Good morning, everyone, and welcome to today's Weir PLC Q3 IMS quarterly update. My name is Seb, and I'll be the operator for your call today. If you would like to ask a question during the Q&A session, please press star one on your telephone keypad. To withdraw from the question queue, please press star two. I will now hand you over to Andrew Neilson, CEO, to begin the call. Please go ahead.
Good morning, everyone, and many thanks for joining the call today to discuss our Q3 trading update for 2026. I'm here with Brian Puffer, our CFO, and after some brief comments from me, we'll be very happy to take your questions. Since becoming Chief Executive Officer three months ago, I've been really encouraged by our customers' appetite to expand their partnerships with Weir across their operations. With our platform of market-leading technology and solutions, spanning both hardware and software, I'm confident that we can continue to deliver strong growth at this exciting time for our industry, as our customers look to sustainably deliver the critical minerals our world needs. Most importantly, with our unrivaled local service presence, we're not reliant on a capital cycle to deliver on this. I'm similarly encouraged as the One Weir ethos is increasingly adopted by colleagues across the business.
Our S/4HANA implementation will underpin our future connectivity, and together with other new operational initiatives we're working on, will enable us to drive further efficiency in our business and support margins over the coming years. I look forward to sharing more thoughts on our strategy for the next phase of Weir in more detail during the first part of next year. Turning to changes in our executive team, I'm pleased to welcome Marc Cameron, who joined us last month from Caterpillar Inc as our new President of Minerals. Brian Doffing also joined us as President of ESCO in September after a long career with Epiroc, following Sean Fitzgerald's retirement in the summer. Moving on to the trading update, our performance in the third quarter reflects positive momentum in our core mining markets.
Group orders, including acquisitions, increased 8%, driven by strong demand as customers sought to maximize production, particularly in gold, copper, and oil sands. This progress was despite mine site disruptions and the knock-on impacts of the Middle East conflict affecting aftermarket. Group original equipment orders increased 3%, and this included Minerals original equipment growing by 6%, thanks to good brownfield demand, and despite minor delays pushing some orders into the fourth quarter, including two such projects totaling GBP 30 million, of which one was booked in October. In general, we continue to see positive momentum in our project pipeline. While ESCO original equipment orders year to date have increased, annual phasing of large bucket and truck body orders has resulted in a quarterly decline of GBP 3 million year-on-year, or 24%. Turning to aftermarket, our group orders grew by 10% in the quarter.
Minerals aftermarket orders increased 7% from healthy demand, despite headwinds from mine disruptions in Chile and softer phosphate and African mineral sand demand. On an organic basis, Minerals aftermarket orders increased by 5%. ESCO aftermarket orders increased 14%, or 10% on an organic basis, with good growth in mining GET and another quarter of strong progress in Software Solutions, where we remain on track to continue to deliver strong growth in annual recurring revenue. Coming into the fourth quarter, whilst we're mindful of specific geopolitical events, which are adding short-term headwinds to the sector as a whole, our pipeline and order book are strong. We have good operating momentum, and our customers are keen to work with us to debottleneck and optimize their mines.
Disciplined execution will be our key focus, and we're on track to deliver in line with current market expectations for growth in constant currency revenue and operating profits, with operating margins above 20% for the full year, along with strong cash conversion. Overall, an encouraging quarter, and more to come in the new year and the bright future we see for Weir. Let me stop there, and Brian and I are happy to take your questions.
Thank you. As a reminder, for any questions, please hit star one on your telephone keypad or star two to withdraw your question. First question is from Chit Sinha from JP Morgan. Please go ahead.
Yeah. Hi, Andrew, Brian. Thank you for taking my questions. I have three, please. First, if we just ask on Minerals aftermarket growth, maybe if you could help size some of the impacts from the weather disruption and then the phosphate market. Then I guess into Q4, I mean, should we expect some of this weather challenges to reverse, but maybe the phosphate issues persist?
Yeah, sure. Well, I mean, to put it in perspective, obviously, the chief disruption in Chile was the weather-related events, and obviously copper is our largest exposure, and Chile is within that the largest market, as you'll know, by far. That obviously definitely has an impact. Phosphate, as we put in the release, is around normally 4% of our annual revenue, so it gives you an idea, but we did see some customers shutting sites down, for example. If you look into the fourth quarter, the assumption is basically what our customers are telling us, which is in phosphate in the fourth quarter, we don't expect to see any recovery. We don't expect to see any further reduction either.
In Chile, what we're seeing is customers are absolutely trying to get back to full production and make up where they can and operate through the fourth quarter without any shutdowns.
Very helpful. Thank you. My second question is just on the OE growth. Some of your peers have been seeing quite strong OE growth, so maybe if you could touch on what you're seeing in the pipeline. I think you mentioned on the call about GBP 30 million of orders that, are they the ones that you talk about in the release that were pushed into Q4?
Yeah, sure. Thanks. In terms of OE orders in general, the pipeline, we're very happy with. It continues to grow, and more importantly, we're seeing projects mature through that pipeline. I think when you're comparing us to peers, obviously everybody has a slightly different exposure. Where we are, we are probably the latest cycle, if I put it that way, given our product portfolio and weightings where that is. Obviously, quarter to quarter, when exactly these orders land is very hard to predict. As I touched on there in the opening remarks, there were two projects which totaled GBP 30 million that earlier in the summer we thought were going to land in Q3. They didn't. In October, we landed one of those for GBP 10 million, and the other remaining one for approximately GBP 20 million.
We're still confident it should arrive during the rest of this year. It's just the usual phasing of projects, very hard to predict. But obviously, if one or both of those had landed in the quarter, then we would have had very strong OE growth. I think for me, the more encouraging things, if I look at this over the year to date, indeed what we expect for the full year, we are on track to deliver strong growth in our original equipment orders, and that then flows into revenues eventually. Back to our business model, most excitingly, eventually when that data is commissioned, that leads to the aftermarket, which is the real driver of the recurring revenue and the strength of the business.
Great. Thank you. My final question is just regarding the sales expectations in Q4. You reiterated expectations for the full year, so I think if I work that out, it's about GBP 870 million of sales that we should be expecting to be delivered in Q4. Maybe if you could explain your confidence on delivering that.
Yeah, sure. Yes, it's a large revenue we expect to deliver in the fourth quarter. I think for me, the key point is if you look at the book-to-bills through the three quarters year to date, you can see that we are in double digits, 1.1 or above for all three quarters. Indeed, Q3 were 1.1. Q3 last year, you'll see we're down around about one. So it gives you an idea, we haven't at all burnt down any of the order book, and so we have a substantially larger opening order book, particularly aftermarket. In terms of what's held us back, as we talked about at the half year, was those site transitions. Those are largely done, and it's now really a case of catching up with that backlog which sits in the order book.
The assumption we have in terms of what we call book and burn, or further orders we expect to receive and then deliver in the fourth quarter, that's roughly aligned with prior- year trends, given we're seeing oil sands better, for example, and we're seeing phosphate down, as we talked about. Yeah, I mean, that's how we kind of think about it in general. So yeah, we're confident we can deliver that. I think it's been called out in the press release. It's really then about shipping it to the customer, and that's why we're very conscious of the freight market and what's going on. As much as rates, just predictability of where the vessels are going, et cetera. We're working very hard to make sure we can get those parts that are now flowing through those factories to our customers before the year end.
Perfect. Thank you so much.
Thank you. Next question comes from Jonathan Hurn with Barclays. Please go ahead.
Yes. Good morning, guys. Two questions for me, please. Firstly, can I just come to the margin? Obviously, you have kept your margin guidance of above 20% for the full year. If we kind of look at that Q3, Q4, what can we expect in terms of margins there? Was margin pretty solid in terms of Q3, or do we need a big pick up in Q4 to hit that above 20% guidance? Then just following on to that, just looking to FY 2027. I know it is early days here, but I just wondered if you could talk a little bit about the margin bridge for FY 2027. Obviously, we have got an ERP headwind coming in, but are there going to be offsets? I am thinking just in terms of self-help. Obviously, Micromine, we have seen improving margin there.
Also in terms of the ESEL joint venture, is there going to be big uptick in profitability for that FY 2027 versus FY 2026? That was the first question, please.
Yeah. Jonathan, I will take the second question. Yeah, specific on margins, Brian, if you can touch that first.
Yeah, hi, Jonathan. Thanks for that. In terms of the margins, we have a big Q4 delivery, as Andrew just said in response to Chit's question, and a lot of it is in the aftermarket. These are higher margin products. So, as we deliver that and meet that revenue target, those higher margin products will be coming in. Looking at our forecasts, we are still above that sustainable 20% margin target that we have. Getting to the precise level of margins is very difficult, as we said at the half year, to predict. We have a big delivery expected in Q4, which will deliver that margin that is in the consensus, operating profit that is in the consensus, and margins above the 20%.
In terms of, Jonathan, if I can take your second question around guidance in 2027. Obviously, we are not guiding to 2027 yet. Indeed, we have our budget reviews and iterations in a couple of weeks. Yeah, I mean, in general, we have talked about next year. We know with our ERP implementation, the cost of that implementation next year will be a circa 75 basis points headwind. The absolute cost will remain at that level in 2028, half that amount in 2029, and then vanish in 2030. So that is the specific ERP implementation costs, how they will phase through the next three years. Then, yeah, I mean, generally, we are saying, look, without doing a budget, the expectations are roughly flattish. Margins will come out and be specific with their full guidance, but how do we then offset that 75 basis points, I guess, is your question.
Ultimately, why are we confident doing that? It is really a combination of, one, all the work we have been doing this year, Performance Excellence program benefits will continue into next year, and year-on-year, we will see a benefit of that. Some of the benefits were delayed with the delays in fully ramping up these sites. Secondly, we would expect growth next year, so you will see a degree of leverage. Thirdly, and I touched on it in the speech, we will be continuing to work on a number of efficiency programs, a number of ways we think we can make the business leaner and meaner, and that will also support that piece.
At this stage, as I said, budget reviews, we do not have a precise this bit is this and this is that in the bridge, but hopefully that gives you a flavor of why, despite that headwind, we still think we will be within that. Because as Brian said before, we chose to take the implementation costs in the main numbers, but we will call them out so you can then adjust them if you so wish.
Perfect. Very clear. If I could just have one follow-up, just in terms of that AMOs in Q3. Obviously, like you say, you saw disruption from Chile. I mean, can you quantify what you think that disruption impact was to aftermarket orders in the quarter?
Yeah, I mean, again, very precise, but ultimately, I think, whilst we saw a dredge down in SQM, that was an impact there, really the bulk of the effect was in Minerals, where they are the ones that have the highest phosphate exposure because of the product portfolio and indeed Chile. We made good progress in Chile with SQM because since we took over the SQM business, we have been getting market share down there. So really, the impact was in Minerals. So Minerals, we had 5% organic aftermarket growth in the quarter. Would that have been 1%-2% higher without that? Yes, most possibly. In that kind of range, I think it is one of these things that it was just in one quarter, it is unusual to have two such large events.
As we go into fourth quarter, you are always going to see a bit of variability and some disruption, but obviously, the Chile effect, you can see from what the miners have been announcing, you can see the impact on production levels. So, it gives you an idea where that was more pronounced. And yeah, we have seen shutdowns in phosphate that have been, again, well publicized by the owners of those assets.
That's great. Thank you very much.
Thank you. Next question is from Christian Hinderaker from Goldman Sachs. Please go ahead.
Morning, Andrew. Morning, Brian. I want to start with, well, I guess first off, obviously, there's a lot of external challenges out there, issues in Chile, the Middle East conflict, and I guess, as well, some cost inflation and maybe route issues in freight. I guess, given what's going to be quite a big step up in terms of the Q4, even relative to history, I guess, sort of, yeah, interested in the rationale with sticking with the guidance. I guess you've kind of clarified it with those risks, but yeah, interested in the thoughts there.
Yeah, I mean, I think just as you can see, we said earlier, the order book is very strong, and the plan to deliver that, and that's the delivery dates that are in there. Based on current conditions, which is all we can base it on right now, that's where we expect to end up fundamentally. So yeah, in the press release, I did say, obviously, that would be the downside risk to it if we see any deterioration in any of those. But specifically, obviously, those mines in Chile that were impacted in the third quarter are largely producing again. Look, there's industrial disruption in one mine. It's probably going to be short-lived, but ultimately, the miners, our customers right now, are telling us they intend going as fast as they can through the fourth quarter, so we have to build on that assumption.
And then, obviously, any assumptions around freight are based on what vessels we are booking right now, et cetera, and what the plans are. I mean, it is based on our best available information. It would be as simple as that.
Yeah, Christian, just to add to that, as Andrew said, the order book is there. If you look at the last five-year historical average of comparing orders to revenue, that supports it. I think the question really comes down to, are there any disruptions that cause any issues in terms of giving the product to our customers? And that is why we put that cautionary comment in there. But looking at past history and looking at the current order book, it is there, and it is one-third of the way through the quarter, and there is nothing that changes our view at this point in time. Just wanted to add that bit.
Thank you. Maybe secondly, just turning to price costs and specifically OE. Obviously, there is maybe a lot of quoting activity going on and a number of large projects in focus. How do we think about the price dynamics being discussed, particularly on those larger projects? Is there a need to invest in those tenders to continue taking share?
Yeah, I mean, I think, in general, the industry structure is in the larger project. Pricing is always keener. That pursues a factor, and indeed, at the start of any cycle, there is obviously more pressure in that regard. So yeah, I think there is really no changes for the quarter in terms of that behavior and structure. Yes, I mean, if we see the larger OE orders come through and then deliver them, they will be at lower margins. And yes, occasionally, indeed, if the aftermarket story is there and the payback is there, Brian and I would approve a loss-making bid. But it should appear any loss-making bids in the company have to come to both me and Brian for approval, so we are very aware of them.
We have seen a few more of them this year, which again goes back to that, the pipeline and the project progressing, and we expect that to continue into next year at similar levels because of the. We said in the opening remarks that pipeline is developing, we expect to see that bid level to continue through next year.
Thank you.
Thank you. Next question is from Bruno Gjani from Morgan Stanley. Please go ahead.
Thanks for taking my questions. I guess it sounds like you are still comfortable with market expectations for the year, but when we look at the 3Q aftermarket print for Minerals, this was running below consensus for the second half, and I think about this as largely a book-to-ship business. So I would have thought unless you had seen a very strong pickup, say, in the first two months of the second half or October, that aftermarket revenue number would have to drift down for the second half. So I guess, have you seen any underlying shifts in activity for the Minerals aftermarket business in Q4?
Well, obviously, in terms of Q4, we've only seen one month, Bruno. The full October numbers actually end at the end of this week, but we're going to flash roughly October's timing at more or less in line with what we thought when we put the forecast together. I think in terms of that underlying activity, beyond the things that we've talked about in terms of those disruptions, there's no real change. That 90% + of Minerals aftermarket is wear parts, spare parts, and so that's driven by production volumes predominantly. Yes, in orders, you can have things moving about a bit with customer order patterns, changing behaviors, once every three-year upgrades, et cetera. These kind of things can mean you have bumps around it. But fundamentally, there's no underlying change. We track our install base very closely. We track our retention of aftermarket very closely.
There's been no real change at all in third quarter to fourth quarter that we see in that. The focus on delivery is really, as I said earlier, with the plant transfers in particular, we built up this backlog that we will deliver through the fourth quarter. The assumption on those book and burn, or the orders that you receive in the month that you ship in the month, the assumption there is it's balanced out across the business roughly similar to last year in terms of what we saw in Q4. So there's no assumed upset or anything. As we said there, obviously, the Chilean miners are now back and going, so we expect that just to be a kind of normal order pattern through the rest of the fourth quarter.
Got it. I just have a follow-up on the Minerals aftermarket backlog. We spoke about it a bit on this call, but could you provide some color just in terms of how large it is exactly in GBP or in months of revenue coverage, and what does it actually typically look like in a normal year? How far above that are we today?
I think the most simplified would be, if you look at the Minerals aftermarket order book for delivery in the rest of this year, at the start of the quarter, the order book was, in Minerals, GBP 50 million-GBP 60 million type higher than what it was a year ago. So that gives you a sense of that backlog and the scale of it that we've built up that will then be delivered. In terms of the order patterns for Minerals and how it works, it can vary a bit region by region, but in general, typically, we will see a lot of the aftermarket to average it out, maybe a third book and burn in the month across the globe, and then the remainder is typically ordered anywhere from one month to two months, a lot of it lead time.
But some of the parts, for example, in HPGR roll, tend to be more of a nine, 12-month rolling order pattern. So it varies across the end product line, but hopefully that gives you a feel. So for us, the key differentiator on here is that opening order book being substantially higher, because with the business being more that book and burn in month or one to two months delivery, you don't typically carry more than a month, a month and a half order book in Minerals.
Got it. That's very helpful. Thank you.
Thank you. Next question is from Tore Fangmann from Bank of America. Please go ahead.
Good morning. Thank you for taking my question. Only one left from my side. Could you just broadly please speak about the current development of your own input cost inflation and your ability, and also the willingness of customers to accept your price increases in the pass-through? Thank you.
Yeah, thanks for that, Tore. I mean, in terms of inflation, we haven't seen much change in terms of our cost base. As we previously said, we've been able to pass basically inflation costs through to our customers. We're not seeing anything more than that. Pricing is, I would say, challenged, but obviously it's come down from what we saw maybe two, three years ago. There's not really a headwind or a tailwind at this point, but it's one that we continue to monitor in terms of our overall cost base.
I think with some of the moves we made, and while they were challenging in the first half, such as the closure of the foundry here in the U.K. and moving that to Florida and South Africa, one of the benefits of doing that is a very much cheaper energy in terms of going and running those plants, and it really supports those moves. So we've been able to deal with some of those challenges by some of those Performance Excellence program decisions we made. So the way you should hold it, like I said, neither a headwind nor a tailwind at this point in time.
Thank you.
Thank you. We'll take the last question from Andrew Douglas with Jefferies. Please go ahead.
Morning, gents. Three quick ones, please, from me. Software Solutions, are you able to give us an update just on the growth rates you've seen in Q3 and what we're expecting for the full year? I am assuming it is in line with that number that you gave at the first half, but if that is deviated, that would be helpful. Secondly is on the 75 basis points commentary that you gave on the ERP system. My understanding was you already had some impact in 2026, so if we are building a bridge to next year, we are not taking the full 75 basis points hit year to year. We have already had some in this year. Is that right, or have I misinterpreted?
Just broadly on investment in the business, I think there is a bit of a nervousness around some people that there might be a bit of a margin reset because you are going to have to invest hard in the business from an R&D perspective or just broadly in the group. Is that a fair comment? Are you having to put more cost in the business, which means that that margin reset concern is still potential for 2027? Or, I know you are not guiding on 2027, but is the investment requirements that you need modest or more than that?
Yeah, I think, Andrew Douglas, I will take the last question, and then [Brian] can work through the details of the margin and the I think the FX is the first one, Andrew Douglas. But in terms of the investment levels that we see, I think my perspective is that there is no intent. I am not going to be resetting the margin expectations. I think that our view remains we can be a business with 20% + margin. Do we see opportunity to invest, to deliver growth, and future high efficiency and returns in the business? Yes. We will talk more about that next year. But it is not going to be of the scale that we are going to be resetting margins structurally lower or anything like that.
Right.
Again, R&D has gone up. I think we will continue to tick up in general in the mix. Yeah, I mean, I think for me, again, think about investment and efficiency and technology in the business, what we can now do in the factories with automation, robotics, for example. So, there is lots of opportunities there, but in general, these are always some of our best payback opportunities. So, any discretionary organic CapEx that we make is always a great return on capital. So, these are always really good things to do. So, yeah, and in general, there is no Headline for me, Andrew Douglas, is there is no intent to reset the margins structurally lower through this.
Perfect.
If I touch on the ERP piece before I hand over to Brian. In terms of the ERP, yes, there is a five, six or so million of cost this year. Incrementally, it steps up by 75 basis points into the next year, then it sits at that level. So, the year-on-year impact in your bridge is 75 basis points. But yes, there already are sort of smaller amounts of ERP cost in the second half of this year.
Right. Okay.
Yeah, Andrew Douglas, I think Andrew Neilson pretty much answered your question. Is there another one you had on the margin specifically you wanted to ask?
No, that is all good. Software Solutions?
Oh, Software Solutions. In terms of Software Solutions, we are on track for that 25% + ARR. If you look in the ESCO growth in the Q3 in terms of the aftermarket, you saw very strong growth. Half of that is probably ESCO, half of that is Micromine. So, really showing how we are growing that business and increasing that annual recurring revenue, which is such an important measure. So, everything is still on track with Micromine, and we still are on track to deliver the business case, which is beating our WACC after three full years of operation, or in the year of that. So, all good so far on that front.
Perfect. Thank you very much, guys.
Thank you. This concludes the Q&A session. I will now hand the call back to Andrew Neilson for any closing comments.
Thank you, operator, and thank you, everybody, for joining the call. I think as we said there, we are happy with our progress through the third quarter and aim to deliver this over between the fourth quarter, meeting this in line with the current market consensus. With that, we will close. If you have any further questions, please feel free to approach, obviously, any of us, and indeed Phil Carlisle in investor relations. Thanks, everyone.
This concludes today's conference call. Thank you, everyone, very much for joining, and you may now disconnect.