The Weir Group PLC (WEIR) Earnings Call Transcript & Summary

Hello, everybody, and I hope you're all keeping safe and well. My name is John Stanton, and I am the Chief Executive of The Weir Group. I am delighted that today, we're announcing the proposed sale of our Oil & Gas division, which is a major milestone for the group, and when complete, will deliver on the transformation of Weir into a premium mining technology pure play. When we announced in February that we were going to sell Oil & Gas, we had 2 objectives: the first was to find a good home for the business; and the second, to maximize value for all of our stakeholders, and this deal delivers on both objectives. In Caterpillar, we found a strong strategic buyer for the business, where our people and the technologies that we've developed over the years will have the opportunity to flourish in the future. And for Weir, it provides absolute clarity and focus on our strategic intent to build on the world-class mining technology assets that we have today and deliver on the future growth potential that they present. Before I move on, I just wanted to say thank you to the Weir team and our advisers who've helped deliver this transaction in what you can imagine were quite challenging circumstances. They have been magnificent throughout and without them, our announcement this morning would not be possible. So I'm going to come on to talk a little bit about the future of Weir and the growth potential that we have, but let me start with some details of the transaction that we have announced this morning. Firstly, this is an all-cash sale for an enterprise value of $405 million, subject to customary working capital and net debt adjustments. We intend to use the net proceeds to strengthen our balance sheet further by reducing leverage. The transaction also facilitates a significant U.S. cash tax benefit for the group over the medium term. We are also required to ask our shareholders to approve this deal and a circular will be published in due course. And subject to regulatory approvals, we expect completion to occur by the end of the year. The Weir Board is unanimous in our support for this sale, which is the latest step in the transformation of Weir into a stronger and more focused business. That started in 2017 when we announced that mining would be the priority for capital allocation, recognizing this was Weir's core strength, and we wanted to build on it. Back then, the group's mining revenues were around GBP 1 billion. In 2018, we acquired ESCO, the world's leading provider of ground engaging tools for large mining machines, making Weir the only provider of premium solutions from pit to process plant. In 2019, we sold the Flow Control division, exiting power and mid and downstream oil and gas markets, and we've now agreed the sale of our upstream Oil & Gas business. The result is a much more focused and stronger Weir with revenues from attractive mining markets doubling to more than GBP 2 billion. And we're incredibly excited about our prospects for the future. We have an extremely strong platform operating in the best parts of the mine, providing mission-critical technology. As long as mines are running, they're using our equipment. And as we've seen in the COVID-19 pandemic, the world regards mining as an essential industry. These are highly abrasive applications that generate significant aftermarket demand for spares. And it's also important to appreciate the strength of our market positions. Because mining is a very conservative business, an unplanned downtime can cost up to GBP 10 million a day. That means when miners find technology partners they can trust, they tend to stick with them for the long term. Some of our relationships are more than 50 years old. And as you can see, this delivers a highly resilient performance with bias towards the higher growth of future-facing commodities. Indeed, Weir technology processes the majority of the world's mined copper. Our focus on highly abrasive applications has delivered consistent long-term growth in our aftermarket; meaning, recurring revenues represent 80% of sales. Our premium value proposition is reflected in our margin performance, where we've also delivered a 500 basis point improvement in ESCO margins since acquisition in 2018. And our mining businesses have shown consistent growth through the cycle. So we have a very strong foundation. And when we look to the future, we believe we have excellent prospects aligned to the big structural trends that will shape the world in the decades ahead. That starts with demand for natural resources that are essential to supporting demographic trends such as population growth, urbanization and the rise of the middle class in emerging markets. At the same time, the pace of decarbonization is increasing and is likely to be accelerated by COVID-19. So the metals we help reduce, including copper, our largest exposure, are absolutely critical to that transition. But while more natural resources will be necessary, it's also getting harder and more difficult to access them with continuing ore grade declines, for example. At the same time, the world is also demanding that these resources are produced more sustainably and efficiently, with miners increasingly promising to make their operations carbon neutral. These strong secular trends all mean Weir is ideally positioned to help lead mining's technology transformation and in doing so, be a key part of the solution to some of the biggest challenges we all face. And I've never been more excited by our technology pipeline. From extraction through to tailings management, we have a range of solutions that will make mining operations smarter, more efficient and sustainable. That includes taking people out of harm's way in extraction through automated GET change-outs, it means radically reducing energy and water use in comminution, and it means developing tailings solutions that will make it cost effective to safely store or repurpose tailings waste, one of the most urgent issues in mining. And this is all part of our We are Weir strategy that puts sustainability and efficiency at the heart of our purpose as a business. That includes a comprehensive sustainability road map that involves creating sustainable solutions for our customers while also reducing our own environmental footprint. But true sustainability relies on people, and that's why we focus so much on being the place where employees can do the best work of their lives in an environment that puts their safety and well-being first. So to finish, the sale of the Oil & Gas division is a major milestone for the group and is a strong outcome for all stakeholders, particularly in the context of a very challenging market environment. It delivers the transformation of Weir into a premium mining technology pure play, enabling our full focus to be on maximizing the long-term structural growth opportunities that we have before us. Those include making mining operations smarter, more efficient and sustainable, positioning Weir as a key part of the solution to mining's need for a technology transformation. And we'll capture all of these opportunities through our We are Weir strategy that puts sustainability and efficiency at the very heart of our purpose. So thank you very much for watching this presentation and for your time and your support. As you can tell, this is a big moment for the Weir Group, and we're very excited about what this transaction unlocks for us as a premium mining technology pure play. We've achieved a lot over the last few years, but there's much more to come, and we've never been more optimistic about the future. Weir may be almost 150 years old, but I believe its best days are ahead. Thank you, and goodbye.