REG - Weir Group PLC - Full Year Results
29/02/2024 07:00
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RNS Number : 8697E Weir Group PLC 29 February 2024
Positive mining markets and strong execution; significant margin expansion
Further growth and margin progress expected in 2024
Demand for Weir mining solutions at high levels
• FY: Group AM orders(1) stable; Minerals AM orders(1) +3%, in ESCO
mining growth offset by infrastructure
• FY: Group OE orders(1) -3% relative to strong PY comparator; small
brownfield and sustainability projects
• Q4: Group AM orders(1) +1% YoY, and +2% sequentially
Very strong execution and progress towards 2026 operating margin target of 20%
• FY adjusted operating margin(1,2) of 17.4%, +140bps
• FY revenue(1) +9%; volume and price
• FY adjusted operating profit(1,2) of £459m, +18%
• Free operating cash conversion of 85%
Significant increase in returns and stronger balance sheet
• Return on capital employed of 18.0%, +280bps
• Full year dividend of 38.6p, +18%
• Net debt to EBITDA of 1.1x
2024 Outlook: Growth in constant currency revenue, operating profit and margin
• Strong order book, installed base expansion and positive
production trends in mining markets
• Operating margin expansion supported by Performance Excellence;
further progress towards 2026 target
• Free operating cash conversion of 90% to 100%
2023 2022 As Constant currency(1) +/-
reported +/-
Continuing Operations(3)
Orders(1) £2,585m £2,590m n/a 0%
Revenue £2,636m £2,472m +7% +9%
Adjusted operating profit(2) £459m £395m +16% +18%
Adjusted operating margin(2) 17.4% 16.0% +140bps +140bps
Adjusted profit before tax(2) £411m £348m +18% n/a
Statutory profit before tax £321m £260m +23% n/a
Adjusted earnings per share(2) 115.9p 98.4p +18% n/a
Return on capital employed 18.0% 15.2% +280bps n/a
Total Group
Statutory profit after tax £229m £214m +7% n/a
Statutory earnings per share 88.2p 82.5p +7% n/a
Free operating cash conversion 85% 87% -2pp n/a
Dividend per share 38.6p 32.8p +18% n/a
Net debt(4) £690m £797m +£107m n/a
(See footnotes on page 5)
Jon Stanton, Chief Executive Officer said:
"Weir is delivering on the compelling value creation opportunity we set out as
a focused mining technology company. Our unique capabilities are enabling us
to capitalise on the structural growth in demand for critical metals and the
transition to more sustainable mining. In parallel, through Performance
Excellence we are optimising our operations and driving efficiencies.
In 2023 we made significant progress against these goals, taking advantage of
positive mining production trends to win market share and grow orders in our
mining aftermarket business, while making good progress with our technology
focused growth initiatives. We executed well, delivering strong growth in
revenue and profit, expanding operating margins in excess of our 2023 target,
achieving consistent cash conversion and significant improvement in return on
capital employed.
As we go into 2024, we have a growing installed base, a strong order book and
ore production trends in our mining markets are positive. We expect to deliver
another year of growth in revenue, profit and cash generation, and to further
expand our operating margins with progress towards our 2026 target of 20%."
A webcast of the management presentation will begin at 08:00 (GMT) on 29
February 2024 at www.investors.weir (http://www.investors.weir/) . A
recording of the webcast will also be available at www.investors.weir
(http://www.investors.weir/) .
CHIEF EXECUTIVE OFFICER'S REVIEW
Another strong year as a mining technology leader
2023 was a year of significant progress for Weir. We met our commitments to
stakeholders, advanced the transition to sustainable mining for our customers
and took major steps forward in delivering our strategic agenda.
We capitalised on positive conditions in our mining markets and executed
strongly, delivering year-on-year growth in revenue and operating profit,
significantly expanding our operating margins and meeting our cash conversion
target. Throughout the year we supported customers with essential spares and
expendables to keep their mines running, and also provided innovative new
technologies to make their operations more efficient and sustainable.
Our progress on strategy was a particular highlight. We built strong momentum
in our Performance Excellence transformation programme, realising absolute
cost savings of £6m and identifying new opportunities which enabled us to
double our previous cost saving target to £60m in absolute savings by 2026.
In parallel, we made good progress with our technology focused growth
initiatives, launching and commencing field trials of a number of innovative
new solutions, including our Cavex 2.0 technology in Minerals and our latest
generation GET system in ESCO. In addition, the acquisition of SentianAI has
expanded our digital capability and stepped up the roll-out of our process
optimisation solutions. Sustainability remains core to our strategy and
achieving validation of our emissions reduction targets by SBTi in March was
an important milestone.
Our performance in 2023 is a testament to the hard work of Weir colleagues
across the globe, and I'd like to thank them for their dedication and
contribution through the year.
Going into 2024, notwithstanding complexity in the macroeconomic and
geopolitical environment, I'm confident of further progress. Conditions in our
mining markets are supportive and we are positioned for another year of growth
and margin expansion. Further out, we have a clear strategy to capitalise on
the attractive long-term structural trends in our markets, helping our
customers to deliver the metals needed for the energy transition, and
launching new transformative technologies to accelerate the shift to
sustainable mining. In parallel, through Performance Excellence we are
optimising our operations and realising our full potential as a mining
technology leader. Combined, our market opportunity, technology focused
strategy and Performance Excellence represent a compelling value creation
opportunity, and we are delivering on it.
Growth: Ore production trends driving demand for Weir solutions
Throughout the year, activity levels in mining markets were high. Market
prices for our main commodity exposures of copper, gold and iron ore were well
above the cost curve, and our customers capitalised by maximising ore
production. Continued complexities in the permitting and regulatory
environment meant large expansion projects remained slow to convert, so
customers' capital expenditure was largely focused on developing and improving
the efficiency of existing assets.
Ore production trends, coupled with the effect of declining grades and
installed based expansion, drove demand for our AM spares and expendables. OE
demand was primarily driven by orders for small brownfield and debottlenecking
projects at existing mines, with strong momentum through the year as customers
chose Weir solutions due to their sustainability and performance benefits,
coupled with our global service capability. Across the Group, demand was
particularly strong in Australasia, with growth reflecting recent market share
gains, while from a commodity perspective, order growth was strongest in
copper and year-on-year demand decreased in both coal and the oil sands.
In infrastructure markets underlying demand was largely stable through the
year, though well below the peak levels seen in the prior year, particularly
the elevated levels seen in H1 2022.
On a constant currency basis, year-on-year Group orders were broadly stable.
AM constant currency orders were marginally ahead of the prior year. Growth in
demand in hard rock mining and a contribution from pricing, as expected, was
partially offset by lower demand from customers in the Canadian oil sands and
ESCO's infrastructure customers, together with the non-repeat of Russia
orders. As we go into 2024, the impact of these offsetting factors will
normalise and we expect underlying growth in hard rock mining to be
sustained.
In OE, constant currency orders were down 3% against a strong prior year
comparator, which included £33m of orders for nickel expansion projects in H2
2022. In Minerals we converted over 85% of our mill circuit pump trials and
won market share with our latest Cavex 2.0 cyclone technology, while in ESCO
we delivered strong growth in mining attachments as we continued to gain
traction and expand market share.
Revenue for the Group was 9% higher on a constant currency basis. This
reflects strong execution, delivery of our record opening order book and price
realisation. The Group's book-to-bill was 0.98.
Margins and resilience: 2023 operating margin target exceeded
The operating environment in 2023 was stable. Relative to the prior year,
availability of raw materials and freight improved, and input pricing
steadied. While some pockets of inflation persisted, particularly across wages
and salaries during the first half, our leading market positions and strong
brands enabled us to achieve sufficient price increases to protect our gross
margins.
On a constant currency basis adjusted operating profit grew 18% year-on-year,
and adjusted operating margins were 17.4%, exceeding our 2023 target of 17%,
and up 140bps on the prior year. Expansion in operating margin reflects strong
operational efficiency, the initial benefits from Performance Excellence and a
year-on-year reduction in adverse transactional FX movements, partially offset
by a movement in Minerals revenue mix towards OE.
In December, we announced a new medium-term operating margin target of 20% in
2026. We expect to achieve this through operating leverage from growth and
realisation of £60m of absolute cost savings from our Performance Excellence
transformation programme. This comprises £20m of savings from each of the
three main elements of capacity optimisation, lean processes and the
transition of our enabling functions to Weir Business Services (WBS). The
one-off cost to achieve the £60m of savings is £90m, with the phasing of the
costs biased towards the early years of the programme.
Through the year we made good progress in delivering the initial benefits from
Performance Excellence, realising £6m of absolute savings. This includes
benefits from capacity optimisation, as we completed projects to consolidate
several Minerals manufacturing facilities in the US and optimise our
Australian service centre and Latin American distribution footprints. In
addition, a number of other capacity optimisation and lean process projects
were initiated during the year, underpinned by our recent investments in
foundational systems and enhanced operational capability. Our transition to
WBS is also progressing well, with the detailed design phase of the project
complete and the transition of certain regional services underway.
In the period, an exceptional charge of £29m was recognised relating to
Performance Excellence, and the cash outflow for the programme was £14m.
Returns: Significant growth in return on capital employed, with balance sheet
flexibility
Reflecting our focus on execution, return on capital employed (ROCE) increased
280bps on the prior year to 18%, as we grew revenue, expanded our margins and
delivered strong cash generation.
Free operating cash conversion for the year was 85%, firmly within our 2023
target range of 80% to 90%, while the efficiency of our mining focused
platform enabled us to reduce working capital as a percentage of sales to
21.3% (2022: 23.7%).
Net debt to EBITDA at the end of December was 1.1x, giving the Group
considerable resilience and flexibility to deploy capital to drive shareholder
value.
Reflecting high levels of confidence in our strategy and future prospects, the
Board is recommending a final dividend of 20.8 pence per share. In line with
our policy to pay out 33% of adjusted earnings per share (EPS), this equates
to a total full year dividend of 38.6 pence per share and represents an
increase of 18% on the prior year. The final dividend will be paid on 31 May
2024 to Shareholders on the register on 19 April 2024.
Safety and sustainability: First ever avoided emissions study for a mining use
case
On safety, the Group's total incident rate(5) (TIR) for the year was 0.42
(2022: 0.41) which was disappointing relative to our ambition. During the year
we continued the roll out of our Zero Harm Behaviours programme, and to date
over 8,000 colleagues have completed the first phase of the training.
Learnings from the programme are now being put into action as we drive to
achieve our ambition of zero harm operations.
Our focus on safety extends beyond physical safety, and our commitment to
workplace mental health was recognised in the CCLA Corporate Mental Health
Benchmark released in June, with Weir being recognised as the biggest improver
on performance and disclosure.
On inclusion, diversity and equity, we took positive steps forward on gender
diversity, growing the percentage of our employees who are female.
We also made good progress on sustainability. In the first quarter our scope
1, 2 & 3 emissions reduction targets were validated by SBTi, and in the
year we delivered a further 6% reduction in our scope 1&2 emissions,
meaning our cumulative reduction relative to our 2019 benchmark is now 23%.
Our progress in this area continues to be externally recognised, as we
maintained our place on the prestigious CDP A List for leadership in corporate
transparency and performance on climate change.
Furthermore, we published the findings from our first ever avoided emissions
study. The results, which have been independently verified, show that by
choosing our Redefined Mill Circuit incorporating Enduron® High Pressure
Grinding Rolls technology, instead of a traditional mill circuit which uses
tumbling mill technology, energy consumption is reduced by over 40% and CO(2)
emissions are more than halved per tonne of ore. The study, which we announced
at the COP28 summit in December, is the first of its kind for a mining use
case and is receiving global interest from a range of stakeholders, including
customers, governmental bodies and the finance sector.
In line with best practice, we also updated our double materiality assessment,
and key findings have been incorporated into a refreshed sustainability
strategy which we launched in Q1 2024.
Outlook
We begin 2024 with a strong order book and positive ore production trends in
our mining markets. These trends, coupled with the impact of declining grades
and installed base expansion, are driving increased demand for our AM spares
and expendables. We are also seeing good momentum in demand for our OE
solutions, as customers focus on improving the efficiency and sustainability
of existing assets.
In 2024, this continued favourable backdrop in mining, together with softer
year-on-year order comparatives in oil sands and infrastructure, underpins our
confidence in delivering growth in constant currency revenue, profit and
operating margins. Benefits from Performance Excellence will support further
margin expansion, and we expect free operating cash conversion of between 90%
and 100%.
Further out, the long-term value creation opportunity for Weir is compelling.
The fundamentals for our business are highly attractive, underpinned by
long-term structural growth trends in our mining markets, and our technology
strategy which is focused on enabling sustainable mining. In addition, the
benefits of Performance Excellence will drive further margin expansion and
underpin our 2026 operating margin target of 20%, while our strong cash
generation and balance sheet give us optionality to allocate capital to
prioritise growth in total shareholder returns.
Board changes
As previously announced, Brian Puffer will join the Group as Chief Financial
Officer and be appointed to the Board with effect from 1 March 2024.
After completing his full nine-year term, Sir Jim McDonald will be stepping
down from the Board at the end of the AGM on 25 April 2024 and Dame Nicola
Brewer will succeed Sir Jim as Senior Independent Director.
Andy Agg was appointed to the Board as a Non-Executive Director on 27 February
2024, and Srinivasan Venkatakrishnan has informed the Board of his intention
to step down as a Non-Executive Director of the Board with effect from 31
March 2024.
We are Weir strategic framework: 2023 performance
Each year the Group sets strategic and ESG measures aligned to the 'We are
Weir' framework of People, Customer, Technology and Performance. The table
below summarises our 2023 performance and rating against each of these
measures, with full details outlined in our 2023 Annual Report.
Strategic initiatives 2023 Measures 2023 Performance and rating
People Deliver on Zero Harm for our people and the environment • Retain our talent • Voluntary attrition < 11% G
Accelerate our purpose-driven culture and lead in inclusion, diversity and
equity
Create talent and capabilities for the future
• Build our digital literacy • >76% of employees with more than one log-in to key software G
platform
• Maintain top quartile engagement scores • Engagement score of 8.4; top quartile of benchmark G
• Improve our safety Total incident rate (TIR)* • TIR of 0.42 (2022: 0.41) G
• Improve our gender diversity* • % of female in bands 3-5 improved by 3.1% G
• % of female in bands 1-2 improved by 1.6%
G
Customer Outgrow our markets through voice-of-customer led initiatives • Execute our strategic growth initiatives in each division • Minerals executed its key strategic initiatives, however orders of G
£314m below target of £371m
• ESCO executed its key strategic initiatives; orders achieved of $274m
Solve our customers' biggest smart, efficient and sustainable challenges vs target of $272m
Show leadership in our industries' pathway to Net Zero G
• Capture value from new strategic alliances • Seven orders originating from new strategic alliances G
• Digitise our customer experience • >90% of Minerals customer quotes in certain regions completed via G
online configurator (phased roll-out)
• Near 100% of ESCO customer quotes completed via online configurator
G
• Continue to develop our scope 4 value proposition* • Target developed for phase 1 products and externally benchmarked G
• Build customer-specific scope 3 and scope 4 data insight* • Data pipeline developed from customer projects and Weir digital tools G
Technology Invest in innovating transformational solutions • Increase revenue from new products • £108m of Minerals revenue from new products G
• $3.1m of ESCO revenue from new products
Digitally enable everything we do G
Create new business and business models from data and insights
• Digitise our current business model • Minerals: >60 Synertrex® connected sites G
• ESCO: $22m sales from Motion Metrics
G
• Progress our priority R&D projects* • Targets for key R&D projects achieved
G
Performance Drive clear, lean and agile operations and supply chain • Improve our lean scores • Minerals: achieved ambitions for sites on Level 2 & 4 G
• ESCO: achieved target process management score
Deliver high quality, efficient back-office functions G
Expand margins and deliver strong cash conversion
• Deliver our Performance Excellence transformation programme to plan • Delivered target IT architecture outcomes G
• Delivered £7.2m programme savings; ahead of target of £4.5m run-rate
G
• Reduce scope 1&2 CO(2)e vs 2019 base aligned with SBTi* • 23% absolute CO(2)e reduction(6) achieved and verified G
• Enable emergent ESG reporting governance * • Automated dashboard developed G
*ESG measures
Notes:
The Group Financial Highlights and Divisional Financial Reviews include a
mixture of GAAP measures and those which have been derived from our reported
results in order to provide a useful basis for measuring our operational
performance. Adjusted results are for continuing operations before adjusting
items as presented in the Consolidated Income Statement. Details of other
alternative performance measures are provided in note 2 of the Audited Results
contained in this press release.
1. 2022 restated at 2023 average exchange rates.
2. Profit figures before adjusting items. Continuing operations
statutory operating profit was £368m (2022: £308m). Total operations
operating cash flow (cash generated from operations) excludes additional
pension contributions, exceptional and other adjusting cash items, and income
tax paid. Total operations net cash generated from operating activities was
£394m (2022: £321m).
3. Continuing operations excludes the Oil & Gas Division, which
was sold to Caterpillar Inc. in February 2021 and the Saudi Arabian joint
venture, which was sold to Olayan Financing Company in June 2021.
4. Refer to note 2 of the Audited Results contained in this press
release for further details of alternative performance measures.
5. Total incident rate is an industry standard indicator that measures
lost time and medical treatment injuries per 200,000 hours worked.
6. Market-based absolute CO(2) emissions. 2019 is the baseline year
for our SBTi-aligned scope 1&2 target of 30% reduction in absolute
emissions by 2030.
DIVISIONAL REVIEW
Minerals
Minerals is a global leader in products and integrated solutions for smart,
efficient and sustainable processing in mining and infrastructure markets.
2023 Summary
• Year-on-year orders(1) stable
• AM orders(1) +3%; demand driven by mining production trends and
installed base expansion
• Small brownfield and sustainability projects driving continued
momentum in demand for OE
• Strong execution: operating profit(1,2) +18%; operating
margin(1,2) expansion +110bps
2023 Strategic review
Minerals delivered a year of strong strategic progress, growing its installed
base, significantly enhancing its digital offering, and completing and
initiating a number of Performance Excellence projects that will drive
efficiency and margin expansion. Progress across all four pillars of the 'We
are Weir' strategic framework is outlined below.
People
On safety, TIR for Minerals was 0.34 (2022: 0.27). The Division remains
amongst the safest in its sector, and through the Zero Harm Behaviours
Programme is reinforcing safety as a priority.
Inclusion, diversity and equity was a key focus in the year, and this is
reflected in improved gender diversity across the Division. Other milestones
included increased diversity in recruitment and talent pipelines, and the
global launch of our Woman in Leadership Programme, in conjunction with the
University of Pretoria.
Customers
Comminution is a high growth area of our portfolio, and in the year we saw a
significant increase in orders for our AM solutions. This reflects growth in
our installed base, and our increased strategic focus on this area. A
particular highlight was an order from a large copper mine in South America,
where our customer ordered Enduron(®) rollers for their High Pressure
Grinding Rolls (HPGR). The installation will be the first instance of our
rollers being fitted to a competitor's HPGR, and enables us to showcase the
performance and reliability benefits of our technology. More generally, the
pipeline for our HPGR remains strong with a number of projects advancing
materially through the year.
We also gained further market share in mill circuit pumps, converting over 85%
of our competitive field trials.
Technology
In November we acquired SentianAI, an innovative developer of process
optimisation solutions powered by Artificial Intelligence. Coupled with the
launch of our Synertrex(®) intelli-solutions condition monitoring technology,
which now spans six product platforms and is active at over 60 mines, the
acquisition enhances our overall process optimisation capabilities and
positions us to develop new revenue and business models.
Our portfolio of sustainable solutions, which improve water efficiency and
reduce energy consumption relative to traditional mining technologies, also
gained traction. We grew our sales pipeline for our Redefined Mill Circuit and
received initial commercial orders for Coarse Particle Flotation technology,
which we access through our partnership with Eriez.
In addition, we launched our Cavex(®) 2.0 cyclone technology, and invested in
upgrades and range expansions for our industry leading Warman(®) slurry
pumps.
Performance
On Performance Excellence, the Division consolidated several of its
manufacturing facilities in the US, optimised its Australian service centre
and Latin America distribution footprints and initiated the reconfiguration of
its elastomer manufacturing in Asia Pacific. Several new 'configure to order'
tools were also launched, which will reduce product variation and improve
manufacturing efficiencies. These included full launch of our HPGR
configurator tool, and phase 1 roll-out of our 'Warman selector' tool.
Among other Performance Excellence projects initiated was the launch of Weir
Integrating Network System (WINS), our new lean manufacturing programme. WINS
is our proprietary operating system and is enabling us to extend our focus on
lean to cover all value streams in our global operations.
On sustainability, in our continued drive to reduce our environmental
footprint, we installed solar panels at our facilities in South Africa and
transitioned our Australian operations to a green energy tariff.
2023 Financial review
Constant currency £m H1(1) H2 2023 2022(1) Growth(1)
Orders OE 262 252 514 547 -6%
Orders AM 700 681 1,381 1,339 3%
Orders Total 962 933 1,895 1,886 0%
Revenue OE 257 292 549 447 23%
Revenue AM 676 712 1,388 1,288 8%
Revenue Total 933 1,004 1,937 1,735 12%
Adjusted operating profit(2) 169 207 376 318 18%
Adjusted operating margin(2) 18.2% 20.5% 19.4% 18.3% +110bps
Operating cash flow(2) 131 287 418 386 8%
Book-to-bill 1.03 0.93 0.98 1.09
1. 2022 and 2023 H1 restated at 2023 average exchange rates except for
operating cash flow.
2. Profit figures before adjusting items. Operating cash flow (cash generated
from operations) excludes additional pension contributions, exceptional and
other adjusting cash items, and income tax paid. Refer to note 2 of the
Audited Results contained in this press release for further details of
alternative performance measures.
Orders were broadly stable on a constant currency basis at £1,895m (2022:
£1,886m), with book-to-bill at 0.98 reflecting strong execution and ongoing
strength in mining markets. OE orders decreased 6% year-on-year, relative to a
strong prior year comparator which included £33m of large orders for nickel
projects in Indonesia. Through the year, we continued to see good momentum in
demand for OE for small brownfield and debottlenecking projects, as customers
sought to maximise production from existing assets and large projects remained
slow to convert. AM orders increased 3% year-on-year, with a contribution from
pricing and an increase in volume from customers in hard rock mining,
partially offset by reduced orders from customers in the Canadian oil sands
and a loss of orders from Russia. Excluding orders from Russia from the prior
year comparator, AM orders were up 4%. Contribution from pricing in H2 was
lower than in H1, as the pricing environment normalised through the year. In
line with prior years, AM orders in Q2 included multi-period orders, and
excluding these, AM orders grew sequentially from H1 to H2. For the full year,
AM orders represented 73% of total orders (2022: 71%), and mining end-markets
accounted for 79% of total orders (2022: 76%).
Revenue increased 12% on a constant currency basis to £1,937m (2022:
£1,735m), reflecting strong execution and price realisation. Half-on-half,
revenue grew sequentially through the year, as we delivered our record opening
order book in H1 and continued to benefit from strength in our mining markets
in H2, with orders converting to revenue. Revenue growth in Canada was
particularly high, following strong order growth in the Canadian oil sands
last year. Partly offsetting this was reduced revenue from Russia, which
year-on-year decreased by £38m as we wound down operations. Full year revenue
mix moved towards OE, which accounted for 28% of revenue, up from 26% in the
prior year.
Adjusted operating profit increased 18% on a constant currency basis to £376m
(2022: £318m) as the Division benefited from increased volumes, strong
execution and the initial benefits of Performance Excellence. In addition,
year-on-year, the Division benefited from a reduction in adverse transactional
FX movements of £8m.
Adjusted operating margin on a constant currency basis was 19.4% (2022:
18.3%). The year-on-year improvement of 110bps reflects strong operational
efficiency, early benefits from Performance Excellence, and a reduction in
adverse transactional FX movements, partially offset by the movement in
revenue mix towards OE.
Operating cash flow increased by 8% to £418m (2022: £386m) reflecting growth
in operating profit, partially offset by a modest increase in working capital
outflow to £26m (2022: £18m). Working capital movements include a reduction
in inventory resulting from actions through Performance Excellence, and also a
decrease in both receivables and payables in line with phasing of revenue and
purchases respectively.
ESCO
ESCO is a global leader in Ground Engaging Tools (GET), attachments, and
artificial intelligence and machine vision technologies that optimise
productivity for customers in global mining and infrastructure markets.
2023 Summary
• Orders(1) -2%; growth in mining offset by infrastructure
• Very strong demand for mining attachments
• Strong execution: operating profit(1,2) +11%; operating
margin(1,2) expansion +150bps
2023 Strategic review
ESCO made good strategic progress in the year, significantly improving safety
performance, delivering substantial growth in mining attachments and advancing
its foundry optimisation programme. Progress across all four pillars of the
'We are Weir' strategic framework is outlined below.
People
Safety performance in ESCO was a highlight, with a reduction in TIR to 0.81
(2022: 1.01). This reflects strong focus across the Division and is an
important step forward on our journey to delivering our ambition of zero harm.
In addition, we continued to make significant strides with respect to
diversity, with improvement in gender diversity at all levels in the Division.
Customers
Throughout the year, the Division made significant progress in growing market
share in mining attachments. Year-on-year orders increased by 40%, as
customers chose ESCO solutions for their lowest total cost of ownership and
productivity benefits. We grew orders in our largest market of North America,
and also won key orders in Africa and Australia, reflecting our increased
focus and momentum in these regions.
We also won share in our core GET market, delivering positive net conversions,
and gained traction with our Motion Metrics digital solutions, growing our
sales pipeline and delivering year-on-year revenue growth.
Technology
The development of our next generation GET technology was a major focus in
2023. Results from field trials of the new solution were positive,
demonstrating that the technology further enhances our customer proposition of
best in class wear life and lowest total cost of ownership.
We also delivered successful phase 1 field trials of our proprietary ore
characterisation technology, with the second phase of trials due to commence
in the first half of 2024.
In addition, we continued to invest in our materials science capability,
developing new alloys and composites to underpin our technology leadership.
Performance
Optimising the performance of its foundry network is ESCO's largest
Performance Excellence opportunity, and the Division made good progress in the
year. Construction of the new foundry in Xuzhou, China, is now complete and
equipment is being commissioned. The first casting from the foundry was poured
in February 2024 and, once fully operational, the facility will significantly
increase the Division's low cost manufacturing capacity. Progress in our North
American foundries was also positive, with year-on-year improvements in both
operational and quality metrics.
From a sustainability perspective, the Division took steps forward in reducing
its environmental footprint, completing environmental audits across a number
of its facilities and establishing work groups that are addressing key
findings.
2023 Financial review
Constant currency £m H1(1) H2 2023 2022(1) Growth(1)
Orders OE 35 27 62 44 41%
Orders AM 318 310 628 660 -5%
Orders Total 353 337 690 704 -2%
Revenue OE 28 30 58 43 34%
Revenue AM 319 322 641 645 -1%
Revenue Total 347 352 699 688 2%
Adjusted operating profit(2) 58 64 122 109 11%
Adjusted operating margin(2) 16.7% 18.2% 17.4% 15.9% +150bps
Operating cash flow(2) 53 84 137 93 47%
Book-to-bill 1.02 0.96 0.99 1.02
1. 2022 and 2023 H1 restated at 2023 average exchange rates except for
operating cash flow.
2. Profit figures before adjusting items. Operating cash flow (cash generated
from operations) excludes additional pension contributions, exceptional and
other adjusting cash items, and income tax paid. Refer to note 2 of the
Audited Results contained in this press release for further details of
alternative performance measures.
Orders decreased 2% on a constant currency basis to £690m (2022: £704m),
with book-to-bill at 0.99 reflecting strong execution coupled with high levels
of activity in our mining markets. Year-on-year movement in orders reflects
growth in mining orders, including a contribution from price, offset by a
decrease in orders from infrastructure customers relative to a strong prior
year comparator. Contribution from pricing in H2 was lower than in H1, as the
pricing environment normalised through the year. In mining, demand was
particularly strong for our mining attachments, which is reflected in OE order
growth of 41%. Notwithstanding this, AM continues to be the largest part of
ESCO accounting for 91% of total orders in the year (2022: 94%). In total,
mining end markets accounted for 62% of orders (2022: 62%) and infrastructure
accounted for 25% (2022: 26%).
Revenue on a constant currency basis increased by 2% to £699m (2022: £688m)
with price realisation and volume increases in mining, partially offset by a
decrease in infrastructure volumes. Year-on-year revenues from infrastructure
markets decreased by 14%.
Adjusted operating profit increased by 11% to £122m (2022: £109m) on a
constant currency basis, as the Division benefited from strong execution and
operational efficiencies.
Adjusted operating margin on a constant currency basis was 17.4% (2022:
15.9%), with the year-on-year improvement of 150bps reflecting strong
operational efficiency.
Operating cash flow increased by 47% to £137m (2022: £93m) reflecting growth
in operating profit and a decrease in working capital outflow to £4m (2022:
£33m). Working capital movements include a small reduction in inventory, and
a modest increase and decrease in receivables and payables respectively.
GROUP FINANCIAL REVIEW
Constant currency(1) As reported
Continuing Operations(3) £m 2023 2022 Growth 2022 Growth
Orders OE 576 591 -3% n/a n/a
Orders AM 2,009 1,999 0% n/a n/a
Orders Total 2,585 2,590 0% n/a n/a
Revenue OE 607 490 24% 501 21%
Revenue AM 2,029 1,933 5% 1,971 3%
Revenue Total 2,636 2,423 9% 2,472 7%
Adjusted operating profit(2) 459 388 18% 395 16%
Adjusted operating margin(2) 17.4% 16.0% +140bps 16.0% +140bps
Book-to-bill 0.98 1.07 n/a 1.07 n/a
Total Group £m
Operating cash flow(2) 526 n/a n/a 448 17%
Free operating cash conversion 85% n/a n/a 87% -2pp
Net debt(4) 690 n/a n/a 797 +107
1. 2022 restated at 2023 average exchange rates.
2. Profit figures before adjusting items. Operating cash flow (cash generated
from operations) excludes additional pension contributions, exceptional and
other adjusting cash items, and income tax paid.
3. Continuing operations excludes the Oil & Gas Division, which was sold
to Caterpillar Inc. in February 2021 and the Saudi Arabian joint venture,
which was sold to Olayan Financing Company in June 2021.
4. Refer to note 2 of the Audited Results contained in this press release for
further details of alternative performance measures.
Continuing operations orders at £2,585m were stable on a constant currency
basis reflecting continued demand for our solutions. Minerals orders overall
were marginally ahead of 2022 with AM up 3% (4% excluding the loss of orders
from Russia) reflecting increased demand in hard rock mining and a
contribution from pricing offset by lower demand in the Canadian oil sands.
ESCO total orders decreased 2% on a constant currency basis; however OE order
growth of 41% came from increased demand for mining attachments. 78% of orders
related to aftermarket compared to 77% in the prior year.
Continuing operations revenue of £2,636m increased 9% on a constant currency
basis. Minerals revenue grew 12% on a constant currency basis at £1,937m
(2022: £1,735m). ESCO revenue increased 2% on a constant currency basis to
£699m (2022: £688m). Aftermarket accounted for 77% of revenues, down from
80% in the prior year. Reported revenues increased 7% (2022: £2,472m),
impacted by a foreign exchange translation headwind of £49m. Overall
book-to-bill was 0.98.
Continuing operations adjusted operating profit increased by £64m (16%) to
£459m on a reported basis (2022: £395m). Excluding a £7m foreign currency
translation headwind, the constant currency increase was £71m (18%). As
explained further in the Divisional reviews, Minerals adjusted operating
profit increased on a constant currency basis to £376m (2022: £318m) and
ESCO increased by 11% on a constant currency basis to £122m (2022: £109m).
Unallocated costs are in line with the prior year at £39m.
Continuing operations adjusted operating margin of 17.4% is up 140bps versus
last year on a constant currency basis and up 140bps as reported. Expansion in
operating margin reflects strong operational efficiency, the initial benefits
from Performance Excellence and a year-on-year reduction in adverse
transactional FX movements, partially offset by a movement in Minerals revenue
mix towards OE.
Continuing operations statutory operating profit of £368m was £61m
favourable to the prior year, with the increase in adjusted operating profit
of £64m being offset by an increase in adjusting items.
Continuing operations adjusting items increased by £3m to £90m (2022:
£87m). Intangibles amortisation decreased to £25m (2022: £36m) primarily as
a result of completed multi-year investment activities now being recognised
within adjusted operating profit. Exceptional items decreased by £27m to
£22m (2022: £49m). Costs of £29m (2022: £3m) were recognised relating to
initiatives across all three pillars of our Performance Excellence programme -
lean processes, capacity optimisation and global business services. These were
partially offset by a net credit of £8m following the reversal of prior year
provisions in respect of the wind down of operations in Russia as working
capital recoveries have exceeded initial expectations. Exceptional costs in
2022 relating to our Russian operations totalled £44m. Exceptional items also
included £1m for acquisition and integration related costs. Other adjusting
items of £43m (2022: £3m) are primarily related to adjustments to the legacy
US asbestos-related provision following a period of increased claims and the
revised claims projections from the latest triennial actuarial review
undertaken in the year.
Continuing operations net finance costs were £48m (2022: £47m) with an
increase in finance costs of £15m after a foreign currency translation
tailwind of £1m on USD denominated debt. The increase in costs was largely
offset by higher finance income in the year, with both being driven by higher
interest rates in the year.
Continuing operations adjusted profit before tax was £411m (2022: £348m),
after a foreign currency translation headwind of £6m. The statutory profit
before tax from continuing operations of £321m compares to £260m in 2022,
the increase is primarily due to the increase in adjusted operating profit.
Continuing operations adjusted tax charge for the year of £111m (2022:
£93m) on adjusted profit before tax from continuing operations of £411m
(2022: £348m) represents an adjusted effective tax rate (ETR) of 27.0% (2022:
26.6%). Our ETR is principally driven by the geographical mix of profits
arising in our business and, to a lesser extent, the impact of Group financing
and transfer pricing arrangements. A tax credit of £20m has been recognised
in relation to continuing operations adjusting items (2022: £45m).
Continuing operations profit after tax before adjusting items is £300m (2022:
£255m). The statutory profit after tax for the year from continuing
operations is £230m (2022: £213m).
Discontinued operations statutory loss after tax for the year was £1m (2022:
profit of £1m) related to the finalisation of certain tax indemnities under
the sale and purchase agreement for the Oil & Gas Division which was
disposed of in 2021.
Statutory profit for the year after tax from total operations of £229m (2022:
£214m) reflects the increase in profit from continuing operations of £17m
offset by the reduction in discontinued operations.
Adjusted earnings per share from continuing operations increased by 18% to
115.9p (2022: 98.4p) reflecting the increased profit offset by higher
effective tax rate in the year. Statutory reported earnings per share from
total operations is 88.2p (2022: 82.5p). The weighted average number of shares
in issue was 258.4m (2022: 258.7m).
Acquisition of SentianAI
The Group completed the acquisition of Sentiantechnologies AB (SentianAI) on
21 November 2023 for an enterprise value of SEK87m (£7m) less customary debt
and working capital adjustments, which resulted in an initial cash
consideration of £6m and deferred consideration of £1m, payable in 2025.
Cash flow and net debt
Cash generated from total operations(3) increased by £78m to £526m (2022:
£448m) primarily driven by the increase in adjusted operating profit, coupled
with an improvement in working capital of £21m (2023: outflow of £28m vs
2022: £49m). The reduced working capital cash outflow reflects an improvement
in inventory, only partially offset by receivables and payables. This reflects
a combination of phasing of purchases and the initial benefit of actions under
our Performance Excellence programme, as well as lower utilisation of invoice
discounting facilities. As a result, working capital as a percentage of sales
decreased to 21% from 24% in the prior year. Non-recourse invoice discounting
facilities, primarily customers supply chain financing facilities, of £33m
(2022: £45m) were utilised and suppliers chose to utilise supply chain
financing facilities of £32m (2022: £54m). Net cash generated from operating
activities is £394m (2022: £321m).
Net capital expenditure increased by £25m to £83m (2022: £58m), mainly due
to the construction of our new ESCO foundry in China. Lease payments of £31m
were in line with the prior year (2022: £31m).
Free operating cash flow increased by £50m to £392m (2022: £342m) resulting
in free operating cash conversion of 85% (2022: 87%) (refer to note 2 of the
Audited Results contained in this press release). This was in line with our
2023 target of between 80% and 90% and reflected the above noted improvement
in cash generation, partially offset by the increase in capital expenditure in
the year as we continued to invest in our new foundry in China. We continue to
target free operating cash conversion for 2024 of between 90% and 100% driven
by working capital efficiency and maintaining capex and lease costs closer to
one times depreciation.
Free cash flow from total operations was an inflow of £238m (2022: £193m).
In addition to the movements noted above, this was primarily impacted by an
increase in tax payments of £11m, partially offset by lower net finance costs
of £5m due to phasing.
Net debt decreased by £107m to £690m (2022: £797m) and includes £117m
(2022: £115m) in respect of IFRS 16 'Leases'. The movement reflects free cash
inflow of £238m, offset by dividends of £96m, exceptional cash flows of
£18m, outflows of £8m in relation to acquisition of subsidiaries and
disposals of discontinued operations, an increase in lease liabilities of
£8m, other movements of £3m and favourable FX on translation of £2m. Net
debt to EBITDA on a lender covenant basis was 1.1 times(4) (2022: 1.5 times)
compared to a covenant level of 3.5 times.
In June 2023, the Group completed the issue of £300m five-year
Sustainability-Linked Notes due to mature in June 2028. These Notes are in
addition to the US$800m Sustainability-Linked Notes drawn in May 2021 and due
to mature in May 2026. The Group also continued to have access to its US$800m
Revolving Credit Facility (RCF) and, in March 2023, exercised the option to
extend the maturity date to April 2028, with the option to extend for a
further year. As a result of strong cash generation in the year, the Group
reduced its RCF by US$200m to US$600m in February 2024. Following these
actions, the Group will have more than £700m of immediately available
committed facilities and cash balances.
Pensions
The net IAS 19 funding position reduced from a net surplus of £15m at
December 2022 to a net surplus of £2m at December 2023. This is primarily due
to changes in financial assumptions, which resulted in a loss of £13m (2022:
gain of £303m), mainly due to the decrease in discount rates over the year
compared to increasing discount rates in the prior year, as well as a loss on
plan assets of £12m (2022: £224m). These movements contributed to a charge
of £28m (2022: credit of £65m) being recognised in the Consolidated
Statement of Comprehensive Income.
During the year the UK Main Plan completed a further pensioner buy-in with the
full buy-in premium amounting to £136m, which results in insurance policy
assets held for the UK scheme now covering 60% (2022: 39%) of the UK's total
funded obligation, reducing the Group's exposure to actuarial movements. In
addition, the strength of the funding position of the UK Main Plan means that
additional pension cash contributions will reduce by approximately £6m from
2024.
Enquiries:
Investors: Edward Pears +44(0)141 308 3725
Media: Sally Jones +44(0)141 308 3666
Citigate Dewe Rogerson: Kevin Smith +44 (0) 207 638 9571
Weir@citigatedewerogerson.com
Appendix 1 - 2023 continuing operations(3) quarterly order trends
Reported growth
Division 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY
Original Equipment -18% -3% 13% 19% 2% 20% -12% -10% -15% -6%
Aftermarket 23% 18% 25% 6% 18% 5% 5% 1% 2% 3%
Minerals 9% 11% 21% 10% 13% 9% 0% -2% -3% 0%
Original Equipment -17% 98% -6% 14% 14% 39% 40% 21% 69% 41%
Aftermarket 37% 19% 14% 1% 17% -9% -4% -5% -2% -5%
ESCO 32% 23% 13% 2% 17% -6% 0% -3% 2% -2%
Original Equipment -17% 2% 12% 19% 3% 22% -8% -8% -10% -3%
Aftermarket 28% 18% 21% 5% 17% 0% 2% -1% 1% 0%
Continuing Ops 15% 14% 19% 8% 14% 4% 0% -2% -2% 0%
Book-to-bill 1.22 1.13 1.02 0.95 1.07 1.04 1.01 0.94 0.94 0.98
Quarterly orders(1) ( )£m
Division 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 FY 2023 Q1 2023 Q2 2023 Q3 2023Q4 2023 FY
Original Equipment 111 148 144 144 547 132 130 129 123 514
Aftermarket 313 356 333 337 1,339 329 371 337 344 1,381
Minerals 424 504 477 481 1,886 461 501 466 467 1,895
Original Equipment 10 15 11 8 44 14 21 13 14 62
Aftermarket 178 162 161 159 660 162 156 154 156 628
ESCO 188 177 172 167 704 176 177 167 170 690
Original Equipment 121 163 155 152 591 146 151 142 137 576
Aftermarket 491 518 494 496 1,999 491 527 491 500 2,009
Continuing Ops(3) 612 681 649 648 2,590 637 678 633 637 2,585
Appendix 2 - 2023 order bridges (as reported)
H1 H2 Full Year
Group orders OE AM Total OE AM Total OE AM Total
(£m)
2022 - as reported 285 997 1,282 320 1,042 1,362 605 2,039 2,644
Organic 5% 0% 1% -9% -1% -3% -3% 0% 0%
Structure 0% 1% 1% 0% 0% 0% 0% 0% 0%
Currency 1% 3% 2% -5% -5% -5% -2% -1% -2%
Total 6% 4% 4% -14% -6% -8% -5% -1% -2%
2023 - as reported 301 1,035 1,336 275 974 1,249 576 2,009 2,585
H1 H2 Full Year
Minerals orders (£m) OE AM Total OE AM Total OE AM Total
2022 - as reported 261 672 933 300 704 1,004 561 1,376 1,937
Organic 1% 5% 4% -12% 1% -3% -6% 3% 0%
Structure 0% 0% 0% 0% 0% 0% 0% 0% 0%
Currency 1% 1% 1% -5% -6% -6% -2% -2% -2%
Total 2% 6% 5% -17% -5% -9% -8% 1% -2%
2023 - as reported 266 714 980 248 667 915 514 1,381 1,895
H1 H2 Full Year
ESCO orders OE AM Total OE AM Total OE AM Total
(£m)
2022 - as reported 24 325 349 20 338 358 44 663 707
Organic 40% -9% -6% 43% -5% -1% 41% -7% -3%
Structure 0% 3% 3% 0% 0% 0% 0% 2% 1%
Currency 7% 4% 4% -12% -5% -3% -1% 0% 1%
Total 47% -2% 1% 31% -10% -4% 40% -5% -1%
2023 - as reported 35 321 356 27 307 334 62 628 690
Appendix 3 - Foreign exchange (FX) rates and continuing operations(3) profit
exposure
2023 average FX rates 2022 average FX rates Percentage of FY 2023 operating profits(2)
US Dollar 1.24 1.24 36%
Australian Dollar 1.87 1.78 17%
Euro 1.15 1.17 8%
Canadian Dollar 1.68 1.61 17%
Chilean Peso 1,044.69 1,078.02 15%
South African Rand 22.94 20.19 5%
Brazilian Real 6.21 6.39 4%
Chinese Yuan 8.81 8.30 2%
Indian Rupee 102.66 97.06 1%
1. 2022 restated at 2023 average exchange rates.
2. Profit figures before adjusting items. Refer to note 2 of the Audited
Results contained in this press release for further details of alternative
performance measures.
3. Continuing operations excludes the Oil & Gas Division, which was sold
to Caterpillar Inc. in February 2021 and the Saudi Arabian joint venture,
which was sold to Olayan Financing Company in June 2021.
This information includes 'forward-looking statements'. All statements other
than statements of historical fact included in this presentation, including,
without limitation, those regarding The Weir Group PLC's ("the Group")
financial position, business strategy, plans (including development plans and
objectives relating to the Group's products and services) and objectives of
management for future operations, are forward-looking statements. These
statements contain the words "anticipate", "believe", "intend", "estimate",
"expect" and words of similar meaning. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Group to be
materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. Such forward-looking
statements are based on numerous assumptions regarding the Group's present and
future business strategies and the environment in which the Group will operate
in the future. These forward-looking statements speak only as at the date of
this document. The Group expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Group's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based. Past business and financial performance cannot be relied
on as an indication of future performance.
AUDITED RESULTS
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
Year ended 31 December 2023 Year ended 31 December 2022
Adjusted results Adjusting items (note 5) Statutory results Adjusted results Adjusting items Statutory results
(note 5)
Notes £m £m £m £m £m £m
Continuing operations
Revenue 3 2,636.0 - 2,636.0 2,472.1 - 2,472.1
Continuing operations
Operating profit before share of results of joint ventures 456.3 (90.4) 365.9 392.3 (87.3) 305.0
Share of results of joint ventures 2.5 - 2.5 2.5 - 2.5
Operating profit 458.8 (90.4) 368.4 394.8 (87.3) 307.5
Finance costs (66.4) - (66.4) (51.0) - (51.0)
Finance income 18.7 - 18.7 3.7 - 3.7
Profit before tax from continuing operations 411.1 (90.4) 320.7 347.5 (87.3) 260.2
Tax (expense) credit 6 (110.9) 20.1 (90.8) (92.5) 44.9 (47.6)
Profit for the year from continuing operations 300.2 (70.3) 229.9 255.0 (42.4) 212.6
(Loss) profit for the year from discontinued operations 7 - (1.3) (1.3) 1.2 - 1.2
Profit (loss) for the year 300.2 (71.6) 228.6 256.2 (42.4) 213.8
Attributable to:
Equity holders of the Company 299.5 (71.6) 227.9 255.8 (42.4) 213.4
Non-controlling interests 0.7 - 0.7 0.4 - 0.4
300.2 (71.6) 228.6 256.2 (42.4) 213.8
Earnings per share 8
Basic - total operations 88.2p 82.5p
Basic - continuing operations 115.9p 88.7p 98.4p 82.0p
Diluted - total operations 87.7p 82.0p
Diluted - continuing operations 115.3p 88.2p 97.8p 81.5p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
Year ended Year ended
31 December 2023 31 December 2022
£m £m
Profit for the year 228.6 213.8
Other comprehensive (expense) income
Losses taken to equity on cash flow hedges (0.4) -
Cost of hedging taken to equity on fair value hedges (0.8) -
Exchange (losses) gains on translation of foreign operations (159.1) 223.1
Reclassification of foreign currency translation reserve on disposal of - 0.1
operations
Exchange gains (losses) on net investment hedges 27.6 (124.9)
Reclassification adjustments on cash flow hedges 0.5 0.5
Reclassification adjustments on fair value hedges 0.1 -
Tax credit (charge) relating to above items 0.1 (0.1)
Items that are or may be reclassified to profit or loss in subsequent periods (132.0) 98.7
Other comprehensive (expense) income not to be reclassified to profit or loss
in subsequent periods:
Remeasurements on defined benefit plans (28.2) 65.3
Tax credit (charge) relating to above item 7.1 (16.3)
Items that will not be reclassified to profit or loss in subsequent periods (21.1) 49.0
Net other comprehensive (expense) income (153.1) 147.7
Total net comprehensive income for the year 75.5 361.5
Attributable to:
Equity holders of the Company 76.1 360.8
Non-controlling interests (0.6) 0.7
75.5 361.5
Total net comprehensive income (expense) for the year attributable to equity
holders of the Company
Continuing operations 77.4 359.6
Discontinued operations (1.3) 1.2
76.1 360.8
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2023
31 December 2023 31 December 2022
Notes £m £m
ASSETS
Non-current assets
Property, plant & equipment 490.5 462.2
Intangible assets 1,316.0 1,409.9
Investments in joint ventures 12.2 15.1
Deferred tax assets 111.3 92.5
Other receivables 53.8 76.8
Retirement benefit plan assets 14 30.1 50.0
Total non-current assets 2,013.9 2,106.5
Current assets
Inventories 608.1 679.1
Trade & other receivables 526.2 528.9
Derivative financial instruments 15 7.9 8.9
Income tax receivable 29.4 41.3
Cash & short-term deposits 707.2 691.2
Total current assets 1,878.8 1,949.4
Total assets 3,892.7 4,055.9
LIABILITIES
Current liabilities
Interest-bearing loans & borrowings 286.2 406.3
Trade & other payables 581.3 623.5
Derivative financial instruments 15 6.4 13.2
Income tax payable 1.9 7.4
Provisions 12 47.6 35.3
Total current liabilities 923.4 1,085.7
Non-current liabilities
Interest-bearing loans & borrowings 1,111.1 1,082.1
Other payables 0.6 1.0
Derivative financial instruments 15 2.3 -
Provisions 12 80.7 62.9
Deferred tax liabilities 46.9 51.4
Retirement benefit plan deficits 14 28.0 34.9
Total non-current liabilities 1,269.6 1,232.3
Total liabilities 2,193.0 2,318.0
NET ASSETS 1,699.7 1,737.9
CAPITAL & RESERVES
Share capital 32.5 32.5
Share premium 582.3 582.3
Merger reserve 332.6 332.6
Treasury shares (29.0) (14.3)
Capital redemption reserve 0.5 0.5
Foreign currency translation reserve (238.7) (108.5)
Hedge accounting reserve 1.4 1.9
Retained earnings 1,008.2 899.5
Shareholders' equity 1,689.8 1,726.5
Non-controlling interests 9.9 11.4
TOTAL EQUITY 1,699.7 1,737.9
The financial statements were approved by the Board of Directors and
authorised for issue on 29 February 2024.
JON STANTON
Director
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
Year ended Year ended
31 December 2023 31 December 2022
Notes £m £m
Total operations
Cash flows from operating activities 16
Cash generated from operations 525.5 447.8
Additional pension contributions paid (9.3) (9.7)
Exceptional and other adjusting cash items (18.0) (14.2)
Exceptional cash items - acquired vendor liabilities - (9.7)
Income tax paid (103.9) (93.4)
Net cash generated from operating activities 394.3 320.8
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired 16 (6.9) (15.2)
Purchases of property, plant & equipment (79.1) (56.1)
Purchases of intangible assets (7.6) (6.6)
Other proceeds from sale of property, plant & equipment and intangible 4.2 4.4
assets
Disposals of discontinued operations, net of cash disposed and disposal costs 7,16 (0.4) (0.1)
Exceptional cash item - disposal of ESCO Russia 16 - (2.0)
Interest received 15.1 4.6
Dividends received from joint ventures 4.1 2.7
Net cash used in investing activities (70.6) (68.3)
Cash flows from financing activities
Proceeds from borrowings 512.6 822.8
Repayments of borrowings (627.6) (958.9)
Lease payments (31.0) (30.5)
Settlement of external debt of subsidiary on acquisition (0.2) -
Settlement of derivative financial instruments (0.5) (0.3)
Interest paid (55.0) (49.9)
Dividends paid to equity holders of the Company 9 (95.9) (66.7)
Dividends paid to non-controlling interests (0.9) (0.3)
Purchase of shares for employee share plans (24.0) (20.0)
Net cash used in financing activities (322.5) (303.8)
Net increase (decrease) in cash & cash equivalents 1.2 (51.3)
Cash & cash equivalents at the beginning of the year 477.5 500.0
Foreign currency translation differences (31.3) 28.8
Cash & cash equivalents at the end of the year 16 447.4 477.5
The cash flows from discontinued operations included above are disclosed
separately in note 7.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Share capital Share premium Merger reserve Treasury shares Capital redemption reserve Foreign currency translation reserve Hedge accounting reserve Retained earnings Attributable to equity holders of the Company Non- controlling interests Total equity
£m £m £m £m £m £m £m £m £m £m £m
At 31 December 2021 32.5 582.3 332.6 (5.3) 0.5 (206.5) 1.5 705.9 1,443.5 11.0 1,454.5
Profit for the year - - - - - - - 213.4 213.4 0.4 213.8
Exchange gains on translation of foreign operations - - - - - 222.8 - - 222.8 0.3 223.1
Reclassification of foreign currency translation reserve on disposal of - - - - - 0.1 - - 0.1 - 0.1
operations
Exchange losses on net investment hedges - - - - - (124.9) - - (124.9) - (124.9)
Reclassification adjustments on cash flow hedges - - - - - - 0.5 - 0.5 - 0.5
Remeasurements on defined benefit plans - - - - - - - 65.3 65.3 - 65.3
Tax relating to other comprehensive income - - - - - - (0.1) (16.3) (16.4) - (16.4)
Total net comprehensive income for the year - - - - - 98.0 0.4 262.4 360.8 0.7 361.5
Cost of share-based payments inclusive of tax credit - - - - - - - 8.9 8.9 - 8.9
Dividends - - - - - - - (66.7) (66.7) - (66.7)
Purchase of shares for employee share plans - - - (20.0) - - - - (20.0) - (20.0)
Dividends paid to non-controlling interests - - - - - - - - - (0.3) (0.3)
Exercise of share-based payments - - - 11.0 - - - (11.0) - - -
At 31 December 2022 32.5 582.3 332.6 (14.3) 0.5 (108.5) 1.9 899.5 1,726.5 11.4 1,737.9
Share capital Share premium Merger reserve Treasury shares Capital redemption reserve Foreign currency translation reserve Hedge accounting reserve Retained earnings Attributable to equity holders of the Company Non- controlling interests Total equity
£m £m £m £m £m £m £m £m £m £m £m
At 31 December 2022 32.5 582.3 332.6 (14.3) 0.5 (108.5) 1.9 899.5 1,726.5 11.4 1,737.9
Profit for the year - - - - - - - 227.9 227.9 0.7 228.6
Losses taken to equity on cash flow hedges - - - - - - (0.4) - (0.4) - (0.4)
Cost of hedging taken to equity on fair value hedges - - - - - - (0.8) - (0.8) - (0.8)
Exchange losses on translation of foreign operations - - - - - (157.8) - - (157.8) (1.3) (159.1)
Exchange gains on net investment hedges - - - - - 27.6 - - 27.6 - 27.6
Reclassification adjustments on cash flow hedges - - - - - - 0.5 - 0.5 - 0.5
Reclassification adjustments on fair value hedges - - - - - - 0.1 - 0.1 - 0.1
Remeasurements on defined benefit plans - - - - - - - (28.2) (28.2) - (28.2)
Tax relating to other comprehensive expense - - - - - - 0.1 7.1 7.2 - 7.2
Total net comprehensive income for the year - - - - - (130.2) (0.5) 206.8 76.1 (0.6) 75.5
Cost of share-based payments inclusive of tax credit - - - - - - - 7.1 7.1 - 7.1
Dividends - - - - - - - (95.9) (95.9) - (95.9)
Purchase of shares for employee share plans - - - (24.0) - - - - (24.0) - (24.0)
Dividends paid to non-controlling interests - - - - - - - - - (0.9) (0.9)
Exercise of share-based payments - - - 9.3 - - - (9.3) - - -
At 31 December 2023 32.5 582.3 332.6 (29.0) 0.5 (238.7) 1.4 1,008.2 1,689.8 9.9 1,699.7
1. Accounting policies
Basis of preparation
The audited results for the year ended 31 December 2023 ("2023") have been
prepared in accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006 as applicable to those
companies reporting under those standards.
The financial information set out in the audited results does not constitute
the Group's statutory financial statements for the year ended 31 December
2023 within the meaning of section 434 of the Companies Act 2006 and has been
extracted from the full financial statements for the year ended 31 December
2023.
Statutory financial statements for the year ended 31 December 2022 ("2022"),
which received an unqualified audit report, have been delivered to the
Registrar of Companies. The reports of the auditors on the financial
statements for the year ended 31 December 2022 and for the year ended
31 December 2023 were unqualified and did not contain a statement under
either section 498(2) or section 498(3) of the Companies Act 2006. The
financial statements for the period ended 31 December 2023 will be delivered
to the Registrar of Companies and made available to all Shareholders in due
course.
These financial statements are presented in Sterling. All values are rounded
to the nearest 0.1 million pounds (£m) except where otherwise indicated.
The financial statements are also prepared on a historic cost basis except
where measured at fair value as outlined in the accounting policies.
Going concern
The Directors have a reasonable expectation that the Group has adequate
resources to continue to operate for a period of at least 12 months from the
date of approval of the financial statements. For this reason, they continue
to adopt the going concern basis of preparing the financial statements. In
forming this view the Directors have reviewed the Group's budget and
sensitivity analysis.
Basis of consolidation
The Consolidated Financial Statements include the results, cash flows and
assets and liabilities of The Weir Group PLC and its subsidiaries, and the
Group's share of results of its joint venture. For consolidation purposes,
subsidiaries and joint ventures prepare financial information for the same
reporting period as the Company using consistent accounting policies.
A subsidiary is an entity controlled, either directly or indirectly, by the
Company, where control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. The results of a
subsidiary acquired during the period are included in the Group's results from
the effective date on which control is transferred to the Group. The results
of a subsidiary sold during the period are included in the Group's results up
to the effective date on which control is transferred out of the Group. All
intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Non-controlling interests represent the portion of profit or loss and net
assets in subsidiaries that are not held by the Group and are presented within
equity in the Consolidated Balance Sheet, separately from the Company
Shareholders' equity.
New accounting standards, amendments and interpretations
The accounting policies that follow are consistent with those of the previous
period, with the exception of the following standards, amendments and
interpretations which are effective for the year ended 31 December 2023:
• IFRS 17 'Insurance contracts' as amended in December 2021;
• Definition of Accounting Estimates - amendments to IAS 8;
• International Tax Reform - Pillar Two Model Rules - amendments
to IAS 12;
• Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - amendments to IAS 12; and
• Disclosure of Accounting Policies - amendments to IAS 1 and IFRS
Practice Statement 2.
The amendments listed above are not considered to have a material impact on
the Consolidated Financial Statements of the Group.
The following new accounting standards and interpretations have been published
but are not mandatory for 31 December 2023:
• Amendments to IAS 1 - Classification of liabilities as current
or non-current;
• Amendments to IAS 1 - Non-current liabilities with covenants;
• Amendments to IAS 21 - Lack of exchangeability;
• Amendments to IAS 7 and IFRS 7 - Supplier finance
arrangements; and
• Amendments to IFRS 16 - Lease liability in a sale and
leaseback.
These amendments have not been early adopted by the Group. The impact
assessment is ongoing, however, from initial review these standards are not
expected to have a material impact on the Group in the current or future
reporting periods.
Climate change
Climate change is considered to be a key element of our overall sustainability
roadmap. As well as considering the impact of climate change across our
business model, the Directors have considered the impact on the financial
statements in accordance with the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations. Climate change is not considered to have a
material impact on the financial reporting judgements and estimates arising
from our considerations. Overall, sustainability is recognised in the market
as a growth driver for Weir and a key part of our investment case. This is
consistent with our assessment that climate change is not expected to have a
detrimental impact on the viability of the Group in the medium-term.
Specifically we note the following:
• The impact of climate change has been included in the
modelling to assess the viability and going concern status of the Group, both
in terms of the preparation of our Strategic Plan, which underpins our
viability statement modelling, and the modelling of our severe, but plausible
downside scenarios;
• Our assessment of the carrying value of goodwill and
intangible assets included consideration of scenario analysis of potential
climate change on our end markets and this did not introduce a set of
circumstances that were considered could reasonably lead to an impairment;
• The impact on the carrying value and useful lives of tangible
assets has been considered and while we continue to invest in projects to
reduce our carbon impact, there is not considered to be a material impact on
our existing asset base;
• In May 2021, the Group successfully completed the issuance of
five-year US$800m Sustainability-Linked Notes. The cost of meeting our linked
targets in 2024 has been considered within the above modelling and the impact
is not material; and
• In June 2023, the Group successfully completed the issuance of
five-year £300m Sustainability-Linked Notes. The cost of meeting our linked
targets in 2026 has been considered within the above modelling and the impact
is not material.
Further detail on our science-based targets and performance against them is
included in the Emissions Strategy in the Strategic Report section of the
Annual Report.
Use of estimates and judgements
The Group's material accounting policy information is set out below. The
preparation of the Consolidated Financial Statements, in conformity with IFRS,
requires management to make judgements that affect the application of
accounting policies and estimates that impact the reported amounts of assets,
liabilities, income and expense.
Management bases these judgements on a combination of past experience,
professional expert advice and other evidence that is relevant to each
individual circumstance. Actual results may differ from these judgements and
the resulting estimates, which are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the year in which the estimate is
revised.
Areas requiring significant judgement in the current year and on a recurring
basis are presented to the Audit Committee.
Critical judgments and estimates
The areas where management considers critical judgements and estimates to be
required, which are areas more likely to be materially adjusted within the
next 12 months due to inherent uncertainty regarding estimates and
assumptions, are those in respect of the following:
Retirement benefits (estimate)
The assumptions underlying the valuation of retirement benefit assets and
liabilities include discount rates, inflation rates and mortality assumptions,
which are based on actuarial advice. Changes in these assumptions could have a
material impact on the measurement of the Group's retirement benefit
obligations.
Provisions (judgement/estimate)
Management judgement is used to determine when a provision is recognised,
taking into account the commercial drivers that gave rise to it, the Group's
previous experience of similar obligations and the progress of any associated
legal proceedings. The calculation of provisions typically involves management
estimates of associated cash flows and discount rates. The key provision,
which currently requires a greater degree of management judgement and estimate
is the US asbestos provision and associated insurance asset, details of which
are included in note 12.
Deferred taxation (estimate)
The level of current and deferred tax recognised in the financial statements
is dependent on subjective judgements as to the interpretation of complex
international tax regulations and, in some cases, the outcome of decisions by
tax authorities in various jurisdictions around the world, together with the
ability of the Group to utilise tax attributes within the time limits imposed
by the relevant tax legislation. The value of the recognised US deferred tax
asset in relation to US tax attributes is based on expected future US taxable
profits with reference to the Group's ten-year forecast period and assumptions
over the intended use of these tax attributes during this period. The
application of this model and its underlying assumptions may result in future
changes to the deferred tax asset recognised. In particular, the recognition
of US deferred tax assets relating to deferred intra-group interest deductions
is based upon the current policy and modelling demonstrating full utilisation
of that attribute over the ten-year forecast period. If the current policy
were to change then the utilisation of this tax attribute, as demonstrated by
the model, may reduce resulting in a reduction in US deferred tax asset
recognised of a maximum of £37.6m (2022: £41.2m).
Other estimates
Taxation (estimate)
The Group faces a variety of tax risks, which result from operating in a
complex global environment, including the ongoing reform of both international
and domestic tax rules in some of the Group's larger markets and the challenge
to fulfil ongoing tax compliance filing and transfer pricing obligations given
the scale and diversity of the Group's global operations.
The Group makes provision for open tax issues where it is probable that an
exposure will arise including, in a number of jurisdictions, ongoing tax
audits and uncertain tax positions including transfer pricing which are by
nature complex and can take a number of years to resolve. In all cases,
provisions are based on management's interpretation of tax law in each
country, as supported where appropriate by discussion and analysis undertaken
by the Group's external advisers, and reflect the single best estimate of the
likely outcome or the expected value for each liability. Provisions for
uncertain tax positions are included in current tax liabilities and total
£5.4m at 31 December 2023 (2022: £7.1m).
The Group believes it has made adequate provision for such matters although it
is possible that amounts ultimately paid will be different from the amounts
provided, but not materially within the next 12 months.
Tax disclosures are provided in note 6.
Accounting policies
Adjusting items
In order to provide the users of the Consolidated Financial Statements with a
more relevant presentation of the Group's performance, statutory results for
each year have been analysed between:
• adjusted results; and
• the effect of adjusting items.
The principal adjusting items are summarised below. These specific items are
presented on the face of the Consolidated Income Statement, along with the
related adjusting items' taxation, to provide greater clarity and a better
understanding of the impact of these items on the Group's financial
performance. In doing so, it also facilitates greater comparison of the
Group's underlying results with prior years and assessment of trends in
financial performance. This split is consistent with how business performance
is measured internally.
Intangibles amortisation
Intangibles amortisation is expensed in line with the other intangible assets
policy, with separate disclosure provided to allow visibility of the impact of
both:
• intangible assets recognised via acquisition, which primarily
relate to items that would not normally be capitalised unless identified as
part of an acquisition opening balance sheet. The ongoing costs associated
with these assets are expensed; and
• ongoing multi-year investment activities, which previously
included our IT transformation strategy and digitalisation strategy.
In the prior year, amortisation of £7.4m was included within adjusting items
in relation to assets which are part of ongoing multi-year investment
activities. As these assets are now fully amortised, no charge has been
recognised during the current year.
Exceptional items
Exceptional items are items of income and expense which, because of the
nature, size and/or infrequency of the events giving rise to them, merit
separate presentation. Exceptional items may include, but are not restricted
to: profits or losses arising on disposal or closure of businesses; the cost
of significant business restructuring; significant impairments of intangible
or tangible assets; adjustments to the fair value of acquisition-related items
such as contingent consideration and inventory; acquisitions and other items
deemed exceptional due to their significance, size or nature.
Other adjusting items
Other adjusting items are those that do not relate to the Group's current
ongoing trading and, due to their nature, are treated as adjusting items. For
example these may include, but are not restricted to, movements in the
provision for asbestos-related claims or the associated insurance assets,
which relate to the Flow Control Division that was sold in 2019, but the
provision remains with the Group and is in run-off, or past service costs
related to pension liabilities.
Further analysis of the items included in the column 'Adjusting items' in the
Consolidated Income Statement are provided in note 5.
2. Alternative performance measures
The Consolidated Financial Statements of The Weir Group PLC have been prepared
in accordance with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to those companies
reporting under those standards. In measuring our performance, the financial
measures that we use include those which have been derived from our reported
results in order to eliminate factors which we believe distort
period-on-period comparisons. These are considered alternative performance
measures. This information, along with comparable GAAP measurements, is useful
to investors in providing a basis for measuring our operational performance.
Our management uses these financial measures, along with the most directly
comparable GAAP financial measures, in evaluating our performance and value
creation. Alternative performance measures should not be considered in
isolation from, or as a substitute for, financial information in compliance
with GAAP. Alternative performance measures as reported by the Group may not
be comparable with similarly titled amounts reported by other companies.
Below we set out our definitions of alternative performance measures and
provide reconciliations to relevant GAAP measures.
Adjusted results and adjusting items
The Consolidated Income Statement presents Statutory results, which are
provided on a GAAP basis, and Adjusted results (non-GAAP), which are
management's primary area of focus when reviewing the performance of the
business. Adjusting items represent the difference between Statutory results
and Adjusted results and are defined within the accounting policies section
above. The accounting policy for Adjusting items should be read in conjunction
with this note. Details of each adjusting item are provided in note 5. We
consider this presentation to be helpful as it allows greater comparability of
the underlying performance of the business from year to year.
EBITDA
EBITDA is operating profit from continuing operations, before exceptional
items, other adjusting items, intangibles amortisation, and excluding
depreciation of owned assets and right-of-use assets. EBITDA is a widely used
measure of a company's profitability of its operations before any effects of
indebtedness, taxes or costs required to maintain its asset base. EBITDA is
used in conjunction with other GAAP and non-GAAP financial measures to assess
our operational performance. A reconciliation of EBITDA to the closest
equivalent GAAP measure, operating profit, is provided.
2023 2022
£m £m
Continuing operations
Operating profit 368.4 307.5
Adjusted for:
Exceptional and other adjusting items (note 5) 64.9 51.4
Adjusting amortisation (note 5) 25.5 35.9
Adjusted operating profit 458.8 394.8
Non-adjusting amortisation 12.2 5.7
Adjusted earnings before interest, tax and amortisation (EBITA) 471.0 400.5
Depreciation of owned property, plant & equipment 39.9 47.0
Depreciation of right-of-use property, plant & equipment 31.6 31.4
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) 542.5 478.9
Operating cash flow (cash generated from operations)
Operating cash flow excludes additional pension contributions, exceptional and
other adjusting cash items and income tax paid. This is a useful measure to
view or assess the underlying cash generation of the business from its
operating activities. A reconciliation to the GAAP measure 'Net cash generated
from operating activities' is provided in the Consolidated Cash Flow
Statement.
Free operating cash flow and free cash flow
Free operating cash flow (FOCF) is defined as operating cash flow (cash
generated from operations), adjusted for net capital expenditure, lease
payments, dividends received from joint ventures and purchase of shares for
employee share plans. FOCF provides a useful measure of the cash flows
generated directly from the operational activities after taking into account
other cash flows closely associated with maintaining daily operations.
Free cash flow (FCF) is defined as FOCF further adjusted for net interest,
income taxes, settlement of derivative financial instruments, additional
pension contributions and non-controlling interest dividends. FCF reflects an
additional way of viewing our available funds that we believe is useful to
investors as it represents cash flows that could be used for repayment of
debt, dividends, exceptional and other adjusting items, or to fund our
strategic initiatives, including acquisitions, if any.
The reconciliation of operating cash flows (cash generated from operations) to
FOCF and subsequently FCF is as follows.
2023 2022
£m £m
Operating cash flow (cash generated from operations) 525.5 447.8
Net capital expenditure from purchase & disposal of property, plant & (82.5) (58.3)
equipment and intangibles
Lease payments (31.0) (30.5)
Dividends received from joint ventures 4.1 2.7
Purchase of shares for employee share plans (24.0) (20.0)
Free operating cash flow (FOCF) 392.1 341.7
Net interest paid (39.9) (45.3)
Income tax paid (103.9) (93.4)
Settlement of derivative financial instruments (0.5) (0.3)
Additional pension contributions paid (9.3) (9.7)
Non-controlling interest dividends (0.9) (0.3)
Free cash flow (FCF) 237.6 192.7
Free operating cash conversion
Free operating cash conversion is a non-GAAP key performance measure defined
as free operating cash flow divided by adjusted operating profit on a total
Group basis. The measure is used by management to monitor the Group's ability
to generate cash relative to operating profits.
2023 2022
£m £m
Adjusted operating profit 458.8 394.8
Free operating cash flow 392.1 341.7
Free operating cash conversion % 85% 87%
Working capital as a percentage of sales
Working capital as a percentage of sales is calculated based on working
capital as reflected below, divided by revenue, as included in the
Consolidated Income Statement. It is a measure used by management to monitor
how efficiently the Group is managing its investment in working capital
relative to revenue growth.
2023 2022
£m £m
Working capital as included in the Consolidated Balance Sheet
Other receivables 53.8 76.8
Inventories 608.1 679.1
Trade & other receivables 526.2 528.9
Derivative financial instruments (note 15) (0.8) (4.3)
Trade & other payables (581.3) (623.5)
Other payables (0.6) (1.0)
605.4 656.0
Adjusted for:
Insurance contract assets (57.5) (77.9)
Interest accruals 12.3 5.3
Deferred consideration 1.6 2.0
(43.6) (70.6)
Working capital 561.8 585.4
Revenue 2,636.0 2,472.1
Working capital as a percentage of sales 21% 24%
Net debt
Net debt is a widely used liquidity metric calculated by taking cash and cash
equivalents less total current and non-current debt. A reconciliation of net
debt to cash and short-term deposits and interest-bearing loans and borrowings
is provided in note 16. It is a useful measure used by management and
investors when monitoring the capital management of the Group. Net debt,
excluding lease liabilities and converted at the exchange rates used in the
preparation of the Consolidated Income Statement, is also the basis for
covenant reporting.
3. Segment information
Continuing operations includes two operating Divisions: Minerals and ESCO.
These two Divisions are organised and managed separately based on the key
markets served and each is treated as an operating segment and a reportable
segment under IFRS 8 'Operating segments'. The operating and reportable
segments were determined based on the reports reviewed by the Chief Executive
Officer, which are used to make operational decisions.
The Minerals segment is a global leader in engineering, manufacturing and
service processing technology used in abrasive, high-wear mining applications.
Its differentiated technology is also used in infrastructure and general
industrial markets. The ESCO segment is a global leader in the provision of
Ground Engaging Tools (GET) for large mining machines. It operates
predominantly in mining and infrastructure markets where its highly engineered
technology improves productivity through extended wear life, increased safety
and reduced energy consumption.
Following the acquisition of Sentiantechnologies AB (SentianAI) on 21 November
2023 and Carriere Industrial Supply Limited (CIS) on 8 April 2022, these
entities have been included in the Minerals and ESCO segments respectively.
SentianAI is a developer of innovative cloud-based Artificial Intelligence
solutions to the mining industry. CIS is a premier manufacturer and
distributor of highly engineered wear parts and aftermarket service provider
to the Canadian mining industry.
The Chief Executive Officer assesses the performance of the operating segments
based on operating profit from continuing operations before exceptional and
other adjusting items ('segment result'). Finance income and expenditure and
associated interest-bearing liabilities and financing derivative financial
instruments are not allocated to segments as all treasury activity is managed
centrally by the Group Treasury function. The amounts provided to the Chief
Executive Officer with respect to assets and liabilities are measured in a
manner consistent with that of the financial statements. The assets are
allocated based on the operations of the segment and the physical location of
the asset. The liabilities are allocated based on the operations of the
segment.
Transfer prices between business segments are set on an arm's length basis, in
a manner similar to transactions with third parties.
The segment information for the reportable segments for 2023 and 2022 is
disclosed below. Information related to discontinued operations is included in
note 7.
Minerals ESCO Total continuing operations
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Revenue
Sales to external customers 1,937.4 1,780.5 698.6 691.6 2,636.0 2,472.1
Inter-segment sales 0.1 0.1 2.5 3.2 2.6 3.3
Segment revenue 1,937.5 1,780.6 701.1 694.8 2,638.6 2,475.4
Eliminations (2.6) (3.3)
2,636.0 2,472.1
Sales to external customers - 2022 at 2023 average exchange rates
Sales to external customers 1,937.4 1,734.6 698.6 688.2 2,636.0 2,422.8
Segment result
Segment result before share of results of joint ventures 375.7 323.5 119.4 107.5 495.1 431.0
Share of results of joint ventures - - 2.5 2.5 2.5 2.5
Segment result 375.7 323.5 121.9 110.0 497.6 433.5
Corporate expenses (38.8) (38.7)
Adjusted operating profit 458.8 394.8
Adjusting items (90.4) (87.3)
Net finance costs (47.7) (47.3)
Profit before tax from continuing operations 320.7 260.2
Segment result - 2022 at 2023 average exchange rates
Segment result before share of results of joint ventures 375.7 317.5 119.4 106.9 495.1 424.4
Share of results of joint ventures - - 2.5 2.5 2.5 2.5
Segment result 375.7 317.5 121.9 109.4 497.6 426.9
Corporate expenses (38.8) (38.9)
Adjusted operating profit 458.8 388.0
Revenues from any single external customer do not exceed 10% of Group revenue.
Minerals ESCO Total continuing operations
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Timing of revenue recognition
At a point in time 1,825.2 1,682.7 685.3 681.9 2,510.5 2,364.6
Over time 112.3 97.9 15.8 12.9 128.1 110.8
Segment revenue 1,937.5 1,780.6 701.1 694.8 2,638.6 2,475.4
Eliminations (2.6) (3.3)
2,636.0 2,472.1
Geographical information
Geographical information in respect of revenue for 2023 and 2022 is disclosed
below. Revenues are allocated based on the location to which the product is
shipped.
2023 2022
£m £m
Revenue by geography
UK 23.9 34.8
US 412.4 418.1
Canada 420.8 378.3
Asia Pacific 347.4 288.2
Australasia 412.4 336.3
South America 576.3 540.8
Middle East & Africa 317.4 295.3
Europe & FSU 125.4 180.3
Revenue 2,636.0 2,472.1
2023 2022
£m £m
An analysis of the Group's revenue is as follows:
Original equipment 552.3 456.0
Aftermarket parts 1,864.3 1,825.7
Sales of goods 2,416.6 2,281.7
Provision of services - aftermarket 160.7 141.9
Construction contracts - original equipment 54.3 45.5
Subscription services 4.4 3.0
Revenue 2,636.0 2,472.1
Minerals ESCO Total Group
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Assets & liabilities
Intangible assets 567.9 600.8 748.0 809.0 1,315.9 1,409.8
Property, plant & equipment 312.3 303.4 168.4 147.6 480.7 451.0
Working capital assets 844.9 902.0 288.1 307.3 1,133.0 1,209.3
1,725.1 1,806.2 1,204.5 1,263.9 2,929.6 3,070.1
Investments in joint ventures - - 12.2 15.1 12.2 15.1
Segment assets 1,725.1 1,806.2 1,216.7 1,279.0 2,941.8 3,085.2
Corporate assets 950.9 970.7
Total assets 3,892.7 4,055.9
Working capital liabilities 476.6 543.7 129.9 139.9 606.5 683.6
Segment liabilities 476.6 543.7 129.9 139.9 606.5 683.6
Corporate liabilities 1,586.5 1,634.4
Total liabilities 2,193.0 2,318.0
Other segment information - total Group
Segment additions to non-current assets 79.7 68.7 46.6 29.4 126.3 98.1
Corporate additions to non-current assets 1.3 1.1
Total additions to non-current assets 127.6 99.2
Other segment information - total Group
Segment depreciation & amortisation 65.0 73.8 42.2 43.1 107.2 116.9
Segment impairment of property, plant & equipment 1.4 1.3 - - 1.4 1.3
Segment impairment of intangible assets - 0.3 - - - 0.3
Corporate depreciation & amortisation 2.0 3.1
Total depreciation, amortisation & impairment 110.6 121.6
The asset and liability balances include right-of-use assets and lease
liabilities.
Corporate assets primarily comprise cash and short-term deposits,
asbestos-related insurance asset, Trust Owned Life Insurance policy
investments, derivative financial instruments, income tax receivable, deferred
tax assets and elimination of intercompany as well as those assets which are
used for general head office purposes. Corporate liabilities primarily
comprise interest-bearing loans & borrowings and related interest
accruals, derivative financial instruments, income tax payable, provisions,
deferred tax liabilities, elimination of intercompany and retirement benefit
deficits as well as liabilities relating to general head office activities.
Segment additions to non-current assets include right-of-use assets.
Geographical information
Geographical information in respect of non-current assets for 2023 and 2022 is
disclosed below. Assets are allocated based on the location of the assets and
operations. Non-current assets consist of property, plant & equipment,
intangible assets and investments in joint ventures.
2023 2022
£m £m
Non-current assets by geography
UK 308.8 310.3
US 707.6 765.5
Canada 168.8 177.7
Asia Pacific 195.1 184.6
Australasia 201.8 210.5
South America 81.4 82.9
Middle East & Africa 97.6 105.1
Europe & FSU 57.6 50.6
Non-current assets 1,818.7 1,887.2
4. Revenue & expenses
The following disclosures are given in relation to continuing operations.
Year ended 31 December 2023 Year ended 31 December 2022
Adjusted results Adjusting items Statutory results Adjusted results Adjusting items Statutory results
£m £m £m £m £m £m
A reconciliation of revenue to operating profit is as follows:
Revenue 2,636.0 - 2,636.0 2,472.1 - 2,472.1
Cost of sales (1,641.1) (1.6) (1,642.7) (1,573.4) (24.8) (1,598.2)
Gross profit 994.9 (1.6) 993.3 898.7 (24.8) 873.9
Other operating income 5.9 - 5.9 10.4 - 10.4
Selling & distribution costs (291.4) (2.4) (293.8) (279.8) (4.2) (284.0)
Administrative expenses (253.1) (86.4) (339.5) (237.0) (58.3) (295.3)
Share of results of joint ventures 2.5 - 2.5 2.5 - 2.5
Operating profit 458.8 (90.4) 368.4 394.8 (87.3) 307.5
Details of adjusting items are included in note 5.
5. Adjusting items
2023 2022
£m £m
Recognised in arriving at operating profit from continuing operations
Intangibles amortisation (25.5) (35.9)
Exceptional items
Acquisition and integration related costs (0.7) (2.4)
Russian operations wind down 7.7 (44.0)
Performance Excellence programme (28.8) (2.9)
Other restructuring and rationalisation activities 0.1 0.4
(21.7) (48.9)
Other adjusting items
Asbestos-related provision (43.2) (2.5)
Total adjusting items (90.4) (87.3)
Recognised in arriving at operating profit from discontinued operations
Exceptional items
Finalisation of Oil & Gas related tax assessment (1.3) -
Total adjusting items (note 7) (1.3) -
Continuing operations
Intangibles amortisation
Intangibles amortisation of £25.5m (2022: £35.9m) relates to acquisition
related assets. In the prior year the £35.9m amortisation charge included
£7.4m in relation to ongoing multi-year investment activities, as outlined in
the accounting policy in note 1.
Exceptional items
Exceptional items in the year include £0.7m of acquisition and integration
related costs. These costs were cash settled during the year.
During the prior year exceptional costs of £44.0m were recognised in the
Consolidated Income Statement in respect of the wind down of Russia
operations. Of this total, £39.1m arose from the uncertainty over
recoverability of assets in the Minerals division, with provisions made for
the majority of Weir Minerals Russia's closing third-party net assets of
£19.5m, severance costs of £3.3m, customer penalties of £1.8m and other
costs of £0.8m mainly relating to staff retention. Exceptional charges were
also recognised in other Minerals entities, including provision for 'made to
order' inventory prohibited from being shipped of £7.0m, receivables from
sanctioned customers of £2.8m, and severance and incremental warehousing
costs totalling £3.9m. A further £4.9m arose from the loss on disposal of
the ESCO Russia operations. In the current year a net credit of £7.7m has
been recognised, primarily in respect of the reversal of previously impaired
inventory and receivables, as working capital recoveries have exceeded initial
expectations. These reversals were partially offset by £2.0m of additional
inventory provision made for newly emerging contract exposures in the first
half of the year and £1.9m of additional receivables provisions.
As a result of our ongoing Performance Excellence programme, an exceptional
charge of £28.8m has been recorded. The three-year programme aims to
transform the way we work with more agile and efficient business processes,
with a focus on customer and service-delivery. The programme includes capacity
optimisation, lean processes and global business services. Costs of £16.5m,
primarily severance, have been recognised under the capacity optimisation and
lean processes pillars of the programme due to the relocation of facilities,
service centre restructuring and transfer of certain manufacturing operations
across the USA, Australia and South America. Of these costs, £9.1m have been
cash settled in the year. The remaining costs of £12.3m primarily relate to
consulting fees and other costs associated with establishing Weir Business
Services, with £5.2m being cash settled in the year.
Also included within exceptional items is a £0.1m credit for the release of
an unutilised prior year provision for restructuring and rationalisation
activities in China.
Other adjusting items
A charge of £43.2m (2022: £2.5m) has been recorded in respect of movements
in the US asbestos-related liability and associated insurance asset that
relate to legacy products sold by a US-based subsidiary of the Group. Further
details of this are included in note 12.
Discontinued operations
Exceptional items
A charge of £1.3m has been recognised in the period in relation to the gain
on sale of discontinued operations (note 7). This relates to the finalisation
of certain tax indemnities under the sale and purchase agreement for the Oil
& Gas Division, which was disposed in 2021.
6. Income tax expense
2023 2022
£m £m
Continuing Group - UK (4.5) (11.8)
Continuing Group - Overseas (86.3) (35.8)
Income tax expense in the Consolidated Income Statement for continuing (90.8) (47.6)
operations
The total income tax expense is disclosed in the Consolidated Income Statement
as follows.
2023 2022
£m £m
Tax (expense) credit - adjusted results (110.9) (92.5)
- adjusting items 20.1 44.9
Continuing operations income tax expense in the Consolidated Income Statement (90.8) (47.6)
Discontinued operations income tax credit (expense) in the Consolidated Income - 1.2
Statement
Total income tax expense in the Consolidated Income Statement (90.8) (46.4)
The tax credit of £20.1m (2022: £44.9m) which has been recognised in
adjusting items includes £0.9m (2022: £8.6m) in respect of adjusting
intangibles amortisation and impairment. The £0.9m credit consists of a
£5.6m credit in relation to intangibles amortisation which is offset by a
non-recurring £4.7m charge in relation to changes in tax rates. The remaining
£19.2m (2022: £36.3m) relates to exceptional and other adjusting items and
includes a credit of £10.1m (2022: £3.5m) which primarily relates to the US
asbestos-related provision.
The income tax expense included in the Continuing Group's share of results of
joint ventures is as follows.
2023 2022
£m £m
Joint ventures (0.6) (0.2)
7. Discontinued operations
In the year ended 31 December 2023, a charge of £1.3m has been recognised in
relation to the finalisation of certain tax indemnities under the sale and
purchase agreement for the Oil & Gas Division, which was disposed of in
2021. In the prior year, a tax credit of £1.2m was recognised following the
filing of the 2021 US tax return for Oil & Gas Division related
activities. Total current year investing cash outflows from discontinued
operations related to the charge in the period are £0.4m (2022: £0.1m).
For full disclosure of the disposal of the Oil & Gas Division refer to
note 8 of the Group's 2021 Annual Report and Financial Statements.
(Loss) earnings per share
(Loss) earnings per share from discontinued operations were as follows.
2023 2022
pence pence
Basic (0.5) 0.5
Diluted (0.5) 0.5
The (loss) earnings per share figures were derived by dividing the net (loss)
profit attributable to equity holders of the Company from discontinued
operations by the weighted average number of ordinary shares, for both basic
and diluted amounts, shown in note 8.
8. Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to equity holders of the Company by the weighted average
number of ordinary shares in issue after deducting the own shares held by
employee share ownership trusts and treasury shares. Diluted earnings per
share is calculated by dividing the net profit attributable to equity holders
of the Company by the weighted average number of ordinary shares outstanding
during the year, adjusted for the effect of dilutive share awards.
The following reflects the earnings used in the calculation of earnings per
share.
2023 2022
£m £m
Profit attributable to equity holders of the Company
Total operations(1) 227.9 213.4
Continuing operations(1) 229.2 212.2
Continuing operations before adjusting items(1) 299.5 254.6
( )
The following reflects the share numbers used in the calculation of earnings
per share, and the difference between the weighted average share capital for
the purposes of the basic and the diluted earnings per share calculations.
2023 2022
Shares Shares
million million
Weighted average number of ordinary shares for basic earnings per share 258.4 258.7
Effect of dilution: employee share awards 1.4 1.6
Adjusted weighted average number of ordinary shares for diluted earnings per 259.8 260.3
share
The profit attributable to equity holders of the Company used in the
calculation of both basic and diluted earnings per share from continuing
operations before adjusting items is calculated as follows.
2023 2022
£m £m
Net profit attributable to equity holders from continuing operations(1) 229.2 212.2
Adjusting items net of tax 70.3 42.4
Net profit attributable to equity holders from continuing operations before 299.5 254.6
adjusting items
2023 2022
pence pence
Basic earnings per share
Total operations(1) 88.2 82.5
Continuing operations(1) 88.7 82.0
Continuing operations before adjusting items(1) 115.9 98.4
Diluted earnings per share
Total operations(1) 87.7 82.0
Continuing operations(1) 88.2 81.5
Continuing operations before adjusting items(1) 115.3 97.8
(1 Adjusted for a profit of £0.7m (2022: £0.4m) in respect of
non-controlling interests for total operations.)
( )
There have been nil share awards (2022: 839) exercised between the reporting
date and the date of signing of these financial statements. They were settled
out of existing shares held in trust.
( )
(Loss) earnings per share from discontinued operations is disclosed in note 7.
9. Dividends paid & proposed
2023 2022
£m £m
Declared & paid during the year
Equity dividends on ordinary shares
Final dividend for 2022: 19.3p (2021: 12.3p) 49.9 31.8
Interim dividend for 2023: 17.8p (2022: 13.5p) 46.0 34.9
95.9 66.7
Proposed for approval by Shareholders at the Annual General Meeting
Final dividend for 2023: 20.8p (2022: 19.3p) 53.6 49.9
The current year dividend is in line with the capital allocation policy
announced in our 2020 Annual Report and Financial Statements, under which the
Group intends to distribute 33% of adjusted earnings by way of dividend. As a
result, dividend cover in 2023 is 3.0 times.
The proposed dividend is based on the number of shares in issue, excluding
treasury shares held, at the date that the financial statements were approved
and authorised for issue. The final dividend may differ due to increases or
decreases in the number of shares in issue between the date of approval of
this Annual Report and Financial Statements and the record date for the final
dividend.
10. Property, plant & equipment and intangible assets
2023 2022
£m £m
Additions of property, plant & equipment and intangible assets
- owned land & buildings 3.1 4.8
- owned plant & equipment 83.6 55.9
- right-of-use land & buildings 25.8 24.9
- right-of-use plant & equipment 7.5 6.8
- intangible assets 7.6 6.8
127.6 99.2
The above additions relate to the normal course of business and do not include
any additions made by way of business combinations.
11. Business combinations
Sentiantechnologies AB
On 21 November 2023, the Group completed the acquisition of 100% of the voting
rights of Sentiantechnologies AB (SentianAI) for an enterprise value of
SEK87.3m (£6.7m). SentianAI is a Swedish-based developer of innovative
cloud-based Artificial Intelligence (AI) solutions for the mining industry.
The acquisition has joined the Minerals Division and SentianAI's technology
will integrate with Minerals' existing product lines, and expand the
Division's digital capabilities. Initial consideration of £6.1m was paid on
completion, with a further deferred consideration of £0.6m recognised,
payable 15 months after the date of acquisition.
The provisional fair values, which are subject to finalisation within 12
months of acquisition, include intangible assets £0.8m, trade & other
receivables £0.2m, cash & cash equivalents £0.2m, trade & other
payables £0.2m and external debt £0.2m, with resulting goodwill arising on
consolidation of £5.9m.
Prior year business combination
Carriere Industrial Supply Limited
On 8 April 2022, the Group completed the acquisition of 100% of the voting
rights of Carriere Industrial Supply Limited (CIS) for an enterprise value of
CAD$32.5m (£20.2m). CIS is a Canadian-based manufacturer and distributor of
wear parts, and an aftermarket service provider to the mining industry, with
exposure across both surface and underground mining in Ontario and Quebec. The
acquisition joined the ESCO Division and reporting segment as CIS was already
an established distributor of ESCO's core Ground Engaging Tools (GET)
products. This acquisition will maintain ESCO's leading core GET presence in
Ontario and provide opportunities to expand into fabricated hardware and
underground capabilities.
Initial consideration of £16.2m was paid on completion, with a further
deferred consideration of £2.5m recognised reflecting indemnification and
working capital hold backs. In the year ended 31 December 2023, the Group
settled £1.0m (2022: £0.5m) of the deferred consideration balance, on the
first anniversary of the acquisition date as per the sale and purchase
agreement. The remaining £1.0m balance will be settled in April 2024, on the
second anniversary of the acquisition date.
The provisional fair values of the opening balance sheet acquired were
finalised in April 2023, following a review over a 12 month period since the
date of acquisition, as permitted by IFRS 3 'Business combinations'. No
adjustment was required to be made to the fair values reported in the 2022
Annual Report.
Contingent consideration
SentianAI
Included in the sale and purchase agreement of SentianAI, a maximum of an
additional SEK23.7m (£1.9m) is payable by the Group contingent on SentianAI
exceeding specific revenue and EBITDA margin targets over the next three years
and meeting non-financial targets by the end of 2026. The entry point for any
contingent payment would require significant growth in terms of revenue and
EBITDA margin by 2026. While the Group expects SentianAI to grow as it
leverages the benefits of being partnered with Minerals, and the opportunities
within ESCO, the entry targets are considered challenging. At present the
probability of SentianAI exceeding the revenue and EBITDA margin targets in
order to trigger a contingent payment is considered uncertain, in part due to
the relative infancy of the business. As a result no contingent consideration
has been recorded at the acquisition date. This will be reassessed in future
periods as the business develops.
Motion Metrics
The Group completed the acquisition of 100% of the voting rights of Motion
Metrics on 30 November 2021. As part of the purchase agreement a maximum of an
additional CAD$100.0m (£59.3m) is payable by the Group contingent on Motion
Metrics exceeding specific revenue and EBITDA targets over the first three
years following acquisition. Any balance that becomes payable would be split,
with 80% reflecting further consideration and 20% for a new employee bonus
plan. The entry point for any contingent payment would require significant
growth both in terms of revenue and EBITDA margin by 2024. Progress has been
made towards these targets throughout 2023 and, while the Group expects Motion
Metrics to continue to grow as it leverages the benefits of being partnered
with ESCO and the opportunities with Minerals, the entry targets are
considered challenging. Due to the commercial sensitivity these targets are
not disclosed. At present, given the results achieved over the course of 2022
and 2023, the probability of Motion Metrics exceeding these targets in 2024 in
order to trigger a contingent payment are considered remote. As a result, no
contingent consideration has been recorded at the balance sheet date in both
the current and prior periods. This will be reassessed in future periods as
the business develops.
12. Provisions
Warranties & contract claims Asbestos-related Employee-related Exceptional items Other Total
£m £m £m £m £m £m
At 31 December 2022 10.4 55.2 13.5 5.4 13.7 98.2
Additions 9.4 33.2 16.5 30.3 1.7 91.1
Utilised (9.2) (7.9) (17.2) (19.6) (0.8) (54.7)
Unutilised (0.2) 1.7 - (0.6) (1.8) (0.9)
Transfers (0.2) - - 0.2 - -
Exchange adjustment (0.6) (3.5) (0.7) - (0.6) (5.4)
At 31 December 2023 9.6 78.7 12.1 15.7 12.2 128.3
Current 2023 9.6 11.2 8.4 15.7 2.7 47.6
Non-current 2023 - 67.5 3.7 - 9.5 80.7
At 31 December 2023 9.6 78.7 12.1 15.7 12.2 128.3
Current 2022 10.4 8.5 7.9 5.2 3.3 35.3
Non-current 2022 - 46.7 5.6 0.2 10.4 62.9
At 31 December 2022 10.4 55.2 13.5 5.4 13.7 98.2
The impact of discounting is only material for the asbestos-related category
of provision, with lower discount rates at 31 December 2023, resulting in a
£1.9m increase in the provision, which is reflected as unutilised above.
Warranties & contract claims
Provision has been made in respect of actual warranty claims on goods sold and
services provided, and allowance has been made for potential warranty claims
based on past experience for goods and services sold with a warranty
guarantee. At 31 December 2023, the warranties portion of the provision
totalled £7.2m (2022: £6.6m). At 31 December 2023, all of these costs relate
to claims that fall due within one year of the balance sheet date.
Provision has been made in respect of sales contracts entered into for the
sale of goods in the normal course of business where the unavoidable costs of
meeting the obligations under the contracts exceed the economic benefits
expected to be received from the contracts and before allowing for future
expected aftermarket revenue streams. Provision is made immediately when it
becomes apparent that expected costs will exceed the expected benefits of the
contract. At 31 December 2023, the contract claims element, which includes
onerous provision, was £2.4m (2022: £3.8m), all of which is expected to be
incurred within one year of the balance sheet date.
Asbestos-related claims
2023 2022
£m £m
US asbestos-related provision - pre-1981 date of first exposure 67.4 49.9
US asbestos-related provision - post-1981 date of first exposure 8.8 2.8
US asbestos-related provision - total 76.2 52.7
UK asbestos-related provision 2.5 2.5
Total asbestos-related provision 78.7 55.2
US asbestos-related provision
A US-based subsidiary of the Group is co-defendant in lawsuits pending in the
US in which plaintiffs are claiming damages arising from alleged exposure to
products previously manufactured which contained asbestos. The dates of
alleged exposure currently range from the 1950s to the 1990s.
The Group has historically held comprehensive insurance cover for cases of
this nature and its subsidiary continues to do so for claims with a date of
first exposure (dofe) pre-1981. The expiration of one of the Group's insurance
policies in 2019 resulted in no further insurance cover for claims with a
post-1981 dofe. All claims are directly administered by National Coordinating
Counsel on behalf of the insurers who also meet associated defence costs. The
insurers, their legal advisers and in-house counsel agree and execute the
defence strategy between them.
A summary of the US subsidiary's asbestos-related claim activity is shown in
the table below.
2023 2022
Number of open claims Number Number
Opening 1,716 1,765
New 664 633
Dismissed (362) (443)
Settled (230) (239)
Closing 1,788 1,716
A review of the US subsidiary's expected liability for US asbestos-related
diseases and the adequacy of the insurance policies to meet future settlement
and defence costs was completed in conjunction with external advisers in 2023
as part of a planned triennial actuarial review. This review was based on an
industry standard epidemiological decay model, and the subsidiary's claims
settlement history. Consistent with recent claims experience, the 2023 review
reflected a higher levels of claims, particularly relating to the 1970s and
1980s.
The actuarial model incorporates claims, with a dofe pre- and post-1981,
primarily relating to Lung Cancer and Mesothelioma and includes estimates
relating to:
• the number of future claims received through to 2064;
• settlement rates by disease type;
• mean settlement values by disease type;
• ratio of defence costs to indemnity value; and
• the profile of associated cash flows through to 2068.
The actuarial model in 2023 provided a range of potential liability based on
levels of probability from 10% to 90%, which, on an undiscounted basis,
equates to £89m-£195m. The mean actuarial estimate of £142m represents the
expected undiscounted value over the range of reasonably possible outcomes.
The provision in the financial statements is based on the mean actuarial
estimate, which is then adjusted each year to reflect expected settlements in
the model, discounting and restricting the timescale over which a liability
can be reliably measured to ten years plus cash flows over a further six
years.
2023 2022
Period of future claims provided 10 years 10 years
Discount rate 4.7% 5.0%
The period over which the provision can be reliably estimated is judged to be
ten years, plus cash flows for a further six years, due to the inherent
uncertainty, resulting from the changing nature of the US litigation
environment detailed below, and cognisant of the broad range of probability
levels included within the actuarial model. While claims may extend past ten
years and may result in a further outflow of economic benefits, the Directors
do not believe any obligation that may arise beyond ten years can be reliably
measured at this time. The effect of extending the claims period by a further
ten years is included in the sensitivities below. The discount rate is set
based on the corporate bond yield available at the balance sheet date
denominated in the same currency, and with a term broadly consistent to that
of the liabilities being provided for, with sensitivities to the discount rate
also included below.
In 2023, confirmation was also received from external advisers of the
insurance asset available, which includes the estimated defence costs that
would be met by the insurer. An update to the insurance asset is obtained
annually and totals £14.9m at 31 December 2023 (2022: £32.0m). Based on the
profile of the claims in the actuarial model, external advisers expect the
insurance cover and associated limits currently in place to be sufficient to
meet the settlement and associated costs until 2025. No cash flows to or from
the US subsidiary, related to claims with an exposure date pre-1981, are
expected until the exhaustion of the insurance asset. Claims with an exposure
date post-1981 are estimated to incur cash outflows of less than £0.8m per
annum and are not insured currently or in the future.
The table below represents the Directors' best estimate of the future
liability and corresponding insurance asset.
2023 2022
US asbestos-related provision £m £m
Gross provision 101.5 68.8
Effect of discounting (25.3) (16.1)
Discounted US asbestos-related provision 76.2 52.7
Insurance asset 14.9 32.0
Net US asbestos-related liability 61.3 20.7
(The gross provision and effect of discounting at 31 December 2022 have been
amended from what was initially published in the 2022 Annual Report and
Financial Statements, with both figures grossed up by £10.0m to correctly
reflect the impact of discounting. There is no further impact from this change
across the financial statements.)
( )
( )
The net provision and insurance asset are presented in the financial
statements as follows.
2023 2022
£m £m
Provisions - current 10.3 7.8
Provisions - non-current 65.9 44.9
Trade & other receivables 9.5 7.5
Non-current other receivables 5.4 24.5
There remains inherent uncertainty associated with estimating future costs in
respect of asbestos-related diseases. Actuarial estimates of future indemnity
and defence costs associated with asbestos-related diseases are subject to
significantly greater uncertainty than actuarial estimates for other types of
exposures. This uncertainty results from factors that are unique to the
asbestos claims litigation and settlement process including but not limited
to:
• the possibility of future state or federal legislation
applying to claims for asbestos-related diseases;
• the ability of the plaintiff's bar to develop and sustain new
legal theory and/or develop new populations of claimants;
• changes in focus of the plaintiff's bar;
• changes in defence strategy; and
• changes in the financial condition of other co-defendants in
suits naming the US subsidiary.
As a result, there can be no guarantee that the assumptions used to estimate
the provision will result in an accurate prediction of the actual costs that
may be incurred.
Since the previous triennial update completed in 2020, the US subsidiary has
experienced a higher number of claims received than modelled across both
disease types. As noted in our 2022 Annual Report we expected these variations
from the model may have been influenced by fluctuations in the profile of case
rates across jurisdictions with higher average settlements coupled with the
potential impact of the Covid-19 pandemic. However, the higher level of claims
continued into 2023 demonstrating a longer-term trend of higher claims as
opposed to one-off year-on-year variation.
Average settlement values have remained broadly stable over recent years for
Mesothelioma cases, but have been lower than modelled in 2020 for Lung Cancer
cases. Settlements largely occurred within four years of a claim being
received and the settlement rates for Mesothelioma cases were slightly higher
than previously modelled while Lung Cancer case settlement rates were trending
marginally lower.
As noted above there are a number of uncertain factors involved in the
estimation of the provision and variations in case numbers and settlements are
to be expected from period-to-period. The trends witnessed in our recent
claims experience have been reflected in the 2023 triennial actuarial review
and provided the basis for the higher provision recognised at 31 December
2023.
Uncertainty regarding the timing and extent of variations year to year and
whether they are short or long-term in nature, mean it is not considered
possible to provide reasonably probable scenarios. The impact on the provision
of incremental changes in key assumptions is provided below for guidance.
2023
Estimated impact on the discounted US asbestos-related provision of £m
Increasing the number of projected future settled claims by 20% 12.9
Increasing the estimated settlement value by 10% 6.4
Increasing the basis of provision by ten years 10.1
Decreasing the discount rate by 50bps 2.2
Application of these sensitivities, on an individual basis, would not lead to
a material change in the provision.
The Group's US subsidiary has been effective in managing the asbestos
litigation, in part, because it has access to historical project documents and
other business records going back more than 50 years, allowing it to defend
itself by determining if legacy products were present at the location of the
alleged asbestos exposure and, if so, the timing and extent of their presence.
In addition, the US subsidiary has consistently and vigorously defended claims
that are without merit.
UK asbestos-related provision
In the UK, there are outstanding asbestos-related claims that are not the
subject of insurance cover. The extent of the UK asbestos exposure involves a
series of legacy employer's liability claims that all relate to former UK
operations and employment periods in the 1950s to 1970s. In 1989, the Group's
employer's liability insurer (Chester Street Employers Association Ltd) was
placed into run-off, which effectively generated an uninsured liability
exposure for all future long-tail disease claims with an exposure period
pre-dating 1 January 1972. All claims with a disease exposure post 1 January
1972 are fully compensated via the Government-established Financial Services
Compensation Scheme. Any settlement to a former employee whose service period
straddles 1972 is calculated on a pro rata basis. The Group provides for these
claims based on management's best estimate of the likely costs given past
experience of the volume and cost of similar claims brought against the Group.
The UK provision was reviewed and adjusted accordingly for claims experience
in the year, resulting in a provision of £2.5m (2022: £2.5m).
Employee-related
Employee-related provisions arise from legal obligations in a number of
territories in which the Group operates, the majority of which relate to
compensation associated with periods of service. A large proportion of the
provision is for long service leave. The outflow is generally dependent upon
the timing of employees' period of leave with the calculation of the majority
of the provision being based on criteria determined by the various
jurisdictions.
Exceptional items
The exceptional items provision relates to certain exceptional charges
included within note 5 where the cost is based on a reliable estimate of the
obligation.
The opening balance of £5.4m includes £4.3m related to Russia, £0.4m for
the Performance Excellence programme, and £0.7m for other smaller provisions.
Additions in the year total £30.3m, and includes £29.4m in relation to the
Performance Excellence programme, of which £14.3m has been settled in the
year. The remaining additions of £0.9m include acquisition and integration
costs, and amounts in relation to the wind down of our Minerals Russia
subsidiary. Of the provision balance related to the Russia wind down, £2.4m
has been cash settled in the year.
The closing balance of £15.7m includes £1.3m related to Russia, and £14.2m
in relation to the Performance Excellence programme of which £7.1m relates to
capacity optimisation costs and £7.1m to functional transformation. Also
included in the closing balance are £0.2m of smaller balances relating to an
onerous lease and residual costs related to the Oil & Gas Division sale.
Other
Other provisions include environmental obligations, penalties, duties due,
legal claims and other exposures across the Group. These balances typically
include estimates based on multiple sources of information and reports from
third-party advisers. The timing of outflows is difficult to predict as many
of them will ultimately rely on legal resolutions and the expected conclusion
is based on information currently available. Where certain outcomes are
unknown, a range of possible scenarios is calculated, with the most likely
being reflected in the provision.
13. Interest-bearing loans & borrowings
In January 2023, the Group added a further £300m term loan facility to its
available financing. The facility was due to mature in January 2024, subject
to a one-year extension option, but the Group took the decision to cancel the
facility in June 2023.
In March 2023, the Group exercised the option to extend its US$800m
multi-currency Revolving Credit Facility (RCF) by one year to now mature in
April 2028, with the option to extend for a further year.
In June 2023, the Group completed the issue of £300m five-year
Sustainability-Linked Notes due to mature in June 2028. The notes include a
Sustainability Performance Target (SPT) to reduce scope 1&2 CO(2)
emissions by 19.1% in absolute terms by 2026 from a 2019 baseline, consistent
with the Group's SBTi approved target of 30% reduction by the end of 2030. The
notes will initially bear interest at a rate of 6.875% per annum to be paid
annually in June. The interest on the notes will be linked to achievement of
the SPT with an interest rate increase of 0.75% to 7.625% per annum for the
last interest payment due on 14 June 2028 if the Group does not attain its
SPT. These notes are in addition to the US$800m Sustainability-Linked Notes
drawn in May 2021, due to mature in May 2026, which bear interest at a rate of
2.20% per annum.
In June 2023, the Group amended its US$1bn commercial paper programme to a
US$800m commercial paper programme. At 31 December 2023, a total of £nil
(2022: £nil) was outstanding under the programme.
At 31 December 2023, £97.7m (2022: £336.5m) was drawn under the US$800m
multi-currency RCF which, is disclosed net of unamortised issue costs of
£2.3m (2022: £2.4m).
At 31 December 2023, a total of £nil (2022: £165.3m) was outstanding under
private placement, which is disclosed net of unamortised issue costs of £nil
(2022: £nil).
At 31 December 2023, a total of £922.3m (2022: £657.8m) was outstanding
under Sustainability-Linked Notes, which is disclosed net of unamortised issue
costs of £4.5m (2022: £3.5m).
14. Pensions & other post-employment benefit plans
2023 2022
£m £m
Net asset 2.1 15.1
The defined benefit pension schemes across the Group's legacy UK and North
American schemes worsened to a net surplus of £2.1m (2022: £15.1m) primarily
due to changes in financial assumptions mainly due to a fall in discount rates
over the period.
15. Derivative financial instruments
The Group enters into derivative financial instruments in the normal course of
business in order to hedge its exposure to foreign exchange risk. Derivatives
are only used for economic hedging purposes and no speculative positions are
taken. Derivatives are recognised as held for trading and at fair value
through profit and loss unless they are designated in IFRS 9 'Financial
Instruments' compliant hedge relationships.
The table below summarises the types of derivative financial instrument
included within each balance sheet category.
2023 2022
£m £m
Included in current assets
Forward foreign currency contracts designated as cash flow hedges 0.6 1.0
Other forward foreign currency contracts 7.3 7.9
7.9 8.9
Included in current liabilities
Forward foreign currency contracts designated as cash flow hedges (0.5) (1.9)
Forward foreign currency contracts designated as net investment hedges - (0.1)
Other forward foreign currency contracts (5.9) (11.2)
(6.4) (13.2)
Included in non-current liabilities
Forward foreign currency contracts designated as fair value hedges (2.3) -
(2.3) -
Net derivative financial liabilities (0.8) (4.3)
16. Additional cash flow information
2023 2022
Notes £m £m
Total operations
Net cash generated from operations
Operating profit - continuing operations 368.4 307.5
Operating loss - discontinued operations 7 (1.3) -
Operating profit - total operations 367.1 307.5
Exceptional and other adjusting items 5 66.2 51.4
Amortisation of intangible assets 37.7 41.6
Share of results of joint ventures (2.5) (2.5)
Depreciation of property, plant & equipment 39.9 47.0
Depreciation of right-of-use assets 31.6 31.4
Impairment of property, plant & equipment 0.9 0.2
Capital grants received (0.5) (0.2)
Gains on disposal of property, plant & equipment (0.4) (0.6)
Funding of pension & post-retirement costs (1.1) (2.9)
Employee share schemes 7.0 8.0
Transactional foreign exchange 9.2 14.3
(Decrease) increase in provisions (1.5) 1.2
Cash generated from operations before working capital cash flows 553.6 496.4
Decrease (increase) in inventories 42.0 (128.6)
Decrease in trade & other receivables & construction contracts 15.2 49.8
(Decrease) increase in trade & other payables & construction contracts (85.3) 30.2
Cash generated from operations 525.5 447.8
Additional pension contributions paid (9.3) (9.7)
Exceptional and other adjusting cash items (18.0) (14.2)
Exceptional cash items - acquired vendor liabilities - (9.7)
Income tax paid (103.9) (93.4)
Net cash generated from operating activities 394.3 320.8
Cash flows from discontinued operations included above are disclosed
separately in note 7.
The following tables summarise the cash flows arising on acquisitions (note
11) and disposals (notes 5 and 7).
2023 2022
£m £m
Acquisitions of subsidiaries
Acquisition of subsidiaries - cash consideration paid 6.1 16.3
Acquisition of subsidiaries - deferred consideration paid - 0.5
Cash & cash equivalents acquired (0.2) (1.6)
Acquisition of subsidiaries - current period acquisitions 5.9 15.2
Prior period acquisitions - deferred consideration paid 1.0 -
Total cash outflow relating to acquisitions 6.9 15.2
Net cash outflow arising on disposals
Consideration received net of costs paid & cash disposed of - ESCO Russia - 2.0
Prior period disposals 0.4 0.1
Total cash outflow relating to disposals 0.4 2.1
2023 2022
£m £m
Cash & cash equivalents comprise the following
Cash & short-term deposits 707.2 691.2
Bank overdrafts & short-term borrowings (259.8) (213.7)
447.4 477.5
2023 2022
£m £m
Net debt comprises the following
Cash & short-term deposits 707.2 691.2
Current interest-bearing loans & borrowings (286.2) (406.3)
Non-current interest-bearing loans & borrowings (1,111.1) (1,082.1)
(690.1) (797.2)
Reconciliation of financing cash flows to movement in net debt
Opening balance at 31 December 2022 Cash movements Additions/ acquisitions FX Non-cash movements Closing balance at 31 December 2023
£m £m £m £m £m £m
Cash & cash equivalents 477.5 1.0 0.2 (31.3) - 447.4
Third-party loans (1,165.5) 111.2 (0.2) 27.7 - (1,026.8)
Leases (115.1) 31.0 (38.4) 5.3 (0.3) (117.5)
Unamortised issue costs 5.9 4.0 - - (3.1) 6.8
Amounts included in gross debt (1,274.7) 146.2 (38.6) 33.0 (3.4) (1,137.5)
Amounts included in net debt (797.2) 147.2 (38.4) 1.7 (3.4) (690.1)
Financing derivatives (0.1) 0.5 - - (2.7) (2.3)
Total financing liabilities(1) (1,274.8) 146.7 (38.6) 33.0 (6.1) (1,139.8)
( )
Opening balance at 31 December 2021 Cash movements Additions/acquisitions Disposals FX Non-cash movements Closing balance at 31 December 2022
£m £m £m £m £m £m £m
Cash & cash equivalents 500.0 (51.0) 1.6 (1.9) 28.8 - 477.5
Third-party loans (1,174.7) 133.4 (0.4) - (123.8) - (1,165.5)
Leases (105.4) 30.5 (35.0) - (6.0) 0.8 (115.1)
Unamortised issue costs 7.6 2.7 - - - (4.4) 5.9
Amounts included in gross debt (1,272.5) 166.6 (35.4) - (129.8) (3.6) (1,274.7)
Amounts included in net debt (772.5) 115.6 (33.8) (1.9) (101.0) (3.6) (797.2)
Financing derivatives 1.4 0.3 - - - (1.8) (0.1)
Total financing liabilities(1) (1,271.1) 166.9 (35.4) - (129.8) (5.4) (1,274.8)
(1 Total financing liabilities
comprise gross debt plus other liabilities relating to financing activities.)
17. Related party disclosure
The following table provides the total amount of significant transactions that
have been entered into by the Group with related parties for the relevant
financial year and outstanding balances at the year end.
Sales to related parties - goods Sales to related parties - services Purchases from related parties - goods Amounts owed to related parties Amounts owed by related parties
Related party £m £m £m £m £m
Joint ventures 2023 0.9 0.1 19.2 3.8 0.4
2022 1.1 0.1 25.9 6.2 0.3
Group pension plans 2023 - - - 1.6 -
2022 - - - 8.2 -
18. Legal claims
The Company and certain subsidiaries are, from time-to-time, party to legal
proceedings and claims that arise in the normal course of business. Provisions
have been made where the Directors have assessed that a cash outflow is
probable. All other claims are believed to be remote or are not yet ripe.
19. Exchange rates
The principal exchange rates applied in the preparation of these financial
statements were as follows.
Average rate (per £) 2023 2022
US Dollar 1.24 1.24
Australian Dollar 1.87 1.78
Euro 1.15 1.17
Canadian Dollar 1.68 1.61
Chilean Peso 1,044.69 1,078.02
South African Rand 22.94 20.19
Brazilian Real 6.21 6.39
Chinese Yuan 8.81 8.30
Indian Rupee 102.66 97.06
Closing rate (per £)
US Dollar 1.28 1.21
Australian Dollar 1.87 1.77
Euro 1.15 1.13
Canadian Dollar 1.69 1.64
Chilean Peso 1,124.43 1,026.77
South African Rand 23.30 20.61
Brazilian Real 6.19 6.39
Chinese Yuan 9.06 8.34
Indian Rupee 105.96 100.05
The Group's operating profit before adjusting items was denominated in the
following currencies.
2023 2022
£m £m
US Dollar 165.6 192.8
Canadian Dollar 78.8 63.5
Australian Dollar 79.7 55.4
Chilean Peso 69.0 53.8
Euro 34.6 24.4
South African Rand 24.8 11.3
Brazilian Real 18.8 10.4
Chinese Yuan 11.0 10.3
Indian Rupee 6.8 7.1
UK Sterling (34.4) (34.9)
Other 4.1 0.7
Adjusted operating profit 458.8 394.8
20. Events after the balance sheet date
The Group reduced its Revolving Credit Facility from US$800m to US$600m in
February 2024. There are no further post balance sheet events requiring
disclosure.
Financial Calendar
Q1 2024 Interim Management Statement
25 April 2024
Annual General Meeting
25 April 2024
Ex-dividend date for final dividend
18 April 2024
Record date for final dividend
19 April 2024
Shareholders on the register at this date will receive the dividend
Final dividend paid
31 May 2024
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