The Weir Group PLC

Good morning, everyone, and welcome to WEIR's half-year results presentation. Please note the usual cautionary notice on forward-looking statements. Today, I'm joined by our new CFO, Brian Puffer, for his first set of results. I'm very pleased with how Brian is fitting in and the experience he brings to WEIR, which is having a positive impact. We'll follow the usual format, so after some opening remarks from me, Brian will take you through the financial review, and I'll then return with the strategic and markets review and the outlook for the group, followed by Q&A. Let me start by reiterating the three key factors which underpin the exciting value creation opportunity that we're delivering on. Firstly, we're 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 in-store 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 optimising our business, creating an ever leaner and more efficient weir, reducing cost and complexity in our operations and driving margin expansion. Those three key factors mean we have complete conviction in making the following commitments to our stakeholders. First, growing faster than our markets, delivering compounding growth in mid to high single digits through the cycle. Second, delivering on our 2026 operating profit margin target of 20% through our performance excellence program and operating leverage. Third, cleanly converting our earnings growth into cash and returns and deploying it in line with our capital allocation policy. Fourth, remaining highly resilient thanks to our differentiated aftermarket focused business model. And lastly, delivering all of the above in the right way, creating innovative mining technology solutions that accelerate sustainability in mining while doing the right thing by our employees and the planet. And delivering on these commitments will give us tremendous optionality to maximise total shareholder returns. Our performance in the first half of 2024 was highly resilient in the context of current macro uncertainty and geopolitical tensions. We delivered strong short-term progress while continuing to invest in longer-term strategic growth opportunities. Once again, our aftermarket model demonstrated its strength in the face of mixed commodity prices and several mine-specific challenges. the headlines against our commitments were as follows. Constant currency revenue decreased by 3% year-on-year, principally driven by phasing of original equipment deliveries in the order book, with aftermarket stable in spite of the backdrop and a tough comp. Over the past three years, our revenue growth has averaged above our target range, and we expect to see a re-acceleration of growth in the second half so that we continue to deliver on our through-cycle target. Strong execution and performance excellence contributed to expanding our operating margins by 180 basis points to 17.8%. We grew free operating cash conversion to 68%, a 17 percentage point increase from last year. We demonstrated resilience in continuing to grow our constant currency operating profit by 8% and we maintained our reputation as trusted sustainability partner with the highest score among the Carbon Disclosure Project's list of companies for transparency and performance in climate change. Taken together, our performance has been robust. It is clear validation of why we are strategically differentiated and we're on track to deliver our full year guidance in operating profit and cash conversion. And later in the presentation, I'll break down in more detail how I see the remainder of the year shaping up. Our progress in the first half of 2024 is a testament to the hard work of we're 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 is much more to come. To close this section, I wanted to comment on why I'm feeling positive and excited about what's coming next. Finally, we are starting to see some project approvals accelerating in greenfield and large brownfield expansion projects. And within that, we're seeing HPGR lead mill circuit flow sheets really gaining traction. In July, we've received a £53 million contract award for just such a project, and we're hoping to see some other large project awards coming through in the second half, which will underpin revenue growth in the years ahead. Many of the most promising opportunities in our pipeline are in remote geographies throughout Africa and Asia. Our broad geographic footprint with boots on the ground and proven market-leading solutions is giving our customers confidence that we are there to support them regardless of location, and that's why we're going to keep winning. With that, I'll now hand you over to Brian to take you through the financial results in more detail. Brian.

Thank you, John, and good morning, everyone. As John outlined, we are very pleased with our financial results for the first half of 2024, highlighting the resilience of our aftermarket bias-based business model combined with strong execution and underpinned by performance excellence. Orders at $1.3 billion were marginally down year-on-year primarily due to phasing of original equipment orders. Aftermarket parts showed positive growth of 2% against a prior year comparable, which included the full benefit of a large multi-year order. Overall demand for aftermarket spares is robust as miners continue to maximize production despite some specific challenges primarily in nickel and lithium operators in Australia, as well as shutdowns in Panama and Turkey. Revenue reduced by 3% to £1.2 billion on a constant currency basis due to phasing of original equipment shipments, the normalization of demand from the Canadian oil sands market, and the absence of revenue from Russia following our exit. We saw a slight move towards aftermarket in terms of product mix, which accounted for 80% of total revenue up from 78% in June 2023. Operating profit of £215 million was 8% higher than last year, and operating margins increased by 180 basis points to 17.8%, reflecting strong operational efficiency as well as great progress on our performance excellence agenda. Profit before tax and adjusting items of £193 million was £5 million ahead of last year, including an FX translation headwind of £13 million. And EPS was stable compared to June 2023 at 53.6 pence per share before adjusting items. Free operating cash conversion was 68%, up 17 percentage points on June 2023, and we are on track to meet our full-year target of 90-100%. Net debt to EBITDA on a lender covenant basis was 1.2 times, which was broadly consistent with December 2023 and down on the comparable period in 2023. All of the above delivered a significant increase in return on capital employed, which was up 160 basis points to 17.9%. I'll now provide some detailed commentary on each of the divisions. starting with minerals, where the first half of 2024 saw further gains in market share in our core processing product categories. Across key geographies, we saw particularly strong demand from gold customers and robust regional activity in APAC and across North and South America. ore production trends coupled with growth in our installed base drove increased demand for our spare parts, with aftermarket orders up 1%. This reflects volume growth in hard rock mining and a minor contribution from pricing, partially offset as expected by the timing of a large multi-period order historically received in Q2. This had around a 14 million pound impact on H1 orders. In original equipment, orders decreased 12% year-on-year against a strong prior-year comparator and phasing as customers prioritized production from existing assets with many small brownfield expansions and deep bottlenecking projects. We enter H2 with a strong order book and book-to-bill of 1.04. Revenue in H1 decreased 4% to £869 million, with original equipment down 13%, again primarily due to order phasing, while aftermarket revenues were stable. We have seen a particularly strong growth in Australasia, reflecting the benefits of installed base growth. This has been offset by a reduction in revenue year-on-year from customers in the Canadian oil sands and the absence of revenue from Russia. Operating profit increased by 5% on a constant currency basis to $170 million and margins increased by 160 basis points to 19.6%, reflecting the benefit of movement in revenue mixed towards aftermarket, incremental benefits from performance excellence, and strong operational efficiencies. Moving on to ESCO, where we made good strategic progress in H1 with robust demand from mining customers and stable orders. Combined with strong efficiency in our delivery and driving operating profit growth. In orders, we saw strong market share gains in core mining GET, winning 28 competitive net digger conversions in the first half. Infrastructure demand, which accounted for 25% orders in 2023, remained stable as we saw record levels of dredge orders, which offset a softer European market. We also saw growth in our motion metric solutions with orders growing year-on-year. Overall, we saw a 2% growth in aftermarket orders. Turning to revenue, which on a year-on-year basis remained largely stable at £338 million, reflecting strong execution of our opening order book and further price realization. Operating profit at £65 million was 14% higher than last year on a constant currency basis. Significant benefits including foundry efficiency and an exceptional aftermarket product mix drove 260 basis points of operating margin expansion with margins reaching 19.3%. We expect the product mix benefit to normalize in the second half, which will be offset by incremental benefits of performance excellence as production ramps up at Ajujo and our lean program gains further traction at our North American foundries. Now bringing things together to look at group operating margins, we're on a constant currency basis year-on-year margins increased by 180 basis points to 17.8%. R&D costs impacted our operating margins downward by 20 basis points as we continue to invest in our future-facing products. The main drivers of underlying margin growth in the year were as follows. Firstly, Mineral's revenue mix shifted 3 percentage points from original equipment to aftermarket, resulting in an 80 basis points increase on margins. This was supplemented by a 60 basis point increase resulting from further performance excellence savings. Favorable underlying efficiencies of 60 basis points reflecting mix within our portfolio of aftermarket solutions, a contribution for price, and improvements in operational efficiency. Together, this delivered margins at 17.8% in the first half of 2024. Looking ahead, as our aftermarket mix moderates and pricing normalizes, we expect a full-year operating margin of around 18%, 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 15 million pounds. Year on year, these increased by 14 million pounds, reflecting the continued investment in and delivery on our performance excellence program, including the rollout of WEIR business services across several of our regions and service lines. The related cash outflow is 16 million pounds, which is in line with our full year guidance. Other adjusting items have decreased by £4 million in the year. These items reflect amortization of intangibles from acquisition-related assets, which is broadly in line with last year, as well as a £3 million decrease in the charge related to asbestos provisions. turning to cash flow and returns where we delivered another strong performance. Cash generated from operations was up 14% to 198 million pounds, driven by increased profitability, improvements in working capital efficiency, and reduced working capital outflows. CapEx was lower than last year at one times depreciation due to reduction driven by the completion of major capital spend at our new ESCO foundry in China and some phasing of current year spend. This left free operating cash flow of £38 million to £146 million, resulting in free operating cash conversion at 68%, an increase of 17 percentage points year-on-year, as we remain on track to deliver our full-year guidance of 90% to 100%. Finally, on this slide, our strong performance in the 12 months to the end of June drove a significant increase in return on capital employed to 17.9%, up 160 basis points relative to the same measurement point in the prior year. Turning to the next slide, we continued to maintain a strategically strong balance sheet supported by healthy free cash flow. During the period, net debt to EBITDA was broadly consistent year-end with year-end, and we expected to further delever toward the lower half of our guidance range. This sits well within our target range of 0.5 to 1.5 times EBITDA. Looking at our debt profile, the group maintains significant liquidity and 95% of our debt is fixed at a weighted average rate of 3.7%. In April 2024, S&P upgraded their outlook from stable to positive, further supporting the group's commitment to maintaining full investment grade rating and adherence to a prudent capital allocation policy that is supported by a strong balance sheet. As John has highlighted, with us expecting a continued period of growth and margin expansion, this slide supplements that setting out some financial modeling guidance for the year with some specific points to highlight. Firstly, based on July FX rates, we expect to see a 26 million pound full year operating profit translation headwind. mainly driven by the strengthening of the pound relative to the U.S. dollar and Chilean peso. Secondly, we expect capex and lease spend of around 120 million pounds and free operating cash conversion of between 90 and 100 percent. Thirdly, we anticipate an exceptional cash outflow of around 40 million pounds in the year primarily relating to performance excellence. And finally, purchase of shares for employee share plans and additional pension contributions will be both lower than the prior year, reducing by £9 million and £6 million respectively for the full year. I'll now summarize 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 customer focus on improving efficiency and sustainability of existing operations is driving aftermarket demand, and we're seeing continued momentum in demand for our brownfield original equipment solution. And as John has said, we are seeing some large greenfield original equipment orders in July and expecting more in the second half. In the first half of 2024, we executed strongly on our performance excellence program, delivering significant year-on-year growth in profit, cash conversion, and return on capital employed, while also expanding operating margins. Our returns continue to grow, with Roche up 160 basis points on the prior year and our proposed interim dividend increase on prior year, and with net debt to EBITDA at 1.2 times we have optionality on future capital allocation. Our performance, underpinned by our continued aftermarket growth against the backdrop of volatile commodity prices and site-specific challenges, highlights the resilience of our unique business model. As we move through 2024, we have great momentum in our execution of performance excellence and are confident in delivering a year of further progress towards our 2026 margin target of 20%. Thank you, and I will now hand back to John. Thank you, Brian.

In this next section, I'll share more details on our strategic progress so far in 2024 and set out our view of market conditions and the outlook for the full year. Last month, we launched our refreshed brand and visual identity, embodying our core purpose of providing mining technology for a sustainable future. And this puts into place one of the final aspects of our transformation over the last few years and is a clear signal of our intent to be right at the heart of the technology transformation that's coming in mining. We're now positioned as a clear thought leader and a go-to partner to customers as they seek to tackle the challenges they face in delivering the minerals that will enable the energy transition. So, it's an incredibly exciting time for Weir and we're continuing to rack up the proof points on strategic delivery as evident in our first half performance. Our strategy, as set out in the We Are Weir framework, is clear and enduring. It's fully embedded throughout the organization. We have top to bottom alignment on our priorities and huge engagement and excitement across our global workforce. And I see this every week wherever I am in the business. It's familiar pillars of people, customers, technology and performance continue to guide our decisions and position us strongly to take advantage of the opportunities which lie ahead. So let me take you through our progress. Looking first at our people initiatives, and to begin with, I'm very sad to share that one of our colleagues suffered a fatal incident earlier this year. Our North Star is and will always remain the pursuit of zero harm. It remains our paramount focus that every Weir employee has a safe start, safe finish and safe journey home every day. And such a terrible accident was a stark reminder that we must never become complacent. In aggregate, our year-on-year total incident rate increased slightly to 0.35, although lost time injuries did reduce by close to 50% overall, and my team and I are very focused on continuing to do better. Beyond safety, we continue to make progress in both our culture and capabilities. We made strong progression in inclusion, diversity and equity, with an increase in the proportion of females in our leadership teams. We demonstrated our continued commitment to ID&E with a strengthened steering committee under the leadership of Sean Fitzgerald. And with the support of its members, we established two new chapters of the We Are Pride Alliance, one of our several internal affinity groups. We continue to invest in our talent and capabilities for the future, including new leadership and development programs for all levels of staff. And our investments are paying off. with continued best-in-class levels of voluntary attrition. And we have just received external recognition as a global living wage employer from the Fair Wage Network, which is strong external validation of our approach to our people. Turning to customers and technology, this slide is a reminder of the terrific positioning of our capability across the mine, from pit to pipeline and tailings. Our product technology leadership positions across the value chain, together with our boots on the ground service model, is truly differentiated and is giving us a clear competitive advantage. Our customers continue to view our products as best in class, which brings us to the table early in feasibility discussions and initial site designs, allowing us to drive expansion in our installed base. At the same time, having the trust that we will always be there to support our equipment come rain or shine is critical in customer decision making. And that's evident for both ESCO, where the machines first hit the rocks, and minerals, where we turn the rocks into a valuable commodity. Our technology roadmap focuses on the customer's big issues of moving less rock, using less energy, using water wisely and creating less waste. Whether it is ESCO driving efficiency in the load haul dump cycle or minerals redefining the mill circuit, we are creating the solutions that are helping our customers deliver on their commitments. So taking the progress of each in turn, starting with minerals, In comminution, we see continued high levels of interest for our Enduron HPGRs, as I'll highlight shortly in a case study of a recent order from a gold mining customer. This order represents another proof point in the wide application of our HPGR technology throughout hard rock mining and the superior performance characteristics of its design. In digital, we increased the number of sites now connected to our Synetrex platform and continue to roll out new IntelliSolutions linked to the platform. Our acquisition of Sentient AI last year is progressing to plan, and applications of its non-linear modeling technology are actively undergoing field trials. Building on the success of our mill circuit pump trial program in Q1, we continue to go unbeaten in competitive trials, converting 13 installations to Warman and winning four defensive trials. Importantly, we won a trial at a strategic copper customer in Latin America with our latest 650 MCR series, among the largest pumps in our product line. We continue to adapt our service center footprint toward where the minerals of the future will be mined. In June, I attended the opening of our newest service centre in Port Hedland, Australia. The facility is located at a key strategic point to service customers in the Pilbara region, where large deposits of high-grade magnetite and lithium exist. Both minerals allow for HPGR applications, and we designed this service centre with exactly that in mind, incorporating the largest crane in our fleet at 200 tonnes of lift rating to support the growing number of machines in the field. Turning to technology, we increased investment in our R&D programs, which are yielding exciting new products to supplement our existing flowsheet offering. For example, we commissioned our first automated tyre wear detection unit, bringing motion metrics technology into the HPGR offering. We also released a new design for our Enduron range of orbital vibrating screens and this bolted rather than welded design improves wear life and can be shipped as a flat pack for easier distribution. Turning to a case study, and as I mentioned earlier, I'm very pleased with the progress we have made with our redefined flow sheet, especially in the growing acceptance of our HPGR technology into more hard rock applications. Our customers recognize that HPGRs are the future of grinding, offering scalability and reduced energy costs that cannot be matched with traditional tumbling mills. And why did this customer choose Enduron? Well, our large format machines have larger tires than any competitors installed to date, delivering over 30% more throughput, and at the same time include a 10-year guarantee on bearings. That means that customers can count on us to deliver more volume, higher uptime, and lower costs across a wide range of material conditions. That site will also benefit from proximity to our new Port Hedland Service Centre, providing state-of-the-art support throughout the life of the mine. This new reference site will only continue our momentum in delivering sustainable solutions across the mining industry. Turning now to ESCO, where we also made pleasing strategic progress. On digital, we successfully delivered our first truck tray damage monitoring solution to a customer. This project is yet another successful application of our Motion Metrics digital technology, utilizing the Truck Metrics solution. In mining attachments, we delivered a standout performance, growing orders year on year in both Africa and the Middle East. We continue to deliver on our GET growth strategy, gaining market share with net 28 competitive major digger conversions so far in the year. Wins were spread across the globe, but key wins in Africa and Australasia position us well to benefit from increased project activity in those geographies. I'm also very excited to announce the official launch of our next generation mining GET solution, Nexus. This is a significant step change for our customers and is already delivering results, as I will highlight with a case study. So one of the trials for Nexus was completed at a large iron ore mine in Brazil. And during the intense trial, which lasted thousands of hours, the customer compared the performance of the Weir system against that of a wide range of competitors with some striking outcomes. The Nexus system delivered 50% more tooth and adapter wear life than the competitor systems and zero adapter failures, which none of our competitors achieved. This led to less plant downtime with our combination of efficiency and uptime, leading to an overall reduction in operating costs of 30% per tonne mined versus competitive systems. We're now moving into the market launch phase of the new system, and we'll be showcasing it at Mine Expo in September. Turning now to performance, where we are executing strongly on our performance excellence agenda. 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 Processors and Weir Business Services, reflecting the momentum which performance excellence has across Weir. In the first half, we made great progress across all three elements of the programme – On capacity optimization, we're ramping up production at our new ESCO foundry in China, which leads the division in the lowest cost per ton of castings and will be fully operational by the end of the year. We are further optimizing our minerals rubber streams in Asia Pacific and Latin America, centralizing manufacturing within proven, low-cost jurisdictions of our existing supply chain. We also continue to adapt our service center and distribution footprint to provide the best service to our customers, while simplifying internal movement of spare parts. On lean processes, we continue to drive improvements in our efficiency metrics at our North American foundries, critical for securing supply to our end customers globally. In minerals, benefits of our WINS approach have materialized into savings across quality and labor as we standardize and simplify our internal value streams. And we additionally realize savings from sourcing through our supply chain operations in China and Mexico. Finally, the transition of our enabling functions to WBS is now in full swing in conjunction with our external delivery partner. Our large North American and Australian businesses were the first to transition, with benefits building from the second half of this year. And supporting WBS is our continued investment in core IT systems. Our last business is just going live on SAP, and we're moving into the implementation phase of our global visibility and consolidation solution for data, OneStream. Taken together, we're on track to deliver cumulative mid-to-high teen savings in 2024, which is solidly in line with our projected phasing, leading to the full realisation of benefits from the programme in 2026 and delivery of our 20% operating margin target. As Brian mentioned, with higher levels of profitability and cash generation, our already strong balance sheet will get even stronger. And with this comes a virtuous cycle where we have optionality and flexibility on how we allocate our capital, enabling us to prioritize the actions which will grow total shareholder returns. We will continue to invest both organically and through acquisitions to fuel further growth when opportunities present themselves. We're continuing to work to develop potential acquisition targets, and I'm optimistic that the opportunities in our pipeline will begin to convert before too long. Simultaneously, we'll continue to distribute in line with our dividend policy, paying out one-third of through-cycle EPS and having the optionality to supplement this with special returns if we get to the lower end of our balance sheet leverage range. In summary, our balance sheet is strong, and as we generate cash, it's going to get even stronger. We'll be highly disciplined in how we use that cash to take the actions that will have the biggest impact on growing total shareholder returns. Now bringing us to the outlook for 2024, where we are reiterating our full year guidance for operating profit and cash generation. Let me break that down, starting with our top line growth assumptions. As I said earlier, underlying demand for de-bottlenecking and small brownfield projects continues, as miners maximise production at their existing sites. In the second half, we expect, and we're already seeing, this demand to be supplemented by an acceleration in new greenfield projects, where our redefined mill circuit offers us a larger proportion of those opportunities, and with orders converting to revenue in 2025 and beyond. In the aftermarket, we're expecting a step up in growth rates for orders driven by the commissioning of new installed base, the re-phasing of the Q2 multi-period order and softer comparatives for oil sands. We expect revenue to return to growth in the second half, driven by the above aftermarket trends and our strong original equipment order book. with full-year revenue now to be toward the lower end of the current range of analysts' expectations. On operating margins, we now expect to be ahead of our prior year guidance for the full year at around 18%, with some of the mixed benefits seen in the first half expected to reverse and pricing benefits to moderate. With a strong start to the year in execution, we reiterate our guidance on free operating cash conversion of between 90% and 100%. So summarizing the key messages from the presentation. During the first half of 2024, we made great progress against our commitments to our shareholders, delivering strong execution against our performance excellence agenda with expansion in our operating margins and improved cash conversion. supporting our customers with exceptional aftermarket service as they drive production growth on their mine sites, and leading the way to sustainable mining with real momentum in the acceptance of our redefined mill circuit across the industry. we turn to the second half of 2024 our pipeline of expansion projects is strong and with continued execution in our performance excellence program we expect to deliver another year of growth in revenue operating profits and cash conversion and finally looking further ahead our long-term outlook is just tremendously exciting we have a world-class mining focused platform Our future growth is underpinned by decarbonization trends and the transition to sustainable mining. And through performance excellence, we're optimizing our business and driving margin expansion. So our future is bright and the best is still yet to come from WEA. Thank you for listening. Brian and I will now be pleased to take any questions that you have.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. The first question is from Andrew Wilson. JP Morgan, please go ahead.

Hi, good morning. Thanks for your time and for taking my questions. I've got two, please. John, you've kind of been very vocal around, obviously, what feels to be an improving backdrop, particularly for Greenfield. And it feels years and years since we've kind of had that optimism. And whilst appreciating that lots of the drivers for why we need Greenfield investment are there, I'm kind of interested as to what you feel is kind of driving that sort of improving backdrop in terms of approvals? Because I guess, I mean, just if it's kind of technology, if it's, And permitting is easier if metals prices have been higher for longer. I'm just interested in terms of kind of how you're seeing that, because obviously that's an important and very positive development. Maybe if I start there, I'll come back to the second one.

Yeah, good morning, Andy, and thanks for that. Yeah, I think it's been a long time coming. I appreciate that. But it's real. And we're finally starting to see that pipeline move forward. I have to say it's more Eastern Hemisphere sort of denominated. So we're seeing Project approvals accelerate in Africa, Central and Southern Asia, and the Asia-Pacific region, where there are very country-specific regions, political and in terms of permitting, that are easing up, which means that these projects now are moving ahead. So we're delighted to have announced today that the £53 million order for an HPGR-led project in Southern Asia But we've got a number of other projects, probably in the sort of 10 to 40 million range in the pipeline that we're hopeful will get signed over the course of the next few weeks and months. So whereas we said a little while ago at Q1 the OE orders are probably going to be flat this year, the underlying trends in terms of brownfield optimization are continuing but we're now seeing these things come through um you know the pipeline um and you know probably the most exciting thing is again having spoken about hpgrs and that new technology for a long time We are really seeing HPGR-led projects coming to the fore. I think there's been a tipping point now in terms of industry acceptance of the new technology. And in the vast majority of applications, I think you're going to see HPGRs at the forefront of these flowsheets going forward.

Thank you. And secondly, I just wanted to ask on the aftermarket side on pricing dynamics. Because we've kind of heard sort of mixed commentary maybe from some of your peers around that. So I just kind of wanted to check in appreciating it's probably not kind of the levels that it was previously. But if there's any kind of change or concerns or anything you can kind of color around the pricing on the aftermarket specifically.

Yeah, well, first of all, again, really delighted with pricing realisation in the first half of the year. It's one of the reasons that we've delivered such a strong operating margin expansion. And that's really the sort of full year effect of the higher levels of pricing increases that we put through last year when obviously we were in a sort of slightly higher inflationary environment. So we've seen the full year effect coming through in H1, which has helped the margins. And as I said in Q1, I think now we're in a sort of normalization phase now where we expect pricing to go back to the sort of through cycle levels of low single digit as inflation has moderated. And the pricing dynamics are different for different customers. It kind of depends what commodity you're in at the moment. And of course, those with very strong commodity prices are probably less focused on price. Those who are under more pressure, more focused. But what I would say is, you know, what you see, what we've delivered and what you see is the strength of our aftermarket, the resilience coming through again. And I just remind you, our aftermarket is all about spares and expendables. It's not about service. They're critical to keep the mines running. And that's why we're able to deliver on price through the cycle, which I think means we are differentiated in that regard.

Thank you very much, John. Appreciate that.

Thanks, Andy.

The next question from Jonathan, Berkeley. Please go ahead.

Yes. Good morning, guys. Two questions for me also. Firstly, just in terms of obviously that pickup in OE, how do we think about MIX going into FY25? So if we look at MIX in FY24, it's positive. But as that OE picks up, how do you think about 25? Would it be neutral or could you still, or even possibly negative? That was the first one.

Yeah, so again, I think we've seen a real mixed benefit thus far this year, which is another one of the reasons for the great operating margin performance in the first half of the year. And we are expecting that to moderate somewhat in the second half of this year as OE deliveries pick up, which is really just phasing of order book and we feel good about that. Going forward, these bigger projects that we now see coming through, I mean, they're going to be probably multi-year deliveries, so I don't think we're going to see a big spike in OE in any one year, and therefore any mixed headwind is going to be pretty straightforward for us to manage in the context of the overall positive drivers in our margin. Now, if we see a real capex boom, then happy days, and we'll be delighted to be having that installed base. But I don't see that at the moment. I see more projects coming through, obviously, pickup in OE, which is creating more installed base. But I don't yet see a big mixed headwind on the operating margins because of the way that those revenues will phase in or sort of feather in over a few years.

That's very clear. And the second question was also on margins. If we look at the ESCO margins, the first half is 19.3, minerals is 19.6. I mean, obviously, they're quite close. They've obviously been quite well. You've had quite a large spread between them. Are we thinking or can we see the margins sort of stay at that level or stay reasonably close to

each other as we go forward so essentially seeing more of a sort of a structural underlying change in that esco margin i think i mean esco's margins in the first half of the year were exceptional um and partly that's driven by mix and some other one-off benefits as well so uh you know we do see this the margin expansion moderating slightly for you know esco in the second half of the year And I think where we'll end up broadly is that year on year, both divisions will be up about 100 basis points on their full year margins. So I think ESCO did benefit from some one-offs in the first half of the year, which will reverse. But net-net, I think both divisions have tremendous margin expansion opportunities and will continue to move north. And if ESCO gets closer to minerals, then that will be great.

That's very clear. And John, if I could just follow up on that, just in terms of that sort of ESCO foundry in China, obviously that's coming online. Well, it's online now and obviously it ramps up through this year and gets sort of fully operational by the end of this year. I mean, as we look to 25 for ESCO, how much difference would that Chinese ESCO foundry make to margin?

It's going to be a piece of the further margin expansion that we see in ESCO. So, you know, again, as we sort of phase through the benefits of performance excellence, the ESCO foundry, the Shizhou foundry moving up to full production is a benefit to ESCO's gross margins next year, among the other aspects of performance excellence. So we're expecting another 75 to 100 basis points of margin expansion next year across the two divisions and then final 100 basis points or so in the following year. So everything that sort of sits in the performance excellence program is now laid out. And what you'll see actually is that you'll see a pickup in margins in the first half of each year as we go through the next two years. And that's because to hit our 60 million pounds run rate in 2026, we have to have those projects hitting that run rate at the beginning of the year. So what you've seen thus far in 2024 is the programs, the mainly capacity optimization that we started last year, we're almost at the full run rate already. You're going to see the same thing next year with business services because that's set up year this year and then the benefits will kick in, start to be very evident early next year. And then the final phase of things, which take us up to the 60 million, we set those out in 2025. And then again, the benefits kicking in in 2026. So, you know, for both divisions, we're going to see margin progression over that timescale.

Perfect. That's very clear. Thank you very much.

Thanks, John.

Next question from Edward Hasse, UBS. Please go ahead.

Hi there. Thanks for taking my question. Just a quick one on the growth assumptions. You previously talked about the 20% margin assumption for 2026 having conservative growth assumptions baked in. I was just wondering if you could perhaps give a bit of quantification around that. I mean, is that in comparison to three-cycle growth target, or how should we think about that?

Yeah, we assumed if you remember that operating margin target was 200 basis points delivered through performance excellence. So the things that are self-help and within our control and 100 basis points through operational leverage. And if you do the math, that basically implies that you need to see mid single digit growth in revenue over the course of the next three years. If I look back over the last three years, we delivered 20% revenue growth in 2022, 9% last year. We'll be low single digit this year per our revised guidance, but If you take that as a mini cycle, then we're still average it out. We're still above the top end of our range. That's why it's conservative. Now, obviously, we've seen a few headwinds in the first half of this year on the top line. We're expecting those to moderate. But you only have to believe that we're at that mid-single digit of revenue growth over the next couple of years to get that additional 100 basis points, which is why it's conservative.

Okay, that's great. Thank you.

Thanks.

The next question from Klaas Mergelind, Citi, please go ahead.

Thank you. Hi, John and Brian, Klaas at Citi. The first one coming back here on the margin, obviously, NICs more positive for the full year, mainly from the first half, and then savings are ahead a bit as well. But if we zoom in on the price cost again, it seems like a positive surprise as well, i.e., the carryover from earlier price increases. We have heard from others this reporting season that price versus cost as the year progresses can turn into a headwind year over year in the bridge, as pricing obviously often was running ahead of the cost of inflation in the prior period. You're writing about pricing normalizing in the second half, but have you looked into whether this can be sort of a negative bridge effect to EBIT in the second half there, looking at the aftermarket? I'll start there. Thank you.

Well, hi, Klaus. I mean, as I said earlier, the pricing benefit in the second half of the year is going to be lower than the first half of the year, but we are not seeing it turn into a headwind. And the price increases we need that sit behind that assumption are locked in. So we're not worried. And I think I'll come back to that is because our aftermarket is 80% revenues. It's differentiated in that it's all spares and expendables, and it's critical to keep our customers running. And that's what allows us to maintain and protect our gross margins, which is the key thing that we do to run the business. So we're not seeing that.

Okay, now that's clear. Because others have highlighted it, so it's interesting to hear that. Then my second one is on the Greenfield comment, which is interesting. The narrative out there is obviously that the Western miners are keen on M&A instead of Greenfield because of ESG, permitting issues, etc. And typically when we look at the copper price improving, it takes about six to nine months until capex moves higher. But that sort of historical chart doesn't really have the permitting issues as a factor. you talked to john about the eastern hemisphere my view here is that the supply response on copper will likely come more mid and downstream this time versus upstream and as you say in the eastern hemisphere so i'm really interested in your relative exposure to sort of mid-site miners east and versus west if you can perhaps help us with that thank you

Yeah, I mean, so we are everywhere we need to be around the world. We are truly global. Our boots on the ground business model, as you know, means that we have 100% penetration across the global mining complex. So that means wherever the projects are coming, we have the customer relationships and the ability to participate effectively. in those projects. And it's just the reality is that the pipeline that we now have and that we've built up and it has continued to increase, is dominated by those projects in the Eastern Hemisphere. And as you say, we're continuing to see the benefit from brownfield optimization across the rest of our customers. Now, our customer base is truly, truly diversified. So our top 10 customers, which are the big, big names, the majors, It's about 20% of our revenue. And so 80% comes from everything else all around the world. So that just gives you a sense of the diversification that we've got. But I agree with your analysis in terms of where it's going to come from. We're incredibly well-placed to take advantage of that as it does.

That's great. Thank you.

The next question from Ben Hillen, Bank of America. Please go ahead.

Yes, morning, guys. Thank you for taking the questions. The first one, John, was coming back to your comments around Greenfield and the pipeline. You sound very upbeat and bullish about that, and you commented, I think, that OE being stable was roughly your expectation for the year. I mean, is the potential upside to that now, given how the pipeline has developed, and how should we think about OE growing into 2025. The second question was on aftermarket mix in margins is one of the things you comment on in the presentation. A couple of other companies have highlighted kind of negative aftermarket mix within their business impacting margins. I think you're saying the aftermarket mix has been positive. So can you help us understand what's actually within the aftermarket driving that mix change and how we should think about that? And then a final one is how should we think about the aftermarket content on a HPGR versus the legacy products that you have in the business? Thank you.

All right, well, I'll try and give Brian a chance. So on the aftermarket mix, Brian, you come to that in a minute. Yeah, what I was saying on OE was that our previous guide on what we expected OE orders to do this year was flat because it was all really driven by the brownfield, the bottlenecking sort of smaller projects. Now we're saying it won't be flat. We will see OE order growth this year. You know, don't know the exact quantum yet because it depends on the phasing of these contracts that get awarded. But, you know, we can now see those contracts coming through. I mean, if you take that 53 million, if that had come in June, which we'd originally hoped it would have done, then we'd have been up year on year. And I think so we're going to see not OE orders flat, OE orders now up. That's not going to translate into revenue this year. It's going to translate into revenue in 25 and 26. So we'll see that coming through. That's an underpin to the future growth that we expect to see in the business. And then on the HPGR aftermarket content, it's sort of bang in line with the minerals divisional average of around a 30 cents of aftermarket opportunity every year for a dollar of OE. So that's the kind of It's kind of bang in line with the minerals average.

Any other mix question, Brian? Yeah, no. So this first half, our mix has slightly shifted between aftermarket and original equipment. We've gone up two percentage points. So we've gone from a 78-22 mix to an 80-20 mix, which has helped the overall operating margins. And being new and coming into this company, one of the things that I've really grown in going out and talking to our customers and seeing the minefields is how aftermarket is a differentiator for us. And it's one of our strong points, which has led to the positive margin growth that you're seeing. So we've actually seen quite strong aftermarket. There is some phasing in there, and we're expecting a strong second half. But overall, slight shift aftermarket in the first half, and we continue to see strong performance in that area.

Okay, clear. Thank you.

Thanks, Ben.

Next question from . Please go ahead.

Thank you. Good morning. I just wanted to ask a quick question on what you're seeing in new equipment pricing. I guess because we've just gone through this period of kind of not having a huge amount of large orders, I would imagine kind of when everyone is sort of fighting for a smaller number of new orders that sort of pricing and margins on those could become more competitive. Or would you say that actually these are contracts which sort of you're pretty uniquely placed, so therefore the margins on them are not hugely different? And I guess as an extension of that, when you sign these sort of 53 million OE orders, are you actually making any money on them from a margin perspective? Thank you.

Thank you, yeah. So look, the dynamics on OE pricing don't really change very much through the cycle. And, you know, You try to win on most product lines by having very, very clear differentiation and lowest total cost of ownership, but you're by and large selling to an EPCM. They're trying to deliver the lowest capital cost for customers. And so they push hard on pricing and they use the competition to try and drive you down. So we just do what we have to do. And that's always been that case. And it's no different now. We try and make a margin on every single thing that we sell. And if one of our businesses strategically wants to go below cost because the aftermarket opportunity, for example, is so significant, then that has to be approved by me. which is quite a deterrent, actually, for the business. So we occasionally have lost jobs, but we do that on the basis that usually we'll get payback in six months, given the spare stream that kicks in. So that's the way we think about it. The dynamics aren't changing. And I think specifically on the hpgr led flow sheets that were coming you know those dynamics are going to be the same but i do feel we've got clear technical differentiation and that's going to be a factor in the margins that we see in those orders uh okay and and just as a um just to follow up i know i know we all kind of talk a lot about copper but it's it's actually the gold price which is obviously the strongest out of out of the commodities at the moment so

I'd just be curious to understand how are your conversations and when you reference the pipeline of greenfield projects, are you seeing a market change in activity across your gold customers or is that really a comment around copper?

No, obviously, with the gold price where it is today, then people are trying to do more. So we're seeing that from a brownfield point of view on our existing gold customers. And we're seeing that in the pipeline of new gold projects coming through, for example, in the Middle East, where, you know, on the Arabian Shield, there are gold deposits, which the Kingdom of Saudi Arabia is now looking at developing. And, you know, in iron ore, We're seeing a real push towards higher grades of iron ore, which is going to be needed for green steel, which is why magnetite is right at the fore. So customers are trying to drive their iron ore grades up to that magic 67%, where you can adopt new technologies in terms of arc furnace rather than blast furnace, for example. And if you add those three things up, copper 25%, gold is probably 12%, iron ore is probably another 12%, you've got close to 50% of our exposure coming from those three commodities, which have very positive dynamics for us in terms of processing. And then, of course, nickel and lithium has been tough, no doubt about it. We've seen some mine closures as a result of the nickel price, principally in Australia. But that's 3% of our revenues in total. So just to get things in perspective, our big exposures have very positive dynamics.

Okay, just very quick final one. I was interested on the comment in ESCO that infrastructure demand was at stable levels. That seems kind of quite a bit better than what we've heard from others. So I was just curious, kind of, is that particularly driven by one region? Have you seen any kind of green shoots there? Has there been any, yeah, kind of anything to make you kind of more bullish on that recovering in 2025? Just any comments that would be helpful.

Thank you. Yeah, no, I think if you break it, I mean, and I said this at the Q1 call, because there were quite a few questions about infrastructure, which I'll remind you is only 6% or 7% of our revenue. But what we are, and our exposure is different to everybody else's. But so what we're seeing is that in North America, it's stable, been through a destocking cycle, stable. You know, this is sand and aggregates quarrying is our principal exposure. And actually at our recent dealer conference that we did in North America, there was a little bit more positivity about the future. So North America, fine. Europe's still weak for obvious reasons. And the positive that we've seen in the first half of the year is on the dredge side of our business where we are the leader in dredge cutter heads and dredge GET, where there have been a couple of big projects come through, which have helped us in the first half of the year. So those are the sort of three buckets in terms of the dynamics, Max. And so I think, you know, net, I think it's probably... Sorry, excuse my ignorance.

What are dredge cutter heads? I don't know.

They are the rotating heads that dredge ships use to dredge deep water channels in and out of harbours. They're used in the Suez Canal, the Panama Canal. So in those kind of opportunities.

OK, fantastic. Thank you very much.

Thanks. Probably got time for one more question, operator.

Okay, the last question from . Please go ahead.

Thank you for taking the question. It's just around the OE backlog. I was wondering if you could help us understand a little bit where that OE backlog sits today and the delivery profile of it. Is the composition of the order book any different from a typical year? So I guess, is it possible for you to share the proportion of the OE backlog that you expect to ship this year and next year? It's just that the backlog looks to be quite rich still, but the deliveries seem to be disappointing to the relative expectations at least.

Yeah, look, I mean, things move around. It's quite a complex operating environment at the moment. But I would say our OE backlog, and we don't actually publish the order book, but our OE backlog has grown by about £150 million over the last couple of years. Everything that we need to deliver our revenue number in the second half of the year is by and large in the backlog. So we feel really good about our OE revenue expectations. And of course, with these new larger projects coming through, we're going to have deliveries in 25, 26 for those programs. So we're already getting a nice underpin for future OE revenues.

Understood. And just on the aftermarket side, in terms of the revenue guidance, is there any change to your expectation in terms of performance on the aftermarket side in FY24? That just wasn't clear to me, at least. Or is it reiterated at circa mid-single digit for this year?

No, we've reduced our revenue guidance slightly overall from mid-single digit to lower end of range of analyst expectations. Within that, OE is probably going to be flat year on year in terms of revenue aftermarket up. That's just reflecting phasing and some of the mine-specific challenges that we saw at an elevated level through the second quarter. But our revenue run rates going forward, our planning for the business, that's now all baked in, ground up, so we have line of sight in terms of customer production expectations for the second half of the year, and that's baked into our revenue expectations.

Okay, understood. Thank you.

Thank you very much. Okay, well, thank you very much, everybody, for the questions. You didn't get any on the balance sheet, Brian. Very strong. We understand why. But thanks, everybody, for participating on the Q&A. And obviously, if there are any follow-ups, then please get in touch with our IR team, and we'd be delighted to help. But thanks again for participating.

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