Fully capturing opportunities

Transcription

1 Fully capturing opportunities 2016 Interim Results Presented by Keith Cochrane, Chief Executive Jon Stanton, Finance Director London, 28 July 2016

2 Chairman Charles Berry The Delta Industrial range of knife gate valves.

3 Highlights Keith Cochrane SPM Valve and Seat 2.0 doubles the life of the current product

4 Fully capturing available opportunities Benefiting from global leadership and operational discipline Robust Minerals performance - OE revenues up 24%, AM up sequentially with Q2 revenues at record levels Improving competitiveness - Minerals and Flow Control margins +100 bps in challenging markets Strong cash generation - Oil & Gas below break-even but cash generative with 16m inventory reductions Financial position maintained - 46m disposals to date; 48% scrip dividend uptake; net debt/ebitda 2.8x Continuing to extend technology leadership - New products delivered 38m of revenue in H1-16 Revenue 1 Profit before tax 1, 2 Free cash inflow pre-dividend 3 Earnings per share 1 Dividend per share 6 Total incident rate 4 866m 82m 78m 29.6p 15.0p 0.6 down 13% 5 down 25% down 36% down 23% unchanged down 21% 1 Continuing operations. 2 Profit before tax adjusted to exclude exceptional items and intangibles amortisation. 3 Free cash inflow pre-dividend. 4 Medical injuries per 200,000 hours worked. 5 Constant currency change restated at H average exchange rates. 6 Scrip dividend alternative to be offered in respect of 15p interim dividend. 4

5 Financial review Jon Stanton New Roto-Jet pump for use in hydrocarbon applications

6 H1 profit ahead of market expectation; cash generation robust 103% EBITDA to cash conversion ratio Results summary Continuing operations 1 m H H As reported Constant currency 2 Like for Like 5 Order input ,038 n/a -16% -16% Revenue % -13% -14% Operating profit % -22% -22% Operating margin % 13.1% -120bps -130bps -130bps Net finance costs (21) (20) -5% -7% n/a Profit before tax % -25% n/a Profit for the period % Cash from operations % Net debt / EBITDA % Effective tax rate 21.9% 23.6% -170bps Earnings per share p 38.6p -23% Dividend per share 15.0p 15.0p 0% ROCE 4 8.4% 13.7% -530bps 1 Continuing operations excludes American Hydro Corporation and Ynfiniti Engineering Services, which were disposed of during H and are reported as discontinued operations restated at H average exchange rates. 3 Adjusted to exclude exceptional items and intangibles amortisation. Reported operating profit and profit before tax from continuing operations were 49m (2015: 61m) and 25m (2015: 39m) respectively. Reported earnings per share from continuing operations were 11.0p (2015: 17.5p). 4 Continuing operations EBIT before exceptional items on a constant currency basis (excluding Delta EBIT) divided by average net assets (excluding Delta net assets) excluding net debt and pension deficit (net of deferred tax asset). 5 Like for like excludes the impact of acquisitions. 6 Cash from operations includes both continuing and discontinued operations. 6

7 Minerals Robust performance with margins and profits up Original equipment orders up 14% - good progress with brownfield opportunities Aftermarket input recovered in Q2 as expected; growing sequentially and flat on Q Return to revenue growth supported by original equipment and record Q2 aftermarket sales Operating margins up 110bps, supported by cost reductions, procurement and restructuring savings m H OE/ OE/ OE/ AM H AM YOY +/- LFL 3 +/- H AM Original equipment input % % 14% 10% % Aftermarket input % % -5% -5% % Total input % % 0% -1% % Original equipment revenue % % 24% 19% % Aftermarket revenue % % -2% -2% % Total revenue % % 4% 3% % EBITA % 10% 108 Operating margin % 18.4% +110bps +120bps 20.6% Operating cash flow % n/a 116 Book to bill restated at H average exchange rates. 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

8 Oil & Gas Remaining cash generative despite tougher market conditions Trend in input and revenue reflects reduced capex and opex spending by oil and gas companies Reflecting activity levels, operating margins fell below breakeven levels and declined through the period Restructuring and cost saving initiatives outweighed by widespread pricing pressure Positive cash generation a result of continued focus on working capital and cost control m H OE/ OE/ OE/ AM H AM YOY +/- H AM Original equipment input 33 19% 55 18% -39% 40 18% Aftermarket input % % -44% % Total input % % -43% % Original equipment revenue 35 19% 64 19% -46% 47 20% Aftermarket revenue % % -46% % Total revenue % % -46% % EBITA 2 (2) % 17 Operating margin 2-0.8% 11.3% -1210bps 7.2% Operating cash flow % 51 Book to bill restated at H average exchange rates. 2 Adjusted to exclude exceptional items and intangibles amortisation. Includes contribution from joint ventures. 8

9 Flow Control Improved margins amid subdued markets Input reflective of challenging power and downstream oil and gas markets Pumps revenue growth supported by opening order book while Valves revenues broadly stable Operating margins up 130bps reflecting cost reduction and operational improvement benefits Operating cash flow up significantly due to strong working capital performance m H OE/ OE/ OE/ AM H AM YOY +/- H AM Original equipment input 86 52% % -14% 91 59% Aftermarket input 78 48% 94 48% -16% 63 41% Total input % % -15% % Original equipment revenue 89 56% 85 54% 4% % Aftermarket revenue 70 44% 73 46% -4% 77 40% Total revenue % % 0% % EBITA % 22 Operating margin 2 8.8% 7.5% +130bps 11.4% Operating cash flow % 24 Book to bill restated at H average exchange rates. 2 Adjusted to exclude exceptional items and intangibles amortisation. 9

10 Exceptional items and discontinued operations Exceptional items Restructuring and rationalisation charges include 23m of cash restructuring costs, 8m of fixed asset and working capital impairments Continuing downturn actions in Oil & Gas Minerals right-sizing announced at Q1 IMS Discontinued operations Disposal of American Hydro and YES completed in June; loss on disposal of 3m after tax Charge of 3m after tax on reassessment of liabilities related to previous disposals m H H Intangibles amortisation (23) (24) Restructuring and rationalisation charges (31) (47) Other 1-4 Recognised in arriving at operating profit from continuing operations (54) (67) Exceptional charge and intangibles amortisation (net of tax) (3) - Loss on sale of subsidiaries (net of tax) (3) - Recognised in arriving at operating profit from discontinued operations (6) - 1 Other includes charging of fair value inventory uplift (2016: nil; 2015: ( 1m); release of expired indemnity provision for prior disposal (2016: nil; 2015: 4m); and fair value adjustment of contingent consideration liability (2016: 0m; 2015: ( 1m)) 10

11 Cash flow statement Strong cash generation 103% EBITDA cash conversion (2015: 124%) Working capital inflow driven by good performance in inventory management, particularly Oil & Gas Debtors down 41m with improvements in all divisions. No significant recovery issues Inventory improvement of 10m in first six months of the year Capex spend focused on key strategic and safety projects with tax cash flows benefiting from US refund 2016 dividend cash outflows reflects 48% up-take of new scrip dividend scheme Cash flow statement m (as reported) H H Operating cash flows pre working capital Working capital inflow 6 39 Operating cash flows Net interest (19) (20) Tax 2 (25) Net capex (34) (41) Other cash flows (4) 5 Free cash flow pre dividends Dividends paid (32) (62) Free cash inflow All numbers at constant currency. m Debtors Debtor days H H H1 m Inventory Inventory turns H H H1 11

12 Net debt and pensions Stable covenant position Net debt Increase in reported net debt of 28m, after adverse FX impact of 66m post Brexit result Cash proceeds from disposal (received to date) of 31m offset by final consideration payment for Trio of 7m Net debt covenant calculation based on average rates, not spot Range of short, medium and long-term financing in place Attractive rates and diverse lending base No debt maturities until 2018 and beyond No impact of rating agency downgrades Pensions Deficit increase of 44m driven by actuarial gains and losses, principally significant decline in corporate bond yields m Pension deficit H H H1 Movement in net debt m Net debt at 1 January Free cash inflow (46) Exceptional cash outflow 31 Acquisitions / disposals (24) FX 66 Net debt at 30 June Lender covenant calculation m Closing net debt 853 FX Impact (54) Net debt at average rate (A) H2 EBITDA H1 EBITDA 130 EBITDA (B) 288 Covenant (A/B)

13 2016 guidance on cost savings and financial items Cost savings and cash generation initiatives 50m of annualised cost reductions announced in 2016 on track Cumulative annualised savings of 160m since Q Asset disposal programme on track Renewables disposals completed 7m property disposal completed in July, further excess property disposals progressing well Further working capital reduction targeted Guidance on financial items 2016 exceptional items of c. 45m, based on current cost reduction plans Capex c m Effective tax rate expected to be in the range of c.22% Impact of Brexit/FX Impact of Brexit unclear at this time, c.2% of the Group s revenues generated by UK exports If current rates endure EBITDA benefit c. 8m, with net debt / EBITDA ratio not impacted 13

14 Business overview and outlook Keith Cochrane Trio TP 900 Cone crusher increases crushing sped and customer productivity

15 Delivering strategic progress: Positioned for recovery Building a leaner, stronger Weir Innovation New SPM valve and seat technology doubles product life-span New range of Trio crushers: first orders secured Collaboration Synertrex TM IoT field trials underway with good customer response EPIX TM joint venture with MTU about to be launched to market Value Chain Excellence Further facility consolidations and best-cost product transfers Integration of Flow Control companies on track Global Capability New downstream manufacturing facility in Milan Redeploying applications engineers to service centres 15

16 Minerals markets: Continued ore production growth Capital expenditure falling for 4 th year Low single-digit global ore production growth expected in 2016 Growth biased towards low cost regions Positive commodity price trends in H1 supporting activity No major mine closures announced in 2016 Ore grade declines support more intensive processing Capex focused on increasing productivity and energy efficiency Brownfield and sustaining capex expected to recover first Copper and gold best placed of major commodities Underlying oil sands production resilient Temporary impact from May wild fires in Canada Commodity prices 1 (rebased) 160 Gold 150 Copper Iron Ore Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun commodity supply growth 2 8% 6% 4.9% 3.2% 4% 2.9% 2% 0.7% 0.4% 0% -2% Sand and Aggregates North America and Europe markets subdued China activity low but pipeline benefiting from government stimulus -4% 20% Copper Gold Iron Ore Met. Coal Thermal coal Global Mining capex 2 10% Minerals: 61% of Group revenue Source: 1 FactSet NY Gold FDS, Copper FDS and Iron Ore FDS. 2 CRU and Goldman Sachs % -10% -20% 2016f 2017f 2018f 2019f Sustaining Brownfield Greenfield 16

17 Minerals division: Outperforming in challenging markets Benefiting from global leadership positions 400 Stable aftermarket revenue m 1 Close customer proximity a key competitive advantage Intensified focus on brownfield opportunities: pipeline growing Aggressive trials programme increasing market share Benefits of prior restructuring offsetting negative OE/AM mix Facility consolidations delivering improved overhead recoveries Further foundry facility optimisation underway Operating margins up 110bps, supported by strong cost control Incremental 24m in annualised cost savings by year-end Workforce reduction of 150, including streamlining management SG&A reduced by 2% of revenues Investing to support future performance Opening new service centres in Peru, Mexico and Kazakhstan Further global framework agreement signed New facilities in Canada and Russia Revenue by end market ( m) 1 H1-16 +/- Mining 380 2% Oil & Gas 36-8% Sand & Aggregates 25-19% Power 22 58% Industrial & Other 62 34% TOTAL 525 4% 20% 0 H H H Pumps Other Resilient operating margin 1 Source: 1 Weir constant currency 2 CRU % 10% 5% 0% H H H

18 Oil & Gas markets: Balancing underway; timing uncertain 40% rig count decline in H1; visibility still low 2000 US land rig count E&P capex to fall 40% in NAM, 20% international US land rig count falls to lowest level on record Frack utilisation fell towards 25% in H1 International markets declining more than expected (c.20%) Project delays and pricing pressure intensifying Mid East growing production and taking market share Market rebalancing, oil price stabilised in Q2 Mid East production at record levels: NAM production down 1mbpd IEA: rebalance expected in H2, stocks remain at elevated levels Shale best placed to respond to sustained upturn Break-even prices continue to reduce NAM provides 13m of predicted 20m of additional supply 4 by Peak to trough -80% 0 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Cold v Hot-stacked frack capacity (MM HHP) 2 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 Cold stacked Hot stacked % stacked 70% 60% 50% 40% 30% 20% 10% 0% New projects compete with shale Oil & Gas: 21% of Group revenues Source: 1 Baker Hughes. 2 IHS Feb Goldman Sachs, July Wood McKenzie, July Breakeven (US$/bl) Arctic Deepwater Heavy Oil Traditional Ultra Deep Shale Oil Russia 0 3,000 6,000 9,000 12,000 15,000 Cumulative Peak Production (kbls/d) 18

19 Oil & Gas division: Strong execution through the downturn c. 100m of annualised cost reductions delivered Upstream exposure biased towards most attractive markets North America onshore and Middle East Continued cost and operational discipline Workforce reduction of 340 in H1 Eliminating duplication: 35% reduction in service centres Further working capital and inventory reductions New technology supporting market share New products maintaining technology leadership Pressure Pumping increased fluid end and flow share Preparing for the upturn Maintained presence in all major shale plays Focused throughout downturn on preserving core skills and personnel Geographical Exposure 1,2 Year North America Middle East ROW 21% 19% Service centre consolidation programme Pressure Pumping Pressure Control 60% Total H FY m 240 Inventory Jun-15 Dec-15 Jun-16 Source: 1 All numbers constant currency. 2 Includes share of JVs. 19

20 Flow Control markets: Customer caution & project delays Conditions reflect subdued economic confidence Power: Emerging markets more positive than developed Limited new build in Europe or US, maintenance spending constrained Investment focused in emerging economies New nuclear activity focused on China and Korea with UK potential Valve markets very competitive Global pump & valve market 2 Oil & Gas Chemical Power Water General Industrial Other 22% 25% 16% 15% 12% 9% Mid and downstream oil and gas: Impacted by commodity price levels Project delays a consistent feature Industrial markets subdued Commodity price slowdown reduced industrial investment Municipal wastewater investment more robust Industrial Production Growth 1 10% 5% 0% US Eurozone China -5% Q Q Q Q Q Industrial valves market $b 3 4% Revenue Growth Flow Control: 18% of Group revenues % -4% Source: 1 FactSet. 2 Valves & Actuators, Baird & Co Frost & Sullivan April

21 Flow Control: Significant operational progress Profitability supported by cost control Benefits of restructuring Improved operational discipline and streamlined management Additional product transfers to best-cost countries Margins and profits increased Expanding product portfolio New ASME safety relief valve for power markets New Screw Centrifugal pump for industrial markets New Roto-Jet pump for hydrocarbon applications Developing additive manufacturing and digital capability Increasing routes to market Combined pump businesses provided expanded EPC opportunities Regional manufacturing and sales approach Potential for synergies 10% 5% 0% End market mix 1 Power Generation Oil Industrial Wastewater Others Margin trends 1 H H % 33% 41% Revenue by end market ( m) 1 H /- Power 65-12% Oil & Gas 52 39% Industrial 16-23% Wastewater 13-21% Others 13 26% 8% 8% Source: 1 All numbers constant currency. Total 159 0% 21

22 Signs of stability in key end markets 2016 divisional financial outlook Minerals Ongoing stability in commodity prices expected to support markets Greenfield projects negligible but a good pipeline of brownfield and de-bottlenecking opportunities Constant currency revenues expected to be slightly up, ahead of expectations Operating margins in line with H1, reflecting higher OE mix and bonus costs Oil & Gas Low activity levels expected to persist through Q3 Modest pick up in NAM activity expected in Q4 Constant currency revenues below previous expectations Return to modest profitability expected in Q4 as activity increases Flow Control Full Year constant currency revenues expected to be higher than 2015 Operating margins broadly in line with H1 Higher OE mix and strong pumps order book offset normal seasonal margins increase 22

23 Continuing to Build a stronger Group 2016 Group outlook Full year constant currency guidance unchanged Continued focus on strong cost control and cash generation Investing to increase competitive advantages Positioned to fully benefit as markets recover EPIX: the industry s first integrated frack power system 23

24 Questions The Enduron single deck horizontal screen.

25 Appendices

26 Appendix 1: Quarterly input trends Division Q Reported growth 1 Like for like growth 1, 2 Q Q OE 24% -33% 15% 13% 11% -44% 11% 9% AM -9% -8% -11% 0% -11% -8% -11% 0% Minerals Total 1% -16% -4% 4% -4% -20% -5% 2% Q Q Q Q Q OE -68% -77% -40% -37% -68% -77% -40% -37% AM -59% -53% -49% -37% -59% -53% -49% -37% Oil & Gas Total -61% -59% -47% -37% -61% -59% -47% -37% OE -19% 3% -32% 10% -19% 3% -32% 10% AM -3% -2% -17% -16% -3% -2% -17% -16% Flow Control Total -13% 1% -26% -4% -13% 1% -26% -4% Group OE -21% -38% -12% 3% -25% -42% -14% 1% AM -33% -29% -26% -14% -34% -30% -26% -14% Continuing Ops Total -29% -32% -22% -9% -31% -34% -23% -9% 1 Continuing operations. 2 Like for like excludes the impact of acquisitions (Trio excluded for 2015 and Delta excluded for 2015 and 2016). 26

27 Appendix 2: Order input by end market and geography Order input by end market Minerals Oil & Gas Flow Control H Total H Total Minerals 72% 0% 1% 44% 39% Oil & Gas 6% 96% 28% 29% 38% Power 5% 1% 38% 10% 8% Sand & Aggregates 5% - - 3% 4% General Industrial 11% 2% 12% 10% 7% Other 1% 1% 21% 4% 4% Total 100% 100% 100% 100% 100% Order input by geography Minerals Oil & Gas Flow Control H Total H Total North America 23% 65% 37% 34% 39% Europe & FSU 10% 10% 26% 13% 12% Australasia 16% 1% 1% 10% 9% Middle East & Africa 14% 17% 11% 14% 16% South America 24% 1% 1% 15% 12% Asia Pacific 13% 6% 24% 14% 12% Total 100% 100% 100% 100% 100% restated at H average exchange rates. 27

28 Appendix 3: Bridge graphs Order input 1 m Revenue m 1,200 1,200 1,100 1, , % (135) -43% (30) -15% 873 1,100 1, % (154) -46% 1 0% (constant currency) Minerals O&G Flow Control Published FX Minerals O&G Flow Control 2016 Operating profit 2 m % (40) -104% 2 17% Published FX/Other Minerals O&G Flow Control restated at H average exchange rates. 2 Adjusted to exclude exceptional items and intangibles amortisation. 28

29 Appendix 4: 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 Euro Canadian dollar 78 (1) United Arab Emirates dirham Chilean peso 54 (3) (1) 15 South African rand 47 (8) Brazilian real 20 (3) Russian rouble 10 (1) Other (1) - (1) Total Variance 2% 2% Interest (20) (3) (23) PBTA Adjusted to exclude exceptional items and intangibles amortisation. Variance - 29

30 Appendix 5: 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 507 (4) -1% % 92 Oil & Gas % % 38 Flow Control % Central costs (11) - - (11) % % Adjusted to exclude exceptional items and intangibles amortisation. 30

31 Appendix 6: Exchange rates H Average H Closing H Average H Closing US dollar Australian dollar Euro Canadian dollar United Arab Emirates dirham Chilean peso South African rand Brazilian real Russian rouble

32 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.