The Weir Group PLC has released its interim results for the 6 months ended 30 June 2021 (1H21).
Jon Stanton, Weir Group CEO, said: “We’ve had a good start to the year with excellent execution across the business delivering a strong performance despite ongoing challenges due to the COVID pandemic. The order momentum we are seeing reflects demand for recurring aftermarket consumables returning to pre-COVID levels and growing adoption of our more sustainable mining technologies that increase customer efficiency while reducing energy, water and waste. Looking to the full year, we continue to expect to deliver growth in constant currency profits and margins in line with our, and current market expectations.
“We are also making good progress on our new 3-year performance goals that will see us increase revenues, expand margins, and significantly reduce our environmental footprint. Structural demand for clean energy metals is creating a multi-decade growth opportunity for our business as the mining industry invests in expanding capacity while reducing its environmental impact. Our project pipeline continues to grow, particularly for more sustainable solutions, and we are pleased to be resuming the dividend, reflecting our confidence in our strategy and future prospects.”
Minerals is a global leader in engineering, manufacturing and servicing processing technology used in abrasive high-wear mining applications. Its differentiated technology is also used in infrastructure and general industrial markets.
- Original equipment orders +57% driven by more sustainable solutions.
- Aftermarket orders1 +4%, with 2Q21 +9% y/y as recovery continued.
- Revenues +4% with operating margin up 120 bps to 18.1% on stable product mix.
1H21 market review
In mining, demand for original equipment was very strong, particularly energy and water efficient solutions, reflecting customer and stakeholder pressure to reduce the industry’s environmental impact. Longer-term quote activity also continued to grow, underpinned by mining’s positive fundamentals and predictions of supply shortfalls unless there is further investment, particularly to support future demand for clean energy metals.
Underlying ore production improved through the period as miners sought to maximise throughput to take advantage of near-record commodity prices. This supported aftermarket demand which also benefited from COVID restrictions easing in several countries, enabling miners to increase volumes.
At a regional level, demand in Africa, Europe and Central Asia, and Australia recovered strongly compared to the prior year, while North America and South America were broadly stable.
1H21 operating review
The division benefited from both the strength of its market positions and its comprehensive global service network as mining markets continued to improve. At the same time, the division’s efficiency programmes supported margin progression despite inflation in input costs and global supply chain disruptions.
Strategic progress included increasing employee engagement, with employee net promotor score of +48, up from +42 at the beginning of the year. Disappointingly, TIR increased from 0.13 to 0.33 and a range of remedial actions are in place to address this. The division continued to extend its market share in comminution with Enduron® HPGR orders more than doubling y/y, with geographic expansion supported by new service centre openings in Canada, Kazakhstan and the UK.
A renewed focus on operational excellence delivered a 2% increase in on time delivery, while upgrades to existing manufacturing facilities, increased leverage of shared services and improved division-wide digital platforms, including enterprise resource planning and customer relationship management systems, will also support future growth and margin expansion.
1H21 financial review
Orders increased by 18% on a constant currency basis to £834 million (2020: £709 million) with a book-to-bill of 1.26 reflecting strong growth in the order book which will support future revenues. Original equipment (OE) orders increased by 57% reflecting higher demand for the company’s more sustainable solutions as it started to see its strong project pipeline convert, as customers became more confident in the global macro backdrop and COVID recovery. Orders in 1H21 included two large contracts for the more sustainable technology including the initial £36 million Ferrexpo order for Enduron® HPGRs and screens and a £33 million order in Indonesia to replace diesel dewatering pumps with electric alternatives. Aftermarket (AM) orders increased by 4% with 2Q21 18% higher than 1Q21, returning to pre-COVID levels. AM orders represented 66% of total orders (2020: 74%). In total, mining end-market orders accounted for 77% of the total (2020: 76%).
Revenue was 4% higher on a constant currency basis at £663 million (2020: £640 million), reflecting positive mining trends. Product mix remained consistent with the prior year with OE representing 26% of revenues and AM representing 74%.
Adjusted operating profit increased by 11% on a constant currency basis to £120 million (2020: £108 million) as the division benefited from increased volumes, strong operational execution, and initial benefits from Weir’s efficiency programme. As expected, the division saw some of the temporary cost savings realised in the prior year return, but these were offset by lower under-recoveries as the company’s plants faced less COVID-related disruption in the period. There was also £2 million of one-off gains including the sale and relocation of a facility in China.
Adjusted operating margin on a constant currency basis was 18.1% (2020: 16.9%), with the +120 bps increase on a stable OE/AM mix, driven by operational leverage, initial efficiency programme benefits and the small one-off gains referred to above.
Operating cash flow decreased by 12% to £135 million (2020: £153 million), primarily reflecting a working capital outflow of £15 million as the division saw higher receivables and inventory levels as activity increased progressively through the first half and consistent with December 2020, the company utilised significantly less invoice discounting.
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 and sand and aggregates.
- Infrastructure markets recovered strongly; mining trends positive.
- Orders +14%, 2Q21 +30% y/y; book-to-bill of 1.08.
- Margins up 70 bps y/y.
1H21 market review
The division saw broadly similar mining trends to minerals with a recovery in machine utilisation towards pre-COVID levels. Infrastructure markets, particularly sand and aggregates in North America and Europe, recovered very strongly as economic confidence increased and residential completions accelerated.
The division also leveraged minerals global service network to expand into new territories, including securing market share gains in North Africa and Western Europe.
1H21 operating review
The division benefited from its strong market position to capture growth in infrastructure markets in both North America and Europe. The division also continued to extend its product offering in mining markets, driving increased customer relevance and market share.
Raw material prices saw above normal inflation in the period especially for steel plate in North America, while freight costs also increased significantly. The division reacted quickly to update pricing to reflect this and in more severe situations added surcharges on certain product categories.
Strategic progress in the period included a 10% improvement in the division’s TIR to 0.95 with high rates of engagement in behavioural change programmes across the division.
The division’s focus on expanding its share in large mining buckets made progress with a 50% y/y increase in orders, while its proprietary Nemisys® technology is now on a third of the division’s installed base having delivered more than 100 net conversions in the period. The division also delivered the first order for its ToolTek® automated G.E.T. change-out technology that radically improves operator safety.
Previous investment in manufacturing facilities supported operating efficiency. The division also made good progress developing a digital supply chain that will provide improved end-to-end visibility for the division and customers.
1H21 financial review
Orders increased 14% on a constant currency basis to £256 million (2020: £225 million), reflecting a strong recovery in infrastructure markets in North America and Europe and significantly reduced COVID-19 disruptions to mining customer operations. The division also delivered a book-to-bill of 1.08 as order patterns normalised after the destocking seen in 2020 as distributors reacted to our lead times being reduced. Aftermarket represented 93% of orders (2020: 95%) in line with ESCO’s position as a provider of highly engineered consumables used in abrasive operating environments.
Revenue, which was not impacted by the destocking seen in 2020, increased 1% on a constant currency basis to £237 million (2020: £234 million). Mining represented 57% of revenues (2020: 59%) and infrastructure was 30% (2020: 27%).
Adjusted operating profit increased by 6% on a constant currency basis to £40 million (2020: £37 million), as the division benefited from further operating efficiency, continuing temporary cost savings and the phasing of raw material purchase contract renewals.
Adjusted operating margin of 16.7% was up 70 bps on a constant currency basis (2020: 16.0%), reflecting the operating profit movements above on broadly flat revenue.
Operating cash flow decreased by 23% to £38 million (2020: £49 million), primarily driven by working capital, as the division had an outflow of £9 million in the first half, as underlying activity levels and volumes ramped up, and the company utilised less invoice discounting.
Read the article online at: https://www.globalminingreview.com/finance-business/29072021/the-weir-group-releases-interim-1h21-results/
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