Rotork plc

morning everyone thank you for joining us today for our first half results presentation alongside me is ben peacock our cfo we're pleased to have the opportunity today to talk through our performance in the period which will follow our normal format with q a at the end of the presentation we delivered a robust performance in the first half of 2026 despite the disruptions seen in oil and gas the group has continued to deliver growth and margin expansion supported by the successful execution of our growth plus strategy these initiatives are strengthening the quality resilience and returns of the business whilst positioning us for sustainable long-term growth i would like to thank all of our colleagues around the world for their dedication hard work and commitment to our continued improvements their efforts have been instrumental in delivering this performance and driving progress across the group in the first half order trends broadly reflected the revenue performance across our divisions with a very strong contribution from cpi growth in water and power and the impact of the middle east related disruption affecting oil and gas revenues grew and encouragingly target segments and service continued to perform well with strong growth in both areas which i'll discuss in more details on the next slide adjusted operating margins continued to expand increasing 60 basis points on an OCC basis We also maintained a peer leading return on capital employed of 37% despite the mixed operating environment. This performance reflects our stronger exposure to faster growing target segments, the mission critical nature of our products, our asset light business model and our continued focus on cost discipline. We continue to deploy capital in line with our discipline allocation framework. we invested organically to support future growth returned a further 40 million pounds to shareholders through share buybacks and have declared an interim dividend of three pence per share safety remains the top priority for everyone at road talk we've made good progress on our safety initiatives and were pleased with the year-on-year improvement in the first half The next slide highlights growth in two of our focused areas, target segments and Rotork service. In the first half, we continued to see good sales growth in our target segments, up 10% OCC. While core markets were weak, especially in energy, we saw good growth in LNG and decarbonisation initiatives in oil and gas, including an onshore carbon capture project in the UK. in cpi we saw very strong growth in speciality chemicals marine and critical hvac with particularly good growth in data sensors in the us and asia due to end market strength and our own strategic initiatives in water and power we saw good growth in water infrastructure and treatment markets including multiple municipal water treatment and irrigation projects in the us We also saw good growth within combined heat and power and combined cycle gas turbine business within the period. Service is another strategic initiative for the business which saw continued good growth in H1 reaching 24% of group sales. Here we continue to drive penetration of field and reliability service offerings helping customers improve asset performance while increasing recurring revenue opportunities. Before moving on, I'd like to provide a summary of the proposed cash acquisition of Rotalk by ABB. This represents an important development for the business and I'd like to briefly recap the key terms. On the 16th of July, the Board announced that we had reached an agreement on the terms of a recommended cash acquisition by ABB for the entire issued and to be issued ordinary share capital of Rotalk. The offer value of 506 pence per share comprises of 503 pence per share in cash and the declared interim dividend of 3 pence per share. This offer value equates to a multiple of approximately 19.5 times Roadtalk's enterprise value to adjusted EBITDA and represents a 73% premium to the undisturbed share price on the 15th July. in terms of timelines the scheme document will be published within 28 days of the original announcement with the acquisition expected to be completed in the first half of 2027 once regulatory approvals have been granted until completion of the transaction it remains business as usual for road talk with our focus firmly on executing our strategy

with that i'll hand over to ben to take you through the financial results in more detail thank you gig and good morning everyone i'm pleased to report our growth plus strategy continues to underpin strong financial performance in the first half of the year delivering margin expansion a high return on capital and additional returns to shareholders In the following slides, I'll walk you through the highlights of our performance, but please note that the appendix contains additional detail on the 2026 interim results. Furthermore, unless otherwise stated, all figures discussed in this section are on an organic constant currency basis. If we now turn to the numbers, orders received were £372 million, a decrease of 4% compared to the prior period. strong demand in cpi and water and power partially offset the impact of middle east related disruption in oil and gas revenue was 367 million pounds representing growth of 1.3 percent on a reported basis revenue was flat reflecting the effect of previously announced disposals and a modest foreign exchange headwind from a divisional perspective cpi delivered a very strong performance achieving mid-teens revenue growth This was supported by continued growth in water and power, which grew below single digits. These gains were partially offset on lower revenues in iron gas, which I'll come back to shortly. Rotox service continues to perform well, with revenue growth outpacing the wide group. As a result, its contribution to group revenue increased to 24%, up from 23% in the prior year. adjusted operating profit of 82 million pounds was at 4.1 percent compared to the prior year this resulted in an adjusted operating margin of 22.4 percent a headline improvement of 40 basis points excluding the effects of foreign currency and m&a activity the operating margin increased by 60 basis points thanks to operating leverage discipline cost management and favorable mix The increased profitability resulted in adjusted earnings per share of 7.4 pence, an increase of 4.2% on a reported basis. Cash conversion was 79% in the period, while return on capital remained at a peer leading 37%. Finally, the declared interim dividend of 3 pence per share is 1.7% higher than the prior period. If we now turn to the divisions, starting with oil and gas. divisional sales decreased by 8.4 percent largely reflecting the impact of the conflict in the middle east from a sector perspective activity was softer across both upstream and midstream markets during the period although our target segment initiatives delivered a more resilient performance customers continued to exercise captive discipline while spending patterns and supply chains were disrupted by the ongoing conflict encouragingly downstream markets remain relatively stable year on year supported by a higher service exposure which helped provide greater resilience in demand from a regional perspective the division grew in the americas driven by performance in downstream markets offset or subdued performance in emea and apac Adjusted operating profit was £37 million, down 13.8% reflecting the impact of lower volumes. However, disciplined cost management helped mitigate the reduction in profitability. Turning now to CPI. CPI delivered a very strong performance in the first half, with revenues increasing by 16% year on year. growth is driven by continued momentum across our target segments particularly in the data center market where we've seen very high demand by destination america's sales are particularly strong led by critical hvac and core process markets emir achieved good growth supported by performance in hvac marine and speciality chemicals whilst apac revenues were lower overall Adjusted operating profit at £28 million was at 24.4% and adjusted operating margin was up 170 basis points to 24.7% mainly due to higher volumes. Moving on to water and power. Sales were up 3.4% with good momentum in our target segments of water infrastructure and treatment markets. order intake remained robust providing good visibility and supporting expectations for stronger activity in the second half of the year despite good growth across gas and alternative energy sectors power revenues were lower in the period reflecting a higher prior year comparative and the expected phasing of projects in 2026 across the regions apac delivered the strongest growth emea and the americas also grew supported by continued investment in water treatment Adjusted operating profit to the division was £28 million, representing growth of 15.1%. The adjusted operating margin increased to 28.1%, supported by operating leverage, a favourable product mix and tariff effects. If we now move to the adjusted operating profit bridge. The bridge shows profit growth of 4.1% and a 60 basis points increase in margin versus prior year, driven by positive operating leverage, disciplined cost management and a favourable product mix. Price increases more and offset salary inflation with limited operating cost growth. The currency headwind to adjusted operating profit was 1.4 million pounds, which reduced the reported margin progression by 20 basis points. whilst the net impact of acquisitions and disposals reduced adjusted operating profit by £0.4 million. If we now turn to the items below operating profit consistent with prior periods the majority of the adjusting items related to our business transformation program we incurred a further £15 million in connection with the implementation of the new ERP system and the associated rollout of systems and processes throughout the group. The other significant adjustment items were a £6.9 million gain on disposal of two non-core subsidiaries and £1.3 million of public offer-related costs associated with a proposed cash offer by ABV. From a tax perspective, the adjusted effective tax rate is 25.2%, consistent with the prior period. The reported effective tax rate decreased to 23%, primarily reflecting the non-taxable nature of the one-off gains for disposals. cash flow we continue to be cash generative providing the funding to support organic growth strategic investment and returns to shareholders operating cash conversion was 79 for the period capital expenditure and the cash costs associated with our business transformation program were in line with expectations however the volatility experience in oil and gas markets had a temporary impact on working capital which in turn affected cash conversion during the period despite this we generated positive free cash flow of 22 million pounds this was achieved while continuing to invest in the future of our business including total r&d spend of 7.3 million pounds to support new product development and innovation across the group if we now move to capital allocation during the period we returned significant capital to shareholders comprising 44 million pounds of dividends and a further 40 million pounds through our previously announced share buyback program additionally the group benefited from a net inflow of 20 million pounds relating to the disposals in the first quarter as a result we finished the period with net cash of 25 million pounds this comprised cash and cash equivalents of 70 million pounds offset by lease liabilities of 23 million pounds and 22 million pounds of borrowings under the group's revolving credit facility overall our balance sheet remains strong providing us with strategic and financial flexibility with that i'll now hand you back to gig thanks ben and now turning to the market outlook

our overall group outlook is unchanged and we continue to expect further progress on an OCC basis in 2026 in oil and gas we are expecting a more gradual recovery from the disruption caused by the conflict in the middle east in h2 consistent with the pace seen at the end of q2 while four-year revenues are now expected to be slightly lower year on year we remain well positioned to benefit from future investment in energy security infrastructure resilience and supply chain diversification in cpi we now expect a stronger performance for the full year our target segment and service strategy continues to support attractive growth opportunities and we expect continued growth in speciality chemicals mining critical hvac and marine markets with strong demand from data centers in particular expectations for water and power remain unchanged trends in water markets remain good and power markets continue to recover order momentum remains strong providing good support for h2 performance since launching our growth class strategy in 2022 we are focused on making a strong business even stronger By concentrating on faster growing target segments and enhancing customer and operational performance under the customer value initiatives and extending our product leadership through innovation, we have further improved the quality, balance and growth potential of the business. these strategic actions have enabled us to capitalize on the attractive characteristics of our business model and the structural growth trends of automation and electrification across our markets as a result we have delivered strong growth particularly in our target segments and service business high margins close to our mid-20s ambition and increased our return on capital to 37 percent in the first half of the year at the same time we have continued to invest for the future and sharpened our strategic focus we have accelerated new product launches strengthened our commercial teams and made good progress on our erp program to support our ability to scale in the future we have also completed two strategically important acquisitions expanding our capabilities and opening up new growth opportunities our balance sheet remains strong giving us the flexibility to invest in the business pursue strategic opportunities and continue returning excess capital to shareholders one of the achievements i'm most proud of is our world-class safety performance this reflects the culture we have built together and the commitment of our people across the group i would like to thank all of our employees for their contribution to the group's success i'm pleased with the performance of the business given the disruptions we have seen in energy markets in previous cycles these issues would have had a much bigger effect the outstanding performance from cpi in particular highlight the benefits of the changes we have made under growth plus and the greater balance we have built into the group looking ahead we expect to deliver further progress on an occ basis in 2026. our end markets remain attractive the actions we have taken give us confidence in our ambition to deliver mid to high single digit revenue growth and adjusted operating margins in the mid 20s over time thank you for your interest today ben and i would be very happy to take your questions whilst recognizing that we are still in an offer period and when discussing the prospective acquisition of rotorg we can only comment on what is already in the public domain Thank you, and we'll now open the floor to questions.

Thank you. We are now happy to take your questions. To register a question, please use the Raise Hand button at the bottom of your screen, which is now under the React menu. If you are dialling in from a phone, please press star 9 on your telephone keypad to register a question. To unmute yourself, please press star 6. This morning, please keep to three questions only. We'll pause for a moment to allow people to register their question. Our first question today comes from Stefan Trepp from BNP Paribas Exxon. Stefan, please go ahead.

Hello, can you hear me now? Yeah. morning stefan good morning can you hear me now james yeah yeah i'm clear uh i'm very sorry technology uh we are team's house not a zoom house um okay uh morning i just have one question if i may could you describe me a little bit uh what's going on in oil and gas markets what you can see there at the moment um you obviously talked about the weakness you talked about gradual improvement but can you give us some more color on what's happening in upstream midstream downstream please

yeah sure and if I give you the kind of breadth of the division across the relevant regions and split into what you've asked for in terms of the US or the Americas we saw growth in the Americas and that growth came in downstream across the Americas and it also came in Latam across up mid and downstream in emea we did see a decline and that is related to the middle east conflict and then in asia pac we also saw a small decline in the downstream business due to what i would call the more secondary derivatives of a supply issue so india and china were experienced feed stock shortages due to the conflict in the middle east LNG continues to be very strong within the division. So that's the basic ethos of oil and gas. In terms of the Middle East, what we saw in Q2 were things improving as the quarter went on. And if you take the three month rolling average for orders, from April to June we did see a month-on-month improvement in the rolling orders going up. So that gives us the confidence in the H2 that things are improving.

Thank you so much.

Pleasure. Thank you.

Thank you very much. Our next question this morning comes from Tom Elger from Deutsche Numis. Tom, please go ahead.

hi guys morning um just firstly on the cpi performance obviously very very strong um can you unpack really what has happened in the first half in terms of the data center performance when you talk about in the release and notable wins you know did this exceed your expectations in terms of what you were able to convert or is this you know the overall pull of the market kind of underlying accelerating so i guess you could sort of talk about the commercial momentum of the business are these one-offs partnerships etc how should we think about it yeah morning tom so cpi knocked out of the park in the first half as we had expected it i mean the team has done a fantastic job over the last few years building the foundations of the uh of the target segments and the target segments performed extremely well in in the first half critical hvac was the standout so critical hvac doubled in the half it's now around six percent of group revenues that was aided by data centers so the data center business within the critical hvac applications doubled as well however if you take that out critical hvac minus data centers almost nearly doubled in itself so it wasn't just all down to to data centers so the team are performing really well the market conditions are good and but they're executing exceptionally well to to maximize the the market conditions In terms of the data center business, we're very pleased. It has exceeded our expectations, hence we expect and in our outlook have said that CPI will be better than our original expectations. The team are running hard to win new business. We've done very well outside of liquid cooling, but we have won a number of projects inside the server room with liquid cooling. The Handbay and the NOAA products through the acquisitions that we've made over the last few years have been instrumental to this to this growth so very pleased with how things are going within the data center business but also within cpi in in general thanks guys so just follow up on them on the power side as well um can you touch on the project exposure and i guess how we might think about kind of the continuing sort of underlying market growth within there obviously the fundamentals of that business are positive for reasons that we're all aware of so just trying to work out the dynamics of those two things there yeah so within within our power business we've got the traditional power but we've also got the gas related power to do with combined heat and cycle combined heat and power applications and combined cycle gas turbine applications unfortunately we're under office we can't give too much color on that you know our expectations for water and power are unchanged for the full year but as a market dynamic you know, we are expecting good growth in that area. The markets are strong and we're doing a lot of work in that to capitalize on that. Thanks Chris. Thanks Dom.

Thank you. As a reminder to register a question please use the raise hand button at the bottom of your screen which is now under the react menu. If you're dialing in from a phone please press star 9 on your telephone keypad to register a question. We have no further questions this morning, so this concludes the Q&A session and I would now like to hand back to Gig for any further closing remarks.

Yeah, so first of all, thank you everyone for your interest today. In conclusion, I'm really pleased with the resilience that we've shown in the first half. our strategic focus areas are delivering and we continue to focus and execute well on them and our margins are up again in the first half of this year so with that thank you very much for your interest and i wish everyone a good day thank you