half year results 2020 - global.weir

Half Year Results2020

HALF YEAR RESULTS 2020

Cavex® Hydrocyclones in Mongolia


JON STANTONChief Executive Officer

2

Isogate® valves in operation FInland


3

TODAY’S AGENDAHALF YEAR RESULTS 2020

© The Weir Group PLC, 2020.

H1 2020 Summary – Jon Stanton, CEO

H1 2020 Financial Review – John Heasley, CFO

Business Review – Jon Stanton, CEO

Q&A


4

COVID-19: KEEPING OUR PEOPLE, COMMUNITIES AND CUSTOMERS SAFEH1 2020 SUMMARY

• Safety is our number 1 priority• Adapted working practices quickly• Delivered 53% reduction in TIR1

• Supporting our communities• Prioritising small suppliers• Provided PPE and oxygen to local health authorities

• Continuing to fully serve our customers• Leveraging diversified regional operating model

Nurses on a surgical ward in York, UK, wearing visors manufactured at Weir Minerals Europe.

1. Total Incident Rate (TIR) represents the rate of any incident that causes an employee, visitor, contractor or anyone working on behalf of Weir to require off-site medical treatment per 200,000 hours worked.


5

STRONG EXECUTION IN UNIQUELY CHALLENGING CIRCUMSTANCESH1 2020 SUMMARY

• Minerals resilience reflects its quality• OE and AM orders and revenues higher in Q2 vs Q1• Margins maintained, supported by early cost control

• ESCO margins +190bps• Infrastructure challenging; mining more resilient

• $30m integration synergies delivered ahead of plan

• O&G operating cash positive

• Decisive cost and cash preservation action

• Balance sheet and liquidity remain robust• Highly cash generative: £192m of cash from operations• Completed refinancing of main banking facilities

MINERALS AM ORDERS REMAINED ROBUST

PBTA H1 2019 – H1 2020

0

50

100

150

H1 2019 Minerals & ESCO O&G Other H1 2020

0

100

200

300

400

500

600

H1'18 H2'18 H1'19 H2'19 H1'20

All-time record

Half Year Results 2020

JOHN HEASLEYChief Financial Officer

6

ESCO engineer on site at the Mogalakwena mine, South Africa


7

MINING RESILIENCE OFFSET BY NORTH AMERICAN O&G DOWNTURNH1 2020 FINANCIAL REVIEW

1. Continuing operations at constant currency. 2. Continuing operations adjusted to exclude exceptional items and intangibles amortisation. 3. Operating cash flow (cash generated from operations) includes continuing and discontinued operations and is before exceptional cash flows. 4. Continuing operations. 5. Net debt : EBITDA is on a lender covenant basis.

• NO INTERIM DIVIDEND• EPS2 DOWN 25% • OPERATING CASH FLOW3 £192m

ORDERS1

£1.1bn-19%

REVENUE1

£1.1bn-17%

OPERATING PROFIT1,2

£133m-22%

PROFIT BEFORE TAX2

£108m-27%REPORTED PROFIT BEFORE TAX4

£63m-41%

ESCO

• NET DEBT: EBITDA5 2.6x

O&G

Minerals

Continuing operations excl. O&G

0.0

0.5

1.0

1.5

H1 2019 H1 20200.0

0.5

1.0

1.5

H1 2019 H1 2020

-10

40

90

140

190

H1 2019 H1 20200

50

100

150

200

H1 2019 H1 2020Continuing operations


• Modest Covid-19 impact on demand • At peak 10-15% decline in Q2 ore production• AM orders once again resilient -4%• OE orders -11%; customer caution and restricted

mine site access

• Iron Bridge delivery on track

• Stable 17.3% operating margin2

• £10m cost savings largely offset under–recoveries from factory shutdowns

8

RESILIENCE AND STRONG EXECUTION PROTECT PROFITABILITYH1 2020 FINANCIAL REVIEW: MINERALS

1. On a constant currency basis. 2. Adjusted to exclude exceptional items and intangibles amortisation.

ORDER AND REVENUE TRENDS1

Orders1

£724m-6%

EBITA1,2 AND MARGINS1,2

0

200

400

600

800

H1'18 H2'18 H1'19 H2'19 H1'20

AM Orders OE Orders Revenue

-4%

-11%

17.6% 18.3% 17.3% 19.4% 17.3%

0%

5%

10%

15%

20%

0

25

50

75

100

125

150

H1'18 H2'18 H1'19 H2'09 H1'20EBITA Operating margin

Revenues1

£653m-4%

EBITA1,2

£113m-4%


9

RESILIENCE AND SYNERGIES DRIVE INCREASED PROFIT AND MARGINH1 2020 FINANCIAL REVIEW: ESCO

1. On a constant currency basis. 2. Comparisons include 2018 on a pro forma basis. ESCO was acquired on 12 July 2018. 3. Adjusted to exclude exceptional items and intangibles amortisation.

ORDER AND REVENUE TRENDS1,2

Orders1

£247m-17%

EBITA1,2,3 AND MARGINS1,2,3

0

100

200

300

H1'18 pro forma H2'18 pro forma H1'19 H2'19 H1'20

Orders Revenue

11.1% 13.0%14.2%

14.9% 16.1%

0%

5%

10%

15%

20%

10

20

30

40

50

H1'18 pro forma H2'18 pro forma H1'19 H2'19 H1'20EBITA Operating margin

Revenues1

£257m-10%

EBITA1,3

£42m+2%

• Order reduction due to greater Covid-19 impact• Destocking in mining• Widespread construction shutdowns in NAM and Europe

• Revenue more robust reflecting underlying activity • Core mining GET revenues -6%

• Margin 16.1%; up 190bps• $30m cost synergies fully realised early• Additional cost savings of £3m; no significant incremental

Covid-19 costs c.100bps margin benefit in H1


10

OPERATING CASH POSITIVE IN THE MOST CHALLENGING OF MARKETSH1 2020 FINANCIAL REVIEW: OIL & GAS

1. On a constant currency basis. 2. Adjusted to exclude exceptional items and intangibles amortisation.

ORDER AND REVENUE TRENDS1

Orders1

£170m-50%

EBITA1,2 AND MARGINS1,2

0

100

200

300

400

500

H1'18 H2'18 H1'19 H2'19 H1'20

AM Orders OE Orders Revenue

-48%

-54%

15.8%

8.7%8.6%

2.6%

-2.3%

-5%

0%

5%

10%

15%

20%

-100

1020304050607080

H1'18 H2'18 H1'19 H2'19 H1'20EBITA Operating margin

Revenues1

£185m-48%

EBITA1,2

-£4m-114%

• As expected, downturn accelerated in Q2• NAM land rig count and frack spreads at record lows• International impacted by Covid-19 and oil price

• Significant cost action taken• NAM headcount down 39% in last 12 months• Furloughs 2 weeks out of 4

• Modest operating loss of £4m• £5m loss incurred in Q2; which included £2.5m one-

off indirect tax benefit• Continued to be operating cash positive


11

COST SAVINGS DELIVERING TO PLANH1 2020 FINANCIAL REVIEW: EXCEPTIONAL ITEMS & 2020 COST SAVINGS

Exceptional items recognised in arriving at operating profit from continuing operations £m H1 2020 H1 2019

ESCO acquisition and integration related costs (2) (3)

Covid-19 restructuring and other costs (7) -

Other restructuring and rationalisation charges (5) -

Black Economic Empowerment transaction (4) -

(18) (3)

Exceptional costs• Covid-19 costs principally related to Minerals

and ESCO severance• Other restructuring primarily right-sizing Oil &

Gas

Cost savings from 2020 actions

To be realisedthis year

£mHeadcount

reduction

Minerals 30 350

ESCO 9 130

Oil & Gas 36 350

Total 75 830

Cost savings• 1/3 of full year £75m total realised in H1• c.65% of cost savings expected to be temporary


12

STRONG OPERATING CASH FLOW SUPPORTED BY RECEIVABLES EFFICIENCYH1 2020 FINANCIAL REVIEW: WORKING CAPITAL AND OPERATING CASH FLOW

£mH1

2020H1

2019

Operating cash flow – pre working capital 194 235

Working capital cash flows – inventory (23) (51)

Working capital cash flows – receivables 126 (4)

Working capital cash flows – payables (105) (101)

Working capital cash flows – discontinued - (25)

Operating cash inflow 192 54

• Strong divisional operating cash flows

• H1 Working capital cash flow neutral• Usual payables unwind and lower purchase

volumes during H1• Receivables reduction reflects lower sales

volumes, modest increase in invoice discounting and underlying credit focus

• Small inventory increase driven by Minerals project activity including Iron Bridge

• WC:Sales 500bps lower than H1 2019• Mainly receivables efficiency (13 days)

31%

23% 26%

0

0.0

0.1

0.1

0.2

0.2

0.3

0.3

0

150

300

450

600

750

900

H1 2019 H2 2019 H1 2020

£m Working capital % sales

£m H1 2020 H1 2019

Minerals 153 81

ESCO 49 32

Oil & Gas 5 (16)

Central (15) (14)

Discontinued operations - (29)

Operating cash inflow 192 54


13

FREE CASH FLOW BENEFIT TO NET DEBT OFFSET BY FX TRANSLATIONH1 2020 FINANCIAL REVIEW: LEVERAGE AND NET DEBT

Cash flow statement (as reported) £m H1 2020 H1 2019Operating cash inflows 192 54Net interest (25) (24)Tax (26) (38)Net capex (39) (54)IFRS 16: Lease payments (21) (24)Settlement of derivative financial instruments (6) (44)Other cash flows (10) (13)Free cash flow – pre dividends 65 (143)Dividends paid - (79)Free cash flows 65 (222)

Movement in net debt £mNet debt at 31 December 2019 1,157Free cash inflow (65)Exceptional cash outflow 14FX and other 61Net debt at 30 June 2020 1,167IFRS 16: Leases 189Net debt at 30 June 2020 (excluding Leases) 978

• Covid-19 response included cash preservation across tax, capex and dividends; free cash flow of £65m

• Adverse translational FX of £66m mainly on US$ debt

• Net debt to EBITDA 2.6x on lender covenant basis

• US$950m RCF & £200m Term Loan refinancing completed; extended maturity and significant liquidity

638

638

638

638

162

162

-

767

767

767

767

767

767

-

200

200

200

200

-

-

-

300

300

-

-

-

-

-

- 250 500 750 1,000 1,250 1,500 1,750 2,000

Jun-20

Dec-20

Jun-21

Dec-21

Jun-22

Dec-22

Jun-23

Committed Debt facilities (£m)

Private Placement Revolving Credit Facility Term Loan CCFF


14

2020 FINANCIAL GUIDANCE

• Based on June FX rates expect full year operating profit headwind of £7m (H1: £2m)• Capex c. £75m (H1: £39m) • Exceptional cash costs c. £26m (H1: £14m)• Interest c. £5m increase on prior year• Effective tax rate expected to be approximately 24-25%

KEY FINANCIAL TAKEAWAYS

1

Resilience of our core mining businesses

2

Early restructuring limited O&G losses

3

Strong cash generation across all divisions

Successful refinancing; substantial liquidity

4


JON STANTONChief Executive Officer

15

An Enduron HPGR on site in Oklahoma, USA.


16

BUSINESS REVIEW


17

PEOPLEBUSINESS REVIEW

• 53% reduction in Total Incident Rate YoY• No recordable incidents in March; zero-harm is achievable

• Engagement critical to Covid-19 response• Engagement score up 0.2 to 8.1• Benefiting from our highly devolved operating model

• Improving organisational effectiveness• Comprehensive Inclusion and Diversity programme• First Group-wide HR system ready for H2 launch

KPI: Improved sustainable engagement score and organisational effectiveness


18

CUSTOMERSBUSINESS REVIEW

• Global service network crucial

• Security of supply enabled by agile operating model

• £83m in orders from Minerals Integrated Solutions

• Impacted by reduced mine site access

• ESCO delivered 99 net machine conversions

• Leveraging advanced Nemisys® technology

• O&G share gains from new EXL pump platform

• Extended life for power ends and fluid ends

KPI: Increased market share


19

TECHNOLOGYBUSINESS REVIEW

• First Iron bridge HPGRs shipped in H1

• Majority of balance to be delivered in H2

• First pilot Terraflowing® plant nearing completion

• Enabling safer tailings storage and repurposing

• Initial order for ESCO GET Toolhead®

• Significantly improves safety, taking people out of the pit

KPI: Increase revenues from new solutions


20

PERFORMANCEBUSINESS REVIEW

• Optimising manufacturing footprint• Minerals consolidating smaller parts in larger facilities• ESCO investment delivering lead time reductions• Right-sizing O&G for current market conditions

• Roll out global ERP and CRM systems

• Smooth transition to ‘work from home’

• 5,000 people moved to remote working

KPI: Sustainably higher margins through the cycle


• Mining is an essential industry• c. 1% of mines currently closed by Covid-19

• Commodity prices supporting production

• Infrastructure and industrial gradually recovering

• Robust oil sands production supporting AM

• Number of macro uncertainties remain• Full impact of Covid-19 incl. productivity and demand• Rising trade and political tensions

• Activity expected to remain robust• Miners’ production guidance only slightly below pre-

Covid levels

21

MINING MARKETS WELL POSITIONED TO NAVIGATE PANDEMICBUSINESS REVIEW

1. FactSet Data.

COMMODITIES PRICES ROBUST THROUGH H11 (INDEXED, DEC 2019=100)

ESCO WEIGHTED MACHINE UTILISATION SHOWS MODEST Q2 RECOVERY

60

70

80

90

100

110

120

130

12/31/19 01/31/20 02/29/20 03/31/20 04/30/20 05/31/20 06/30/20

Copper Gold Iron Ore

60%

65%

70%

75%

80%

85%

90%

95%

100%

2 3 / 0 3 / 2 0 2 0 / 0 4 / 2 0 1 8 / 0 5 / 2 0 1 5 / 0 6 / 2 0 1 3 / 0 7

Copper Gold Iron ore Total Mining


0200400600800

1000120014001600

Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20

22

INTENTION TO MAXIMISE VALUE FROM O&G AT RIGHT TIMEBUSINESS REVIEW

1. EIA data Jul 2020. 2. Rystad Jun 2020.

Q2 WELL COMPLETIONS REACHED RECORD LOWS IN 20201

HHP FRAC DEMAND EXPECTED TO STABILISE IN H2 20202

• Global supply and demand gradually rebalancing

• Inventories expected to decline into 20211

• NAM continues to be very challenging

• US land rig count down 70% peak to trough

• c.60 frack fleets operational (c. 2.5m HHP)

• International more robust

• Mid East slowly recovering from significant Covid-19 disruption

• Division expected to remain cash positive in 2020

0%10%20%30%40%50%60%70%80%

0.0

5.0

10.0

15.0

20.0

4Q17 3Q18 2Q19 1Q20 4Q20

Frac demand

Utilisation

Projected


23

LONG-TERM MINING FUNDAMENTALS REMAIN POSITIVEBUSINESS REVIEW

• Ore grade declines underpinning AM demand

• Investment needed to maintain volumes

• Age of mining equipment at all-time high

• Miners setting Net Zero sustainability targets

• Reducing energy, water and waste; Weir’s sweet spot

• Covid-19 likely to accelerate some key themes

• Digitisation and automation

Population and economic growth

Meaningnatural resources

remainessential

Increased urbanisation

& carbon transition

Innovative engineering

is the solution

Demands more

infrastructure & energy

Making sustainability &productivity

crucial


24

SUSTAINABILITY FUNDAMENTAL TO OUR PURPOSE AND STRATEGYBUSINESS REVIEW

• Creating Sustainable Solutions• Technology transition critical to enabling net zero• R&D focus on reducing energy, water and waste

• Reducing our footprint• Completed smart metering pilots at main facilities• Increasing proportion of energy from renewables

• Nurturing our unique Culture• Making all employees co-owners• Employee Net Promotor Score +6 to 34

• Championing zero harm• 50% reduction in ESCO TIR reflects investment

and focus


25

WEIR IS A PREMIUM MINING TECHNOLOGY BUSINESSBUSINESS REVIEW

1

A high qualitymining technology business

2

Demand underpinned by long term structural growth

3

Winning through ‘We are Weir’PeopleCustomers Technology Performance

Critical solutions for smarter, more efficient and sustainable mining

4

Delivering sector leading performance through the cycle

5

Delivering resilient high-margin recurring revenues

20%

80%

OriginalEquipment

Aftermarket

Focused on highly abrasive upstream markets

80%

8%

8% 4% Mining

Infrastructure

Industrial

Other

A portfolio of global leading brands

80% Mining

80% AM


26

Minerals ReviewAppendix 1

1 2019 restated at 2020 H1 average exchange rates, except for operating cash flow.2 Profit figures adjusted to exclude exceptional items and intangibles amortisation. Operating cash flow (cash generated from operations) excludes additional pension contributions, exceptional items and income tax paid.

£m H1 2020 H1 20191 Growth H2 20191

OE orders 188 211 -11% 317

AM orders 536 558 -4% 500

Total orders 724 769 -6% 817

OE revenue 172 173 -1% 214

AM revenue 481 507 -5% 526

Total revenue 653 680 -4% 740

Book-to-bill 1.11 1.13 1.10

EBITA as reported2 113 117 -4% 144

Operating margin2 % 17.3% 17.3% 0bps 19.4%

Operating cash flow2 153 81 89% 214


27

ESCO ReviewAppendix 2

£m H1 2020 H1 20191 Growth H2 20191

OE orders 13 11 21% 16

AM orders 234 286 -18% 250

Total orders 247 297 -17% 266

OE revenue 14 10 38% 15

AM revenue 243 277 -12% 276


Book-to-bill 0.96 1.03 0.91

EBITA as reported2 42 41 2% 43

Operating margin2 % 16.1% 14.2% +190bps 14.9%

Operating cash flow2 49 32 53% 72

1 2019 restated at 2020 H1 average exchange rates, except for operating cash flow.2 Profit figures adjusted to exclude exceptional items and intangibles amortisation. Operating cash flow (cash generated from operations) excludes additional pension contributions, exceptional items and income tax paid..


28

Oil & Gas ReviewAppendix 3

1 2019 restated at 2020 H1 average exchange rates, except for operating cash flow.2 Profit figures adjusted to exclude exceptional items and intangibles amortisation. Operating cash flow (cash generated from operations) excludes additional pension contributions, exceptional items and income tax paid..

£m H1 2020 H1 20191 Growth H2 20191

OE orders 46 100 -54% 71

AM orders 124 241 -48% 182

Total orders 170 341 -50% 253

OE revenue 58 104 -44% 79

AM revenue 127 247 -49% 188


Book-to-bill 0.92 0.97 0.95

EBITA as reported2 (4) 30 -114% 7

Operating margin2 % -2.3% 8.6% -1090bps 2.6%

Operating cash flow2 5 (16) -95% 59


29

Quarterly Input TrendsAppendix 4

1 Continuing operations (excludes the Flow Control division which was disposed of on 28 June 2019).2 Like-for-like excludes the impact of acquisitions. ESCO was acquired on 12 July 2018 and is excluded from 2018 and 2019.

Reported growth1 Like-for-like growth1, 2

2019 Q3 2019 Q4 2020 Q1 2020 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2

Original Equipment 72% 20% -13% -9% 72% 20% -13% -9%

Aftermarket -5% 8% -1% -6% -5% 8% -1% -6%

Minerals 17% 12% -5% -7% 17% 12% -5% -7%

Original Equipment 83% 54% 25% 16% - - 25% 16%

Aftermarket 22% -18% -8% -28% - - -8% -28%

ESCO 25% -16% -7% -26% - - -7% -26%

Original Equipment -26% 7% -41% -71% -26% 7% -41% -71%

Aftermarket -34% -43% -31% -67% -34% -43% -31% -67%

Oil & Gas -32% -35% -34% -68% -32% -35% -34% -68%

Original Equipment 41% 18% -22% -25% 40% 17% -22% -25%

Aftermarket -7% -13% -10% -25% -15% -11% -10% -25%

Continuing Operations1 4% -6% -13% -25% - -3% -13% -25%

Book-to-bill 1.08 0.97 1.08 1.04 1.11 1.02 1.08 1.04


30

Order Input by End Market and GeographyAppendix 5

Order input by end market Minerals ESCO Oil & Gas H1 2020 Total H1 2019 Total

Mining 552 138 - 690 738

Oil & Gas 52 22 167 241 427

Infrastructure 4 75 - 79 100

General Industrial 69 12 1 82 89

Other 47 - 2 49 53

Continuing operations 724 247 170 1,141 1,407

Order input by geography Minerals ESCO Oil & Gas H1 2020 Total H1 2019 Total

North America 170 128 110 408 616

Europe & FSU 85 31 7 123 131

Australasia 135 30 1 166 141

Middle East & Africa 88 19 33 140 163

South America 183 31 2 216 201

Asia Pacific 63 8 17 88 155

Continuing operations 724 247 170 1,141 1,407


31

Working CapitalAPPENDIX 6

1Working capital metrics are presented for continuing operations.

2.4 2.7

2.3

0

0.5

1

1.5

2

2.5

3

0

150

300

450

600

750

900

H1 2019 H2 2019 H1 2020

£m Inventory

67.4 60.4

54.6

0

10

20

30

40

50

60

70

80

0

150

300

450

600

H1 2019 H2 2019 H1 2020

£m Trade receivables

31%

23% 26%

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0

150

300

450

600

750

900

H1 2019 H2 2019 H1 2020

£m Working capital

0

150

300

450

600

750

H1 2019 H2 2019 H1 2020

£m Trade payables


32

Foreign Exchange by CurrencyAppendix 7

1. Adjusted to exclude exceptional items and intangibles amortisation.

H1 2019 Revenue £m H1 2019 Operating profit1 £m

Currency At 2019 rates FX At 2020 rates At 2019 rates FX At 2020 rates

US Dollar 740 18 758 111 3 114

Australian Dollar 143 (7) 136 12 (1) 11

Canadian Dollar 105 - 105 23 - 23

Euro 42 - 42 17 - 17

Chilean Peso 81 (12) 69 21 (3) 18

United Arab Emirates Dirham 30 1 31 1 - 1

South African Rand 53 (6) 47 2 - 2

Brazilian Real 22 (4) 18 2 - 2

Russian Rouble 21 (1) 20 5 (1) 4

Other 92 - 92 (22) - (22)

Continuing operations 1,329 (11) 1,318 172 (2) 170

Variance

Interest (25) (1) (26)

PBTA 147 (3) 144

Variance (2%)


33

Foreign Exchange by DivisionAppendix 8


H1 2019 Revenue £m H1 2019 Operating profit1 £m

Division At 2019 rates FX At 2020 rates At 2019 rates FX At 2020 rates

Minerals 706 (26) 680 121 (4) 117

Oil & Gas 343 8 351 29 1 30

ESCO 280 7 287 40 1 41

Central Costs - - - (18) - (18)


Discontinued Operations 150 1 151 (3) - (3)


34

Foreign Exchange Headwind Expected in 2020Appendix 9


FY 2019 Revenue £m FY 2019 Operating profit1 £m

Currency At 2019 rates FX At 2020 rates At 2019 rates FX At 2020 rates

US Dollar 1,419 17 1,436 207 2 209

Australian Dollar 286 (11) 275 30 (1) 29

Canadian Dollar 234 (3) 231 54 (1) 53

Euro 87 - 87 34 - 34

Chilean Peso 167 (21) 146 43 (5) 38

United Arab Emirates Dirham 66 1 67 2 - 2

South African Rand 107 (12) 95 4 - 4

Brazilian Real 49 (9) 40 6 (1) 5

Russian Rouble 49 (2) 47 10 (1) 9

Other 198 (3) 195 (38) - (38)


Variance

Interest (49) - (49)

PBTA 303 (7) 296

Variance (2%)


35

Exchange RatesAppendix 10

Currency H1 2019Average FX rate

H1 2020Average FX rate

H1 2019Balance sheet date

H1 2020Balance sheet date

US Dollar 1.29 1.26 1.27 1.24

Australian Dollar 1.83 1.92 1.81 1.80

Canadian Dollar 1.72 1.72 1.66 1.69

Euro 1.14 1.15 1.12 1.10

Chilean Peso 872.86 1,023.61 861.30 1,017.24

United Arab Emirates Dirham 4.75 4.64 4.66 4.55

South African Rand 18.35 20.89 17.91 21.51

Brazilian Real 4.97 6.17 4.87 6.76

Russian Rouble 84.28 87.47 80.15 88.10

The principal exchange rates applied in the preparation of the financial statements were as follows:

half year results 2020 - global.weir

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