Ladies and gentlemen, welcome to the Rotork 2020 half-year results call. My name is Adam, and I'll be the operator for the call today. If you would like to ask a question at any time during this presentation, you may do so by pressing star followed by one on your telephone keypad, or if you're joining us via the web today, it is the request to speak flag icon. I now have the pleasure of handing over to the host of today's call, Kevin Hostetler. Kevin, if you would like to go ahead, please.
Good morning, everyone. I'm Kevin Hostetler, the Group Chief Executive of Rotork, and I'm joined here today by Jonathan Davis, our Group Finance Director, as well as Andrew Carter, our Investor Relations Director. We're pleased to have the opportunity to present to you Rotork's 2020 interim results and are sorry that it cannot be face-to-face. We hope that you, your family, friends, and colleagues are well and stay that way. We'll follow our usual format today. I'll begin with a few highlights from the first half, then Jonathan will take us through our financials in a bit more detail. I'll then return and discuss the market environment and the continued progress we're making on our Growth Acceleration Programme. I'll finish with a summary of the half and some thoughts on the outlook before taking your questions.
Before we move to the financial highlights of the half, I'd like to take a few moments to thank the 3,600 Rotork team members for their extraordinary efforts over the recent months. Whether they have been working in our factories, at our customers' sites, in our offices, or at home, where a large portion are, they have embraced the changing circumstances quickly and with the utmost professionalism. At all times, our priority has been the health and safety of our team, as you would expect. Early on in the crisis, we undertook a series of comprehensive COVID-19 risk assessments and formed a steering committee, which met on a daily basis. The committee worked with local operational management, monitoring day-to-day developments, and ensured best practices were shared quickly across the group. If there has been any risk to our people's health, we have not hesitated to temporarily close our facilities.
We have been aware of the difficulties some of our colleagues have faced in light of COVID-19, and also of our responsibilities. With both in mind, we have stepped up our all-staff communication and our wellbeing initiatives. In addition, we launched Rotork Benevolence Support, a charity intended to provide short-term financial support to employees and ex-employees facing financial difficulties. I'm also really proud of the efforts our people are making supporting our local communities. One example of this, recognizing the shortage of protective equipment for doctors and nurses, our team designed a fantastic face shield. We've been manufacturing these shields in a number of plants around the world and distributing them to local hospitals and care homes. This is just one example of the work we've been doing to support our communities. Turning now to the highlights of the first half.
I'm pleased to report that we continue to make significant progress implementing our Growth Acceleration Programme. We have laid the foundation that will drive our future growth, and we are successfully delivering upon our operational transformation. Our endeavors in becoming easier to do business with and to accelerate our innovation and new product development are well advanced. We completed the reorientation of our customer-facing teams on time and to budget at the end of the first quarter. In pursuit of increasing our cyclical resilience, our efforts in lean manufacturing, globalizing our supply chain, business simplification in terms of both facilities and product line rationalizations, and our keen focus on productivity are yielding tangible benefits. We have taken the opportunity to bring forward some restructuring actions that we had planned for the latter years of the Growth Acceleration Programme.
These actions will simplify our regional support structures and enable our continued factory footprint rationalizations. Our next generation IT platform, which yields additional future benefits while delayed slightly due to COVID-19, is well underway, with elements being deployed this year ahead of the fuller implementation in 2021. Clearly, the economic environment Rotork faced in the first half was challenging. Order intake at just over GBP 300 million was down 15.6% year-on-year on an OCC basis, reflecting the sharp reduction in global economic activity seen in the second quarter, as well as the strong 2019 H1 comparative period in which book-to-bill was a strong 1.14x . Revenue in the final weeks of June came in above what we had expected at the time of pre-close, and first half revenue was 9.6% lower on an OCC basis.
The decline was largely due to COVID-19 related disruption to production facilities and to Rotork Site Services. book-to-bill in the half was 1.06 x, a relatively encouraging outcome given the challenging backdrop. Our margins benefited from our Growth Acceleration Programme initiatives targeted at improving our cyclical resilience, combined with short-term cost controls and a little help from mix. Adjusted operating profit margins were 50 basis points higher year-on-year at 21.6%, despite the decline in revenues. The flow-through of lower revenue to adjusted operating profit from H1 2019 was limited to just 17%, demonstrating Rotork's improved cyclical resilience, a key focus of ours since my arrival. I expect another good performance in the second half, mix is a headwind, and expenses will increase as activity picks up. Cash conversion was once again strong at 116%, resulting in our period-end net cash balance of GBP 144 million.
Finally, our return on capital employed rose by 100 basis points to 30.7%. All in, a resilient performance in the face of a challenging macroeconomic environment, demonstrating our team's continued ability to drive day-to-day execution while implementing the initiatives identified through our Growth Acceleration Program and leading our team and supporting our communities through the COVID-19 pandemic. Now, let's have Jonathan walk us through our detailed first-half financial results.
Thank you, Kevin, and good morning, everybody. I'm pleased to report progress with a number of aspects of the Growth Acceleration Programme in the period against a challenging backdrop. Despite lower revenue, we continue to drive margin improvement and strong cash generation. Order intake in the first half was 15.6% lower than the strong comparative period on an organic constant currency, or OCC, basis, with the second quarter seeing significant impact from COVID-19 after Q1 was slightly lower. Revenue was GBP 283 million, 9.6% lower, and this was GBP 18 million lower than order intake in the first half, strengthening the order book in the period. Adjusted operating profit of GBP 61 million was 8% lower than H1 2019, but margins on an OCC basis were 40 basis points higher. On a reported basis, adjusted operating margins were 21.6% compared with 21.1% last June.
Adjusted earnings per share was GBP 0.054, a 7.1% decrease. Organic constant currency results are adjusted to restate the 2020 results at 2019 exchange rates and for the disposal in December 2019. Currency has had a minimal impact on these results, reducing revenue by GBP 0.7 million and operating profit by GBP 100,000. At the end of 2019, we disposed of the Pittsburgh distribution business. It contributed GBP 4.5 million to revenue in the first half of 2019 and GBP 0.6 million of profit. Cash conversion in the first half remained strong at 116%, reflecting a very good working capital performance. Based on our robust H1 performance and our balance sheet strength, we are declaring a GBP 0.039 dividend to be paid in September, which is equivalent to the proposed 2019 final dividend, which was withdrawn in March as the impact of COVID-19 grew.
However, the economic environment remains uncertain, and therefore, we will consider the dividend payable in respect of the whole of 2020 at the end of the year and pay this in May 2021. This adjusted operating profit bridge highlights the impact of lower revenue on profitability, together with the compensating effect of price mix, direct cost, and overhead savings. The positive price mix impact is partly driven by the 24% reduction in fluid power actuator sales, our former Rotork Fluid Systems, which you will recall are the highest material content products, therefore contributing to the unusually high positive product mix effect, which we would actually expect to reverse in the second half. If you look at the other product families, electric actuators have been the most resilient, with revenue only 6% lower than the comparative period.
Price mix also sweeps up the benefits of our strategic sourcing initiatives and price actions to mitigate the temporary cost increases in freight and logistics costs seen in the period. Across direct costs and overheads, the largest contributor to the savings have been lower people costs, with total headcount reducing some 4% over the six months. These are partly related to the acceleration of certain initiatives within our Growth Acceleration Programme and partly the result of a tighter control over recruitment instigated early in the year. Combined with savings initiated in the Growth Acceleration Programme in the second half of last year, some 75% of the GBP 10 million direct cost and overhead reductions have been driven by our Growth Acceleration Programme. The remaining savings are generally temporary in nature, such as lower travel and entertaining costs and the reduced costs of running offices when they're largely empty.
We are anticipating these will normalize during the second half as more locations return to some working in the office and some level of travel resumes. Globally, the benefit from furlough and other government schemes was minimal in the period. In total, gross margin is now 46.9%, a 120 basis point improvement, or 80 basis point improvement on an OCC basis. Adjusted operating margin is 50 basis points higher at 21.6%. We started the year with net cash of GBP 106 million, and this grew to GBP 144 million in the period, with a cash conversion of 116%. Return on capital employed increased 100 basis points over the last 12 months to 30.7%, building on the progress made last year with lower capital employed more than offsetting the lower profit.
Working capital in the cash flow, which uses average exchange rates, was a GBP 10 million inflow, with receivables the largest positive. Net working capital as a % of sales fell from 28.6% last June to 27.5% this June. Inventory at balance sheet exchange rates increased GBP 7 million since December and rose from 13.8% - 14.3% of revenue. Inventory reduction initiatives were disrupted by COVID-19 as our focus shifted to mitigating the rapidly changing supplier landscape and the disrupted logistics environment. Trade receivables reduced, down GBP 17 million in the period, and reported day sales outstanding improved by one day compared with the year-end to 56 days. This is nine days better than June last year and a strong performance in the circumstances. CapEx was GBP 12 million as we continued to invest in various IT and facility optimization programs.
This compares with GBP 8 million spent in the first half of last year. Parts of the main ERP project were paused for most of the second quarter, but have now all restarted, and the Rochester factory expansion program continued throughout the period with only minor interruptions. Looking to the second half of the year, whilst we're not reinstating guidance due to the continued uncertainty surrounding order patterns in our end markets, there are some aspects of the second half it is worth clarifying. With the focus in the second quarter on meeting our customers' delivery expectations whilst faced with a number of disruptions, some aspects of the Growth Acceleration Programme have been affected. Our strategic sourcing team has had to manage the supply chain as lockdowns occurred in different countries at different times. With the lower overall purchases, this will reduce the ability to generate savings.
There has also been an impact on our Continuous Improvement Program and lean program. While this has been a good time to continue training and running Rapid Improvement Events, the efficiencies these generate may not be seen yet in profitability, as plants have not run as consistently as before or as efficiently with social distancing measures in place. Our expectation for cost savings from procurement or lean this year have therefore reduced. However, we are expecting higher savings from site improvement and organization design initiatives, which Kevin will comment on later. We will also begin to lap some of the savings initiated in the second half of 2019, so they won't drive incremental benefits in H2 this year. In the first half, we incurred redundancy costs of GBP 4 million, which were related to site closures and consolidations and changes in the sales organization as we rolled out the new organization structure.
Not all of the individuals associated with the cost had left the business at the end of June, and some will remain with us for some months to come. On average, these costs have around a one-year payback. There will be further initiatives in the second half, although the overall charge is expected to be lower than the first half. Product mix was unusually positive in the first half as a result of the end markets and geographies that were most impacted by the reduction in revenue. We do not expect this to repeat in the second half and would actually expect it to reverse, making mix a headwind. We also expect some of the temporary savings driven by COVID to reduce in the second half.
The CapEx forecast has been reduced, but with the ERP program now restarted and the Rochester build continuing, a circa GBP 25 million spend is still higher than historic levels. Finally, tax rates continue to move lower, albeit slightly, with forecast full-year rates 23.5%. Now turning to the operational review for the first time with our new end market divisions. This slide summarizes the group's key markets and geographies. The slides are on an as reported basis. With group sales 11.1% lower, there was quite a range of outcomes across the three divisions. Water and power performed best with revenue up 5.9%, but this was offset by a 13.2% decline in oil and gas and a 20.3% decline in CPI.
Within oil and gas, downstream was the most resilient, increasing slightly as a % of group revenue, whilst upstream and midstream fell by similar amounts, and both fell by more than the group average. From a regional perspective, EMEIA revenue was the most resilient, only 6.7% lower than the comparative period. Asia-Pacific revenue was 8.2% lower, with growth in water and power offsetting larger declines in oil and gas. The Americas was the hardest hit region, down 20.7%, although this does include the disposal last December. The oil and gas market reported the sharpest reduction here. Across all regions and end markets, gaining access to customer sites to carry out service activity has been challenging at some points during the lockdown. Routine scheduled maintenance has therefore been deferred, but where our products are used in essential operations and it is an urgent repair, access has still been possible.
Turning now to the divisions. Total oil and gas revenue was 12.8% lower than the comparative period on an OCC basis, or 13.2% as reported. In EMEIA, oil and gas sales were broadly unchanged. A decline in upstream in the Middle East was offset by growth in downstream overall, with midstream flat. Asia-Pacific was lower across all parts of oil and gas and in total declined by close to the divisional average compared with the first half of 2019. India and China contributed to the reduction in each element of oil and gas. Activity in the Americas was already weaker pre-COVID-19, following on from lower activity levels towards the end of last year.
COVID-19 has compounded this with the upstream sector, which is the smallest part of oil and gas for us, impacted the most. The reduction was broad-based, but reduced service revenue and a reduction in LNG spend from a fairly modest level in 2019 were contributory factors. Overall, the Americas oil and gas revenue was down more than the other regions. Similar to other geographies, downstream activity held up better than other segments. Adjusted operating profit for the division as a whole was 16.6% lower than the first half of 2019, and margin fell 100 basis points to 21.1%. As we saw at the group level, the benefit of reduced people costs and discretionary spend helped the margins. In the case of oil and gas, the lower level of sales of pneumatic and hydraulic actuators meant product mix was a positive factor.
However, mix and savings were insufficient to offset the reduction in revenue. The essential service nature of most water and power customers helped the division report a positive first half, with revenue growth of 5.9%, or 7% on an OCC basis, as disruption seen by these customers was less than in the other divisions. Asia Pacific saw growth in both power and water, with water particularly strong as a result of increased spending in China. In the Americas, revenue from water was in line with the first half of last year, but power was much stronger, benefiting from the power station refurbishment projects we won in the first half of 2019. EMEIA sales to both power and water were weaker than the comparative period.
U.K. water revenues were affected by the start of a new AMP cycle. Elsewhere, increased sales in Africa were offset by non-repeating projects in the Middle East in 2019. Adjusted operating profit climbed 14.9% with the benefit of the higher revenue. Margins increased 190 basis points to 28.2%, the highest of the divisions. This was despite a slightly adverse price mix impact in the period, which was more than offset by reductions in people costs and many areas of discretionary spend. CPI suffered the largest overall decline in revenue, with a 20.3% reduction, or 16.8% on an OCC basis. Industrial production in the U.S. was slowing as we entered the year. COVID-19 added to this and also impacted Asia Pacific market, which had previously been more positive. This division typically works on a shorter delay between order receipt and delivery than the other divisions.
EMEIA and Asia Pacific saw similar levels of decline, which were smaller than the divisional average. EMEIA was impacted by a large HVAC project in the prior year, not repeating this year, and the Asia Pacific reduction was in part due to logistical challenges resulting from COVID-19 and partly a petrochemical project in 2019, not repeating in 2020. The decline in the Americas was largest, with the impact spread across the full spectrum of industries we serve. Adjusted operating profit was 12.7% lower, but margins improved 100 basis points to 23.0%. Price mix was a positive with the reduction in pneumatic actuator sales the largest by product type in the period, as well as some positives from procurement affecting some product lines. This, together with the headcount reductions and controlling discretionary spend, resulted in the improved margin despite lower revenues.
In summary, we're making significant progress on our Growth Acceleration Programme, and Rotork's cyclical resilience is demonstrably improved. Despite the challenges of COVID-19 and the knock-on impact this has had on some of our end markets, our focused execution has driven improved margin despite lower revenue, 116% cash conversion, and an improved return on capital employed. I'll now hand back to Kevin.
Thank you, Jonathan. Turning to the market environment slide. I'll start with the pie chart on the top right. Our revenues continue to become better balanced with revenue in non-oil and gas end markets, contributing more than 1/2 of our total revenues in the period. In 2014, these segments contributed only 40%. Non-oil and gas markets generated an even higher proportion of adjusted profits, driven by above group average margins within our water and power market segment. Moving to the second pie chart, a reminder that the majority of Rotork's activity is driven by customers' operational rather than capital expenditure. We estimate that maintenance, repair, and small to mid-size automation upgrade projects valued at less than GBP 100,000 generate 75% of group orders by value in a typical year. Turning now to our served markets. We'll start with oil and gas.
Hydrocarbon prices were extremely volatile during the period, particularly in April and May, when WTI actually turned negative. We've always said that we see price volatility as a greater issue than absolute price levels, as volatility makes it more difficult for our oil and gas customers to make purchasing decisions. The good news is that the price of WTI has settled at around $40 per barrel for around eight weeks now, volatility is reducing. Furthermore, we've seen global hydrocarbon demand begin to recover. However, this doesn't mean that near-term industry spending plans won't be under pressure. We're obviously tracking commentary regarding capital expenditure. A 25%-30% reduction in CapEx is likely this year, with particular emphasis on the upstream segment, and especially in North America.
It's important to recognize that the downstream and midstream, the less cyclical portions of the oil and gas market, are currently much more important for Rotork, making up 70% of our oil and gas business, and that we have very little exposure to North American unconventional supply. Downstream markets are expected to be comparatively resilient, and there are signs that some Asia-Pacific expansion programs and upgrade projects may be accelerated. It is possible we'll see a further reduction in Western refinery capacity, a continuation of what we've seen for years, closures of small plants in North America and Europe to be replaced by storage facilities. Hydrocarbon storage investment is a great opportunity for Rotork due to the intensity of actuation to the control of fluid movement in the loading and unloading processes. Investment in midstream infrastructure, pipelines, and LNG is expected to continue.
Across oil and gases markets, we see a continuation of the work to meet environmental targets and drive higher operating efficiencies through automation and digitalization. Our oil and gas customers are not only using Rotork products to control their hydrocarbon flows. Much of our work for oil and gas customers is actually related to the management of water in their facilities, whether it be recovery, recycling, treatment, or for on-site emergency fire suppression. Moving to water and power. The division's customers provide essential products and services, and the team were kept busy during the first half, and this is expected to continue. In water, we see continued infrastructure build in China and Southeast Asia, with China particularly strong, driven in part by the China Water Ten Plan. In more developed markets, it's more about modernization, lowering operating costs, and leak reduction.
We anticipate good activity levels in water overall. Would note that the U.K. is currently quiet due to the start of the new AMP cycle. In power, we see a structural decline over the long term, with a shift from traditional oil and coal towards gas and renewable electricity generation. There is still much traditional brownfield spending for us to capture, as evidenced by the high level of refurbishment business we are currently busy with. CPI's activity is driven by several things, including industrial activity globally. Here, the market environment is perhaps best described as choppy, in part because CPI is the most book-and-ship of Rotork's divisions. Previously, we've seen CPI outpace its markets due to the replacement of fluid power actuation with electric actuation in industrial applications and due to digitalization. We continue to expect CPI to find opportunities for further growth in the future.
Our next slide highlights some of the strategic initiatives that are underway across Rotork. There is a lot on this slide, and I won't go through every point, but is important in helping you to understand Rotork's future direction. I'll provide for you a glimpse into the strategies of our newly created divisions. We regularly talk about the external drivers which benefit Rotork. Themes such as automation, electrification, digitalization, energy efficiency, and emissions reduction, as well as the Growth Acceleration Programme levers, such as being easier to do business with, improved customer alignment, new product development, investment in high-growth regions, and in Rotork Site Services. These drivers and levers apply to all our new divisions to varying degrees, of course. Working across the three segments, beginning with oil and gas. Oil and gas is focused on a number of key strategic opportunities.
A big one is leveraging its significant installed base, seeking out opportunities to upgrade, modernize, and automate, enabling our customers to gain operating efficiencies. Another is helping these same customers achieve their commitments to the environment through the benefits of electric actuation over fluid power and expansion of our lower power consumption product lineup. A topic we are sometimes asked about is the energy transition. We've done significant work with an independent consultancy to really understand this subject. Our conclusion is that the energy transition is very much an opportunity for us, with a substantial majority of our revenues linked to brownfield spend, which is forecast to remain stable, and new segments such as carbon capture and hydrogen expected to be significant and actuator-intensive. Moving on to water and power.
We target outgrowing the underlying markets through an optimized go-to-market strategy, improved product portfolio, and focusing on high-growth regions and digital solutions. In water, it's about the infrastructure spend wave and solving customers' challenges, whether this be in water leakage, water quality, or productivity. In power, we're targeting growing markets for Rotork, such as waste to energy and concentrated solar power, but also harvesting the refurbishment business opportunity presented by our extensive installed base. Finally, Chemical Process and Industrial. We purposefully put the CPI leadership team in place early, the team have identified numbers of key sectors in which CPI has a right to play and wants to play. These include general automation, HVAC, chemicals, and basic materials. There are numbers of opportunities with two I'll highlight, the electrification of actuation and digitalization, that is, the increasingly connected industrial world.
Rotork is positioning itself for the medium term in exciting new segments such as carbon capture and hydrogen. We expect these new markets will present opportunities for all of our divisions, we see the cement and transport industries as being relatively early adopters, which we would classify under CPI. I'm pleased to report our Growth Acceleration Programme remains on track, our team's execution on our priorities is very strong. Since its 2018 inception, our Growth Acceleration Programme has delivered GBP 17 million of P&L benefit over GBP 27 million of working capital improvements. Our four pillars each continue to have a role in driving the growth and margin enhancement we desire. Let's take a look at some of the highlights of the Growth Acceleration Programme in the first half. We'll start with our commercial excellence pillar as usual.
I'm extremely pleased to report that we have successfully completed our migration from a product-based organization to an organization more closely aligned around market segments. This was completed on time and to budget. Our new customer aligned structure will more closely address customer needs and facilitate closer customer relations, including through key account management. We are already seeing the early benefits of the realignment, and I'll share some examples in a moment. Our value selling program, the first in a suite of training and development programs within our commercial excellence pillar, was launched in 2019, and we've developed it further, including converting it to a digital format so that team members can train while working from home. The program now forms part of the sales team's regular training and is completed by all new joiners. We're making good progress on our route to market strategy.
We have now completed our review of our channel partners. We made several important new reseller appointments in Asia Pacific during the period and are planning to shortly make further appointments in the Americas and in EMEA. Turning to our innovation and new product development, we now have robust and agile processes in place supporting our innovation and new product development initiatives, and our resources are concentrated on the most promising and profitable products and on accelerating their commercialization. We are focusing our efforts on themes such as energy efficiency, emissions reduction, increased operating efficiency, and wireless remote control. Our customers move from hydraulic and pneumatic to electric actuation and from manual to digital clearly play to Rotork strengths. We are now seeing the benefits of our improvements.
In the second half, we will see an acceleration in new product launches with a target of 15 new products launched this year. Next is Rotork Site Services. Rotork Site Services is our global services network and is a key differentiator in our industry. RSS's activities include field services such as installation, commissioning, repair, maintenance, retrofits, and upgrades. The RSS team made important strategic progress in the period, including launching our new lifetime management and reliability services programs. These launches are a key part of our migration from reactive to preventative to ultimately predictive maintenance programs. We continue to streamline our processes and our organizational structure to allow further scale in service capabilities, including regionalizing or centralizing some support functions. We also continue to rebalance our resources geographically to ensure we are providing the necessary service personnel in our highest opportunity regions.
In the second half of this year, we will focus on increasing the regional alignment of our service and support functions and the expansion of our commercial excellence development programs. When last together, I shared some examples of early realignment wins from Asia. I'll now share a few from Australia and Europe as well. The first example is from oil and gas. The customer is a Northern European gas distributor, an existing user of Rotork heavy duty actuators, but one who has not bought much else from the product portfolio. The oil and gas team pitched the entire Rotork product and services portfolio and demonstrated to the customer how gas distribution customers in North America were using our explosion-proof, non-bleed PAX1 linear electric actuators to facilitate LNG offloading. The result was an initial order for over GBP 100,000 of electric actuation products.
More importantly, it was a great demonstration of how our sales teams can not only cross-sell, but also more easily resell solutions already sold in other regions of the world. The second example is from water and power. The customer is a major Australian water utility. Historically, we have been a second supplier of actuators to the customer. Our sales team, with significant help from Rotork Site Services team colleagues, made our lifetime management pitch to the customer. We mapped out the utility's existing actuator fleet and their current condition. The likely costs of ongoing maintenance, the risk of spares being unavailable, and our proposed multi-year actuator and service solution, which emphasized the total cost of ownership of our products versus our competitors. Based on the success of the pitch, a few weeks ago, Rotork was awarded principal supplier status for a five-year period, displacing the incumbent.
This was a fantastic result and a great demonstration of the strength of our lifetime management value proposition. The third example is from CPI EMEA. The customer is an important existing customer, a leading severe service valve maker. We already work closely with this customer under an existing partnership framework, predominantly covering actuators and torque amplification products. We have had limited success historically, however, selling the customer our instrumentation products. We recently had the opportunity to meet with the customer and pitched our entire portfolio of products, focusing especially on the work we were doing to be easier to do business with. We are now in advanced discussions about adding positioners to the partnership framework. We estimate a win here could be worth upwards of GBP 1.5 million per year. Our customer and sales force feedback remains very strong in support of our market reorientation.
Turning now to our operational excellence pillar. Our operational excellence initiatives aim to improve significantly our operational efficiency while maintaining our reputation for high-quality products and services. Our global supply chain program continues on track. We put in place supply chain resilience processes early on in the program. These have provided improved visibility and greater agility, enabling us to better manage the COVID-19 related disruption. As expected, procurement savings will be lower year-on-year in 2020, reflecting reduced purchase volumes and some COVID-related surcharges. We are, however, pleased with the momentum of the program, which will benefit our margins in 2021 and beyond. Moving to inventory, we continue to look to balance our purchasing efforts to manage down our goods and inventory. Our initiatives in this area contributed towards the net GBP 6.6 million inventory reduction compared with this time a year ago.
This reduction came despite a managed increase in certain areas as part of our tactical COVID-19 response to mitigate potential COVID-related disruptions in our supply chain. The Rotork Continuous Improvement Program continues, and we've made good progress in the first half, notwithstanding COVID disruption. During the period, we completed 124 rapid improvement events, or RIEs, across 25 locations. Each emphasized production efficiencies and/or safety, and on average, savings from each range between GBP 10,000 and GBP 20,000. The space freed up by our continuous improvement work is an important enabler of footprint optimization, and we have already closed one mid-sized assembly facility this year. Throughout the COVID-19 pandemic, we continued to invest in our facilities, ensuring a few of our larger receiving facilities remain on track to enable further optimization moves later in the year and early in 2021.
As a reminder, our footprint optimization initiative is as much about improving our cyclical resilience as it is about reducing our operating costs. With this in mind, I'm pleased to report that Rotork now has 21 manufacturing locations, down from 30 at the beginning of our transformation program, representing a 30% reduction. Let me emphasize that again. In 2.5 years, we've reduced our operating footprint by 30%. As already announced, we have brought forward some restructuring actions that we had planned for the latter years of the Growth Acceleration Programme. One example is the simplification of our regional back offices. This action will remove complexity whilst improving our customer centricity. Let's turn now to our talent and culture pillar. This covers some of the points I made in my opening remarks, so I'll try not to repeat everything I've said.
I will repeat that I've been enormously impressed by our people in these challenging times. Our people are truly living our purpose of keeping the world flowing for future generations and embracing our values: stronger together, always innovating, and trusted partner. Our focus now shifts to the development and execution of our return to office strategies. Turning to our fourth pillar, IT and core business processes, the development of our new IT system, based on Microsoft Dynamics 365, continues. In addition to the core ERP, this system incorporates CRM, project tracking, and a global HR platform. This is a multi-year program, and we look forward to realizing the efficiencies we'll gain by all our sites operating on a common platform. During the first half, we rolled out enhancements to our global HR platform and implemented our new CRM system across all sites.
Recognizing the practical difficulties presented by COVID-19 to our ERP rollout, we have deferred deployment of our first factory until 2021. This decision also defers some of this year's planned capital expenditure to next year. Like many other organizations, our recent Microsoft Teams global deployment has significantly helped with communication and remote working during this difficult period. We recently presented our Rotork digital strategy to our board, which combines enhanced digitally connected products with optimized service and support functionality and a much improved digital customer experience platform.
We'll certainly talk more about this over the next year. I'll close out by summarizing our progress in the first half, and by making a few comments on the outlook for the full year. We are proud of these results achieved in uniquely difficult circumstances. The Growth Acceleration Programme is, as it was designed to do, driving an improved cyclical resilience across the group.
This, and our focused execution, can be clearly seen in the first half performance. Margins improved year-on-year despite revenues declining. The flow-through of lower revenue to adjusted operating profit year-on-year was limited to an impressive 17%, and on a sequential basis from the second half of 2019, was limited to just 33%. The business is now aligned to its customers, and regional key account management is in place, and we are looking forward to realizing these benefits. We are already seeing some early wins, as highlighted. We continue to make good progress on our strategic initiatives and are bringing forward some optimization actions that we had planned for the latter years of the Growth Acceleration Programme. We finished the period with net cash of GBP 144 million.
Our strong balance sheet provides us with the flexibility to invest in the business, including making those improvements required as part of the Growth Acceleration Programme. The outlook remains uncertain and difficult to read. We withdrew our forward guidance for the current year on March 31st. We retain this position as considerable uncertainty remains. For this reason, we are not announcing a dividend in respect to this period. We are, however, pleased to announce that we will be paying the previously deferred 2019 final dividend of GBP 0.039 per share. We will consider the dividend payable in respect to the whole of 2020 at the end of the year and pay this in May 2021. Turning to our outlook.
While the outlook for our end markets remains uncertain, we entered the second half with our production facilities operating at close to normal output levels, with a solid order book, and the considerable flexibility provided by our strong balance sheet. We are confident that we will successfully navigate the current challenges and be a stronger business going forward. With this, Jonathan and I would be delighted to take any questions you may have.
If you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad now. If you're joining us via the web today, it is the Request to Speak flag icon. If you do change your mind at any time, it is star followed by two. Remember, when preparing to ask your question, please ensure that your line is unmuted locally. We have our first question. It is from Mark Davies Jones from Stifel. If you would like to go ahead with your question, please.
Thank you very much. Morning, Kevin. Morning, Jonathan.
Morning.
Congratulations in the circumstances. Couple of questions, please. Firstly, the very high margins coming through in the power and water business, I think there's some very high margin refurbishment business there in power. Do you have some visibility about how long the pipeline may last in that piece of the business? Is that margin trend sustainable, and over what period do you think?
Okay. The refurbishments you refer to, Mark, are part of what's driving those as, you rightly say, in water and power. I think we certainly have some forward visibility of that that runs through the remainder of this year and into 2021. Beyond that, really it's too early to see whether it goes further than that. Obviously, the other thing driving the margins in the water and power business in this particular period is it's the division that is showing growth. That's the other piece that feeds through.
Okay. Just on that aspect. Sorry.
Just giving you more visibility. What we're really talking about is refurbishments and Flue Gas Desulfurization retrofits throughout Asia and Europe, in fact. It's pretty spread geographically and it's not only one bucket of refurbishment. There's a couple of different things going on that we've been having, and it's really part of focused marketing campaigns and programs driving that business.
That's great. The other question on that part of the business was on water, which you're obviously seeing some very strong momentum in. Given that and the strength of the balance sheet, is that an area where there might be scope for acquisitions to broaden the geographic footprint, or is that very much an organic expansion that you're driving there?
It's certainly something we're looking at using our power for sure.
Okay. Thank you.
Our next question comes from Andrew Wilson of JPMorgan. If you would like to go ahead with your question, please, Andrew.
Hi. Morning, guys. Thanks for the question. I just wanted to ask around the 17% drop through and the margin resilience more broadly. This is a pretty different development to what we've seen in kind of previous downturns at Rotork and certainly the 2014, 2016 period. I guess it may be a funny question, I guess were you guys surprised by how resilient the business has actually proven to be? Could you kind of see this coming through the actions that it took? I think it's probably a lot better than most of the analysts had in our models and certainly than I could. Just, I guess, maybe go back to the question is, were you guys surprised at actually how resilient these numbers proved to be?
Yeah. Good question, Andy. I think that there's a couple of components that we've talked about historically on this. Let me start by saying, I don't think we were very surprised by it. To be clear, it's been part of a major objective of ours to increase our cyclical resilience, and that was one of the cornerstones of the GAP program when we launched it. We've talked historically about a couple of components that drove a poor level of resilience in the past, and one was structural and one was cultural.
I think from a structural standpoint, and why we emphasized it in the talking points on the video, was we have been getting at it, frankly, on the operational side of the business, and improving the cyclical resilience by reducing our operational footprint, larger, more controllable sites, if you will, that have a better ability to flex with any changing revenue patterns. Think of it that way. From that perspective, every six months, we come and talk about the one or the two facilities that have been consolidated, and really looking at that we've done nine in 2.5 years is pretty substantial, frankly. Reducing by 30% is one of the big levers. I think on a structural basis, we've gone pretty far along in that direction.
From a cultural basis, the other thing is we use a lot of KPIs internally to manage our headcount. I think the other big thing that we've done, and it's certainly a positive commentary on how we're run from a Board of Directors standpoint as well, is that each year we do prepare downside scenarios and spend a lot of time when we present our annual operating plan on what would we do to the business if we were to decline by 10%, 15%, 20%. Jonathan and I present to the board, not only the actions, but the timing it would take, the response, what's the impact on morale? How would we handle that? We model out those scenarios and pre-write a playbook and put it on the shelf for what would we do.
This is a great year and an example of when you're able to pull that off the shelf and execute on it very quickly. I think while others were scrambling in March and April and trying to figure out what are they gonna do, we already had a plan and we were just very much into execution of that plan and controlling of costs. I don't think we were surprised. I think this was really about execution, both in terms of over the longer term through the GAP program and shorter term, having a plan on the shelf and being able to execute it and push it through the organization very quickly.
Maybe if I can follow up on a different area, looking at the cash, which again has been very good, and the balance sheet clearly is sat there with a lot of net cash. Interested as to how what you've seen over the last six months kind of helped you think about M&A for the group and the kind of opportunities that either might be available as a result of COVID, or the types of opportunities that might be even more interesting as a result of what you've seen with COVID. Trying to get a sense of what's changed, if anything, in terms of how you think about capital allocation and M&A potentially going forward.
Yeah, I can honestly say nothing much has changed. Our capital allocation priorities remain the same as we've talked about in the past. I think there's still a period of dislocation between buyers and sellers in terms of valuation in the marketplace. I think there's still some of that to be worked out. Nothing has changed in our ideas of capital allocation.
Okay, thanks very much, guys.
Our next question comes from Robert Davies of Morgan Stanley. If you would like to go ahead with your question please, Robert.
Yeah, thanks for taking my questions. The first one was maybe you could just flesh out within the downstream segment, you mentioned that was the most resilient. If you could just give us a little bit more color in terms of what customers are saying there, some of the, I guess, different regional trends across the downstream segment, in particular. The second one was, you obviously said, I think when you sort of laid out your initial plans, were talking about, I guess your sort of product kind of offering and consolidating certain elements, making R&D a focus to bring sort of new products into your offering. How do you kind of think about that balance at the moment, specifically given the environment is quite uncertain and things are pretty tough? How are you sort of balancing that in use of product development?
Are you sort of focusing more down on specific product lines or certain technologies, or where is your sort of top priority at the moment? Thank you.
If I take the second part of your question first in terms of what do we focus on new product development. We continue to accelerate. Obviously, in this time period when you're trying to be mindful of expenditures, one of the things you don't mortgage is your future. New product development and innovation is really key to our future. We're certainly continuing to spend there, and we continue to have the same engineering themes that we're spending upon, and that is really connected products, and that's really wireless type security, Internet of Things type connected products. Focusing on environmentally friendly products, reducing our customers' emissions, lower energy usage, better water management, lower material content. Simplification of our product lines, about increasing of the modularity of our product lines that reduce redundancy requirements.
Then last, just lower energy consumption and lower energy consumption on board energy storage, those type of areas. We still focus on building out our innovation pipeline, launching product at an accelerated rate. You saw last year we launched 17. This year our expectation is to launch 15, they'll be a little bit more meaningful.
They'll be certainly back-half weighted this year just due to some disruptions in engineering due to COVID and the ability to get test centers up and running and engineers co-located, if you will. No slowdown in new product development and innovation whatsoever. Actually, quite the opposite. Relative to what we're seeing in terms of downstream by region of the world, obviously, what we've seen in the Americas is perhaps a slowdown, a slight push-out of some of the repair business in the downstream. In Asia, we've seen a continued expansion, and several order wins relative to downstream in Asia, and Europe is kind of in the middle. A lot of projects going through FEED stages, some of the Middle East delayed by a couple of months.
In general, it's kind of strong in Asia-Pac, okay in EMEA, and things lagging in the U.S. by one to three months or so.
That's great. Thank you.
Our next question comes from Max Yates of Credit Suisse. If you would like to go ahead with your question, please, Max.
Thank you. Just my first question is around the cost savings. I guess if I try and square the bridge that you gave where you said you have GBP 7.5 million of management actions in the first half, then the slide on what you expect for the full year, it looks like there's some limited savings to come through in the second half. I guess could you just confirm that of the kind of cost savings that you expect for this year, you have done kind of most of them already? Also on these programs, when we think about going into next year, are there still kind of, and what kind of magnitude of savings are still to come on these plans? That's my first question.
I think of the savings we've talked about in the first half, the GBP 7.5 m illion, the sort of the three elements are slightly different as we look forward into H2. Obviously, the ones that are savings that were initiated in the second half of last year are the ones we're lapping as we go into the second half of this year. Those that relate to initiatives driven in the first half of this year clearly are still incremental in the second half. We've also got some costs, as we've talked about in terms of the exceptional items that we booked at the end of year, which start to drive savings in the second half. Minimal savings from that have really been driven in the first half.
The people that relates to, we see leaving all the way through the sort of third quarter and in some cases into the fourth. I don't think our position in terms of retaining tight control over recruitment and attrition will change as we enter the second half either while current level of uncertainty remains. In terms of the initiatives going beyond that, there are other elements of the Growth Acceleration Programme where we are pulling initiatives forward into the back end of this year, some of which will be very late this year, that will drive benefits into next. I think probably March is a more appropriate time to talk about those and how those will unfold on in terms of 2021.
Okay. Maybe you could just give us a feel for at least which one of the buckets, the sort of site improvement, procurement, lean, and organizational change, which ones of those are kind of least completed as we go forward? Where is there still most to do from your perspective?
There's elements of all of them to do. The CI and lean one, as an example, is now a constant journey that we are on. It's taken a bit of, not a backward, but it's certainly gone sideways in terms of the first half because of the headwind from periodic lockdowns or running plants with social distancing in place, and therefore in a slightly different way. That will certainly continue to drive improvements as we go forward. We aren't at the end of our journey in terms of site improvements, and we've talked about sort of that running all the way through the Growth Acceleration Programme for the remaining 2.5 years, certainly from that perspective. I think you could look at most of those.
The sort of reorientation of the sales part of the business in terms of the organization change is now largely complete, and certainly in terms of our obviously pivoting in terms of reporting, that's the best indication of that having completed. We're still going to see incremental benefits in the second half from that one, certainly, if not into next year.
Okay. Just my final question, I know you're not guiding on revenues for the full year, could you give us a feel for how your backlog looks now versus 12 months ago? I realize that can be affected by how COVID evolves, how factory capacity is up and running, et cetera. Just at the very least, understanding kind of where your backlog is today and what that second half revenue might look like on that basis, excluding any discussions about disruption from COVID and what impact that may have on factories. The backlog number would be really helpful.
Yeah. It's one of the numbers we're not sort of providing as we move forward with the new form of reporting. I think probably you can work it out reasonably straightforward from the position at the end of December. I think if you do that, you'll find that the order book isn't vastly different from where we stood at this point last year. Maybe fractionally lower. There's no real change in the backlog in terms of time period over which we would expect that to convert to revenue in any normal circumstances. I guess the caveat at this point in time is simply around customers being impacted by COVID-19, or any of our facilities as we get near the back end of the year potentially being impacted by COVID-19. That's why there is that increased level of uncertainty more than anything else.
Okay. Understood. Thank you very much.
Our next question comes from Edward Maravanyika from Citi. If you would like to go ahead with your question, please, Edward.
Good morning, Kevin.
Hey.
Just a question on sort of cash. Your conversion was strong, your cash position has obviously improved. Were you thinking of M&A? Just given the balance sheet is stronger and given there could be distressed assets out there or maybe opportunities you've been looking at and the current disruption may have provided an opportunity.
Again, I give the same answer. No changes to our capital allocation and priorities. We're still focused on M&A as what we consider a good use if it's the right M&A deal. I think we do feel we're in a position that as that dislocation between buyers and sellers kind of clears itself up a little bit, we'll be in a very good position to act very quickly should the right things come to fruition. We still feel really good about our M&A pipeline and the capabilities we have going into the end of this year.
Okay. Are there any particular areas that you would be looking at in terms of the pipeline?
There are. Not that we disclose publicly, Edward.
Sure. Thank you.
Yeah.
Our next question comes from Jonathan Hurn of Barclays. If you'd like to go ahead with your question, please, Jonathan.
Hey, guys. Good morning. Just a few questions from me, please. Just coming back to the sort of cost savings coming through in the second half of the year. Can you just give us a feel for the level of drop through? Obviously, it was 17% in the first half. Obviously, there's a lot of moving parts in there. Can you just be a little bit more specific really about what the level of flow through or what level of flow through you would expect in H2, please? That was the first one.
Well, I guess one of the challenges in answering that one is it kind of depends what the revenue number is. That's a bit of an issue. I think in terms of if we look at the sequential flow through that we've sort of highlighted from H2 last year into H1 this year of sort of 33%, that seems like still a very good result and maybe a better level to think of in terms of sequentially. Certainly, yeah, somewhere around the mid-thirties, I would say, would be a fair target.
Great. That's very helpful. Thank you. The second one, like you say, you're not giving out the number for the order book. Can you just give us a little bit more sort of color on that? Just in terms of the mixes, is the order book skewed to one division? Am I correct in thinking that most of that order book is going to be delivered in the second half? Also just maybe on the margin of the order book, where that currently sits as well, please.
I don't think the order book, as I said, is anything dramatically different from what we saw this time last year, either in terms of split or in terms of Well, I don't think we've ever commented on margin in the order book particularly. That's not something I think we'll get into the details of. In terms of split across product types or across divisions, it's relatively normal. By that, I think, when we look at divisions, we've commented that CPI is probably the quickest sort of turnaround in terms of order receipt to revenue. That therefore means it has the smaller order book of the three divisions. That's normal.
Okay. Just maybe just one final one. I think historically, obviously, your CK actuator range has been aimed at process and particularly food and bev and getting into those markets. Can you just talk a little bit about how you're getting on with increasing your exposure to food and bev, please?
Well, food and bev is part of the CPI division. I'm not sure we've called out specifically any sort of aspects of the food and bev within CPI. I think CK, though, would only be one of the product sets that we would be selling into that. CK is a much broader application across water, power, and many other end markets. Other parts of CPI, so pharma and other things within that. I don't think we've really got any particular bits we can talk about in terms of examples or successes around food and bev at this point, really, Jonathan.
I think just historically, the penetration has been quite slow. I think it's taken a bit of time for customers to take on the new product. It's more a question sort of aimed at that. Are we starting to see a sort of a change in the acceptance of your products going into that industry? That's what I was just trying to get at, mostly.
I think one of the interesting things is that we hadn't historically focused on it because we weren't oriented like the CPI group. As the CPI team just recently presented their strategy, just last week, frankly, one of the biggest elements will be expansion into other served markets, and pharma, food, and beverage are areas that we find very attractive, less cyclical, high margin for us, very attractive to go after. Now, quite often, the distinction there is that they're buying a prepackaged actuator, positioner, and valve, and what we're evaluating is how we are able to combine those for our customers to be able to provide a more compelling overall value proposition. I think it's something that we're going to continue to grow on. It's certainly one of our focuses. Yes, to date, it's not been a huge portion of our current installed base.
Great, guys. Thank you.
That does conclude today's question and answers. I would now like to hand back to the speakers for today's close.
Well, thanks, everyone. I certainly appreciate that we've gone on a bit longer than usual today, and I hope you do appreciate some of the more thorough disclosures provided. We felt this was kind of warranted, particularly as we pivot from those product segments to the end market segments. All in all, again, I'd just like to thank the broader team at Rotork, the 3,600 associates that have really come forward and continued to demonstrate their ability to execute and drive what I think is a really outstanding set of results today, given the backdrop we're operating within. Thank you all, and I look forward to some of the one-on-one calls over the next several days.
Ladies and gentlemen, this does conclude the call for today. Thank you for joining, and you may now disconnect your lines.