The Weir Group PLC (LON:WEIR) have today published a trading update for the third quarter ended 30 September 2022.
Very strong demand for Weir mining equipment and spares
· Production trends and installed base expansion supporting Group AM order growth2 +21%
· Integrated solutions and small brownfield activity driving Group OE order growth2 +12%
Good operating momentum and pricing power
· Q3 revenues up strongly year-on-year
· Supply chain and logistics challenges easing
· Input cost inflation mitigated; gross margins maintained
Outlook: Full year guidance unchanged
· Strong growth in FY22 constant currency revenue and profit
· Operating margin expansion in line with prior guidance
· 80-90% free operating cash conversion
Jon Stanton, Weir Group Chief Executive Officer, commented:
“The Group performed strongly in the third quarter, significantly increasing orders and delivering sequential revenue growth, while mitigating the impacts of inflation. Demand for our aftermarket spares was particularly strong, reflecting the highly resilient nature of our business, as miners continue to maximise ore production. We also made good progress on our strategic growth initiatives, with increasing customer demand for our digital offerings and solutions for more sustainable mining.
Moving into the fourth quarter, supply chain challenges are easing, we have strong operating momentum and a record order book. Our FY22 guidance for strong revenue and profit growth, operating margin expansion and 80-90% free operating cash conversion is unchanged.”
Third quarter review
Group
Conditions in mining markets were highly supportive through the quarter, with commodity prices remaining well above miners’ cost to produce and physical inventories tightening further. These factors caused our customers to maximise ore production driving very strong demand for mining spares and expendables. Demand was good across all regions, with particular strength in South America as miners maximised copper production, and also in North America as the re-shoring of production to the US and the recent resurgence in activity in Canadian oil sands continued.
Large mining expansion projects remained slow to convert with demand for OE driven by the growing focus on de-bottlenecking, small expansions and sustainability projects at existing mines.
Within infrastructure, demand in the US, which is by far our largest non-mining market, was stable at high levels, while demand in Europe continued to decline.
Group orders2 in the quarter were +19%, with AM orders2 +21% and OE orders2 +12%.
The Group’s book-to-bill was 1.02, reflecting growth in orders across both divisions and strong operational execution.
Minerals
· Orders2 +21%: AM orders2 +25%; OE orders2 +13%
· Revenues strongly ahead of prior year and sequentially higher than Q2
Demand for AM was exceptionally strong in the quarter, with underlying production activity complemented by orders for commissioning spares as a number of recent OE projects started operating, growing our installed base further. Sequential movement in orders reflects typical seasonal patterns, with a number of multi-period orders booked in Q2.
In OE, demand was primarily driven by orders to de-bottleneck or expand existing mines. This included £16m of orders for pumps for high-grade nickel applications in Indonesia, and a £12m order for pumps and cyclones for a copper concentrator in Uzbekistan. We also booked a £6m order for a Terra-flowing™ solution for a tailings plant in Mexico, which will increase water recovery and eradicate the need for a tailings dam.
ESCO
· Orders2 +13%
· Revenues strongly ahead of prior year and sequentially higher than Q2
Orders reflected strong demand from mining customers, with mining orders growing sequentially from Q2. Demand was particularly strong in South America, and also in Australia and Africa where the Division continues to gain market share. Orders include a good contribution from Motion Metrics and Carriere Industrial Supply, both of which continue to perform ahead of our initial expectations, and also reflect growing traction with our mining attachments proposition.
Outlook
Our FY22 guidance for strong constant currency revenue and profit growth, operating margin expansion and 80-90% free operating cash conversion is unchanged.
Looking further ahead, conditions in mining markets are strong and the long-term fundamentals are highly attractive. We are yet to see whether current macro-economic and geopolitical conditions will impact mining markets; in our base case scenario we are assuming conditions will be supportive, with AM growth rates consistent with our through-cycle targets and traction in small to medium sized OE projects continuing. In infrastructure markets, we expect activity in North America to remain stable, with weak demand continuing in Europe.
Net debt
Net debt increased in the quarter primarily reflecting translational foreign exchange on US$ denominated debt, while as expected, our leverage ratio remained in line with that reported at 30 June 2022.
Spotlight capital markets webinar: Sustainabilty and technology
We will be holding a virtual event on the afternoon of 30 November 2022 (UK time) highlighting our sustainability strategy and technology roadmap to deliver on our commitment to smart, efficient and sustainable mining.
Notes:
1. Financial information is given for the three months ended 30 September 2022 and relates to continuing operations.
2. Orders are reported on a constant currency basis at September 2022 average exchange rates.
