REG - Weir Group PLC - Q1 Trading Update

WeirAnnouncement

27/04/2023 07:00

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RNS Number : 6071X  Weir Group PLC  27 April 2023

The Weir Group PLC trading update for the first quarter ended 31 March 2023(1)

Order growth and strong execution; margin expansion on track

Strong demand for Weir mining equipment

·    Brownfield activity and sustainability projects driving Group OE
order growth(2) +22%

·    Growing pipeline for sustainable technology solutions, including
redefined mill circuit

Group AM orders(2) flat; in line with expectations

·    Minerals AM orders(2) +5%: positive mining production trends and
installed base growth

·    ESCO total orders(2) -6%: reflecting infrastructure markets and Q1
2022 pre-buy

Demonstrating strength of focused platform

·    Q1 revenues and operating margins up year-on-year

·    Performance Excellence programme on track

·    Full investment grade credit rating achieved

Outlook: Positive conditions in mining markets; 2023 guidance reiterated

·    Growth in constant currency revenue, profit and operating margins

·    On track to deliver target of 17% operating margin in 2023

·    Free operating cash conversion of 80% to 90%

Jon Stanton, Chief Executive Officer, commented:

"The value creation opportunity for Weir is compelling. The mining industry
needs to produce more critical metals to support the transition to Net Zero,
and must extract these in a more sustainable way. Our leading global brands,
engineering capability and technology-led strategy means we are well placed to
capitalise. This opportunity, together with our Performance Excellence
programme, underpins our growth, margin expansion and cash conversion targets.

Our strong execution and order book growth in the first quarter reinforces our
confidence in achieving our 2023 guidance. We are on track to deliver another
year of growth in revenues and our operating margin target of 17%."

First quarter review

Group

In 2022 we set out our through-cycle commitments to outgrow our markets,
expand our margins and convert our earnings to cash, while remaining resilient
and doing the right thing for our people and the planet.

During the quarter we made good progress as we grew orders, revenue and
margins. We continued to increase market share with our differentiated
technology while also benefiting from the long-term structural tailwinds which
underpin our mining markets.

Commodity prices are well above miners' cost to produce, and ongoing tightness
in physical inventories and strong end market demand are incentivising our
customers to maximise ore production. Miners are responding by accelerating
production from existing assets, as large projects remain slow to convert.

These factors, together with the ongoing effect of declining grades and more
complex ore bodies, drove demand for our mining spares and expendables. Demand
was strong across most hard rock mining territories, and in particular in Asia
Pacific and South America where recent market share gains and installed based
growth drove incremental demand.  The growth in our mining aftermarket
business again demonstrates our inherent resilience driven by
non-discretionary spend on spare parts.

Market trends and share gains are also driving OE demand. Customers are
ordering Weir solutions to debottleneck, expand and improve the sustainability
of existing mines, while also increasingly engaging on new sustainability
driven technologies, such as our redefined mill circuit and the Motion Metrics
digital offering.

Group orders(2) in the quarter were +4%, with OE orders(2) +22%, and AM
orders(2) flat against a prior year comparator which was a peak quarter for
infrastructure and included a contribution from pre-buy in ESCO and orders
from Russia.

In the quarter we initiated key projects in our Performance Excellence
programme which will support future margin expansion and cash conversion.
These included consolidation of our North American facilities in Minerals to
improve customer proximity, projects to implement lean enterprise principles
across our global value streams and resourcing the Weir Business Services
(WBS) programme transformation team.

The robustness of our more ambitious scope 1,2 & 3 emissions reduction targets announced in July 2022 was validated in the quarter with formal approval by the Science Based Targets initiative (SBTi).

Minerals

·    Orders(2) +9%: AM orders(2) +5%; OE orders(2) +20%

·    AM growth driven by price and volume

 

Demand for AM was driven by mining production trends and installed base
growth. Year-on-year growth reflects the impact of price increases and volume
growth in hard rock mining, offset by the loss of orders from Russia.
Excluding Russia from the PY comparator, AM orders(2) were +7%. Sequential
movement in AM orders reflects typical seasonal patterns.

 

In OE, demand was primarily driven by debottlenecking, expansion and
sustainability projects at existing mines. This included £12m of orders for
our GEHO pump solutions for a high-grade nickel expansion project in
Indonesia, as we further built our leadership position in this high-growth
attractive niche.

 

ESCO

·      YoY orders(2) -6%; sequential orders(2) +5%

·      Mining markets positive; as expected infrastructure markets below
peak but improving sequentially

 

Demand from our mining customers was strong, with quarterly mining orders
ahead of Q4 2022. Demand was high for mining expendables, reflecting ore
production trends and recent market share gains, and also for attachments as
we gained further traction with our differentiated tech-enabled mining bucket,
which is underpinned by Motion Metrics' leading AI and rugged 3D camera
technology.

 

In infrastructure, as expected, in our largest market of North America orders
grew sequentially, though demand remained well below the Q1 2022 peak.
Demand in European infrastructure markets remained suppressed.

Outlook

The business is executing well and conditions in our mining markets are
positive. High levels of activity and demand for our AM spares and brownfield
OE solutions are driving order book growth.

 

Our guidance for 2023 is reiterated and we expect to deliver growth in
constant currency revenue, profit and operating margin. We are on track to
deliver our target of 17% operating margin in 2023, supported by operational
efficiencies and early benefits from Performance Excellence. We expect free
operating cash conversion of between 80% and 90%.

 

Phasing of operating profit is expected to follow typical seasonal patterns
and operating margins are expected to expand sequentially through the year as
initial Performance Excellence benefits are realised.

 

Further out, the long-term fundamentals for mining and our business are highly
attractive, underpinned by decarbonisation, GDP growth and the transition to
sustainable mining. We have a clear strategy to grow ahead of our markets,
with specific growth initiatives underpinning our ambition to deliver
through-cycle mid-to-high single digit percentage revenue growth.

Net debt

As expected, net debt increased in the quarter reflecting typical seasonal
patterns.

 

During the quarter S&P upgraded their credit rating on Weir from BB+ to
BBB- which, coupled with the Baa3 rating we already have with Moody's, means
we now have a full investment grade credit rating.

New corporate broker appointments

Barclays and JP Morgan Cazenove have been appointed as our new joint corporate
brokers.

 

Notes:

1.             Financial information is given for the three months
ended 31 March 2023.

2.             Orders are reported on a constant currency basis at
March 2023 average exchange rates.

 

 

Analyst and investor conference call

 

A conference call for analysts and investors will be held at 0800 BST on
Thursday 27 April 2023 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 4 May 2023.

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

 Media: Sally Jones        +44 (0) 141 308 3666

 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.12,000 employees
operating in over 60 countries with a presence in every major mining region of
the world. Find out more at www.global.weir (http://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            2022 Q1  2022 Q2  2022 Q3  2022 Q4  2023 Q1      2022 Q2  2022 Q3  2022 Q4  2023 Q1
 Original Equipment  -18%     -3%      13%      19%      20%          -3%      13%      19%      20%
 Aftermarket         23%      18%      25%      6%       5%           18%      25%      6%       5%
 Minerals            9%       11%      21%      10%      9%           11%      21%      10%      9%

 Original Equipment  -17%     98%      -6%      14%      39%          98%      -6%      14%      38%
 Aftermarket         37%      19%      14%      1%       -9%          12%      7%       -7%      -15%
 ESCO                32%      23%      13%      2%       -6%          16%      6%       -6%      -12%

 Original Equipment  -17%     2%       12%      19%      22%          2%       11%      20%      22%
 Aftermarket         28%      18%      21%      5%       0%           17%      19%      2%       -2%
 Continuing Ops      15%      14%      19%      8%       4%           13%      17%      6%       3%
 Book-to-bill        1.22     1.13     1.02     0.95     1.04         1.13     1.02     0.94     1.04

 

                     Quarterly orders(3) £m                           Like-for-like orders(2,3)
 Division            2022 Q1  2022 Q2  2022 Q3  2022 Q4  2023 Q1      2022 Q2  2022 Q3  2022 Q4  2023 Q1
 Original Equipment  114      152      149      148      137          152      149      148      137
 Aftermarket         324      367      345      350      340          367      345      350      340
 Minerals            438      519      494      498      477          519      494      498      477

 Original Equipment  11       15       11       8        14           15       11       8        14
 Aftermarket         182      166      165      163      166          157      155      150      156
 ESCO                193      181      176      171      180          172      166      158      170

 Original Equipment  125      167      160      156      151          167      160      156      151
 Aftermarket         506      533      510      513      506          524      500      500      496
 Continuing Ops      631      700      670      669      657          691      660      656      647

 

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 Carriere Industrial Supply
Limited acquired on 8 April 2022.

3.     Restated at March 2023 average exchange rates.

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