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.