The Weir Group PLC

Good morning, everyone, and welcome to WEIR's full year results presentation. Please note the usual cautionary notice on forward-looking statements. Today, I'm joined by our head of investor relations, Ed Pearce. Ed is standing in as our new CFO, Brian Puffer, doesn't start until tomorrow. This will also be Ed's last set of results in IR as he's moving into a senior finance role within Minerals. I'd like to thank Ed for his excellent contribution to our IR efforts over the last two years and to welcome his replacement, Phil Carlyle, who will be transitioning into the role over the next couple of months. So after some opening remarks from me, Ed will take you through the financial review and I'll then return with the strategic and markets review and the outlook for the group. We'll then open up for questions with Andrew Nielsen, President of Minerals, also here with Ed and I for the Q&A session. WIA has a compelling long term value creation opportunity, which is underpinned by three key factors. Firstly, we are a focused mining technology leader with unique capabilities. Our world-class engineering solutions combined with intensive global aftermarket support keep our customers' minds running and solve their big challenges. We are deeply embedded in their operations and have a large install base of mission-critical equipment with high barriers to entry. Secondly, the long-term trends in our markets are highly attractive. To deliver the energy transition and support global demographic trends, production of critical metals needs to increase significantly. In parallel, our customers must also adopt new technologies to extract and process those metals in a more sustainable way. And thirdly, through performance excellence, we're optimizing our business, creating an ever leaner and more efficient weir, reducing cost and complexity in our operations, and driving margin expansion. Reflecting our confidence in the long-term outlook at our capital markets event in December, we significantly upgraded our commitments to our stakeholders. We reaffirmed our commitment to grow faster than our markets and to deliver compounding growth in mid to high single digits through the cycle. We upgraded our margin targets, committing to further operating margin expansion beyond our 2023 target of 17%, with a full year operating margin target of 20% in 2026. We committed to further improving our cash generation, with free operating cash conversion of between 90% and 100% from 2024 onwards, and maintaining our keen focus on increasing return on capital employed. And finally, to nurture our highly resilient business model while continuing to do the right thing for our people and the planet, delivering sustainable wear and accelerating sustainable mining. In 2023, we made great progress. We met or exceeded our commitments, continuing to build our track record of delivery as a focused mining technology company. We grew revenue by 9%. We expanded operating margins by 140 basis points to 17.4%. We delivered a 280 basis points increase on return on capital employed. We demonstrated resilience and consistency, delivering cash conversion within our target range. And we further significantly reduced absolute CO2 emissions from our operations. Our progress in 2023 is a testament to the hard work of WEIR colleagues across the globe, and I'd like to thank them for their dedication and contribution through the year. We have a superb team that's delivering strongly, and there's still much more to come. With that, I'll now hand you over to Ed to take you through the 2023 financials in more detail.

Ed. Thank you, John, and good morning, everyone. As John outlined, we're delighted with our financial results for 2023, which reflect continued positive trends in our mining markets and a strong focus on execution. Orders at £2.6 billion were stable year on year, reflecting positive conditions in mining, offset as expected by lower demand from infrastructure and oil sands customers, and the non-repeat of prior year orders from Russia. Revenue grew by 9% to £2.6 billion as we executed strongly on our opening order book and benefited from price realisation. Operating profit of £459 million was 18% higher than last year and operating margins exceeded our 2023 target, increasing by 140 basis points to 17.4%. Margin expansion was driven by operational efficiencies as we realised strong flow-through and the initial benefits from performance excellence offset in part by a shift in minerals revenue mix towards OE. Profit before tax of £411 million was £63 million ahead of last year, including an FX translation headwind of £6 million. An EPS was up 18% at £115.9 per share. Free operating cash conversion was within our target range at 85% and was achieved despite an increase in capital expenditure of £25 million. As a result, net debt to EBITDA decreased to 1.1 times. All of the above delivered a significant increase in returning capital employed, which was up 280 basis points to 18%. I'll now provide some detailed commentary on each of the divisions. Starting with minerals, where conditions in our mining markets are positive. 2023 saw us benefit from further expansion of our installed base and our customers' continued focus on maximising ore production. Across our key commodities, market prices were well above miners' cost to produce and we saw particularly strong demand from copper customers. Ore production trends, coupled with installed base expansion, drove increased demand for our spare parts, with aftermarket orders up 3%. This reflects volume growth in hard rock mining and a contribution from price, partially offset, as expected, by lower demand from Canadian oil sands customers following a period of overstocking in 2022 and also the non-repeat of prior year orders from Russia. In OE, orders decreased 6% year-on-year against a strong prior year comparator, which included £33 million of large orders in the second half for Indonesian nickel projects. 2023 demand was driven predominantly by solutions for de-bottlenecking and small brownfield projects, as we won market share and converted over 85% of our competitive fuel trials for large mill circuit pumps. Positive production trends in mining continued throughout 2023, with Q4 aftermarket orders up 2% both year-on-year and sequentially. During the year, we executed strongly, delivering our record opening order book and capitalising on momentum in our markets. Revenue increased 12% to £1.9 billion, with aftermarket up 8% and OE up 23%. Strong mining markets, coupled with price realisation and higher revenues in Canada, following record oil sands orders in 2022, more than offset lower revenue from Russia, which year-on-year decreased by £38 million as we wound down operations. Product mixed moved towards OE, which represented 28% of revenue, up from 26% last year. Operating profit increased by 18% on a constant currency basis to £376 million, and margins increased by 110 basis points to 19.4%. This was underpinned by operational efficiencies, a reduced impact from adverse transactional effects, and initial savings from performance excellence, all of which more than offset a 2% shift in revenue mix towards OE. Moving on to ESCO, where similar to minerals, we benefited from positive mining markets and also made excellent progress with our strategic growth initiatives as orders for mining attachments increased by 40%. In infrastructure, demand remained stable through 2023, but below the peak of the prior year, reflecting DRD stocking and lower end-market demand. Combined, these market dynamics left orders down 2%, with robust mining demand and a contribution from price offset by infrastructure. Looking at quarterly trends, Q4 orders were up 2% both year-on-year and sequentially, as strength in mining continued and infrastructure comparatives eased. Turning to revenue, which on a full-year basis increased by 2% to £699 million. This reflects strong execution of our opening order book, price realisation and momentum in mining, partially offset by a decrease in infrastructure, which year-on-year was down 14%. Operating profit at £122 million was 11% higher than last year on a constant currency basis, as significant gains in operational efficiency drove 150 basis points of operating margin expansion, with margins reaching record levels at 17.4%. Now, bringing things together to look at group operating margins, where both on a reported and constant currency basis, year-on-year margins were increased by 140 basis points to 17.4%. The main drivers of underlying margin growth in the year were as follows. Firstly, as I mentioned earlier, Minerals' revenue mix shifted two percentage points from aftermarket to OE, resulting in a 70 basis points impact on margins. This was offset by a 20 basis points reduction in the impact of transactional FX, and favourable underlying efficiencies of 170 basis points, reflecting strong operating leverage, a contribution from price, and improvements in operational efficiency as we demonstrated close management of our costs and the benefits of our focused platform. Furthermore, as John will describe in more detail, we realised £6 million in absolute savings from performance excellence, which contributed to a further 20 basis points of margin expansion. Together, this all left margins at 17.4%, exceeding our 17% target for the year and giving us a great head start as we pursue our 2026 target of 20%. Now, a brief comment on exceptional items which in the period were £22 million. Year-on-year, these reduced by £27 million, reflecting the non-repeat of the prior year charge from the wind-down of our Russian operations, offset by an £8 million net credit from higher-than-anticipated recoveries from Russian working capital, and an initial charge of £29 million relating to the mobilisation and initial delivery of performance excellence. Other adjusting items increased by £30 million in a year, driven primarily by a £43 million charge to increase our asbestos provisions relating to our US subsidiary. This follows the recent completion of the triennial actuarial review and reflects a period of higher claims volumes than previously modelled. And following the exhaustion of our insurance assets, estimated to occur in mid-2025, we expect we'll result in an annual cash outflow of around £7 million. Finally, on this slide, additional pension contributions in the year were £9 million. And pleasingly, with our UK main scheme now fully funded on a technical provisions basis, these will reduce by £6 million on a go-forward basis. Turning to cash flow and returns, where we delivered another strong performance, meeting our cash conversion target and significantly increasing returns. Cash generated from operations was up 17% to £526 million, driven by increased profitability and improvements in working capital efficiency, with working capital as a percentage of sales decreasing to 21%, down from 24% in the prior year, and working capital cash outflow reducing by £21 million to £28 million, including a reduction in inventory from initial performance excellence initiatives and also phasing-driven reductions in payables and receivables. CapEx was higher than last year at 1.4 times depreciation, with the majority of the investment for a new ESCO foundry in China incurred in the year. This left free operating cash flow up £50 million at £392 million, resulting in free operating cash conversion within our target range at 85%. Going into 2024, our strong focus on cash generation and working capital efficiency continues, and with CapEx2 depreciation reducing to 1.2 times, we're well placed to deliver a step up in cash conversion to 90-100%. Finally, on this slide, our strong performance in 2023 drove a significant increase in return on capital employed to 18%, up 280 basis points in the prior year and 600 basis points since completing our portfolio transformation in 2021. Turning to the next slide, free cash inflow of £238 million compares to £193 million last year, with the increase of £45 million, mainly driven by the favourable free operating cash flow just described, and a modest reduction in interest driven by phasing, partly offset by higher tax payments as profits increased. This funded dividends, exceptional cash flows, primarily relating to performance excellence, and the small acquisition of Sentient AI, which we announced in November. This left a net cash inflow of £116 million, decreasing net debt to £690 million, with the resultant net debt to EBITDA at 1.1 times on a lender-covenant basis. This sits well within our target range of 0.5 to 1.5 times and gives us optionality on future capital allocation. Looking at our debt profile, as a result of strong execution and recent refinancing actions, including reducing the size of our RCF facility in February this year, the group has more than £700 million of long-dated liquidity and over 90% of our debt is fixed at a weighted average rate of 3.7%. Later in the presentation, John will provide some colour on our outlook for 2024, with us expecting another year of growth and margin expansion. This slide supplements that, setting out some financial modelling guidance for the year, with some specific points to highlight. Firstly, based on current FX rates, we would see a £19 million full-year operating profit translation headwind, mainly driven by the strengthening of the pound relative to the US dollar and the Chilean peso. Secondly, we expect capex and lease spend of around £120 million and free operating cash conversion of between 90% and 100%. Thirdly, we anticipate an exceptional cash outflow of around £40 million in a year, primarily relating to performance excellence. And finally, as I touched on earlier, additional pension contributions will reduce by £6 million. I'll now summarise the key messages from this section of the presentation. Conditions in our mining markets are positive. High levels of activity, our strategic growth initiatives and install base expansion are driving aftermarket demand and we're seeing continued momentum in demand for our OE solutions. In 2023, we executed strongly, delivering revenue and profit growth and a significant step up in operating margins, with continued strong cash conversion reflecting the efficiency of our mining-focused platform. our returns continue to grow. With return on capital employed up 280 basis points in the prior year and our proposed full year dividend up 18%. And with net debt to EBITDA at 1.1 times, we have optionality on future capital allocation. Overall, we delivered a strong financial performance in the year. And as we move through 2024, have good momentum and are confident in delivering a year of further progress. Thank you, and I'll now hand you back to John. Thank you, Ed.

In this next section, I'll share more details on our strategic progress in 2023, revisit our long-term value creation opportunity, and also set out our outlook for 2024. So starting with our strategic progress in 2023, as a reminder, this slide sets out our key strategic priorities that are enshrined in the We Are Weir framework across our four pillars of people, customer, technology, and performance. In 2023, we made significant progress across all four pillars, which I'll highlight over the next few slides. Looking first at our people initiatives, on safety, our year-on-year total incident rate was stable. And while that keeps us amongst the safest companies in our sector, I'm disappointed that we didn't make more progress. So in 2024, we'll be redoubling our efforts, putting learnings from our recently launched Zero Harm Behaviours Framework into action, and continuing our drive towards our ambition of zero harm. And our focus on safety extends beyond physical safety. And I was really pleased that our commitment to workplace mental health was recognised during the year, with Weir being commended as the biggest improver on performance and disclosure in the CCLA corporate mental health benchmark. We made strong progress in inclusion, diversity and equity with a sizeable uptick in the proportion of our employees who are female. We established five new chapters of our We're Women's Network global affinity group and also maintained our leading employee engagement score. Finally, our voluntary attrition rate remained at industry-leading low levels and we launched a number of new training and leadership programmes aimed at driving our talent development to create the leaders of the future. turning next to our customer and technology growth initiatives, starting with minerals. In comminution, we delivered strong year-on-year growth in aftermarket orders, reflecting our growing install base and customer penetration. Highlights included production starting up at Ironbridge, where our energy and water-saving high-pressure grinding rolls are installed and operating well, and also orders for Enduron tyres for a copper mine in South America on a competitor machine. In digital, we made great progress with Cinetrex, expanding our IntelliSolutions offering, which is now active across six product platforms. Our latest solutions capture critical machine health data and enable remote conditioning monitoring and predictive maintenance. In the year, we saw strong customer demand for these solutions, with the technology now active on around 400 pieces of equipment at over 60 mines. The acquisition of Sentient AI, which we announced in November, also further enhances our digital capability and bridges to our Synetrex technology. The acquisition is accelerating the rollout of our process optimization solutions using nonlinear modeling, which will enable us to explore new revenue generating models and work in new ways with our customers. We also saw further share gains in our core mill circuit as we converted over 85% of our competitive field trials and good progress on geographical expansion, opening six new service centres, including at Port Hedland in the Pilbara, Australia. Turning to technology, we won our first commercial orders for coarse particle flotation, which we accessed through our partnership with Arias, and we generated over £100 million of revenue from new products, reflecting a strong return on recent R&D investments. One of the highlights of the year which I'm most pleased with is the progress we've made with Synatrex. Our latest version of this proprietary system is enabling customers to optimize equipment performance in real time, delivering tangible and measurable benefits in their operations. A recent case study was at a large copper mine in the US where a customer was seeking to optimize mineral separation and increase ore throughput. After successful field trials, the customer is replacing their legacy cyclones, which had been provided by a WEIR competitor, and deploying our Synetrex-enabled Cavex technology across all 13 processing lines at the mine. This WEIR hardware and software combination, together with the expertise of our on-the-ground team, increased first-pass recovery by 30%, reducing recirculating load and increasing fresh ore throughput. And through its continuous monitoring capability, Synetrex is providing ongoing visibility into machine performance and ensuring the process is maintained in the optimal operating envelope. Turning now to ESCO where we also made pleasing strategic progress. On digital, we successfully completed phase one field trials of our proprietary or characterization solution, which is focused on enabling the mineral content of rocks to be determined in the pit so that waste material is not transported and processed. Our development program has good momentum and phase two field trials are due to commence in the coming weeks. We also made good progress with our motion metrics, digital technology, delivering year-on-year revenue growth and a growing pipeline of new opportunities. In mining attachments, we delivered a standout performance. Year-on-year orders were up 40% and since focusing on the mining buckets category back in 2019, our revenue has increased almost fourfold with more to come as we globalise this business area. We also grew market share in our core mining G.E.T. with positive net conversions and continue to expand geographically, including the transition to a direct to customer model in Scandinavia. In terms of technology, the main highlight was the successful field trial of our next-generation mining GET solution, where results have validated our enhanced customer proposition of best-in-class wear life and lowest total cost of ownership. This proprietary technology will keep us ahead of the competition in the years to come and will drive further share gains on full market launch later in 2024. As I touched on earlier, we continue to make good progress with motion metrics and one of the highlights of the year was the adoption of the technology at a large iron ore mine in Western Australia. The customer's objectives were to reduce downtime in the processing plant and to further enhance their safety performance. In response we provided a package of our latest generation loader metrics and shovel metric solutions which are being rolled out on all large machines at the mine and include tooth and shroud loss detection, oversized material detection, fragmentation analysis and blind spot monitoring. Blind spot reduction is ensuring mine employees remain safe, and the customer is using outputs from fragmentation analysis to optimize their drill and blast operations. This is a great example of how we work in partnership with our customers to make mining smart, efficient, and sustainable. Turning now to performance, and you'll recall in December we doubled our performance excellence target to £60 million in absolute savings in 2026, with £20 million of savings coming from each of capacity optimisation, lean processes and Weir business services, reflecting the momentum which performance excellence has across Weir. In 2023, we made great progress across all three elements of the programme. On capacity optimisation, we consolidated a number of our minerals facilities in the US and we poured the first casting earlier this month at our new ESCO foundry in China. We also commenced a number of other projects, including the consolidation of our elastomer manufacturing in Asia-Pacific, which we announced in December. On lean processes, our recent investments in enhanced operational capability and foundational systems are enabling us to optimize how we operate across our manufacturing and supply chain footprint. Projects underway include the launch of our new lean operating system to eliminate waste in our end-to-end value streams and upgraded product lifecycle management, enabling us to transition customers from legacy SKUs and improve inventory turns. We're also rolling out new configure to order tools across both divisions, enabling us to reduce engineering lead times and product variation, thereby improving manufacturing efficiency. Finally, the transition of our enabling functions to WBS is now in full swing in conjunction with our external delivery partner. Once complete, this will deliver £15 million of fixed labour savings, providing a strong underpin to the total WBS target of £20 million, with the remainder to come from efficiency, standardisation and automation. turning to sustainability, where we've continued to make excellent progress. Early in the year, we had our ambitious Scope 1, 2 and 3 emissions reduction targets approved by SBTI. And we've made good progress towards these targets in 2023, delivering a further 6% reduction in our Scope 1 and 2 emissions, meaning our cumulative absolute reduction relative to our 2019 benchmark is now 23%. Our progress continues to be recognised externally as we maintained our place on the prestigious CDPA list for leadership in corporate transparency and performance on climate change. And we've also refreshed our overall sustainability strategy, focused on two key principles, delivering sustainable weir and accelerating sustainable mining. This strategy carries forward our existing priorities, adjusting our emphasis in some areas, while also setting new priorities based on the findings of a double materiality assessment. Going forward, it will be the North Star for our approach and actions on sustainability. Now, shifting gear and recapping on our long-term opportunity where Weir is positioned to continue to deliver compounding growth and margin expansion. This is underpinned by the four components of the framework you see on the slide. First, we play in highly attractive markets driven by structural tailwinds. Second, our aftermarket bias business model enables us to grow throughout the cycle. Third, we have a portfolio of technology-focused growth initiatives enabling us to win share and outgrow our markets. And fourth, through our transformation program performance excellence, we're optimizing how we operate and driving margin expansion. I'll now touch on these elements in more detail before turning to the outlook for the year ahead. So the long term outlook for the mining industry is highly attractive, underpinned by the structural growth drivers of the energy transition and global demographic trends, together with the shift to more sustainable mining. To deliver the energy transition, the world needs to produce significantly more metals. Forecasts indicate production of copper needs to more than double by 2050, while the demand for nickel and lithium is also forecast to grow significantly. In parallel, to have the social license to operate and to compete, miners must transition to smart, efficient, and sustainable technologies, and that's where WEIR is delivering new thinking to the industry. With our unique business model and capabilities, we are well-placed to capitalize. That business model is heavily biased towards the aftermarket, which accounts for around 80% of our revenue. On average, each sale of original equipment generates around 30% of its original value in aftermarket spares every year, so our installed base of equipment is a strategic asset which underpins the growth and resilience of our aftermarket revenue. As ore production expands at existing mines, our equipment is run harder and longer, meaning demand for our spares and expendables increases incrementally. The drive for increased production also creates demand for our de-bottlenecking solutions, which increase mine capacity and in turn further accelerate aftermarket demand. And of course, new large expansion projects create sizable opportunities for further in-store base expansion. So regardless of how growth in ore production is delivered by our customers, we will continue to expand our in-store base, which drives the aftermarket growth algorithm. In parallel, our end-to-end technology strategy is focused on both protecting our core business and also developing new solutions to make mining more sustainable. It's underpinned by organic R&D investment, strategic technology partnerships, and bolt-on M&A, with M&A likely to feature more prominently going forward as we continue to grow our acquisition pipeline. The result of our approach is a portfolio of digitally enabled sustainable solutions offering compelling value propositions across the extraction and processing phase of the mine. In 2023, to validate the sustainability credentials of our solutions, we carried out an avoided emissions study. This work focused on our redefined mill circuit, which comprises HPGRs and stirred mills as alternatives to traditional tumbling mills, coupled with a coarse particle flotation system for improved separation. While we already knew the solution delivered significant energy savings, the objective of the study was to quantify and independently verify them, enabling us to incorporate the data into our customer value proposition in the market. The results were significant. Per tonne of ore moved, our redefined mill circuit reduces energy consumption by 40% and avoids carbon emissions by as much as 50%. So it's a solution which is already enabling sustainable mining. The study is the first of its type for a mining use case, and following a year where global warming exceeded 1.5 degrees, is capturing interest from a broad range of stakeholders, including customers, governmental bodies, investors and NGOs, and is likely to be a catalyst for accelerating demand for sustainable solutions. Bringing the story together, it's clear that we are strongly positioned to deliver compounding growth and margin expansion going forward. As you heard from Ed earlier, through strong execution, we've already exceeded our 2023 operating margin target of 17%, so we're delivering ahead of plan. And we have a clear pathway to our 2026 operating margin target of 20%. The growth assumptions which underpin margin expansion from operating leverage are conservative, given the business model I just described and the long-term outlook for the mining industry. And the actions we're taking to deliver the £60 million of absolute savings from performance excellence, which will drive around 200 basis points of margin expansion, are underpinned by the specific projects I mentioned earlier, so are actionable, deliverable and within our control. In short, we have a clear plan, excellent operating momentum, and our established track record gives us confidence in the future. Now, bringing that back to the outlook for 2024, I wanted to start with our top line growth assumptions. As I said earlier, aftermarket accounts for around 80% of our revenue and is predominantly driven by the spare parts and expendables which are essential to keep mines running. The key drivers are ore production growth, the impact of declining grades and installed base expansion. The aftermarket is also largely inelastic to the capex and commodity price cycles, so it's both predictable and sustainable. In 2023, the Group's aftermarket orders were stable year on year, but there were some significant moving parts in that, with underlying volume growth in hard rock mining and a contribution from pricing being offset by a number of factors. These included the non-repeat of prior year orders from Russia, a slowdown in the Canadian oil sands following a period of overstocking in 2022, and lower demand from ESCO's infrastructure customers. As we go into 2024, these factors will not repeat and we will see volume growth from all production increases and in-store base expansion, including production ramp up and iron bridge, while the contribution to growth from pricing is expected to moderate compared to the last couple of years. The through cycle track record of our aftermarket, which remember has grown at 7% CAGR over the last 12 years, means we are highly confident in our aftermarket growth predictions for 2024. Alongside aftermarket growth, we expect current mining production trends to support original equipment demand around current levels, with momentum in demand for de-bottlenecking and small brownfield projects continuing, and large project expansion activity remaining slow. So with these market dynamics and the strong order book we carried into the year, we're expecting another year of growth and margin expansion in 2024. Specifically, we expect to deliver growth in constant currency revenue, profit and operating margin, with operating margin expansion underpinned by incremental benefits from performance excellence. On cash, we expect to deliver free operating cash conversion of between 90% and 100%, as CapEx falls back closer to depreciation and working capital improvements continue. So summarizing the key messages from our presentation. In 2023, we delivered on our commitments, delivering strong growth in revenue and operating profit, expanding our margins, exceeding our 2023 operating margin target of 70% and taking steps towards our new target of 20% in 2026. Cleanly converting profits to cash and growing return on capital employed and making excellent strategic progress. As we turn to 2024, all production trends in our mining markets are positive and with our track record of delivery, we expect to deliver another year of growth and margin expansion. And finally, looking further ahead, our long-term outlook is tremendously exciting. We have a world-class mining-focused platform. Our future growth is underpinned by decarbonisation trends and the transition to sustainable mining. And through performance excellence, we're optimising our business and driving margin expansion. So our future is bright, and the best is still yet to come from Weir. Thank you for listening. The team and I will be pleased to now take any questions you have.