U.S. markets close in 5 hours 30 minutes

Edited Transcript of ROR.L earnings conference call or presentation 3-Mar-20 8:30am GMT

Full Year 2019 Rotork PLC Earnings Presentation

Bath Mar 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Rotork PLC earnings conference call or presentation Tuesday, March 3, 2020 at 8:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jonathan M. Davis

Rotork plc - Finance Director, Member of Management Board & Director

* Kevin G. Hostetler

Rotork plc - CEO, Member of Management Board & Director

================================================================================

Conference Call Participants

================================================================================

* Andrew J. Wilson

JP Morgan Chase & Co, Research Division - Analyst

* Dominic Convey

Peel Hunt LLP, Research Division - Analyst

* Edward Maravanyika

Citigroup Inc, Research Division - VP

* Jonathan Hurn

Barclays Bank PLC, Research Division - Research Analyst

* Mark Davies Jones

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Richard Paul Paige

Numis Securities Limited, Research Division - Analyst

* Robert John Davies

Morgan Stanley, Research Division - Equity Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [1]

--------------------------------------------------------------------------------

Good morning, everyone. I appreciate you joining us as we discuss our 2019 full year operating results. I'd also like to welcome those joining us via WebEx. I'm joined here today by Jonathan Davis, our Group Finance Director; as well as Martin Lamb, our Chairman; and Andrew Carter, our Investor Relations Director.

We'll follow our usual format for today. I'll begin with highlights from 2019, then Jonathan will take us through our financials in a bit more detail. I'll then return and discuss our markets, I'll say a few words about our views on the coronavirus, and we'll then discuss the progress we're making on our Growth Acceleration Programme. We'll finish with a few words regarding our outlook for 2020.

As I reflect on the progress in 2019, I'd like to take a moment to thank the 3,700 Rotork team members that did an outstanding job in remaining focused on execution of those things within our control, despite an unhelpful macroeconomic backdrop that became even more uncertain as the year progressed. 2 years into our Growth Acceleration Programme, we have laid the foundation that drives our future growth and we have successfully initiated our operational transformation.

Our endeavors in becoming easier to do business with, reorienting our customer-facing teams and accelerating our innovation and new product development are taking shape. In pursuit of increasing our cyclical resilience, our efforts in lean manufacturing, globalizing our supply chain and business simplification in terms of both facilities and product line rationalizations and our keen focus on productivity are yielding tangible benefits.

We've strengthened our leadership team and created our One Rotork movement, emphasizing bringing our company together under our revised purpose of keeping the world flowing for future generations.

We've launched our new values and behaviors and we've now aligned our rewards programs to these desired behaviors. Our next-generation IT platform, which yields additional future benefits, is well underway, with elements being deployed this quarter ahead of the fuller implementation in late 2020 or early 2021. Let's take a look at our highlights for 2019.

Against a demanding comparison period and in an unhelpful macroeconomic environment, and absent orders and revenues from sanctioned countries, our full year order intake was up 1.5% on a reported basis and revenues declined 3.8%. The team's continued execution is evidenced by continued progress on operating margins, rising 160 basis points on a decline in revenues to land at 22.6%; strong cash conversion of 131%, with period ending net cash at GBP 106 million; this level of cash generation continues to demonstrate our ability to self-fund our Growth Acceleration Programme; and a 260 basis point increase in return on capital employed to end at almost 32%. Our investments in Rotork Site Services, which largely represents our recurring aftermarket business, are bearing fruit. And while these revenues continue to be reported within existing business segments, I'm pleased to disclose that our Rotork Site Services business grew in 2019 to achieve 20% of group revenues.

Once again, a strong outcome despite the macroeconomic environment, demonstrating our team's continued ability to drive day-to-day execution whilst implementing the initiatives identified through our Growth Acceleration Programme.

Now let's have Jonathan walk us through our detailed full year financial results.

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [2]

--------------------------------------------------------------------------------

Thank you, Kevin, and good morning, everybody. We're pleased to report another year of progress with operating margins, driven by the Growth Acceleration Programme against the backdrop of slower end markets and reduced revenue.

Organic constant currency or OCC results are adjusted to restate the 2019 results at 2018 rates and for the 2018 disposals. Currency was a circa 1% tailwind for the year as a whole, just as it was in the first half of the year. The businesses disposed of in 2018 recorded GBP 3.1 million of revenue and minimal adjusted operating profit in 2018 up to the date of disposal.

Order intake in the second half was 3.9% higher than the second half of last year and reversed the small first half shortfall. For the year as a whole, order intake was 0.7% ahead on an OCC basis. The order book is 12.6% higher than last December with a book-to-bill of 1.03 for the year.

Revenue was GBP 669 million, 4.4% lower. Adjusted operating profit of GBP 151 million grew 2.2%, and margins on an OCC basis were 140 basis points higher than 2018. On a reported basis, adjusted operating margins were 22.6%. Adjusted earnings per share were 13p, a 2.4% increase. Cash conversion was 131%, reflecting a very positive working capital performance. And the final dividend is 3.9p, up 5.4%, giving a full year dividend of 6.2p, up 5.1%.

This adjusted operating profit bridge shows that the reduction in volume has more than been compensated for by material cost savings and lower costs, as we see pleasing momentum from the Growth Acceleration Programme. Incremental Growth Acceleration Programme savings were GBP 10.2 million and are within all 3 headings. I'll provide more detail on this in a moment.

Gross margin improved 180 basis points to 46.6%. Lower material costs were the largest contributor, improving 210 basis points. 1/3 of this is due to divisional mix and the remainder due to management actions. Overheads reduced GBP 4.8 million or 2.9%, 2/3 of which was due to lower headcount and people costs, with the balance spread over many cost headings. As a result, adjusted operating margins increased 160 basis points to 22.6%.

Overall headcount reduced 4.7% in the period. This includes the sites we've closed in the year, productivity improvements across many locations and rebalancing resources geographically. Adjusted operating profit per head increased 8.5% as a result. Some of these cost reductions were reversed this year as we build headcount in certain focus areas and disciplines.

We started the year with net cash of GBP 44 million, but the introduction of IFRS 16 on leases reduced this by GBP 12 million. With closing net cash of GBP 106 million, cash conversion in the period was 131%. Working capital in the cash flow, which uses average exchange rates, was a GBP 23 million inflow with inventory and receivables both positive. Net working capital as a percentage of sales fell from 28.5% last year to 24.7% of sales this year. Inventory at balance sheet rates reduced GBP 21 million and fell from 13.6% to 11% of revenue. Trade receivables also reduced, down GBP 16 million, and reported as days sales outstanding. This is a reduction from 62 days to 57 days. CapEx was GBP 17 million, as we see an increase in IT investment, but no major spend on facilities in the year. Investment in Rochester has started, but will impact 2020.

Return on capital employed increased 260 basis points over the last 12 months to 31.8%, driven by both the increased profitability and reduced asset base. This means that over the last 2 years, return on capital employed has increased 690 basis points. And as the calculations use an average asset base, the full benefit of the December '19 balance sheet is only partly reflected.

The GBP 5.2 million adjustments to profit in the period comprised redundancy and restructuring costs, less the GBP 2.5 million profit on the sale of the remaining parts of the Pittsburgh business. This distribution business was sold right at the end of December 2019 for GBP 4.3 million. The site improvement costs of GBP 4.4 million, largely relate to the 2 manufacturing sites we closed and relocated in the year in Taunton and Tulsa. The payback on these is within our 2-year target for such activities.

Incremental procurement savings in the year were GBP 5.8 million, as the team continues to look for opportunities in new spend categories. The impact of the numerous continuous improvement initiatives has been a GBP 1.5 million gain in 2019. These benefits are retained as we move into the current year, but only incremental benefits are captured in this summary.

The cost of reorientating the sales organization and divisional structure has been GBP 1.4 million in the year. The savings arising from this and the actions in the previous year are an incremental GBP 1 million P&L benefit in 2019.

The total income statement impact over the first 2 years of the Growth Acceleration Programme is GBP 13 million and exceeds the cumulative GBP 11 million restructuring costs in respect of the program. When the cash benefits of working capital improvements, measured here against the 2017 start point, are added, the cumulative cash generation of GBP 39.3 million exceeds the GBP 8 million spend to date on investment in facilities and IT under the Growth Acceleration Programme.

Looking at 2020, let me provide some guidance on key points. Incremental Growth Acceleration Programme benefits are forecast to be lower in 2020 than 2019 with lean initiatives, the one area of increased incremental benefit. Site improvement benefits are expected to be lower in 2020 as we prepare a number of sites for future initiatives. Procurement savings are lower as the team moves to the next wave of categories. Lean initiatives are now an ongoing activity and will gain traction in 2020.

The organization changes arising from the sales force reorganization were largely complete in 2019. The next phase of these savings will come following implementation of the new IT platform later in the Growth Acceleration Programme.

Although currency was a 1% tailwind in 2019, based on the current rates prevailing for the rest of the year, currency would swing to a 2.5% to 3% headwind. The Pittsburgh business we sold in December should be excluded from 2020 forecast. In 2019, it recorded sales of GBP 8.2 million and profit of GBP 0.9 million. The effective tax rate for 2019 on adjusted operating profit is 20 basis points lower than 2018 at 23.5%. There are no significant drivers of this reduction, but it's influenced by the geographic mix of profits, plus tax rate reductions in some specific markets. This is not currently expected to change as we look at the coming year.

We'll see an increase in some people costs compared with 2019, particularly in R&D and IT, as these areas accelerate activity in 2020. The U.S.-China tariffs impacted Gears division in 2019, with incremental costs of GBP 1.2 million. However, based on the current position, there is still a small incremental cost in 2020 of around GBP 0.5 million.

Investment in the new ERP system is progressing as planned. And this, together with investment in our Rochester, New York State factory, will be the main drivers of an increased Capex -- increasing CapEx to GBP 30 million in 2020. The investment in a new Bath facility has been put on hold, so it does not feature in our plans for 2020. Having evaluated a number of alternative plans last year, we decided investing in extending the life of the existing facility the best option at this time.

Lastly, in terms of looking forward to 2020, I should remind you that we will be reporting our divisional results using new end market divisions of Oil & Gas, Water & Power and Chemical, Process & Industrial. Rotork Site Services will remain embedded within these divisions.

Before we get to the half year results, we'll provide a restatement of the last 3 years in order to give a comparative for the 2020 results. We'll provide details at that time of the profitability of the 3 end markets. The margins of each of the end markets will probably be more similar than our current product divisions are. This is partly the result of the majority of fluid systems becoming part of the Oil & Gas division.

Now turning to the operational review. This slide summarizes the Group's key markets and geographies. These slides are on an as-reported basis. Sales to Asia Pacific grew 1% despite the strong comparatives, which included the large downstream oil and gas projects we highlighted last year.

North America and the U.K. were very close to 2018 levels. Eastern Europe, the Middle East and Africa declined the most, down 17% and 16%, respectively. This was the result of there being no repeat of the major upstream projects in Eastern Europe seen in 2018, and the Middle East downstream was impacted by cessation of activity in sanctioned countries in 2018.

Oil & Gas declined from 54% of group revenues to 51% in total due to the factors I've mentioned. But within this, midstream grew with spend in gas processing plants and pipelines higher. Water grew 1% with spend in North America and Asia Pacific. In Power, a decline in thermal power in Asia led to an overall reduction of 10% in revenue. Industrial was the strongest area of growth, up 10%, with North America and Asia Pacific the best-performing regions, driven by spend in petrochemical and HVAC applications.

Turning now to the divisions. In Controls, revenue was 0.9% lower on an OCC basis, recovering some ground compared with the first half. Improved material costs, the result of procurement savings and no repeat of the large, high-material cost projects in 2018, improved labor productivity and a reduction of nearly 5% in overheads resulted in a 10.3% growth in adjusted operating profit and margins improved 320 basis points to 32%.

Revenues from non-oil and gas markets increased from 50% of the divisional total to 51%, with industrial processes increasing to 18%. Water and wastewater sales grew 8%. North America saw a broad spread of municipal projects. In Asia Pacific, China led the way with one wastewater treatment plant order, topping GBP 1 million.

Industrial processes grew 4%. Growth was strongest in Asia Pacific with the investment in stand-alone petrochemical plants a large part of this. Power sales were up for North America, driven by the sale of spares and replacement units for the nuclear industry, whilst the much larger Asia Pacific market saw a continued decline in the thermal power market.

Oil & Gas revenues declined modestly, principally due to the tough comparatives. The previous year included several large low-margin Asia Pacific downstream projects, which were not repeated in 2018. Midstream was positive in North America with many small pipelines and measurement skid projects and in Asia Pacific, with pipelines in India and China the most significant part. Rotork Site Services performed well.

Fluid Systems revenue was 16.8% lower on an OCC basis. Even with a 150 basis point reduction in material costs, improved labor productivity and a 4% reduction in all other costs, adjusted operating profit fell to GBP 8.3 million and net margin was 6%. The underlying order activity remains at good levels, but the larger projects, like those seen in the first part of 2018, remain absent; or when they are in discussions, subject to delays.

Looking at the end markets, industrial process sales increased to 24% from 20% of the divisional total, growing modestly in the year. Midstream oil and gas revenues also grew, benefiting from an increase in activity in Eastern Europe. Overall, however, Oil & Gas revenues fell 19% year-on-year, the result of a reduction in project activity in both the upstream and downstream segments and a weaker opening order book.

On an OCC basis, Gears revenue was 2.6% lower, and adjusted operating profit declined 3.3% to GBP 15 million. U.S.-China tariffs continue to affect Gears more than any other part of our business, and the incremental cost in 2019 is largely responsible for the increase in material costs.

Labor productivity and cost actions managed to largely offset this headwind, and adjusted operating margins only declined 10 basis points. Revenue from non-oil and gas markets increased from 46% of the divisional sales to 48%, with water and wastewater increasing to 21%. Industrial and power sales also grew. Oil & Gas revenues declined as 2018's higher downstream activity was not repeated.

Instruments revenue has grown 0.9% on an OCC basis. With improvements to material costs, labor productivity and the factory cost base, the cost of which have all reduced in value, gross margin increased 180 basis points to 46.2%. Overhead costs increased slightly, but adjusted operating profit on an OCC basis increased 140 basis points to 24.2% despite a modest revenue growth.

Instruments to non-oil and gas markets grew strongly in 2019, driven by the industrial segment, which reported good progress, particularly in the Americas and Europe. Non-oil and gas markets represented 61% of sales, up from 55% in 2018. Oil & Gas sales were down modestly. However, the important upstream segment saw activity pick up later in the year.

So in summary, despite a year of slower end markets, we've continued to execute our Growth Acceleration Programme, driving good margin progression and reducing working capital, which has produced another step-up in return on capital employed, whilst at the same time preparing the systems and processes for the next phase of the program.

I'll now hand back to Kevin.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [3]

--------------------------------------------------------------------------------

Thank you, Jonathan. Before I dive into our market environment and Growth Acceleration Programme, let me say a few words about our current views regarding the coronavirus. I'll first reiterate: The safety and well-being of our employees, our customers and their families is the highest priority for our leadership team as we navigate through this period of concern and uncertainty.

One thing to remember, the types of programs that drive the majority of our business, that is capacity expansions, process industry, retrofits and upgrades, water network upgrades, et cetera, are unlikely to be canceled. However, we may see a pushout for a quarter or so.

As we view things today, we still feel we'll have an ability to recapture a good portion of these programs within the year. We've previously disclosed Asia represents roughly 1/3 of our group revenues, and certainly China is a significant portion. It also plays a role from a supply chain perspective to Rotork businesses throughout the world.

Looking at the impact from the 3 primary locations to date: China, Korea and Italy. Within China and Hong Kong, we have 1 factory located in Shanghai plus 3 regional sales offices. We have 377 employees throughout China and Hong Kong. And to date, we've had no employees test positive for the virus. We currently have 6 employees remaining in the quarantine zone within the Hubei Province.

Our Shanghai factory, after the mandatory extended shutdown, has resumed operations and is already at over 85% production capacity. Our offices are at over 80% staffing levels as well. Although not yet at full capacity levels, our broader supply chain is returning online very quickly.

In South Korea, we have 1 factory and 3 regional sales offices. We have no reported impacts from the virus to date on either our employees, our production capacity or our supply chain.

In Italy, we have over 400 employees divided between sales offices and 3 factories. Two of our smaller factories are located in the yellow zone just outside of Milan, and one is located just north of Pisa in Lucca. While we have no confirmed cases of the virus, we have one employee reporting possible symptoms and circa 30 employees in self-imposed quarantine due to travel through the red zone within the last 14 days. Out of an abundance of caution, we closed our Casargo facility for a week last week. The factory has now reopened and resumed full production.

Outside of these regions, we have one employee who has contracted the virus. This was contracted while on a personal vacation to Asia, and the employee has not yet returned to our offices. We have an additional 5 employees or so under self-imposed quarantine due to recent personal travel.

We all recognize the situation remains very fluid. We remain diligent and focused on the well-being of our staff and our customers. And we also remain keenly focused on providing our customers with the best possible service levels throughout this period. Quite frankly, it's too early to fully predict the impacts of the virus or the associated potential of economic stimulus that may be pending resulting from this impact.

Let's now turn to the broader market environment. I'm on Slide 16 in the deck for those online. Oil prices remain volatile throughout 2019. And since the end of 2019, we've seen a decline in the prices per barrel, driven by a decline in demand, again, particularly driven by Asia and China, as a direct result of the coronavirus outbreak, coupled with an increasing supply globally.

Current CapEx forecast for the oil and gas sector are tempering and are now reflective of an overall increase of low single digits year-on-year versus prior predictions of low to mid-single-digit increases. There is notable weakness in North American upstream business, where Rotork has limited exposure outside of the pipelines required for shale oil takeaway. Oil & Gas accounted for 51% of group revenue, down from prior year's 54% of group revenue.

Of Rotork's Oil & Gas revenues, over 73% are in the less-cyclical mid and downstream portions of the oil and gas spectrum. Rotork's upstream growth continues to be driven by Middle East wellhead expansion and the return of subsea business. The midstream segment for Rotork is largely about pipelines and LNG. We see pipeline expansion serving the U.S. shale market in both oil and gas and water applications and pipeline expansion specifically related to LNG as well as a general LNG-related expansion beyond pipelines globally.

Within our downstream business, we continue to see positive momentum in both refinery expansions and capacity upgrades, particularly throughout Asia. Despite an underlying moderation in industrial growth globally, we've seen our industrial and process businesses continue to outpace underlying growth due to the replacement of fluid systems actuation with electric actuation in industrial applications.

We continue to find opportunities for further growth within our industrial markets. In our other end markets, we expect water to continue to see modest expansion in the North American market and continued strong expansion in India, China and throughout Southeast Asia.

Whilst we see a structural decline in our power markets with the shift from high carbon coal towards gas and renewable forms of energy generation, we feel the decline witnessed in 2019 is unlikely to be repeated on a similar scale.

I want to draw your attention to the importance of small to midsized orders to Rotork, and we thought we'd provide a little perspective today. As depicted here on the bottom of this slide, we estimate that maintenance, repair and small to midsized automation and improvement projects, that is individual orders less than GBP 100,000, generate 75% of group orders by value in a typical year. And that orders above GBP 1 million represent only 5% of group order intake.

This matters as customer capital expenditure budgets are more likely than their operational budgets to come under pressure during uncertain economic times. Such periods often see an acceleration in automation activity, as this typically represents an attractive return on what can be a relative modest investment. As such, our business is more related to the operating budgets of our customers than their capital budgets.

Let's take a moment and review some of our 9 financial KPIs relating to our ESG agenda. The health, safety and well-being of our people and of our visitors is our #1 priority. I'm pleased to therefore report a 22% reduction in our recorded lost time incidence rate in 2019.

In keeping with our company's purpose, we are fully committed to reducing our environmental impact by reducing our energy and water consumption, waste production and by preventing pollution. We operate an assembly-only philosophy at most of our business units. Meaning the majority of our energy use is on lighting, heating, cooling and IT systems.

Our site consolidation efforts and other initiatives contributed to an excellent progress reducing our environmental impact for the year. Rotork's overall carbon emissions were 13% lower for 2019. Additionally, we reduced our electricity consumption by over 11% and our water usage by over 12%.

We now have over 50% of Rotork employees owning company stock, and I'm pleased to say of our senior roles, they are now comprised of 23% women.

Our fourth quarter pulse surveys continue to show progress with an overall global engagement score of 7.3 out of 10, representing a high level of engagement, and our pace of change score once again came in at 6.2.

Given the number of initiatives we are driving at Rotork, we consider this pace of change score very important. Participants can answer 0 through 10, with 0 representing our pace of change as too slow and 10 representing we are moving too fast as a company. We feel this is right about where we would like to be.

Our plc Board has recently formed a subcommittee to focus on accelerating our ESG agenda, and we have also included ESG performance metrics as part of our executive bonus schemes.

Before we begin taking a closer look at our execution within our Growth Acceleration Programme, let me be a bit more explicit for a moment about what drives our growth.

In addition to the general macro trends, such as population and middle class growth, infrastructure investment and modernization and water scarcity to name a few, Rotork, as the world's leading provider of electric actuation, benefits for the drive for process automation and the inherent movement from less-energy-efficient fluid power actuation to electric power controls. Our onboard smart diagnostics enable preventative and predictive maintenance, allowing our customers to avoid costly and unplanned downtime.

Within our Growth Acceleration Programme, we have identified 5 key initiatives that we believe drive our future growth. These include: becoming easier to do business with, which is driving competitive advantages through best-in-class, on-time deliveries, quote turnaround times and improved client communications; the reorientation of our business towards targeted end markets, therein driving a deeper understanding of our customers' needs in creating improved value propositions;

The doubling down in our highest growth markets, where we are adding resources and sales, customer service and Rotork Site Services as well as localizing production in these regions to further reduce lead times; the acceleration of our innovation and new product development efforts through revised and enhanced processes and the adding of additional engineering and program management capabilities; and the continued investment in Rotork Site Services, our aftermarket platform.

We are confident these actions will aid Rotork in returning to the mid- to high single-digit revenue growth we have enjoyed over the long term.

Now let's take a closer look at our Growth Acceleration Programme, and I'm on Slide 19 for those joining us online. I'm pleased to report that our Growth Acceleration Programme remains on track and our team's execution on our priorities is very strong. Our 4 pillars and our underlying set of portfolio assessments each continue to have a role in driving the growth and margin enhancement we desire.

Since its 2018 inception, our Growth Acceleration Programme has delivered GBP 13 million of P&L benefits and over GBP 30 million of working capital improvements. Let's take a look at our 29 activity within the 4 pillars of the Growth Acceleration Programme. And as our usual practice, we'll begin with our customers first and start with the commercial excellence pillar.

We've mentioned that we initiated our migration from a product-based organization to an organization more closely aligned around market segments in the first half of 2019. We've successfully completed our North Asia transition in the second quarter, South Asia in Q3 and Europe and the Middle East in Q4 of 2019. In this quarter, we complete our transition in the Americas. Our value selling program was launched in 2019, and after developing our Value Selling Toolkit, we trained and certified over 275 team members.

Within our Site Services business, which represents our aftermarket business, including field services, such as installation, commissioning, retrofits and upgrades, our focus is twofold. We continue to streamline our processes and our organizational structure to allow further scale and service capabilities, including regionalizing or centralizing some support functions, this while simultaneously accelerating our broader aftermarket and lifetime management programs.

We continue to add and rebalance our resources geographically to ensure we are providing the necessary service personnel in our highest opportunity regions. We'll continue driving the comprehensive lifetime management of our installed base as we progress through our migration from reactive to preventative, to ultimately predictive maintenance programs.

Turning to our innovation and new product development. We continue increasing our emphasis on new product development efforts to drive organic growth. Our engineering efforts continue to focus on providing our customers with more energy-efficient electric actuation and adjacent solutions as we replace hydraulic and pneumatic actuation, reducing our customers' emissions, increasing our customers' operating efficiencies and providing greater connectivity and process control through advanced and secure communication protocols. Our engineering leadership team is now largely in place, and we launched 17 new products in 2019.

Depicted on the bottom right of this page is one of the many solutions we provided our customers in 2019. This application is on water gathering and transmission pipelines used in the U.S. shale patch. Our engineering team worked alongside the pipeline provider to create a solar-powered valve actuation solution encompassing battery backup IQ3 electric actuators. Not only did our solution provide environmental benefits, allowing our customers to reuse and redirect water between well sites and also dramatically reduced the installation cost by eliminating the need to entrench power lines along the entire length of the pipeline.

This is a great example of our engineering solutions, allowing a traditionally nonwater-based customer more efficiently manage their process water and increasingly scarce resources at a dramatically reduced installation cost. These types of water applications are a fast-growing sector for us.

I'd also like to discuss a few examples of early wins we've received from our market realignment efforts. The first is within our Oil & Gas segment, which represents our growing relationship with one of the largest Chinese oil and gas companies. This company began entering into framework agreements 3 years ago in order to simplify their ordering process for standard refurbishments, retrofits and upgrades and to standardize on industry-leading platforms.

For the first 2 years of the program, I'm pleased to say that Rotork won the electric actuators frameworks, which have amounted to nearly GBP 3 million per year. This year, our current -- our new market-aligned team took forward our entire Rotork portfolio of products, and we successfully extended our framework agreement to now include our fluid systems products as well as our instrumentation products.

Within our Chemical, Process & Industrial segment, our team identified a new application and new targeted customers. As the team pitched the entire Rotork portfolio, we were awarded our first order in this application, amounting to GBP 750,000, covering both electric and fluid systems actuators as well as instrumentation products.

Within our Water segment, the team successfully leveraged a long-standing relationship with a large multinational valve maker, extending our offerings to our instrumentation product lines, leading to over 20% growth with this customer year-on-year. These are early wins, and our customer and sales force feedback remains very strong in support of our market reorientation.

Turning to our operations excellence pillar. Our global operations teams lead our efforts to drive a safe, organized, efficient and sustainable workplace on our factory floors, in our offices and at our customer sites within our Site Services business. As we've now rolled out our Rotork lean program to our largest facilities, we've completed over 90 rapid improvement events or RIEs in 2019, which emphasized either increasing production efficiencies or safety. Each event averages nearly GBP 20,000 of hard savings.

Depicted here are 2 of the 1-page summaries. The first, at our Bath facility, is the conversion of our second assembly flow line. This effort resulted in a 20% labor savings, a 20% reduction in area required for the line and an overall substantial capacity improvement. The second represents the reorganization of our Gears manufacturing process in our Leeds facility, which accounted for a throughput increase of over 44% and substantial labor savings.

These summaries are created after each event and are shared internally to all operational team members and are placed on our operations SharePoint website in our efforts to spread best practices.

We continue to execute well on our supply chain improvements, and we met our committed GBP 5 million of savings in 2019. This despite what you've seen as our dramatic inventory reduction. One of the outcomes I am particularly pleased with is our Rotork inventory management program, which was very successful in 2019, yielding an overall GBP 21 million inventory reduction. This while simultaneously increasing our on-time delivery to our customers by a full 5 percentage points.

In relation to our footprint optimization and our ongoing commitment to improve our cyclical resilience, we continue to execute well on our site consolidations and we completed 2 additional facility closures in 2019. Since the inception of our program, we have now reduced our manufacturing locations by 27% in a roughly 2-year time frame.

Let's now turn to our talent and culture pillar and to key enablers. We continue to strengthen our senior team throughout 2019, welcoming 15 new senior leaders to Rotork. After defining our vision, mission and direction in the second half of 2018, our efforts transitioned to redefining our purpose, values and cultural behaviors in the first half of 2019. These efforts included participation from staff in 37 countries. Our new values and behaviors program formally launched in September with 50 sites from around the world participating in our values and behaviors launch on a single day.

We certainly have more to do, we've made significant progress in our diversity commitments over the last 12 months, and I am pleased to state that at least 20% of our plc Board, Management Board and senior leaders are now female.

Turning to our fourth pillar, IT and core business processes. In 2019, we added to our business intelligence platforms, including global sourcing, quote and sales order tracking, innovation and new product development effectiveness and program management, and a global property dashboard, which allows centralized visibility to all our properties and leases in all regions of the world.

In 2019, we completed the design of the global blueprint for our chosen enterprise technology platform, and we deployed our field service application in 2 regions of the world. This common field service platform allows us to share infrastructure resources between sites and therein reduces our administrative cost structure.

We've also designed our early release candidates, which are subsystems, including a global CRM solution and a global HR platform. The global HR platform goes live in Q1 and the global CRM program in early second quarter. Our efforts to simplify and focus our business continue, and we have now either closed or sold 6 businesses and reduced our SKUs by 12% in the last 2 years.

I'll close out by summarizing our 2019 and by making a few comments on the outlook for the year.

In summary, I'm very pleased with our team's continued execution across our Growth Acceleration Programme. Our transition to a market-oriented company is nearly complete, our innovation and new product development efforts are accelerating and our operations and supply chain organizations are delivering. We've launched our new purpose as a company, along with our values and behaviors. And perhaps most importantly, our company-wide pulse surveys continue to reinforce that we are bringing the company along in our journey.

Now turning to our outlook. Looking ahead, it's too early to assess fully the potential impacts of COVID-19. Absent these, we are planning for modest sales growth on an OCC basis and margin progress in 2020, driven by further benefits of our Growth Acceleration Programme, albeit with margin progress more gradual, reflecting our investment plans.

Before closing, I just want to pay tribute to our teams in China, Korea and Italy who have been outstanding in the way they've dealt with the coronavirus challenges and the speed with which the entire Rotork team responded to the situation.

With this, Jonathan and I would be delighted to take any questions you may have.

This is where we miss Michael sitting in the front row with the first question. Yes?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [1]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Mark Davies Jones, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [2]

--------------------------------------------------------------------------------

Mark Davies Jones from Stifel. A couple on the evolution of mix by end market, if I may. Obviously, short term, the Oil & Gas business is under some pressure. But I see in the statement there's also a sort of longer-term review of the opportunities around energy change. You all pointed to positive opportunities. Can you talk a bit about that because I think most people see that as a threat.

And then the other side of it is, historically, Rotork has struggled to make quite the margins in non-oil and gas business than it does in oil and gas, but that seems to be beginning to change, I guess. Could you talk about the relative profitability in this segment?

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [3]

--------------------------------------------------------------------------------

So we'll talk about relative profitability first. And that is if you recall, an IQ3 actuator, as - and I'm using that as an example, that we sell into a water application is the same margin and same price point that we'll sell into an oil and gas application. So from the majority of our products' standpoints, there's not a big differentiation in an individual product depending upon the segment it's serving.

The second area of focus is on our instrumentation piece where it's the second highest margin group that we have today. Obviously, it changes as we go forward. And again, it's experiencing, on a growth rate, the fastest growth rate. So our penetration into other industrial markets, be that HVAC, tunnel, marine, general industrial process, there is more growth rate to be had there for us. So I think that's what you'll see in the continuing mix.

You'll continue to see oil and gas be a large portion of our business within Rotork, but you'll see a disproportionate growth from a rate perspective in those industrial and process sectors, and again, with a portfolio of products that has a very attractive margin to us as well.

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [4]

--------------------------------------------------------------------------------

And then on your first question, the energy sort of transition and products. Kevin highlighted some of the areas that the R&D is focused, and I think that's quite an interesting steer in terms of where do some of those opportunities lie.

So for example, replacing pneumatic actuators in applications, where the pneumatic actuators vent the gas off the process to atmosphere is increasingly being clamped down on. So replacing those with electric actuators is a part of that process. I think also, the kind of the utilization of solar energy in actuation is a relatively new thing, as we saw the example of that on the slide in there. But there aren't many other applications or those sorts of -- using those sort of combination of technologies.

--------------------------------------------------------------------------------

Mark Davies Jones, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [5]

--------------------------------------------------------------------------------

Okay. And one very much smaller question. The Pittsburgh business that you sold, which division does that sit in?

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [6]

--------------------------------------------------------------------------------

It was in fluid systems.

--------------------------------------------------------------------------------

Edward Maravanyika, Citigroup Inc, Research Division - VP [7]

--------------------------------------------------------------------------------

It's Ed from Citigroup. Just asking on the order trajectory. Clearly, second half order momentum was much stronger than the first half. Did that continue into sort of December and into the new year as well?

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [8]

--------------------------------------------------------------------------------

I guess in terms of order trajectory, I think we're still -- as we look into January, February, we're still happy with that supporting the modest growth outlook that we're saying for the year as a whole. So it's continued at reasonable levels to support that.

--------------------------------------------------------------------------------

Jonathan Hurn, Barclays Bank PLC, Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

Jonathan Hurn from Barclays. Just a few questions. First, you can just talk a little bit about the balance sheet. Obviously, big net cash position, good cash generation in 2019. How do we think about that in 2020? Are you starting to look for M&A? Is that sort of coming up in terms of the -- your sites? Or could we think if the cash continues to come off the balance sheet, maybe at some point you'll return that? I know historically, you've done that.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [10]

--------------------------------------------------------------------------------

Yes. I think for the near term, well, to answer the question, yes, we're very focused on -- we think one of the great uses of our cash is going to be, first and foremost, reinvesting in our organic growth, and you're seeing that as we increase our investment in the front end of the business sales force and also in new product development this year.

Second is certainly a focus on growth through M&A. We have a team very much focused on that today, and we hope to be successful, right? It's one of the hardest things to comment on, as you can imagine, but we do consider that part.

And I think in the near term, given the level of uncertainty driven in the markets by the coronavirus, I think maintaining that flexibility on our balance sheet is critically important in this time, maintaining that level of liquidity. So I don't expect us to do anything from a return in the near term.

--------------------------------------------------------------------------------

Jonathan Hurn, Barclays Bank PLC, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

Okay. Great. Second question is just on Site Services. Obviously, you split that out and gave us the number of sales. I know you're not going to be that exact. Can you just give us a little bit of a feel of the growth rate coming through in that business in Site Services?

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [12]

--------------------------------------------------------------------------------

It continues to be in the high single, low double-digit growth rate. It's accretive growth.

--------------------------------------------------------------------------------

Jonathan Hurn, Barclays Bank PLC, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

And just the last one, just coming back to that order book. Can you just talk about the phasing of that through 2020? How much of that order book come in, in 2020? And how is it phasing? Is it very Q1 in terms of delivery? Or is it more sort of second half, just a feeling?

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [14]

--------------------------------------------------------------------------------

So in terms of the order book that we finished the year at?

--------------------------------------------------------------------------------

Jonathan Hurn, Barclays Bank PLC, Research Division - Research Analyst [15]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [16]

--------------------------------------------------------------------------------

There's a small element of that, that pushes out into 2021, as there always is. And I think you still will most look at the different product lines and the lead times for those being one element. So fluid systems order book would typically be a longer runout than the other divisions. But it's very hard to generalize. If we look at the subsea business in instruments, it's typically a program delivery business, which means that those orders, whilst in the order book at the end of December, might run through until the fourth quarter of 2020. So it is skewed to the first half, certainly, but there's a bit of a tail.

--------------------------------------------------------------------------------

Andrew J. Wilson, JP Morgan Chase & Co, Research Division - Analyst [17]

--------------------------------------------------------------------------------

It's Andy Wilson from JPMorgan. I've got 3, please. On Site Services, obviously, which you've just been talking about. When you think about kind of accelerating the growth there or taking, I guess, advantage of the opportunity, is that going to require additional investment? Or is that basically using the resources you already have more effectively? Just trying to think about kind of cost margin dynamics there.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [18]

--------------------------------------------------------------------------------

So it's both. So if you think about -- we used to stand up and talk about the number of members of the Site Service organization, right? And I know that we were excited and the audience when you saw that number grow every year by 25, 30 individuals. I can tell you that this year, it shrunk by 25? 35?

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [19]

--------------------------------------------------------------------------------

By 30, yes.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [20]

--------------------------------------------------------------------------------

Because it was about increasing efficiency and reallocation of those resources towards higher-growth markets. So what you saw this year is with the new leadership in Site Services, a keen focus on productivity, like we're doing throughout the entire organization. And as we lose an individual in a region, looking really hard to say, "Well, that region can cover it with 4 instead of 5, because I'd rather put that fifth in our higher-growth market in Asia." So -- which is why it's missing from the presentation in terms of the total number. So in that case, it's really about reallocation of resources.

In addition to that reallocation, we are adding additional incremental resources in terms of -- as we're selling larger programs, for example, to customers that last multiyears, adding specific program management resources, so in addition to the field service technicians, we've added recently 2 new program management resources to handle some of the larger multiyear programs we're entering into. So we are adding some additional resources as well as reallocating.

--------------------------------------------------------------------------------

Andrew J. Wilson, JP Morgan Chase & Co, Research Division - Analyst [21]

--------------------------------------------------------------------------------

And just in terms of specific end market, but talking about midstream, which obviously was kind of the success story of oil and gas this year. Just thinking into next year, I think you made some comments. But just trying, I guess, to flesh out a little bit by region on that. Because I think there's a fair amount of debate around LNG, for example, in terms of kind of what that looks like this year, particularly in the U.S. Just trying to get a sense of kind of midstream as a big picture, but midstream looked at by region as well, please.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [22]

--------------------------------------------------------------------------------

So I think midstream in North America, the biggest focus is still the -- as the capacity in North America continues to increase, I think we've pulled back a little bit in the last week, was the first time we had kind of a down amount of pumping per barrel per day. But it's certainly not geared at seeking a new level. It will continue to increase. The biggest restriction in that is still oil takeaway. So that's still where we see midstream very strong and the pipeline still being required to take that away. As well as the application that we shared, which was really about the more efficient use of water in those same applications, requiring those gathering pipelines and stuff that are getting built now as well.

So we still see that midstream in shale, in the particular place we play, still has a couple of really good years ahead of it. So we feel really good about that. And then otherwise, you still have the general build-out of pipelines throughout Eastern Europe into China, for example, and throughout the Middle East. That's still going to continue. So we feel pretty good about the midstream space for us.

--------------------------------------------------------------------------------

Andrew J. Wilson, JP Morgan Chase & Co, Research Division - Analyst [23]

--------------------------------------------------------------------------------

So when you're talking about U.S. midstream, it's not a comment about LNG specifically, that's just an element of it?

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [24]

--------------------------------------------------------------------------------

Correct. Right.

--------------------------------------------------------------------------------

Andrew J. Wilson, JP Morgan Chase & Co, Research Division - Analyst [25]

--------------------------------------------------------------------------------

Yes, okay. And then, thirdly, just on working capital. Obviously, a lot of progress and a lot of targeted progress, and I think we've probably -- this time last year, we're probably talking about how we wanted to make progress. But how sustainable and kind of how much more do you think there is to go for that? So obviously, you've had a big jump.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [26]

--------------------------------------------------------------------------------

So let me give you kind of a short-term answer and a long term. I think over the long term, we still have a lot of progress, in particular on the inventory reduction, to be had. The reality here is in the short-term, for the next couple of quarters, we'll likely increase in inventory as we get very tight on managing the global supply chain resulting from the coronavirus. So the reality is there will be an uptick as we invest in inventory until we have a better understanding of the longer-term impacts, but that'll be a short-term piece for us. Long term, there's still lots of opportunity on our inventory reduction.

Good news is we've reduced inventory GBP 21 million last year. The bad news is we did it in a time where supply chain is getting more critical, right? So...

--------------------------------------------------------------------------------

Richard Paul Paige, Numis Securities Limited, Research Division - Analyst [27]

--------------------------------------------------------------------------------

Richard Paige from Numis. Just one question, actually. On Controls, the margin progress is pretty strong there. And actually, it looks like it's all second half. Could you just flesh that out as to whether there's anything exceptional going on there or what happened, please?

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [28]

--------------------------------------------------------------------------------

I think one of the interesting things, Controls is probably the furthest along in its facilities on our lean journey, it is certainly one of the key elements. And as Jonathan said, if you remember the second half of 2018, where we really delivered a lot of the lower-margin large programs for downstream in Asia, we didn't have that repeat. So it's a combination of several factors, increasing operating efficiencies through lean and then some margin enhancement from a non-repeat of some orders that we had to give a few percentage points off.

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [29]

--------------------------------------------------------------------------------

As well as probably taking the lion's share of the procurement-driven savings as well.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [30]

--------------------------------------------------------------------------------

That's true.

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [31]

--------------------------------------------------------------------------------

So there's a bit of all of that.

--------------------------------------------------------------------------------

Dominic Convey, Peel Hunt LLP, Research Division - Analyst [32]

--------------------------------------------------------------------------------

Dom Convey from Peel Hunt. Just in terms of the GAAP journey that you're on. I wonder, looking out to the 12 months, whether you have identified any further specific sites that are planned for closure in 2020. And in terms of the inventory or the working capital targets, notwithstanding what you said about the near-term inventory issues, what would good look like in terms of percentage of sales for working cap? And then, finally, on a similar theme, in terms of the SKU reduction; 12%, is that near the start of that particular journey or nearer its end?

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [33]

--------------------------------------------------------------------------------

I'll take them in reverse order. The SKU reduction, we're probably closer to the end than we are at the beginning. We still continue to refine and look at those SKUs on a regular basis. But we've worked really hard on that in the first 2 years in terms of simplifying our business and stopped doing those things that either have very low margin or distract the leadership team at a disproportionate level for the revenue. So I think we're -- that will be a continuing process, but we won't see the same scale as we go forward. So we've taken a big piece of that.

I think relative to the facility closures, this is a year for us of rebuilding. So if you think about in 2019, we had hoped to close 3. We executed on 2. And prior to finishing the third, we had some large orders come in. And with that, we deemed that we'd postponed that one until the first half of this year, and that will still not be done in the first half of this year.

Towards the end of the year, there may be 1 or 2 small opportunities for us. But this is a year of rebuilding some of our, what we call, receiving facilities, where we're adding, doubling the size of our Rochester facility, for example, to be able to receive some additional facilities and to receive some additional consolidation of sales, customer service, things of that nature. So I think this is more of a year of rebuilding than closures, then we'll resume that program more aggressively next year.

I'm sorry, what was the middle part of the question?

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [34]

--------------------------------------------------------------------------------

Working capital target.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [35]

--------------------------------------------------------------------------------

Working capital. So I think from an inventory perspective, good for our type of operation should be somewhere between 6 and 7 turns, the way I look at it. And we're -- we have a long way to get there yet.

--------------------------------------------------------------------------------

Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [36]

--------------------------------------------------------------------------------

It's Robert from Morgan Stanley. I'd just like to go back, I guess, to the big picture between growth and margins. How often in the sort of orders you're taking at the moment you're making that decision maybe to sort of push off an order and kind of release the focus on taking the highest margin business? Is that becoming a problem for you at all? Or is that a decision you...

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [37]

--------------------------------------------------------------------------------

No, we don't really run into that. Most of the time we're specified quite often. And as such, we tend to not do a lot of discounting in general. So our level of discounting hasn't changed a lot. We're not sitting there pushing chunks of business away in terms of protecting our margins. We're not seeing that at all.

--------------------------------------------------------------------------------

Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [38]

--------------------------------------------------------------------------------

And then one question I had is around the instrumentation business. You've obviously built that up over the last few years through a series of acquisitions, of which the margin spread across those different bits have clearly been quite big. When you're looking at potential future acquisition target, is that a division in particular you're looking at? And are you willing to buy stuff below the divisional margins with a view to improve it? Or given your margin focus, are you sort of looking for stuff just at or above the division?

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [39]

--------------------------------------------------------------------------------

So first, I think it's going to be hard to find a lot of accretive acquisitions on a margin basis that work from a financial return perspective, right? Those businesses that are going to be up in those mid-20s are going to trade at such high multiples. It'll be really difficult to provide a fair enough return to our shareholders. So I think there is a balance between businesses that have a decent margin that we can actually use our scale, our channels and those true synergies to get it back up to a reasonable margin, a non-dilutive margin over time. So I think that's what we'd be focused on more so now. But you're right, that is an area that we are focused -- our M&A firepower on.

--------------------------------------------------------------------------------

Robert John Davies, Morgan Stanley, Research Division - Equity Analyst [40]

--------------------------------------------------------------------------------

And then just the final one was around supply chains. How have you changed what you've done since this coronavirus issue has kind of come up? Have you broadened your number of suppliers? Is it a case of just managing the ones you've got better? Does it change the way you think about your supply chains? We're speaking earlier about the amount of inventory you have sort of sitting on boats, moving around the world to different factories. Has anything changed? Or you're just kind of managing what you do in a more careful way?

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [41]

--------------------------------------------------------------------------------

I think we're managing what we do in a more focused way at this point. So the challenge is, while we're coming up online very quickly, in China, for an example, the logistics and the global push for logistics primarily, frankly, driven by the automotive sector, we were able -- so we have some increasing costs in the first quarter due to logistics as we increased a lot airfreight out of China as we saw the virus developing, and we thought that this may be an issue. So we had probably a couple of GBP 100,000 of additional costs related to freight, getting stuff out of China to keep our customers up and running in all other areas of the world.

Since then, what we've seen is logistics prices increased out of China, in and out of China, frankly, in both directions, as well as the time increased somewhere between 5 and 8 days to get those goods in and out, just simply because of the labor at the ports and what have you. So that's where we're focused on really getting much more advanced, where it focuses on supply chain more keenly for us.

We do look at all our suppliers. And we've talked to them. We've rated them high, medium and low-risk relative to our level of inventory, their current production capacity. And out of all that -- and we have a chart that we look at every other day that lists some 60, what we call, critical suppliers. And of those suppliers, there's only one that has not yet returned to full green status out of that. So we have one left out of our critical list. So we're focused on that.

What it really forces us to do in the near-term is to ensure we're communicating very keenly with our customers because we are going to be in a period of prioritizing orders, right? As things come on and we get goods and convert those goods to customer orders, we have to continue to communicate with customers to ensure that we're optimizing the delivery to those customers that need it most for their current schedules of their programs. So there will be a period of that going through the next probably 3 or 4 months.

Great. No more questions? Well, thank you very much.

--------------------------------------------------------------------------------

Jonathan M. Davis, Rotork plc - Finance Director, Member of Management Board & Director [42]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Kevin G. Hostetler, Rotork plc - CEO, Member of Management Board & Director [43]

--------------------------------------------------------------------------------

Appreciate it.