Earnings Call: H1 2021

Aug 3, 2021

Everyone. I appreciate you joining us today as we discuss our 2021 half year results. It is great to be able to discuss these in person. With me today are Jonathan Davis, our Group Finance Director and Andrew Carter, our Investor Relations Director. Also joining us today are Martin Lam, our Chairman and Lily Heinemann, our Head of ESG and Sustainability. We'll follow our usual format for today. I'll begin with some opening messages and touch on our financial highlights. Then Jonathan will walk us through our financials in a bit more detail. I'll then return and discuss our purpose and strategy, and I'll say a few words on how we at Roadtorq enable a sustainable future. I'll also spend a few minutes reminding you of our growth drivers, and I'll finish with a summary and our outlook for the full year. As we progress today, if any of you that are joining via teleconference have any questions, we would ask that you please Send those questions via e mail to Andrew Carter, our Investor Relations Director, and as we get to the Q and A session, we'll be able to relay those openly. Before we begin the formal presentation, I'd like to say a few words regarding our second RNS that you will have seen this morning regarding next year's CEO transition. I've had a great 3.5 years at Roadtorq so far, and I'm pleased our team has accomplished a great deal. Our returns are ahead of plan, and we've resumed our growth as evidenced by our H1 results. It's with heavy heart that I announced my intention to return with my family to the U. S. Next year. But I would say this has always been the plan at some point. The last 18 months with the global pandemic has added to our feeling isolation and distance from our family. As my daughters are now approaching school age, we feel next year is the right time for us to relocate back home. I do certainly feel Rotorik is now well positioned for the years ahead. We've built a great team, and we've improved the core processes within all aspects of our business. This while also embarking on our multiyear operational and commercial excellence journeys. You'll still have me at the helm for up to a year from now, and I've committed to our Board that I'll support a very orderly transition when it has appointed a successor. Now let's get on to today's agenda. As you know, Roadtorq's purpose and sustainability vision are 1 and the same, keeping the world flowing for future generations. We want to help drive the transition to a cleaner future where environmental resources are used responsibly and we have a major role to play. We do this as one team, one rotor with 3 shared values, which are listed on this slide. I would like to thank all of my colleagues worldwide for their extraordinary it's in the first half. Thank you all for your dedication during this unpredictable and challenging time. The next slide is a reminder of how Rotor creates value for all its stakeholders. We couldn't do what we do without our customers. It's about engaging our customers and channel partners and identifying their challenges. It's about innovating and developing solutions to these problems and providing market leading application engineering, manufacturing excellence and driving life cycle services. At Road Turk, we are committed to sustainability, and we are positioning ourselves to play our fullest role in enabling smart solutions to take on global sustainability challenges. We'll do this whilst providing a great working environment for our people around the world, celebrating diversity and promoting inclusivity. We're known for our financial strength, which enables us to make market leading returns through cycles and positions us to take advantage of targeted acquisition opportunities as they arise. Let's move on to the first half performance highlights. Despite an extremely challenging operating environment, we made good progress in the half and achieved a welcome return to growth. Our strategy of focusing our sales team on specific end markets and investing in targeted geographies and in the aftermarket activities is driving results. We were solidly cash generative despite increased investment in our facilities, IT systems and tactical inventories And we finished the period with £144,000,000 of net cash. Despite supply chain disruption, including significantly higher logistics and commodity costs. We made further progress on our return on sales and capital. Margins rose 20 basis points to 21.8% and return on capital employed was above 32% as we focused on continuing execution of our GAAP program and responded early to inflationary pressures. We made encouraging progress on our ESG agenda including commitments to operating responsibly, enabling a sustainable future and making a positive social impact as laid out in detail in our inaugural sustainability report published in June. Now let's have Jonathan walk us through our detailed first half financial results. Thank you, Kevin, and good morning, everybody. 2021 continues to be affected by COVID-nineteen, albeit in different parts of the world and in different ways from last year. And this year, its effector combined with continued disruption to Global Logistics. Against this, we're pleased to report growth in orders, revenue, profits and EPS on a constant currency basis compared with the first half of last year. We're also reporting a further increase in margins and return on capital employed. Order intake in the period was 3.2% higher than H120 on an organic constant currency, or OCC, basis. Q2 orders grew sequentially, as did orders for the first half of this year over the second half of last year. Revenue was £288,000,000 5.7 percent ahead of the comparative period. Adjusted operating profit was of £63,000,000 was 6.5 percent higher than 2020, and margins on an OCC basis were 20 basis Adjusted operating margins were 21.8% compared to 21.6% in H120 and 70 basis points higher than the pre COVID impacted H1-nineteen. Adjusted earnings per share was 5.5p, A 6.4% increase. OCC results are adjusted to restate the 2021 results at 2020 exchange rates. Currency was a circa 4% headwind in the first half, reducing revenue by £11,000,000 and operating profit by £2,500,000 Cash conversion was 94% lower than in recent years, reflecting the very good working capital position at the beginning of the period And the strong trading towards the end of the period. Return on capital employed increased 150 basis points over last June to 32.2%, Continuing the progress made over recent years. Following the disruption to timing of dividend payments last year, we are now back to the normal pattern. The 2.35p dividend is a 2.2% increase over the interim dividend of 2019. Revenue was up 5.7%, and once again, the 3 divisions fared quite differently. CPI performed best with revenue up 15.4 percent after being affected most severely by COVID-nineteen in H1 last year. Water and Power is next with revenue growth of 10.1%. These were partially offset by a 1.9% decline in oil and gas, which fell to 45% of group sales. You will recall that oil and gas was least affected by COVID-nineteen in H120. Within oil and gas, the more resilient midstream stroke downstream grew in aggregate on an OCC basis, with midstream growing strongly and downstream a little lower, whilst Upstream fell the most. From a regional perspective, Asia Pacific grew the strongest, up 22%, with growth across all divisions. EMEA reported the largest decline in revenue, largely driven by oil and gas. The Americas was slightly ahead of the first half of twenty twenty on an OCC basis. Access to customer sites has remained Actually, with COVID-nineteen related restrictions affecting different countries at different times through the period. Site service sales, therefore, remained at 19% of group revenue as they were in the full year 2020, but billable utilization has increased 15%, and revenue per head is 14% higher. The adjusted operating profit bridge highlights the higher costs of moving components and finished goods around the world. The volume bar shows the profit generated by the 5.7% increase in revenue. This time, I'm showing specific logistics and transaction FX column to highlight the £3,900,000 headwind from logistics costs And £1,600,000 headwind from lower transaction FX gains. The FX gains last year were exaggerated by the step change experienced by as the U. K. Entered the 1st lockdown in March 2020. Price mix then reflects the impact of commodity cost increases, Net of sourcing savings and sales price increases plus the normal elements of product and geographic mix, but these were less significant in this period. In both direct costs and overheads, there was a small net increase in costs compared with the comparative period. Headcount this June was 6% lower than 12 months earlier with reductions from footprint optimization and sales back office consolidation within GAAP. However, we've seen an increase in temporary and contract staff as activity rebounded in some areas. As a result of this and the Acceleration of the 2021 salary increase to 1st January from 1st April. Total people costs are fairly similar to the prior period. Many of the temporary costs identified last year, including office cleaning, PPE and other costs to manage COVID-nineteen, have continued at similar levels. Travel costs are slightly lower than the comparative period, but this is offset by the small levels of government support received in H120 in parts of the world where it couldn't be repaid that aren't repeated this year. In total, gross margin is now 40 2%, a 70 basis point decline. Adjusted operating margin is 20 basis points higher at 21.8 and 70 basis points higher than H1 twenty nineteen. The OCC flow through on an adjusted operating profit It's 25% due to the impact of logistics costs and transaction FX, without which it would have been 59%. We started the year with net cash of £178,000,000 and this reduced to £144,000,000 in the period after £55,000,000 of dividend payments with a cash conversion of 94%. Working capital in the cash flow was a £6,000,000 Outflow with inventory the largest driver. This compares with a £10,000,000 inflow in H120 and accounts for the lower cash conversion. Net working capital as a percentage of sales fell from 27.5 percent last June to 23.2% in December 2020 And is now 22.9%. We've deliberately increased inventory in some locations as a response to the logistics Disruption experienced in the period. Inventory and balance sheet rates increased £1,600,000 in the period, And trade receivables reduced £8,500,000 Reported as days sales outstanding, trade receivables were 57 days despite June being a particularly busy month. CapEx was £14,000,000 as we continued to invest in various IT and Facility optimization programs, including the expansion of the Rochester factory in the U. S. The dividend payment of £55,000,000 Was the combined interim and final dividend in respect of 2020, and this is the reason behind the larger than usual decline in cash balances in the first half of the year. Currency was an £11,000,000 headwind to revenue and £2,500,000 headwind to profit in the first half. If current rates of around $1.38 for the U. S. Dollar and $1.17 for the euro, which will apply for the rest of the year, the full year headwind would also be around 4%. Most of the GAAP initiatives have delivered the expected benefits in the first half and will continue to drive value in the second half. Footprint optimization is progressing, and we have recently announced the closure of 2 medium sized facilities, which were the main focus for this work stream in 2021. Whilst footprint savings will be higher than 2020, our plans have been delayed in some cases by government restrictions connected with COVID-nineteen. For procurement, the logistics and commodity cost headwinds have continued to build through the first half. Despite the efforts of the global Strategic sourcing team to mitigate those headwinds, the net benefits anticipated from procurement have been eroded. The price increases and logistics recoveries which have been implemented during the year also help mitigate these increased costs but are not reflected in the GAAP scorecard. New product development continues to gain momentum, so benefits will be higher in 2021, although disruption to supply where smaller batches of components are required for R and D projects has hampered progress in some areas. Continuous improvement and lean initiatives remain on track to deliver similar levels of savings to last year. In terms of restructuring costs, we anticipate these still being in the range of £4,000,000 to £5,000,000 for the full year. In the first half, the £4,100,000 restructuring charge Reflects £5,600,000 of costs largely related to footprint optimization activity, offset by a £1,600,000 gain from the disposal of Two properties. Forecast CapEx at circa £25,000,000 is expected to be similar to last year. In the first half, £7,100,000 of the £13,700,000 CapEx and IT spend has been related to ERP development costs as we build up to the first implementation later this year. We've noted the IFRIC interpretations committee paper on cloud computing arrangements under IAS 38. This requires certain software implementation costs related to software as a service to be expensed as incurred. Whilst the timing and quantum of the cash flows is unchanged, there may be a material level of costs that will be expensed and treated as exceptional like other GAAP related costs. We, in common with others, are assessing the impact of the change, and we'll update you once this is certain. Finally, tax rates have moved higher in the period for the first time in many years. The geographic mix of profits has the largest influence on this. The headline effective tax rates have increased 100 basis points and adjusted effective rates 50 basis points to 23.9%. Now turning to provide a little more detail on the divisions. Total oil and gas revenue was 1.9% lower than the prior period. In Asia Pacific, revenue grew overall but was strongest in Downstream. Upstream was modestly lower. Downstream growth was led by India with an increase in refinery and tank storage projects, followed by China where the spend was in refinery projects. In the Americas, sales were flat overall, but growth in Upstream and Midstream was offset by a decline in Downstream. A focus on pipelines in North America has been gaining traction, and Upstream included customers spending on emission reduction related projects. EMEA saw growth in midstream, but more significant falls in both upstream and downstream meant this was the weakest region for oil and gas. There were no large projects to replace the relatively large ones on onshore and offshore storage, which completed in the Middle East in H120. Adjusted operating profit for the division as a whole was 3.6% lower than the prior year, and margins fell 30 basis points to 21.1%. Higher logistics costs added to the headwind from lower revenue. And whilst partly offset by GAAP benefits and a reduced proportion of shared costs. This wasn't enough to stop margins declining. Water and Power was the most consistent division last year and has once again reported good growth in the period. Revenue was up 10.1%, And all three regions delivered growth. EMEA saw the strongest growth, largely driven by water, but power was also positive. Water sales grew in all subregions within EMEA. Asia Pacific saw similar rates of growth in both power and water. Power sales were most positive in China, including waste to energy projects, but this was offset by a decline in Korea related to a refurbishment project in 2020. In the Americas, whilst water grew, power declined. The growth in water included a major water treatment works, and the decline in power was the result of there being a refurbishment project in the prior period, which wasn't repeated. Adjusted operating profit climbed 5.8%. Margins fell 110 basis points 27.1 percent on product mix and as Water and Power suffered a disproportionate amount of the higher logistics costs and product mix was a headwind. It also bore an increased share of common costs, reflecting higher sales. And all of these Factors combined to produce a fall in net margins despite continued savings from various GAAP initiatives. CPI had a very strong first half. Revenue grew in all regions and in all subsectors, producing a combined 15.4 an increase compared with H120. Asia Pacific saw the strongest growth for CPI with most end markets ahead. Control valve OEMs in China serving process markets, mining and the chemical sector throughout Asia Pacific all grew. In the Americas, revenue grew double digit in all three subsectors despite naval and marine markets being subdued. EMEA sales grew a fraction with COVID-nineteen continuing to impact some customers. Adjusted operating profit was 27.8% Higher. And margins improved 250 basis points to 25.4%. The higher revenue, combined with a positive product mix and GAAP savings, It was more than enough to offset the higher share of common costs and a slight logistics headwind. With £144,000,000 of net cash at the end of the period, it's probably worth a word or 2 about our capital allocation framework. The priorities for use of cash are, firstly, to reinvest in the core business for growth secondly, to maintain our progressive dividend policy Thirdly, to make targeted investments in the flow control space in order to expand secondly, to maintain our progressive dividend policy thirdly, to make targeted investments in the flow control space in order to expand our core and lastly, and after consideration of future needs where we consider cash to be excess to return it to shareholders. Our preferred method of returning excess cash in future is currently via share buyback. We have been actively looking at M and A this year and have been involved in a couple of processes. However, multiples remain escalated, particularly when a target has started an auction process. And by maintaining our fiscal discipline, we've not been successful to date. We continue to favor proprietary conversations as the best approach to M and A. So in summary, we've made good progress in the first half I've seen growth in revenue, margins, dividends and return on capital employed. We have net cash of £144,000,000 and look forward to continuing to develop talks for the benefit of all its stakeholders. Areas of focus for the second half are clear, with the need to manage the supply chain and mitigate cost pressures paramount whilst continuing to grow. I'll now hand back to Kevin. Thank you, Jonathan. Before we turn to the near and midterm outlook, I wanted to talk more about our purpose and strategy and how Roadtorq is working to enable a sustainable future. This slide shows how our purpose, strategy and targets fit together. To deliver our purpose, we want to enable a sustainable future in collaboration with our customers and suppliers. To deliver our purpose, we need to build on our strengths, our industry leading position, our brand and reputation and our product and service offerings. We're building a great organization who believe in our purpose, share our values and passion and who strive to excel as part of a winning and high performance team. You'll recognize this is one of the pillars of our growth acceleration program, talent and culture. Of course, we would not be successfully keeping the world flowing for future generations If we couldn't grow over time whilst delivering higher returns and building the cyclical resilience required to operate in the markets that we serve. This is where the other pillars of GAAP come in, commercial excellence, operational excellence and IT and core business processes. Finally, we have our capital allocation strategy, which Jonathan has just spoken about. Putting it all together, we strive to play our part in improving the world by seizing opportunities to progress sustainable development, helping our customers improve their environmental performance and continuing to focus on our own environmental footprint. We believe we can do this and deliver mid- to high single digit revenue growth over time through a combination of organic growth and acquisitions. We also continue to target mid-20s adjusted operating through simplifying our core business, manufacturing improvements and development of our global supply chain. Our growth acceleration program, which we began to implement in the second half of twenty eighteen, is designed to deliver these targets, and we have made further good progress and development of our global supply chain. Our growth acceleration program, which we began to implement in the second half of twenty eighteen, It's designed to deliver these targets, and we have made further good progress in 2021 so far. The 5 year program is about refining how we do things, building on our strong foundations through people, processes and systems. Next, I'd like to describe some ways Rotor can enable a more sustainable future. This slide highlights 4 major areas where we can help. There are plenty more, and I'd point you to our recently published sustainability report if you'd like to explore further and read through some really great case studies. There are numerous ways that Roadtorque products can be used by customers to reduce emissions. One emission that has been in the spotlight recently is methane. Methane causes more global warming than CO2 And methane emission avoidance using capital equipment such as ours in many cases has a near immediate payback. I'm pleased to report that we're already seeing a pickup in sales related to emissions reduction, notably from U. S. Upstream customers. The oil and gas sector itself is a major generator of greenhouse gas emissions. Electrification is key to reducing these gases And Rotorque is the world's leader in electric actuation. The most modern electric powered facilities have significantly lower emissions and are big users of electric actuators. One example is the giant Johan Sverdrup oilfield off the coast of Norway. This oil field emits a tiny fraction of the CO2 of a traditional oil field through being electrified. Road Turk is proud to be the sole provider of electric actuators to the project, which is now moving on to Phase 2. Hydrogen has long been seen as having great potential as an alternative fuel. It appears its time has come and we have a big part to play as hydrogen processes are valve and actuator intensive. We are working with a number of hydrogen production equipment manufacturers the world. Hydrogen production requires equipment which is explosion proof and provides precision control such as rotorics. Finally, a sustainable world will have to significantly improve its management of precious water resources. We can help here in many areas, including safety and quality, leak reduction and water treatment and recycling. Electrification is a megatrend in the water sector as well. Earlier this year, we won work modernizing and electrifying 3 large water treatment plants in New Zealand, upgrading expensive to maintain and inefficient pneumatic actuators with our electric iQ3s. As a father of 3 daughters, I'm hugely passionate about the role we can play to support sustainability, both in terms of the opportunities it presents to accelerate our growth but also on a deeply personal level. I do want to personally feel I played my part in helping solve sustainability challenges for future generations. Turning then to our market outlook for the remainder of the year. I do want to personally feel I played my part in helping solve sustainability challenges for future generations. Turning then to our market outlook for the remainder of the year. Starting with oil and gas. Hydrocarbon prices have recently made multiyear highs. Up until less than 60 days ago, prices were largely supported by Apply side controls. In the last few weeks, the situation has changed with prices now supported by returning demand as economies come out of lockdown. It is important to recognize that industry spend is driven by the demand or consumption side of the equation. Our Oil and Gas division is well positioned to respond as any sustained pickup in demand will lead to increasing customer spending. In the meantime, service work is coming back, and we are starting to see environmental related activity picking up such as project to reduce methane emissions. Water and Power is benefiting from increased global water infrastructure investment, which is expected to continue. In Power, we continue to see opportunities for refurbishment of the installed base as well as good activity in smaller but high potential markets such as waste to energy and district heating. CPI, now our 2nd largest division in terms of sales, has good momentum entering H2. With emissions and environment related sectors active as well as targeted end markets such as basic materials and technology. Although visibility is less than in our other divisions, reflecting CPI's smaller order book and higher proportion of short cycle sales, CPI delivered an outstanding first half. We introduced this slide to you in March, I think it's well worth sharing again. It shows the medium term drivers of growth we have identified and are striving to secure. The foundations of our growth are the megatrends of automation, electrification and digitalization and in being easier to do business with. There's no point in having great automation solutions if our lead times are too long. The growth drivers we have identified remain end market alignment, the aftermarket, high growth regions, innovation and new product development and adjacencies. All of these have contributed to the resumption of growth in H1 and the momentum we are seeing in the business, most evident in Water and Power and CPI. Turning then to our summary and guidance. We made great progress in H1, including a welcome return to growth and an improvement in margins and return on capital despite supply chain disruption and the significant headwinds of commodity costs and logistics. We also made great progress on the nonfinancial side, committing to our purpose and to enabling a sustainable future and publishing our inaugural sustainability report. Work continues at pace on additional non financial reporting such as TCFD and on developing our net zero target. Our growth acceleration program is on track with the benefits of work continues at pace on additional non financial reporting such as TCFD and on developing our net zero target. Our growth acceleration program is on track with the benefits of earlier commercial excellence such as end market alignment, focus on high growth regions and the aftermarket apparent in our H1 revenue performance. We kept the momentum on our operational excellence with the step up of supply chain initiatives, the announcement of further footprint consolidation and additional investments in our U. S. And U. K. Operations. These targeted investments will drive dramatically reduced lead times for our customers whilst further reducing the environmental impacts within our supply chain. Investment in our IT and core business processes continued at pace And our first ERP deployment is scheduled for Q4. We remain committed to delivering mid- to high single digit revenue growth and mid-20s adjusted operating margins over time. Before answering your questions, I'll read you the guidance we published today. We anticipate 2021 to be a year of progress on a constant currency basis whilst mindful of the risks of additional COVID-nineteen disruption and of continuing component shortages. With this, Jonathan and I would be delighted to answer your questions. And for those of you in the audience live today, if you would, Please stand up to the microphone as we, for COVID reasons, can't pass microphones between individuals. That's very helpful. It's Andrew Wilson from JPMorgan. I'm sure you can hear me now. I've got three questions actually all about end markets. You mentioned on oil and gas, obviously, the oil price being a bit more supported by demand and supply. And I was just wondering if that was Coming through in the conversations and, I guess, indications that you were getting from customers maybe towards the end of the quarter, just thinking about kind of what that might imply for when we see an improvement in orders, if I start there. Do you want me to take it? Yes. Hi, there. I think The answer, Andy, is yes, we're beginning to see those conversations recommence. We're beginning to, As you say, the fact that the price is now being supported by demand, not just throttling back supply, the customers are beginning to think about Initiating or restarting some of the projects that maybe were put on the back burner. But it is, I think, at this stage, At this stage, it is conversations rather than orders. Back earlier in the year, we said we anticipated oil and gas to be something that would potentially pick up towards the back end of this year rather than, as we've seen with CPI, much, much quicker. And that's really the judgment in terms of this year is when those conversations Will lead to orders, and we will see a pickup. Will it be soon enough this year to affect revenue this year? Or will it be later in the year and therefore really just carry forward into 2022. I think one of the things you'll also see, Andy, is that there's this Artificial lag created by the fact that we've got to reprice a lot of that business, right? If that business was put on the shelf a year ago, as you've seen that escalating commodity. We have to take that time to reprice that business to be effective, right? So I think that's part of the thing that will also drive a little time delay here. Maybe just actually just to clarify. I mean, you're not seeing any change in kind of competitive dynamics there. I mean, this is just Taking time for this to basically watch through and projects to restart, etcetera? That's correct. We do keep a keen eye on our competitors, and we feel, Again, we're gaining rather than losing at this point. And then I wanted to ask on Water and Power, and I guess more specifically on Water. Given That business didn't really just didn't really have much of a bad period. It's surprising to me at least how strong it's been in the first half of this year. And I guess On water more generally, kind of can you talk a little bit about sort of competitively how you feel you're positioned? Because it feels like for a long time, we sort of talked about We're all taught making progress in water. But over the last few years, particularly, it feels like you've kind of gone over the top a little bit in terms of what you've been up here. So just interested And kind of, I guess, if that's a fair interpretation. Yes. I think there's a few contributing factors, the first being that end market alignment. We've talked about this before, But as we've pivoted to have water experts within our domain here at Rotorik, we're learning how to sell better to those water customers and how to sell on overall cost lifetime value, right? And we have really great advantages over the competitors in this area. So as we go and sell on that lifetime and that 5 year cost of ownership, we're significantly better off than our competitors. And as we begin to win, we're taking those wins through our database. We map those, our value selling database, and we then transfer them all over the world to our water teams now, and that's really driving some momentum in the water business for us. We've also spent a lot of time understanding the positioning of our products within the water business and understanding where the IQ in the premium position fits with some of the other actuators we have in the portfolio. So clear delineation of the value Positions at each level within the water business has also helped. We've transferred some manufacturing of some of these into low cost regions for consumption in that region to take advantage of the fact that in India and China, quite often, they want that actuator to be made in region. So there's not one thing driving the water business. There's a lot of things that we've done in the last several years. We've added lots of resources to targeted water markets. Certainly, we've done that in the Middle East. We've done that in Latin America and certainly throughout Asia. So it's about adding resources, understanding better value propositions and seeing that through and communicating in all regions of the world how we're winning, and that's just driving the acceleration. And third question is just actually it's similar of theme to what you just mentioned towards the end there. If you sort of go through the release rather than the presentation, there's quite a lot of detail on some of the, I guess we would almost say like new or adjacent markets for Autor kind of outside of what we've sort of talked about for last 10, 15 years or so. Just interested in terms of resourcing and the need for you to invest more and the ability to invest more in some of those areas. It feels Some of those areas, if we look at the numbers, are coming through quite strongly. So interested in just in terms of how much incremental investment or how much incremental investment do you want to make Look, you're really talking handfuls of individuals. And this is about the separation and putting in place people in the business development roles. So we've done that in Asia. Within each one of our markets, we now have heads of business development. So within each one of those three market segments, We've put in place business development leaders that their entire job is to find new applications that Roadtorq wasn't in 3 years ago, 4 years ago, 5 years ago. And I'm pleased to say that as we just Recently presented our strategy to our Board back in July, we were able to articulate very specific wins in waste to energy, in battery manufacturing, in data centers that we weren't in 5 years ago, right? And it's really as a result of putting additional front end resources into the business in many regions around the world that we felt were going to be the higher growth ones and then translating that to great value propositions and getting the order and then, Frankly, pleasing the hell out of the customer to get that next order. Waste to energy is a great example because I would say this time last year, we probably had 1 And then we got 2 and then 3 and then 4. And now we're spec as the largest waste to energy manufacturer. So we feel really good about that, that planting the seed through business development. And then once we get the road torque value proposition in, we're able to maintain that and grow it. Great. Thank you. Yes. Mark Davies Jones at Stifel. Can we move from Applying to margins, please. Can we have a little work through the bridge likely bridge for the second half in terms of the moving parts? Obviously, some of the pricing benefits should be greater in the second half. But how about some of the mix issues? Specifically, in Water and Power, you said Lower refurb activity in the U. S. And I think you've cited that as a big margin driver within that division in the past. So is that temporary? Does that come back? What other moving parts should we think about? There are a number of moving parts for sure, Mark. I think the big ones are obviously, As you rightly say, we have the benefit of price increases that we've made midyear this year that will come through more substantially in the second half. We still have elements of commodity cost headwind that will come through offsetting some of that. Obviously, as we see that lag between the implementation of a price increase amongst our supply base, that coming into inventory and then the way you account for the inventory, that flow into P and L at a later stage. So those the aim of those price increases is to continue to balance that as we go through the rest of the year. I don't think we're anticipating any change in the environment as far as logistics costs go. So they remain escalated in all probability through the remainder of the year. Price mix, as you talk, mix in terms of water and power. The second half Comps still have some element of those power station refurbishments projects in, but we don't currently have any of those in The second half of this year. So that's a headwind for the Water and Power division once again in the second half. And then in terms of investment in other areas, we've talked People for that implementation program to start as the one this year is the first of many to come, as well as In all probability, some level of amortization of the costs of the development, which will kick in when we get to that going live as well. That piece is the bit that's covered by the IAS 38 changes that And that's going to be exceptional for you, I think. The whole rejigging of what that looks like in terms of balance sheet and P and L, yes, will be exceptional. And I think in all probability, The scale of the numbers at any point when you're investing in Software as a Service as part of our growth acceleration program, that will be going through exceptional. We'll come back to that one when we're clear on what it means in our particular cases. We have quite a complex mix within D365 of some Software as a Service, some on premises elements to it. So it's why it wasn't possible to quantify at this time. Fair enough. And the positive mix effects in CPI, is that ongoing through the second half as far as you can see today? There's a lot of moving parts in terms of mix with CPI, both in terms of the breadth of end markets and the breadth of our products that go into it. I'm not sure I see a dramatic change in mix, either positive or negative for second half. Okay. Can I ask one slightly different one, That's a rather longer term one for Kevin? Oil and Gas, you're talking about things picking up, investment increasing as demand increases, which is fair enough. But in the mining sector over the last year or 2, we've seen Commodity prices move up hugely, demand moving up hugely and spending remaining very curtailed, particularly those big Mine is refusing to do the big CapEx programs they might normally have done. What's the risk we see something similar in oil and gas and the sort of sustainability agenda holds back those big investment decisions? I'd split that into 2 parts, right? I think, if anything, the sustainability agenda will spur investment. Great example is Canadian firm, TC Energy, right? They just did an announcement, what, 48 hours ago talking about a massive investment in electrification of their pipelines, right? They're currently using pneumatic actuation on those pipelines and venting gas to the air. And that gets dramatically more expensive as the fines for doing that triple and quadruple over the next couple of years. So they put out a press release 48 hours ago that talked about the need to dramatically use renewable energy, wind And solar to drive electric actuation and change their pipelines from that pneumatic piece to dramatically reduce because the cost and the payback, while it will cost them 1,000,000,000 to do that, the payback in cost avoidance from the fines is just a great payback. And obviously, they'll wrap that in a very green wrapper, if you think of it that way. I think what we've seen so far in the oil and gas rebound and certainly in North America has been a CapEx like rebound, right? And you can imagine when you took a lot of capacity offline, When you shut a lot of rigs down, the rigs that you put back on first are your most productive newest equipment, right? You don't start putting back online everything. It is the stuff. So what you've seen is while oil and gas and remember that the U. S. North American shale Certainly, you're profitable above $40 a barrel. So you're trading at $70 a barrel. That's really good business for them right now. So they put on their most productive assets. And frankly, they're using a lot of that great cash flow, record cash flow, by the way, right now to pay down the debt and to get themselves out of the issue that they had encountered last year. So they're not spending a great deal in CapEx, in the short term. As that demand continues and continues to support that price consumption. As they put the rest of that equipment back online, that's when you'll start seeing a more meaningful CapEx spend. The second area you'll see it, is in the takeaway capacity. If you remember, when we entered into COVID in 2020, there was lots of articles The detailed the dramatic need for additional takeaway capacity in the Americas, lots of pipelines needed. We did really, really well in midstream in the Americas last year. We're doing really well in midstream in the Americas this year. And that pipeline capacity is certainly coming online and will continue for the next several years. There's some great data out there of the number of additional pipelines required for the Americas, and It's a massive amount of new pipelines for takeaway capacity. So again, that's an area in Midstream that we really participate in. So I think we feel overall really good about what's ahead of us in oil and gas despite still this short term pause in spending. It's just starting. I think we're seeing good sequential improvement through the first half. And hopefully, that will continue into the second half and then be overlaid with some of the larger projects finally getting released. If I may to who I think perhaps is best to answer. So the first two questions are from Zing Liu at UBS And perhaps the further up in Americas, and I think you are still delivering on some orders you took in 2019. If you look at your current order backlog Pipeline Operator in Canada and one of the largest in North America, when you see such a positive announcement about the need for alternative energy sources to electrify pipeline. That's just significant. And in the detail announcement, there's several analysts that wrote up follow-up announcements that calculated the amount of spending and the payback. And it's frankly, it's just compelling. Not only do you have to do it, and you have to drive towards environmental sustainability. But the true payback and cost avoidance of fines is incredibly meaningful, right? So it makes great sense for business, and it makes great sense for the environment. So that's just a great example that came out in the last 48 hours that really just further supports the thesis that we've had for some time about sustainability in the oil and gas patch. The next question is there's 2 questions again. So this time, Andy Douglas from Jefferies. And I think his first one probably is for you, Jonathan. Please can you repeat your IAS 38 comments? Did you say that the impact on EBITA could be material? So the impact on EBITA won't be material because we will be expensing them through exceptional items as we implement the changes as this is part of the growth acceleration program. So there'll be no impact on this year of the restatement or in the prior years. Hope that's clear. And I think the second question probably is yours, Kevin, again from Andy Douglas. Can you talk to the progress being made in Asia Given the strong performance we've seen there, is it market share gains? Is it wider exposure to more markets, etcetera? It's both. I think we feel we're winning with better positioning strategies of our products and better value propositions through the value selling program that we've launched a couple of years ago now and certainly significantly up in terms of new applications we're finding for our products. It's both. And we feel very good. So the uptick we're seeing in Asia when you were to peel it apart from a prior period, It's one thing to be up over and impacted. As you remember, Asia was impacted 1st, so early last year from kind of March through the Q2. But where you compare Asia to 2019 in the first half, we're up double digits from an unimpacted 2019. And again, those underlying markets aren't up double digits, right? So that's a significant sign of gaining both market share as well as new markets coming in, into Rotor. Great. The next question is from Jonathan Hurn at Barclays. He's got 3 questions, which I imagine are all for you, Jonathan, But I'll do them 1 by 1. So firstly, can you talk about mix within the group in the half? Are you still seeing a favorable mix to electric Actuators over the more project based pneumatic and hydraulic actuators. And if so, will this mix continue into the second half? Mix in the first half was pretty neutral. It wasn't a big swing compared with the half of last year. So we haven't seen any big change in the level of, I guess, the one we talked about in the past is Hydraulics, the old fluid system products, haven't seen a big swing in that in terms of proportion of sales in the first half of this year versus first half of last year. I think the second question you've actually covered. It was talking about power of margins in the second half, so I'll miss that one. But Jonathan's 3rd question was can you talk about the expected H1, H2 split across revenue and EBITDA? Well, if I talk about revenue, the profit one will follow. I think in terms of revenue, We obviously saw a slightly strange pattern last year. This year, I think, obviously, with the growth that's coming Particularly in CPI so strongly is very much a quick order receipt to conversion to revenue business more so than the oil and gas side of the business typically. So we're going to see a much Quicker turn through. I think in terms of book to bill in the first half, that's one of the influences that the lower oil and gas Sales is meaning that we have a lower book to bill and a lower order book, and sometimes midyear May also mean that we get a more even split between H1 and H2 than we have seen in some years. So perhaps a slightly Smaller gap in the H1, H2 revenue numbers, but not anything wildly unusual. Let's just And I think the final question from outside the room is from Robert Davies of Morgan Stanley. And I think the questions here are probably yours, Kevin. So there's 2. The first is what has been the key growth driver for your water business? Is this OE newbuild or refurbishment activity? And where are we sitting in the investment cycles across Europe, North America and Asia? Can you repeat the first part? Yes. What has been Key growth driver for the water business, OE newbuild or refurbishment? And then it was the geographic question on investment cycles. Different depending upon the region of the world. Obviously, in Asia, there's a lot of new build out in Asia. And if you think about it in Asia, it's been very, very strong, driven nationally in China and then paused a little bit last year, now accelerated. India in the first half of the year Has had more impact of COVID. So the 2 largest newbuild opportunities country wise is China and India, obviously, building out their water infrastructure. China continues to do really well with newbuild. India is a little bit behind due to their issues with COVID that lingered into the first half of this year. In Europe and the Americas, it's largely about refurbishment. It's about electrifying these water utilities going out and replacing those pneumatic actuators with electric for improved control of a facility and the additional environmental benefits as well. And Robert's second question was where are you seeing the most success on your sustainability focused products? I would say early success in some of the products we launched with very targeted sustainability benefits would be, for example, the battery backup IQ, adding a battery backup so that you could then use an IQ actuator in pipelines that are solar powered and what have you to have remote operation. That's just going really well for us, right? I think that's one of the great early wins of our ESG focused new product development. It's probably the single biggest success so far. And I think we've got a few minutes. We've just had one in from Ed Maravinacchi at Citi. Again, two questions. I think the first one is probably Jonathan and then maybe second, Kevin. So the first one, Will you have to put some costs back into the businesses to take IT? Again, two questions. I think the first one is probably Jonathan and then maybe second, Kevin. So the first one, will you Jonathan and then maybe second, Kevin. So the first one, will you have to put some costs back into the businesses to take on opportunities in new growth markets that you've highlighted Today. And if so, what will that likely to do to margins? Will they have to plateau somewhat? I think we've already made some of those investments. So we've already talked about adding targeted resources to support growth in water in some parts of the world, to Poor growth in CPI, bringing in the business development guys to support each of those divisions and identify those new markets. So we're adding resource gradually, and we'll continue to do so where we see the opportunities to do that. That's Going to be an ongoing thing, so I don't think it's a step change at any point particularly. And I think the final question is for you, Kevin. Where do you see aftermarket service sales as a percentage of sales in 3 to 5 years? And are electric actuators more aftermarket intensive compared to pneumatic and hydraulic? So I think, obviously, the first half, we've stayed steady at about 19%. We think that, that should be up in the mid-20s over time. It's a significant piece of our business. And it's not that they're more intense. They lend themselves to more of the kind of ongoing maintenance programs. So us being able to go to a site and look at all those different actuators, be it electric or pneumatic, those electric ones, You have more components that are more sensitive to changing weather conditions. That's a great example of when The electric actuators from 30 years ago were effectively a mechanical device with an electric motor. And now today, as you look at those electric actuators, They have communications cards, multiple battery supplies, LCD displays. So all that increasing Electronic componentry, if you will, on the front end or the brains of the actuator requires much more maintenance and service. So the service technician from 15 years ago, that may have been a good kind of automobile mechanic, if you think of it that way, is now a Double E, right? It's electrical engineer going out and servicing those actuators. And that type of routine maintenance of the communications cards, battery supplies, all those things Just does lend itself to much more frequent touching, if you will, which lends itself to our lifetime management programs. Great. Well, thank you, everyone, for joining us, those that joined us live and braved the trip in. I really do appreciate that, and I look forward to a great next few days on the road with our investors. Cheers.