Good morning, and thank you for joining us today for the Weir Q1 trading update. My name is Harry, and I'll 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 to exit the queue. I will now hand over to Weir Group CEO Jon Stanton to begin. Please go ahead.
Thank you, Operator, and good morning, everyone. Thank you for joining us for our first quarter trading update. As usual, I am joined by our CFO, Brian Puffer, and after a short overview from me, we will be delighted to take your questions. Let me start with current trading, where we have had a great start to the year. Market conditions in mining remain strong, with brownfield project activity, production growth, and installed base expansion driving demand for Weir products. We began 2025 with a record pipeline, which is converting in line with our expectations as customers capitalize on supportive prices for the major commodities we help to produce. In the quarter, we received several large OE orders, including GBP 18 million in nickel expansion projects for our market-leading GEHO pumps. In addition to new opportunities, we are winning market share through our strategic growth initiatives across the group.
In Minerals, we've successfully converted three trial sites to Warman mill circuit pumps so far this year, and in ESCO, we booked 34 net digger conversions, double compared to the same time last year. Across our businesses, we see positive demand for aftermarket spares and expendables as customers maximize production at their existing sites, and newly installed equipment is commissioned. In particular, demand for HPGR tires increased in the quarter as our customers ramp up recent greenfield projects in high-grade iron, copper, and gold. We continue to deliver our Performance Excellence program, building on our strong momentum from last year. To date, we've delivered GBP 35 million of absolute cumulative savings against our GBP 80 million targets due to be achieved in 2026. Turning to orders, where we receive high levels of interest for our technology as we support customers in accelerating productivity and sustainability in the mining sector.
Demand for critical metals and their prices remain positive, and our customers continue to choose Weir products as they de-bottleneck and expand their existing sites. During the quarter, we saw a pickup in original equipment orders, growing 5% year on year on a constant currency basis. Spend on mission-critical spare parts that are essential to keep mines running contributed to growth in aftermarket orders, up 5%, as newly installed equipment was commissioned and mine-specific issues receded compared to the same time last year. Taken together, group orders were up 5% year on year. Let me now give a little bit more detail on the performance of each of the divisions, starting with minerals. Here, in original equipment, orders grew by 6%, driven by demand for de-bottlenecking and brownfield expansion projects.
Timing of large projects continues to be dynamic, with opportunities shifting between quarters, though our overall pipeline of opportunity continues to convert broadly as expected. In aftermarket, year-on-year orders were up 9%, and demand for aftermarket was really strong, driven by overall positive ore production trends as well as a sequence of commissioning of new installed base. Moving on to ESCO, where we continue to see positive demand for our market-leading products across our mining markets. In original equipment, orders were stable as we see good levels of demand for our mining buckets and first-fit lip systems. In aftermarket, we secured an additional five orders in the quarter for our next-generation G.E.T. system, Nexsys. Nexsys reduces downtime and increases wear life for our customers compared to competitive systems in the market. An adoption of the Nexsys system will augment the great position we already have in G.E.T.
Year-to-date, orders for G.E.T. have grown by 4% across both mining and infrastructure, although 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%. Now, some brief comments on our Performance Excellence program and progress in closing the Micromine acquisition. In the quarter, savings arising from the Performance Excellence program affected realized benefits from our lean and functional transformation initiatives. This included benefits from the WINS operating system in Minerals and streamlined HR function rolled out in 2024. In total, we realized an additional GBP 6 million of absolute savings in the quarter, bringing our total cumulative savings to date to GBP 35 million. We remain firmly on track to achieve our upgrade target of GBP 80 million of savings in 2026.
As I discussed when we announced the acquisition, Micromine is a digital business at scale, active on 3,000 sites with an impressive history of growth at sector-leading margins. Work to complete the acquisition is progressing as expected, and we now expect to close next week. I look forward to welcoming the Micromine team to Weir and accelerating our strategy to create a sector-leading digital and hardware solutions provider that is uniquely positioned to deliver compelling value creation to all our stakeholders. Turning to net debt, whereas expected, we remain on track to deliver strong cash generation this year, with net debt levels following seasonal patterns. While new debt relating to the Micromine acquisition will raise our leverage later this year, given our strong track record of execution, we anticipate deleveraging of this additional debt at pace, reducing below our 1.5x net debt to EBITDA covenant by December 2026.
Now, onto the outlook. We've had a strong start to the year. The business is executing well, and current conditions in our mining markets are positive. In response to the current tariff environment, we have taken steps to adjust our global supply chain, including redirecting U.S.-originated orders to our manufacturing sites in country and proactively addressing pricing with our customers. We believe these actions combined will mitigate the known potential impacts of increasing global tariffs. We are, therefore, on track to deliver our guidance for 2025, expecting to deliver growth in constant currency revenue, operating profit, and margin, together with free operating cash conversion of between 90% and 100%, albeit the broader economic impact of U.S. trade policy does remain uncertain. The building blocks of revenue growth and margin expansion are consistent with those we outlined in our full-year results a few weeks ago.
On revenue, we expect mid-single-digit growth in OE as customers look to invest in projects that improve the efficiency of existing mine sites and address structural critical metal demand. We also expect mid-single-digit growth in aftermarket as customers continue to prioritize maximizing ore production together with ongoing installed base expansion. On operating margins, we expect to deliver 50 basis points of expansion in the year, supported by incremental Performance Excellence program savings through cycle pricing and operating leverage, which will more than offset a minerals mix headwind and increased R&D investment. Before closing, I'd just 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 strong momentum in OE orders for brownfield and sustainability projects is a testament to our resilient business model focused on mining technology leadership and our differentiated capabilities. While we grow our large installed base of equipment, we create aftermarket demand that's largely inelastic to CapEx cycles and day-to-day commodity price fluctuations, as demonstrated by the strong growth in Minerals aftermarket orders this quarter. Taken together, we're confident in meeting our longer-term guidance to outgrow our markets, expand our margins, and convert our earnings to cash while remaining resilient and doing the right thing for our people and the planet. To close, let me summarize the key takeaways. We began the year with a record pipeline, which is converting in line with our expectations as customers capitalize on supportive prices for commodities, enabling the energy transition.
We're on track to deliver our full-year 2025 guidance for growth in constant currency revenue, operating profit, and operating margins, alongside delivery of our free operating cash conversion target. 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 of our competition at sustainably higher margins. Thank you very much for listening. Brian and I will now be delighted to take any questions you have. If I could pass back to you, Operator, to take us through Q&A. Thank you.
Thank you, John. To ask a question today, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two to exit the queue. When preparing to ask your question, please ensure that your phone is unmuted locally. Our first question today will be from the line of Lushanthan Mahendrarajah with JP Morgan. Please go ahead. Your line is now open.
Morning. Morning, guys. Hope you can hear me, and thanks for the call. It's Lushanthan Mahendrarajah with. I've got a couple of questions, please. The first is just on tariffs in particular, a bit of color there, and you're saying it's got a direct impact within your guidance and overall, not material. Can you sort of remind us exactly where the exposure is? I guess it's more ESCO, and I guess what you can do exactly particularly around supply chain logistics to sort of mitigate that impact. That's question one. The second is on Performance Excellence. I think at the start of the year, the guidance this year was sort of incremental 20 million. Obviously, you started the quarter with stick.
I appreciate these things are not linear, but are you sort of running ahead of that run rate, or were some of the savings a bit more sort of H1-weighted? Lastly, on large orders, obviously, you called out the GBP 18 million there. What were large orders in the quarter, and I guess what is that pipeline looking like now? Thank you.
Yeah. Hi, Lushanthan. Thanks for the question. You were breaking up a little bit on the first one, but I think it was broadly about giving more color on tariffs. Let me take that one, and I'll take the third one and ask Brian to just cover Performance Excellence. Yeah, look, on tariffs, as we sit here today, obviously, it's been a moving target over the course of the last few weeks. It's been quite a dynamic situation, but we continue to run the model, and we're very clear that we are able to mitigate the effects of the tariffs that are already in place in some cases and those that we expect to come. That's through a combination of shifts that we can make in our supply chain.
Remember, we have a regional virtually integrated manufacturing model, so that we have quite significant flexibility within our own internal manufacturing. If you take the two businesses, ESCO has more exposure because it produces more in China than Minerals. If I take the China foundry for ESCO, we're doing a couple of things. We'll basically import less into the U.S. and move more of that product into other markets such as Australia and Africa and increase production in our U.S. foundries for ESCO. The second thing that we're doing is just simply redirecting some trade routes. For example, when I think about North America, we basically import everything into distribution centers in the U.S. today, and then that goes off into Canada or Mexico, but we'll just move those shipments direct.
We have a lot going into the oil sands, for example, so that will just now go into Vancouver rather than L.A., so we kind of avoid the impact of U.S. tariffs in that way. Minerals, it's a much smaller sort of magnitude in terms of what we need to deal with. To the extent we've already got, we're unable to mitigate through those supply chain actions, we have price increases, which we've been rolling out over the last few weeks already, and we expect to land what we'd need to be what we'd need to land in relation to those. On the large orders, I mean, in the sense that we would pre-announce orders that are over GBP 25 million, such as we did last year for the OCP and the Rio Tinto orders.
We did not have any of that magnitude, obviously, in the first quarter. We had a couple of GEHO orders for GBP 9 million each on the Micromine expansion projects in Indonesia. Those were the two largest orders we had. Some of the other orders that we had seen delayed from Q4 were also recorded in the first quarter as well. There was a little bit of a catch-up, but I think the key thing on OE was that there were no big orders over GBP 25 million. We are hoping that we will have at least one or two of that magnitude as we go through the year. The underlying momentum OE on the brownfield, de-bottlenecking, sustainability-related projects, tailings remains really robust, and we are just seeing a good run rate of those kind of projects coming through, which is really nice to see.
Brian, just on the Performance Excellence progress.
Yeah, Lushanthan, thanks for the question. Yeah, we continue to make great progress on Performance Excellence and another 6 million of savings. You're right, it's not linear, but a lot of that is run rate. We're not going to update our guidance for what we're going to deliver this year, but we're very confident in the 80 million we're going to deliver by 2026. A lot of the savings are coming, like I said, from the run rate of the work and moves we made last year in terms of transitioning work from higher cost locations to our WBS center in Bangalore, which is, like I said, we're getting those recurring benefits. We continue to see benefits from our lean manufacturing approach. We're off to a great start, and we're very confident in meeting the targets we set for this year and the 80 million in 2026.
Okay. Brilliant, guys. Thank you very much.
Our next question today will be from the line of Christian Hinderaker with Goldman Sachs. Please go ahead. Your line is now open.
Morning, John. Morning, Brian. Thanks for the time. I want to start maybe just sort of theoretically or behaviorally how we think about, obviously, we're in a volatile macro environment. In historical cycles, if we see a sort of softening of broad demand, we've obviously had the permit situation improve year to date, but maybe broad demand expectations soften and some commodity prices ex gold come down. How do you expect OE decision-making and sort of project approvals to progress in that backdrop as we sort of move through 2025? That's the first one.
Yeah, morning, Christian. Thanks for that. Yeah, I think you would need, from where we are today, you would need to see a sequence of quite significant events to sort of change the current dynamics that we're seeing in the market. As you say, it's volatile and quite uncertain at the moment. In the round, commodity prices are still historically at very strong levels, and we would need to see those commodity prices, I think, come down very significantly from where they are today for our customers to start to get significantly more cautious on cash and therefore pull back on their CapEx plans. I think you would need to start to see recession coming in, GDP growth. You'd need to start to see quite a significant impact on commodity prices.
That would then bleed through probably into customer decision-making and a pullback on CapEx. Obviously, any marginal mines would then potentially think about mothballing. The key point in all of this is that you understand our business model. Weir, because 80% of our revenues are aftermarket, we are going to be incredibly resilient whatever happens through this next stage of the cycle. We demonstrated it through COVID. We demonstrated it through the last mining downturn. I am not complacent or being overconfident. It is volatile, but I think the inherent resilience in our business means we have the ability to ride through whatever is coming. I think, again, as I sit here today, we are a long, long way in terms of where commodity prices are just now before we would start to see any kind of meaningful effect on our business from that.
Thanks, John. Maybe just to clarify then a point on the oil sands weakness and the strong dredge comp for Q1 in ESCO. Are there any considerations to be mindful of in terms of the Q2 comps for either segment?
No. I think, look, for ESCO, if you look at Q1 last year, it was obviously the strongest quarter. We probably had GBP 8 million-GBP 10 million of oil sands and dredge orders that were kind of annual orders that were pulled forward and recognized in Q1 last year. If you strip that back, you have got sort of 4%-5% underlying growth in the aftermarket. As we call that in the press release, that kind of is what is happening in the core G.E.T., interestingly, both in mining and infrastructure. They are both up by a similar amount sort of year on year. We expect dredge and oil sands just to be more normalized this year rather than the lumpiness that we saw last year. Actually, when you take that out last year, ESCO has had a really strong quarter from an underlying point of view.
We expect through the balance of this year that the sort of mid-single-digit expectation on aftermarket is where we'll get to. In minerals, obviously, an even stronger start with 9% aftermarket growth. There, I think you can expect more mean reversion over the balance of the year, i.e., I think it was quite we've had an exceptional couple of quarters in minerals aftermarket, largely driven by a significant sequence of commissioning of new installed base. That'll probably moderate a bit as we go through the year. We'll get back more to the sort of mid-single-digit growth that you would normally expect through cycle. Stepping back, I'm really pleased actually with the strength that we're seeing in the aftermarket in the first quarter in both businesses.
Thanks, John. I'm happy to pass it on.
Thanks, Christian.
The next question today will be from the line of Michael Harlow with Morgan Stanley. Please go ahead. Your line is open.
Thank you very much for taking our questions. At the time of the acquisition of Micromine, you mentioned the potential for further bolt-on deals. If you could update us on that. If I may ask an adjacent question, your deleveraging is obviously happening really quickly. I would like to know if bolt-ons are still a priority or if you could consider in the future other forms of shareholder returns. Thank you.
Okay. Yeah. I think, as I said, we're going to close the Micromine acquisition next week. We got the Foreign Investment Review Board approvals in Australia, actually probably slightly earlier than we were expecting given the elections being called in Australia. That's great news. It means that we can crack on with integration right away. Not much to add on the bolt-ons, other than to say from a capital allocation point of view, after all, granite growth remains our number one priority. We see opportunities, probably smaller than Micromine, for further bolt-ons in the digital space as well as in the more traditional products and geographic infill space. We continue to work on that. That's the strategy that will continue. Yeah, we will deleverage rapidly given the cash generation execution that you've seen, which will continue.
As I sit here today, and I've been consistent on this for quite a while, the preference is clearly we're in a very attractive position. We think we can compound the organic growth with M&A. That certainly remains plan A in terms of capital allocation. To the extent we're not able to execute on M&A, we would consider returns to shareholders. That's not where we are at this point in time.
Thank you. That was very helpful.
The next question today will be from the line of Edward Hussey with UBS. Please go ahead. Your line is open.
Morning, John and Brian. Thanks for taking my questions. I might just focus on margins. The first question is, in the release, you mentioned additional lean and capacity optimization projects. Does this imply that there is upside to targeted savings in lean services and capacity optimization?
We are doing more in terms of capacity optimization. You would have seen our announcement earlier this year with the closure of the Todmorden foundry. We will be getting that should be completed. We've gone through consultation now, and that should be completed by the end of the year. That will deliver more savings. We've also consolidated some of our operations in Australia where they were more than what we required. We've consolidated those. We've seen some more benefits coming from that. That's what's helping us to give confidence in the GBP 80 million of savings we're going to deliver by 2026. Like I said, we're not stopping at the GBP 80 million. We believe as we've built this muscle, we will continue to generate those savings. This becomes something as business as usual once we reach that point.
Once we've completed those, we will never stop looking at our overall capacity and what we have, but we'll be feeling like we're in a very good place and we can reap then the benefits of that going forward.
Okay. Thanks. On the comment, you mentioned increasing production in your U.S. foundries in ESCO. I guess part of the savings are going to come from shifting the mix towards China, which is the lowest cost producer. Could this potentially be a headwind to the Performance Excellence program?
No. We're just going to be shifting gross margins around. We're not going to be producing less in China. It's just that that stuff is going to be exported to different markets than the U.S. Where the U.S. is the beneficiary of that low cost at the moment, other markets are going to have that benefit. Some of that's kind of been driven historically by things like tax and because you do have the ability to move profits around between countries to a degree. The only thing is you might get a bit of an adverse tax benefit here and there. In terms of the gross margins and the production coming out of China, that's not going to go backwards. As I said earlier in the round, we feel really good about our ability to mitigate what we're expecting coming in tariffs.
Yeah. In terms of the tax side, any sort of tax impacts are de minimis and do not really change our effective tax rate. There is nothing to really change there in terms of the overall forecasting.
Okay. Great. Thanks. Finally, on the 50 basis points of margin improvement in the year, which I guess is Performance Excellence and, as you mentioned, with an offset from mix and minerals and increased R&D spend, do you mind just breaking down what the sort of magnitude for each of those three drivers in the year?
Yeah. I think the positives in terms of Performance Excellence, operational leverage, other efficiencies is going to drive 100 basis points. The headwind between the minerals mix and R&D is 50, which gets you to net 50 up.
Brilliant. Thanks so much. That's really helpful.
The next question today will be from the line of Tore Fangmann with Bank of America. Please go ahead. Your line is open.
Yeah. Thank you. Good morning. Thanks for taking my question. Only one here from my side. This would be, could you give us a bit more color, especially on your non-mining exposure throughout Q1, Q5? Is there any phasing you can see, especially in the non-mining part, with maybe a weaker March than January and February have been? Thank you.
Yeah. No. As I said earlier, Tor, thanks for the question. If I think about the non-mining part, if I think about infrastructure and construction within ESCO, which is 30% of our business, so only 7% or 8% of the total group revenues. That has had a pretty strong couple of quarters, actually. As I said, the underlying G.E.T. growth in infrastructure was 4% in the first quarter, consistent with what we had seen in mining. To give a bit more color, we use third-party distribution in infrastructure in North America and Europe. In North America, we had our dealer council meeting. That is the top 20-25 dealers a couple of weeks ago. The mood there remains, notwithstanding everything that is going on. It does remain cautiously optimistic. They have seen pretty good activity. There is no kind of stocking or destocking going on either way. Pretty stable.
Cautiously optimistic comes from they've had a good couple of quarters. They see that there have been significant investment plans announced domestically within the U.S. There is clearly growth potential coming from that. On the flip side, you've just got this big question about broader contagion on the macro and do we see a recessionary phase, which is the unknown. I would say I was quite pleased by what we were hearing from the dealers a couple of weeks ago in terms of how they're feeling about the world at the moment.
Perfect. Thank you.
Thank you, everyone. This will conclude the Q&A and the rest of the Weir Q1 trading update for today. Thank you all for joining and for your participation. You may now disconnect your lines.