Weir Group reports FY20 results

• Improving safety with TIR reduced by 7% to 0.25.
• Establishing a new super centre in Turkey to capture growth opportunities in Central Asia and North Africa, and opening a new service centre in Panama to support a major copper development.
• Successfully delivering the majority of the Iron Bridge HPGR OE contract and winning a £95 million award to provide ongoing aftermarket and service support.
• Commercialising the new Cavex^® 2 hydrocyclone that offers up to 30% more capacity while lowering energy and water consumption.
• Delivering £30 million in cost savings principally from lower expenditure on travel and variable compensation.

Financial review

Orders decreased by 12% on a constant currency basis to £1392 million (2019: £1586 million) with a book-to-bill of 0.95. Original equipment orders fell 29%, with underlying orders down 11% excluding the record £100 million Iron Bridge order in 2019. The rest of the decline was driven by COVID-19 related project delays, but the company did see sequential improvement in 4Q20, which was also the strongest quarter of the year. Aftermarket orders were down 4% broadly reflecting the disruption to mining operations from COVID-19 and a tough prior year comparative but were also up sequentially in 4Q20. Aftermarket orders represented 73% of total orders (2019: 67%). Mining applications accounted for 84% of the total (2019: 83%).

Revenue was 4% higher on a constant currency basis at £1469 million (2019: £1418 million), as the weaker order trends were more than offset by the £80 million benefit from the first deliveries to the Iron Bridge project. As a result, original equipment sales accounted for 31% (2019: 27%) of divisional revenues and were 19% up on the prior year. Aftermarket revenues were down 2%, broadly reflecting order trends for the year, but up sequentially in 4Q20.

Adjusted operating profit was stable on a constant currency basis at £260 million (2019: £260 million). The underlying revenue increase was offset by the mix impact of the Iron Bridge order, with the delivery of £30 million of savings from temporary reductions to travel, restricted discretionary spend and workforce reductions broadly offset by incremental costs and overhead under-recoveries largely due to COVID-19 disruptions to the company’s operations.

Adjusted operating margin on a constant currency basis reduced by 70 bps to 17.7% (2019: 18.4%) driven by the negative mix impact of the Iron Bridge order.

Operating cash flow decreased by 4% to £283 million (2019: £295 million) with good improvement in underlying working capital offset by the unwind of prior year advance payments on the Iron Bridge OE order.

2021 market outlook

Market fundamentals in mining remain positive. There is significant near-term focus on maximising production given the strength of commodity prices, which should support the continued improvement in aftermarket trends. Likewise, the need for supply expansion and deferral of smaller projects in 2020 has strengthened demand for original equipment as reflected in the size of the project pipeline. At this time, the company is cautiously optimistic of making progress in 2021 but the extent to which positive market sentiment translates into orders and revenues in the near term will depend on the shape of the economic recovery and the level of ongoing COVID-related disruption to both customers and its own operations.

Weir ESCO

ESCO is a global leader in the provision of Ground Engaging Tools (G.E.T.) for large mining machines. Its highly engineered technology improves productivity through extended wear life, increased safety and reduced energy consumption. The division also applies its differentiated technology to infrastructure markets including construction, dredging, sand and aggregates.

2020 summary

• Record safety performance with 34% reduction in TIR to 1.05.
• 13% reduction in revenues driven by temporary COVID-19 mine shutdowns and lower mining machine utilisation; Infrastructure more challenging and impacted by destocking.
• Margins up 180 bps supported by £9 million cost savings programme.

2020 market review

The division saw similar mining trends to Minerals with ore production volumes falling in 2Q20, impacting machine utilisation before gradually improving through 2H20 although remaining below pre-COVID levels. In North America, the division’s biggest market, iron ore demand was impacted by the closure of automotive plants, while coal remained challenging and oil sands was relatively resilient. In Central and South America, there were also a number of temporary mine shutdowns due to COVID-19 restrictions. As expected, infrastructure demand reflected lower construction activity in North America and Europe and destocking by some distributors as they reduced safety inventories.

2020 operating review

While COVID-19 led to a number of temporary disruptions to the division’s facilities, ESCO maintained its ability to fully meet demand supported by recent investment in safety and productivity upgrades. This was achieved while also making significant strategic progress which included:

• Achieving a record safety performance reducing TIR by 34% to 1.05 and achieving three consecutive months with no recordable incidents for the first time in the history of the business.
• Improved customer responsiveness with significantly reduced lead times, benefiting from prior investment in foundry operations.
• First orders for ToolTek^TM which improves mine safety by enabling remote G.E.T. change-outs.
• Strong progress in upgrading customers to the latest generation Nemisys^® system, which provides lower total cost of ownership and emissions.
• 50% increase in mining attachments sales, despite customers reducing capital budgets.
• Delivering 180 bps margin improvement supported by early action to reduce costs by £9 million principally from lower expenditure on travel and variable compensation.
• Good progress, despite COVID-19 restrictions, in delivering revenue synergies including expanding sales in Africa, Central America and Australia.

Financial review

Orders decreased 15% on a constant currency basis to £468 million (2019: £553 million), reflecting COVID-19 disruptions in certain mines, destocking by distributors as lead times reduced, and shutdowns in North America and European infrastructure markets, most significantly impacting 2Q20 and 3Q20. Conditions started to gradually improve in 4Q20. Aftermarket represented 94% of orders in line with ESCO’s position as a provider of highly engineered consumables used in abrasive operating environments.

Revenue, which saw less of an impact from destocking, decreased 13% on a constant currency basis to £496 million (2019: £569 million) with core G.E.T., more robust, down 11%. Mining applications represented 68% of revenues, infrastructure was 28% and other industrial markets represented 4%.

Adjusted operating profit decreased by 2% to £81 million (2019: £83 million), with the impact of significantly lower revenues almost entirely offset by the delivery of the final acquisition cost synergies, efficiency improvements from the foundry investments and the delivery of £9 million of COVID-related cost mitigation actions.

Adjusted operating margin of 16.3% was up 180 bps on a constant currency basis (2019: 14.5%), reflecting the final cost synergies and additional COVID-19 cost mitigation actions offsetting the reduction in volumes. These additional actions included restricted travel, discretionary spend and workforce reductions that totalled £9 million of which two-thirds is expected to be temporary. With relatively modest incremental COVID-19 costs or under-recoveries there was a one-off margin benefit of around 60 bps.

Operating cash flow reduced by 8% to £100 million (2019: £109 million) with good progress on receivables offset by lower payables.

2021 market outlook

The outlook for ESCO's mining end markets is consistent with that of the Minerals division. Infrastructure markets have seen a greater impact from COVID-19 disruptions but started to improve in 2H20. At this time, the company is cautiously optimistic of making progress in 2021 but the extent to which positive market sentiment translates into orders and revenues in the near term will depend on the shape of the economic recovery and the level of ongoing COVID-related disruption to both customers and its own operations.