Weir Group Regulatory News (WEIR)

The Weir Group PLC trading update for the third quarter ending 30 September 20201

Underlying2 Q3 activity robust

· Continuing orders3 down 11% excluding record Q3'19 Iron Bridge order

o Minerals AM orders down 5%; revenues stable

o ESCO orders down 24%; revenues more robust, down 14%, and modestly up Q2 to Q3

· Demand strengthened towards the end of the quarter

· Longer-term bid activity improving, reflecting positive fundamentals for mining

· Transforming Weir into a premium mining technology business

o As previously announced, proposed $405m sale of the Oil & Gas division; Circular to be published

Jon Stanton, Chief Executive, commented:

"Our priority remains the health and well-being of our people and communities while continuing to fully support our customers and I am proud of the ongoing commitment of my colleagues around the world. Mining markets remained relatively robust in the third quarter and while Covid-19 continued to impact ore production levels and customer decision making, there was a strengthening in demand towards the end of the period.

The positive long-term fundamentals for our markets are unchanged, including the key role of essential metals in building the new economy and the need for mining operations to reduce their environmental impact. This is reflected in our strengthening project pipeline, particularly for our smarter, more efficient and sustainable solutions.

We were delighted to agree the sale of the Oil & Gas division, enabling the Group's transformation into a focused, premium mining technology business. The transaction remains on track for completion in 2020."

Analyst and investor conference call

A conference call for analysts and investors will be held at 0800 GMT on Tuesday 3 November 2020 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 Tuesday 17 November 2020.

Third quarter review - Continuing Operations

The Group continued to prioritise safety and well-being with all facilities operational and able to support customers throughout the period despite ongoing Covid-19 challenges. Demand in mining markets remained broadly resilient, with demand strengthening towards the end of the quarter helped by both the essential status of the industry and supportive commodity prices. A small number of mines remained closed and many are operating with skeleton crews and limited third-party access due to Covid-19 restrictions. This translated into overall ore production levels that remain below pre-Covid volumes and slower customer decision making.

In total, the Group's third quarter orders were 11% lower on an underlying2 basis (-26% as reported). Underlying OE orders were down 8% (-55% as reported) while AM orders were down 12%. The Continuing Operations' book-to-bill ratio in the period was 0.82 reflecting the ongoing delivery of the Iron Bridge OE project and destocking. The Group remains on track to deliver its previously announced 2020 cost saving programme. Full year guidance remains withdrawn due to ongoing Covid-19 uncertainty. 

Divisional review

Minerals

Underlying2 divisional orders were resilient, down 5%, supported by robust mining demand. As reported orders were down 27%, reflecting the record c.£100m Iron Bridge order in the prior year period. At a regional level demand was good in South America, Russia and Central Asia but more subdued in Africa and Australia, principally due to Covid-19 challenges. Underlying OE orders were down 6% (-57% as reported) with good contract wins for the division's crushers, pumps and tailings technology, more than offset by reduced demand for integrated solutions that rely on mine site access to complete plant productivity audits. More broadly, the division's longer-term project pipeline strengthened further, reflecting mining customers' confidence in their future prospects, with the number of firm bids increasing towards the end of the quarter. AM orders were down 5% driven by ore production trends, some destocking and the deferral of non-essential maintenance, but strengthened towards the end of the period. AM revenues were stable year-on-year and modestly higher sequentially. The division continued to execute on its £30m current year cost savings programme, supporting operating leverage. Book-to-bill in the period was 0.80 as a result of higher OE revenues as the division delivers the Iron Bridge contract, and some destocking. 

Assuming commodity prices remain supportive and we do not see a significant increase in disruption to either Weir or our customers' operations from Covid-19, we would expect activity levels to remain robust for the remainder of 2020.

ESCO

Divisional orders were down 24% year-on-year but showed improvement sequentially from Q2 to Q3. This was in line with mining machine utilisation levels that benefited from slightly increased activity towards the end of the quarter, but overall utilisation was on average c.12% below pre-Covid levels in the period. North America was most significantly impacted, principally as a result of lower coal and oil sands demand, and the gradual return to operation of iron ore customers. Year-on-year performance also reflected the impact of customers building stock levels in Q3 2019 as divisional foundry upgrades temporarily extended the division's lead times. As expected, infrastructure markets remained subdued, although sequential improvement was also seen in core consumable products. Revenues, which were not impacted by destocking and better reflect underyling activity, were down 14%, more in line with machine utilisation trends and also showed a modest improvement sequentially Q2 to Q3. ESCO's £9m 2020 cost savings programme remains on track and the division also benefited from operational efficiencies as a result of previous foundry investment, both of which underpinned margins. Its book-to-bill was 0.88 and improved towards the end of the period.

The outlook for ESCO's mining end markets is consistent with Minerals. While conditions in infrastructure markets have stabilised recently, the pace of further recovery will be modest and dependent on the level of future Covid-19 restrictions, which remain uncertain.

Discontinued operations - Oil & Gas

As expected, the third quarter saw improved demand in North America from the record lows of Q2. However, with North American land rig count down c.70% year-on-year, activity levels remained extremely low. Divisional orders fell 56% with OE down 45% and AM down 60%.

An agreement to sell the Oil & Gas division to Caterpillar Inc. for an enterprise value of $405m, subject to customary working capital and debt-like adjustments, was announced on 5 October 2020. Completion is expected by the end of 2020. A separate Circular relating to the sale is being issued to shareholders today.

Net debt

Net debt at 30 September 2020 was higher than that reported at 30 June 2020 reflecting normal seasonal patterns.

Board Changes

As previously announced, Non-Executive Director Cal Collins stepped down from the Board in September 2020. The Group has also announced that Srinivasan Venkatakrishnan and Ben Magara will join the Board as Non-Executive Directors with effect from 19 January 2021. Srinivasan, who is popularly known as Venkat, previously served as CEO of both Vedanta Resources plc, the diversified global natural resources company, and AngloGold Ashanti Limited, one of the world's largest gold producers. Ben served as CEO of Lonmin plc, the then third largest global platinum producer, having previously held a number of senior mining executive roles for Anglo American plc.

Notes:

1. Financial information is given for the three months ended 30 September 2020 and relates to continuing operations.

2. Adjusted to exclude the impact of the c.£100m Iron Bridge original equipment order in Q3 2019

3. Orders are reported on a constant currency basis.

4. Continuing Operations excludes Oil & Gas which has been classified as held for sale since 5 October 2020 and is reported in Discontinued Operations.

About The Weir Group PLC

Founded in 1871, The Weir Group PLC is a premium mining technology business whose purpose is to make customers' operations more sustainable and efficient. 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. Weir's highly engineered technology enables these critical resources to be produced using less energy, water and waste - reducing customers' total cost of ownership. The Group has c.13,000 employees in over 50 countries.

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 (constant currency)

1. Continuing Operations excludes Oil & Gas which has been classified as held for sale since 5 October 2020 and is reported in Discontinued Operations.

2. Like-for-like excludes the impact of acquisitions. ESCO was acquired on 12 July 2018 and excluded from 2018 and 2019.

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 Company") financial position, business strategy, plans (including development plans and objectives relating to the Company'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 Company 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 Company's present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this document. The Company 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 Company'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.