Weir Group Regulatory News (WEIR)

Very strong execution and positive book-to-bill

Upgrade to full year revenue and profit guidance

Strong demand for Weir mining equipment

• H1 Group OE orders1, +5%; brownfield and sustainability projects driving demand

• Strengthened pipeline for sustainable solutions, including Redefined Mill Circuit

H1 Group AM orders1 +1%; Minerals AM orders1 +5%

• Positive mining production trends and installed base growth

• H1 ESCO orders1 -3%; robust demand in mining offset by infrastructure, as expected

Very strong execution; book-to-bill, 1.03

• Revenue1, +16%, delivering on record opening order book

• Adjusted operating profit1,3 of £212m, +22%

• Operating margin1,3 of 16.3%, +80bps

• Free operating cash conversion of 51%, +22pp

Increasing balance sheet strength and returns

• Net debt to EBITDA of 1.5x with fixed-rate long dated debt maturity profile

• Return on capital employed of 16.3%, +390bps

• Interim dividend of 17.8 pence per share, +32%

FY outlook: now expect strong growth in constant currency revenue and operating profit

• Operating profit towards the upper end of the current range of analysts' expectations*

• On track to deliver operating margin target of 17%

• Free operating cash conversion of 80% to 90%

*Company compiled consensus from 30 June 2023, Group Operating Profit range of £428m to £464m. For all other footnotes see page 4.

Jon Stanton, Chief Executive Officer said:

"Weir has a compelling value creation opportunity underpinned by the global energy transition and the benefits of our Performance Excellence transformation programme.

Global decarbonisation is driving growth in demand for critical energy-transition metals and our customers' focus on more sustainable extraction and processing techniques necessitates the adoption of new technologies. Weir's engineering capability, leading brands and growing portfolio of sustainable solutions is delivering on this need and enhancing our position as a supplier of mission critical solutions and services to the mining industry. In addition, Performance Excellence will deliver compounding benefits as we optimise our business to deliver margin expansion and strong cash conversion.

In the first half of the year we performed well, winning market share, growing orders and executing strongly to deliver significant growth in revenue and operating profit. With a positive book-to-bill we enter the second half with a record order book, excellent operating momentum and high activity levels in our mining markets. After a strong performance in the first half we raise our full year revenue and profit guidance, and have confidence in meeting our 2023 margin and cash conversion targets."

A webcast of the management presentation will begin at 08:00 (BST) on 1 August 2023 at www.investors.weir. A recording of the webcast will also be available at www.investors.weir.

CHIEF EXECUTIVE OFFICER'S REVIEW

Introduction

I'm delighted with our performance in the first half of the year. We continued to make excellent progress and meet our commitments to stakeholders as a high-quality mining focused group.

We executed strongly, capitalising on our record opening order book and maintaining the operating momentum we carried into the year. We delivered significant year-on-year growth in revenue, operating profit and cash generation, while also expanding our operating margins and taking significant steps towards achieving our full year target of 17%. We delivered differentiated technology and solutions to help our customers with their biggest challenges, culminating in market share gains and year-on-year order growth, while also providing them with the essential spares and expendables to keep their mines running.

We also made excellent strategic progress. We increased our investment in projects on our technology roadmap, including the field trials of our proprietary ore characterisation technology, and built our sales pipeline for sustainable solutions, including for our Redefined Mill Circuit and Motion MetricsTM offerings. In addition, we initiated key projects in our Performance Excellence transformation programme, which will support future margin expansion. We also had our scope 1, 2 & 3 emissions reduction targets approved by SBTi. On safety, our total incident rate4 (TIR) improved by 12% year-on-year to 0.29, with particularly pleasing progress at ESCO where TIR reduced by 39%.

Overall, our performance across all metrics reflects the hard work and dedication of Weir colleagues across the globe, and I'd like to thank them for their commitment and contribution to our success.

Looking ahead, the future for Weir is exciting and the long-term structural growth opportunity for our business from decarbonisation is clear. In addition, our Performance Excellence transformation programme will optimise our business and create further value. Together, these factors will deliver excellent outcomes for stakeholders and underpin our ambition to outgrow our markets, expand our margins, convert our earnings to cash, while remaining resilient and doing the right thing for our people and the planet.

Growth: Outgrowing our markets and maintaining positive book-to-bill

Through the first half, our mining markets saw high levels of activity. Market prices for our main commodity exposures of copper, gold and iron were well above our customer's cost of production and end market demand was high. While there is growing intent amongst miners to develop large expansion projects, conversion of the pipeline remains slow, so our customers met demand by maximising production from existing assets; running equipment harder, developing more complex and lower grade ore bodies and by debottlenecking and driving efficiency in existing processes.

Ore production trends, coupled with the incremental AM demand from recent OE installations, drove demand for our AM spares and expendables. Customers ordered OE for debottlenecking and brownfield expansion projects, choosing premium Weir solutions due to their differentiated technology, lowest total cost of ownership and sustainability benefits relative to competitor solutions. Across OE and AM, demand was at high levels across most regions, and was particularly high in Australasia and South America, reflecting production trends and recent market share gains.

In infrastructure, demand in our largest market of North America was stable through the period, though well below the peak in the first half of last year. In European infrastructure markets, demand continued to be subdued.

On a constant currency basis, the Group delivered year-on-year order growth of 2%.

AM constant currency orders grew by 1%, with growth in demand in both divisions from hard rock mining customers and a contribution from pricing. This growth was partially offset, as expected, by lower demand from ESCO's infrastructure customers and Canadian oil sands customers in Minerals, together with the non-repeat of Russia orders.

In OE, constant currency orders grew 5%. In Minerals we saw growing demand for our mill circuit solutions, as we won market share, and also in comminution where our offering continues to gain traction. In ESCO, we saw very strong incremental demand for mining attachments as we won market share.

Revenue was 16% higher on a constant currency basis. This reflects strong execution, a record opening order book, which included a particularly high level of orders from Canadian oil sands customers, and realisation of prior year price increases. The Group's book-to-bill was 1.03.

Margins and resilience: On track to deliver 17% operating margin in 2023

The operating environment through the first half was stable, as raw material prices steadied and freight availability improved. While wage inflation persisted, our market leading positions and brands enabled us to increase prices to maintain gross margins.

On a constant currency basis adjusted operating profit grew by 22% and adjusted operating margins were 16.3%, up 100bps on an as reported basis. This improvement reflects strong operational efficiency, a contribution from pricing and the non-repeat of adverse transactional FX movements seen in the prior year, partially offset by a movement in Minerals revenue mix towards OE.

Performance Excellence will support margin expansion in the second half and beyond, and we have strong conviction in achieving our target of £30m of run-rate savings by 2025. In the first half, we made good progress with a number of capacity optimisation projects, including consolidation of our Minerals facilities in North America and optimisation of our service centre footprint in Australia. We also mobilised our transformation project management office and made key appointments to the team that will deliver the transition of our Finance, HR and IS&T activities to a Global Business Services model. An exceptional charge of £8m has been recognised in the period relating to Performance Excellence.

Returns: Strong growth in return on capital employed and interim dividend

Free operating cash conversion was in line with expectations at 51%, and reflects typical seasonal working capital patterns, with the outflow from the first half expected to largely unwind through the second half. Our performance represents a significant 22 percentage point improvement on the prior year, with the comparator being impacted by complexities in global supply chains and logistics channels. We remain on track to deliver our full year guidance of 80% to 90% free operating cash conversion.

Return on capital employed (ROCE) for the 12 months to the end of June was 16.3%, an increase of 390bps relative to the same measurement point in the prior year.

In June we made our debut in the Sterling denominated bond market, placing £300m of five-year 6.875% Sustainability-Linked Notes. The proceeds from the placement are for general corporate purposes and to repay existing debt. The competitive pricing reflects our recent upgrade to a full investment grade credit rating, and the sustainability link demonstrates our commitment to reducing our CO2 emissions.

Reflecting high levels of confidence in our strategy and future prospects, the Board has approved an interim dividend of 17.8 pence per share (2022: 13.5p). This is in line with our policy and represents a 32% increase on the prior year. The interim dividend will be paid on 3 November 2023 to Shareholders on the register on 6 October 2023.

Safety and sustainability: Good progress

On safety, we delivered a 12% year-on-year improvement with the Group's TIR reducing to 0.29. This represents a further significant step in our ambition to eliminate harm in our operations, and follows the recent launch of our Zero Harm Behaviours Framework.

In March we received SBTi approval of our absolute scope 1, 2 & 3 emissions reduction targets, and launched our first ever Climate Transition Plan. Our work to quantify our scope 4 avoided emissions, which is a key part of the journey to enabling us to recognise green revenue, is also progressing well. The focus has expanded to determine the avoided emissions from our full Redefined Mill Circuit solution, with quantification of the benefits expected to enhance our overall customer value proposition.

Outlook

Activity levels in our mining markets are strong. Customers are focused on maximising ore production and on improving the efficiency and sustainability of existing operations, which is driving demand for our AM spares and expendables and brownfield OE solutions.

With a positive book-to-bill we enter the second half of the year with a record order book, and strong operating momentum. We now expect to deliver strong growth in full year constant currency revenue and operating profit, with operating profit towards the upper end of the range of analysts' current expectations*. We remain on track to deliver our 2023 target of 17% operating margin, supported by operational efficiencies, further price realisation and the early financial benefits of Performance Excellence. We expect free operating cash conversion of between 80% and 90%.

Further out, the fundamentals for our business are highly attractive. The long-term structural growth in mining, and our technology led strategy, underpins our ambition to deliver through-cycle mid-to-high single digit percentage revenue growth, while our Performance Excellence programme will deliver compounding benefits and support margin expansion above 17%. In addition, as our capex returns to normal levels in FY24, we expect cash conversion to increase to between 90% and 100%.

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 Interim Financial Statements contained in this press release.

1. 2022 restated at 2023 average exchange rates.

2. 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.

3. Profit figures before adjusting items. Continuing operations statutory operating profit was £194m (2022: £151m). 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 £109m (2022: £36m).

4. As measured by Total Incident Rate (TIR) which represents the rate of any incident that causes an employee, visitor, contractor, or anyone working on behalf of Weir to require off-site medical treatment per 200,000 hours worked.

5. Net Debt at 31 December 2022.

6. Refer to note 2 of the Interim Financial Statements contained in this press release for further details of alternative performance measures.

DIVISIONAL REVIEW - MINERALS

Minerals is a global leader in products and integrated solutions for smart, efficient and sustainable processing in mining markets.

2023 First half summary

• AM orders1 +5%; reflects mining production trends and installed base expansion

• OE orders1 +1%; demand for brownfield and sustainability solutions

• Revenue1 +20%; reflects strong execution and record opening order book

• Book-to-bill of 1.03

2023 First half strategic review

Minerals made strong strategic progress in the first half, further building its leadership position in the mill circuit, booking orders for new sustainable technologies and launching its latest digital solutions. Progress across all 4 pillars of the 'We are Weir' strategic framework are outlined below.

People

On safety, Minerals total incident rate (TIR) for the period was 0.21 (2022: 0.15). The Division remains amongst the safest in its sector, and is on a positive long-term trajectory towards its ambition of zero harm.

The Division continued to invest in people development and rolled-out a new training programme to its global sales team on the Redefined Mill Circuit. The programme is supporting teams as they promote the technology and respond to growing customer interest in our new sustainable solutions.

Customer

Minerals continued to execute on key strategic growth initiatives, and during the first half gained market share in our core mill circuit product categories. We converted 100% of our competitive field trials for large mill circuit pumps, and also rolled-out our latest cyclone technology. A particular highlight was at a large Brazilian iron ore mine, where we upgraded the cyclones to our latest Cavex® 2.0 solution. The new cyclones, which are Synertrex® enabled, have improved separation and increased mineral recovery by more than 400,000 tonnes per annum.

We also made good strategic progress in sustainable solutions, and delivered year-on-year growth in comminution. New orders included a pebble crushing plant for a large copper mine in South America and a crushing solution for a potash mine in Canada.

First commercial production was achieved at the Iron Bridge magnetite mine in Western Australia in the second quarter. The £15m per annum High Pressure Grinding Rolls (HPGRs) service contract and regular spares orders for other equipment will commence in the fourth quarter.

Technology

We saw very encouraging interest from customers for our Redefined Mill Circuit, securing orders from large copper mines in South America for coarse particle flotation (CPF) pilot circuits, in partnership with Eriez. Through this strategic alliance we have integrated CPF technology with our latest generation Warman® mill circuit pumps and Cavex® cyclones to provide significantly improved recoveries and process efficiencies for our customers. Once operational in the third quarter, these plants will be important reference sites for the industry.

We also launched our new, proprietary digital intelli-solutions for pumps, cyclones and HPGRs which, coupled with our Synertrex® 2.0 platform, captures critical machine health data and enables remote condition monitoring.

We continued to invest in research and development of our core technologies including new materials and polymers, and upgrades and range expansions for our industry leading Warman® slurry pumps.

Performance

The Division continued to focus on optimising its product management and global fulfilment processes and appointed its first Chief Operating Officer to accelerate that work. Progress in the first half included the launch of a programme to review product life cycle management and retire legacy product variants, with initial product retirements achieved during the period. The programme, in combination with benefits from our SAP ERP system, will drive continued improvement in our inventory levels over time.

There was also good progress on our sustainability strategy. Solar generation capability was installed at our South African facility, which will deliver reductions in our scope 1 & 2 emissions.

2023 First half financial review

1. 2022 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 Interim Financial Statements contained in this press release further details of alternative performance measures.

Orders increased by 4% on a constant currency basis to £980m (2022: £943m), and book-to-bill was 1.03 reflecting high levels of activity in our mining markets. OE orders grew 1%, with particularly strong growth in Q1 (+20%). The decrease in OE orders in Q2 reflects order phasing. AM orders grew 5% reflecting volume growth in hard rock mining and a contribution from pricing, partially offset, as expected, by lower volumes from customers in the Canadian oil sands and the non-repeat of orders from Russia. Excluding orders from Russia from the prior year comparator, AM orders were up 6%. In line with prior years, AM orders in Q2 included a number of multi-period orders. In the first half, AM orders represented 73% of total orders (2022: 72%). In total, mining end markets accounted for 76% of total orders (2022: 74%).

Revenue was 20% higher on a constant current basis at £950m (2022: £790m) reflecting strong execution, delivery of our record opening order book and a contribution from prior year price increases. Revenue growth in North America was particularly high, following a period of strong order growth in the Canadian oil sands last year. Product mix moved towards OE, which represented 28% of revenue, up from 25% in the prior period.

Adjusted operating profit2 increased 25% on a constant currency basis to £173m (2022: £138m) as the Division maintained its gross margins, and benefited from increased volumes and strong execution. Prior year operating profit included a £2m adverse impact from transactional FX movements.

Adjusted operating margin2 on a constant currency basis was 18.2% (2022: 17.5%). The year-on-year improvement of 70bps reflects strong operational efficiency and non-repeat of the prior year adverse transactional FX movement, partially offset by a movement in revenue mix towards OE.

Operating cash flow2 increased by 24% to £131m (2022: £106m) reflecting growth in operating profit, partially offset by a modest increase in working capital outflow to £75m (2022: £67m). Working capital movements reflect an increase in inventory to support growth in the order book, and a decrease in payables which were elevated in the prior year due to the phasing of purchases and temporary disruption in global supply chains.

DIVISIONAL REVIEW - ESCO

ESCO is a global leader in Ground Engaging Tools (G.E.T.), attachments, and artificial intelligence and machine vision technologies that optimise productivity for customers in global mining and infrastructure markets.

2023 First half summary

• Orders1 -3%; robust demand from mining customers offset by trends in infrastructure

• Very strong demand for mining attachments

• Revenue1 +6%; reflects strong execution

• Book-to-bill of 1.02

2023 First half strategic review

ESCO made good strategic progress in the first half, significantly improving safety performance, achieving key technology milestones and wining significant market share in mining attachments. Progress across all 4 pillars of the 'We are Weir' strategic framework are outlined below.

People

On safety, ESCO's TIR for the period was 0.65 (2022: 1.06). The significant improvement on the prior year reflects the strong and continued focus on safety across the Division, and the embedding of Weir safety culture and standards at Carriere Industrial Supply (CIS now ESCO Sudbury), which was acquired in H1 2022.

As part of the ongoing emphasis on people development, the Division ran a successful pilot of a new leadership foundations programme which focuses on developing key skills for first-line managers. The roll-out of the programme will continue during the second half of the year.

Customer

During the period ESCO made further progress across its strategic growth initiatives. The number of mines using Motion MetricsTM AI-enabled vision technology increased, and new orders in the first half included a package of 5 ShovelMetricsTM and 5 LoaderMetricsTM systems which will be deployed across all large mining machines at an iron ore mine in Western Australia.

The Division made excellent progress in growing market share in mining attachments, with a 37% year-on-year increase in orders. A particular highlight included converting 4 cable shovel buckets from competitor products to ESCO technology for a large North American copper miner.

In addition, ESCO continued to expand its geographical reach with the transition from third party distribution to our direct to customer model in Scandinavia. The ESCO sales team is now leveraging Minerals' existing footprint in the region to provide enhanced sales and service to customers.

Technology

Field trials of our proprietary ore characterisation technology were successfully completed during the first half. Tests enabled critical data to be collected and validated the performance of the technology in a real world environment. Development has progressed to the next phase which is focused on exploring novel illumination technologies to enhance minerals characterisation.

New Motion MetricsTM capabilities and functions were launched during the period, including an upgraded lens cleaning solution that enhances machine vision capability and improves response times.

Other technology investments included development of a new series of mining attachments that, once launched, will expand our addressable market.

Performance

Construction of the Division's new foundry in Xuzhou, China, remains on track with transition to the equipment installation phase of the project expected later this year. First production from the foundry is expected in 2024, followed by full production in early 2025.

The Division continued to progress initiatives to reduce its environmental impact and commenced new feasibility studies into transitioning to renewable power at a number of its North American facilities.

2023 First half financial review

1. 2022 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 Interim Financial Statements contained in this press release for further details of alternative performance measures.

Orders decreased 3% on a constant currency basis to £356m (2022: £368m). Year-on-year movements include growth in the contribution from CIS, which was acquired in Q2 of the prior year, robust underlying demand from customers in mining and a decrease in demand from infrastructure customers relative to a very strong prior year comparator. In mining, demand was particularly strong for our mining attachments, which is reflected in OE order growth of 40%. Notwithstanding this, at 90%, AM continues to account for the vast majority of the Division's orders (2022: 93%). The Division's book-to-bill was 1.02, reflecting high levels of activity in our mining markets. In total, mining end markets accounted for 62% of total orders (2022: 58%).

Revenue increased 6% on a constant currency basis to £350m (2022: £331m). This reflects strong execution and further price realisation.

Adjusted operating profit2 increased by 10% on a constant currency basis to £59m (2022: £53m) as the Division maintained its gross margins, and benefited from increased volumes.

Adjusted operating margin2 on a constant currency basis was 16.7%, +60 bps (2022: 16.1%), with the year-on-year improvement reflecting strong operational efficiencies.

Operating cash flow2 increased by 114% to £53m (2022: £25m), reflecting growth in operating profit and a reduction in working capital outflow to £15m (2022: £33m). Working capital movements reflect a modest increase in inventory, a modest reduction in receivables and a decrease in payables which were elevated in the prior year due to the phasing of purchases and temporary disruption in global supply chains.

GROUP FINANCIAL REVIEW

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. Refer to note 2 of the Interim Financial Statements contained in this press release for further details of alternative performance measures.

3. Net Debt at 31 December 2022.

Continuing operations order input at £1,336m increased 2% on a constant currency basis. Minerals orders were up 4%, with AM growth up 5% reflecting growth in demand from customers in hard rock mining and a contribution from pricing partially offset by loss of Russia orders and normalisation of demand from customers in the Canadian oil sands. OE solutions performed well against a strong prior year. ESCO orders were down 3%, with a decrease in demand from customers in infrastructure markets offsetting robust underlying demand from mining customers. 77% of orders from continuing operations related to aftermarket compared to 78% in the prior year.

Continuing operations revenue of £1,300m increased 16% on a constant currency basis, reflecting strong execution of the opening order book, continued strength in mining markets and price realisation. In Minerals revenue was 20% higher on a constant currency basis at £950m (2022: £790m). ESCO increased 6% on a constant currency basis to £350m (2022: £331m). Aftermarket accounted for 78% of revenues from continuing operations, down from 81% in the prior year. Reported revenues increased 19%, benefiting from a foreign exchange translation tailwind of £25m. Overall book-to-bill at 1.03 reflects the continued strength in orders as we executed on our record opening order book.

Continuing operations adjusted operating profit increased by £44m (26%) to £212m on a reported basis (2022: £168m). Excluding a £5m foreign currency translation tailwind, the constant currency increase was £39m (22%).

As explained further in the Divisional reviews, Minerals adjusted operating profit increased by 25% on a constant currency basis to £173m (2022: £138m) and ESCO's adjusted operating profit increased by 10% on a constant currency basis to £59m (2022: £53m). Corporate costs of £20m (2022: £18m) are 10% up on prior year mainly reflecting wage inflation.

Continuing operations adjusted operating margin of 16.3% is up 80bps versus last year on a constant currency basis and up 100bps as reported. This increase is driven by higher volumes and associated operating leverage, as well as positive pricing action. This improvement is despite product mix moving slightly towards OE (19% to 22%) for continuing operations. R&D as a percentage of sales was 1.8%, down from 1.9% at December 2022, albeit spend increased in absolute terms.

Continuing operations statutory operating profit for the period of £194m was £43m favourable to the prior year, driven by the increase in adjusted operating profit of £44m.

Continuing operations net finance costs were £24m (2022: £25m) with the decrease mainly due to favourable other finance costs resulting from the Group's net retirement benefit surplus.

Continuing operations adjusted profit before tax was £188m (2022: £143m), after a translational foreign exchange tailwind of £5m. The statutory profit before tax from continuing operations of £170m compares to £126m in 2022, the increase primarily due to the increase in adjusted operating profit.

Continuing operations adjusted tax charge for the year of £50m (2022: £38m) on profit before tax from continuing operations (before adjusting items) of £188m (2022: £143m) represents an adjusted effective tax rate (ETR) of 26.3% (2022: 26.4%). The decrease mainly reflects the geographic mix of profits.

A tax credit of £6m has been recognised in relation to continuing operations adjusting items (2022: £4m).

Continuing operations adjusting items increased to £18m (2022: £17m). Intangibles amortisation decreased by £4m to £13m (2022: £17m). Exceptional items totalled £1m (2022: £3m), with initial costs relating to our Performance Excellence programme of £8m, being largely offset by the reversal of provisions in respect of the wind down of operations in Russia of £7m as working capital recoveries have exceeded initial expectations. Other adjusting items which relate solely to the Group's legacy asbestos-related provisions in the period were a charge of £4m (2022: credit £3m), primarily due to settlements in the period, with the credit recognised in the prior year attributable to the significant change in discount rates.

Statutory profit for the period after tax from total operations of £126m (2022: £92m) reflects a £35m increase in profit from continuing operations.

Adjusted earnings per share from continuing operations increased by 32% to 53.4p (2022: 40.5p). Statutory reported earnings per share from total operations is 48.8p (2022: 35.6p).

Cash flow and net debt

Cash generated from operations increased by £73m to £173m (2022: £100m) in the period due to a combination of higher operating profits and a reduced outflow from working capital in the period of £88m (2022: £112m). As a result, working capital as a percentage of sales decreased to 24% from 32% in the prior year, remaining in line with December 2022, as working capital levels normalised. Continuing operations utilised non-recourse invoice discounting facilities of £40m (2022: £21m) compared to £45m at December 2022. This is largely utilising facilities provided by our customers to receive payment on reasonable terms in certain geographies where custom dictates very extended payment terms. Suppliers chose to utilise supply chain financing facilities of £41m (2022: £50m) versus £54m at December 2022.

Net capital expenditure increased by £18m to £36m (2022: £18m), mainly due to the construction of our new ESCO foundry in China. Lease payments increased to £16m (2022: £14m), while the purchase of shares for employee share plans decreased by £5m to £15m (2022: £20m).

Free operating cash conversion (refer to note 2 of the Interim Financial Statements) was 51% (2022: 29%) as a result of the increased cash generated from operations and a reduced working capital outflow.

Free cash flow (refer to note 2 of the Interim Financial Statements) from total operations was an inflow of £24m (2022: outflow of £24m). In addition to the movements noted above this was primarily impacted by an increase in tax payments of £11m reflecting increased profit levels.

Net debt increased by £45m to £842m (December 2022: £797m) and includes £118m (December 2022: £115m) in respect of IFRS 16 'Leases'. Drivers of the increase in net debt include payment of the final 2022 dividend of £50m, lease movement of £9m, settlement of CIS deferred consideration of £1m, adverse translational foreign exchange and non-cash movements of £4m, plus exceptional items of £5m which include Performance Excellence costs. These are partially offset by the free cash inflow of £24m. Net debt to EBITDA on a lender covenant basis was in line with December 2022 at 1.5x, compared to a covenant level of 3.5x.

In June 2023, the Group successfully completed the issue of £300m five-year Sustainability-Linked Notes due to mature in June 2028, which includes a target to reduce scope 1&2 CO2 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. In March 2023, the Group exercised the option to extend its US$800m multi-currency revolving credit facility by one year which will now mature in April 2028, with the option remaining to extend for a further year. These new arrangements followed the final US Private Placement settlement of £167m in February and allowed the Group to cancel in June its £300m one year term loan facility, obtained in January 2023. Overall these actions extended the average tenor of the Group's debt financing while ensuring there remains in place more than £800m of immediately available liquidity.

Pensions

The IAS 19 funding position across the Group's legacy UK and North American schemes reduced from a net surplus of £15m at 31 December 2022 to a net surplus of £9m at 30 June 2023. This is primarily due to a £12m loss in the UK Main plan following a pensioner buy-in, which results in 63% (December 2022: 39%) of the Main scheme liabilities now being insured. Other movements relating to net losses in UK assets and experience losses resulting from UK inflation were offset by gains driven by higher UK discount rates and a reduction in deficit across our North American plans. In total, a charge of £17m (2022: credit of £76m) has been recognised in the Consolidated Statement of Comprehensive Income.

The strength of the funding position of the UK main scheme means that additional pension cash contributions will reduce by £6m from 2024.

Principal Risks and Uncertainties

The Board considers the Principal Risks and Uncertainties affecting the business activities of the Group are:

Details of the Group's Principal Risks and Uncertainties are unchanged since the publication of the 2022 Annual Report except:

• Covid-19 has been broadened to Infectious Disease/Pandemics to reflect that, while the immediate risks posed by Covid-19 have subsided, we recognise that we need to continue to monitor and examine the changing health risk environment and the shifting patterns of infectious disease and their threat to health more widely.

Further details of the Group's policies on Principal Risks and Uncertainties are contained within the Group's 2022 Annual Report, a copy of which is available at www.annualreport.weir.

Appendix 1 - 2022 / 2023 continuing operations1 quarterly order trends

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. Restated at June 2023 average exchange rates.

3. Like-for-like excludes the impact of Carriere Industrial Supply Limited acquired on 8 April 2022.

CONSOLIDATED INCOME STATEMENT

FOR THE 6 MONTHS ENDED 30 JUNE 2023

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE 6 MONTHS ENDED 30 JUNE 2023

CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2023

The financial statements were approved by the Board of Directors and authorised for issue on 1 August 2023.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE 6 MONTHS ENDED 30 JUNE 2023

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE 6 MONTHS ENDED 30 JUNE 2023

1. Accounting policies

Basis of preparation

These interim financial statements are for the 6 month period ended 30 June 2023 and have been prepared on the basis of the accounting policies set out in the Group's 2022 Annual Report and in accordance with UK-adopted IAS 34 'Interim financial reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

These interim financial statements are unaudited but have been reviewed by the auditors and their report to the Company is set out on page 45. The information shown for the year ended 31 December 2022 does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006 and has been extracted from the Group's 2022 Annual Report which has been filed with the Registrar of Companies. The report of the auditors on the financial statements contained within the Group's 2022 Annual Report was unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. These interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2022, which were prepared in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006.

Significant changes in the financial position and performance of the Group during the reporting period have been discussed in the Chief Executive Officer's Review and the Group Financial Review. The principal activities of the Group are described in note 3.

The Weir Group PLC is a limited company, limited by shares, incorporated in Scotland, United Kingdom and is listed on the London Stock Exchange.

These interim financial statements are presented in Sterling. All values are rounded to the nearest 0.1 million pounds (£m) except where otherwise indicated.

These interim financial statements were approved by the Board of Directors on 1 August 2023.

Going concern

These interim financial statements have been prepared on the going concern basis.

As discussed more fully in the Chief Executive Officer's Review, the Group has continued to make excellent progress as a high-quality mining focused group. The Group has executed strongly, capitalising on a record opening order book, and maintained operating momentum. This has led to the Group delivering significant year-on-year growth in revenue, operating profit and cash generation, while also expanding operating margins. 

As discussed in the Group Financial Review, the Group has extended the maturity profile of its debt financing with the issue of £300m five-year Sustainability-Linked Notes due to mature in June 2028, and exercise of the one year extension of the revolving credit facility to April 2028. This ensures the Group retains substantial levels of liquidity over the medium-term.

While mining markets continue to show strength, there remains macroeconomic and geopolitical uncertainty. Recognising these uncertainties, the Group performed financial modelling of future cash flows, which cover a period of 12 months from the approval of the 2023 interim financial statements. The financial modelling included reverse stress testing which focused on the level of downside risk which would be required for the Group to breach its current lending facilities and related financial covenants. The review indicated that the Group continues to have sufficient headroom on both lending facilities and related financial covenants. The circumstances which would lead to a breach are not considered plausible.

The Directors, having considered all available relevant information, have a reasonable expectation that the Group has adequate resources to continue to operate as a going concern.

Climate change

As well as considering the impact of climate change across our business model, the Directors have considered the impact on the interim financial statements in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. These considerations focused on similar areas to those disclosed in the 2022 Annual Report. There has not been a material impact on the financial reporting judgements and estimates arising from our considerations, 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.

New accounting standards, amendments and interpretations

A number of new or amended accounting standards became applicable for the current reporting period as listed below:

i) Amendments to IAS 1 - Classification of liabilities as current or non-current;

ii) Narrow scope amendments to IAS 1, Practice statement 2 and IAS 8;

iii) Amendment to IFRS 16 - Leases on sale and leaseback;

iv) Amendment to IAS 12 - Deferred tax related to assets and liabilities arising from a single transaction; and

v) IFRS 17 'Insurance contracts' as amended in December 2021.

The above are not considered to have a material impact on the consolidated financial statements of the Group.

On 23 May 2023, the IASB issued narrow-scope amendments to IAS 12. The amendments provide a temporary exception from the requirement to recognise and disclose deferred taxes arising from the substantively enacted tax law that implements the Pillar Two model rules published by the OECD, including tax law that implements qualified domestic minimum top-up taxes described in those rules. The amendments to IAS 12 are required to be applied immediately and retrospectively in accordance with IAS 8 'Accounting policies, changes in accounting estimates and errors', including the requirement to disclose the fact that the exception has been applied if the entity's income taxes will be affected by substantively enacted tax law that implements the OECD's Pillar Two model rules. The Group has prepared an accounting policy on the recognition of deferred taxes arising from the Pillar Two model rules as discussed in note 6.

Use of estimates and judgements

The preparation of interim 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.

The areas of judgement and estimate identified in the preparation of the consolidated financial statements for the year ended 31 December 2022 continue to be relevant to the preparation of these interim financial statements, with additional consideration given to the following area.

Taxation (estimate)

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

2. Alternative performance measures

The reported interim 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 of our 2022 Annual Report. 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 operating performance of the business from period to period.

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.