Rotork PLC FY24 Private Investor Webinar: April 2025

Good afternoon everyone. Hopefully you can hear me and see the screen. It's great to be here. So thank you to Alex for hosting and thank you to everyone who has joined this call. I'm going to take us through today the results presentation that we gave in March and then open the line up to questions at the end. So we'll start with our normal disclosure slide and I'll let you read this in your own time. So moving forward, this is the agenda for this session today. I'm going to go through some highlights of our results and look back at three years of Growth Plus. Ben, our CFO, has earned a well-rested holiday, so in his place is Andrew Carter, our IR Director. He'll take you through the financials of the company. I'll then come back and give you an update on Noah, our recent acquisition, and an update on Growth Plus before we open the floor to questions.

So let me start by just reflecting on a strong year in 2024 where we saw some really good growth. The group delivered 8.2% of organic growth, delivering 23.6% operating margins and a closing net cash of 125 million. So really strong performance from all of the Rotork team involved within that growth. Rotork Service grew ahead of the group and is now 23% of group revenues. Return on capital employed also continues to be strong at 37.3%. In terms of safety, our number one priority, we've also made really good progress in the year and our TRIR number, our total recordable incidents, is 0.22, an improvement on the 0.26 from 2023.

So these are the highlights of our results. We're very pleased with our performance and together with the team delivered a very strong year.

Looking back at three years of Growth Plus, I'm pleased to report that we have made some really good progress and we're confident that the Growth Plus strategy that we laid out three years ago is really delivering in terms of our financial ambitions of mid to high single-digit revenue growth and mid-20s operating margin. In fact, over the last three years we've grown the group revenue at a 10% CAGR year-on-year, with oil and gas leading the way at low double digits, with water and power and CPI at high single digits. Adjusted operating margins has also grown 110 basis points, and Rotork Service has grown again ahead of the group at 14% compound annual growth rate. Return on capital again still is very strong and that grew at 720 basis points. So all in all over the three years we're very pleased with the Growth Plus strategy and we're pleased that we can show that the strategy is working by delivering these results as you can see on the screen.

I just wanted to take a minute to focus on the target segment strategy, which is a key pillar of our Growth Plus strategy. This is part of the strategy where we focus on key target segments, segments that have got high growth market drivers where we can capitalize on to deliver higher than above market rates. This will help us deliver our mid to high single-digit financial ambitions as we've stated. So I'm pleased to report that our target segments grew at 9% year-on-year, and these are segments such as upstream and midstream electrification, critical HVAC within CPI, and water and power — sectors such as water infrastructure, wastewater treatment, and desalination — all very good target segments for us. Within 2024, the core segments also grew very strongly as well. Now these are the segments where we have high market share and these are segments that are typically more mature. So here we will grow with the market growth rates within these segments. But last year was a great year for both target segments and core segments, allowing the delivery of the 8.2% organic sales growth as you've seen.

I think for those new to the Rotork story, this slide really paints a picture of why Rotork can consistently deliver high margins and high return on capital employed, and it's basically through our brand strength, our reputation in terms of having the best product quality on the market. So Rotork is known as a brand leader, especially in electric actuation. We have a nearly 60-year reputation of having the best products on the market, and especially if you're delivering into critical applications where there's a lot riding on if your product goes wrong in terms of health and safety or in terms of downtime for your clients, product quality and product reliability is absolutely key, and Rotork is a leader in that respect. Having a site service or a service capability is also extremely beneficial. So we have our own service network, we have the biggest global presence with that service network, and it really helps to give us differentiation in the market with our end users. With all of those attributes, there's actually really high barriers to entry within our markets. There's a low number of competition, and because the markets are critical in nature, it takes quite a lot for new entrants to take hold and typically they find it very hard to take hold. Hence the high barriers to entry and effectively the moat around this business. This is why we have and continue to have such high returns.

So hopefully you can see there this demonstrated in the return on capital employed from 2021 to 2024 with the 720 basis points improvement. As I've mentioned previously, in terms of our capital allocation, this is just a reminder of our capital allocation framework. Organic investment is the number one and we've continued to do this throughout the Growth Plus strategy. Progressive dividends is number two, and I think we've delivered progressive dividends for the last 20-plus years, which is absolutely fantastic. Then comes strategic investments, which essentially includes M&A, and then the return of cash to our shareholders. And you can see with the graph there on the left that year-on-year we have progressively continued to deploy our capital. Over the last couple of years — or three years — we've made two acquisitions. The first being Hanbay in 2023, and the second this year with us completing the Noah acquisition. We've also in addition done a buyback in 2024, and we have announced an additional 50 million buyback this year. So you can see there we are continually deploying our capital in a very disciplined way according to our capital allocation framework. With that, I'll hand you over to Andrew to take you through our financials.

Right, thanks Andrew. If I can give you some updates now on the Noah acquisition, Growth Plus, and then I'll end on our outlook. So we're really pleased to have announced the completion of Noah Actuation as part of Rotork in March. Noah is a fantastic company. We've known them for over five years now. We've built up the relationship with them. They produce electric actuators which is a portfolio enhancement for Rotork. So Rotork actuators typically go on valves that are, let's say, 12 inch or above. Anything below, historically our products were too over-specified to really operate in these valves. But what Noah does is it complements that. So now actually we have Hanbay, which we did a few years ago, to go on valves which are about one to two inches in size. Noah goes between, let's say, 2 inch and 12 inch. And it really gives us an advantage for our key target segments, especially within water and power and within CPI. It will also have benefits in our oil and gas upstream and midstream electrification target segments. So brilliant acquisition for us. Really, really excited about it. And we can't wait to have them on board. So that's Noah. Just to add because it's not on the slide and predicting the question — we paid 44 million pounds for Noah. And you can see where we estimate the 2025 sales and EBITDA will be on the slide. Thanks Andrew.

So I just wanted to take us back to our target segment strategy and just to elaborate a bit more on that. As I said, the target segments grew at 9% year-on-year, but this really is the key part of the strategy that has allowed us to deliver the growth over the last few years. What we're targeting are markets which have high growth opportunities, markets where we are new into or under-represented and which we can make large, let's say, or rapid market share gains. So these are the target segments — 50% of our business — that we believe we can return high growth on and where they have structural growth drivers within them. That coupled with our Rotork Service business, where we're growing ahead of the group in terms of growth percentages — they're the two key elements which has really helped us drive growth over the last three years.

Moving on to service in a little bit more detail. As I said, service grew ahead of the group. It's now 23% of group revenues and it's a major differentiator for us in the market. So, as well as our products, we have the leading service offering with the widest global network of our own service teams. We offer a number of capabilities, but essentially the growth opportunity within service — or the growth strategy within service — is to increase the number of intervals in terms of the servicing that we do on our product and increase the amount per service interval. We do that by offering our field service capabilities, which is site service support, upgrades, maintenance. We then couple that with what we call our product care programs where we offer extended warranties or product care packages where we can offer a service to just maintain and make sure the uptime of the equipment. We then have connected services where we leverage our intelligent asset management programs and our connected products. This allows the plant users to understand what's going on in the actuator and the valve. They can see and monitor the performance of the valve and therefore have predicted maintenance and service before unplanned shutdowns or unplanned downtimes. That's really beneficial to our customer. And then we base all of that around our support service where we provide technical training and support for our customers. Essentially what we're trying to do is over the life of a product — which could be 15 to 20 years — we're looking to generate up to four times the value of the original product sale for every single product that is sold. So this really is driving a resilient business for us, continued resilient business.

So I'll just give you an update on the outlook within our markets. So notwithstanding the current geopolitical and macro uncertainties, we've chosen some key target segments where we think have got some really good underlying growth drivers. So within oil and gas, upstream and midstream electrification trends continue. Operators are seeing the benefits of electrifying applications which were originally either pneumatic or hydraulically controlled. That includes applications such as the methane reduction initiative which we've launched, or fracking platforms where we've helped our customers deliver the first e-fracks, which are set to continue. Gas and LNG again has underlying good drivers. I think LNG is a really good transition fuel. And we're starting to see the orders of the LNG liquefaction sites that were built three or four years ago come on stream now and we're starting to see those orders, and that should continue over the next few years.

In terms of chemical process and industrial, we're seeing good structural growth drivers in HVAC, especially HVAC within critical applications such as data centers, semiconductor plants, and areas such as those — we're seeing very good growth. We're seeing positive outlooks for specialty chemicals. So whilst the chemical market in itself hasn't seen great market growth, our focus on specialty chemicals has really seen us deliver really good growth and we see that set to continue going into the future. Mining, other than nickel mining, has also been very strong for us, as well as marine. So the key elements in CPI is to win share in target segments where Rotork has historically been under-represented and therefore we can make quick market share gains.

Within water and power — water has been consistently an area of investment focus and that's been across the regions, in the Americas, in EMEA, and in Asia Pacific. And Rotork is really well positioned to capitalize on that growth. We've delivered a 13% compound annual growth rate in water alone over the last three years. So that really shows that with the good key markets growing, we can really capitalize on that and it's a great example of how the target segment strategy is really working. In terms of power, traditional power is actually coming back on stream and we've seen the likes of the big oil majors focus more on traditional power and less on new energies, and that is a positive for Rotork. So we're seeing an uptick in traditional power — things like gas power turbines, coal power turbines. Nuclear is coming back on stream where Rotork has a very large install base basically from our history. So traditional power is coming back and we see the signs are positive there. In alternative energies, that's really quite new but we are well positioned and we've done quite a lot of work in the past to be ready if that takes off. So underlying, we believe we've chosen the key markets with underlying drivers. However, I do caveat that with the uncertainty that's going on currently that you're seeing globally.

So with that I'll end the presentation with a summary. Growth Plus really is delivering our vision. In the last three years we were able to deliver a 10% compound annual growth rate with last year delivering 8.2%. We're heading towards our target of mid-20s and last year we delivered 23.6%. We have always had strong cash conversion and return on capital employed and last year was no different with 119% cash conversion and 37.3% return on capital employed. Progressive dividends — as I've said, we've really kept to our capital allocation policy. We've delivered annual dividend growth for 20 years plus, and this year we launched an additional 50 million share buyback, the third in the last four years. And we're pleased to announce the acquisition of Noah, our complementary product enhancement acquisition for Rotork. With that, thank you very much for listening and we'll open the floor to questions. Thank you.

Yeah, Andrew, do you want to take this one, I think?

Yeah, that's a really good question and I think there are a number of factors to consider. But if I start with internally, I think what we've got to do is focus on growing the business and we're very pleased. I think you can see it in the presentation with the Growth Plus strategy — we've grown the business at 10% compound annual growth rate. We're heading towards our mid-20s. That's the number one focus of myself and the management team as such. I think there are external factors at play in terms of the share price which hasn't helped us in the global macros. I think outflows is a key driver, but Alex, do you want to say anything on outflows?

Yeah. Thank you. So I guess for us, we'll focus on delivering the strategy. We obviously have a number of things that we will look to do to continue our performance and hopefully the share price will respond.

Yeah, that's a really, really good question. We actually don't measure new investment and current — let's say brownfield — improvements, but because it's very difficult to do that because a lot of our end-user customers will sometimes do both at the same time. But if I think about it in terms of — a lot of the service work, or all of the service work, will be for brownfield. So that's at least a quarter of the business. We have published a stat that says actually only 5% of our business are from orders over a million pounds, and what we equate that to is that that's capex, so that's new. The rest — I think around 50% of our business — is from orders between 10,000 and 100,000 pounds. So that's more I think to do with refurbishment and upgrades, but within there there's a little bit of difficulty because it could be a refurbishment or a capacity expansion of an existing facility. So to class that as new or existing — that's why we don't really class that as that. But if you think about it as what is capex and what is opex, I think around 5% would be big capex projects and the rest is more like an opex budget spend.

I think on the whole, yes. I see it as more of a longer-term demand profile. So I think we've seen some big oil majors come out and re-emphasize reinvestment back into traditional oil and gas. I think that can only be good for the long-term longevity of that market, and therefore that's positive for Rotork given the exposure or the end markets that we have in terms of oil and gas and power. So overall, yes, I see that as a positive.

Yeah. So there's really — with us, there's probably about four big players. There is a company called Auma. They're a private German company. They solely specialize in electric actuation and gearboxes. I would say that they're our biggest competitor in electric actuators in water and power. They're not so prevalent in oil and gas. And then you have the other two big US companies — Emerson and Flowserve — and they are more like a conglomerate. They do actuators but they also do other products such as valves, pumps. In the case of Emerson, they've gone up the technology stack and they will do the kind of control systems that are controlling the hardware as well, which we don't do. So they're the kind of four big players within our industry. We are kind of seen as the leader in our markets, especially in electric actuation.

That's a really good question and with tariff things are changing by the minute and by the day. Up to a few weeks ago, we had mapped what the tariffs were that were impacting Rotork and the impact was actually quite minimal in terms of the primary impact of the tariffs that would be affected on us. However, there is a secondary impact with tariffs, which I don't think anyone really predicts, and I'm not an economist so I wouldn't like to predict what the secondary impact is. But I can see that inflation could rise with all of the tariffs. With the rise of inflation — I mean, we've just gone through a period of increased inflation. So there could be some economic headwinds due to inflation. However, just like the last high inflation period that we've been through, Rotork does have a lot of pricing power and we've shown that over the years that we have been able to overcome pricing increases. We've been able to pass those on and protect our margins based on that. So either way, we're quite comfortable in terms of the tariff impact — if it's high, we can pass that through. Currently what's directly mapped is minimal. The bigger wider question is will it drive economic uncertainty for a downturn potentially, but I don't think any company therefore will be immune to that.

And I think I link that back to the last one. I don't think — the markets that we have chosen, we're confident that we have good underlying growth drivers. However, I don't think anyone is resistant to a US recession. I think we will be hit just like any other company would be hit with a US recession. We will look to be resilient within that, like we have done in the past. We'll look to protect our margins and we'll look to do the best that we can do. But like I said, I don't think any one company would be resilient to a US recession.

Yeah. So we have started the year with a pretty good order backlog based on that sort of order intake. So it's very much a case of being very important that the Rotork people keep an eye on what they're seeing in terms of what customers are saying and order trends and inquiry trends and things like that. But we haven't seen anything at this stage that makes us feel that there's a US recession ahead.

Yeah. Do you want me to ask them one by one? Okay. No, the Noah acquisition was not a competitive process and actually this is how we have developed quite a lot of our M&A pipeline. So what we do is we look to build relationships with privately-owned companies and therefore we can do the deal off-process, not in auction. That's really good because then we can look to pay a good price that meets our financial hurdles. The reason why they're selling now — look, we've had a relationship with them for over five years. We've actually been private labeling their products in that time. We have established the trust and the relationship and we were able to convince the owners that this was a good time to sell. The owner himself is retiring from the business and he wanted to make sure that the business had a good home, and with the culture that Rotork has, he was confident that there was a good home for the company that he built to go to.

100%. And thank you for the question. I forgot to mention that on the slide. It mirrors Rotork identically, and this is why we're so excited about it. So it has an asset-light manufacturing approach. It buys components, it assembles and tests, and then it ships. But obviously it designs all of its own products and has the IP for those, which we obviously now have.

Yeah, look, I'm really pleased with our pipeline. We do, as part of our capital allocation policy, look to make more M&A. What's in our pipeline is more bolt-on type M&A like Noah. Noah is probably a perfect sweet spot — as close to the center of the fairway as you can get. And we have a good number of those in the pipeline. The difficulty is with the privately-owned companies, it's really hard to time. But the good thing is that you can make sure you pay the right price for them. We have been involved in a number of acquisition auctions over the past few years and typically the prices that private equity are willing to pay do not meet our financial hurdles. So this is why we've gone down more of the owner-owned approach and that seems to be paying off.

So yeah, I mean, oil and gas is about 47% of the business, but half of that is actually gas. So you could think of oil as about a quarter of the business. The oil and gas business is not actually directly correlated to the oil price. As long as the oil price is above a certain amount — which is what we call the break-even, and a break-even really ranges depending on the application between $35 a barrel to $50 a barrel — if the oil price is above that, investment continues. What the actual end users look at is more the consistency of the oil price because what they're trying to do is calculate payback over a long period and a high fluctuating oil price doesn't really help them. A more consistent oil price above the break-even actually helps. So any fluctuations above the break-even doesn't really affect us. It doesn't really correlate. For us it's more about demand — end-user demand, economic demand. That's really where the driver is.

No, we're not actually. We haven't really disclosed our service margins. However, we already make very good margins on our products. So we're not a razor-and-blade type model where we make low margins on our capital equipment and then look to claw that back on the service. We already make very good margins on our products and if you look in our accounts, our gross margins are circa 50%. And then service is accretive to that.

It's a good question. So overall I would say no, we don't face serious Chinese competition. We've been in China for over 20 years. We're still — the China business is very good for us and it's because of the criticality in terms of the applications and the nature of the applications that we do. A lot of these applications are for exports out of China or for critical applications within China. And due to the relative price of our actuator versus the relative scale of what it could cost to go wrong, you wouldn't really replace our actuators for a 10, 20, 30% discount because there's too much riding on what could go wrong. So that's where the moat is. That's where the barriers to entry are. Where we do find it more difficult to compete in China is in applications where you don't need that super high-end premium product. That's where the local Chinese companies will go for a local brand. We never had that in the first place, so it's not anything that we would lose. However, this is why we are excited about Noah, because Noah actually can fill that space, which is good margins at the right price which carries a Rotork brand name. So that's actually one of the areas where Noah can give us an uplift to be able to access markets where our products were, let's say, too good to enter in the past.

Yeah, the service is a huge driver for growth for us. We haven't actually set a percentage of sales for service because it actually depends. I wouldn't want service to be 30% of the group business with the group business growing at 1% and service growing at 10% over the next few years. So what we're actually saying is that the target we're setting is the service business has got to outgrow the group business. So and you can see it in our three-year numbers — if the group is growing 10, service is growing 14. And that's where we want to pitch it at that rate. Obviously the percentage of sales will be slower, but overall it's a really good benefit for Rotork. So that's why we haven't set the percentage of sales — more so service has got to really outgrow the group revenues as a whole. In terms of the attachment rate, it's different for different product ranges, but for electric actuators, we typically service over 90 — let's say 95% — of everything that we sell. So to service our electric actuators, you need special codes. You need special software and equipment to plug into these actuators. Other service companies do not want to do that because they invalidate warranties or we won't basically support anything that's been kind of broken into. So because of that, end users typically will use Rotork to service Rotork products, and that's quite predominant across the globe. So for electrics it's pretty high and we pretty much service most of our electrics. For more fluid power type equipment that's less, because local maintenance companies are more willing to service mechanical elements. But on electric it is very high, and electric currently represents circa 55% of the portfolio.

That's a good question. Off the top of my head, I don't know that answer. So we'll have to find that out and get back to you.

Yeah, thanks Alex. First of all, thank you for hosting. Thank you everyone for dialing in and for your interest. I mean, as you can see, Growth Plus is delivering our strategy. We're moving towards our mid-20s operating margins and we are delivering the mid to high single-digit revenue growth. So we're very pleased with performance. We look to continue that performance going forward in conjunction with our continued capital allocation framework. So yeah, very good. Thank you very much.

Thank you everyone.