Weir Group PLC - Final Results

Building an ever stronger Weir

§ Strong execution across the business

o  Operating profit2 on a like-for-like basis up 13%; +22% including ESCO

o  Minerals orders up 14% with original equipment momentum building; margins of 17.7%

o  Oil & Gas operating profit2 of £96m in line with guidance in Q4

o  86% increase in Total Group cash from operations to £411m

§ Portfolio transformation delivering ahead of plan

o  ESCO margins +170bps to 13.0% post acquisition

§ $15m annual run rate cost synergies delivered in H2

§ Targeting medium-term revenue synergies of at least $50m

o  Flow Control sale agreed for Enterprise Value of £275m

§ We are Weir strategy driving organic growth

o  Technology pipeline focused on efficient, smart, sustainable industry solutions

o  £93m in additional orders from Minerals integrated solutions strategy

§ Total Group exceptional costs of £209m primarily related to portfolio transformation

§ 2019 outlook: "another year of good constant currency revenue and profit growth"

 

 

2018

2017

As    reported

Constant Currency1

Like-for-like5

Continuing Operations3

 

 

 

 

 

Orders1

£2,544m

£2,003m

n/a

27%

15%

Revenue

£2,450m

£1,986m

23%

28%

15%

Operating profit2

£348m

£296m

18%

22%

13%

Profit before tax2

£310m

£255m

22%

26%

n/a

Reported profit after tax

£53m

£184m

-71%

n/a

n/a

Earnings per share2

94.7p

91.7p

3%

n/a

n/a

Total Group

 

 

 

 

 

Reported profit after tax

£18m

£160m

-89%

n/a

n/a

Earnings per share

7.4p

72.7p

-90%

n/a

n/a

Cash generated from operations4

£411m

£221m

86%

n/a

n/a

Dividend per share

46.2p

44.0p

5%

n/a

n/a

Net debt6

£1,127m

£843m

£284m

n/a

n/a

Jon Stanton, Weir Group Chief Executive Officer said:

"The last year has been transformational for the Group. With ESCO, we completed our largest ever acquisition while also agreeing the sale of the Flow Control division. The result is a more focused and higher-quality global business that is simpler and stronger with more than 80% of the Group's revenues from attractive upstream mining and oil and gas markets. At the same time, we have made significant progress on our We are Weir strategy and delivered good order and profit growth, underpinned by strong cash generation.

"Looking to the full year, we currently expect our mining and infrastructure markets to continue to benefit from positive industry fundamentals with oil and gas activity to improve modestly from current levels.  Overall, assuming market and macro-economic conditions remain supportive, we anticipate the Group will deliver another year of good constant currency revenue and profit growth, supported by strong execution of our We are Weir strategy."

CHIEF EXECUTIVE OFFICER'S REVIEW

At Weir, we work in partnership with our customers to solve their toughest operating challenges safely, efficiently and sustainably, helping to provide the essential resources needed by a growing world. 

2018 was an important year for the Group and our We are Weir strategy. We undertook the largest transformation of our portfolio in recent history while also delivering strong growth in profitability and cash generation across our business.

Strong execution across the business

Minerals orders grew 14% with aftermarket orders exceeding £1bn for the first time.  Original equipment order growth accelerated as the year progressed with 30% growth in the fourth quarter, increasing our installed base.  Operating margins of 17.7% were in line with expectations at this growth stage in the mining cycle.

Having completed the ESCO acquisition in July we moved quickly to realise the initial benefits of the integration.  We delivered cost synergies and savings of $7m in H2 2018, equivalent to an annualised run rate of $15m, ahead of our expectations.  This helped contribute to a 170bps operating margin improvement for the division post acquisition to 13%. We expect to continue to expand ESCO's operating margins towards our target of 17% and now anticipate being able to generate at least $50m in annual revenue synergies over the next five years. 

Oil & Gas took full advantage of strong demand in the first half of the year, contributing to a 17% increase in full year orders and a strong margin performance.  However, second half profitability was impacted by the capacity constraints in the Permian basin, the early exhaustion of customer budgets and extended seasonal breaks.  The division also experienced an exceptional legacy product warranty issue which was quickly rectified and fully resolved in the fourth quarter.  The strong turnaround in Flow Control operating profitability provided a good platform for the sale of the business.

Transforming our portfolio

The acquisition of ESCO and the sale of Flow Control means the Group will become simpler and stronger.  We will be more clearly focused on what we do best: providing highly engineered solutions used in aftermarket-intensive applications in upstream mining and oil and gas.  This means we can deliver the best through-cycle returns supported by positive long-term structural trends such as population growth, urbanisation and the move to electrification of transport and other infrastructure.

ESCO fits our business model perfectly.  It provides highly engineered mission-critical equipment used in extreme operating environments.  This generates ongoing higher margin aftermarket revenues from spares and services, providing resilience through the cycle.  As the market-leading provider of Ground Engaging Tools (GET) for large mining machines, it complements our Minerals division and means that Weir is now the only provider of premium solutions from extraction to concentration, supported by an unrivalled global service network.

We are Weir - a platform for sustainable long-term growth

Our We are Weir strategic framework focuses on where we can deliver distinctive value - People, Customers, Technology and Performance. In 2018, we kept more of our people safe, attracted more customers, extended our technology leadership and improved the performance of our operations. 

Dividend

The Board is recommending a final dividend of 30.45p, resulting in a total dividend of 46.2p for the year, up 5% from 2017 reflecting our confidence in the long-term prospects of the Group. Dividend cover (being the ratio of earnings per share from continuing operations, before exceptional items and intangibles amortisation, to dividend per share) is 2.1 times. If approved at the Annual General Meeting on 30 April 2019, the final dividend will be paid on 6 June 2019 to shareholders on the register on 26 April 2019.

2019 Outlook

Assuming the current supportive market conditions continue, miners are expected to increase capital expenditure in 2019.  Most expansion activity will be focused on brownfield with greenfield investment expected to remain a marginal contributor to overall market improvement, albeit with some increased activity versus 2018.  Global ore production growth is expected to continue to support aftermarket demand.  In 2019, reflecting the anticipated market context and consistent with this stage in the growth cycle, we expect the division to deliver broadly stable operating margins and good growth in constant currency revenues and profits.

Looking forward and assuming supportive market conditions continue, the division expects to deliver good growth in constant currency revenues.  Further margin progression will be supported by the ongoing delivery of cost and revenue synergies and operational improvements.

Given recent oil price volatility and capital constraints in North America, operators have adopted a cautious approach to activity in 2019 with E&P capex, frack pump horsepower additions and well completions expected to decline year-on-year.  Although pipeline additions in the Permian will add substantial takeaway capacity it is currently expected that this will translate into only a modest pick-up from current activity levels.  Assuming these conditions endure the division expects to see lower constant currency revenues with operating profit expected to in the £55m-£95m range.