TIDMWEIR
RNS Number : 4022G
Weir Group PLC
06 November 2018
The Weir Group PLC Interim Management Statement for the third
quarter ending 30 September 2018(1)
For a printer friendly copy of this announcement, please click
on the link below to open a pdf version
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Strong order(2) growth in mining; Temporary slowdown in North
American oil and gas
-- Third quarter orders from Continuing Operations +16%(3) ; +40% including ESCO acquisition
-- Strong performance from Minerals with orders +19% in OE and +20% in AM
-- ESCO acquisition performing well: orders +8% on a pro forma reported basis
-- Oil & Gas orders +10%(3) : sequential slowdown in North America
-- Full year Minerals and ESCO expectations unchanged
-- O&G EBITA now expected to be GBP90m - GBP100m: legacy
product warranty exceptional charge of GBP25m
-- Discontinued Operations: Growth trends continued with Flow
Control orders +13%; sale process on track
Jon Stanton, Chief Executive, commented:
"Group orders continued to grow strongly in markets that have
good long term prospects. In mining, our largest market, we
benefited from our global presence as we worked closely with
customers to help them increase production and improve productivity
within current operations. Quotation activity for expansion
projects also remained strong, reinforcing our view that we are in
the early stages of a multi-year capex growth cycle.
Strong order momentum in our Minerals division reflects its
market-leading position and the benefit of investment in sales and
engineering capability. ESCO, our newest division, also had a good
quarter, delivering market share gains on large mining machine
ground engaging tools. Its integration is progressing very smoothly
and is on track to deliver anticipated cost synergy targets. The
disposal of the Flow Control division is also developing as planned
with a sale process under way.
Oil & Gas delivered good year-on-year order growth but from
late August was progressively impacted by the temporary slowdown in
activity in North American onshore markets that was prompted by
industry capacity constraints in the Permian basin. As we work
through the current slowdown, which we and our customers view as a
short-term pause in growth, we will continue to invest in our
people and technology to ensure we fully benefit from the
anticipated upturn in 2019 when E&P budgets replenish, Permian
pipeline capacity expands and pressure pumping fleet utilisation
increases."
Third quarter review
Third quarter orders for continuing operations excluding
acquisitions were 16% higher than the prior year period and 40%
higher including ESCO. Excluding acquisitions continuing operations
aftermarket orders increased 15% with original equipment up 20%.
Revenues, on a constant currency basis, were broadly in line with
expectations and ahead of the prior year.
Divisional review
Minerals
There continued to be strong demand from miners for solutions
that help to maximise the productivity of their existing assets.
Investment was biased towards commodities with the best medium term
prospects such as copper, gold and lithium where the division is
well represented. The pipeline of expansionary projects continued
to develop positively although miners continued to be cautious
about making final investment decisions.
All mining regions experienced strong growth in the quarter as
customers continued to maximise production and invest in efficiency
improvements. Divisional orders were up 20% compared to the prior
year with original equipment growth of 19% supported by our focus
on brownfield activity through the integrated solutions strategy.
The division also benefited from large copper expansion projects in
Latin America and continued investment in lithium and gold in
Australia.
Aftermarket orders were also up 20% helped by a number of
one-off commissioning and multi-period spares orders. There were
strong underlying performances for slurry pump spares and mill
circuit technology as a result of increased ore production volumes
and ore grade declines. Revenue trends were broadly in line with
orders.
Full year divisional expectations are unchanged, with full year
divisional revenues, on a constant currency basis, expected to show
strong growth with operating margins broadly stable. The division's
order book, together with an increasing pipeline of future
opportunities, continues to support its positive outlook.
ESCO
The division benefited from the positive conditions in mining
markets with increased production driving demand for high-wear
ground engaging tools that help increase customer productivity.
Infrastructure markets, which represent around a third of
divisional orders, benefited from increased industrial activity in
North America while construction was more subdued.
ESCO's strong market and technology leadership in surface mining
delivered an 8% increase in reported third quarter orders on a pro
forma basis. Revenue growth was broadly consistent with order
trends.
Full year expectations for the division remain unchanged with
pro forma revenues and operating profits anticipated to be US$675m
and US$80m respectively for the year to December 2018. ESCO joined
the Group on 12 July with revenue and profits expected to be
delivered broadly evenly pre and post completion.
Oil & Gas
In our September 6 market update we outlined the initial impact
of the slowdown in North American activity levels prompted by
pipeline capacity constraints in the Permian and the emergence of
excess pressure pumping capacity. As the quarter progressed demand
for original equipment continued to soften with North American
frack fleet utilisation falling to below 60% and the number of
drilled but uncompleted wells reaching record levels. Aftermarket
demand was impacted by initial signs of cannibalisation of idle
fleets and anticipation of extended seasonal breaks by E&P
operators. Pressure control markets were more robust, in line with
stable US rig count in the period, but were impacted by a reduction
in activity in Canada including a major customer suspending their
drilling activity as a result of exhausting their 2018 budgets
earlier than expected. International markets remained challenging
during the quarter although they did continue to show some early
signs of recovery with project quotation activity increasing.
Overall, divisional orders for the third quarter were 13% higher
than the prior year period and 10% higher on a like-for-like(3)
basis. Original equipment orders increased 37%, against a weak
comparator, and aftermarket orders were 6% higher. However, there
was a sequential decline in North America across both original
equipment and aftermarket orders which accelerated late in the
quarter. This was partly affected by the temporary impact on orders
of a specific legacy product performance issue that is being
addressed in the fourth quarter by retrofitting current technology
into the legacy design. Previous pricing gains were largely
sustained and offset the impact of US-China tariffs, while
divisional revenues were broadly in line with order trends.
Looking to the full year, the division now expects to deliver a
strong increase in full year constant currency revenues with
operating profit now expected to be in the range of GBP90m -
GBP100m. Operating margins are expected to be slightly lower than
the prior year reflecting the recent decline in volumes and
consequent manufacturing under-recoveries, with fourth quarter
demand expected to be impacted by E&P operators taking extended
seasonal breaks. The costs associated with the legacy product issue
warranty, together with associated inventory provisions, will
result in an exceptional charge of GBP25m in 2018.
Industry expectations are for a return to growth in North
American completions activity in the first half of 2019. This will
be driven by the replenishment of E&P budgets, the availability
of a record number of drilled but uncompleted wells, more
favourable hedging positions and progressive pipeline capacity
additions in the Permian. Most pipeline additions are expected to
complete in the second half expanding the region's growth potential
by around 1.5m barrels of oil per day by the end of 2019.
Discontinued operations: Flow Control
Divisional orders for the third quarter were up 13%. Original
equipment orders were up 21% reflecting good demand in European
power markets and the benefits of globalising the divison's pump
portfolio and sales and marketing capability. Aftermarket orders
increased 3%, the sixth consecutive quarter of growth for the
division, with good momentum in downstream markets as the division
leveraged its installed base.
The full year outlook for the division remains unchanged. It is
expected to deliver broadly stable full year constant currency
revenues with mid-single digit full year operating margins.
The process to sell the division has been formally initiated and
is progressing as planned.
Foreign Exchange and Net debt
Net debt at 30 September 2018 was higher than that reported at
30 June 2018 primarily related to the funding of the acquisition of
ESCO but was in line with expectations and normal seasonal
patterns. The Group continues to expect to deliver strong cash
generation in the year. Net Debt/EBITDA on a pro forma adjusted
basis is anticipated to be slightly above two times reflecting the
impact of the decline in North American Oil & Gas activity and
associated profitability.
Notes:
1 Financial information is given for the three months ended 30 September
2018 and relates to continuing operations and excludes exceptional
items.
2 Orders are reported on a constant currency basis. Third quarter
refers to the financial period for the three months ended 30 September
2018.
3 Like-for-like excludes the impact of acquisitions. KOP was acquired
on 27 July 2017 and excluded for 2017 and 2018. ESCO was acquired
on 12 July 2018 and excluded from 2018.
4 Continuing operations before exceptional items and intangibles
amortisation.
Analyst and investor conference call
A conference call for analysts and investors will be held at
0800 GMT on Tuesday 6 November 2018 to discuss this statement.
Participants can join the call by registering in advance by
visiting www.global.weir/investors and following the link on the
page.
A recording of this conference call will be available until
Tuesday November 20 2018.
Enquiries:
Investors: Stephen Christie +44 (0) 141 637 7111 / (0) 7795 110456
---------------------------------------
Media: Raymond Buchanan +44 (0) 141 637 7111 / (0) 7713 261447
---------------------------------------
Brunswick: Patrick Handley /
Nick Cosgrove +44 (0) 20 7404 5959
---------------------------------------
About The Weir Group PLC
Founded in 1871, Weir is one of the world's leading engineering
businesses. We provide mission-critical equipment and aftermarket
solutions to mining, infrastructure and energy customers in more
than 70 countries. The Group, which employs around 18,000 people is
headquartered in Glasgow, Scotland, UK.
Weir's ordinary shares trade on the London Stock Exchange
(ticker: WEIR LN) and its American Depositary Receipts trade
over-the-counter in the USA (ticker: WEGRY).
Appendix 1 - quarterly order trends (constant currency)
Reported growth(3) Like for like growth(2,3)
2017 2017 2018 2018 2018 2017 2017 2018 2018 2018
Division Q3 Q4 Q1 Q2 Q3 Q3 Q4 Q1 Q2 Q3
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Original Equipment 19% 9% 19% - 19% 19% 9% 19% - 19%
Aftermarket 10% 9% 11% 17% 20% 10% 9% 11% 17% 20%
Minerals 12% 9% 13% 12% 20% 12% 9% 13% 12% 20%
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Original Equipment - - - - - - - - -
Aftermarket - - - - - - - - -
ESCO - - - - - - - - -
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Original Equipment 91% 129% 92% 32% 37% 81% 96% 85% 21% 23%
Aftermarket 54% 50% 42% 21% 6% 52% 47% 40% 19% 6%
Oil & Gas 61% 64% 52% 23% 13% 57% 56% 49% 19% 10%
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Original Equipment 33% 32% 36% 8% 28% 31% 26% 35% 5% 20%
Aftermarket 23% 21% 22% 19% 44% 23% 20% 21% 18% 15%
Continuing Ops(1) 26% 24% 25% 16% 40% 25% 21% 24% 14% 16%
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Book to Bill 0.99 0.96 1.14 1.08 1.02 1.00 0.96 1.14 1.08 1.04
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Original Equipment -8% - -2% 111% 21% -8% - -2% 111% 21%
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Aftermarket 6% 13% 2% 19% 3% 6% 13% 2% 19% 3%
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
Discontinued Ops -2% 6% - 63% 13% -2% 6% - 63% 13%
-------------------- ----- ----- ----- ----- ----- ------ ----- ----- ----- -----
(1) Continuing operations (excludes the Flow Control division
which has been classified as being held for sale).
(2) Like-for-like excludes the impact of acquisitions. KOP was
acquired on 27 July 2017 and excluded for 2017 and 2018. ESCO was
acquired on 12 July 2018 and excluded from 2018.
(3) Divisional order growth in previous quarters has been
restated to reflect final changes to the Flow Control disposal
perimeter. The impact of these changes on each division is not
considered significant and overall has no Group impact.
This information includes 'forward-looking statements'. All
statements other than statements of historical fact included in
this presentation, including, without limitation, those regarding
The Weir Group PLC's ("the Company") financial position, business
strategy, plans (including development plans and objectives
relating to the Company's products and services) and objectives of
management for future operations, are forward-looking statements.
These statements contain the words "anticipate", "believe",
"intend", "estimate", "expect" and words of similar meaning. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to be
materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements. Such forward-looking statements are based on numerous
assumptions regarding the Company's present and future business
strategies and the environment in which the Company will operate in
the future. These forward-looking statements speak only as at the
date of this document. The Company expressly disclaims any
obligation or undertaking to disseminate any updates or revisions
to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such
statement is based. Past business and financial performance cannot
be relied on as an indication of future performance.
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END
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