TIDMWEIR
RNS Number : 0461L
Weir Group PLC
28 April 2020
The Weir Group PLC Interim Management Statement for the first
quarter ending 31 March 2020(1)
(Relatively resilient Q1; Future impact of Covid-19 still
uncertain)
-- Safety of our people, families and wider communities is the Group's number 1 priority
o Adapting working practices to continue to safely serve
customers
o Designated as an essential business in most jurisdictions
-- Benefiting from resilience of aftermarket-focused mining
businesses (80% of total Group orders)
o Commodity prices above incentive levels; customer production
volumes robust
o Stable Q1 Minerals AM orders(2) (-1%) against a strong
comparator (+9% Q1'19)
o Robust ESCO Core GET orders(2) (-3%) although construction
demand weaker
o Minerals OE orders(2) 13% lower reflecting project procurement
deferrals; pipeline remains strong
-- Oil & Gas slightly above breakeven in Q1; expected to be cash positive for the year
o Q1 orders(2) down 34%; with North American capex now expected
to be down 50% in 2020
o Additional GBP12m cost savings programme announced
-- Protecting the business with prudent cost and cash mitigation actions
o GBP140m of cash preservation actions in H1 including
withdrawal of 2019 final dividend
o c.GBP75m full year cost mitigations include workforce, travel
and discretionary spending actions
o 2020 bonus schemes suspended; inflationary Board and Group
Executive increases withdrawn
-- Ensuring sufficient Group liquidity to manage through a range of downside scenarios
o c.GBP500m immediately available through committed facilities
and cash balances
o In addition, the Group is approved for GBP300m under the UK
Government's CCFF
-- Trading in April
o No impact on our ability to meet customer demand
o Mining AM demand remains robust; OE conversion remains
slow
o As expected O&G weaker due to record oil price
declines
o Still too early to assess full impact of Covid-19 on the
balance of the year
Jon Stanton, Chief Executive, commented:
"I am very proud of the way the global Weir family has responded
to the Covid-19 pandemic. This is a unique time and a unique
challenge, and we have been led by our values, with our incredibly
strong culture shining through. Our priorities remain safeguarding
the health and well-being of our people and communities. This has
included adapting our working practices to promote social
distancing in our facilities, donating PPE and oxygen supplies to
local health authorities, utilising our 3D printing capability to
manufacture face mask components, and providing financial support
to local organisations in countries where there is limited social
support.
At the same time, we have continued to fully and safely support
our customers. This was demonstrated in the first quarter where our
mining-focused businesses delivered a very resilient performance,
underpinned by the critical nature of our technology to miners'
ongoing operations. In Oil & Gas, we have once again acted
quickly to protect the business as it navigates the steep downturn
in market conditions.
While there remains a high degree of uncertainty over the full
impact of Covid-19, we are taking a prudent approach to managing
costs and conserving cash and are ready with a range of further
actions should market conditions require them. More broadly, our
recent portfolio changes have positioned Weir to benefit from
long-term structural trends, including carbon transition, as a key
technology provider making mining smarter, more efficient and
sustainable."
First quarter trading review
First quarter orders for the Group were 13% lower than the prior
year principally reflecting significantly weaker oil and gas market
conditions. Original equipment (OE) orders fell 22% with
aftermarket (AM) down 10%. The Group generated a positive
book-to-bill ratio of 1.08 over the three-month period.
Divisional review
Minerals
The long-term effect of Covid-19 remains uncertain but its
impact on mining markets has been relatively limited so far,
reflecting the designation of miners, and providers of
mission-critical technology such as Weir, as essential businesses
in most countries. While there have been some inevitable
disruptions as a result of travel restrictions and staffing, ore
production has continued, supported by commodity prices, which
remain above incentive levels for our key exposures. Gold markets
are strong with copper and iron ore remaining robust overall.
Thermal coal markets are more challenging given reduced global
power consumption, while oil sands demand has remained relatively
robust so far, despite a significant reduction in Canadian oil
prices.
The vast majority of global mines have continued to operate, and
the division has continued to fully meet customer demand despite
some disruptions to operations. In South Africa, a comprehensive
nationwide shutdown has seen both mines and our facilities largely
closed. In Peru and Panama, some mines have reduced production
levels but remained operational and we have been able to supply
spares from our distribution centres. In Malaysia, we have seen
ongoing disruption to our manufacturing capability from extended
government shutdowns, although we have been able to ship some
already completed products. In India, we have secured permits to
enable around 50% of our employees to continue working in our
manufacturing operations. In the UK, we temporarily closed our
foundry for five days to reconfigure operations to support social
distancing and hygiene, but we are now operational. In China,
operations have fully recovered after Covid-19 restrictions
interrupted production in February. In all other locations
operations are largely unaffected despite a significant level of
mandated home working for managerial and administrative staff.
Overall, the division has benefited from its regional
manufacturing footprint and localised supply chains, enabling it to
shift production to support customers around the world, as
demonstrated by its resilient first quarter performance.
Aftermarket orders, which represented 76% of the total, were
stable, down 1% against a strong prior year comparator but up 2%
sequentially with March remaining strong. This was supported by
good demand for spares in Latin America reflecting production
trends and some customers increasing safety stocks. This was offset
by weakness in Russia Central Africa and Australasia. Original
equipment orders were 13% lower as a result of deferrals in project
procurement, particularly for longer lead time products. However,
the division's project pipeline and quotation levels remained
strong, reflecting its technology leadership and the positive
long-term fundamentals underpinning its markets. The book-to-bill
ratio in the first quarter was 1.14.
Looking forward visibility remains limited. Currently, there has
been a modest reduction in miners' production forecasts, but this
may change given the uncertain impact of Covid-19 on demand and
supply in mining markets. As a result, the division is under-taking
a number of pre-emptive mitigating actions to reduce costs and
preserve cash including freezing recruitment, restricting
discretionary spending and undertaking some restructuring
activities, including a workforce reduction of 350 (4%), in total
saving c.GBP30m to be realised this year.
ESCO
Demand for the division's core GET products has remained robust
in both mining and infrastructure markets. In the first quarter the
division saw a 7% reduction, although core GET remained robust with
softer demand for more discretionary products such as buckets and
blades in construction markets, particularly in North America and
Europe, reflecting lower economic activity levels. The division did
however see a 15% sequential increase in orders from Q4'19 and its
book-to-bill ratio was 1.02.
Performance was supported by the division's global manufacturing
footprint and service facilities which include foundries in North
America, Chile and China. These are all currently fully operational
although there have been some interruptions to production due to
temporary closures in the US, including a five-day closure of its
Newton, Mississippi foundry. The division's foundry in China is now
fully operational following the extended shutdown at the beginning
of February and previous supply chain interruptions in Europe due
to Covid-19 restrictions have now been resolved.
Looking forward visibility remains limited. Currently, there has
been a modest reduction in miners' production forecasts, but this
may change given the uncertain impact of Covid-19 on demand and
supply in mining markets. Infrastructure markets, and particularly
construction in North America and Europe, have been significantly
impacted by nationwide shutdowns with the duration and extent of
these still uncertain. Given ongoing uncertainty, the division is
taking a number of mitigating actions to reduce costs including
freezing recruitment, restricting discretionary spending and
undertaking some restructuring activities, including a workforce
reduction of 130 (5%), in total saving GBP9m this year.
Oil & Gas
There has been a deep downturn in oil and gas markets since the
beginning of the year with E&P capex now expected to fall c.50%
in North America compared to March estimates of 30%, reflecting
recent oil price declines which have seen WTI fall to multi-decade
lows. These conditions had an immediate impact on the US land rig
count which is 54% lower than last year. At the same time, the
number of active frack fleets has reduced by c.60%, with a
subsequent reduction in demand for both pressure pumping and
pressure control products. International markets have been more
robust, although there has been an increase in project
deferrals.
These conditions are reflected in the division's first quarter
performance where orders fell 34% in the period with OE down 41%
and AM 31% lower although the division did make market share gains
in fluid ends and services. Following previously announced 2020
cost savings of $30m (c.GBP24m), the division has taken further
steps to right size its operations and protect cash generation
which is expected to deliver an incremental GBP12m saving this
year. This included a workforce reduction of 150 meaning the
division has reduced its workforce by 350 in 2020, and by a total
of c.1,000 (c.30%) since the start of 2019. In addition, the
division has increased furloughs and secured concessions from
vendors and landlords. These actions have been taken while
protecting the division's technology leadership, broader service
capability and core manufacturing capacity so that it is well
positioned to benefit from a future recovery.
The impact of Covid-19 on the division's operations has been
restricted to the temporary closure of a facility in the United
Arab Emirates. Looking forward, while the recent OPEC+ agreement
will eventually contribute to a reduction in oversupply, there
remains significant uncertainty over the extent and duration of
Covid-19's impact, including on global energy demand. Based on
current market conditions the division is now expected to be loss
making but remain cash positive through 2020.
Prudent cost control and cash management
The longer-term impact of Covid-19 on macro-economic conditions
and our markets is as yet uncertain and therefore the Group is
taking a prudent approach to reduce costs and conserve cash. In
addition to the operational actions detailed in the Divisional
Reviews, the Group has also undertaken a number of corporate
measures. These include: withdrawing the recommendation to pay the
2019 final dividend; curtailing capital expenditure; managing
working capital to minimise normal seasonal outflow in the first
half; rightsizing Group functions; and, restricting all
discretionary spending. In addition, all 2020 executive and
management annual bonus schemes have been suspended and
inflationary increases in Board and Group Executive fees and
salaries withdrawn.
The Group expects to realise c. GBP75m of cost mitigation
savings in 2020 which include workforce reductions, reduced travel
and discretionary spending. We expect to incur exceptional cash
costs of c.GBP25m in the year.
Through the first half of the year, cash preservation actions of
GBP140m include withdrawal of the final 2019 dividend, minimising
non-committed and non-safety related capex and rephasing of tax
payments.
While our mining aftermarket will be resilient if ore production
volumes continue to be robust, we have stress tested a number of
potential downside scenarios of varying severity. These include
widespread disruption to our operations and supply chain, deferment
of original equipment orders and revenues, and significant
reduction in aftermarket demand. While there is a high degree of
uncertainty, in each of these scenarios we expect to have adequate
liquidity and manageable levels of net debt supported by a range of
well-developed mitigating actions that are ready to be executed if
necessary.
At the same time the Group will continue to invest in
strengthening its key competitive advantages in technology
leadership and differentiated customer service. This will enable
Weir to take full advantage of the attractive long-term prospects
in its markets, including the Group's critical role in making
mining more sustainable and efficient.
Outlook
After a resilient first quarter, we expect Covid-19 to have a
greater impact in the second quarter, and as outlined above, a
first round of mitigations has already been actioned which will
help underpin first half profitability. Given the uncertain
environment no specific guidance is provided for the remainder of
the year, although we will update as and when visibility
improves.
Net Debt and Liquidity
As in prior downturns, we expect the business to continue to be
highly cash generative and are taking actions to mitigate the
normal first half working capital seasonal outflow. Based on Net
Debt levels at the end of March, which were higher than 31 December
2019 reflecting normal seasonal patterns, the Group has liquidity
of c.GBP500m of immediately available committed facilities and cash
balances. It also has the ability to access up to GBP300m under the
UK Government's Covid Corporate Finance Facility (CCFF) programme
and has a further c.GBP100m of uncommitted facilities.
As part of a normal schedule, the Group is currently undertaking
a refinancing of its $950m Revolving Credit Facility ($152m matures
in September 2020 and $798m matures in September 2021) and its
GBP300m Term Loan which matures in December 2020. These discussions
are ongoing and are expected to conclude during the second
quarter.
Chairman and AGM
Charles Berry has resumed his duties as Chairman after his
recent medical leave. The Board would like to thank Barbara
Jeremiah, the Senior Independent Director, for deputising in
Charles' absence. The Group will hold its Annual General Meeting
later today but has asked that shareholders do not attend in person
due to Covid-19 restrictions and instead vote and submit questions
electronically.
Completion of Black Economic Empowerment Transaction in South
Africa
The Group is also pleased to announce its subsidiary, Weir
Minerals South Africa (Pty) Ltd (WMSA), has completed a Broad-based
Black Economic Empowerment ("B-BBEE") ownership transaction with
Medu Capital (Pty) Ltd ("Medu Capital"). The transaction will
result in WMSA being '25%+1' Black-owned (as defined in the
Broad-Based Black Economic Empowerment Act 53 of 2003). As part of
the transaction, Medu Capital has made a cash investment into WMSA.
The business will continue to be fully consolidated in the Group's
financial statements.
This ownership structure better reflects the demographics of
South Africa and reiterates Weir's long-term commitment to the
country and to the communities in which we operate. It will also
differentiate WMSA from many of its competitors as one of the few
'25%+1' empowered mining technology companies in South Africa.
Notes:
1. Financial information is given for the three months ended 31
March 2020 and relates to continuing operations.
2. Orders are reported on a constant currency basis.
Analyst and investor conference call
A conference call for analysts and investors will be held at
0800 BST on Tuesday 28 April 2020 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 12 May 2020.
Enquiries:
Investors: Stephen Christie +44 (0) 7795 110456
---------------------
Media: Raymond Buchanan +44 (0) 7713 261447
---------------------
Brunswick: Carole Cable / Charles
Pretzlik +44 (0) 20 7404 5959
---------------------
About The Weir Group PLC
We are one of the world's leading engineering businesses working
in partnership with customers to solve their toughest operating
challenges safely, efficiently and sustainably. Our market-leading
solutions are used in high abrasion mining, infrastructure and
upstream oil and gas applications, supporting the essential
resources needed by a growing world.
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 - Continuing Operations(1) quarterly order trends
(constant currency)
Reported growth(1) Like for like(1,2) growth
Division Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
---------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Original
Equipment -10% 7% 72% 20% -13% -10% 7% 72% 20% -13%
Aftermarket 9% 7% -5% 8% -1% 9% 7% -5% 8% -1%
Minerals 3% 7% 17% 12% -5% 3% 7% 17% 12% -5%
---------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Original
Equipment - - 83% 54% 25% - - - - 25%
Aftermarket - - 22% -18% -8% - - - - -8%
ESCO - - 25% -16% -7% - - - - -7%
---------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Original
Equipment -7% -22% -26% 7% -41% -7% -22% -26% 7% -41%
Aftermarket -28% -34% -34% -43% -31% -28% -34% -34% -43% -31%
Oil & Gas -23% -31% -32% -35% -34% -23% -31% -32% -35% -34%
---------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Original
Equipment -6% - 41% 18% -22% -9% -3% 40% 17% -22%
Aftermarket 27% 23% -7% -13% -10% -6% -8% -15% -11% -10%
Continuing
Ops(1) 18% 17% 4% -6% -13% -7% -7% - -3% -13%
---------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Book-to-Bill 1.09 1.05 1.08 0.97 1.08 1.11 1.05 1.11 1.02 1.08
---------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
1 Continuing operations (excludes the Flow Control division
which has been sold).
(2) Like for like excludes the impact of acquisitions, ESCO was
acquired on 12 July 2018 and excluded from 2018 and 2019.
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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