Rotork H1 Earnings Call Highlights

Key Points

• Rotork delivered resilient first-half results: Organic constant-currency revenue rose 1.3% to £367 million, while adjusted operating profit increased 4.1% to £82 million and the margin expanded to 22.4%, despite oil and gas disruption.
• CPI and service operations drove growth. CPI revenue increased 16%, supported by specialty chemicals, marine, critical HVAC and data-center demand, while Service grew its share of group sales to 24%. Rotork raised its full-year CPI outlook.
• ABB’s proposed acquisition remains on track: The £5.06-per-share cash offer represents a 73% premium to Rotork’s undisturbed share price, with completion expected in the first half of 2027 subject to approvals. Rotork maintained its overall 2026 outlook and raised its interim dividend 1.7%.

Rotork LON: ROR reported first-half growth in revenue and operating margin despite disruptions in oil and gas markets, with strength in its CPI division, water infrastructure and service operations helping offset weaker energy-related activity.

The company said orders received totaled £372 million, down 4% from the prior-year period, while revenue rose 1.3% on an organic constant-currency basis to £367 million. Reported revenue was flat, reflecting the impact of disposals and a modest foreign-exchange headwind.

Adjusted operating profit increased 4.1% to £82 million. Adjusted operating margin reached 22.4%, up 40 basis points on a reported basis and 60 basis points excluding currency and merger-and-acquisition effects. Rotork attributed the improvement to operating leverage, cost discipline and a favorable sales mix.

“Growth+ strategy continued to underpin strong financial performance in the first half of the year,” CFO Ben Peacock said, citing margin expansion, a 37% return on capital and shareholder distributions.

CPI and Service Drive Growth

CPI was the company’s strongest division, reporting 16% revenue growth and a 24.4% increase in adjusted operating profit to £28 million. Its adjusted operating margin rose 170 basis points to 24.7%, primarily due to higher volumes.

Management said growth in CPI was driven by target segments including specialty chemicals, marine and critical HVAC. Demand from data centers was particularly strong in the U.S. and Asia.

During the question-and-answer session, Rotork said critical HVAC revenue doubled in the first half and now represents about 6% of group revenue. Data-center business within critical HVAC also doubled, although management said critical HVAC growth excluding data centers was also close to doubling.

Management said data-center activity exceeded its earlier expectations, contributing to the company’s improved full-year outlook for CPI. The company cited products and capabilities acquired through Hanbay and Noah as important contributors to growth in liquid-cooling and server-room applications.

Rotork Service continued to outgrow the wider group, increasing its share of group sales to 24% from 23% a year earlier. The business has been expanding its field and reliability service offerings, which management said can help customers improve asset performance while providing Rotork with recurring revenue opportunities.

Oil and Gas Disruption Offsets Other Gains

Oil and gas divisional sales declined 8.4% in the first half, largely due to the impact of conflict in the Middle East. Adjusted operating profit in the division fell 13.8% to £37 million as lower volumes affected profitability, though disciplined cost management partially mitigated the decline.

Rotork said activity softened in upstream and midstream markets as customers maintained capital discipline and as spending patterns and supply chains were disrupted. Downstream markets were comparatively stable, helped by the division’s service exposure.

Sales in the Americas grew, driven by downstream activity and performance across Latin America. However, EMEA declined due to Middle East-related disruption, while Asia-Pacific experienced a modest decline in downstream business as India and China faced feedstock shortages.

Management said liquefied natural gas remained a strong area for the division. It also said order trends improved through the second quarter, with three-month rolling orders rising month by month from April through June. Rotork expects a gradual recovery in the second half, but now anticipates full-year oil and gas revenue will be slightly lower than the prior year.

Water, Power and Cash Flow

Water and power revenue increased 3.4%, supported by water infrastructure and treatment projects. Adjusted operating profit rose 15.1% to £28 million, while adjusted operating margin increased to 28.1%, aided by operating leverage, product mix and tariff effects.

The company said order intake in water and power remained robust, providing visibility for stronger activity in the second half. Power revenue was lower because of a higher prior-year comparison and expected project phasing, although Rotork said gas-related power and alternative-energy markets showed growth.

Cash conversion was 79%, affected by temporary working-capital pressure from oil and gas market volatility. Rotork generated £22 million of free cash flow and spent £7.3 million on research and development. The company ended the period with net cash of £25 million after returning £44 million through dividends and £40 million through share buybacks.

The interim dividend was increased 1.7% to £0.03 per share.

ABB Offer and Outlook

Rotork also reiterated the terms of ABB’s proposed cash acquisition of the company, announced July 16. The offer values Rotork at £5.06 per share, comprising £5.03 in cash plus the declared £0.03 interim dividend. The company said the offer represents approximately 19.5 times enterprise value to adjusted EBITDA and a 73% premium to the undisturbed share price on July 15.

The scheme document is expected within 28 days of the original announcement, with completion anticipated in the first half of 2027, subject to regulatory approvals. Management said operations remain business as usual until the transaction is completed.

For 2026, Rotork maintained its group outlook and expects further progress on an organic constant-currency basis. It raised its expectations for CPI, while leaving its water and power outlook unchanged. Over time, the company said it remains focused on delivering mid- to high-single-digit revenue growth and adjusted operating margins in the mid-20% range.

About Rotork (LON:ROR)

Rotork is a market-leading global provider of mission-critical intelligent flow control solutions for oil & gas, water and wastewater, power, chemical process and industrial applications. We help customers around the world to improve efficiency, reduce emissions, minimise their environmental impact and assure safety. Rotork employs about 3,200 people, has manufacturing facilities in more than 17 locations and serves 170 countries through a global service network. Its shares have a premium listing on the London Stock Exchange symbol: ROR and are a constituent of the FTSE 250 index.

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