Rotork plc (ROR) Earnings Call Transcript & Summary

Good morning, everyone. I appreciate you joining us virtually as we discuss our 2020 full year operating results. With me today are Jonathan Davis, our Group Finance Director; and Andrew Carter, our Investor Relations Director. We'll follow our usual format today. I'll begin with a few highlights from our 2020, including a brief 3-year review of our growth acceleration program. Then Jonathan will take us through our financials in a bit more detail. I'll then return and discuss our market outlook and the factors which will drive our growth. I'll then spend a few minutes describing the exciting acceleration of our ESG agenda, and we'll finish with a few words regarding our outlook for 2021. This year has simply been like no other. The COVID-19 pandemic has turned the world on its head and challenged resilience everywhere, whether it be families, businesses, communities or governments. I would like to express our deepest sympathy to anyone who has been personally impacted by the crisis and the family, friends and colleagues of the Rotork employees who have passed away. They will be sorely missed. I would also like to thank my 3,400 Rotork colleagues for their extraordinary efforts over the past year. Whether they have been working in our factories, at our customer sites, in our offices, or at home, where a large number are, they have embraced the changing circumstances with the utmost professionalism and dedication to our customers. Whilst this success clearly reflects individual efforts, it also reflects Rotork's strong culture. We have a strong sense of teamwork, a hard-working can-do mentality and increasingly, a broad perspective and an entrepreneurial approach. All of these were very apparent throughout 2020. Our purpose, keeping the world flowing for future generations, links to our strategic objectives of accelerated growth and increased margins. In simple terms, the challenge the world faces is sustainably providing many more people with a high-quality of life. Rotork can help here while striving higher sales and margins, through providing innovative products and services that enable further electrification and automation, which together, lift productivity and efficiency, minimize environmental impact and assure safety. Let's take a look at our highlights for 2020. Despite the extremely difficult economic environment, our team continued to remain focused and to execute as evidenced by continued progress on operating margins, rising 100 basis points and decline in revenues to 23.6%. Demonstrating our commitment to improve our cyclical resilience through structural, cultural and portfolio improvements, we contain the downside flow-through of profit on lower revenues to under 12%. Once again, we delivered strong cash conversion of 130%, yielding period ending net cash of GBP 178 million. This level of cash generation continues to demonstrate our ability to easily self-fund our growth acceleration program. Return on capital employed improved 10 basis points to almost 32%, a level significantly above our cost of capital. Due to restricted access to sites globally in the height of the pandemic, our site services business declined at a rate greater than the group beginning in the second quarter. Rotork site services ended the full year, representing 19% of group revenues. Throughout the pandemic, our investments and our growth continued. We've expanded 2 operating facilities, increased our innovation and new product development efforts, added dedicated resources in emerging markets and continue to focus on driving real value for our customers. Finally, we recognize that dividends are important to our shareholders. We were pleased in September to pay the 2019 final dividend, which was previously deferred, and are pleased today to announce an increased dividend for 2020. As we are now halfway through our growth acceleration program, let's take a brief look at the team's execution and results to date. In addition to the successful completion of the realignment of our business towards end market-facing segments, our Growth Acceleration Programme has now delivered GBP 23 million of profit improvement and GBP 48 million of working capital improvement. That's GBP 23 million net of higher raw material and logistics costs and GBP 48 million, net of increases in tactical inventory in preparation for Brexit and to offset global logistics challenges. These impressive results are a tribute to our team's continued ability to drive day-to-day execution whilst implementing the initiatives identified through our program. Within our commercial excellence pillar, our accelerated new product development efforts have now launched 31 new products. As our program continues, these have increasing commercial importance to Rotork. We have several particularly important products now slated to launch in 2021. And to ensure we continue to sell on overall value rather than price, I'm pleased to note, in the last 18 months, we have recorded over 42,000 hours of dedicated efforts in value selling training and in the creation of our value selling resources library. Within our operational excellence pillar, we have now closed 10 factories or 33% since the onset of our program. Our sourcing program effectively offset, rapidly increasing logistics and commodity costs to drive another year of net savings. Our inventory program has now yielded a reduction in net inventory of 34%. And our productivity per employee, as measured by adjusted profit per full-time employee equivalent, has improved by 18% in our first 3 years. You'll also note our consolidation efforts have extended beyond our manufacturing sites to include our sales and back office locations as well. Moving on to our enabling pillars, I've already mentioned the implementation of our new market-facing structure. So I'll highlight a few of our other accomplishments within our people agenda. We created and launched our revised purpose, vision, mission, values in our One Rotork programs. We have also made extensive efforts to align our performance management approach with our reward systems. And we continue to conduct employee pulse surveys, which demonstrate our ability to bring the entire company along in our journey. Within our IT and core business process pillar, one of our most impressive accomplishments was in the rapid and almost seamless pivot to a work-from-home environment for a large portion of our workforce. We are far along in the design and programming of our new global IT platform, and after a brief pause related to COVID-19 in 2020, we expect our first full site deployment later in 2021. We'll talk more about our growth acceleration program throughout our presentation. Now let's have Jonathan walk us through our detailed full year financial results.

Thank you, Kevin, and good morning, everybody. In the second half of 2020, whilst the backdrop remained challenging, we saw improvements in underlying orders and revenue compared with Q2. Despite low revenue, we continue to drive margin expansion and show strong cash generation. Order intake in the year was 12.4% lower than 2019 on an organic constant currency or OCC basis. Orders in the second half were 3.6% lower than the first half and 8.9% lower than H2 2019 on an OCC basis. Orders in Q4, whilst down year-on-year, showed signs of recovery. Revenue was GBP 605 million, 7.4% down after a stronger second half. Adjusted operating profit of GBP 143 million was 3.8% lower than 2019, but margins on an OCC basis were 90 basis points higher. On a reported basis, adjusted operating margins were 23.6% compared with 22.6% last year. Adjusted earnings per share were 12.5p, a 3.1% decrease. Organic constant currency results are adjusted to restate the 2020 results at 2019 exchange rates, and for the disposal in December 2019. Currency was a more significant impact in the second half, reducing revenue by GBP 7.5 million for the full year and operating profit by GBP 1.9 million. At the end of 2019, we disposed of the Pittsburgh distribution business. It contributed GBP 8.2 million revenue in 2019 and GBP 0.9 million to profit. Cash conversion was once again strong at 130%, reflecting a very good working capital performance. Return on capital employed increased 10 basis points over the last 12 months to 31.9%, building on the progress made over the last few years. In August, we declared the postponed 2019 final dividend and paid it as an interim dividend in September, and said we would consider the dividend for 2020 as a whole with these full year results. Combining the 2019 interim dividend and the dividend paid in September, these represent a 6.2p total dividend paid in respect to 2019. We're proposing a full year dividend in respect of 2020 of 6.3p, a 1.6% increase at a total cost of GBP 55 million. This represents 2.0x cover compared with 2.1x in 2019. This adjusted operating profit bridge highlights the impact of lower revenue, together with the compensating effect of price/mix, direct costs and overhead savings. Price/mix reflects the 13% reduction in fluid power actuator sales. These are our highest material cost products and sales fell the most. Of the other product types, electric actuators and instruments were the most resilient, and these are the highest margin products. Price/mix also picks up the benefits of our strategic sourcing initiatives, but was increasingly impacted by higher logistics and commodity costs as the year progressed. In both direct costs and overheads, the largest contributor to the savings were lower people costs. Total headcount reduced 9% over the year with reductions from footprint optimization and sales back office consolidation within GAAP, lower numbers of temporary workers and other reductions reflecting lower volumes, and natural attrition without replacement. Lower share scheme and bonus costs also reduced the overall people costs, which in total contributed a largest element of the net GBP 25 million reduction in costs. The second largest contributor was reduced travel expenses, and this is also the largest element of the reductions, which might be considered temporary. In total, we would expect around 1/3 of the GBP 25 million cost reductions to reverse in time. Temporary costs also included the additional cleaning, PPE and other COVID-19-related costs. As we said at the half year, all receipts from furlough in the U.K. were repaid midyear but this is not possible in all countries. These savings included in 2020 are not material. In total, gross margin is now 47.0%, a 40 basis point improvement or 10 basis point improvement on an OCC basis. Flow through at gross profit was 46% on an OCC basis, reflecting the fact that all costs within cost of sales flexed very nearly in line with revenue. Adjusted operating margin is 100 basis points higher at 23.6%, a flow-through at this level of just 12%. We started the year with net cash of GBP 106 million, and this grew to GBP 178 million in the year, a cash conversion of 130%. Working capital and cash flow was a GBP 19 million inflow with inventory and receivables the largest positives. Net working capital as a percentage of sales fell from 24.2% to 23.2% during the year. Inventory at balance sheet exchange rates fell GBP 12 million to 10.2% of revenue. This is despite stockholding increases to mitigate the risk of Brexit and disruption in the broader logistics market. Whilst Brexit risks have now diminished, global logistics flows are still disrupted. Trade receivables reduced down GBP 17 million in the year and reported as days sales outstanding improved by 1 day compared with last year-end to 56 days. CapEx was GBP 25 million as we continued to invest in various IT and facility optimization programs, including the expansion of the Rochester factory in the U.S. The combination of these 2 factors mean 2020 is likely to be the peak CapEx investment year for GAAP. The dividend payment of GBP 34 million was the delayed 2019 final dividend with the normal interim being rolled up into the 6.3p to be paid in May. The GBP 6 million restructuring costs in the year are largely connected with headcount reductions. This includes changes to the sales organization as the new market-facing structure was rolled out in the Americas in Q1 and then later in the year, the changes to the sales back office. This also drove the largest benefit in the year of GBP 3 million. Footprint optimization savings in the year were from the carryforward benefits from 2019 plus 2 smaller factories, which closed during 2020, reducing the total number of factories from 30 at the start of the program to 20. Procurement focus this year was, firstly, on managing the supply chain through COVID-19. The GBP 2.3 million net saving was a creditable outcome in a challenging year. Similarly, the continuous improvement and lean team run over 300 lean events, but some of the efficiencies were eroded by running factories at less than full output levels due to COVID-19. The new product development benefit captured here, which increased by 40% to GBP 2.1 million, represents the incremental profit from new products launched in the last 3 years. With total benefits of GBP 11.2 million in the year, cumulative benefits are now GBP 23 million in the first 3 years of the Growth Acceleration Programme, compared with the GBP 17 million of cumulative restructuring costs. Cash benefits are GBP 5 million in the year and totaled GBP 20 million over 3 years. Together with the GBP 48 million reduction in working capital since December 2017, this exceeds the GBP 24 million cash spent to date on investment in facilities and IT. Turning to 2021, let me comment on some key points. Currency was a GBP 1.9 million adverse impact to profit in 2020. With recent strengthening of sterling, currency may be a larger factor in 2021. If current rates of 1.40 for the U.S. dollar and 1.15 for the euro, which applies the rest of the year, this would be a circa 4% headwind to revenue and profits. The various GAAP initiatives will continue to drive benefits in 2021. Organization change will delivered lower benefits after a very active 2020. Footprint optimization will also deliver lower benefits due in part to the timing of planned activities towards the end of 2021. For procurement, the logistics and commodity cost headwinds are continuing into 2021, but there will be more focus on driving cost reductions than managing supply chain challenges. New product development continues to gain momentum, with the teams now established a new process embedded, so benefits will be higher in 2021. Continuous improvement in lean initiatives are expected to track at similar levels to the past year. In terms of restructuring costs, we anticipate these being lower at GBP 4 million to GBP 5 million in 2021 and largely related to footprint optimization initiatives. Other factors affecting 2021 will include the reversal of the majority of the temporary savings in 2020 and the impact of the pay increases, which were brought forward to January in 2021 when no increases were awarded in 2020 and an increase in IT spend as we build up the start of the new ERP rollout. Forecast CapEx at circa GBP 25 million is expected to be at a similar level overall to 2020. There will be a shift to ERP development costs in 2021 as we build up the first implementation later in the year. Other investments include the equipping of the completed Rochester facility and expansion of the Bath factory. Finally, tax rates continue to move lower, albeit only 10 basis points in 2020 on the adjusted basis. The geographic mix of profits has the largest influence on this. Corporate tax rates have generally reduced over recent years, but this could reverse in response to the pandemic. Now turning to the operational review. Revenue was 9.7% lower, but the 3 divisions fared quite differently. Water & Power performed best with revenue up 1.9%. This was offset by an 11.5% decline in Oil & Gas and a 16.2% decline in CPI. Compared with the first half, growth in Water & Power slowed, but both Oil & Gas and CPI improved. Within Oil & Gas, downstream was the most resilient, increasing slightly as a percentage of group revenue. Whilst upstream and midstream both fell, but as a percentage of group revenue, the changes were very small. From a regional perspective and on an OCC basis, Asia Pacific was the most resilient after an improved second half, with revenue only 1% lower for the year as a whole. EMEA was next, 7% lower, with largest decline in CPI and growth in Water & Power. The Americas was the hardest hit region, down 17%, with the sharpest decline in Oil & Gas, followed closely by CPI. Across all regions and end markets, gaining access to customer sites to carrying out service activity was challenging, and remain so now in some locations. Site service sales, therefore, fell slightly faster than the group average and represent 19% of revenue this year. Turning now to the divisions. Total Oil & Gas revenue was 10.1% lower than last year on an OCC basis or 11.5% as reported. Revenue was lower in each region and in each of the 3 market segments of Oil & Gas. In EMEA, sales were modestly down. The decline in the Middle East was offset by growth in Eastern Europe, with all parts of Oil & Gas lower by similar values. Asia Pacific was lower by a similar percentage to EMEA in total but here, downstream grew whilst upstream and midstream declined. This was an improvement in Asia Pacific compared with the first half. Second half sales exceeding those in the second half of 2019. In the Americas, we entered 2020 with slowing activity levels and COVID-19 exaggerated this, making it the hardest hit region. Midstream was the most resilient part of Oil & Gas in the Americas and downstream, the weakest. Adjusted operating profit for the division as a whole was 10.1% lower than the prior year, but margin increased 40 basis points to 23.3%. Fluid power actuate is the most commonly used in the Oil & Gas industry, so the positive product mix impact we saw at a group level also benefited Oil & Gas. Similarly, the benefit of reduced people costs and discretionary spend, together with the temporary cost savings more than offset the impact of lower revenue, leading to higher margins. The essential service nature of Water & Power customers helped the division report revenue growth of 1.9% or 4.0% on an OCC basis as disruption seen by these customers was less than in the other divisions. All 3 regions delivered growth. Asia Pacific saw strong growth in water, particularly in China. Activity in India, including that related to the National Rural Drinking Water Programme, was impacted by COVID-19 and sales were lower. Power sales declined fractionally in Asia Pacific. In the Americas, revenue from water was in line with 2019. Power was ahead benefiting from the power station refurbishment projects we won in the first half of 2019. In EMEA, both Water & Power grew, and the region had the strongest growth overall after a positive second half. Adjusted operating profit climbed 5.7%, benefiting from the higher revenue with margins 70 basis points higher at 29.8%. Despite a slightly adverse price/mix impact in the year, this was, as we saw at a group level, more than offset by reductions in people costs and savings in many areas of discretionary spend, some of which are temporary. CPI suffered the largest overall decline in revenue, with a 16.2% reduction or 12.4% on an OCC basis. The drop-off in Q2 was felt most severely in CPI with improvements in Q3 and Q4, meaning the second half was stronger. This pattern were seen in all divisions. This division typically works on a shorter delay between order receipt and delivery than the other divisions. Asia Pacific saw revenue growth in the second half compared with last year. And for the year as a whole, sales were the same as the prior year. This was despite a large petrochemical project in 2019, not repeating in 2020. EMEA sales declined, led by Western Europe, which included a large HVAC project in the prior year, not repeating this year. The Middle East saw modest growth. We entered the year with industrial production in the U.S. slowing and COVID-19 added to this, resulting in the Americas reporting the largest decline in revenue. This was in part due to mining activity in 2019, which was not repeated. Adjusted operating profit was 8.2% lower, but margins improved 210 basis points to 24.9%. Price/mix was a significant positive with the volume reductions largest in the lowest margin products and sales flat in the highest margin products. This, together with cost actions, commented on already, resulted in the improved margin despite lower revenue. So in summary, despite the reduction in revenue arising from the slowdown triggered by COVID-19, the incremental benefits of the growth acceleration program in the year together with targeted actions to manage costs whilst navigating the practical challenges of the pandemic, have generated a 100 basis point margin expansion and a strong cash performance. Some of the savings are temporary and will reverse but the 12% flow through demonstrates the improved resilience of the business. I'll now hand back to Kevin.

Thank you, Jonathan. Before I dive into our market environment and drivers of our growth, let me say a few words about our current views regarding the coronavirus. I'll first reiterate that the safety and well-being of our employees, our customers and their families remains the highest priority for our leadership team as we continue to navigate through this period of concern and uncertainty. We remain diligent and focused on the well-being of our staff and of our visitors and we also remain 100% focused on providing our customers with the best possible service levels throughout this period. We are still experiencing some intermittent COVID-related disruptions to our operations. However, as we've reconfigured our factories to work in smaller cells or bubbles as we call them, to date, the overall impacts of these disruptions have been very well-managed by our local operating teams. Turning to the environment for our 3 market-facing divisions. Within our Oil & Gas division, after a year of volatility throughout 2020, we've seen oil prices once again increasing to near or slightly above incentive levels, largely due to supply side discipline coupled with a steadily increasing demand. Current CapEx forecast for the Oil & Gas sector remains somewhat muted at low to mid single-digit year-on-year increases. Having said this, I'll remind you our business is disproportionately driven by OpEx rather than CapEx. We believe the extended period of lower investment in the broader Oil & Gas infrastructure over recent years could result in an upside surprise, but it's too early to say. The midstream and downstream segments, which represent 75% of divisional sales have, as expected, held up better than the upstream. Notable weakness remains in the North American upstream business where Rotork has limited exposure. Oil & Gas accounted for 48% of group revenue, down from the prior year's 49% of group revenue. This is a combined result of the decline in oil and gas and the growth experienced in our Water & Power platforms. While our site services business experienced site access-related disruptions beginning in the second quarter of 2020, we saw a sequential increase in our business in Q3 and again in Q4. Our site services business launched several critical programs in the year, emphasizing the total cost of ownership over the lifetime of acquired assets and our role in downtime prevention. Our customers have set themselves challenging environmental targets, which they will strive to achieve regardless of economic circumstances. We believe that electrification has an important role to play in the reduction of our customers' emissions across their processes and that we are well placed to assist them on this journey. Within our Water & Power business, in our developing markets, we continue to see positive momentum in the build-out of Water & Power infrastructure. We've already been successful in China, and there are real signs that India will play some catch-up in 2021. In our developed markets, our growth is coming from water network upgrades and digitization. We believe new environmental regulations, coupled with infrastructure stimulus programs will drive increased spending in 2021 and beyond. We expect our power sector refurbishment work to continue throughout 2021. Within our Chemical, Process & Industrial segments, we are experiencing increasing demand in our chemical-related end markets as demand strengthens for autos and general industrial applications. We see good long-term demand patterns for our mining and cement applications where companies are now moving forward with smaller to midsized operational improvement projects. We also like what we are seeing in our specialty HVAC markets. We expect maintenance, repair and overhaul spend to gradually improve throughout the year, beginning more earnestly in the second quarter. The momentum for longer-term sustainability continues to drive demand for cleaner processes and reduced energy consumption. Our applications in cleaner energy are accelerating, such as our role in waste-to-energy applications, hydrogen systems, including electrolyzers, and battery production. I'll note, we've added a slide to the appendix, which details the efforts in 2020 relative to our Growth Acceleration Programme. While the margin trajectory is clearly more visible at this stage in our program, I want to take a moment to discuss the items we've been working on and investing in that drive growth. Let me once again remind you of our ambitions within our program: to deliver mid-20s operating margins and sustainable mid to high single-digit revenue growth over time. In addition to the general global macro trends, such as population growth, growth of the middle class, infrastructure investment and modernization and water scarcity, to name a few, Rotork, as the world's leading provider of electric actuation, benefits from the drive for automation and industry-wide electrification as companies migrate from fluid power actuation platforms to electric-powered controls, with dramatically reduced energy consumption and emissions profiles. Further, our onboard smart diagnostics and network systems enable preventative and predictive maintenance allowing our customers to avoid costly unplanned downtime. As you can see from this slide, our starting point for driving growth is a focused effort on becoming easier-to-do-business-with through improving and localizing our supply chains, improving our on time deliveries, reducing our "turnaround" times and improving our customer communications. Looking next at our end market alignment, the reorientation of our sales effort towards end markets provides a far deeper understanding of these markets. This understanding means we can focus our efforts. This also fosters a deeper understanding of our customers' needs and how they create value. This, in turn, leads to improved value propositions and new product development efforts, which ensure our products have the features and benefits our customers most value and are willing to pay for. We've seen a great improvement in the sharing of opportunities and winning value propositions between geographies within the market-facing segments. Moving on to Rotork Site Services, our aftermarket platform. We continue to launch new programs in 2020 despite facing site access restrictions. We launched our Lifetime Management programme, our Reliability Service programme, and our Intelligent Asset Management platform, known as iAM. Our Lifetime Management programme is a comprehensive life cycle management programme that covers a suite of services. It assists customers in understanding and managing the inherent risk that aging equipment brings to their plant and operational goals and creates customized service solutions, allowing the maximum life from an asset until the client is ready for an upgrade to the next-generation of Rotork actuator. In fact, despite the issues we face with site access, we had the highest year-on-year growth in actuators under maintenance contracts in the last 5 years. Our Intelligent Asset Management programme, known as iAM, is a cloud-based industrial IoT asset management system for intelligent actuators and the flow control equipment they operate. It helps customers reduce unplanned downtime by using analytics based on data taken from intelligent actuators and near adjacent equipment to create a more comprehensive maintenance plan. Our system provides advanced condition monitoring for easy and accurate reporting of the condition of valves and flow control assets and anomaly detection, enabling proactive maintenance. iAM can improve long-term operational stability of all assets on a customer site. We continue to invest in our service infrastructure, establishing a new regional service center in the U.S. which, while only a few months old, is already at over 85% capacity. Once we've fully proven this model, we will expand this to several other already identified locations throughout the world. We've separated our aftermarket sales and delivery teams to ensure our aftermarket sales teams are more closely aligned to our market segment selling organization. This brings forward the lifetime total cost of ownership analytics into our front-end selling, specification and bidding processes, while ensuring a higher attachment rate for our aftermarket parts and field services. This also allows our service delivery organization to focus on service delivery excellence. Looking next at our highest growth regions. In the last 2 years, we've added additional resources in sales, customer service, business development, strategy and Rotork Site Services, largely in Asia, Latin America and the Middle East. We are actively localizing additional production in these regions to further reduce lead times, reduce our logistical and environmental impacts and to take full advantage of indigenous preferences where required. Next is the acceleration of our innovation and new product development efforts. This is through revised and enhanced processes and adding of additional engineering and program management capabilities. This has led to an increase in the numbers of new products launched and in the size of the opportunities we are now pursuing. Many of our recent launches broaden our electrical and digital offering and by design, drive a greater amount of incremental revenues rather than replacement revenues. One example of an exciting new product is our patented battery backup electric actuator. Our patented design allows Rotork to be the first to the market with an explosion proof battery technology to support customers and applications such as remote skids, blowdown valves and wellhead choke valves. This development allows for the use of an electric actuator and applications previously reserved for traditional fluid power technologies. This also plays into one of the primary ESG themes we are seeing across the industry. Not only is our product competitive from an overall value perspective, it also reduces our customers' environmental footprint through the elimination of emissions and can also, if the customer chooses, be powered through remote solar panels. Lastly, as we evaluate a broader opportunity set, now envisioned by dedicated geographic market segment teams, we are finding new and emerging adjacencies we are well positioned for. These include rapidly growing applications in biofuels, waste-to-energy, hydrogen production, transportation, storage and utilization, and carbon capture usage and storage. While we recognize each of these markets are at various stages of development, these new markets and applications will feature electric network actuation systems. And as the market leader, we are winning a high percentage of bids in these areas. 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 shift gears and talk about our continued momentum on our ESG agenda. We'll start by reviewing our performance across some of our key metrics last year. In keeping with our purpose, we are fully committed to reducing our environmental impact. Our focus on driving lean and efficient operations continues to be an integral part of our Growth Acceleration Programme. We operate an assembly-only philosophy at most of our business units, meaning that most of our energy use is on lighting, heating, cooling and IT systems. We made good progress during the year. Rotork's carbon emissions were 18% lower in 2020, gaining momentum from last year's double-digit reduction. We reduced our electricity consumption by 8% and our water usage by 5%. Over 50% of employees now own company stock. And I'm also pleased to say 23% of our senior roles are occupied by women. Our fourth quarter pulse surveys continue to show progress with an overall global engagement score of 7.1 out of 10, representing a high level of engagement despite the backdrop of operating in a global pandemic. Our pace of change score came in at 6.6, a slight increase from prior year score of 6.3. Given the number of initiatives we are driving at Rotork, we feel this is right about where we would like to be. Turning to Slide 20. In 2020, in alignment with our purpose and recognizing its potential to create superior and sustainable value for our stakeholders, we sharpened our focus on our ESG agenda. We formed an ESG subcommittee within our PLC board and hired our first head of ESG and sustainability to further accelerate our momentum. We undertook a materiality assessment involving our senior leadership team and a cross-section of our external stakeholders. This important work helped us confirm the key issues we should be focusing on, where we could really drive change and add value, including the sustainable development goals, we are best placed to support. The sustainability topics we found to be most important are, in many cases, those we are already focused on. We have a strong track record of driving efficiencies in the way we operate. We work hard to support our customers' environmental performance, and we look after our people and the communities we operate in. The latter was particularly evident throughout the COVID-19 pandemic. Let's take a brief look at our sustainability framework. You'll see that our purpose and our sustainability vision are one and the same, keeping the world flowing for future generations. Our framework will help structure our activity and guide our focus going forward. It is based on 3 pillars: operating responsibly, enabling a sustainable future and making a positive social impact. We've set out our ambitions in key areas of focus within each of these pillars. We recognize our opportunity to help drive the transition to a cleaner, more sustainable future. And we will continue to seek out opportunities in energy, water, power and industrial markets that support a green economy and at the same time, our own business growth. Our entire ESG agenda is underpinned by our commitment to enhanced measurement, reporting and disclosure, and as I mentioned previously, aligned incentives and decision-making processes. You'll see that we've aligned our sustainability framework to the United Nation's Sustainable Development Goals, the SDGs, which we believe are most important. We've identified 5 main SDGs, where we have the greatest potential to support the transition to a better and more sustainable future. We will target SDG 6, clean water and sanitation; SDG 7, affordable and clean energy; SDG 9, industry innovation and infrastructure; SDG 12, responsible consumption and production; and SDG 13, climate action. We have also decided to target 2 additional SDGs, SDG 5, gender equality; and SDG 8, decent work and economic growth to help drive progress on these issues. Rotork has long championed these, as shown by our initiatives and progress in recent years. What really became apparent over the last year is the incredible opportunity Rotork has to make a difference, particularly, regarding facilitating a more sustainable future through enabling the shift to cleaner and more renewable energy and helping our customers improve their environmental footprint along the way. I'll close out by summarizing our 2020 and by making a few comments on the outlook for this year. In summary, I am very pleased with our team's demonstration of our dramatically improved resilience as we've continued our execution across our growth acceleration program. Our transition to a market-oriented company is complete and yielding benefits. Our Site Services business is well positioned to maximize our participation in the recovery from pent-up repair, maintenance, upgrade and conversion programs. Our innovation and NPD efforts are accelerating, and we've made real progress on our ESG agenda. Now turning to our outlook. Whilst the outlook for our end markets is improving, COVID-19-related uncertainty remains. Our production facilities are currently operating largely as normal. We have a solid order book and the considerable flexibility provided by our strong balance sheet. Our investments in IT systems, targeted geographies, innovation and new product development, and aftermarket activities are progressing well and yielding benefits. We continue to strengthen our business and are well placed to benefit from recovering demand. We remain committed to delivering sustainable mid to high single-digit revenue growth and mid-20s adjusted operating margins over time. With this, Jonathan and I would be delighted to take any questions you may have.

[Operator Instructions] Our first question is from Andrew Douglas of Jefferies.

A few quick questions for me, please. Can you just give us a little bit of a feel for the second half in Water & Power? It looks like organic growth there was kind of flattish after a strong first half. Just double checking, there's nothing untoward in that one. Secondly, we had clearly a cold snap in Texas. I was just wondering if that's a threat or an opportunity for you guys? Are you working on assumptions and opportunity, but I just want to double check. And then thirdly, there's not a huge amount on the outlook for M&A. You're going to be starting on GBP 200 million of cash plus at the end of the year. What's the other for M&A? And if there's nothing coming, I appreciate you've got lots on in terms of your focus is elsewhere. Do we then start to think about share buybacks? Or would you prefer to keep a war chest for future M&A?

Let me deal with your Water & Power question first. Are we talking orders or revenue, firstly?

Revenue. I think it was plus 4 for the full year and plus 7 for the first half.

Yes. So in terms of revenue, H2 was slightly ahead of H2 last year on an OCC basis. I think on a reported basis, it would be slightly down, but the Pittsburgh exposed whenever the currency gets in the way of seeing the real answer. So it's low single digits better than H2 2019.

Andy, let me address a couple of the other questions there. First of all, on the Houston, Texas, I'll give you a couple of frames of reference on how we look at it. On the one hand, it further supports impact on the supply side, which again, helps elevate oil prices above those incentive levels. And then it effectively took off about 4 million barrels per day of production at about 7 million barrels per day of refining capacity came out of the system. So that shock kind of did help elevate the price of a barrel of oil for a period of time. We think that net-net provides an opportunity for us. That's a lot of the equipment, both in the short-term and the long-term, a lot of the equipment needs to be repaired in that marketplace. So we expect to see an uptick in terms of field services and going out and assessing and repairing some of that equipment that failed during that. And then I think on the longer-term aspect of it, I think one of the things it did bring into focus was Texas was the leading state in the U.S. in alternative energy. And I'm not sure, many people appreciate that. But while it is the capital of the hydrocarbon infrastructure in the world, it also happens to lead the U.S. in terms of alternative energy. And the recognition that a lot of those alternative energy sources failed during this time period, I think, brought into focus that there is an appropriate mix that will be required as we go forward. So I think that's all helpful for us long time. I think that in relative to the M&A, obviously, we have desires and ambitions to do M&A. Our pipeline is good and it continues to grow. We continue to develop relationships with owners and managers on a proprietary basis as we feel that the current gap between kind of sellers and buyers expectations that we've talked about before is still there. And hasn't dissipated like it has in previous cycles. In fact, valuations continue to climb, aided by rapidly increasing presence of [ space ]. So we think there's lot of money on the sidelines, very few high-quality assets coming to market in the near term, which again creates pressure for us in terms of maintaining a level of discipline in our pursuit of M&A. So what that results? That results in us focusing much more on proprietary deals. We're going to continue our push there. But we do recognize our obligations to return excess capital to our shareholders, and we'll continue to evaluate that as we go throughout the year.

And then one quick follow-up. On the other new product side, you've got -- lots of your products coming through in '21. Is that more of a focus on the new energy opportunities, the hydrogen? Or is that kind of an evolution of the current product set just to give d you kind of growth momentum there?

Yes. So it's both. A lot of our iterations of the existing product portfolio as well as some additional adjacent products that we've been launching. And if you remember, we've started accelerating our investment in NPD and the processes and the number. And while the quality, I would say, in the pipeline are bigger and more incrementally focused new product development initiatives. We've really ramped that up over the last 2 years. And what you'll start seeing now is the acceleration of new product launches over the coming years. So more new products launched that are more meaningful in the overall revenue, but more importantly, more meaningful in the amount of incremental revenue versus replacement revenue that they drive.

Our next question is from Mark Davies Jones of Stifel.

Can I come back to growth? It's another really strong year in terms of operational delivery on margins and cash and all that good stuff. But as you say, there's still more to prove on the growth side. So as you look at the structure of the business today, do you think all 3 business divisions are capable of similar levels of growth over the next few years, particularly within Oil & Gas, do you think it's realistic to see longer-term growth potential in, say, the upstream piece of that, given the challenges there? And I guess as part of that, you've talked a number of times about the opportunity for growth in the electrical actuation market as the transition. That carries on, but obviously, you still have quite significant exposure to the fluid power piece a bit. I guess the converse of Andy's question, are there any business lines that you think you need to get out of in order to drive the overall revenue growth to the levels you need to achieve your targets?

No. I don't think -- I think we do a pretty robust portfolio review every year and present that to our Board midyear as part of our long-term strategic planning exercise. And I think at this point, we've exited the businesses that we feel we need to exit. The -- having a portfolio still in the fluid power is important for a couple of aspects. The first is, many of the large programs that we participate in have a combination, that is that they still desire use of fluid power actuation for emergency shutdown applications and electric for the process control side of their application. So if you're building a new [ refinery ] for example, you will have both present and the new refinery there still. And us having both pieces of the portfolio allows us to compete and take over control of an entire site actuation. That being said, we are helping assist that migration to much more use of electrics over the fluid power. But I think it's still quite important. I think we look at as many as 30% of our orders having a blend of electric and pneumatic and hydraulic on those large programs. So it's still important for us to have, but continues to be important for us to improve the operations within that, which we've been doing for a couple of years now. We've had a focused improvement on our operations, primarily in our Lucca facility that drives our RFS business.

Great. And the relative growth potential of the 3 divisions...

Yes. Absolutely. I mean we see the growth opportunities in all 3. You mentioned upstream. Obviously, the biggest thing that drives growth in upstream will be the need to control emissions and that's the electrification that we've talked about, right, to eliminate emission. So we still see lots of that and some of the new products we just launched that I mentioned in the prepared remarks, were all about displacing pneumatic and hydraulic actuators at wellheads, for example, right, to eliminate those emissions. So we still see lots of growth opportunities driven by electrification there. In water, it's really about, again, as you're building new water infrastructure, you're building it with current technology actuation, meaning electric actuation and network systems. And then as you're refurbing kind of the established infrastructure in the U.S. and Europe, you are, again, refurbishing that with electric versus manual to have remote control of your water network, right? So again, strong dynamics in both of those segments. And then again, within the CPI, the fact is, on most manufacturing lines, you will not build a new manufacturing center today predicated on pneumatic actuation. If you're building a new assembly line today, it will largely be based on electric actuation, right? Not only new, but we will continue to convert the existing pneumatic actuation systems that are out there. So we feel that there's really growth we had in all 3 of our segments going forward.

Our next question is from Max Yates of Crédit Suisse.

I just got two questions. So one maybe a little bit shorter term. Could you give us a feel for the order book going into 2021? You mentioned that it's healthy. Should we assume that it's in line with levels of last year? Or is it still below where we were 12 months ago? That was my first question.

I think if you -- obviously the difference between quarters and revenue in '20 was a GBP 15 million reduction to the order book. I think if you track back that puts a pretty similar level to where we were at the end of 2018, if you do the math. Currency is a bit of noise in that sort of a reconciliation, but it's not significant. So if you don't look at the revenue that we drove from that in 2019, you can really see that revenue in any given year is not evaluating order book, it's about the orders in that particular year. We still don't have a significant proportion of our revenue in the year that's determined by the order book at the start of the year.

And I think it goes along with what we've been communicating is that, those large programs that may overhang from 1 year to another, they really haven't been meaningfully present for the last 18 months, right? So this is much more of the operations spend, the OpEx rather than the CapEx that we've been seeing now for some period of time.

Sure. Okay. And could you also -- I mean, when you talk about the electric actuators opportunity, could you give a sense for how much of your sales today are electric actuators? And I mean, how quickly perhaps that has increased as a proportion just to understand sort of how fast this has been growing and maybe any feel for where this could be in 3 to 5 years based on the quotations and rates of conversion that you're doing?

Well, I guess that was the old divisional structure, and it's the one that we've started reporting in. So I'm not sure I've actually got an electric actuator revenue number that we want to share going forward. I suppose what we have said through the presentation is that, obviously, fluid systems is the product line and the division, the fluid power actuators is the one that declined the most in the year. So it's certainly fair to say during 2020, the electric sales have not declined as fast as the group as a whole. I think that move to electrification and our kind of launch of new products to support it is something that's for the reasons Kevin highlighted earlier, is only likely to continue and potentially accelerate.

Okay. And maybe just a final question. When you think about your mid to high single-digit growth target, have you sort of built this up via what you think your end markets will grow at? And then how much sort of Rotork can grow sort of on top of that with new products, market share, et cetera? Or I'd just love to understand a bit more color around sort of how you built up to that mid to high single-digit growth number.

I think that is one of the ways which we commented that we've looked at and supporting that mid to high single-digit growth number in a variety of different ways. But certainly from markets electrification, digitalization or the trends that we're talking about in terms of how those play out for actuation pass the thought process in supporting that assertion for our business over the medium term.

Our next question is from Jonathan Hurn of Barclays.

Just a few questions from me, please. Firstly, just in terms of the mix in 2020. Obviously, you saw a favorable mix from electric versus pneumatic. How do we think about that going into 2021? Do you think that mix will still be positive? Or do you think it will unwind maybe more in sort of H2 than H1? Just your thoughts there, firstly would be helpful.

I think, as I said, the area where fluid system products, fluid power actuators have been utilized most significantly is in the Oil & Gas division. And that is the division that, in some ways, saw the decline in Q2 slower. And potentially, therefore, a slightly later cycle, and we'll see the return to growth slightly slower in 2021. Having said that, as that comes back, I'm sure we will see a mix headwind from fluid systems sales picking up. That's quite likely. I think the other aspect of mix is probably around service. So we highlighted the fact that the Rotork Site Services through obvious site access issues really through 2020 declined slightly more than the group as a whole. So went from 20% of group revenue down to 19%. That has a degree of positive mix impact as that business returns as site access improves, hopefully through '21. That is -- the pace of that return and that pickup, of course, is one of the uncertainties that we're facing as we look forward.

And just to clarify, in terms of that sort of fluid systems bounce back, is that more of a sort of an H2 type normal would you think?

Really hard to say, Jonathan. Yes, potentially.

I think it's a much -- it's a business that's much more related to large project spend rebound, to be clear.

Sure. Sure. Second question was just on power. I just wonder if you could give us a little bit more color on that just in terms of where you are on the renewables within in that power? I mean -- and have you seen some quite decent growth coming through in that recently?

I think, obviously, the only item we're really calling out on power has been around refurbishment activity and refurbishment project, which clearly is non-renewables. And I think we have seen interesting opportunities in a number of areas. And I think we've talked about the further opportunities through kind of energy transition areas such as hydrogen, carbon capture and storage and those sorts of areas. And we've been very successful in a number of niches within that, but clearly, in terms of scale of those relative to the power as a whole, they're relatively small at this point in time, but promising as we look forward. Obviously, some areas of power are more actuator intensive than others. Solar PV is not particularly actuator-intensive, windmills, wind turbines also less so. But the focus on those bits where actuation is required is yielding positive momentum.

Okay. Very helpful. And maybe just one final one. I don't know if this is that easy to clarify. But just if you look at yourselves right now, how much of it is currently generated directly from automation and digitalization? Just a sort of rough senses there would be helpful, please.

Well, I could argue 100% is driven by automation, Jonathan, in some ways on the basis that, that's what an actuator is doing. So I don't -- I'm not sure I can really split it in any more meaningful way at all, I'm afraid.

Our next question is from Dominic Convey of Numis.

Just a quick question on manufacturing footprint, if I may. You removed 1/3 of your sites over the last 3 years. And I think Jonathan hinted it actions planned for later this year. I wonder if you just might give us a little bit more color on those existing plans. And also, what you see now is the ultimate end game over the next 2 or 3 years for the footprint itself.

Dom, for obvious reasons, we really can't comment publicly on our plans to reduce facilities I think we've always said externally that our goal would be to get down to somewhere into the mid to high teens as an endpoint. So while there's some additional work to be done, it's -- it will continue this year and next, I guess, it'd be all I want to say publicly about our footprint plans.

Perhaps just in another way then. I think on the graphic, I can't see it right now, but there was an arrow pointing down this year to signify just clearly, it will be later on in the years. You won't get a material benefit this year. Would you expect to see that arrows then pointing up in 2022? Is that a fair way to look at it?

In terms of the activities in 2020, certainly, there's -- sorry, in '21, certainly more of the benefits of that will fall in '22. I think you also have to bear in mind that 2020 benefited from carry forward from the actions that we did in 2019. So there's always -- as we parcel this up into artificial financial years, it doesn't reflect the sort of 12-month benefit that we see from each of the changes that we make.

And just one quick follow-up, if I may. In terms of site services, you've talked about this notion of pent-up demand, which I think seems logical given how quickly it fell off last year. Is there any issue around capacity there to fulfill that if it bounces back quite strongly? Could there be bottleneck issues? Or would you think you've got plenty of capacity to deal with that?

No. I think when we think about our headcount, changes over the last year, we've been very careful to protect those experienced site service engineers so that we maintain them. So we accepted a lower level of productivity and utilization throughout last year, knowing that when this comes back, we need to have the capacity. So I think we feel fairly good about our existing capacity. And throughout last year, we continue to add those resources in emerging markets that we think will have a natural level of growth in that. So I think we feel pretty good about it.

Our next question is from Edward Maravanyika of Citi.

I just had two questions. Firstly, just given the much better-than-expected margin performance, would you think of revising upward your longer-term margin target? Or what would you still need to see before you consider doing that? And then secondly, what percentage of sites can you access as of today in the context of RFS compared to, say, to 2019?

Yes. Let me answer the first one, margin performance. So I think we've continued to say, mid-20s operating margin because part of what we're recognizing in that is our ambition to bring forward M&A. And we recognize that it will be difficult to find accretive M&A targets. So by saying mid-20s, we have in mind that we will continue to acquire some companies that may not be at that margin level that we'll have work to do to get them to that margin level, right? So while if Rotork was to not do any acquisitions, would you be able to model the flow-through and say you'll be able to beat that mid-20s? Probably. But we're very mindful of the ability to bring in acquisitions and take time to get them up to those margin levels as well. So hopefully, that gives you a sense of that. And then relative to site access, I will say that while we hit the peak of limited access in Q2, and this was when everyone locked down their sites and said we will have nobody come on-site at all, we began to understand kind of midway Q3 how to come on site. So how to have our operators tested, what PPE we needed to wear, how to properly distance when we're at a customer site. And so we had a good double-digit increase in Q3 and then, again, a double-digit increase in Q4. So I don't know that I have a percentage of sites. I just know that there is good momentum in us regaining access to sites, coupled with momentum in, again, the release of these upgrades, conversions type of programs that we're seeing that our site service is really well-known for stuff.

Our next question is from Andrew Douglas of Jefferies.

I was just wondering if you can give us a feel, and this is a reasonably broad question. On the competitive landscape, and we hear from first glance that you're winning a lot of market share, given the performance of your peers. I was just wondering if you could make any comments on that, and just kind of how you see Rotork positioned, I guess, in the future relative to what peers are doing, be it the small ones or the larger ones just how they're faring? And then secondly, just with regards to ESG. Clearly, lots of stuff in the slide with regards to kind of what you're doing. Is it fair to say that you're changing the way that you sell? Or is it fair to say that the customers, their requirements are changing? I'm working on something that there's quite a few customers maybe kind of old school, Oil & Gas who don't really care much for ESG, whether just maybe some more -- little bit more forward-thinking who do care. I'm just wondering where we are in that kind of evolution.

Yes. I think the one question answers the other, and let me do it in this way. And that we've been changing the way we sell with that 42,000 hours that we've done value selling. We're selling very differently on overall lifetime cost of ownership. And showing that, yes, while we are the highest priced, premium-priced and premium positioned product in the marketplace that over that course of life, and we can measure that in 5 years, we can measure in 10 years. We can measure in 15. We can demonstrate to our customers that you do have a lower total cost of ownership using Rotork over some of the competitors. We frankly chose not to participate in kind of the, for lack of a better word, the pricing battles that were apparent in a couple of our large publicly-traded competitors that have noted that pricing has declined tremendously in the market. We frankly chose not to participate in that. And in fact, have been able to feel really good about understanding the premium price position that we could command and still continue to win those orders, right? So we've done a lot of work around that, and we feel good about that. So I think it's not ESG changing the way we sell. It's really about we're changing the way we sell and including ESG in that in terms of the lower emissions and lower energy costs and all of the above, right? And again, the energy costs are quite significant when you're comparing, say -- and not just an Oil & Gas application, but if you were comparing a pneumatic actuator on a biopharma line, for example, you're talking about some of the case studies we've done, talk about energy usage that are in the $600, $700, $800 a year range versus you replace that with a digital electric actuator, and you're taking that down to $20 a year range, right? So you can imagine that those paybacks now that we understand them really well, are really easy to sell on to not only sell on the ESG, the reduction in emissions, but in the overall energy efficiency. And we've got some really great case studies that help us in that. And I think relative to the commentary about old school Oil & Gas, I view that as, look, the European oil majors have already been on the ESG bandwagon for some time. And one of the first legs, if you will, of their current conversion, it's about dramatically reducing the environmental impact of their existing extraction and production operations. Again, that you can't make a statement like that without immediately going to reduce emissions, therefore, using electric actuators instead of pneumatic, right? That's exactly. And what you have in North America, although slightly behind, as you have a lot of the -- if you think about the Shell, as you have a lot of the independents that were not as well capitalized coming into the downturn, had a lot of debt being acquired by some of the majors, that is really, really good dynamic for us, right? Because what you have is those majors who have stated ESG and sustainability goals, they have operating efficiencies. They have processes. They have playbooks in terms of better ESG-related extraction and production methodologies and all that plays really, really well into our ESG theme that we're pushing to drive growth. So we like those dynamics, and we do think that there is a positive trend with the consolidation in North American Shell as an example.

Our next question is from Andrew Wilson of JPMorgan.

A couple from me. Just following up on from the site services conversation. Just trying to think how the sort of last 12 months has made you think about that as a franchise in the areas which you want to invest in and the feedback you've been getting from customers in terms of either the value of site services potentially accelerating some of the growth that you've seen there in terms of adoption rates. Just given the restrictions around being able to get on site. How's that sort of on the connectivity side of it sort of remote access and all that kind of thing? How has it changed the way you thought about, where you want to invest in that business? Or is it just being case as kind of reconfirming the model that you have and you've been investing in?

Yes. I don't think it's changed. I think it's just reconfirming our investment thesis inside services. As we've noted in the presentation, despite access issues, the fact that we had the single largest growth in new actuators under contracts in the last 5 years is just really telling. And that goes with -- when we launched our Lifetime Management Programme, our Reliability Services, it's all about going on site, helping our customers assess their actuation platforms and talking about how we can, on one hand, maintain them to maximize their useful life. And on the other hand, show them definitive value propositions to upgrade them in the near term, right? So we're able to do both. And I think that's, again, getting really sticky with that customer base. And we're enjoying that. I think the other key element to that for us is that we have, again, done a good analysis of concentration of actuators around the world, if you will, and ensured that we have the right service centers close to those bigger concentration areas. We've added a new service center in the Americas this year, as I noted in the prepared remarks. And within 3 months, it was up to 85% capacity already. We expect that certainly in the very near-term to hit over 100% capacity. And it just gives you a sense of that pent-up demand for services that we're seeing out there.

And second question is probably one for Jonathan. But the -- thinking about the margin before kind of Ed's question around sort of what's achievable versus -- I guess, the question is probably what's desirable given the degree to which -- talking about some of the opportunities for growth and thinking about the returns profile the business has, it seems to me that there's probably a big opportunity for you almost to throw kind of as much investment in these opportunities as possible, given the likely returns that you're going to see from that. So kind of going forward, is one of the headwinds to these margins not being even higher than that kind of mid-20s? Is it just -- there is just an awful lot of investment opportunity, which you want to take advantage of?

Yes. There certainly are. And I guess we've talked about that over the first 3 years of the Growth Acceleration Programme happening in terms of the enablers, be that new product development, IT systems, common processes, all those sorts of elements. Those are certainly areas where we have been investing there for a number of years to line things up with those ultimately to drive additional growth. I think as we go into '21, there's certainly some -- uptick in some of those investments, as we mentioned earlier, in terms of new ERP systems having go live. End of this year will be an uptick in resources and licenses and all the things that come with it. But yes, I think that's always been a conscious decision to take some short-term costs to benefit the medium-term performance.

Yes. I guess my thinking is almost the framework where after obviously seeing the margins improve pretty significantly in the last 3 years in a pretty mixed backdrop. It's almost, again, given the returns profile, there seems to be a sort of a tilt towards almost to focus on absolute EBIT and not obsessing to the degree that maybe we do as analysts on the margins is actually going to be the kind of greater value creation opportunities?

Well, I think mid-20s margin aspirations gives us some latitude to take those decisions, certainly. And whilst we've -- Kevin mentioned earlier in terms of the way in which we think about selling. We're not compromising on the sales price. I think we are looking to balance investment versus profit generation. And this isn't an effort to drive short-term gains only. This is about setting the business up to be much, much stronger in the medium term, and that remains the thought process.

I think you'll see that even in a year of COVID, that our spending on engineering and new product development, frankly, was flat, right? So we didn't cut. We continue to spend because we're not going to mortgage our future, right? So we manage the P&L, yet maintain levels of investment in those key programs that we desired to.

Our final question today is from Jolyon Wellington of Peel Hunt.

Just want to ask the first question, maybe Jon, the organic growth. Talking a lot about site services. Have you got a view on where you think that business might get to in sort of FY '21 relative to FY '19 in revenue terms? Appreciate, quite in the year. But just wondering, if there could be a catch-up pent-up demand where sales grow a bit faster than expected.

I think it's -- yes, in a point in time when we're not giving guidance on the top line as a whole, that's quite a tricky one, Jolyon. I guess you will have understood from the conversation that we think it was -- that part of the business was more effective through site access issues in 2020 than the business as a whole, but it's been improving sequentially through the second half. Therefore, I guess we would anticipate it increasing to maybe more like 20% as it was in 2019 of total group sales or maybe even a little better. I think that's really as precise as we can probably be this early in the year.

Okay. That's really helpful. And then just looking a little bit further out on the divisional split and the sales split degree, how would you kind of expect that sales split to evolve over time? I mean if the Oil & Gas number came down to 49% of sales to 48% of sales, how do you think that divisional split might look over the next couple of years?

Yes. I guess we see a disproportionate level of opportunities in chemical process and industrial, in some sense -- is in that, that was the newly formed -- as part of the end market, reorientation of the business. That was an area that probably had received less focus historically than Oil & Gas, Water & Power. So in terms of growth rates, we might expect that with the additional focus to grow perhaps a little faster. I think it's more a question of that growing faster than the opportunity in Oil & Gas diminishing. I think in the next sort of 5 to 10 years, there are still plenty of opportunities within Oil & Gas and the work we've done on energy transition and all those sorts of things certainly suggests supports that view. So I think it's -- that's possibly the way in which the relative size of the divisions might change over time. And within Water & Power, I think there's possibly a shift within that division from the type of spend in water, as we've talked earlier, in terms of investment in automating and analytics in the water industry, creating a sort of more of a smart water infrastructure in the developing world. Whilst we're still built in activity in power. The days of the being a large slug of our power sales -- on new fire -- new coal-fired power stations sort of disappeared, I don't know, maybe 10 years ago now. It seems like a lifetime ago, we were talking about that -- those.

Okay. No, that's very helpful. And then just final one for me. Just on M&A. Just interested in any comments you might make on sort of M&A opportunities? What are you sort of seeing at the moment? How exciting does that market look? Any comments you can give there would be really helpful.

Yes. I think on the M&A side, there are plenty of opportunities. So plenty of things in our funnel. There are plenty of things that we are interested in terms of the development that they would bring to the portfolio from an adjacency perspective and many other dimensions. I think the challenge at this point in time is still around tell us pricing expectations. And the discipline we instilled in the process is not going to change. So it's really about continuing to focus on those. And the proprietary conversations we are having are a far better way for us to be looking at deploying our M&A spend than participating in auctions. Auctions are always going to drive the price higher only. So I think, there's plenty of activity. It's just not necessarily visible to the outside world I guess.

We have no questions remaining. So I'll hand back to our host.

Well, thank you, everyone, for joining us today. I know that the prepared remarks were a bit longer than usual, but I think we really wanted to get out some of the exciting things happening to drive our growth in our ESG agenda. Thought that, that was worthy of spending a few minutes more than we typically do. We'll remain available for any questions offline. But please, thank you again for joining us and stay safe.