Hello everyone, and thank you for joining The Weir Group PLC Q3 IMS. My name is Marie, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand over to your host, Jon Stanton, Chief Executive Officer, to begin. Jon, please go ahead.
Thank you, Marie, and good morning everyone, and thank you to you all for joining us for our third quarter trading update. As usual, I'm joined by our CFO, Brian Puffer, and after a short overview from me, we'll be delighted to take your questions. Let me start with current trading, where we are seeing good order momentum. As previously announced, we were awarded two sizable greenfield expansion projects during the quarter as our pipeline begins to convert. Both the Reko Diq greenfield and OCP expansion projects demonstrate Weir's mining technology leadership and the growing opportunity to provide transformative solutions for sustainable mining as the energy transition develops. At brownfield mine sites, where our customers are pushing to maximize production and efficiency, high levels of activity continue.
Across our businesses, we see positive demand for our aftermarket spares and expendables, as well as for our original equipment solutions that enhance productivity and sustainability. We continue to deliver our Performance Excellence Program, which now has real momentum. By the end of the third quarter, we delivered GBP 19 million of cumulative savings against our GBP 60 million target due to be achieved in 2026. Turning to orders, where we continue to receive high levels of interest for our technology, which enables our customers to address both the demand for critical metals and the transition to more sustainable mining. Our future flowsheet and brownfield optimization offerings have significantly extended our addressable market, as illustrated by the Reko Diq order. As opportunities convert, we expect to receive larger portions of the overall projects than in the last cycle.
As a result, we saw a large pickup in original equipment orders, up 15% year- on- year, and we do expect this to continue through the fourth quarter. We also saw growth in aftermarket orders, up 2% year- on- year on a constant currency basis, as the effect of mine-specific issues in the first half moderated. This result reflects the resilience of our mining aftermarket business, which is largely driven by non-discretionary spend on spare parts that are essential to keep mines running. Taken together on a constant currency basis, group orders were up 5% year- on- year. And now let me give you a little bit more detail on the performance of our divisions, starting with Minerals. In original equipment, orders grew 19% in Q3 versus the prior year, including recognizing GBP 51 million for the Reko Diq and OCP orders.
The Reko Diq project is one of the largest and most exciting undeveloped copper mines in the world. The order includes several of our Enduron HPGRs and is a further proof point of the increasing acceptance of our technology. After construction, the mine is expected to stay in operation for at least 40 years, and our commitment to the boots-on-the-ground service model means we will be there for our customer over the long term, and so enabling us to secure the aftermarket opportunity. The order to be delivered to OCP will be installed at their Morocco phosphate expansion projects at Benguerir and Louta, and features our separation solutions, including Warman slurry pumps and Cavex hydrocyclones. Phosphate is an important mineral in fertilizers and has an attractive demand profile driven by population growth and climate change.
And this order also highlights the importance of continuing to focus on our core products with R&D and engineering support to maintain our market leadership, even as we expand our offerings with new technology. More broadly, on original equipment and minerals, we continue to see positive underlying demand for small brownfield expansion projects. Adjusting for large orders, underlying original equipment orders grew 4% in Q3 versus the prior year, reflecting that ongoing demand for productivity and sustainability solutions across most of the commodities we work with. In the aftermarket, year-on-year orders grew by 3%. And demand for aftermarket was strong across our hard rock mining territories, particularly in South America, reflecting ore production growth year-on-year and the compounding effect of growth in our install base in recent periods.
These trends are expected to continue in the fourth quarter, where growth will also be supported by the second half of the multi-period order that was split this year, with GBP 14 million now booked in October, as previously indicated. Now on to ESCO, where we continue to see positive demand for our market-leading products across our mining markets. In original equipment, we continue to gain market share in buckets, with orders for the quarter down a modest GBP 2 million, driven purely by phasing as our growing pipeline of new opportunities converts. In the aftermarket, we secured our first order for our next generation GET system, Nexsys, in the quarter. Nexsys had its full commercial launch at MINE xpo this September and further reduces downtime and increases wear life for our customers compared to competitive systems in the market.
As a new offering, we're currently running trials at numerous customer sites to showcase the production benefits firsthand and have already booked several further orders in Q4. Adoption of the Nexsys system will augment the great position we already have in GET. Year-to-date, orders for GET have grown by 4% across both mining and infrastructure. Overall, in the aftermarket, we saw high levels of all production at mining customers driving demand for expendables, and we expect this to continue through the rest of the year. In infrastructure, we saw normal order levels across North America, with our dealers having completed their destocking cycle. Offsetting this momentum in the quarter was phasing of large orders in dredge and oil sands versus the prior year, with total aftermarket orders down 2%.
And just to illustrate the effect of that phasing, we've already received an $8 million dredge order in October, whereas we had no large orders of that nature in Q3. Now, some brief comments on our Performance Excellence Program and balance sheet position. In the quarter, savings arising from the Performance Excellence Program reflect realized benefits from our lean and capacity optimization initiatives. This included benefits from the WINS operating system that was rolled out in the first half and sourcing optimization within our supply chain. In total, we realized an additional GBP 6 million of absolute savings in the quarter, bringing our total cumulative savings to date to GBP 19 million. And with the majority of the benefits from our functional transformation flowing through in 2025, we remain firmly on track to achieve our full GBP 60 million of savings in 2026.
Positive free operating cash flow for the period benefited our balance sheet as we continue to delever, with our net debt to EBITDA ratio expected to be around 0.8 at the end of the year. Turning to the outlook for the rest of the year, the business is executing well, and we expect orders to continue to develop positively. We are on track to deliver our guidance for 2024, expecting to deliver growth in constant currency revenue, operating profit, and margin, together with our now normalized free operating cash conversion of between 90% and 100%. Before closing, I'd like to say a few words on our performance in the context of our broader equity story. Weir has a compelling value creation opportunity as a sustainable technology leader in mining, and we are committed to delivering excellent outcomes for all of our stakeholders.
Our orders for Reko Diq and OCP are testament to the size and scope of the opportunity which lies ahead as the energy transition gathers pace. While we grow our large installed base of equipment, we create aftermarket demand that is largely inelastic to CapEx cycles and day-to-day commodity price fluctuations, as demonstrated through our growth this quarter. Taken together, we are confident in meeting our longer-term guidance to outgrow our markets, expand our margins, and cleanly convert our earnings to cash while remaining resilient and doing the right thing for our people and the planet. So to close, let me summarize the key takeaways. We're capitalizing on growing interest for our sustainable solutions as demand for expansion projects improves, leveraging Weir's Mining Technology and Service Leadership.
We're on track to deliver our full- year 2024 guidance for growth in constant currency revenue, operating profit, and operating margins, alongside delivery of our free operating cash conversion target. And finally, over the longer term, we have a compelling value creation opportunity. We're operating in highly attractive markets with a clear strategy to grow ahead at sustainably higher margins. Thank you very much for listening, everyone. And Brian and I will now be happy to take any questions you may have. So back to you, operator.
Thank you, Jon. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Benjamin Heelan of Bank of America. Benjamin, please go ahead.
Yeah, morning, guys. Thank you for taking the question. The first one I had was, do you have any comments on how the pipeline is shaping up on the order side? You've talked about Q4, but into 2025, and whether this momentum is something that can carry through into the early part and first half of next year. And then secondly, on the cash conversion, I mean, you mentioned there, Jon, that it was cash conversions normalized at this 90%-100% level, being a roughly 0.8 x net debt to EBITDA at the end of this year. That means you're going to be delivering further into 2025. Is there any update in terms of how you're thinking about CAP allocation, whether there's any bolt-on M&A in the pipeline, or whether there's potential for further shareholder return as we go forward? Thank you.
Yeah, good morning, Ben. Thanks for those two questions. Yeah, so yeah, on the order pipeline, it feels very strong at the moment. As you know, the conversion of that pipeline can move around quite a bit from quarter- to- quarter, but we feel positive about what we'll see coming through in the fourth quarter of this year. We do expect that momentum to carry on into 2025. I would say it's possible, but not probable that we'll be having any really big orders that are announceable, like the couple that we've had in the third quarter. There's a couple of big ones in the pipeline, but they may just not convert until next year.
But what we do have coming through in Q4 is quite a few orders that we expect to convert that are in the sort of GBP 8 million-GBP 10 million range, which is pretty big for us and very encouraging because they're across several geographies and commodities. So no, I think the pipeline's been building and building, and we're in a phase now where customers, particularly for some of the commodities where prices remain incredibly strong, are really trying to push ahead and see through some of these projects. So we expect it's continuing, and we expect a really good fourth quarter, and that won't fade next year as we sit here today. On the capital allocation question, yeah, really delighted with the cash generation. And for the third quarter, again, as we were at the first half, we're well ahead of where we were this time last year.
So strongly on track to deliver that uplift in cash conversion. And on capital allocation, we've been very clear over the last few quarters on, we're now trying to accelerate our acquisition strategy to deliver bolt-on acquisitions. We're working very hard on that at the moment. And we're hopeful that as we go through the next couple of quarters, we'll be starting to see some things trickle through. So that is a priority for the business at the moment. And we're putting quite a lot of resource into trying to convert the pipeline of opportunities that we have in that space.
Great. Thank you.
Thanks, Ben.
We have a question from Jonathan Hurn of Barclays. Jonathan, please go ahead.
Good morning, guys. I just have three questions, if I may. Firstly, obviously, you're seeing strong OE order momentum. But if we look to FY 2025, how do we think that the mix is going to play out? Is that going to be a potential negative in the margin bridge for 2025? That was the first one. The second one was just on PEP, or Performance Excellence Program. Obviously, cumulative year-to-date is 19. I think the guidance previously was 15. Obviously, it's ahead of that. Could we see any upgrade to the targets that you're going to get from PEP? And also just on '25, how much cumulative benefits are we going to get from PEP in that year? And then just the last one, just if we look at the sort of revenue year-to-date, it kind of implies quite a strong pickup is needed in Q4 to hit consensus.
I'm sure it can be done, but can you just give us some confidence of why you can see that big step up in Q4 revenue? Thank you.
Thanks, Jonathan, so I'll answer questions one and three, and then hand over to Brian to pick up on the performance excellence questions, so what I should say, I would caveat my comments by saying we haven't yet reviewed the budget for 2025. That's in progress at the moment. But in answer to your questions, I would say this: yes, the OE momentum does mean that we will have a mixed headwind. I mean, that's the math. You understand how that works. But I don't expect that there'll be a massive spike in OE in sort of 2025, 2026, i.e., the stuff that's converting at the moment will sort of feather in over the next two or three years because some of it is really long lead-time stuff, so I'm not expecting, yeah, I expect there'll be a headwind, but I think it will be a manageable headwind.
The other thing I would say is that, and we've seen a bit of that through the last couple of years. Some years we've had positive, some years we've had negative, but we have absolutely delivered on everything we said we would deliver on our operating margin expansion. And we've got plenty of gas in the tank on the Performance Excellence Program, which Brian will come to. So I feel very good that we'll be very easily able to absorb any mixed headwind that we see on the OE side. And of course, it's a great problem to have, isn't it? Because look at that beautiful install base that's coming for the future that will drive further aftermarket growth. So we'll guide in more detail on the margins for 2025 when we announce our full year results at the end of February.
But I'm expecting that we'll be able to manage that mix with offsetting that with the positives on the operating margin side. And just on the revenue year-to-date, fourth quarter, yeah, I mean, it is a step up in the fourth quarter, but that's not the first time. Fourth quarter is normally our biggest quarter, and that's driven by the phasing of OE deliveries, which do tend to stack up, and customers want them to be delivered by the end of the year. So it is a fairly normal seasonal pattern. I would say that other than just underlying run rate aftermarket, everything that we need to deliver to hit our revenue target is in the order book. So it's really about execution. The business has very strong momentum at the moment, as I said.
One of the things that underpins that execution is the strength of the sales and operating improvement process improvements that we've been putting in place as part of performance excellence. From a manufacturing and supply chain point of view, we've been simplifying, building muscle and strength. I think that's a really good underpin for what we need to deliver in the fourth quarter. I think barring any significant supply chain disruption, which is out of our control, we will be fine, and I feel very good about delivering the fourth quarter, as does the business. We're confident, as we've said in the statement, of hitting our operating profit guidance and market expectation. Brian, on the Performance Excellence?
Jonathan, yeah, thanks for the question. Yeah, we're really quite pleased with the progress we're making in Performance Excellence.
We're ahead of the guidance we gave in terms of delivery with over GBP 19 million of cumulative savings compared to the GBP 15 million we said for all of 2024. Just a reminder on the guidance, we should deliver GBP 30 million of cumulative savings by the end of 2025, with a full GBP 60 million by the end of 2026. We're seeing more and more opportunities, and the focus is on delivery of those, as well as delivery on what Jon just talked about in terms of revenues and orders. At this time, we're not looking to change our guidance, but I just want to reiterate, we're not stopping at GBP 60 million. The important thing here is we have built something, and we've created the muscle that will allow us to continuously improve as we go forward.
So you're going to see it in the margins as we hit the 20% in the future, but we're not stopping there. That becomes our foundation, and performance excellence transforms into continuous improvement, where we'll see a further increase in support that strong operating margins that we've been talking about. So no change, but quite excited on what we have built and continue to build. So thank you.
That's great, guys. That's very clear. Thank you very much.
We have a question from Christian Hinderaker of Goldman Sachs. Christian, please go ahead.
Yes, morning, Jon. Morning, Brian. I just want to start on Performance Excellence as well, if I may, and maybe just phrase it a bit differently. The beat, shall we say, in the GBP 19 million of cost savings you've delivered, is that more about pull forward and sort of the timing execution, or the case that you found more savings than you'd initially thought you might?
Thanks for that, Christian. I think some of it we've not to say pull forward, it's just that we've been very successful in delivering ahead of plan and ahead of schedule. And that's something we continue to focus on. But as I said, we continue to see opportunities of what we can do. And so we are going to continue to go after this. But I mean, as I just previously stated, we're not changing our guidance, but we're not stopping. And so it's not trying to hit a number. It's just driving the best performance and the best outcome we can. And we've built that muscle to do so. So quite excited, and we will continue to pull things forward and hit this number as quickly as we possibly can.
Thanks, Brian. Maybe just one on the order side of things. I'm just curious, into next year, we typically see the miners announce their CapEx plans. You've obviously come out of MIN Expo, presumably having spoken to a lot of your customers. How do we think about the normal phasing in terms of miners announcing CapEx intentions versus you receiving orders in a typical H1 period?
Thanks, Christian. Yeah, I mean, I think I would break it down by commodity. And I know you were at MIN Expo, and I thought that the general mood was very positive there. Quite a lot of excitement, quite a lot of talk about expansion and growth, which was really good to see. We had several really, really excellent customer interactions talking about their expansion plans and adoption of some of the newer technologies that we've been bringing to the market, adoption of more of our digital capabilities. So I felt it was a really, really positive event. And so I don't think I would look at the overall market estimates for miners' CapEx and directly correlate that to what we're seeing because it depends by commodity, and it depends on the specifics of the customer positions that we have.
But I would say, and again, still working on our budget for next year, but the general environment feels positive. If you take, for example, our gold mining customers, they are as happy as they have ever been in living memory, obviously. And we're working with many of our large gold mining customers to say, "How can we accelerate production? What can we do? What can we spend with you to try and get more out of the ground?" So as a theme, that's very, very positive at the moment. We're seeing copper expansion projects, I think, now starting to move ahead. Thematically, I think you look at the U.S., that's quite interesting at the moment.
Many of the large projects in copper and lithium in the U.S. that have been stalled for years and years and years because of not being able to get licensing and permits, it feels like that's starting to get unblocked at the moment, given some of the pragmatism that is coming in around resource security. So I think through various lenses, there are positive trends that we see in our pipeline and how we expect that to convert. So I would think about it that way rather than sort of looking at kind of a high-level correlation, Christian.
Thanks, Jon.
We have a question from Margaret Schooley of Redburn. Margaret, please go ahead.
Yeah. Good morning, Jon. Good morning, Brian. Just two quick questions for me. Firstly, we've recently seen Iron Bridge full production be pushed out again. Understandably, this is a new flow sheet, but could you give us any color on what the challenges are there? And I wouldn't think this is necessarily from Weir kit, but how your kit is working there, and has this affected clients coming down to view the new flow sheet or not at all, still interested, still coming down? And then secondly, back to the M&A question, can you remind us the areas of focus for infill acquisitions in the pipeline? Is this more digital or more on the sustainability offerings, just so we can have an understanding of where you're looking to add?
Yeah. Hi, Maggie. Thanks very much for those two questions. I think, yeah, I mean, on Iron Bridge, I mean, not going to go into the specifics, but I would characterize it as this is a massive greenfield project with a degree of innovation in the flowsheet. And as we saw in the last supercycle, when these massive projects get built, it takes a while to ramp up to commissioning, and there's lots of kind of problem-solving and snagging and de-bottlenecking that needs to be done. And they're going exactly and I saw this in my early career with Weir in the supercycle, when some of the big mines were built in Latin America. You just go through a period where to get them up to nameplate capacity, it requires you to do things that you weren't expecting to do, and sometimes there are unforeseen challenges.
So from my point of view, that's what's going on at the moment. We've got a fantastic relationship with Fortescue, we and their other suppliers working hand in hand with them to get them to where they need to be. So I would say it's, from our point of view, they've got some challenges they're working through, but we've got a great working relationship, and collectively, we'll help them get to where they want to be in terms of the nameplate production over time. On the M&A piece, I think we've always talked about sort of three buckets.
So product infills where we've got white space in our sort of hardware offering, geographic infills in markets where we have lower market shares than some of our better markets, and then digital and tech where we can identify assets like Motion Metrics that bring intelligence, AI, data to add power to our offering. So those are the three areas, and I would say that the pipeline that we're looking at trying to convert at the moment, we've got a smattering of opportunities in each.
Thank you. That's really helpful. I appreciate it. See you later.
Our final question is from Joel Spungin of Investec. Joel, please go ahead.
Hi, good morning. Just really a point of clarification, actually. Jon, I just wanted to check. Did you say that the OE order intake, excluding the large orders, would have been + 4%?
Correct. Yeah. So, taking the large orders out of Q3 this year, and we had a couple of not announced, but we had a couple of kind of big one-off orders in Q3 last year. So, you take like for like, we're 4% up.
Okay. So there was an adjustment in the previous year that wasn't previously disclosed?
[audio distortion] Correct.
Okay. Can you tell us what those orders related to in the prior quarter?
Yeah. They were sort of big GEHO sort of GBP 10 million-12 million, a couple of GBP 10 million-12 million, big one-off sort of pipeline orders that we had last year. Because we would only publicly announce anything over GBP 25 million. That's our sort of guideline. But I would, as I said to an earlier question, GBP 10 million is quite a large order for us. So it was adjusting both quarters.
Okay. Thank you very much.
I will now.
Okay. If there are no more questions.
Jon Stanton for closing remarks.
Okay. Thank you very much. Thanks, everybody, for joining the call. Appreciate you attending. And obviously, if there are any further questions as we go through the day, please get in touch with Phil. Happy to try and help in any way. But thanks again, and I think we'll see several of you later on tonight. Thanks, everyone.
This concludes today's call. Thank you for joining. You may now disconnect your lines.