Good morning. Welcome to The Weir Group PLC Q1 IMS. My name is Charlie, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can do so by pressing Star followed by One on your telephone keypad. I wanna hand over to our host, Jon Stanton, the CEO, to begin. Jon, please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us for our first quarter trading update. As usual, I'm joined by our CFO, John Heasley, and after a short overview from me, we'll be delighted to take your questions. Let me start with current trading, where we had a very good start to the year. Market conditions were as expected, with mining markets remaining very active. We continued to make good progress with our strategic growth initiatives, and in particular, grew our pipeline of sustainable technology solutions. The strong operational momentum seen in the second half of last year was carried into the first quarter, all of which underpinned our confidence in delivering our 2023 goals and the longer term value creation opportunity that we at now present. Specifically, in the first quarter, we grew our order book, revenue, and operating margins.
We captured market share with differentiated solutions that help our customers with their biggest sustainability challenges. We continue to benefit from the long-term structural tailwinds that underpin our mining markets. Looking at our markets in more detail, conditions in mining markets are positive. Commodity prices are well above miners' cost to produce. Physical inventory levels remain tight. Our customers are focused on maximizing ore production. With large projects remaining slow to convert, they're growing and accelerating production from existing assets, while also increasingly engaging on new sustainability-driven technologies, such as our Redefined Mill Circuit and the Motion Metrics digital offering. In infrastructure, as we expected, activity levels have improved since the fourth quarter, remain well below the peak we saw in Q1 last year. Overall, these market trends are reflected in our group orders, which were up 4% year-on-year.
In original equipment, orders were up 22%, driven by small brownfield projects. In the aftermarket, as expected, total orders were flat against the prior year comparator, which included a peak quarter for infrastructure, some pre-buy in ESCO, and the last orders from Russia. Underlying performance in our mining-focused aftermarket was strong, with minerals aftermarket up 5% year-on-year, and the mining-focused part of ESCO stable. This is a reflection of the high-quality nature of our mining aftermarket, which is largely driven by non-discretionary spend on spare parts that are essential to keep mines running, which of course is what makes our aftermarket business highly resilient. The group's book-to-bill was 1.04, reflecting order book growth and strong execution. In fact, both divisions delivered year-on-year revenue growth and continued to use pricing to offset the impact of cost inflation to maintain gross margins.
We also kicked off several projects within Performance Excellence, our transformation program, which will support future margin expansion and cash conversion. Projects included the reorganization of our North American footprint in minerals to improve customer proximity and the leaning out and simplification of global value streams, both of which will support improvement in margin and inventory performance. We also stood up the transformation team for Weir Business Services, which will drive our move to a global business services model, delivering high quality and efficient enabling functions to the business. Overall, we're moving at pace with Performance Excellence and expect to see the early financial benefits this year. Other highlights in the quarter included receiving approval from SBTi of more ambitious emission reduction targets, which we announced in the second half of last year.
I'd like give a little bit more detail on the performance of our two divisions, starting with Minerals. Orders in the Minerals division grew 9% year-on-year. In aftermarket, year-on-year orders were up 5% against a comparator which included a contribution from Russia. Excluding Russian orders from the prior year, aftermarket orders were up 7%, reflecting both price and volume growth. Demand for aftermarket was strong across most hard rock mining territories, reflecting wider ore production trends. Asia Pacific and South America were particularly strong as we benefited from recent expansion of our installed base in these regions. As expected and previously outlined, we saw a slight moderation of demand from customers in the Canadian oil sands, and activity levels moved in line with broader energy markets.
In original equipment, orders were up 20%, with customers ordering Weir solutions to debottleneck, expand, and improve the sustainability of existing mines. This reflects a broader and growing trend. With the supply deficit for forward-facing metals such as copper becoming more visible and large projects remaining slow to convert, our customers are turning to Weir to help them accelerate and grow production from their current assets. Notable orders in the quarter included a GBP 12 million order for our GEHO pumps for a high-grade nickel expansion project in Indonesia, which builds on the GBP 33 million of orders we booked in the second half of 2022 for similar applications, and further underlines our leadership position in this attractive high-growth niche.
Operationally, minerals has momentum and is executing well, with the team delivering year-on-year revenue growth and a book-to-bill for the quarter of 1.05. Onto ESCO. Here, as expected, headline orders were lower than last year, with the comparative being a peak quarter for infrastructure orders. Also including some pre-buy. However, orders grew sequentially from Q4, with a modest uptick in infrastructure markets and continued strong underlying demand in mining. Let's look into those two end markets in more detail, starting with mining, which accounts for around 70% of ESCO's revenue. Trends in this part of the business are positive. On a year-on-year basis, orders were in line, while sequentially orders were up mid-single digits.
This reflects supportive market trends and incremental demand for our industry-leading ground engaging tools driven by market share gains and the positive net conversions we achieved in 2022. Demand for our mining attachments was also strong as we continue to expand our market share with our tech-enabled mining buckets. This proposition is underpinned by our differentiated Motion Metrics, AI, and rugged 3-D camera technology, which continues to generate growing customer interest. Other Q1 highlights include the transition of ESCO's Scandinavian business from a distributor to a direct-to-customer model, representing another important step on our direct in mining strategy. Turning next to infrastructure. As you may recall a few weeks ago at our full year results, I outlined that we've seen a sequential decline in that part of ESCO's business during 2022, largely driven by Europe and to a lesser extent, North America in Q4.
As expected, demand is therefore down on where we were this time last year, albeit we've seen modest sequential recovery from Q4 levels. We expect the U.S. Infrastructure Bill and Inflation Reduction Act will provide a long-term underpin to activity levels in North America. Operationally, ESCO is also performing well and in the first quarter delivered year-on-year revenue growth and had a book-to-bill of 1.04. Turning to the balance sheet where, as expected, net debt was higher than that reported at the 31st of December 2022, reflecting typical seasonal trends. We continue to strengthen the balance sheet.
Earlier this month, we were pleased to see S&P upgrade our credit rating from BB+ to BBB-, which coupled with the Baa3 rating we already have with Moody's, means we now have a full investment-grade credit rating which delivered on the target we set out in our capital allocation policy last year. Turning now to the outlook, conditions in our mining markets are positive and our strong start underpins our confidence in the year ahead. We are reiterating our guidance for 2023. We expect to deliver growth in constant currency, revenue, operating profit and margin, and we're on track to deliver our 2023 operating margin target of 17%, scaling with a operating cash conversion of between 80% and 90%.
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 aftermarket, driven by production trends and share gains in hard rock mining, partially offset by the loss of revenue from Russia and moderation of demand from oil sands. We expect demand in infrastructure to be flat. In original equipment, in line with the phasing in our open order book, we expect year-on-year revenues to be stable. On operating margin, our increase to 17% in 2023 will be delivered through further pricing benefits, operating leverage, earnings depreciation in Motion Metrics, and the initial benefits from the Performance Excellence program.
We expect operating profit phasing to follow typical seasonal patterns with a 45-55 H1 H2 split, for margins to improve sequentially through the year as mix tilts towards aftermarket and we realize the early financial benefits of Performance Excellence. Before I open up to Q&A, I'd just like to say a few words on our strategy and equity case. We have a compelling value creation opportunity as a sustainable technology leader in mining, we are committed to delivering excellent outcomes to all our stakeholders. We operate in highly attractive mining markets which benefit from long-term structural tailwinds, offering a multi-decade growth opportunity underpinned by growing demand for critical metals to deliver net zero and the transition to more sustainable mining. Unique capabilities, customer intimacy, focused portfolio and technology-led strategy means we continue to enjoy high barriers to entry and are well-placed to capitalize on this opportunity.
At the same time, our focus on operations and the benefits from Performance Excellence give us confidence that we can expand our margin above 17% beyond 2023, while continuing to cleanly convert our earnings to cash. We'll achieve this while remaining resilient, protecting and building our large installed base of equipment, which creates the aftermarket demand that is largely inelastic to CapEx cycles and day-to-day commodity price fluctuations. We will deliver for our people and the planet, driving zero harm in our operations and reducing our emissions in line with our recently improved SBTi reduction targets. We're confident in meeting the commitments we set out in our refreshed equity case last year 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, just let me summarize the key takeaways. We've had a strong start to the year, delivering year-on-year growth in orders and making good strategic progress. We've got excellent operating momentum, and we executed well through the first quarter, growing our revenue and expanding our margins. Conditions in our mining markets are positive, and we are reiterating our guidance for 2023. Finally, we have a compelling value creation opportunity. We're operating in attractive markets and with our focused platform and clear strategy, we have confidence in delivering excellent outcomes for all our stakeholders. Thank you for listening, and John and I will now be happy to take any questions you may have. Back to you please, operator.
Thank you. Of course, if you'd like to ask a question via the telephone lines, you can do so by pressing star followed by one on your telephone keypad now. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. As a reminder, that's star followed by one on your telephone keypad now. Our first question comes from Christian Hinderaker of Goldman Sachs. Christian, your line is open. Please go ahead.
Good morning, everyone. Thanks for the opportunity to ask questions. I wanted to start maybe on the mining side. A number of the miners have actually missed their production guidance in recent quarters. Appreciate that activity levels are high and the backdrop remains robust, as you mentioned. I'm just interested for any comment on why you think those guidance production rates are being missed and whether that's having any impact at all in your own order activity?
Obviously the performance of our mining customers is entirely reflected in our aftermarket, given that's what their production is and ultimately what drives the revenue on the aftermarket side of the business. I would say we've obviously seen that with some of our customers, others have done better, but fundamentally, the aftermarket is driven by the amount of rock moved. It's driven obviously by the activity across all of the mines around the world. Those trends are positive. Even though production guidance might have been missed by a few customers, we haven't seen it really obviously impacting the overall volumes that we've seen in the aftermarket.
Of course, alongside the volume growth that we have seen, we're also seeing continued pricing benefits coming through as well. Both of those things have contributed to the aftermarket. You know, ultimately it is a, you know, the reflection of what our customers are doing is in those numbers.
Thanks, John. Then on the infrastructure side, if we go back to Q4, I believe you were talking about a 50% year-on-year decline in demand in Europe. Obviously you've considered -6% for ESCO as a whole, and said that the mining side is stable, so the infrastructure side is obviously somewhat worse. Just interested in some regional color on the infrastructure demand. Also, thinking back to the last quarter, and I think you touched on it earlier, you're shifting from a distributor-led to a direct to customer model in some of these areas. I just wondered what impact you think that's having in Q1. Thank you.
Yeah. Just to clarify on the second part of the question about our channel to market, our strategy is to be direct in hard rock mining, which has been a continuing journey for ESCO. Also I talked about Scandinavia markets where we've just moved from distributor to direct. In hard rock mining, that's been very much the strategy and we're making progress with that. In infrastructure markets, we will still continue to use third party dealers and distributors because frankly, it's a very, very fragmented market and it doesn't make sense to have a sort of direct sales force in that space. We're clear that we're direct in hard rock mining, very much embedded within customers' operation boots on the ground.
It's very important to our business model and a key differentiator. In infrastructure, we'll continue to use third-party channels. In terms of the regional color, obviously, you know, we said, you know, Q1 last year was a peak quarter for infrastructure. Europe declined through the second half of last year and North America a little bit in Q4. In the first quarter of this year, you know, Europe continues to be, you know, at quite a low level, reflecting the economic activity in Europe. We've seen a modest uptick in North America.
as we suspected, I think we said a few weeks ago, at the 2022 results that, you know, ultimately the sort of slight decline that we saw in Q4 in North America was probably a return to normal seasonal patterns where you see a little bit of caution in ordering from dealers into the end of the year and then, you know, a pickup in the 1st quarter. That's what we've seen. It's still down on last year, but sequentially, you know, modest improvement in North America, Europe continuing to remain soft.
Okay, thank you. Finally, maybe just an update, if I may, on lead times and both on inbound supply and your own deliveries. I just wonder if those are back to completely normal levels now and whether that's having any impact on inventories?
I know our lead times, you know, got largely normalized through 2022 as the operational cadence of the business picked up and supply chain challenges eased. I would say by and large, there's plenty of freight capacity around the world now. From a supply chain point of view, you know, we're, you know, I would say we're largely, you know, normalized back to sort of pre-COVID. Sort of lead times, you know, and on the front end of the business. You know, our lead times are, you know, are sort of at, you know, standard levels. The only time where it sort of stretched out a little bit was, I suppose, at the beginning of 2022, end of 2021 after the cyberattack. That was, you know, a weird specific point.
That, you know, has been dealt with clearly, and now we're back to normal levels. I don't think there's any impact on that, you know, in the ordering trends that we've seen. We certainly don't think, you know, in mining that there's been any sort of stocking strategy changes in our customers. We think the inventories are at sort of normal type levels, through cycle levels. We feel it's pretty balanced at the moment.
Thank you very much.
Thank you. As a reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. Our next question comes from Jonathan Hurn of Barclays. Jonathan, your line is open. Please go ahead.
Hey, guys. Good morning. Just two questions for me, please. Firstly, just on the cash conversion, obviously you're guiding to 80%-90%. Can you just talk us through the phasing for that cash conversion through 2023? Is it still gonna be quite Q4 weighted in terms of getting to that target, please? That was the first one.
Thanks, Jonathan. I'll take that. Yeah, I mean, obviously reiterated our 80%-90% guidance for this year. Last year, obviously, you know, we had a significant working capital outflow in the first half of the year and then that coming back in Q4. That, you remember, was driven, you know, in part by the supply chain challenges and extended inbound lead times on bottom components for our project activity within the minerals division principally. We won't see that same extent this year. We will, however, still see an outflow of working capital through the first half of the year as we're building inventory to support the shipping of revenue through the second part of the year.
That will then largely reverse through the second half of the year to leave a, you know, modest outflow of working capital, keeping working capital to sales in a similar position to last year. Rolling all that together specifically to your question, I think that you will certainly see cash conversion progress from H1 to H2. H1, you will see it stronger than we did in H1 last year, but not to the full 80%-90% level on H1. That will be a full year number, Jonathan.
Great. That's very clear. The second question is just on the margins. Obviously, you've reiterated 17% target. Can you just talk us through how we kind of think about the H1/H2 split in terms of those margins, just in terms of maybe the momentum in terms of the growth in H1 and the potential momentum coming through in H2? I know obviously H2 is gonna be a little bit more loaded from some of the comments you made earlier. If you could just give us a little bit of color on that would be helpful.
Sure, no problem. Again, starting with the 17%, you know, the Q1 is giving us good confidence in delivering that, so no change to our overall 17% target for the year. That's well underpinned by the areas that we outlined at the year-end results in terms of, you know, continued pricing benefits, ongoing efficiencies, Performance Excellence, Motion Metrics. It's all of these are in a lockout to deliver that 17% margin. Some of those are slightly more second half weighted, so thinking about the benefits from Performance Excellence, Motion Metrics margins coming through.
What that means is that to deliver the 17%, which is 100 basis points up on last year, then in the first half, margins will improve on the first half last year, followed by a bit less than 100 basis points. For the reasons I just described, the second half, we'll see those margins progressively accelerate in terms of the differential to last year, such that the H2 2022 to H2 2023 will be a bit more of 100 basis points. That is sort of how we see the margins phasing. It's been a good start, Jonathan. Margins up in the first quarter and, you know, really confident in that through the moment.
That's great. Thank you. Maybe if I can just sort of squeeze just one last one just very quickly. Just in terms of those or in terms of the minerals, aftermarket orders, obviously +5%. Obviously, you said volume and price. Can you just give us a rough split of how much of that was price in terms of that growth, please?
Yeah, I'll take that one, Jonathan. I mean, it's absolutely in line with what we said at the beginning of March. You know, inherent in the numbers in Q1, we've seen underlying mid-single-digit volume growth. We've seen underlying mid-single-digit pricing growth, but that's been offset by the headwinds from no Russia orders and a little bit from the oil sands, which brings us back to sort of mid-single digit net. That's the way to think about it. But exactly what we expected to happen and expect to see for the balance of the year.
Okay. Great, guys. Thank you very much. Very clear.
Thanks, Jonathan.
Thank you. As a final reminder, if you wish to submit a question via the telephone lines, you can do so by pressing star followed by one on your telephone keypad now. We currently have no further questions registered via the telephone lines, so I'll hand back over to Jon Stanton for any closing remarks.
Thank you, operator. Thanks, everybody, for attending the call and we appreciate the questions. Obviously, if there are any follow-ups, then, please get in touch with the investor relations team over the course of today. Thanks again for your participation.
Ladies and gentlemen, this concludes today's call. Thank you for joining and now please disconnect your lines.