Shares in Bath-based advanced engineering group Rotork soared by more than 10% this morning after it announced a leap in revenues for the first three months of this year and painted a bright outlook for the rest of 2018.
The trading update for the period from January 1 to April 1 was in marked contrast to a stream of downgrades from the global firm over recent years.
The group, a world-leader in the design and manufacture of specialist valves for the oil and gas industry and Bath’s largest manufacturing company, has suffered from weak margins on its products as a result of the low oil price over the past few years and downturn in its key markets.
While the fall in the pound’s value since the EU referendum has eased its problems, some analysts believe it could have done more to cut costs and enter new markets.
Operating profit margins have fallen over recent years from 20%-plus to 14.8% last year.
Today’s upbeat statement showed a 10.2% first-quarter increase in revenue (+15.8% on organic constant currency [OCC] basis) with order intake up 20.9%, (+27.0% OCC), which Rotork said reflected a continuation of the more favourable market trends seen during the last quarter of 2017 and the receipt of several significant orders.
Its order book at April 1 was £228.3m, 18.6% (21.5% OCC) higher than at December 31 and 12.3% higher than Q1 of 2017.
Looking ahead, the company said it now expected revenue for the full year to show “mid-to-high single digit growth” over last year on a reported basis despite a currency headwind of around 5%, based on current rates.
It added: “As previously announced, we intend to invest much of the profit contribution from the anticipated increase in revenue in new products, an expansion of our service infrastructure and accelerated investment in our IT infrastructure to support our growth acceleration programme.
“Despite an unfavourable divisional mix, with stronger growth in fluid systems, and a small number of large projects in Asia both having a dilutive impact, we now expect adjusted operating margins to be slightly ahead of the prior year, given the stronger than anticipated growth.”
The new direction, including new products, was signalled last summer following the shock resignation of former chief executive Peter France. His departure after nine years in the job and 28 years at Rotork triggered a 5% fall in its share price.
His replacement Kevin Hostetler, the former CEO of US telecoms and engineering consulting firm FDH Velocitel, took up the post last month.
Today’s statement went on to say: “The end market environment continues to improve. In oil and gas, we saw growth in upstream and the improvement that we saw in downstream in the last quarter of 2017 continued.
“Midstream remained challenging and we do not expect this to improve in the near term. We saw steady progress across the industrial process market while water and power remained flat. Geographically, Asia, Europe and parts of North America grew, whilst the Middle East and Latin America were flat. We remain well placed internationally to benefit from opportunities in our key markets.”
The company said it was committed to returning to the “higher levels of organic growth and margins previously delivered by the group, on a long-term and sustainable basis”.
It was engaged in a series of reviews to examine its routes to market, innovation funnel, operations footprint, supply chain, talent development and IT systems and would provide a further update at the time of its half-year results.
At midday Rotork’s shares were up by 31.3p – or 10.47p – on the day at 330.2p.
