Positioned for profitable growth

Transcription

1 Positioned for profitable growth LSE ticker: WEIR.LN US ADR ticker: WEGRY Presented by Jon Stanton, Chief Executive Officer John Heasley, Chief Financial Officer London, 22 February 2017

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3 2016 review Jon Stanton

4 Agenda review Jon Stanton, CEO Financial review John Heasley, CFO Strategic review and 2017 priorities Jon Stanton, CEO Q&A Jon Stanton, CEO John Heasley, CFO Ricardo Garib, President Minerals Paul Coppinger, President Oil & Gas

5 2016: Markets starting to turn Most significant downturn in 30+ years for Weir markets Mining capex down 50%+ since 2012 US land rig count fell 80% from peak in 2014 Aggressive cost control supporting margins and cash flow Bottom of the cycle margins of 11.6% Annualised cost savings of 60m delivered in m reduction in constant currency net debt Revenue 1 FY ,845m -11% Profit before tax 1,2 170m -31% Returned to growth in the fourth quarter 20% 10% Group quarterly input trend 5 Free cash inflow 3 130m -2% 0% -10% -20% Safety (Total incident rate 4) 0.6 0% -30% Q1 Q2 Q3 Q4 1 Constant currency with 2015 restated at 2016 average exchange rates. 2 Profit before tax adjusted to exclude exceptional items and intangibles amortisation. 3 Free cash inflow predividend. 4 Medical injuries per 200,000 hours worked. 5 Year on year Input trends with 2015 restated at 2016 average exchange rates. 5

6 Key takeaways from the downturn No. 1 flexible business model enables rapid response m Incremental run-rate cost savings TOTAL 6

7 Key takeaways from the downturn No. 2 strong cash generation even in the toughest markets m 600 EBITDA to cash conversion 82% 123% 108% EBITDA Cash from operations 7

8 Key takeaways from the downturn No. 3 investing through the downturn to strengthen competitive position m m (6%) of 2016 revenues from new products R&D spend % Revenue 1.5% % % 8

9 Key takeaways from the downturn No 4 proven resilience of Minerals division US$bn Minerals constant currency revenue trend v peers 1 (Mining industry capex) 200 Revenue (2012 rebased to 100) Margin% Versus 2012 Weir Minerals 19.5% +30bps Atlas Copco (MRET) 17.8% -670bps Sandvik (M&RT) 10.3% -600bps Metso (Minerals) 9.7% -220bps FLSmidth 7.1% -400bps Outotec (2.2%) -1150bps Mining capex Weir Atlas Sandvik Metso FL Smidth Outotec Source: 1,2 Weir and company reports. 9

10 Positioned for growth A leaner Weir ready to fully benefit from the recovery 500 PBTA 1 m m of cost savings delivered in Published FX O&G volumes / under-recoveries O&G pricing O&G cost savings Minerals, Flow Control & Central cost savings Other Adjusted to exclude exceptional items and intangibles amortisation. 10

11 Financial review John Heasley

12 Resilient performance in the toughest conditions Results summary Continuing operations 1 m As reported Constant currency 2 Order input 2 1,860 2,025 n/a -8% Revenue 1,845 1,880-2% -11% Operating profit % -26% Operating margin % 13.7% -210bps -240bps Profit before tax % -31% Reported profit after tax 43 (157) n/a n/a Cash from operations % n/a Earnings per share p 78.0p -22% n/a Dividend per share 44.0p 44.0p 0% n/a Return on capital employed 5 7.6% 9.6% n/a -200bps Net debt (10) Continuing operations excludes American Hydro Corporation and Ynfiniti Engineering Services, which were disposed of during H and are reported as discontinued operations restated at 2016 average exchange rates. 3 Adjusted to exclude exceptional items and intangibles amortisation. Reported operating profit and profit before tax from continuing operations were 90m (2015: operating loss of 133m) and 43m (2015: loss before tax of 174m) respectively. Reported earnings per share was (20.1p) (2015: loss per share of 73.1p). 4 Cash from operations includes both continuing and discontinued operations. 5 Continuing operations EBIT before exceptional items on a constant currency basis (excluding Delta EBIT and exceptional items) divided by average net assets (excluding Delta net assets) excluding net debt and pension deficit (net of deferred tax asset). 12

13 Impact of oil & gas downturn partially offset by FX 2,500 Revenue m 2,300 2, % 21 2% 1,900 1,700 1,880 1,860 (203) -34% (36) -10% 0 1,845 1, Published FX Minerals O&G Flow Control Other 2016 Operating profit 1 m % (67) -115% (6) (5) -16% Published FX Minerals O&G Flow Control Other Adjusted to exclude exceptional items and intangibles amortisation. 13

14 Minerals: Return to growth in AM and OE orders m H1 1 H YOY +/- Original equipment input % Aftermarket input % Total input ,125 1,093 3% Book to bill After a difficult start to the year, mining markets normalised supported by higher commodity prices Following extended shutdowns into Q1, aftermarket orders returned to growth in H2 Ore production increased; mine ramp-ups in Latin America, increased gold activity in Africa OE input up 5% supported by brownfield wins and improved maintenance capex and H restated at 2016 average exchange rates. 14

15 Minerals: robust performance in challenging markets m H1 1 H YOY +/- Original equipment revenue % Aftermarket revenue % Total revenue ,112 1,091 2% EBITA % Operating margin % 19.5% 19.5% 19.5% 0bps Operating cash flow % Aftermarket revenues returned to growth in H2 Operating margins stable through the year Pricing pressures offset by procurement savings and restructure activities 29m in annualised cost savings generated in 2016 Cash conversion remained robust at 96% and H restated at 2016 average exchange rates, excluding operating cash flow. 2 Adjusted to exclude exceptional items and intangibles amortisation. 3 Like for like excludes the impact of acquisitions and related transaction and integration costs. Delta Valves was acquired on 8 July

16 Oil & Gas: North American markets rebounding in H2 m H1 1 H YOY +/- Original equipment input % Aftermarket input % Total input % Book to bill Difficult H1 as US land rig count hit historic low H2 North American sentiment supported by oil price rise and OPEC deal International markets later cycle conditions remained challenging throughout 2016 Input 27% lower, with sequential improvement through H and H restated at 2016 average exchange rates. 16

17 Oil & Gas: Cash generative throughout downturn m H1 1 H YOY +/- Original equipment revenue % Aftermarket revenue % Total revenue % EBITA (including JVs) 2 (2) (7) (9) % Operating margin 2-0.8% -3.5% -2.2% 9.7% -1190bps Operating cash flow % Revenues reflect reduced customer spend in North America Pricing pressures impacted margins Pricing levels stabilised in fourth quarter 27m cost saving actions through 2016, supported return to break-even in Q4 Excellent cash generation; inventory reduction of 29m and H restated at 2016 average exchange rates, excluding operating cash flow. 2 Adjusted to exclude exceptional items and intangibles amortisation. 17

18 Flow Control: Challenging later-cycle end markets m H1 1 H YOY +/- Original equipment input % Aftermarket input % Total input % Book to bill Oil and gas sector orders down 22% Power markets remained subdued Original equipment input down 12%, reflecting depressed project market compounded by customer delays Aftermarket input impacted by maintenance schedule delays and H restated at 2016 average exchange rates, excluding operating cash flow. 2 Adjusted to exclude exceptional items and intangibles amortisation. 18

19 Flow Control: Operating measures sustaining margins m H1 1 H YOY +/- Original equipment revenue % Aftermarket revenue % Total revenue % EBITA % Operating margin 2 9.0% 9.1% 9.1% 9.8% -70bps Operating cash flow % Revenue down 10%, broadly in line with input trends Gross margin decline reflecting pricing pressures and product mix SG&A reduced by 6m, in line with revenue reductions Strong EBITDA to cash conversion of 111% and H restated at 2016 average exchange rates, excluding operating cash flow. 2 Adjusted to exclude exceptional items and intangibles amortisation. 19

20 Exceptional items m Intangibles amortisation (50) (52) Intangibles impairment - (226) Restructuring & rationalisation (64) (116) China operations (17) - Gain on sale and leaseback of properties 5 - Other 2 3 Recognised in operating profit from continuing operations (124) (391) 64m restructuring and rationalisation charges 49m cash costs; 8m fixed asset impairments; 7m working capital 60m additional run rate savings from actions taken 17m China operations Warranty, associated inventory, contract liabilities and other unprovided liabilities Primarily relate to Trio, acquired for $220m in Include pre and post acquisition liabilities 9m cash outflow expected in relation to these issues 20

21 Strong cash flow performance 108% EBITDA conversion Focus on management of working capital Cash flow statement m (as reported) Operating cash flows pre working capital Working capital inflow Operating cash flows Net interest (40) (38) Tax (16) (50) Net capex (62) (88) Other cash flows 1 6 Free cash flow pre dividends Dividends paid (46) (94) Free cash inflow m Debtors Debtor days m Inventory Inventory turns Strong overall working capital performance and cash inflow of 32m Capex spend focused on key strategic and safety projects Tax cash flows benefiting from US refund Dividend cash outflows reflect strong up-take of dividend scrip scheme 1 Restated at 2016 average exchange rates. 21

22 Leverage ratios broadly stable through the year Substantial liquidity available Net debt 10m increase after adverse FX impact of 133m 31m disposal proceeds (received to date) 14m final consideration on non-controlling interests and prior acquisitions Net debt covenant calculation based on average rates, not spot Movement in net debt m Net debt at 1 January Free cash inflow (130) Restructuring cash outflow 58 Property disposal proceeds (36) Business disposal proceeds (31) Acquisition consideration 14 Range of short, medium and long-term financing in place Attractive rates and diverse lending base No debt maturities until 2018 ( 100m), total facilities 1.6bn FX 133 Other 2 Net debt at 31 December Asset disposal programme 78m proceeds from asset disposal programme Disposal of American Hydro and YES completed in June Further property disposal being negotiated Covenant calculation H2-15 H1-16 H2-16 Closing net debt FX Impact (28) (54) (77) Net debt at av. rate (A) EBITDA (B) Covenant (A/B)

23 2017 financial items guidance Guidance on financial items Investment in People and Technology 9m investment in digital, innovation, training and lean projects 6m increase in employee share options, as a result of non vesting credits in prior years Capex c. 88m (1.4x depreciation) Defined benefit pension plans Deficit recovery contributions 4.4m in 2017 (2016: 2.4m) Effective tax rate expected to be in the range of 23%-24% Based on current FX rates expect operating profit tailwind of c. 25m 23

24 Strategic review and outlook Jon Stanton

25 Strong foundations: A robust business model A vital partner in our customers success Designed for the most challenging conditions Enabling reliable operation for high wear applications Wherever and whenever our customers need us All investments and acquisitions will be aligned to this business model

26 Billion US$ Minerals: A world class franchise Market assessment Competitive positioning Core characteristics Strategic focus Aligned to structural trends Emerging cyclical recovery Global technology leader with unrivalled service footprint Strong market shares, high barriers to entry Aftermarket and solutions focused High margin and cash generation; strong returns on capital Increase customer integration through a solutions mind-set Leverage platform through acquisitions Mining Capex 1 Sustaining & brownfield CAGR of 4% Sustaining Brownfield Greenfield Ore production 1 (Rebased 2011=100) Copper Gold Weir weighted Source: 1 CRU February

27 Oil & Gas: Well positioned for cyclical recovery Market assessment Competitive positioning Core characteristics Strategic focus Excellent growth prospects; Shale and Middle East focused Market structure evolving customer segmentation key Pressure Pumping leader with extensive service footprint Tier-2 Pressure Control position Strong Middle East franchise in rotating equipment services Aftermarket focused, service intensive Cyclical but high margins and returns Leveraging combined offering in North America Internationalise product portfolio Enhancing relevance in changing landscape 2017 capex estimates 1 Year on year growth NAM SMDI & large Cap E&Ps +52% IOCs/NOCs in North America +1% North American E&P +26% International +2% $80/bbl $70/bbl $60/bbl $50/bbl $40/bbl $30/bbl $20/bbl $10/bbl Marginal costs of new oil supply 2 Weir aligned to low end of the cost curve (Middle East conventional and US tight oil) Global E&P +7% Source: 1 Barclays January UBS January ,000 10,000 15,000 20,000 25,000 (kb/d cumulative new production) Conventional Deepwater SAGD Mining Heavy Oil US tight oil 27

28 Flow Control: Strong brands in diverse markets Market assessment Competitive positioning Core characteristics Strategic focus Good medium term outlook; growing energy demand Later and longer cycle still in downturn Some strong niche positions in a fragmented market Uneven presence across EPCs and broader markets OE project focused, with reasonable aftermarket content Strong cash generation; margin improvement potential Maximising portfolio benefits and aftermarket opportunities Supply chain opportunities critical to margin improvements B toe Primary energy consumption by fuel Oil Gas Coal Nuclear Hydroelectricity Renewables Source: 1 BP Weir and company reports. Margin 20% 15% 10% 5% 0% Flow Control margin trends v peers Weir Sulzer Pumps (2016 FactSet) Velan (9 months 2016) Flowserve IMI Critical (2016 FactSet) 28

29 Our future direction We Are Weir The outcomes we re looking for: Growing faster than our end markets and delivering strong returns to investors Becoming the employer of choice in our markets Developing enduring strategic partnerships with customers and suppliers Doing business the right way and living by our values and Code of Conduct

30 How we ll get there Critical assessment The opportunity Distinctive Competencies STRENGTHS Strong culture Resilient and agile platform Aligned to growth markets Divisions with room to grow LESSONS Empowering our people Build on core strengths Focus on key competencies Leveraging customer intimacy A clear vision for the future 30

31 Releasing our full potential A total commitment to zero-harm operations Fully leverage the group s learning and development capabilities Prioritise leadership development to drive strategic execution Better engage with our people and reflect the diversity of the communities we serve Delivering outperformance with a culture that promotes safety, agility and diversity 31

32 Solutions not just products Move from product focus to a solutions mind-set Deeper strategic relationships from field to senior management Ensure customer insights inform all technology development Use technology to make it more convenient to do business with Weir Build on existing strong relationships, improve market intelligence and grow share 32

33 Focused innovation Expand our digital solutions offering Seek out novel and disruptive technologies Align product development to customer insights and strategic priorities Increase R&D to 2% of sales Lead the change in our industry segments; allocate resources to generate best returns 33

34 Always doing better Consistently outperform Aggressively deploy human, technological and physical capital Reinvigorate a culture of continuous improvement across all operations Embed customer and Weir sustainability goals in our value chain Sustainably grow revenue, profit and cash generation; maintain a strong balance sheet 34

35 Clear strategic direction 35

36 2017 Outlook Minerals Mining markets expected to be relatively stable, assuming commodity price support Normalised mine maintenance schedules; AM supported by ore production growth Moderately higher constant currency revenues; operating margins stable Oil & Gas NAM expected to benefit from increased E&P capex; Middle East later cycle Pricing expected to remain at low levels Strong increase in constant currency revenues with margins returning to modest levels Flow Control Power and downstream oil and gas to remain subdued. Industrial markets mixed Moderate constant currency revenue growth supported by previously delayed projects Margins and profits to fall as a result of higher OE mix and pricing pressure Group Strong cash generation Good growth in constant currency revenues, further foreign exchange benefit Profit growth partially offset by investment in strategic priorities Positioned to benefit from multi-year cyclical upturn 36

37 Questions

38 Appendices

39 Appendix 1: Quarterly input trends Division 2016 Q Q2 Reported growth 1 Like for like growth 1, Q Q4 Original Equipment 15% 13% -28% 34% 5% 11% 9% -28% 36% 3% Aftermarket -11% 0% 4% 19% 2% -11% 0% 4% 19% 2% Minerals -4% 4% -7% 23% 3% -5% 2% -7% 23% 3% 2016 FY 2016 Q Q Q Q FY Original Equipment -40% -37% -24% 13% -26% -40% -37% -24% 13% -26% Aftermarket -49% -37% -6% 0% -27% -49% -37% -6% 0% -27% Oil & Gas -47% -37% -10% 2% -27% -47% -37% -10% 2% -27% Original Equipment -32% 10% 0% -17% -12% -32% 10% 0% -17% -12% Aftermarket -17% -16% -10% -8% -13% -17% -16% -10% -8% -13% Flow Control -26% -4% -4% -14% -13% -26% -4% -4% -14% -13% Group Original Equipment -12% 3% -20% 11% -6% -14% 1% -20% 11% -7% Aftermarket -26% -14% -1% 10% -9% -26% -14% -1% 10% -9% Continuing Ops -22% -9% -7% 10% -8% -23% -9% -7% 10% -8% Book to bill Continuing operations (excludes American Hydro Corporation and Ynfiniti Engineering Services which were disposed of in Q2). 2 Like for like excludes the impact of acquisitions (Delta Valves was acquired on 8 July 2015). 39

40 Appendix 2: Order input by end market and geography Order input by end market Minerals Oil & Gas Flow Control 2016 Total Total Minerals 72% % 41% Oil & Gas 7% 96% 30% 31% 36% Power 4% 1% 41% 10% 9% Sand & Aggregates 5% - - 3% 4% General Industrial 11% 2% 11% 9% 7% Other 1% 1% 18% 3% 3% Continuing operations 100% 100% 100% 100% 100% Order input by geography Minerals Oil & Gas Flow Control 2016 Total Total North America 24% 72% 33% 36% 38% Europe & FSU 10% 7% 30% 13% 12% Australia 16% 1% 1% 10% 9% Middle East & Africa 14% 15% 14% 15% 17% South America 24% - 1% 14% 13% Asia Pacific 12% 5% 21% 12% 11% Continuing operations 100% 100% 100% 100% 100% restated at 2016 average exchange rates. 40

41 Appendix 3: Foreign exchange by currency 2015 Revenue m 2015 Operating profit 1 m Currency At 2015 rates FX At 2016 rates At 2015 rates FX At 2016 rates US dollar Australian dollar Canadian dollar Euro Chilean peso United Arab Emirates dirham South African rand 83 (2) Brazilian real Russian rouble Other (2) 3 1 Continuing operations 1, , Variance 10% 12% Interest (39) (3) (42) PBTA Variance 12% 1 Adjusted to exclude exceptional items and intangibles amortisation. 41

42 Appendix 4: Foreign exchange by division 2015 Revenue m 2015 Operating profit 1 m Division At 2015 rates FX FX % At 2016 rates At 2015 rates FX FX % At 2016 rates Minerals 1, % 1, % 213 Oil & Gas % % 58 Flow Control % % 36 Central costs (19) - 1% (19) Continuing operations 1, % 2, % Adjusted to exclude exceptional items and intangibles amortisation. 42

43 Appendix 5 :Foreign exchange tailwind expected in Revenue m 2016 Operating profit 1 m Currency At 2016 rates FX At rates At 2016 rates FX At rates US dollar Australian dollar Euro Canadian dollar Chilean peso South African rand United Arab Emirates dirham Brazilian real Russian rouble Other (10) 2 (8) Continuing operations 1, , Variance 9% 11% Interest (44) (1) (45) PBTA Variance 14% 1 Adjusted to exclude exceptional items and intangibles amortisation FX rates reflect January 2017 average 43

44 Appendix 6: Exchange rates The principal exchange rates applied in the preparation of the financial statements were as follows: 2015 Average FX rate 2016 Average FX rate 2015 Balance sheet date 2016 Balance sheet date US dollar Australian dollar Canadian dollar Euro Chilean peso 1, , United Arab Emirates dirham South African rand Brazilian real Russian rouble

45 Disclaimer 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 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.