volumeofsales Lower grossmargin Higher overheads 2016 Adjusted operating profit 2 2 Firsthalf discretionary pay levels similarto prioryearbutsecond half expected to be higherthan OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit is stated before the amortisation of acquired intangible assets. 9

7 2 AUGUST 2016 CASH FLOWS ( M) Net debt at 1 Jan 2016 Adjusted Working capital operating profit Capital expenditure Other movements Taxation Acquisitions Dividends Net debt at 30 June 2016 Strongcash generation, with favourable currency movements 131.5% cash conversion 10 BALANCE SHEET ( M) June 2015 December2015 June 2016 Total assets Total liabilities (170.3) (293.5) (348.3) Equity Net working capital Pension deficit Net cash/(debt) 37.2 (71.1) (86.9) Net cash/(debt)/ EBITDA 26% (52%) (76%) ROCE 35% 29% 20% Networkingcapital on an OCCbasis 155.9m, 13.4m lowerthan December ROCE reduced by full impactof 2015 acquisitions on the balance sheetand lowerh1profitweighting 11

8 2 AUGUST 2016 DIVISIONAL REVIEW PRESENTED BY: Finance Director Jonathan Davis CONTROLS ( M) H H CHANGE OCC 1 CHANGE Order intake % -7.7% Revenue % -13.3% Gross margin 52.0% 53.0% -100bps -10bps Adjusted 2 operating profit % -23.3% Adjusted 2 operating margin 27.4% 30.9% -350bps -350bps Europe and Middle Eaststrongestregions Americas and FarEast lowerrevenue in mostend markets Improved activitylevels in Chinacompared with comparativeperiod USA water market positive 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit is stated before the amortisation of acquired intangible assets. 13

9 2 AUGUST 2016 FLUID SYSTEMS ( M) H H CHANGE OCC 1 CHANGE Order intake % -17.3% Revenue % -23.2% Gross margin 27.5% 31.7% -420bps -400bps Adjusted 2 operating profit % -94.3% Adjusted 2 operating margin 1.3% 10.1% -880bps -940bps Oil & Gas 65% of revenue LNG positive this timelastyearand also in the currentperiod Latin Americaand Far Eastweakestregions Middle East/Africagrew supported by Oil & Gas 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit is stated before the amortisation of acquired intangible assets. 14 GEARS ( M) H H CHANGE OCC 1 CHANGE Order intake % -0.9% Revenue % -4.7% Gross margin 35.1% 35.5% -40bps -180bps Adjusted 2 operating profit % -17.6% Adjusted 2 operating margin 20.0% 20.5% -50bps -280bps Mastergearcompleted in June for$25m Water was the strongestend market, up 18% Oil & Gas grew in the Middle Eastbut notelsewhere 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit is stated before the amortisation of acquired intangible assets. 15

10 2 AUGUST 2016 INSTRUMENTS ( M) H H CHANGE OCC 1 CHANGE Order intake % -8.3% Revenue % -9.1% Gross margin 44.2% 50.1% -590bps -130bps Adjusted 2 operating profit % -23.8% Adjusted 2 operating margin 22.8% 31.4% -860bps -510bps Oil & Gas was 52% of revenue (Dec2015: 44%) Industrial sales impacted by slow Chinese tyre market Water, whilstthe smallestend market, was the fastestgrowing Rail lowerthan comparative period 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit is stated before the amortisation of acquired intangible assets. 16 OPERATING REVIEW PRESENTED BY: Chief Executive PeterFrance 17

11 2 AUGUST 2016 GROUP REVENUE Oil & Gas marketremainedweak, butsome projectactivity Steady growth in Waterand Industrial Processes Powerdown butimproving Western Europe, Middle East, UK and Africasteady growth North Americaand AsiaPacificloweragainststrongcomparator Latin Americaand Americadown OIL & GAS H H Upstream 14% 16% Midstream 13% 12% Downstream 25% 23% Contributionto Revenue 52% 51% Geographic End Market Destination 100 H H H H N. America Asia Pacific exc. Mexico Far East E.Europe W. Europe Latin America Middle East Africa UK 0 Oil & Gas Water Power Industrial Other 18 MARKET OPPORTUNITIES Industrial 15% Power 16% Water 13% Other 5% Upstream 16% Downstream 23% H Revenue Split Midstream 12% Upstream Oil capex down butnew products and acquisitions provide opportunity Midstream Gas pipelines still expected to be positive, oil slow Downstream Driven by LNGand low raw material costs. Geographical mismatch on capacity versus demand Water 5% marketgrowth forecastuntil Focus on China, USA and Japan Power Renewables growingfast,investmentin clean Coal, Gas and Nuclear HVAC Continuingto see good growth levels Shipping Growth rates depend on type of ship Industrial General increasein automation and process control 19

12 2 AUGUST 2016 PROJECT ACTIVITY PROJECT ACTIVITY: END MARKET No. of projects PROJECT ACTIVITY: END DESTINATION No. of projects June 2014 June 2015 June 2016 June 2014 June 2015 June 2016 Oil & Gas Water & Sewage Power Industrial Higherproportion of medium / small projects Asia, Australasia, M.East & Africa Europe The Americas 20 FOCUS ON INNOVATION AND INTEGRATION Integrating recent acquisitions Leverage sales channels Introduce new technologies across the Group Build brand awareness fornew products acquired Value engineeringto targetcompetitive marketniches Product innovation Rotork Site Services Focus on strengtheningcustomerrelationships and the customerexperience 21

13 2 AUGUST 2016 FOCUS ON INNOVATION Lowercost of ownership Low oil price drivingdown cost 1. Lower energy 2. Lowercostof ownership 3. More products and services 4. Data analysis Price Competition Environmental issues driving energy reduction focus e.g. zero orlow energy Environmental Impact Lowerenergy 22 CONTROLS MARKET TRENDS Increased activity levels Steady flow of smallerorders Water active Chinaand Middle Eastpositive Increased process control OPPORTUNITIES Centork in Water HVAC Process industries Introduction of new technology 23

14 2 AUGUST 2016 FLUID SYSTEMS MARKET TRENDS Oil & Gas continues to be challenging Increasingreliability requirement Growth in non oil & gas markets Middle Eastand North Americaactive OPPORTUNITIES New generation SI3buildingstrongorderbook K-TORK successfully cross-sellinginto Water, Industrial Processes and Vehicle applications Collaboration with otherdivisions Expanded productrange 24 GEARS MARKET TRENDS Manual valve marketcontinues to grow Customers lookingforglobalbrand Water and Industrial Processes growing Growth in Americas and Middle East OPPORTUNITIES Diverse customers Rotork sales and services channels Roto Hammerand Mastergearacquisitions Operational efficiencies 25

15 2 AUGUST 2016 INSTRUMENTS MARKET TRENDS Increasing automation Lower energy Environmental impact OPPORTUNITIES Cross-divisionalcollaboration Rotork sales channel Comprehensive portfolio Bifold 26 SITE SERVICES MARKET TRENDS More efficient asset management Avoid unplanned plantshutdowns Extending plant life OPPORTUNITIES Client Support Programme Factory fitand retrofit 27

16 2 AUGUST 2016 SUMMARY AND OUTLOOK Tradingenvironmentremained challenging Costmanagementprogramme on track to deliver targeted savings fromboth 2015 and 2016 initiatives. Drive business improvements Targeted investment More pronounced H2revenue weighting Full yearmargin lowerthan 2015 Rotork well placed forthe currentyearand beyond 28 THANK YOU QUESTIONS 29

17 2 AUGUST 2016 APPENDIX OUTLOOK STATEMENT The tradingenvironmentin the firsthalf of the yearremained challenging, with the low oil price continuingto delay projectactivity and geopoliticaltensions affectingcertain key markets. The costmanagementprogramme previously announced is progressingas planned. We expectto benefitfurtherfromthese costinitiatives in the second halfand into 2017, and continue to examine opportunities to drive improvements throughoutthe business. In line with ourstrategy, we continue to investin new and existingmarkets by openingnewsales channels and developingnewproducts. We now expectoursecond half weightingto be more pronounced than previously indicated, in partdue to recent currency movements, withthe second half margins ahead of those in the firsthalf.however, we anticipatethatmargins forthe full yearwill be lowerthan in 2015 due to a combination of increased overheads, productmix and pricing pressure. We anticipate thatactivity in the oil and gas markets will remain subdued, and the timingof orderplacementwillbe difficultto forecast. However, based on ourcurrentorderbook, projectvisibility and market-focused opportunities, the Board believes thatthe Group remains well placed forthe currentyearand beyond. 31

18 2 AUGUST 2016 REVENUE ANALYSIS BY DIVISION (%) CONTROLS FLUID SYSTEMS GEARS INSTRUMENTS TOTAL H FY BY END USER MARKET (%) OIL & GAS POWER WATER INDUSTRIAL OTHER TOTAL H FY BY END DESTINATION (%) ASIA PACIFIC FAR EAST EUROPE MIDDLE EAST AFRICA N. AMERICA EXC. MEXICO UK LATIN AMERICA H FY ADJUSTED 1 OPERATING MARGINS H H OCC 2 H FY 2015 Controls 27.4% 27.4% 30.9% 29.8% Fluid Systems 1.3% 0.7% 10.1% 10.2% Gears 20.0% 17.7% 20.5% 20.5% Instruments 22.8% 26.3% 31.4% 27.2% Group 19.2% 18.9% 23.7% 22.9% 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit is stated before the amortisation of acquired intangible assets. 33

19 2 AUGUST 2016 IMPACT OF ACQUISITIONS ( M) MASTERGEAR 2015 ACQUISITIONS TOTAL ADJUSTMENT Revenue Adjusted 1 operating profit Adjusted 1 operating margin % 18.4% Mastergear revenue 1 month s contributiononly (closed June 2016) 2015 acquisitions include Bifold, Roto Hammer, M&M, SMS, Eltav, and Turkishsales office 1 Adjusted operating profit & margin are stated before the amortisation of acquired intangible assets. 34 CONSTANT CURRENCY ANALYSIS ( M) H AS REPORTED ADJUST TO GET CC 2016 AT 2015 RATES REMOVE ACQUISITIONS H AT OCC 1 H Revenue (10.0) (21.7) Cost of sales (146.6) 6.6 (140.0) 13.6 (126.5) (147.5) Gross profit % (3.4) % (8.1) % % Overheads (66.6) 25.2% 0.6 (66.0) 26.0% 4.1 (61.8) 26.6% (61.7) 22.5% Adjusted 1 operating profit % (2.8) % (4.0) % % OCC 1 gross margins 70bps lower OCC 1 overheads increased ahead of revenue, up 410bps OCC 1 net margin 480bps lower 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit & EPS are stated before the amortisation of acquired intangible assets. 35

20 2 AUGUST 2016 ADJUSTED OPERATING PROFIT BY SEGMENT ( M) H REPORTED H H H ADJUSTMENTS 1 ADJUSTED 1 REPORTED H H ADJUSTMENTS 1 ADJUSTED 1 CHANGE IN ADJUSTED 1 Controls % FluidSystems % Gears % Instruments % Central costs (3.1) - (3.1) (3.1) - (3.1) 0.0% Group % 1 Adjustments relate to amortisation of acquired intangible assets. 36 AVERAGE EXCHANGE RATES AVERAGE RATES TRADING US$ EURO H H Full Year H = GBP STRENGTHENING / - = GBP WEAKENING H versusfy2015-6% -6% 37

21 2 AUGUST 2016 PERIOD END EXCHANGE RATES US$ EURO June December June = GBP STRENGTHENING/ - = GBP WEAKENINGDEC2015-9% -12% 38 WORKING CAPITAL 26.8% 24.7% 27.2% 28.5% 27.8% 31.0% 31.4% 33.6% Jun 2013 Dec 2013 Jun 2014 Dec 2014 Jun 2015 Dec 2015 Jun 2016 OCC Jun 2016 ( M) DEC 2015 % REVENUE JUN 2016 % OCC 1 REVENUE JUN 2016 % REVENUE Inventory % % % Trade receivables DSO % % % 64 Trade payables (36.7) 6.7% (37.9) 7.7% (42.1) 8.0% Net workingcapital % % % 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 39

22 2 AUGUST 2016 EARNINGS PER SHARE ( M) H H CHANGE OCC 1 CHANGE PBT as reported( m) % -35.6% Adjusted 2 PBT ( m) % -32.4% Effective taxrate 26.4% 26.4% Basic EPS as reported 3.25p 4.77p -32.0% -35.7% Adjusted 2 basic EPS 4.25p 5.44p -21.9% -32.5% 1 OCC are organic constant currency figures which have all acquisitions removed and are restated at 2015 exchange rates. 2 Adjusted operating profit & EPS are stated before the amortisation of acquired intangible assets. 40 DIVIDENDS CORE DIVIDEND MONTH PAID / PAYABLE AMOUNT (PENCE) COST ( M) 2014 Final May p Interim September p 17.0 Paid in p Final May p Interim September p 17.0 Interimdividend maintained at1.95 pence Dividend cover1.3times on H results 41

23 2 AUGUST 2016 DISCLAIMER This informationincludes forward-lookingstatements. Allstatementsotherthan statementsofhistoricalfactincluded in thispresentation, including, withoutlimitation, thoseregardingrotork s ( thecompany ) financialposition, businessstrategy, plans (includingdevelopmentplans and objectivesrelatingto thecompany sproductsand services) and objectivesofmanagementforfutureoperations, areforward-looking statements. Thesestatementscontain thewords anticipate, believe, intend, estimate, expect and wordsofsimilarmeaning.such forward-lookingstatements involveknownandunknown risks, uncertaintiesandother importantfactorsthatcould causetheactualresults, performanceor achievementsofthecompanyto bematerially differentfromfutureresults, performanceor achievements expressed orimplied by such forward-lookingstatements. Such forward-lookingstatementsarebased on numerousassumptionsregardingthecompany spresent and futurebusinessstrategies andtheenvironmentinwhichthecompany willoperatein thefuture. Theseforward-lookingstatementsspeak only asatthedateofthisdocument. TheCompanyexpressly disclaimsany obligationor undertakingto disseminateanyupdatesor revisionsto any forward-lookingstatementscontained herein to reflectany changeinthecompany sexpectationswith regard theretoor any changein events, conditionsor circumstanceson whichany suchstatementisbased. Pastbusinessand financialperformancecannotberelied on asan indicationof future performance. 42 BRASSMILL LANE BATH, BA1 3JQ, UK T: F: E: MAIL@ROTORK.COM 43

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