Weir Group Regulatory News (WEIR)

The Weir Group PLC trading update for the first quarter ended 31 March 20231

Order growth and strong execution; margin expansion on track

Strong demand for Weir mining equipment

· Brownfield activity and sustainability projects driving Group OE order growth2 +22%

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

Group AM orders2 flat; in line with expectations

· Minerals AM orders2 +5%: positive mining production trends and installed base growth

· ESCO total orders2 -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 orders2 in the quarter were +4%, with OE orders2 +22%, and AM orders2 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.

Minerals

· Orders2 +9%: AM orders2 +5%; OE orders2 +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 orders2 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 orders2 -6%; sequential orders2 +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.

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.

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

3. Restated at March 2023 average exchange rates.