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Rotork joins others in scrapping dividend as coronavirus causes ‘increased disruption’

Published: 08:51 31 Mar 2020 BST

Rotork - Rotork joins others in scrapping dividend as coronavirus causes ‘increased disruption’

Rotork PLC (LON:ROR) has joined the list of company’s scrapping their dividend plans as it said the coronavirus pandemic had caused ‘increased disruption’ to its business.

The maker of industrial instruments said the initial outbreak of the virus in China has caused delays to deliveries and increased logistics costs, and despite output from its operations in the country now “close to back to normal”, the spread of the disease to Italy had shut down all three of its factories there.

READ: Rotork sales fall but profits inch higher, "modest" progress expected in 2020

Rotork also said it was “too early” to estimate the impact of plans by its end customers to revisit their spending plans, as well as the impact of the collapse in crude among its oil & gas clients.

As a result, the company said it was taking steps to reduce the impact of the pandemic on its business, including a recruitment freeze, postponing salary increases and withdrawing its plans to pay a final dividend of 3.9p per share, saving the group around £34mln.

Looking ahead, Rotork said it had seen an impact on both orders and deliveries in March, however, its order intake in the Asia Pacific was “broadly in line with expectations despite softness early in the period”.

The firm also said it was “not currently possible” to provide guidance for 2020 due to the “unprecedented level of uncertainty”.

"Rotork's products and services are used in critical applications such as energy, water, power and transportation and in line with our corporate purpose we are committed to 'keeping the world flowing for future generations'. Our first priority, however is the health and safety of our colleagues and their families, our customers, our suppliers and all other stakeholders, and I would like to recognise the extraordinary fortitude and determination of all our people at this challenging time”, said chief executive Kevin Hostetler.

“Whilst there is unprecedented uncertainty on how unfurling events will directly impact our markets and our businesses, we enter this period from a position of strength. Rotork has a great workforce, strong market positions and substantial net cash resources", he added.

In a note on Tuesday, analysts at Shore Capital retained their ‘sell’ rating on the stock, saying the share price was “too expensive given the significantly deteriorated outlook and the likelihood that 2020 earnings will be a lot lower [year-on-year]”.

“A significant part of the group’s offering is its site services, which drove 20% of revenue in 2019. Site services margins were significantly above the group average and helped drive sales elsewhere in the business. We think this area of the impact of travel restrictions will be particularly damaging because of this. Given the highly uncertain outlook, the risks facing Rotork outweigh the potential rewards, in our view”, the broker added.

Rotork shares fell 1.1% to 220.2p in early trading.

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