- Revenue: Decreased by 3% to GBP 1.2 billion on a constant currency basis.
- Operating Profit: Increased by 8% to GBP 215 million.
- Operating Margins: Expanded by 180 basis points to 17.8%.
- Free Operating Cash Conversion: Increased to 68%, up 17 percentage points from last year.
- Orders: GBP 1.3 billion, marginally down year-on-year.
- Aftermarket Revenue: Accounted for 80% of total revenue, up from 78% in June 2023.
- Profit Before Tax and Adjusting Items: GBP 193 million, GBP 5 million ahead of last year.
- EPS: Stable at 53.6p per share before adjusting items.
- Net Debt-to-EBITDA: 1.2x, broadly consistent with December 2023.
- Return on Capital Employed (ROCE): Increased by 160 basis points to 17.9%.
- Minerals Division Revenue: Decreased by 4% to GBP 869 million.
- Minerals Division Operating Profit: Increased by 5% to GBP 170 million.
- ESCO Division Revenue: Stable at GBP 338 million.
- ESCO Division Operating Profit: Increased by 14% to GBP 65 million.
- Group Operating Margins: Increased by 180 basis points to 17.8%.
- Exceptional Items: GBP 15 million, increased by GBP 14 million year-on-year.
- Cash Generated from Operations: Up 14% to GBP 198 million.
- CapEx: Lower than last year at 1x depreciation.
- Free Operating Cash Flow: GBP 146 million, resulting in free operating cash conversion at 68%.
- Debt Profile: 95% of debt is fixed at a weighted average rate of 3.7%.
Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Weir Group PLC (WEGRY, Financial) demonstrated strong operational efficiency, expanding operating margins by 180 basis points to 17.8%.
- The company grew free operating cash conversion to 68%, a 17 percentage point increase from last year.
- Operating profit increased by 8% year-on-year, reflecting resilience in the face of macroeconomic uncertainty.
- Weir Group PLC (WEGRY) maintained a high level of aftermarket revenue, which accounted for 80% of total revenue, up from 78% in June 2023.
- The company received a GBP53 million contract award for a greenfield project, indicating strong future revenue potential.
Negative Points
- Constant currency revenue decreased by 3% year-on-year, primarily due to the phasing of original equipment deliveries.
- Orders were marginally down year-on-year, primarily due to the phasing of original equipment orders.
- Revenue from the Canadian oil sands market normalized, contributing to the overall revenue decline.
- The absence of revenue from Russia following the company's exit impacted overall revenue.
- Specific challenges in nickel and lithium operations in Australia, as well as shutdowns in Panama and Turkey, affected aftermarket parts growth.
Q & A Highlights
Q: What is driving the improving backdrop for greenfield project approvals?
A: Jon Stanton, CEO: The acceleration in project approvals is primarily seen in the Eastern Hemisphere, particularly in Africa, Central and Southern Asia, and the Asia Pacific region. Factors include easing political and permitting conditions. We recently secured a GBP53 million contract for an HPGR-led project in Southern Asia, and we have several other projects in the pipeline.
Q: Can you provide insights into the pricing dynamics for aftermarket parts?
A: Jon Stanton, CEO: Pricing realization has been strong in the first half of the year, contributing to our operating margin expansion. We expect pricing to normalize to low-single-digit increases as inflation moderates. The resilience of our aftermarket business, which focuses on critical spares and expendables, allows us to maintain pricing power through the cycle.
Q: How will the mix of original equipment (OE) and aftermarket (AM) impact margins in FY '25?
A: Jon Stanton, CEO: We expect the mix benefit seen in the first half of 2024 to moderate in the second half as OE deliveries pick up. However, the larger projects coming through will be delivered over multiple years, so any mix headwind will be manageable. We do not foresee a significant negative impact on margins.
Q: What is the expected impact of the new ESCO foundry in China on margins?
A: Jon Stanton, CEO: The new ESCO foundry in China will contribute to margin expansion in 2025. It will be fully operational by the end of this year and will help improve ESCO's gross margins as part of our Performance Excellence program.
Q: Can you quantify the conservative growth assumptions baked into the 2026 margin target?
A: Jon Stanton, CEO: The 2026 margin target assumes mid-single-digit revenue growth over the next three years. Given our historical performance, this is a conservative assumption. We delivered 20% revenue growth in 2022, 9% in 2023, and expect low-single-digit growth this year.
Q: How is the aftermarket mix affecting margins, and what is the aftermarket content for HPGRs?
A: Brian Puffer, CFO: The aftermarket mix has shifted positively, contributing to margin growth. Aftermarket accounted for 80% of total revenue in the first half, up from 78% last year. For HPGRs, the aftermarket content is in line with the Minerals division average, offering $0.30 of aftermarket opportunity for every $1 of OE.
Q: What are the pricing dynamics for new equipment orders?
A: Jon Stanton, CEO: The pricing dynamics for new equipment orders remain consistent through the cycle. We aim to make a margin on every order, and any strategic decisions to go below cost for significant aftermarket opportunities require my approval. The dynamics for HPGR-led projects are expected to be similar, with clear technical differentiation supporting margins.
Q: How are gold and iron ore markets impacting your business?
A: Jon Stanton, CEO: The high gold price is driving brownfield optimization and new project activity, particularly in the Middle East. In iron ore, there is a push towards higher grades for green steel, benefiting our business. Together, gold, iron ore, and copper account for nearly 50% of our revenue, all showing positive dynamics.
Q: What is the current status of the OE backlog and its delivery profile?
A: Jon Stanton, CEO: Our OE backlog has grown by about GBP150 million over the last couple of years. We have sufficient backlog to meet our revenue expectations for the second half of the year. The new larger projects will contribute to revenue in 2025 and 2026, providing a strong underpin for future growth.
Q: What are the expectations for aftermarket performance in FY '24?
A: Jon Stanton, CEO: We have slightly reduced our overall revenue guidance, with OE expected to be flat year-on-year and aftermarket up. This reflects phasing and some mine-specific challenges. Our revenue run rates and customer production expectations for the second half are baked into our revised guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
