Rotork : Half Year Results Press Release 2023

Tuesday 8th August 2023

Rotork plc

2023 Interim Results

Good first half, expectations for the full year unchanged

Summary

• Order intake increased 11.9% year-on-year OCC, largely driven by volume, resulting in a record order book at period end
• Revenue increased 17.2% year-on-year OCC against a more supply-chain disrupted comparative period, and despite some supply-chain challenges continuing. All divisions grew at rates consistent with the Group, with Target Segments delivering premium growth as expected
• Good progress under all Growth+ pillars with new product and digital services launched and a bolt-on technology platform acquisition
• Adjusted operating margins 50bps higher at 19.5% reflecting increased volumes partly offset by Growth+ investments. The reported operating profit margin was 17.7%
• ROCE4 was 32.7% (up 570bps). Strong balance sheet retained with closing net cash of £97.8m (December 2022: £105.9m) reflecting 116% cash conversion and a £20m special pension contribution which facilitated a buy-in, further de-risking the pension scheme

Kiet Huynh, Chief Executive, commenting on the results, said:

"I'm pleased with our performance in the first half, in particular with double-digityear-on-year growth in orders and sales, the improvement in operating margin and the progress made under the Growth+ strategy.

The outlook for all our divisions is positive and we entered the second half with a record order book. Whilst mindful of residual supply chain challenges, we anticipate delivering further progress in 2023 in line with expectations on an OCC basis."

1. Order intake represents the value of orders received during the period.
2. Adjusted4 figures exclude the amortisation of acquired intangible assets and other adjustments (see note 4).
3. OCC4 is organic constant currency results restated at 2022 exchange rates.
4. Adjusted figures, organic constant currency ('OCC') figures, cash conversion and ROCE are alternative performance measures and are used consistently throughout these results. They are defined in full and reconciled to the reported measures in note 2.

There will be a meeting for analysts and institutional investors at 9.30am GMT today in the Library at the offices of JPMorgan Cazenove, 60 Victoria Embankment, London EC4Y 0JP. The presentation will also be webcast, with access viahttps://www.investis-live.com/rotork/64a8143a2be9e4130067c8af/sahka. Please join the webcast a few minutes before 9.30am to complete registration.

Summary

Purpose

Our Purpose and sustainability vision are one and the same: keeping the world flowing for future generations. We want to help drive the transition to a sustainable future where environmental resources are used responsibly. We have a major role to play in new energies and technologies that will support the transition to a low carbon economy, as well as helping preserve natural resources such as fresh water and reducing energy sector methane emissions.

Performance

The safety of colleagues, partners and visitors is Rotork's number one priority and the Group's vision for health and safety is zero harm. In the first half of 2023 the lost-time injury rate was 0.07, an encouraging improvement on the

0.20 in the first half of 2022, in part reflecting the extensive work completed across the Group to implement its 12 Global Safety Standards. The Total Recordable Injury Rate in H1 2023 was 0.20 (H1 2022: 0.39).

Order intake increased 13.8% year-on-year to £386.9m (11.9% on an organic constant currency or OCC basis). All three divisions booked higher orders, with Oil & Gas and Water & Power strongly ahead. Oil & Gas order intake was the largest it has been in a six-month period since 2019. Orders, which overall continue to be driven predominantly by customers' operational spend, included more large orders than seen for some time.

Whilst the period saw benefits from supply chain improvement measures, the supply chain challenges faced in recent years have not entirely disappeared. During the period the Group experienced amongst other things disruption to the supply of semi-finished components such as circuit boards. Rotork is working together with its suppliers to improve availability and saw some improvement in deliveries towards the end of the period.

Group revenue was 19.5% higher year-on-year (17.2% higher OCC), benefiting from a lower level of supply chain challenges. Higher volumes contributed around two-thirds of the Group sales increase. Oil & Gas sales rose 19.5% (16.4% OCC), driven by the Americas and Europe, Middle East & Africa ('EMEA') regions. CPI sales were 19.0% ahead (17.2% OCC), with all geographic regions higher. Water & Power sales were up 20.4% (18.7% OCC), with all regions ahead and the Americas seeing a particularly strong improvement.

By geography, Asia Pacific revenues by destination grew mid-single digits year-on-year on an OCC basis driven by solid performances from CPI and Water & Power. EMEA sales grew double digits, benefiting from Oil & Gas strength. Americas revenues were also ahead double digits (OCC) with all divisions delivering strong growth.

Rotork Site Services, Rotork's global service network and a key differentiator in the industry, performed well with revenue growth broadly in-line with the Group overall. The recently launched enhanced Intelligent Asset Management predictive analytics system has been well received by customers and has good momentum.

Adjusted operating profit was 22.5% higher year-on-year (20.2% at OCC) at £65.3m, reflecting volume growth and positive net price/mix which together were partly offset by annual wage inflation, investment in our Growth+ strategy and the bringing forward of salary increases. Adjusted operating margins were 50bps ahead year-on-year at 19.5%. Reported profit before tax was £60.2m.

Return on capital employed was 32.7% (H1 2022: 27.0%), benefiting from the increase in adjusted operating profit.

Cash conversion was 116% (H1 2022: 68%). First half cash conversion benefited from the normalisation of receivables balances which were unusually high at the December year-end. Rotork's balance sheet remains strong, with a closing net cash position of £97.8m after a £20m special pension contribution which facilitated a buy-in, further de-risking the pension scheme.

Rotork is targeting net-zero by 2035 for scopes 1 and 2 and to encourage achievement during the period incorporated near-term absolute scope 1 and 2 reduction targets into its long-term incentive plan. Good progress

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was made securing renewable energy contracts and these are now in place at more than a fifth of Rotork sites. Rotork is targeting net-zero by 2045 for scope 3. This is a medium-term project and the foundations have been laid by building sustainability goals into our product development process.

Market update

The outlook for the end markets we serve remains positive.

The recovery in oil & gas sector activity first experienced in the second half of 2021 continued through the first half of 2023. Hydrocarbons will have an important role in the world's energy mix for years to come and following an extended period of industry under-investment a catch-up is now underway. Whilst hydrocarbon prices have fallen from the highs of 2022, they remain above incentive levels in most regions and large project activity remains elevated. The events in Ukraine have also necessitated a reconsideration of energy security risks with the result that LNG is having a larger role.

Methane emissions reduction remains an industry priority and our IQTF has been established as the leading electric actuator for upstream oil & gas choke valve applications. COP28, to be held in Dubai in November, is expected to call for a step-up in policy and financing efforts directed at methane emissions reduction.

The metals and mining sectors are major beneficiaries of the global mega trends of electrification and decarbonisation, and significant new resources and processing plants are scheduled to be commissioned in the next couple of years. Metals benefiting from the transition include aluminium, cobalt, copper, lithium and nickel.

The United States' Inflation Reduction Act and the European Union's similar initiatives are supporting the carbon capture and storage and hydrogen sectors and we saw a marked pick-up in enquiries and quotation activity in the period. If passed, the United States' Environmental Protection Agency's proposed new carbon pollution standards are expected to provide further stimulus, particularly to the carbon capture sector.

The water and wastewater sector continues to increase investment in new and existing infrastructure. The sector is focused on delivering water availability, improving water quality, reducing leakage and climate change adaptation. The desalination segment remains active, and new market opportunities are presenting themselves (for example, desalination plants in hydrogen facilities).

Growth+ strategy update

In November 2022 we presented our new Growth+ strategy at a Capital Markets Event. The starting point of Growth+ is our purpose, 'keeping the world flowing for future generations'. Our Purpose remains a powerful motivator, and it drives everything we do. It recognises the important part that we play in making our world a great place in which to live, but also the role we can play helping improve the safety, environmental and social performances of not just ourselves, but also those of our end users, customers, suppliers and communities.

Our vision is for Rotork to be the leader in intelligent flow control. This recognises the ever-increasing importance of connectivity to our end users. Today's intelligent flow control systems not only ensure safety, they are also reliable, efficient and easy to use and play a vital role in ensuring the uptime of our end users' operations (including through predictive and preventative maintenance).

Growth+ is designed to deliver our ambition of mid to high single-digit revenue growth and mid 20s adjusted operating profit margins over time. The levers are its three pillars of Target Segments, Customer Value and Innovative Products & Services, each underpinned by our 'Enabling a Sustainable Future' initiatives.

We made good progress in Target Segments, which delivered premium growth in the period. Successes in Oil & Gas included in the North American upstream methane emissions reduction segment, where our IQTF range has established itself as the leading electric actuator for choke valve applications, and in LNG where we won a sizeable

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order for actuation equipment destined for a major liquefaction project in the United States. Successes in CPI included being chosen to supply a large actuation package to a major nickel/cobalt processing plant in Indonesia. Water & Power won a very significant network automation project in the Middle East.

During the half year we accelerated our business transformation. We are transforming Rotork through implementing and integrating common systems and processes throughout the Group. This will improve efficiency and ultimately deliver improved lead times and an enhanced customer experience. An important milestone was passed in Q1 with the successful first deployment of our new Enterprise Resource Planning system at our Bath site. The Microsoft Dynamics 365 based system integrates into our existing Group-wide Customer Relationship Management application. Implementation across all sites will take place over the next 3-4 years.

Our Innovative Products & Services pillar also has good momentum. During the period we launched the IQ3 Pro and its accompanying smartphone app. The new IQ3 offers greater connectivity than its predecessor and the smartphone app enables intelligent configuration and operation. Our enhanced Intelligent Asset Management condition monitoring and analytics software has been well received by customers who appreciate its expanded diagnostic and predictive functions. After the period end we made a small acquisition adding a compact high torque electric valve actuator range to our product offering.

Capital allocation

We retain a strong balance sheet, with a net cash position of £97.8m at the period end (31 December 2022: £105.9m). This, together with good cash generation, provides us with the financial flexibility to pursue our organic investment plans, pay a progressive dividend and execute our targeted M&A strategy. We regularly review our capital needs, in line with our capital allocation strategy, and have demonstrated discipline and flexibility in our use of buybacks and dividends to deliver returns for shareholders. In the event that in the future we determine we have surplus cash, we will return it to shareholders via share buybacks.

On 4 August Rotork acquired Montreal (Canada) headquartered Hanbay Inc ("Hanbay"). Hanbay designs and manufactures compact, high torque electric valve actuators for both non-hazardous and hazardous applications. The acquisition expands Rotork's electric actuator offering and is fully consistent with all three pillars of the Growth+ strategy and increases the percentage sales contribution of our Eco-transition portfolio. Hanbay sales in 2023 are expected to be in the region of CAD10m with margins in-line with the Rotork Group average.

We recognise the importance of a growing dividend to our shareholders and are committed to a progressive dividend policy subject to satisfying cash requirements. The Board is declaring an interim dividend of 2.55p per share which is equivalent to 2.3 times cover based on adjusted earnings per share.

The interim dividend will be payable on 22 September 2023 to shareholders on the register on 18 August 2023. The ex-dividend date is 17 August 2023. The last date to elect for the Dividend Reinvestment Plan ('DRIP') is 4 September 2023.

Board update

Ann Christin Andersen has decided that due to other commitments she will not seek re-election as a Director of Rotork at the AGM in April 2024. When Ann Christin steps down she will have served Rotork for more than five years. We thank Ann Christin for her service and will announce her replacement in due course.

Outlook

The outlook for all our divisions is positive and we entered the second half with a record order book. Whilst mindful of residual supply chain challenges, we anticipate delivering further progress in 2023 in line with expectations on an OCC basis.

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