The Weir Group PLC (WEIRN.MX) Q3 FY2025 Earnings Call Transcript & Summary

Good morning. Thank you for attending today's Weir Group plc quarter 3 IMS Quarterly Update. My name is Sarah, and I'll be your moderator today. [Operator Instructions] I would like to pass the conference over to our host, Jon Stanton, Chief Executive Officer. Please go ahead.

Thank you, operator, and good morning, everyone, and thank you for joining us today for our third quarter trading update. As usual, I'm joined by our CFO, Brian Puffer, and after a brief overview from me, we'll be happy to take your questions. So starting with current trading, where encouragingly, our core markets of copper, gold and iron ore are strong. This reflects our customers' drive to maximize production, capitalizing on supportive commodity prices and structural demand and is reflected in both positive original equipment and aftermarket activity levels. Demand in the quarter was impacted marginally by the effects of certain well-publicized copper mine disruptions as well as a softening in demand for diamonds, platinum group metals and mineral sands. And while we expect these effects to continue in the short term, overall activity levels in global mining markets remain positive, and the diversified and resilient nature of our business is continuing to deliver growth. The performance of our Minerals and ESCO divisions in the quarter reflects this positive underlying demand, accelerated by strong execution against our strategic growth initiatives. In Minerals, we maintained our win rate of over 90% in competitive large mill circuit pump trials and capitalized on aftermarket demand from our growing installed base of HPGRs. In ESCO, customers chose to adopt our MOTION METRICS SaaS platform and access our unique features to drive productivity in their extraction operations. ESCO also realized several large bucket wins in APAC, compounding success in this key region for geographic expansion. During the quarter, we announced the acquisition of Fast2Mine and completed the Townley transaction. Both of these acquisitions enhance our market presence and broaden our product offering. We're making strong progress with both Townley and Micromine against our deal model assumptions, and I'm pleased to report that both are delivering as expected. Now turning to orders, where on a constant currency basis, group orders were up 2% year-on-year. Group original equipment orders grew 15% year-on-year after normalizing for an exceptionally strong prior year comparative, which included GBP 48 million of large orders on the OCP and Reko Diq projects. This underlying trend reflects strong demand from brownfield and debottlenecking projects during the period. Similarly, aftermarket orders grew 10% year-on-year on a constant currency basis, driven by strong demand for our mission-critical spare parts and expendables. Underlying organic growth of 5% was complemented by a further 5% contribution from the recent acquisitions of Townley and Micromine. Overall, Weir has a very healthy order book across both divisions, which we're focused on executing against during the fourth quarter. Now turning to divisional performance, where in Minerals, original equipment orders increased 13% year-on-year, excluding the large Reko Diq and OCP greenfield project wins just discussed. This underlying growth was supported by continued momentum in brownfield and debottlenecking solutions as customers seek to maximize production and productivity. In aftermarket, orders grew 5% year-on-year, primarily driven by the expansion of our installed base of equipment, particularly in pumps and HPGR solutions. Having completed in the quarter, the newly acquired Townley contributed an additional GBP 6 million to orders which is in line with our expectations. In ESCO, original equipment orders grew by 36%, reflecting continued market share gains in mining buckets, the geographic expansion across the strategically significant APAC region. Aftermarket performance was similarly strong with orders rising by 21% year-on-year, driven by our market-leading technology, customer intimacy and a strong contribution from Micromine. In the quarter, market share was enhanced with another 49 net bigger conversions, and we've seen excellent strategic momentum within MOTION METRICS, where we continue to expand the installed base and accelerate adoption of our solutions as a SaaS offering. Micromine is performing well against our previous expectations, contributing GBP 17 million in orders for the quarter, in line with the plan. We are delighted with the progress to date, and our near-term focus remains on accelerating growth through our global distribution platform and the strength of our relationships with our customers, both at local site and enterprise levels. Turning to execution where our Performance Excellence program continues at pace. During the quarter, we made further progress in our capacity optimization and lean process work streams as our EMEA and APAC regions continue to streamline their operations. Strong execution across the business underpins our confidence in achieving GBP 80 million of absolute cumulative savings in 2026. We made significant strategic progress in accelerating our growth through acquisitions. In August, we completed the acquisition of Townley, enhancing our exposure to the attractive phosphate market. The acquisition also provides a strategically important foundry in North America, bolstering our Minerals division and improving proximity to key customers in the region. The Minerals North America team is on the ground in Florida right now, working with our new Townley colleagues, and they're making good progress across our integration work streams. In September, we announced agreement to acquire Fast2Mine, a Brazil-based mining software provider, offering a contemporary open pit mine management solution. Fast2Mine software fills a gap in the Micromine portfolio and is highly complementary to the Alastri open pit mine planning and Pitram underground mine management solutions. The acquisition will expand -- accelerate our expansion into the South American mining software market, providing a strong and immediate presence in Brazil, owns some of the world's largest mineral deposits and also offers a significant international growth opportunity. We're looking forward to welcoming Fast2Mine to Weir and are excited by the opportunity to further accelerate our vision for a digitally enabled mine optimization. The acquisition is expected to close in the fourth quarter, but will have no impact on our financial guidance for 2025. On net debt and given our recent acquisition activity, our net debt-to-EBITDA ratio is expected to sit just below 2x by the end of 2025. And we expect strong cash generation from our aftermarket-focused business model and Performance Excellence investments to underpin a strong deleveraging trajectory back to our normal debt-to-EBITDA range of below 1.5x by the end of 2026. During the quarter, we completed a AUD 400 million bond issuance, our first debt raise in that country. The proceeds from the bond will be used to partially refinance our existing bridging loan from the acquisition of Micromine at a more attractive interest rate and highlight our commitment to maintain a robust and flexible balance sheet. Looking to the fourth quarter and the outlook, despite a number of uncertainties facing the mining industry, not least the outcome of ongoing tariff negotiations between the U.S. and China, we remain focused on disciplined execution against our strong order book. We continue to execute well and have remained proactive in managing our global supply chain and customer pricing strategies to mitigate the full impact of existing tariffs and other supply chain disruptions. For the full year, we reiterate our guidance for growth in constant currency revenue and operating profit. Operating margins of circa 20% and delivery of free operating cash conversion of between 90% and 100%. We continue to expect headwinds from translational foreign exchange, which we currently estimate to be GBP 105 million and GBP 25 million on our prior year comparative for revenue and operating profit, respectively. Looking forward, Weir represents a compelling value creation opportunity as a mining technology leader. We remain committed to delivering our longer-term guidance to outgrow our markets, expand margins and cleanly convert earnings and cash, while remaining resilient and committed to doing the right thing for our people and the planet. Our Capital Markets event, on December 3, will further illustrate how we intend to deliver these excellent outcomes for our stakeholders. The event will cover our full business, but with a particular spotlight on how our software strategy enhances our customer proposition and value creation opportunities. An extended event landing page with details on the agenda and logistics is now live via our Investor Relations website, but if you have any questions about the event, please reach out to the IR team for more information. So in conclusion and summarizing the key takeaways from today's call. Our markets are positive, and we are well positioned as our customers look to address their critical operational and sustainability challenges. We're executing well against our strategic initiatives, remaining on track to deliver GBP 80 million of cumulative Performance Excellence savings in 2026 and realizing value from our recent M&A activities. We remain on track to deliver our full year 2025 guidance, including growth in constant currency revenue and operating profit, alongside our targets for operating margins and free operating cash conversion. And finally, over the longer term, we offer the compelling value creation opportunity. We operate in highly attractive markets. We have a clear strategy to grow ahead of our peers and at sustainably higher margins and we are delivering on that ambition. Thank you very much for listening. And Brian and I will now be pleased to take any questions you may have, so we hand back to you, please, operator. Thank you.

[Operator Instructions] Our first question comes from Jonathan Hurn from Barclays.

Just three questions from me, if I may. Firstly, I just wonder if you could sort of talk through the outlook that you're seeing for OE. I mean if we look at that base order growth of 15%, it's pretty good, but do you think you can accelerate here? Do you think we need to get more exposure to gold? And also just in terms of the large orders above GBP 25 million. Are there any sort of possibilities in the pipeline there? The second question was just on Micromine. We break that down 31% of the business is exposed to gold. Can you just sort of talk about the activity levels you're seeing coming in to Micromine? I think if we look at the historic growth rate for that business, it's been around about 25%. But because of this gold exposure, do you think going forward, that growth rate can be exceeded? And then the third and final one was just on ESCO, just in terms of that APAC expansion. Strategically, it's pretty important, I think in some of those markets, you don't have good market share, maybe possibly in buckets. But what sort of strategy you're putting there? And why is that starting to really come through now? I'll leave it at that, those are the 3 questions.

Yes. Jonathan, thanks very much for the question. Yes, so I'll take you through those. So I mean, starting with the outlook for OE, yes. I mean I think we're really pleased with our underlying 15% growth quarter-on-quarter. As I said on the call, it really demonstrates the very high levels of activity that we're seeing across existing mine sites, brownfield, debottlenecking, sustainability solutions and with particular strength in gold, as you would imagine. So with where commodity prices are at the moment for our main exposures and if you think about it, a couple of gold and iron ore are circa 50% of our revenue, we're certainly seeing pretty strong and enduring demand drivers in that space. And even in commodities that have been somewhat under pressure and I think nickel being a great example of that, we have lost some work because of the closure and mothballing of some of the high-cost nickel mines in Australia, but we've won just as much, if not more, in the expansion projects coming through in Indonesia, which I think demonstrates that sort of resilient and truly, truly global footprint that we have. So sometimes in some commodities, you get some puts and takes. Nickel, which I think has probably been tough for several of our peers, we're pretty net neutral given the wins that we've had in -- particularly in Indonesia. So I think the underlying brownfield activity, we feel really good about. Our pipeline is remaining very strong. And then the larger orders, I haven't got a crystal ball with me at this point in time, but I do think the outlook is difficult to predict exactly when things will come through. But I think the outlook continues to mature in a positive manner. And I think the intent is there across our customers and willing to deploy capital in the future facing and growth commodities. I think that's been bolstered by the sort of the defense and national security issues coming out of the geopolitical situation at the moment. And I think I just talked a bit about on the first half call, the political intent that we're starting to see around the world be that in the U.S., South America, increasingly, there is a real government focus on how we accelerate some of these mining projects. So I think difficult to predict when they will come through, but I think the outlook is maturing in a positive way. Turning to Micromine. Yes, I mean, really, really pleased with the first period of ownership here with the orders and sales coming through back in line with where we expected to be. Literally, we've just launched the half year product upgrades. We have a momentum event each year when all of the upgrades come through in each of the software products and that's landing incredibly well with our customers. So the pull for the software that we have, the breadth that we can bring at an enterprise level, we're really, really encouraged by it. At the time of the acquisition, we said, the business has grown at 25% historically. We think we can grow it by more than that given the global distribution platform that we have, the fantastic site level relationships we have with our large customers, but increasingly the enterprise-level relationships. We've already got a couple of really good examples where those more senior enterprise-level relationships that we've had traditionally with ESCO and Minerals have really unlocked the door for Micromine, so we'll give some quite exciting examples of that. There's a little taste for you for the Capital Markets event in early December. And then on ESCO, your final question, yes, I mean, really, really pleased with the progress that we've made in the Asia Pacific region. It's probably a region where our market share is just in core GET, we have ambition to take higher and the team is doing a great job of that. But one of the key things that was a key part of the strategy there is that Australia is probably one of the more fragmented markets on capital buckets where we see a big opportunity. And it can be a bit more lumpy, given the more expensive nature of those products relative to GET but the teams had a great pipeline, and that pipeline really came through very strongly in the third quarter. So I think it's just a market where ESCO has got some great momentum at the moment. I mean in [Iran], it's probably one of the markets where the growth profile -- the market growth profile is generally a bit flatter than say, the Americas. So to be winning share there is really great news, team's doing a contesting job, and we expect that to continue.

Our next question is -- comes from Lushanthan Mahendrarajah from JPMorgan.

I've got two questions, if that's okay. The first is just on ESCO aftermarket organically and I think you mentioned sort of MOTION METRICS being a big contributor there. Can you sort of -- so also give us a bit more color on exactly what you're seeing there at some of the Micromine synergies that's coming through just exactly what's sort of driving that sort of pickup in growth? And then the second question is just on Q4 deliveries and obviously a bit of a ramp-up needs in Q4. There's a lot of moving parts of sort of Reko Diq, Micromine, Townley, et cetera. But can you just help us bridge that Q4 a little bit as well, please?

Yes. Sure. Thanks, Lush. So yes, on ESCO, I think where we are with integrating Micromine in -- MOTION METRICS in the Micromine, is that we're still in the planning phase for that at the moment. So we're working through that right now, and that's expected to go live in terms of full integration in Q1 of next year. So it's quite -- there's relative complex situations to put those two businesses together. But we're very, very excited by what that will deliver. So the great progress that MOTION METRICS has actually made, particularly in this quarter, that has been making through 2025 is really nothing yet to do with Micromine. So if you like, that still -- that benefit is still to come. So this is really the maturation of the building of their pipeline. We had some great wins across particularly ShovelMetrics and TruckMetrics as well, a big sort of more enterprise-wide win in Central Asia there. So again, that team has been doing a fantastic job. And when I look back over the first two or three years of that acquisition then, the growth rate there for different regions, maybe not quite as strong as they wanted, but it's now really starting to come through very strongly. We're seeing that. We see great performance coming out of MOTION METRICS this year. And as we bring MOTION METRICS into that Micromine model, I would sort of characterized -- I think I characterized in the past that Micromine is really a scale up and when we acquired MOTION METRICS, it's more of a start-up. So it's different challenges. So I think plug-in MOTION METRICS next year into that scale-up strategy and the capabilities that Micromine has to commercially drive more success. I think it's just going to turbocharge the business. So we're really pleased with what MOTION METRICS has done this year and very, very excited for next year as it comes into the Micromine portfolio. And then, yes, from a Q4 delivery point of view, look, I mean, I feel really good about where we are looking at we've delivered in the fourth quarter. It's a big fourth quarter. We called that out in the press release and we [indiscernible] about that. But if I'll break it down from an OE point of view, everything we need to deliver in Q4 is in the order book. So it's really just about execution. And as you can imagine, a lot of planning from a supply chain and manufacturing perspective is going into how we deliver that. So we've got fantastic plans to be able to do that. And some of that is the big projects, particularly Reko Diq, the HPGRs, which are going out in the fourth quarter, a bunch of GEHO pumps on large projects as well going out. So I think from an OE point of view, really just about delivery, I think we've got a great time in place to be able to do that. Aftermarket, we want to see the run rate continue in the fourth quarter, but I feel really good about that. And if I sort of contrast, maybe just to give you a bit of color on Q3, what we saw was an okay or average July in terms of spares aftermarket run rates, August was quite soft, which I think was a bit of a mix of holidays in the Northern Hemisphere, plus, I think it was peak uncertainty with tariffs and all the [rationale] that was going on. But September bounced back really, really strongly in terms of the aftermarket run rate. So net-net, that meant that aftermarket was okay for Q3 in terms of the orders we saw, but the exit rate was really strong. And every indication we see -- we're seeing at the moment is that, that will continue. So I think we feel really good about Q4 for execution. We had a similar Q4 last year, but all the building blocks are in place to be able to deliver.

Our next question comes from Edward Hussey from UBS.

I mean maybe just sticking to the aftermarket comments. I mean you talked in H1 about mid-single-digit growth in H2. I'm just wondering, does this still apply given you delivered 5% in Q3 but have that order phasing impact in Q4?

Yes, it does. So the outlook, I say the Q3 was net of quite a soft August in terms of aftermarket run rate for various reasons. But as I said, September is really, really strong. We're seeing that in October. That's what we expect to see through the balance of the year, and we can see that in the pipeline that's coming. So we feel good about being able to deliver that.

Okay. And then just on these copper projects, where you talked about disruptions and mine closures. I mean I'm assuming it's in sort of minerals aftermarket, [indiscernible] is the biggest impact. Do you have any sort of quantification in terms of how large this impact is?

No. But we're just calling it out because it's probably in the round, it's probably a percentage or two on aftermarket for the division in Q3. I don't have the exact number, but it will be that order of magnitude. So not massive, but enough just to sort of slightly tinge the orders. And it's -- obviously, you're seeing some of the copper mine disruptions, Grasberg, Quebrada Blanca, some others in Latin America. And then in Africa, diamonds and PGMs weak and in Europe, mineral sands, which is -- that's a bigger part of the business in Europe and was driven by just like everything China has been saying about export control. There's actually been dumping of certain commodities in Europe, which has now stopped at September effect, but we saw a bit of that coming through in the order trends in Q3. So they will fade away, but just calling it out to be transparent in terms of the things that we're seeing across the world at the moment.

Okay. That's very helpful. And then maybe just final question on [indiscernible]. But just wanted to talk about the sort of profit bridge for the full year. So first of all, I mean, guidance to GBP 10 million of Performance Excellence. I mean it sounded like on the last call that this was -- there's no real risk or downside on this GBP 10 million. If anything, it has risk on the upside. Is that still what you're seeing in terms of delivery in Performance Excellence?

Brian, do you want to come in and I want to give you an opportunity.

Yes. Can you hear me okay?

Yes, Brian, go ahead.

Yes, in terms of Performance Excellence, it's actually over GBP 20 million we're going to deliver for the year. So we are on track. We're continuing to drive everything we said we'll be doing in Performance Excellence. There's no change in guidance for this year. There's no change in guidance for the GBP 80 million we expect to deliver in 2026. And like I said, we're seeing some real progress in this area, and we'll continue to do so, which is helping the margins due to that circa 20% we were guiding towards for the end of this year. So yes, I think for H2, you're saying GBP 10 million is that just as [indiscernible]. But yes, we will deliver at least the GBP 20 million, and we will exceed the GBP 10 million, I think what you're referring to is the second half, performance. So things are going as planned.

Okay. And I'm sorry if I'm holding the mic, by my final question just on the mix impact for full year. I mean, again, you talked about in H1 having a neutral impact for the full year. Is this still the case in terms of the OE and mix? Or is there -- or should we maybe think about a shift in one direction or the other?

Do you want me to take that, Jon?

Yes, go ahead, Brian.

Yes, with the mix, we had a strong aftermarket performance in H1 with OE. But as Jon previously mentioned, we've got in the order book, a lot of large orders from the Reko Diq and other projects we announced last year going out. So that mix will come back more into the norm. So we are seeing that mix having a negative headwind in the second half of the year. But as Jon also said, we're having strong aftermarket performance. So we expect to get back more to what we've seen maybe in the year or a year before in terms of overall split for the year.

Our next question comes from Christian Hinderaker from Goldman Sachs.

I want to start with the basic question. Just a reminder of any inherent seasonality in each of the two businesses, particularly in terms of orders? I know Q4 is obviously key for outbound shipments. But just a reminder, that would be helpful.

I think there's nothing really to call out. I mean, as I said, to a degree in my earlier comments, original equipment can bounce around a little bit depending on the order profile of larger orders, but the delivery is all about shipments and what's in the order book. So we feel good about that. And then minerals aftermarket can tend to be slightly positive order mix first half and then more weighted to revenue mix in the second half. So I think you probably -- you're probably going to see that coming through, as Brian just described, but nothing really else to call out as we sit here today. So we're not seeing anything that would surprise me in any way.

You mentioned also in the release that you fully mitigated the trade tariff so far. I appreciate it's a fluid scenario. Can you just talk a little bit about that in terms of is that price? Obviously, maybe that not everybody has had that level of success, so any color there would be helpful.

Yes. So big picture, it's been a combination of both price increases where we had no other alternative but in most cases, trying to support our customers by moving production around our global footprint from a manufacturing and supply chain point of view, so that we could limit the effect of tariffs on imports, particularly into the U.S.. And those countries that are also playing that game. So I think the business did a great job of mitigating what we could mitigate without price. For any bigger ESCO issue, for ESCO, the minerals given the scale of production for ESCO that we have in China, but the team did a great job of mitigating through supply chain in there. And then when we were in the unfortunate position that we had in the past some residual price increase on to customers, we've done that, and we've done that in a way that's in the round, protected our overall gross margins. So we feel we're good about that. And then obviously, we're waiting to see what might happen with the latest discussions, call it that, between the U.S. and China, which were looking a month ago, because it could be challenging, but that now seems to be moderated following the Trump-Xi meeting last week. We'll see. We start to see the final detail, but hopefully, that will land in line with the noises that were coming out of that meeting, which should mean that from -- actually, we're in a more stable environment. So as I'd say, we've fully mitigated. Yes, and it has not just been tariff, it has also been supply chain disruption a little bit through the third quarter just with all of the uncertainty that was being created in the secondary derivative of those tariff discussions and the ongoing sort of geopolitical uncertainty. But I think -- I hope we see the end of that as well as we move into the fourth quarter.

Our last question comes from Tore Fangmann from Bank of America.

Yes, just one more to ask. Just a follow-up here on the activity in the aftermarket. I understood that the activity has accelerated into September and also now into October. Just from your view, very top down, there is an expectation in the market for aftermarket to be able to grow mid- to high single digits in -- across mining equipment peers. What would need to happen from your viewpoint for this to actually happen for the next, let's say, 1, 2, 3 years? Do we need a recovery in nickel or in PGMs basically? Or is there something else that needs to happen?

Yes. Great question. So yes, look, I think if we look back at the history of minerals over 15 years, and we look at the history of ESCO since that's been in the Weir portfolio, and those -- and we've delivered 7% CAGR on aftermarket through the cycle. So that is broadly where we would expect to be over a period of time. For next year, we haven't given guidance yet, but we'll also do that when we give our guidance in February, beginning of March, following the full year results of 2025. And that's when we'll be more specific about the growth rates that we expect to see in 2026. But certainly be -- we would expect it to be in that mid- to high single-digit range, exactly where it will be in that range, we'll see as we put our budgets together over the course -- over the next few weeks and be in a position to provide that guidance. But structurally, I don't see anything when you look through the cycle, that means we shouldn't be able to deliver that kind of growth rate. In fact, we definitely should understand for us to be able to do that, I think when you look at where we are today, the combination of our technology, the customer intimacy we have, the increased customer relevance that we now have because of our digital and software solutions, which is having a real impact in the market and helping to open doors in different ways as well, I think, is all for the good. And I think when you look at the broader political environment in terms of support for increased mining and commodity production, particularly for copper and the future-facing metals, where gold is today, I think anybody is really seeing gold come back significantly from where it is, which is going to be positive for that part of the world. So you're always going to get a bit of [indiscernible] across commodities. But again, it just comes back to the nature of the Weir business, our fantastic global footprint and in every mining corner of the world, wherever you want to be, Weir is there. So we're diversified. We're resilient, and we've got those fantastic competitive advantages and attributes to our product portfolio, which, as you know, should set us up for enduring success. So yes, I forget about that. Thanks for the question.

There are no questions waiting at this time. So I'll turn the conference back over to Jon Stanton for any further remarks.

Thanks, operator. Just to say thanks again for your participation this morning. We appreciate that and for the questions. If there are any follow-ups, obviously, the IR team will be available through the day to be able to help you and we are seriously looking forward to seeing as many of you as possible at our forthcoming Capital Markets event and demonstrating exactly the exciting future that we have at Weir as a hardware and software provider to the mining sector. Thanks again. Take care.

That concludes Weir Group plc quarter 3 IMS quarterly update. Thank you for your participation. You may now disconnect.