Rotork : Growth+ strategy delivers another year of strong sales growth and margin progress

Rotork is a market-leading global provider of mission-critical intelligent flow control and instrumentation solutions for Oil & Gas, Water and Wastewater, Power, Chemical, Process and Industrial applications. Its shares are listed on the main market of the London Stock Exchange (symbol: ROR), have a market cap of £2.7bn and are a constituent of the FTSE 250 index.

We were delighted to welcome CEO Kiet Huynh and Director of Investor Relations Andrew Carter, to the latest Yellowstone Advisory webinar to present the full year 2024 results. A recording of the webinar is available here.

Reflecting on a strong year, the financial highlights from 2024 were impressive. Revenues grew 8.2% (OCC), Service revenue grew faster and now represents 23% of total revenue, ROCE improved again to 37.3%, operating margin grew 70bps to 23.6% and the company ended the year with net cash of £125m after achieving 119% cash conversion. Non financial highlights include Total Recordable Incidents of 0.22 an improvement on the previous year and receipt of an “AAA” rating from the MSCI for their ESG performance.

The performance over the last three years has been impressive and demonstrates that the Growth+ strategy has been delivering. Revenues grew by 10% CAGR, operating margin improved by 110 bps and ROCE increased by 720bps to 37.3%. Rotork Service has also grown revenues by 14% CAGR over the same period.

Target Segments, which Rotork focuses on because they represent significant future profitable growth opportunities, have strong underlying market drivers and where Rotork has a smaller relative market share, performed well growing revenue by 9%. These segments include upstream and midstream electrification, critical HVAC and decarbonisation and water infrastructure wastewater and treatment. The Core Segments, which are generally those markets where Rotork has a larger market share and are slightly more mature, grew revenues 8% YoY. These markets include refining and hydrocarbon storage, marine and other process industries and conventional power generation.

Rotork has a near 70 year track record of producing high quality products, which are very reliable and often the best on the market.  The service network is part of their differentiated offer and plays a key part in their overall brand strength. Together the brand, product and service offer make a formidable package and act as a high barrier to entry to competition. This has enabled them to deliver strong financial figures, especially the 720bps improvement in the ROCE to 37.3%.

Being such a cash generative business it’s important to have a clear capital allocation framework and the priority for cash was laid out as follows: organic investment, progressive dividend (growing each year for more than 20 years), strategic investments (including M&A) and return of cash to shareholders. Over the last 3 years the company has made 2 acquisitions, Hanbay in 2023 and Noah Actuators earlier this year, and in 2025 announced a further £50m share buyback.

The Growth+ strategy delivered strong sales growth and margin progress in 2024.  Profit growth ahead of sales growth showed the operating leverage coming through. Looking at divisional performance, Oil & Gas grew revenue 11.7% driven by the electrification trend, refining and hydrocarbon storage. Margins at 25.9% were a new record for the company. All segments (upstream, midstream, downstream) grew during the year and downstream now makes up 52% of sales.

In Chemical, Process and Industrial overall sales fell 1.1%, principally due to lower mining activity. There was however a return to growth in the second half. The margin achieved of 25.8% was another strong year. Overall segment revenues have grown 8.8% over the last 3 years.

In Water and Power revenues grew 13.1% driven by global infrastructure spend across both sectors. Margins grew 300bps to 29.1% and are back to their historical peak.

Rotork announced the completion of the Noah Actuation deal in March. Noah produces electric actuators and is a portfolio enhancement covering valves in the 2-12 inch range. This is a very complimentary acquisition and will benefit existing Water & Power and Chemical, Process & Industrial divisions as well as to a lesser extent Oil & Gas. Rotork paid £44m and estimate the company will generate £17.5m of revenue in 2025.

Rotork Service now accounts for 23% of group revenues and grew at 14% last year, ahead of group growth. They have the largest global service network in the market and this provides clear differentiation against competitors. The focus on growing sales is increasing the number of service intervals and increasing the amount spent at each service. The company is also selling more extended warranties and advanced care packages. Rotork products have a 15-20 year life and Rotork expects to earn 4x the original purchase price in service revenue over the product lifetime.

Looking forward to 2025 order intake in January and February has been encouraging, the end market outlook is positive and they anticipate another year of progress. Within Oil & Gas the electrification trends continues and LNG is proving to be an important fuel bridging the energy transition. Within CPI structural growth in HVAC continues, including datacentres and semiconductor plants. Speciality chemicals also has a positive outlook. Finally within Water and Power, water has been consistently an area of investment focus and in terms of Power, traditional power is coming back on stream and there is an uptick in this part of the market.

Finishing with a comparison of performance against the Growth+ strategy shows impressive delivery. Versus the mid to high single-digit revenue growth target, Rotork grew 8.2% OCC in 2024 and the 3-year CAGR is 10%. Operating margins were 23.6% in 2024 and have increased 110bps over the last 3 years, compared to a mid-20s operating margin target. Cash conversion was 119% and ROCE a very impressive 37.3%. The dividend has now grown each year for more than 20 years and capital returns have been supplemented by buybacks in 2021, 2024 and £50m in 2025. M&A continues to play an important role in overall growth and recent years include the acquisitions of Hanbay Inc and Noah Actuation.

So, despite the uncertain geopolitical backdrop, Rotork again delivered a strong set of results in 2024 with good growth in sales, margin and ROCE. The market leading products in the Rotork portfolio continue to be valued by their customers and 2025 has started well. Management is confident of another year of progress and with their consistent delivery over recent years who would doubt them. The analyst consensus forecasts for the company can be viewed here.

A recording of the webinar is available here. If you would like further information on other webinars organised by Yellowstone Advisory, please contact info@yellowstoneadvisory.com