A bad quarter for Rotork (ROR) doesn’t necessarily reflect the longer-term prospects for the engineering group. Order intake may have declined 2 per cent on an organic basis during the third quarter, but it was up 7 per cent over the year so far compared with 2017. Meanwhile, chief executive Kevin Hostetler is standing by board expectations for the year.
Order levels were chiefly dragged down by a 19.7 per cent contraction in those received by its Fluid Systems division, compared with the period last year. A spokesperson for the company highlighted “the lumpy nature of our business”, which delivers orders on a “project basis”. Clients typically order Rotork’s actuators (a device that sits next to a valve and turns it on and off) in large batches.
To give an idea of just how wildly Rotork’s order intake can vary, consider the Fluid Systems division’s orders during the third quarter last year, which rose 23.2 per cent on an organic basis, compared with this quarter’s 17.6 per cent decline. Then look to the longer term. The group’s book-to-bill ratio for the year to date - calculated as orders received as a proportion of units shipped and billed - sits in near-equilibrium at 1.02. The slowdown in orders has not, therefore, left the company sitting on mountains of excess supply for the year. Unfortunately for Rotork and its shareholders, the trading statement made it one of the day’s biggest losers in Thursday's morning trading, as its share price fell by as much as 11 per cent.
But management is sticking to its guns and its “growth acceleration programme”. The £3m sale of its nuclear actuator business in July, along with the closure of its valve adaptation business and a regional engineering office, represent a move away from “non-core” activity. Rotork anticipates the costs of this programme for the second-half to sit lower than the first, at £4m.
