REG - Weir Group PLC - Q1 Trading Update

WeirAnnouncement

28/04/2022 07:00

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RNS Number : 6099J  Weir Group PLC  28 April 2022

 

The Weir Group PLC trading update for the first quarter ended 31 March 2022(1)

( )

Strong order momentum with robust operational execution

 

·      Record quarter with Group orders(2) +15% and +1% sequentially

o  Very strong demand for aftermarket; good progress on strategic growth
initiatives

o  Aftermarket (AM) orders +28% and +3% sequentially

o  Original equipment (OE) orders -17%; or +8% excluding PY Ferrexpo OE
order(3)

·      Robust execution in complex operating environment

o  Successfully managing impact of Covid-19 shutdowns, supply chain
disruption and inflation

o  Order book delivery progressing well

o  Russia activities suspended; business to be wound down through 2022

·      Expect to deliver strong growth in constant currency revenue and
profit in 2022

o  Operating margin and cash conversion targets on track

 

Jon Stanton, Chief Executive, commented:

 

"The Group has had an excellent start to the year, generating record orders
and executing strongly in a complex global environment. Conditions in mining
markets are highly favourable as high commodity prices ensure miners remain
incentivised to maximise ore production, which is driving demand for recurring
aftermarket and debottlenecking solutions. We continue to successfully manage
the disruption in global supply chains from Covid-19 and the impact of
inflation.

Looking ahead to the full year, we remain confident in the outlook and expect
to deliver strong growth in constant currency revenue and profit in 2022 and
anticipate progress towards our medium-term margin and cash targets."

 

First quarter review - Group

 

Favourable conditions in global mining markets drove increased demand for
aftermarket and debottlenecking solutions. Activity and demand were positive
across most regions, particularly in North America as miners looked to upgrade
their assets, and in South America demand was also strong driven by an
increase in small and medium sized brownfield activity. Globally, large
expansion projects remained slow to convert.

 

Activity in infrastructure markets, particularly within North America and
Europe, remained stable at strong levels.

 

Group orders in the quarter were up 15%, driven by significant growth in
demand for spares with aftermarket orders up 28% year-on-year. Original
equipment orders were 17% lower than in the same period last year where we
booked a £34m order from Ferrexpo. Adjusting for that, growth in original
equipment orders was 8% in Q1 2022.

 

The Group's book-to-bill was strong at 1.22, reflecting record order intake
and good progress on order book execution.

 

Russia and Ukraine business update

 

We strongly condemn the Russian military invasion of Ukraine. Our priority
remains the welfare of our Ukraine-based colleagues and their families and we
are keeping in close contact, supporting them in whatever ways we can. More
widely, we are deeply saddened by the humanitarian crisis that continues to
unfold and have pledged financial support to organisations working at the
front line to help the people of Ukraine. Our thoughts are with all those
whose lives are being affected by these events and join with others in hoping
for a swift and peaceful end to the hostilities.

 

In Russia, the Group's business comprises a sales and service organisation
employing 267 people, the majority of whom sit within the Minerals Division,
and we remain focused on their welfare during this difficult time.

 

In March the Group announced the full suspension of business and operations in
Russia. Given the evolution of the situation in Ukraine and Russia, the Group
has since taken the decision to wind down its Russian business during 2022.

 

The loss of sales in 2022 is expected to have an impact on Group underlying
operating profit of up to £20m in the year. The Group's assets in Russia
comprise primarily of inventory and receivables and represent c.2% of the
Group's net assets. While a review of the recoverability remains ongoing, this
could result in an exceptional write-off during 2022.

 

Strategy and outlook

 

We believe the long-term growth drivers for the Group remain firmly in place
driven by decarbonisation and broader economic development, notwithstanding
the Russian invasion of Ukraine. Indeed, the implications of recent events
will likely see them accelerate. We continue to increase investment in
technologies that will enable our customers to meet their sustainability
commitments while delivering the natural resources essential for net zero. We
will also continue to develop our regional vertically integrated supply chains
which have been vital in delivering consistently for our customers throughout
these challenging times.

 

Subject to ongoing geopolitical uncertainty, we expect to deliver strong
constant currency revenue and profit growth in 2022, in line with our previous
expectations adjusted for the impact of loss of sales in Russia. As previously
indicated, first half margins will be lower than prior year, reflecting prior
year one-off impacts and mix, with full year margins expected to show good
progress towards our medium-term targets. Cash conversion targets remain on
track, again with a slight weighting to the second half, given order book and
working capital phasing.

 

First quarter review - Divisions

 

Minerals

 

·      Orders +9%; revenues strongly ahead of prior year

·    AM orders +23%; OE orders -18%, or +11% after adjusting for Ferrexpo
in 2021(3)

 

Divisional orders increased 9% against a strong prior year comparator, while
sequentially, aftermarket orders remained close to all-time highs.

 

Global demand for aftermarket spares remained strong, supported by a general
trend towards lower ore grades and increased equipment utilisation. Demand was
particularly strong within the oil sands market in Canada, supported by high
oil prices through the period. In response to concerns around global supply
chain challenges, some customers also built safety stocks by forward
purchasing.

 

Demand for original equipment continued to be supported by a high volume of
smaller orders for equipment for the debottlenecking of existing assets, and
for small brownfield expansions.

 

While supply chains continued to be disrupted by Covid-19, our vertically
integrated regional model meant the division continued to execute well.

 

The division's book-to-bill ratio for the quarter was 1.21.

 

ESCO

 

·      ESCO orders +32% at all-time high; revenues strongly ahead of
prior year

 

Divisional orders increased 32% against the prior year and 15% sequentially.
Adjusting for the impact of the acquisition of Motion Metrics, on a
like-for-like basis orders increased 27% against the prior year and 11%
sequentially. High levels of mining activity, combined with some forward
purchasing by customers to ensure security of supply, drove strong demand for
mining expendables. The division also secured market share gains for its
Nemisys(®) ground engaging tools (G.E.T.), demonstrating its market leading
technology and total cost of ownership benefits to customers. Demand from
infrastructure applications was also strong, due to the usual Q1 seasonality,
with activity stable at high levels.

 

 

Through the period, mandatory Covid-related shutdowns forced the temporary
closure of the division's foundry in Xuzhou, China. The foundry has now
reopened, and while the Covid situation continues to evolve, we currently
expect to manage the impact of this through the rest of the year.

 

The division's book-to-bill for the quarter of 1.23 is the highest since its
acquisition in 2018.

 

The integration of Motion Metrics into the division has progressed well and
the functional integration phase is now complete. The initial market response
has been positive with customer interest and volume of enquiries exceeding our
expectations.

 

Net debt

 

Net debt at 31 March 2022 was higher than that reported at 31 December 2021,
reflecting the impact of translational foreign exchange and normal seasonal
patterns.

 

Chair succession

As previously announced, later today, at the close of our 2022 AGM, Charles
Berry, Chairman of the Group for eight years will step down and will be
succeeded by Barbara Jeremiah, currently Chair Designate and Senior
Independent Director. On behalf of the rest of the Board and colleagues at
Weir, we thank Charles for his exemplary leadership and wish him well in his
retirement. We welcome Barbara as Chair and look forward to working with her
as we continue to pursue the multi-decade growth opportunities ahead.

 

 

Notes:

1.             Financial information is given for the three months
ended 31 March 2022 and relates to continuing operations.

2.             Orders are reported on a constant currency basis at
March 2022 average exchange rates.

3.             £34m OE order for Ferrexpo booked in the first
quarter of 2021 (total order, including AM, was £36m).

 

 

 

Analyst and investor conference call

 

A conference call for analysts and investors will be held at 0800 BST on
Thursday 28 April 2022 to discuss this statement. Participants can join the
call by registering in advance by visiting www.global.weir/investors and
following the link on the page. A recording of this conference call will be
available until Thursday 26 May 2022.

 Enquiries:
 Investors: Edward Pears          +44 (0) 141 308 3725

 Media: Citigate Dewe Rogerson:   +44 (0) 207 638 9571

 Kevin Smith                      Weir@citigatedewerogerson.com (mailto:Weir@citigatedewerogerson.com)

About The Weir Group PLC

Founded in 1871, The Weir Group PLC is one of the world's leading engineering
businesses with a purpose to make its mining and infrastructure customers'
operations more sustainable and efficient. Weir's highly engineered technology
enables critical resources to be produced using less energy, water and waste
while reducing customers' total cost of ownership. The Group is ideally
positioned to benefit from structural trends that support long-term demand for
its technology including the need for more essential metals to support
economic development and carbon transition. The Group has c.11,000 employees
operating in over 60 countries with a presence in every major mining region of
the world. Find out more at www.global.weir.

 

Weir's ordinary shares trade on the London Stock Exchange (ticker: WEIR LN)
and its American Depositary Receipts trade over-the-counter in the USA
(ticker: WEGRY).

 

 

Appendix 1 - Continuing operations(1) quarterly order trends

                     Reported growth                                  Like-for-like growth(2)
 Division            2021 Q1  2021 Q2  2021 Q3  2021 Q4  2022 Q1                2021 Q4   2022 Q1
 Original Equipment  66%      50%      71%      9%       -18%                   9%        -18%
 Aftermarket         -1%      9%       16%      29%      23%                    29%       23%
 Minerals            15%      20%      30%      23%      9%                     23%       9%

 Original Equipment  76%      17%      65%      -9%      -17%                   -9%       -17%
 Aftermarket         -2%      31%      34%      40%      37%                    39%       31%
 ESCO                2%       30%      36%      37%      32%                    36%       27%

 Original Equipment  67%      48%      71%      8%       -17%                   8%        -17%
 Aftermarket         -2%      14%      21%      32%      28%                    32%       26%
 Continuing Ops      11%      22%      31%      26%      15%                    26%       14%
 Book-to-bill        1.22     1.20     1.14     1.01     1.22                   1.01      1.21

 

 

                     Quarterly orders(3) £m                           Like-for-like orders(2,3)
 Division            2021 Q1  2021 Q2  2021 Q3  2021 Q4  2022 Q1                 2021 Q4    2022 Q1
 Original Equipment  132      151      128      120      109                     120        109
 Aftermarket         250      295      262      312      307                     312        307
 Minerals            382      446      390      432      416                     432        416

 Original Equipment  12       7        10       7        10                      7          10
 Aftermarket         120      127      131      145      164                     144        158
 ESCO                132      134      141      152      174                     151        168

 Original Equipment  144      158      138      127      119                     127        119
 Aftermarket         370      422      393      457      471                     456        465
 Continuing Ops      514      580      531      584      590                     583        584

 

1.     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 in June 2021.

2.     Like-for-like excludes the impact of Motion Metrics acquired on 30
November 2021.

3.     Restated at March 2022 average exchange rates.

 

 

 

 

 

 

 

 

 

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