Weir Group PLC has announced its interim results for the six months ended 30 June 2024.
AM strength continuing and project outlook improving
FY operating profit and cash conversion guidance reiterated
Resilient demand for aftermarket spares and expendables
• High levels of activity in hard rock mining driving group AM orders1 +2%
• Strength of copper and gold markets more than offsetting mine specific headwinds
• £31m AM order split between Q2 and Q4 on retention of multi-year contract; all booked in Q2 in PY
Strong execution and delivery of Performance Excellence benefits
• Group adjusted operating margin1,3 17.8%, +180bps
• Cumulative Performance Excellence savings of £13m to date, on track to deliver full year benefit
• Free operating cash conversion 68%, +17pp
FY outlook: Growing H2 order pipeline with operating profit and cash guidance reiterated
• £53m greenfield contract awarded in July for an HPGR-led project
• Revenue toward the lower end of the current range of analysts’ expectations*
• Operating margin3 expected to be c.18%, ahead of prior guidance
• Free operating cash conversion of 90% to 100%
| H1 2024 | H1 2023 | Asreported +/- | Constant currency1 +/- | |
| Continuing Operations2 | ||||
| Orders1 | £1,253m | £1,275m | n/a | -2% |
| Revenue | £1,207m | £1,300m | -7% | -3% |
| Adjusted operating profit3 | £215m | £212m | +2% | +8% |
| Adjusted operating margin3 | 17.8% | 16.3% | +150bps | +180bps |
| Adjusted profit before tax3 | £193m | £188m | +3% | n/a |
| Statutory profit before tax | £165m | £170m | -3% | n/a |
| Adjusted earnings per share3 | 53.6p | 53.4p | 0% | n/a |
| Return on capital employed | 17.9% | 16.3% | +160bps | n/a |
| Total Group | ||||
| Statutory profit after tax | £117m | £126m | -7% | n/a |
| Statutory earnings per share | 45.3p | 48.8p | -7% | n/a |
| Free operating cash conversion | 68% | 51% | +17pp | n/a |
| Dividend per share | 17.9p | 17.8p | +1% | n/a |
| Net debt5 | £738m | £690m** | -£48m | n/a |
*Company compiled consensus from 12 July 2024, Group revenue range of £2,596m to £2,758m.
**As of 31 December 2023. For all other footnotes see page 4.
Jon Stanton, Chief Executive Officer said:
“Our performance in the first half of the year is another proof point along the journey to deliver market leading through-cycle growth at sustainably higher margins. The resilience of our aftermarket biased business model and strong delivery of Performance Excellence benefits demonstrate the significant upside potential in our equity case.
Looking toward the full year, industry acceptance of our Redefined Mill Circuit is building momentum, and
our pipeline of greenfield expansion projects is encouraging. Taken together with continued execution of our Performance Excellence programme, we remain on track to deliver our full year guidance for operating profit and cash conversion.”
A webcast of the management presentation will begin at 08:00 (BST) on 30 July 2024 at www.investors.weir. A recording of the webcast will also be available at www.investors.weir
CHIEF EXECUTIVE OFFICER’S REVIEW
Introduction
Our performance in the first half of the year was resilient in the context of current macro-economic uncertainty and geopolitical tension. We delivered strong short-term progress while investing in longer-term strategic growth opportunities, and once again met or exceeded our commitments to stakeholders as a high quality mining focused group.
Overall we saw high levels of activity across the global mining sector, with our resilient aftermarket biased business model delivering well against elevated levels of mine specific challenges. More recent developments in the conversion of our greenfield expansion pipeline illustrates the technology shift now underway in mining. We executed strongly on our Performance Excellence programme, delivering significant year-on-year growth in profit margin, cash conversion and return on capital employed. We have line of sight and remain on track to deliver our target of £60m of absolute savings in 2026.
We made progress against our strategic people initiatives. In an assessment of the UK’s 100 largest companies, CCLA Investment Management named Weir as the ‘top improver’ in its corporate mental health benchmark, and in July we received accreditation as a Global Living Wage Employer from the Fair Wage Network.
On technology, ESCO launched the next generation mining GET solution, NexsysTM, providing a step change in productivity for our customers. We will be showcasing NexsysTM alongside our other market leading equipment at MINExpo later this year. Minerals continues to make excellent progress with the Redefined Mill Circuit solution and its digital offerings. Both Synertrex® and Motion MetricsTM saw an encouraging level of new installations in the period.
Overall, our performance across all metrics reflects the hard work and dedication of Weir Group colleagues across the globe, and I’d like to thank them for their commitment and contribution to our success.
Looking ahead, the opportunity to deliver compounding growth and margin expansion is compelling. We anticipate our aftermarket focused business model and strategic growth initiatives will drive revenue growth, while the Performance Excellence transformation programme will establish a leaner, more efficient operating model to drive value creation and returns. Together, these factors give me great confidence that we will continue to deliver on our ambition to outgrow our markets, expand our operating margins, convert our earnings cleanly to cash, while remaining resilient and doing the right thing for our people and the planet.
OE growth: Increased conversion potential of larger projects in our pipeline
Through the first half, the majority of our customers remained focused on maximising production from existing assets. This included running equipment harder, developing more complex and lower grade ore bodies and debottlenecking and driving efficiency in existing processes.
As a result, Minerals activity in the first half of the year continued to be dominated by small brownfield debottlenecking and sustainability related projects, with only 3 orders received over £5m, and a large number of smaller orders in line with our expected run rate.
The ESCO pipeline of capital attachments remains encouraging and we are continuing to see strong demand for our technology-led solutions, although customer approvals are slightly lagging last year at this stage.
As a result, OE constant currency orders declined by 13% year-on-year.
More encouragingly we see an improvement in the conversion potential of larger greenfield projects in our pipeline, principally in Asia and Africa. We have been awarded a £53m greenfield contract already in July for a high pressure grinding rolls (HPGR) led project, while others are close to approval and expected to be booked in the second half of this year. Notably, the Enduron® large format HPGR is prominent in many of these greenfield projects reflecting the growing reputation from its performance at recently commissioned reference sites.
AM growth: Good levels of activity despite site specific challenges
Overall we saw good levels of activity across the global mining sector. Gold and copper producers were very active, iron and oil sands stable, while nickel and lithium producers remain under pressure from lower commodity prices.
Geographically, demand in most regions was ahead of the prior year with the exception of Central and West Africa where activity levels were weak. Both Minerals and ESCO saw an elevated level of mine specific headwinds, such as the shutdowns in nickel and lithium operators in Australia, and in Panama and Türkiye.
In infrastructure, demand was stable overall with solid activity in North America and strong growth in dredge orders offsetting continued subdued demand in Europe.
Against this backdrop, our aftermarket biased business model once again demonstrated its highly resilient nature with orders up 2% in constant currency terms as customer challenges in certain markets were more than offset by strong growth elsewhere.
As previously indicated, the large annual recurring order usually received in Minerals during the second quarter has been split this year between the second and fourth quarter due to the timing of the contract renewal – the net effect being c.£14m of aftermarket orders have shifted to the second half. In 2025, the full annual order of around £31m is expected to be received in the second quarter once again.
Revenue and margins: Strong execution across the business
Despite strong execution in the second quarter, revenue in the first half declined 3% on a constant currency basis due to phasing of OE shipments, the normalisation of demand from the Canadian oil sands market and the absence of revenue from Russia following our exit. The Group’s book-to-bill increased to 1.04.
Input costs through the first half were stable, with only minor headwinds from raw material prices and freight availability. Wage inflation continues, however at lower levels than our prior year comparator. Our market leading positions and brands enabled us to capture annualised increases in price to maintain or expand gross margins, though we expect the benefit of these to normalise in the second half.
We made good progress in our Performance Excellence programme. Our Weir Business Services are now deployed across the majority of our regions and we completed a number of capacity optimisation projects, including the official opening of our new ESCO foundry in Xuzhou and relocation of our rubber process streams within the APAC region. Further to our plans to optimise our APAC supply chain, we recently announced our intent to relocate our rubber spool manufacturing from Australia to our existing operations in India.
On a constant currency basis adjusted operating profit grew by 8% and adjusted operating margins were 17.8%, up 180bps on a constant currency basis. This improvement reflects strong operational efficiency, a movement in Minerals revenue mix towards AM, and incremental Performance Excellence benefits.
Returns: Continued growth in return on capital employed
Free operating cash conversion increased to 68% as a result of a strong performance in working capital and a decrease in capital expenditures. Our performance represents a significant 17 percentage point improvement on the prior year. We remain firmly on track to deliver our full year guidance of 90% to 100% free operating cash conversion.
As a result, we expect to further de-lever the balance sheet, leaving net debt to EBITDA in the lower half of our guidance range of 0.5 to 1.5 times EBITDA by the end of the year.
Return on capital employed (ROCE) for the 12 months to the end of June was 17.9%, an increase of 160bps relative to the same measurement point in the prior year.
The Board has approved an interim dividend of 17.9 pence per share (2023: 17.8p). This is in line with our policy of distributing one third of adjusted EPS and represents a 1% increase on the prior year. The interim dividend will be paid on 1 November 2024 to Shareholders on the register on 4 October 2024.
Safety and sustainability: Focus on zero harm
On safety, while lost time injuries reduced by close to 50% overall, I am very sad to report that one of our colleagues suffered a fatal incident earlier this year. Our north star is, and will always be, the pursuit of zero harm – returning every Weir Group employee home safely at the end of the working day is our paramount focus. This accident was a stark reminder of the need to maintain a relentless concentration on this objective. Overall the Group’s total incident rate4 (TIR) increased slightly year-on-year to 0.35.
For the second year running, we achieved a place on the global environmental non-profit Carbon Disclosure Project’s (CDP) prestigious ‘A List’ for leadership in corporate transparency and performance on climate change. Retaining our ‘A’ rating reflects our commitment to making mining smart, efficient and sustainable and our continued progress in executing our sustainability strategy. We are continuing our work to build our avoided emissions reporting beyond the Redefined Mill Circuit and are on track to exceed our 2023 baseline.
Outlook: Full year operating profit and cash conversion guidance on track
Activity levels in our mining markets are positive. Customers are focused on maximising ore production and on improving the efficiency and sustainability of existing operations, which will continue to drive demand for our AM spares and expendables and brownfield OE solutions.
In aftermarket we are expecting to see a step up in growth rates for orders in the second half driven by the commissioning of new installed base, the re-phasing of the Q2 multi-period order, and normalised comparatives for oil sands.
We now see OE demand being supplemented by conversions in greenfield expansion projects in the second half with a £53m contract award already received in July and others potentially to follow. These orders will convert to revenue in 2025 and beyond and underpin our through-cycle growth ambitions.
Overall we are reiterating our full year guidance for constant currency growth in operating profit. Revenue is now expected to be at the lower end of the range of current analyst estimates. Operating margins are expected to be c.18%, ahead of our previous guidance and supported by further progress on Performance Excellence, with some of the mix and pricing benefits seen in the first half expected to moderate.
We expect free operating cash conversion of between 90% and 100%, in line with previous guidance with capex moving more in line with depreciation and further improvements in working capital.
Further out, the fundamentals for our business are highly attractive. The world is looking to our customers to provide the natural resources needed to support the transition to a net zero economy. This in turn presents us an opportunity to deliver innovative mining technology solutions necessary to meet this challenge, underpinning our ambition to deliver through-cycle mid to high single digit percentage revenue growth. Our commitment to continuous improvement, embodied by the Performance Excellence programme, is well on track to deliver compounding benefits and support margin expansion to 20% in 2026 and beyond. Our strong cash generation and balance sheet give us future optionality to allocate capital to prioritise growth in total shareholder returns.
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. 2023 restated at 2024 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 £188m (2023: £194m). 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 £123m (2023: £109m).
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 Group to require off-site medical treatment per 200,000 hours worked.
5. Refer to note 2 of the Interim Financial Statements contained in this press release for further details of alternative performance measures.
