Good
morning,
everyone
and
welcome
to
Weir's
Full
Year
Results
Presentation.
I'm
joined
today
by
our
CFO,
John
Heasley
and
we'll
follow
our
usual
format.
So,
after
some
opening
remarks
for
me,
I'll
hand
over
to
John
to
take
you
through
the
financial
review
in
detail.
I'll
then
return
with
a
business
review
and
strategy
update
before
we
open
up
for
questions.
Ricardo
Garib,
President
of
our
Minerals
division
and
Andrew
Neilson,
President
of
ESCO
are
also
here
with
us
for
the
Q&A.
Before
I
start
our
presentation,
I
would
like
to
say
a
few
words
on
the
shocking
events
in
Ukraine
which
have
rapidly
escalated
over
the
last
week.
Our
first
priority
has
been
the
safety
of
our
impacted
colleagues
and
their
families,
and
our
thoughts
are very
much
with
them.
We're
doing
all
we
can
to
support
them
through
this
very
difficult
and
dynamic
situation.
I'll
say
a
little
more
on
the
business
context
of
these
events
later
on
in
the
presentation.
But
first,
I'll
move
on
to
reflect
on
2021.
2021
has
been
a
milestone
year
for
Weir
on
many
fronts
not least
because
it
marked
150
years
since
the
company's
foundation.
It
also
saw
us
complete
our
strategic
transformation
into
a
premium
mining
technology
business
and
the emergence
of
the
new
Weir
that's
being
positioned
to
take
advantage
of
highly
attractive
opportunities
that
lie
ahead,
and
which
is
already
demonstrating
the
benefits.
It
was
also
a
year
characterized
by
an
extremely
complex
operating
environment
exacerbated
by
the
cybersecurity
incident
we
had
to
deal
with
in
the
fourth
quarter.
So,
let
me
start
by
giving
you
the
headlines
from
these
results.
In
2021,
we
delivered
very
strong
order
growth
which
accelerated
later
in
the
year,
and
we
expanded
our
operating
margins
despite
the
external
challenges.
We
remain
on
track
to
deliver
our
medium-term
financial
and
sustainability
goals
where
we
see
a
clear
pathway
to
17%
operating
margins
and
have
added
new
operating
cash
conversion
targets
and
are
enhancing
our
CO2
reduction
targets.
2021
has
seen
a
real
strengthening
in
global
commitments
to
take
action
on
climate
change,
adding
impetus
to
the
opportunity
for
Weir
to
enable
the
ongoing
and
transformational
shift
in
the
environmental
performance
of
the
mining
sector.
We
continue
to
deliver
world-beating
technologies
today,
and
we're
upping
our
investment
in
the
next
generation
of
technologies
that
will
make
mining
smarter,
more
efficient
and
sustainable.
And
we're
making
these
investments
because
we
believe
the
structural
growth
opportunities
in
our
markets
are
going to
be
phenomenal
for
many
years
ahead.
Our
performance
reflects
the
fundamental
strength
of
our
business
and
is
testament
to
the
magnificent
efforts
of
everyone
across
the
company.
It's
not
been
an
easy
year,
and
I'd like
to
personally
thank
all
of
our
employees
for
their
commitment
and
hard
work
to
overcome
the
challenges
we
faced.
Speaking
of
challenges,
I
wanted
to
deal
with
the
cyber
incident
up
front.
I'm
pleased
to
say
that
the
attack,
which
we
flagged
in
October,
is
now
behind
us,
and
we
finished
the
year
well.
Internally,
it
has
been
hugely
disruptive,
and
so
I
just
wanted
to
give
you
a
flavor
of
how
we
have
dealt
with
it
and
how
we
emerged
stronger
from
the
experience.
Our
security
operations
team
first
detected
suspicious
activity
in
late
September,
and
it
quickly
became
clear
that
the
initial
breach
was
escalating
into
a
very
sophisticated
human-controlled
ransomware
attack.
We
acted
quickly
to
contain
the
threat
actors
and
took
down
all
of
our
corporate
Internet
activity
and
connected
devices.
Well,
this
meant
a
shift
to
manual
processes
for
a
period
of
time.
It
enabled
us
to
quickly
contain
the
attack,
avoided
a
full
shutdown
of
our
business,
and
we
saw no
evidence
of
any
exfiltration
of
our
data.
It
also allowed
us
to
move
rapidly
on
to
recovery
and
restoration,
according
to
business
priority,
which
continued
through
to
the
end
of
the
year.
The
financial
impact
of
£25
million
at
the
lower
end
of
our
guidance
range
was
a
good
outcome
in
the
circumstances,
and
John
will
go
into
more
detail
on
how
that
breaks
down
in
the
financial
review.
But
it
was
transitory.
We
did
not
engage
or
pay
any
ransom.
And
by
the
end
of
January,
we
were
largely
back
to
normal
operations,
having
delivered
an
uninterrupted
level
of
customer
service
throughout.
The
impact
of
the
attack
touched
everyone
in the
business
in
one
way
or
another
and
consumed
a
lot
of
time
and
resources.
But
we've
learned
a
lot
and
emerged
stronger
with
an
even
more
resilient
IT
infrastructure.
The
way
our
teams
responded
and
adapted
to
keep
delivering
for
our
customers
has
been
outstanding,
exemplifying
everything
that
is
so
special
about
the
culture
and
attitude
at
Weir.
The
cyber
incident
was
a
pretty
major
bump
in
the
road
but
we
had
to
deal
with
it
and
it
did
not
stop
us
making
strong
strategic
progress
in
the
year.
Among
the
highlights
in
the
year
were
maintaining
best-in-class
safety
standards
and
staying
focused
on
safety
despite
the
operational
disruptions
caused
by
the
cyber
incident;
winning
large
orders
for
sustainable
solutions,
such
as
high
pressure
grinding
rolls
and
electric
dewatering
pumps;
acquiring
Motion
Metrics,
strengthening
our
ability
to
offer
data-led
insights
and
accelerating
our
broader
digital
strategy
while also
increasing
R&D
spend
to
1.7%
of
revenue,
committing
to
set
science-based
targets
in
2022
to
further
drive
reductions
in
our
Scope
1, Scope
2,
and
Scope
3
emissions,
improving
gender
diversity
at
senior
management
levels
by
4%
to
26%,
and
announcing
the
forthcoming
appointment
of
Barbara
Jeremiah
as
the
first
woman
to
Chair
Weir.
So,
pleasing
progress
across
all
aspects
of
our
strategic
priorities
which
I'll
build
on
shortly.
But
first,
I'll
hand
over
to
John
to
take
you
through
the
numbers.
John?
J
John Heasley
Thank
you, Jon,
and
good
morning,
everyone.
2021
was
characterized
by
excellent
order
growth
with
revenues
and
operating
profits
showing
more
modest
progress
after
being
negatively
impacted
by
the
cyberattack,
albeit
our
actions
ensured
that
the
impact
was
minimized
to
the
low
end
of
the
range
that
we
outlined
in
October.
Orders
at
£2.2
billion
increased
22%
with
the
second
half
seeing
our
latest
cycle
aftermarket
really
accelerate
across
both
divisions.
Revenues
at
£1.9
billion
or
2%
up
on
last
year
which
combined
with
the
strong
orders
through
the
second
half,
meaning
that
the
book-to-bill
1.14%
and
resulted
in
a
record
order
book
at
the
start
of
2022.
Operating
profit
of
£296
million
was
5%
higher
than
last
year,
with
the
impact
of
the
cyber
incident
being
limited
to
the
lower
end
of
the
previously
guided
range
of
£25
million
to
£40 million,
with
£10
million
of
overhead
under-recoveries, £10
million
of
lost
profit
on
revenue
slippage,
and
£5
million
of
direct
costs
which
have
now
been
treated
as
exceptional.
Operating
margins
improved
by
40
basis
points
to 15.3%
with
the
impact
of
freight
and
raw
material
inflation
being
fully
mitigated.
Profit
before
tax
of
£249
million
was
in
line
with
last
year
including
an
FX
translation
headwind
of
£15
million with
EPS
at
£0.713
per
share.
Operating
cash
flow
was
more
impacted
by
the
cyber
incident,
but
even
so,
net
debt
to
EBITDA
was
1.9
times
and
keeping
with
our
capital
allocation
policy.
I
will
now
turn
to
provide
some
detailed
commentary
on
each
of
the
divisions.
Starting
with
Minerals,
as
expected,
we
saw
strong
market
conditions
reach
our
later
point
in
the
cycle
with
OE
orders
starting
to
convert,
and
aftermarket
demand
build
through
the
year
to
reach
record
levels
in
Q4.
Those
market
conditions
continue
to
be
supported
by
strong
commodity
prices
and
demand
for
energy
and
water-efficient
solutions
for
expansion
and
upgrade
projects.
On
the
project
side,
key
wins
in
the
first
half
included
the
Ferrexpo
HPGR
order
for
£36
million
and
the
Indonesian
electric
dewatering
pump
order
for
£33
million
supporting
57%
OE
order
growth
in
H1.
The
second
half
was
characterized
by
solid
conversion
of
smaller
brownfield
and
expansion
projects
still
driving
34%
growth
in
H2.
HPGRs
and
associated
comminution
products
continue
to
be
a
key
growth
driver
with
orders
up
60%,
representing
7%
of
the
total
division.
Regionally,
we've
seen
strong
growth
across
the
board
with
standout
performances
in
Asia,
Africa,
and
North
America,
which
all
bounced
back
strongly
from
a
COVID-impacted
2020.
[indiscernible]
(00:09:21) orders
22%
higher
with
OE
up
45%,
and
aftermarket
up
13%.
Q4
aftermarket
orders
were
up
29%
year-on-year,
and
19%
sequentially,
reaching
record
levels
in
absolute
terms.
Revenues
were
1%
lower
than
the
prior
year
with
aftermarket
up
2%,
and
OE
down
8%
with
a
non-repeat
of
£80
million of
Iron
Bridge
OE
revenue
from
last
year
and
the
impact
of
the
cyber
incident,
which
net-net
meant
we
saw
a
bit
a
week
of
revenues
slip
into
2022.
Book-to-bill
at
1.16
means
we
enter
2022
with
a
record
order
book.
Operating
profit
increased
by
£1
million
in
a
constant
currency
basis
to
£251
million
with
margins
up
20
basis
points
to
17.7%
with
the
benefits
of
mix
and
efficiency
gains
being
offset
by
cyber-related
overhead
under-recoveries.
While
inflationary
pressures
across
raw
material
and
freight
were
significant
in the
year,
we
managed
to
maintain
gross
margins
at
a
product
level
through
a
combination
of
focus
on
material
recycling,
robust
supplier
negotiations,
and
aftermarket
price
increases.
The
aftermarket
revenue
mix
increased
in
the
year
to
71%
compared
to
69%
last
year,
providing
a
margin
benefit
of
around
60
basis
points.
As
we
expected,
while
some
of
the
temporary
cost
savings
realized
last
year
such
as
bonus
and
T&E
returned,
these
were
largely
offset
by
lower
levels
of
under-recoveries
as
we
face
fewer
COVID-related
plant
disruptions.
However,
the
division's
operations
and,
therefore,
H2
margins
were
impacted
by
the
cybersecurity
incident,
which
resulted
in
an
estimated
£10 million
of
under-recoveries
with
the
slippage
of
around
a
week's
revenues
also
having
about
a
£10 million
impact
on
operating
profit.
Moving
briefly
to
the
next
slide,
our
margins
continue
to
be
supported
by
operational
efficiencies.
These
included
a
refresh
of
the
Weir
production
system
that
assesses
every
production
and
service
facility
against
the
standard
set
of
lean
criteria,
as
well
as
further
progressing
our
back
office
shared
services
rollout.
On
the
operational
side,
we
consolidated
two
facilities
in
China,
thereby,
realizing
overhead
savings
while
optimizing
our
foundry
network
with
an
upgrade
in
Australia.
In
the
back
office,
we
continue
to
roll
out
our
finance shared
services
such that
70%
of
the
group
is
now
covered
by
a
common
shared
service
function.
We
expect
that
to
increase
to
90%
over
the
course
of
2022.
And
as
set
out
in
our
strategic
framework,
some
of
the
benefits
of
these
activities
have
been
and
will
continue
to
be
reinvested
in
R&D
as
we
look
to
achieve
our
medium
term
investment
target
of
at
least
2%
of
revenues.
Moving
on
to
ESCO
where
we
experienced
similar
mining
market
conditions
as
the
Minerals
division,
with
mining
orders
running
at
significantly
higher
levels
than
last
year
as
machine
utilization
returned
to
pre-COVID
levels.
Infrastructure
and
construction
markets
in
Europe
and
North
America
recovered
strongly,
supported
by
easing
of
COVID
restrictions
and
government
stimulus,
resulting
in
record
order
levels.
Total
orders
have
now
increased
sequentially
for
six
straight
quarters
with
Q4
orders
37%
higher
than
last
year
and
7%
sequentially,
leaving
the
year
25%
ahead.
Revenues
were
up
11%,
lagging
orders
due
to
phasing
and
lead
times.
This
was
demonstrated
with
H2
revenue
being
up
20%,
compared
to
1%
in
the
first
half.
And
with
book-to-bill
at
1.07,
the
highest
since
we
acquired
the
business
in
2018,
we
carry
a
strong
order
book
into
2022.
Operating
profit
at
£83
million
was £8
million or
11%
higher
than
last
year,
with
margins
up 10
basis
points
at
16.3%.
The
margin
performance
was
especially
pleasing,
given
the
significant
raw
material
and
freight
inflation,
which
is
more
impactful
than
in
Minerals.
This
is
due
to
exposure
to
North
American
steel
plate
and
ESCO
centralized
manufacturing
model,
which
results
in
more
freight
costs.
Both
those
input
costs
more
than
doubled
in
the
year.
Our
market
leading
position
allows
us
to
be
the
price
setter
unless
pricing
power
is
what
has enabled
us
to
maintain
gross
margins
through
a
series
of
price
increases
and
surcharges
as
appropriate.
As
highlighted
in
July,
H2
margins
were
slightly
lower
than
H1
which
benefited
from
the
phasing
of
sales
price
increases
and
advance
of
input
costs
given
extended
period
purchase
agreements.
You
will remember
that
last
year,
ESCO
profits
benefited
from
COVID-related
temporary
cost
savings,
such
as
bonus
and
T&E
with
no
significant
offsetting
recovery
impact.
As
these
costs
have
largely
returned
this
year,
they've
been
offset
by
the
leverage
benefit
of
higher
revenues
and
ongoing
efficiency
savings.
These
factors
resulted
in
an
operating
margin of
16.3%,
up
10
basis
points
from
last
year,
and
we
remain
on
track
to
achieve
our
medium
term
target
of
17%
set
at
the
time
of
the
acquisition.
Now,
bringing
things
together
to
look
at
the
group
operating
margins.
Overall
group
margins
as
reported
averages
20
basis
points
to
15.3%.
After
restating
the
prior
year
downwards
by
60
basis
points
for
accounting
adjustments
and
FX,
we
delivered
a
40 basis
points
increase
across
three
main
areas as
I
would
describe
shortly.
2020
margins
have
been
restated
from
15.5%
to
14.9%
to
reflect
accounting
changes
and
latest
foreign
exchange
rates.
Accounting
guidance
was
issued
in
the
year
by
the
International
Financial
Reporting
Interpretations
Committee
clarifying
the
treatment
of
accounting
for
Software-as-a-Service.
Essentially,
it
is
ruled
that
any
configuration
cost
should
be
expensed
rather
than capitalized.
With
the
implementation
of
our
global
HR
management
system
and
dollar
cloud
based
software
in
2020 and
2021,
we
incurred
£7
million
of
configuration
cost
in
2020
and
£4
million
in 2021
which
historically
would
have
been
capitalized.
These
have
now
been
expensed
in
both
years
and
included
largely
within
our
allocated
costs
resulting
in
a
restatement
of
the
2020
results
with
a
30 basis
points
impact
on
margins.
Going
forward,
we
would
expect
the
impact
to
be
modest
as
our
system
transformation
activities
reduce,
thereby,
having
no
significant
impact
on
our
medium-term
targets.
Translational
FX
has
reduced
the
margins
by 30
basis
points,
simply
due
to
the
mix
of
profitability
relative
to
currency
movements
in
the
year.
And
of
course,
that
can
move
positively
or
negatively
as
we
move
forward.
Now
moving
on
to
the
three
drivers
of
underlying
margin
improvement
in
the
year.
Firstly,
as
expected
and
in
line
with
our
three-year
plan,
we
delivered
a
40 basis
points
underlying
improvement
in
margins
driven
by
ESCO
operating
leverage
and
operational
improvements
across
the
group,
including
those
examples
previously
described.
This
amounted
to
around 80
basis
points
with
a
40 basis
points
offset
for
our
increase
in
strategic
R&D
investment.
Secondly,
the
2
percentage
points
movements
in
Minerals
mix
towards
aftermarket
had
a
60 basis
points
favorable
impact.
And
thirdly,
the
net
impact
of
the
cyber
incident
and
residual
COVID
impact
was
a
negative 60
basis
points.
COVID
was
net
neutral
and
Minerals
at
returning
costs
were
offset
by
lower
under-recoveries.
In
ESCO,
COVID
was
a
slight
negative
as
costs
returned,
but
without
the
corresponding
opportunity
to
improve
recoveries,
which
as
we
said
last
year,
were
less
impacted
than
Minerals.
The
main
net
impact,
therefore,
related
to
cyber
and
was
mainly
driven
by
under-recoveries
in
the
Minerals
Division.
These
costs
are
expected
to
reverse
next
year
and
beyond.
Well,
there
have
been
a
number
of
moving
parts
this
year,
we've
been
pleased
with
the
underlying
improvements
and
challenging
circumstances.
It
was
great
to
see
the resilience
of
our
gross
margins
supported
by
robust
sales
price
increases.
With
the
impact
of
cyber
and
COVID
to reverse
and
Software-as-a-Service
to
be
less
significant
going
forward,
we
remain
on
track
to
deliver
a 17%
constant
currency
margin
by
2023.
As
we
said
last
year,
this
improvement
will
be
driven
by
operating
leverage,
continued
operational
efficiencies
and
a
focus
on
maintaining
our
gross
margins
through
this
inflationary
period
and
will
be
spread
broadly
evenly
over
the
next
two
years.
Specifically,
for
2022,
we
will
see
some
headwinds
from
mix
as
revenue
moves
towards
OE
and
from
our
increased
investment
in
R&D.
For
the
avoidance
of
doubt,
we
see
higher
OE
mix
as
a
positive
in
terms
of
value
creation
with
every
OE
seal
setting
the
foundation
for
a
long-term,
highly
profitable
aftermarket
annuity.
These
margin
headwinds
will
be
more
than
offset
by
operating
leverage
as
we
deliver
on
a
strong
order
book
from
within
existing
production
capacity,
and
we
see
a
reversal
of
the
cyber
overhead
recovery
impact
while
continuing
to
mitigate
the
effects
of
raw
material
and
freight
inflation.
H1
margins
are
expected
to
be
lower,
driven
by
a
heavier
weighting
of
OE
shipments
seen
in
the
opening
order
book.
Turning
to
cash
flow,
we've
seen
a
more
significant
impact
from
the
cyber
incident
and
our
growing
order
book.
The
working
capital
outflow
of
£103
million
is
reflective
of
an
increase
in
trade
receivables
following
the
back-end
loading
of
revenues
related
to
the
cyber
incident
and
a
buildup
of
inventories
in
both
Minerals
and
ESCO
to
support
a
record
closing
order
book.
As
a
result,
working
capital
as
a
percentage
of
sales
at
27.9%
was
above
normal
levels.
CapEx
was
lower
than
last
year,
and
our
plans
as
overall
spend
was
delayed
during
the
cyber
incident
and
final
permits
for
our
new
China
foundry
for
ESCO
takes
slightly
longer
than
planned.
CapEx
also
includes
the
benefit
from
the
proceeds
from
the
sale
of
a
property
in
China
as
part
of
our
efficiency
program.
We're
also starting
to
report
a
free
operating
cash
flow
conversion
measure,
and
this
will
become
a
KPI
for
the
group.
This
reflects
the
conversion
of
adjusted
operating
profit
to
operating
cash
flow
after
CapEx,
lease
payments,
dividends
from
JVs,
and
purchase
of
shares
for
employee
share
plans.
Over
the
course
of
2019
and
2020,
this
averaged
82%
and
clearly
this
year
at
63%
has
been
impacted
by
the
working
capital
outflow.
I
will talk
about
our
targets
for
operating
cash
flow
conversion
shortly.
Turning
to
the
next
slide,
free
cash
flow
of
£62
million
is
£70
million
lower
than
last
year,
mainly
due
to
the
operating
cash
flow
just
described.
Net
interest
is
£8
million
lower
than
the
prior
year,
reflecting
a
lower
net
debt,
while
cash
tax
is
£19
million
adverse
due
to
a
higher
tax
charge
and
some
payment
deferrals
from
last
year.
With
regards
to
net
debt,
we
saw
absolute
levels
reduced
by
£279
million.
This
follows
the
completion
of
the
sale
of
oil
and
gas,
partially
offset
by
the
acquisition
of
Motion
Metrics
in
November,
and
leaves
net
debt
to
EBITDA
at
1.9
times
on
a
lender
covenant
basis.
Returning
now
to
operating
cash
conversion
and
our
targets
going
forward.
As
you
can
see,
our
free
operating
cash
conversion
has
averaged
82%
over
the
course
of
2019
and
2020.
Over
the
medium
term,
we
target
this
to
improve
to
between
90%
and
100%.
This
will
be
driven
by
maintaining
working
capital
to
sales
between
20%
and
25%,
and
CapEx
and
lease
costs
being
at
around
1
times
depreciation.
Our
working
capital
will
be
optimized
as
we
continue
to
leverage
the
benefits
of our
global SAP platform
in
Minerals
to
allow
global
inventory
management
and
the
increasing
digitization
of
our
supply
chain
in
ESCO.
For
2022
and
2023,
we
expect
CapEx
and
leases
to
be
elevated
to
around
1.5
times
depreciation
amounting
to
an
incremental
£40
million
to £50
million
per
year.
This
is
to
support
the
build
of
the
new
ESCO
foundry
in
China,
the
final
SAP
rollout
in
Minerals,
as
well
as
other
digital
initiatives.
This
will
reduce
cash
conversion
to
80%
to
90%
over
the
next
two
years
before
settling
at
a
long-term
through
cycle
target
of
90%
to
100%.
Below
operating
cash
flow,
we
do not
expect
any
unusual
items
going
forward.
Exceptional
cash
costs
will
be
minimized,
legacy-defined
benefit
pension
deficit
repair
costs
are
expected
to
be
£10 million
to
£15
million
per
annum,
while
interest
on
tax
should
broadly
match
the
income
statement
charge.
These
operational
cash
flow
targets
provide
further
context
and
underpinning
detail
to
our
capital
allocation
policy
as
announced
last
year.
Very
briefly,
this
slide
sets
out
some
financial
guidance
for
this
year.
I
would
just
remind
you
from
a
cash
perspective
that
we
still
have £12
million
of
the
initial
Motion
Metrics
consideration
and
some
integration
costs
appear
in
2022.
And
from
an
income
statement
and
cash
perspective,
we
will
see
around
a
£6
million
saving
and
interest
this
year.
In
summary,
we
minimized
the
cyber
impact
on
profit
to
the
lower
end
of our
previous
guidance
while
cash
conversion
was
impacted
by
a higher
than
normal
level
of
working
capital.
Even
with
the
cyber
challenges,
net
debt
to
EBITDA
of
1.9
times
shows
our
financial
strength.
We
are
managing
through
the
inflationary
environment
with
scale
as
gross
margins
have
been
maintained
across
both
divisions.
Order
momentum
is
strong
and
we
enter
2022
with
a
record
order
book.
Execution
of
that
order
book
and
associated
operating
leverage
together
with
further
ongoing
efficiency
benefits
means
we
remain
confident
in
our
medium-term
growth,
margin,
and
cash
targets.
Thank
you,
and
I
would
now
hand
back
to
Jon.
J
Jon Stanton
Thank
you,
John.
In
this
next
section,
I'll
update
you
on
the
strategic
progress
we're
making
towards
our
medium-term
goals
and
share
why
we
are
so
excited
and
confident
about
the
future.
First,
let
me
remind
you
of
where
we
play,
what
we
do,
and
why
customers
choose
to
work
with
us.
Weir
has
a
unique
position
in
the
mining
value
chain. No
other business
provides the
same range
of
premium solutions
from
the
pit
to
the
processing
plant.
We
have
leading
market
positions
and
premium
brands
from
extraction,
through
comminution,
to
the
mill
circuit
and
tailings
management.
We're
operating
every
day
at
the
very
heart
of
the
mining
processes.
Our
highly
engineered
technology
is
mission
critical
to
our
customers
who
rely
on
our
solutions
to
avoid
downtime,
downtime
that
can
easily
cost
$10 million
a
day.
We're
very
focused
on
where
we
operate,
concentrating
on
high
abrasion
applications
which
generate
strong
aftermarket
demand,
and
we
support
that
demand
through
our
extensive
service
network.
It's
a
highly
resilient,
razor-razorblade
business
model.
Once
we
sell
the
original
equipment,
we
have
the
opportunity
to
provide
spares
and
service
in
the
aftermarket.
And
for
every
original
equipment
sale
we
make,
we'll,
in
average,
achieve
around
30%
of
the
original
value
in
spare
parts
per
year.
And
that
figure
is
even
higher
for
our
large
warm
and
slurry
pumps.
So
we
have
a
reliable,
sustained
revenue
stream
throughout
the
mining
cycle.
Increasingly,
we
are
extending
digital
connectivity
across
our
portfolio
with
our
proprietary
Synertrex
platform
and
the
recent
addition
of
Motion
Metrics
rugged
camera
and
AI
visualization
technology
is
adding
to
our
leadership
in
mechanical
engineering
and
materials
science.
With
such
a
broad
portfolio
across
the
mine
and
a
trusted
reputation,
customers
look
to
Weir
as
a
key
enabler
of
innovation
and
performance
improvement
in
the
industry.
Strategically,
we're
working
even
more
closely
in
partnership
with
customers
to
develop
new
technologies
that
will
help
make
the
mines
of
the
future
smarter,
more
efficient,
and
sustainable.
Our
deliberate
repositioning
to
focus
on
mining
technology
is
enabling
us
to
take
advantage
of
the
multi-decade
growth
opportunities
that
exist
in
partnership
with
the
industry
we
serve.
Demand
for
metals
will
continue
to
increase
with
demographic
drivers,
but
these
factors
have
now
been
overtaken
by
expected
demand
from
the
clean
energy
transition,
driven
by
ever-increasing
global
action
against
climate
change.
As
the
rise
of
electric
vehicles
and
transition
to
renewable
energy
generation
gathers
pace,
this
is
translating
into
significant
increases
in
demand
for
metals
like
copper,
nickel,
and
lithium.
And
at
the
same
time,
there's
a
technology
shift
underway
in
mining
as
the
industry
grapples
with
the
ongoing
challenge
of
ore
grade
declines,
meaning
more
material
needs
to
be
mined
and
processed,
while
keeping
safety
as
a
top
priority
and
also
while
responding
to
pressure
to
decarbonize
and
reduce
energy
and
water
intensity.
Without
a
reduced
environmental
impact,
our
customers
will
not
have
the
social
license
to
operate.
So
the
challenge
is
twofold.
More
essential
resources
are
needed
to
meet
the
levels
of
electrification
and
renewable
power
generation
required
to
get
to
net
zero,
but
the
way
those
resources
are
produced
must
significantly
change.
And
that's why
mining
needs
to
become
smarter,
more
efficient
and
sustainable,
and
this
presents
Weir
with
tremendous
opportunities
as
we
leverage
our
leading
market
positions
and
global
footprint,
all
of
which
plays
right
to
the
core
of
our
organization's
purpose.
Our
strategic
ambitions
ensure
that
we
focus
on
the
areas
that
will
deliver
against
those
opportunities,
accelerating
sustainable
profitable
growth
in
the
future
for
the
benefit
of
all
our
stakeholders.
They
are
aligned
to
our
We
are
Weir
framework
and
its four
pillars
of
people,
customers,
technology,
and
performance.
First
and
foremost,
we
want
to
be
a
zero
harm
workplace.
We're
determined
to
get
there,
building
on
the
significant
progress
we've
made
in
recent
years,
and
to
help
our
customers
with
their
journey,
too.
We
also
know
the
benefits
of
an
inclusive,
diverse,
and
equitable
workplace
where
people
can
be
themselves
and
feel
like
they
belong.
And
this
helps
reinforce
a
vibrant
and
purpose-driven
culture.
At
the
same
time,
we
continue
to
invest
in
our
people
at
all
levels
across
Weir,
giving
them
the
opportunity
to
do
the
best
work
of
their
lives
and
creating
the
talent
and
capabilities
we
need
to
be
successful
in
the
future.
Turning
to
customers,
our
goal
is
to
grow
ahead
of
our
markets
by
getting
closer
to
customers,
working
in
partnership
to
solve
their
biggest
challenges.
And
more
broadly,
we
will
raise
our
voice
to
show
leadership
in
the
mining
industries'
transformation
to
net
zero.
In
technology,
we
continue
to
invest
to
expand
our
development
pipeline,
marrying
our
engineering
excellence
with
digital
capability
to
create
new,
smarter
ways
of
doing
business
that
are
based
on
data-driven
decisions
and
insights.
And
as
we
grow
profitably,
we
will
continuously
work
to
be
leaner,
cleaner
and
more
efficient,
which
will
support
expanded
margins
and
strong
cash
conversion,
demonstrating
the
quality
inherent
in
our
business.
In
2021,
we
made
good
progress
towards
realizing
these
ambitions.
And
over
the
next
few
slides,
I
want
to
give
more
color
on
the
level
of
our
ambition.
Starting
with
people.
Safety
remains
our
number
one
priority.
And
throughout
Weir,
we
do
everything
we
can
to
ensure
we
all
have
a
safe
start,
safe
finish,
and
safe
journey
home
every
day.
For
the
group
as
a
whole,
in
2021,
our
Total
Incident
Rate
of
0.45
is
broadly
in
line
with
the
prior
year,
which
I
believe
is
very
creditable
given
the
ongoing
challenges
around
COVID
and
other
disruptions.
ESCO
continue
to
significantly
improve
its
safety
performance
and
this
TIR is
now
over
50%
lower
than
when
we
acquired
the
business
in
2018,
a
terrific
achievement.
Overall,
our
TIR continues
to
place us
among
the
leaders
in
our
sector.
Our
absolute
goal
remains
zero
harm.
And
in
2022,
we'll
focus
on
further
embedding
the
right
safety
behaviors
in
order
to
drive
a
breakthrough
in
performance.
2021
has
thrown
a
lot
at
the
organization,
but
we
continue
to
listen
to
our
employees.
I
was
delighted
to
see
participation
reach
90%
in
our
2021
employee
survey
and
our
Employee
Net
Promoter
Score
increased
again,
putting
us
in
the
top
quartile
against
industrial
benchmarks.
Meanwhile,
the
completed
deployment
of
the
Workday
HR
system
has
been
a
major
step
forward
in
streamlining
and
enhancing
our
people
processes
and
gives
us
a
great
platform
from
which
to
drive
further
progress
on
talent
in
2022.
We
saw
our
purpose
come
alive
in
2021,
most
notably
in
celebration
of
our
150th
anniversary,
when
employees
on
every
corner
of
the
globe
took
part
in
our
Day
of
Purpose
program
to
give
something
back
to
their
families
and
communities.
People
gave
blood,
spent
time
in
schools,
overhauled
community
gardens,
cycled
in
major
charities,
and
much,
much
more.
We
continue
to
support
our
people
and
their
families
with
company-organized
vaccine
clinics
such
as
the
one
at
our
site
in
India
where
over
700
individuals
took
part.
And
it's been
great
to
see
the
expansion
of
our
global
affinity
groups
as
more
and more
colleagues
engaged
in
our
ID&E
activities.
This
caring
and
purposeful
culture
is
an
enormous
asset
to
Weir
and
one
that
requires
continual
investment.
It
is
the
absolute
bedrock
of
our
ongoing
success
as
an
organization
and
will
underpin
our
ability
to
deliver
on
our
strategy
in
the
future.
Turning
to
growth,
we
continue
to
expect
our
markets,
principally
driven
by oil
production,
to
grow
at
around
3%
per
annum
in
line
with
long-term
averages.
In
contrast,
our
goal
is
to
grow
faster
than
our
markets
and
to
deliver
mid-
to
high-single-digit
growth
through
the
cycle.
This
will
be
achieved
through
our
strategic
growth
initiatives
where
we
will
build
further
on
our
existing
momentum.
For
Minerals,
the
largest
growth
driver
will
be
our
further
expansion
in
comminution,
where
we
are
rapidly
growing
our
installed
base
of
HPGRs,
our
market-leading
technology
that
supports
increased
production
while
reducing
energy
consumption
by
around
40%
compared
to
alternatives.
Over
the
last
year,
we
saw
comminution
orders
increase
by
60%
as
miners
recognize
the
benefits
of
this
more
efficient
and
sustainable
solution.
In
2021,
we
won
around
80%
of
the
hard
rock
expansion
projects,
which
specify
high volume,
large
format
HPGRs.
And
with
currently
around
£150
million
of
sales
per
annum,
comminution
has
the
potential
to
triple
on
a
sustainable
basis
over
the
next
five
years.
The
focus
for
geographic
expansion
in
Minerals
is
Central
America,
Eastern
Europe,
Central
Africa,
and
Central
and
Southeast
Asia,
where
we
are
rapidly
expanding
our
service
footprint
to
support
new
mines
and
expansion
projects.
We
have a deeply
embedded
philosophy of
having
boots
on
the
ground
with our
customers,
and
this
remains
core
to
our
offer.
During
the
last
year,
we've
opened
seven
new
service
centers
across
these
regions
including
two
joint
mineral
ESCO
centers
as
we
leverage
our
complete
mining
technology
portfolio
into
new
markets.
We
will
continue
to
grow
market
share
of
our
core
products,
particularly
in
territories
where
we
have
been
underrepresented
or
lost some
share
in
the
past,
and
we'll
introduce
new
products,
such
as
hydro-hoisting,
drawing
on
our
traditional
strengths
in
material
science,
mechanical
engineering,
and
hydraulic
technology
to
make
our
customers'
operations
smarter,
more
efficient,
and
sustainable.
Customer
intimacy
is
a
big
differentiator
for
Weir.
Mining
is
a
24/7
need-it-now
industry
and
we
aim
to
have
engineers
on
the
ground
no
more
than
200 kilometers
from
any
customer
so
that we
can
provide
them
with
the
high-quality
products
and
service
they
need
to
keep
production
going.
Our
approach
means
we're
able
to
develop
and
maintain
long-standing
relationships
built
on
trust,
and
with
that
trust,
and
our
unique
viewpoint
at
the
heart
of
the
core
processes
across
the
mine
will
develop
integrated
solutions.
This
activity
ranges
from
basic
problem
solving
and
debottlenecking
to
expand
production
and
productivity
right
through
to
process
transformation
where
we've
been
able
to
combine
our
technical
capabilities
to
offer
novel
approaches
to
customer
challenges.
For
example,
our
customer
at
a
copper
mine
in
the
north
of
Chile
needed
to
increase
plant
capacity
and
equipment
availability.
Our
engineering
team
designed
a
new
solution
comprising
a
larger
capacity,
Synertrex-enabled
Cavex
hydrocyclone
cluster
together
with
a
large Warman
cyclone
feed
pump.
Using
3D
scanning
to
design
the
new
layout
within
the
existing
footprint,
minimize
downtime
for
the
customer
and
the
new
integrated
solution
increased
capacity
by
over 20%
and
service
life
by
more
than
65%.
It's
through
examples
such
as
this
that
we
continue
to
grow
our
integrated
solutions.
Orders
in
2021
increased
by
32%
to
£210
million,
representing
some
10%
of
our
total
orders
in
the
year.
In
ESCO,
we
will
continue
to
leverage
the
strong
value
propositions
of
our
core
product
range
to
grow
our
share,
such
as
in
the
case
of
our
Nemisys
GET
system,
which
is
now
established
as
the
market
leader
across
all
mining
systems,
delivering
over
200
net
conversions
in
2021,
and
underpinning
our
leading
market
share
in
mining
GET.
Beyond
the
core
GET
product
range,
we're
extending
the
range
of
parts
we
offer
on
large
mining
machines
to
other
Weir
areas
and
having
more
capital
equipment
such
as
truck trays
to
our
offering.
We're
extending
a
number
of
markets
where
we
offer
bespoke
engineered
bucket
solutions
with
a
target
that
we
become
the
global
number
one
in
aftermarket
mining
machine
attachments.
Geographic
expansion
will
follow
in
similar
regions
to
Minerals
for
mining.
But
in
ESCO,
additionally,
we're
expanding
our
infrastructure
business
for
premium
applications
beyond
our
core
markets
of
North
America
and
Europe
to
create
a
global
business.
And
similar
to
Minerals,
ESCO
has
an
opportunity
to
offer
its
own
version
of
integrated
solutions
in
the
mine,
such
as
load/haul
optimization
solutions
that
enable
our
customers
to
significantly
increase
productivity
and
reduce
energy
consumption.
For
example,
when
a
South
African-based
hard
rock
mining
customer
approached
us
to
bid
for
a
replacement
rope
shovel
bucket,
our
engineers
saw
an
opportunity
for
a
more
innovative
and
impactful
solution.
They
proposed
an
alternative
option
to
the
customer,
which
through
our
superior
engineering
design,
lightweight
construction,
and
development
of
a
custom
lip
system
would
enable
them
to
use
a
larger
shovel
bucket
and,
hence,
transfer
more
material
onto
their
haul
trucks
each
time
the
bucket
was
filled.
To
get
a
sense
of how
much
these
units
move,
each
bucket
scoop
is
over
100
tonnes
and
the
shovel
will
excavate
the
equivalent
of
an
Olympic
swimming
pool
in
less
than
an
hour.
The
customer
accepted
the
proposal
and
we've
now
installed
our
latest
Nemisys
N3
shovel
bucket
and lip
system
at
the
mine,
and the
results
have
been
impressive.
The
average
payload
realized
in
each
bucket
is
exceeding
designed
outcomes.
Whole
trucks
are
now
filled
consistently
in
three
passes,
not
four,
while
realizing
higher
average
target
payloads.
We're
doing
more
with
less.
Each
scoop
saved
reduces
truck
idle
time
under
the
shovel,
directly
reducing
truck
fuel
burn
and,
therefore,
CO2
emissions
per
unit
of
mine
production.
Additionally,
a
25%
increase
in
shovel
capacity
allows
the
client
to
maximize
their
lowest
cost
and
most
efficient
loading
unit
while
deprioritizing
more
expensive
and
less
efficient
loading
units,
an
efficient
and
more
productive
solution
all
round.
Superior
technology
is
a
hallmark
at Weir
and
we're
investing
more
in
R&D
to
support
future
growth.
As
I've
already
said,
a
technology-led
transition
is
gathering
pace
as
the
global
mining
industry
looks
to
achieve
net
zero
and
fulfill
its
ESG
promises
while
producing
more
of
the
essential
natural
resources
needed
for
a
sustainable
future.
This
will
see
accelerated
investment
in
the
development
of
new
breakthrough
technologies,
which,
of
course,
will
provide
tremendous
future
growth
opportunities
for
us.
Our
goal
is
to
play
a
leading
role
in
developing
and
deploying
the
technologies
that
will
support
our customers
on
this
journey.
Our
technology
strategy
is
underpinned
by
our
world-class
core
expertise
in
material
science,
mechanical
engineering,
and
hydraulics
now
augmented
with
digital
capability.
We're
directing
our
technology
towards
smart,
efficient,
sustainable
solutions,
and
allocating
increased
levels
of
R&D
investment
across
three
key
arenas
to
grow
our
technology
pipeline.
Firstly,
we're
investing
to
maintain
the
competitive
advantages
of
our
existing
products
through
advances
in
material
science,
and
the
mechanical
and
hydraulic
properties
of
our
equipment.
For
example,
we
recently
launched
the
new
super
resilient
mill
lining
rubber
compound,
which
is
tear
and
heat-resistant
which
will
support
our
expansion
in
that
market.
Secondly,
we're
investing
more
in
developing
new
sustainable
solutions
to
help
customers
reduce
their
emissions
and
water
consumption,
building
on
the
success
we've
had
with
HPGRs in
comminution,
where
we're
now
the
clear
market
leader.
We'll
also
continue
to
focus
on
integrated
solutions
where
we
can
combine
our
existing
technologies
or
with
those
of
strategic
partners
to
solve
difficult
problems
for
our
customers.
And
thirdly,
we're
increasing
our
investment
in
scouting
and
technology
foresighting
to
identify
new
opportunities
that
have
the
potential
to
deliver
more
from
less
in
mining
processes,
such
as
ore
fragmentation
and
characterization,
coarse
particle
flotation,
and
additive
manufacturing.
We
believe
the
transformation
to
a
net zero
future
can
only
be
achieved
through
partnership
and
system
solutions.
So,
we'll
continue
to
develop
the
right
strategic
alliances
and
technology
partners
to
complement
our
expertise
such
as
those
announced
with
Henkel
and
Andritz in
2021.
Turning
to
the
digital
arena,
of
course,
it's
a
given
as
for
any
industrial
company
that
everything
we
do
today
has
to
be
digitized
to
drive
efficiency,
automation,
and
deliver
an
overall
enhanced
customer
experience.
ESCO,
for
example,
is
digitizing
its
supply
chain
to
deliver
an
Amazon-like
experience
for
customers.
And
in
Minerals,
our
Field
Service
Management
tool
is
shifting
the
end-to-end
management
of
our
installed
base
from
analog
to
digital,
bringing
real-time
performance
data
and
technical
product
information
into
the
hands
of
service
technicians
in
the
field.
But
beyond
this,
we're
seeking
out
new
ways
to
create
data
and
insights
for
our
customers
across
our
touch
points
in
the
mine
and
process
plant.
Our
capability
in
this
regard
gained
a
significant
boost
late
last
year
when
we
acquired
Motion
Metrics,
a
market
leading
developer
of
innovative
AI
and
3D
Machine
Vision
Technology.
The
Motion
Metrics
technology
is
already
used
in
several
mines
around
the
world
and
comprises
smart,
rugged
cameras
which
were
initially
developed
to
provide
tooth loss
and
wear
rate
detection
to
shovel
and
loader
operators,
whereby
data
from
the
cameras
is
processed
by
artificial
intelligence
to
provide
real-time
feedback
that
enables
immediate
identification
of
potential
issues
that
could
compromise
safety
or
cause
unplanned
downtime
at
the
mine.
The
market
demand
for
this
technology
has
increased
rapidly
and
will
be
complemented
by
our
sensor-based
technology,
with
growth
significantly
accelerated
through
our
global
distribution
networks.
But
we
believe
there's
a
much
broader
opportunity
to
use
3D
visual
technology
and
AI
to
provide
data
on
the
performance
of
equipment,
faults,
payloads
and
rock
fragmentation
through
comminution
and
across
the
mining
process,
offering
the
possibility
of
end-to-end
process
optimization
as
part
of
our
wider
digital
strategy.
Motion
Metrics
will
report
through
the
ESCO
division,
but
recognizing
this
broader
opportunity
will
serve
as
Weir's
global
center
of
excellence
for
AI
and
Machine
Vision
Technology,
supporting
the
increased
digitalization
of
our
broader
product portfolio
and
with
a
direct
line
into
me.
We
have
already
secured
early
orders
as
we
leverage
our
global
sales
network
and
ESCO's
large
installed
base
to
expand
adoption
and
drive
significant
revenue
growth.
I
am
very
excited
about
the
potential
of
this
acquisition.
As
well
as
supporting
our
customers
with
more
sustainable
and
digitized
solutions,
we're
also
making
progress
on our
own
path
to
net zero
aiming
to
deliver
a
30%
reduction
in
Scope
1
and
2
emissions
relative
to
revenue
by
2024
and
SBTi-aligned
absolute
reduction
by
2030.
We've
made
further
progress
in
2021,
reaching
a
cumulative
15%
reduction
in
CO2
emissions
versus
our
2019
baseline,
focusing
on
targeted
actions
to
reduce
our
overall
energy
intensity
and
increase
the
proportion
of
energy
from
renewables.
For
example,
our
Chinese
foundry
was
named
a
green
foundry
by
a
prestigious
government-certified
scheme
in
2021.
And
in
Chile,
a
power
purchase
agreement
in
our
operations
has
reduced
our
local
carbon
footprint
from
electricity
consumption
by
95%
per
annum.
We're
also pleased
to
retain
our
A-
score
with
CDP,
despite
the
bar
being
raised
once
again.
And
looking
beyond
our
own
operations,
we've
now
completed
our
assessment
of
Scope
3
emissions,
which
confirms
that,
by
far,
the
biggest
overall
impact
we
can
have
as
a
business
is
by
reducing
the
energy
consumption
of
our
products
in
use
on
our customers'
sites.
That's
why
our
business
strategy
is
focused
on
helping
our
customers
meet
their
net-zero
ambitions
both
in
terms
of
the
products
we
have
in
the
field
and
those
we're
developing.
This
includes
Scope
4
offerings
where,
for
example,
emissions
are
avoided
due
to
increased
wear
life
or
energy
efficiency,
which
is
our
sweet
spot.
We
remain
on
track
with
the
strategy
we
set
out
in
2020,
and
accordingly,
we've
now
pledged
our
commitment
to
the
Science Based
Targets
initiative,
which
means
we
will
set
strengthened
emissions
reduction
targets
aligned
with
the
Paris
Agreement
on
climate
change
across
Scopes
1, 2,
and
3.
We
expect
to
publish
these
more
ambitious,
externally
validated
emission
targets
later
this
year.
And
of
course,
we're
providing
both
our
first
full
TCFD
disclosures
and
our
Scope
3
evaluation
in
our
forthcoming
annual
report.
Putting
that
all
together,
I
want
to
reaffirm
our
confidence
in
delivering
the
following
medium-term
goals.
Firstly,
growing
revenue
strongly
ahead
of
our
markets
through
the
strategic
growth
initiatives
that
I
outlined
in
detail
earlier.
Second,
expanding
group
operating
margins
to
17%
in
2023
through
operational
leverage,
the
elimination
of
recent
one-off
effects,
and
driving
back-office
efficiency,
as
John
outlined
earlier.
Third,
achieving
90%
to
100%
operating
cash
conversion
in
2024
and
beyond.
And
finally,
not
only
fulfilling
our
existing
sustainability-linked
targets
but
going
on
to
set
more
ambitious,
externally
validated
ones.
And
we'll
deliver
all
of
this
while
investing
more
in
our
people
and
technology
to
support
our
strategic
ambition.
Let
me
close
with
a
few
words
on
what we're
seeing
in
the
market
and
the
outlook
for
2022.
Current
market
conditions
are
extremely
favorable.
Our
customers
are
focused
on
maximizing
production
to
benefit
from
record
commodity
prices,
supporting
underlying
spares
and
service
demand.
We
have
seen
really
good
activity
in
smaller
brownfield
projects
where
paybacks
are
quick
and
don't
disrupt
ongoing
production.
For
larger
brownfield
and
greenfield
opportunities,
we
have
a
strong
pipeline,
but
conversion
remains
slow
although
customers
are
focusing
more
on
new
supply,
given
expectations
for
future
demand
and
expected
shortages
for
the
key
future-facing
metals.
So,
on to
outlook.
2022
has
started
well,
and
the
impact
of
last
year's
cybersecurity
incident
is
behind
us.
We
have
a
record order
book,
and
our
markets
are
buoyant,
which
is
expected
to
remain
the
case.
We
expect
to
continue
to
have
to
deal
with
ongoing
disruption
from
COVID-19
and
inflationary
and
logistics
challenges
in
the
supply
chain
while
remaining
vigilant
of
a
heightened
geopolitical
risk.
Specifically,
the
rapid
escalation
of
events
in
Ukraine
and
Russia
has
created
significant
uncertainty
about
our
operations
and
trading
in
those
countries.
Our
priority
is
the
safety
of
our
impacted
colleagues,
and
we
continue
to
provide
them
with
all
the
support
we
can.
Our
overall
exposure
is
small
with
combined
Ukraine
and
Russia
net
assets
of
around
2%
of
the
group's
total,
and
combined
revenue
and
profit
being
less
than
5%.
We
are
actively
assessing
the
situation
closely
and
considering
options
as
to
how
best
look
after
our
people
and
protect
our
assets,
and
we'll
update
further
as
required.
Subject
to
the
ongoing
geopolitical
uncertainty,
in
2022,
we
expect
to
deliver
strong
growth
in
constant
currency
revenue
and
profit
consistent
with
our
medium-term
objectives.
Before
we
move
to
questions,
let
me
quickly
summarize
the
key
messages
from
this
presentation.
Today,
Weir
is
a
premium,
highly
resilient
mining
technology
business,
and
we
have
a
major
opportunity
to
make
mining
smarter,
more
efficient,
and
sustainable.
Long-term
trends
from
technology-led
transition
to
net-zero
mining
are in
our
favor.
And
we
have
a
clear
strategy
to
deliver
profitable
growth
ahead
of
our
markets
while
delivering
sustainable
margin
improvement.
That's
why
I
remain
excited
by
the
prospects
for
our
business
in
2022
and
beyond.
Thank
you.
John
and
I,
together
with
Ricardo
and
Andrew,
will
be
pleased
to
take
any
questions
that
you
have.
Operator
Thank
you.
[Operator Instructions]
Our
first
question
comes
from
the
line
of
Max
Yates
from
Credit
Suisse.
Max,
please
go
ahead.
M
Max R. Yates
Analyst, Credit Suisse Securities (Europe) Ltd.
Thank
you.
Good
morning,
everyone.
Just
my
first
question
would
be
on
pricing
in
the
aftermarket.
I
think
we've
previously
been
used
to
mine
production
growing
at
around
3%,
maybe
the
overall
business
growing
at
5%,
but
I
guess
this
is
largely
volume
related.
So,
I
just
wanted
to
understand
sort of
how
much
pricing
would
be
likely
to
contribute
to
order
growth
this
year
for
the
aftermarket
business.
J
Jon Stanton
Good
morning, Max.
How
are
you?
Yeah.
So,
I
think
on
pricing,
as
you've
seen
from
the
release,
we
did
a
great
job
in
2021.
I
think
getting
ahead
of
the
curve,
getting
the
price
increases
out
so
that
we
protected
our
gross
margins.
We
expect
to
continue
to
do
the
same
in
2022.
We
have
already
issued
new
price
increases
beginning
of
this
year
across
both
businesses. And
as
I
look
at
2022,
the
realization
I
would
expect
from
those
price
increases
is
probably
approaching
mid-single-digit
contribution
to
our
growth
as
the
price
increases
kick
in
through
the
course
of
the
year.
M
Max R. Yates
Analyst, Credit Suisse Securities (Europe) Ltd.
Okay.
That's okay.
Just
the
follow-up
question
would
be
around
– I
think
there
was
a
comment
where
you
started
talking
about
the
Lean
manufacturing
and
benchmarking
all
of
your
facilities
to
certain
metrics. And
I
just
wanted
to
understand sort
of
how
long –
how
far
along
we
are
in
that
process.
Is
that
something
that's
been
going
on
for
a
couple
of
years
now,
or
you've
just
started?
And
do
you
have
internally
kind
of as
a
bridge
to
get
to
those sort of
2023
targets,
any
cost
savings,
absolute
numbers
of
cost
savings
that
these
actions
may
yield
over
the
next
couple
of
years?
J
Jon Stanton
Yeah.
Well,
let
me
make
an
overarching
comment.
And
then
maybe
I'll
ask
Ricardo
and
Andrew
to
talk
about
what
they're
doing
on
manufacturing
efficiencies
in
each
of
the
two
businesses.
I
would
say
that
I
think Lean
is
something
that
we've
refocused
on
over
the
course
of
the
last
two
years,
recognizing
as
we
emerged
from
the
portfolio
transformation
as
a
mining
technology
pure
play,
that
the
operational
improvements
and
efficiencies,
maximizing
our
capacity
utilization
is
going
to
be
an
important
factor
in
terms
of
driving
the
operating
leverage
that
will
extend
our
margins
over
the
course
of
the
next
two
or
three
years.
So,
it
has
been
an
area
that
we
have
reprioritized
that
we're
making
really
good
progress
on.
But
maybe
Andrew
and
Ricardo
could
give
a
little
bit
of
color on
each
division.
R
Ricardo Garib
President-Weir Minerals, The Weir Group Plc
Yeah. Thank
you,
Jon.
Yes,
Max, Lean is
a
never-ending
journey.
You're
never
finished
with
that.
There's
always
ways
to
improve.
We
have
absolutely
in our
shops
huge
amount
of
[ph]
casing
walls (00:52:54)
so
we
can
get
from
the
base
of
our
employees
exactly
what
are
the
ideas
to
improve production.
But
structurally,
the
whole
division –
80%
division
now
is
on
SAP,
so
we
have
a
really
good
tool
we
can
really
see
live
what
is
going
on
[ph]
is
the (00:53:11)
inventory,
manufacturing,
production.
We're
rolling out
new
system
like 42Q where
we
can
see
our
job
efficiency,
and
also,
structurally,
we
just
expanded
our
shop
in
Australia,
our
foundry
in
Artarmon
after
we
expand
our
shop
in
Santiago and
Todmorden,
and
now
we're
getting
the
efficiency
of
15%,
16%.
Also,
we
shut
down
our
shop
in
China;
opened a complete
new
modern
facility.
So,
efficiency
is
absolutely
in
our
mindset.
In
the
supply
chain,
we
also
expanded
our
supply
chain
base
in
China,
Mexico,
and
the
Black
Sea,
so
we're
now
getting
access
to
new
sources
of
suppliers
that
are
out
of
the
traditional
ones.
Of
course,
the
supply
chain
is
always
the
case,
but
Lean,
as
I
said
before,
it's
a journey
that never
ends,
and
we
have
a
good
firm
to
go
for
the
base
to
ideas
to
make
things
quicker,
cheaper,
and
faster.
Andrew?
A
Andrew Neilson
President-ESCO division, The Weir Group Plc
Yeah.
I
think
for
ESCO,
Max,
we
really
reinvigorated
this
over
the
last
12, 18
months.
We
do
feel
there's a
lot
more
to
come
over
the
next
three,
four
years.
And it's
really
about,
as
Ricardo
says,
lean
continuous
improvement
journey.
It's
one
big
focus
area
for
us,
also
process
control.
And
around
supporting
that,
we
actually
inputted
last
year
a
new
system
OSI
PI,
which
lets
us
digitally
see
data
far
quicker,
put
actually
some
of
the
visualization
in the
hands
of
the
operator
so
we
can
react
quickly
when
we
see
process
control
moving
away
from
optimal
performance.
So,
for
example,
that
drives
directly
to
lower
scrap,
less
rework,
and
it gives
us
the
benefit
of
also
efficiencies,
but
also
effectively
more
capacity
in
the
system.
We
also
will
see
the
benefits
of
investment
we've made
over
the
last
couple
of
years
and
ongoing,
which
improves
the
quality
of
the
assets
and
makes
us
deliver
better.
And
then,
lastly,
and
as
Ricardo
says,
supply
chain
is
always
an
ongoing
area
where
we're
looking
to
best
co-source
where
we
can
and
optimize
our
cost
across
the
supply
chain,
including
looking at
logistics routes,
for
example,
given
the
stress
we
see
in
that
right
now.
M
Max R. Yates
Analyst, Credit Suisse Securities (Europe) Ltd.
Okay,
very
helpful.
Thanks.
Maybe
just
one
very
quick
final
one
on
ESCO.
I
think
we're
used
to
an
ESCO,
seeing
the
business
have a
sort
of
seasonal
Q1
uptick
in
line
with
activity.
We
obviously
exited
this
year
at
a
pretty
healthy
order
level.
So
I
just
wanted
to
understand,
as
the
year
has
started,
have
you
seen
the
normal
sort
of
Q1
versus
Q4
seasonal
uptick
in
ESCO
or
were
you
already
running
at
very
high
levels
in
Q4?
J
Jon Stanton
Andrew?
A
Andrew Neilson
President-ESCO division, The Weir Group Plc
Yeah.
Yeah.
I
think
so
in
terms
of
Q1,
we're
going
into
the
year
kind
of
underlying
similar
levels,
continued
strong
performance
really.
And
really,
the
driver
of
that
uptick
is
typically
the
start
to the
year,
seeing
some
customers
placing
orders
for
the
year
and
the construction
market
tends
to
be
quite
seasonal and
you
see
more
orders
in
Q1,
which
are
delivered
over
the
course of
the
year.
So
we
are
seeing
a
degree
of
those
patterns
continuing,
albeit
the
construction
industry,
obviously,
[ph]
left
the
year
(00:56:10) a
very
high
rate
and
we don't
really
see
the
tail
off
in
Q4
in
construction
orders
that
you
would
normally
see.
J
Jon Stanton
And
then,
if
you
remember,
Max,
last
year
was
sort of
characterized
by
infrastructure
spending
and
orders
ramping
up
really,
really
quickly
at
the
beginning
of
the
year,
and
that
continued
at
a
high
level
throughout
the
year.
The
mining
GET
lagged
that
as
the
large
mining
machine
sort
of
came
back
on
line
over
the
course
of
the
year.
So
we
saw
the
growth
in
mining
GET
catch
up
over
the
course
of
the
year
and
that
part
of
the
business exits
with
momentum,
whereas
the
infrastructure
piece
is
probably
sort
of
at
high
levels
of
activity
but
not going
to
leg
up
again
from
where
it
is
at the
moment.
M
Max R. Yates
Analyst, Credit Suisse Securities (Europe) Ltd.
Very
clear.
Thanks,
everyone.
Operator
Our
next question
comes
from
the
line
of
Andrew
Douglas
from
Jefferies.
Andrew, please
go
ahead.
A
Andrew Douglas
Analyst, Jefferies International Ltd.
Good
morning,
guys.
I've
got
four
questions,
[ph]
two
I
hope
will be
nice
and
quick,
two
hopefully
a
bit
more
big
picture-y (00:57:05).
Could
we
just
talk about
Russia
and
your
supply
chains?
I
just want
to
make
sure
that
there's
nothing
that
we
need
to
worry
about
[ph]
that. All
we're
hearing
(00:57:15)
is one
or
two
automotive
companies
now
suggest
that
they're
struggling
because
they
would
get
[ph]
their parents
under
Russia,
which
they
can't
get
hold
of (00:57:22).
So,
appreciate
it's
a
small
profit
number
but
just want
to
make
sure
there's
nothing
untoward
there.
I'm
slightly
surprised
by
the
fourth
quarter
order
intake
in
original
equipment
in
Minerals,
plus
9%.
It
was
on
a
weak
comp,
minus
18%,
which
might
be under
strong comp the
prior
year
before
that,
but
just
thought
9% might
have
been
a
bit
better.
So, I
just
want
to
make sure that
I'm not
missing
anything
or
there's
nothing
untoward
there.
And
then
two
slightly
bigger picture
questions,
can
you
just
talk
about
how
you
think
you're
positioned
relative
to
your
peers
from
a
mining
technology
perspective?
I
appreciate
your
recent
acquisition
gives you
another
leg up,
but
I've got
no
idea
how
you
compare
to
your
peer
groups.
So,
it
would
be
just
helpful
to
understand
that
a
bit
more.
And
then
this
is
really
an
unfair
question
but
I'm
going to
ask
it anyway. Your
17%
margin
target,
you're
nice
and
robust
in
terms
of
[indiscernible]
(00:58:09) in
2023.
Is there
any
structural
reason
why
17%
margins for
Weir
as
a
group
can't
be
higher?
J
Jon Stanton
Okay.
Well,
let
me
start
with
the
third
and
fourth
questions,
Andy,
the
bigger
picture
ones.
And
I'll ask
Ricardo
to
talk
because
he's
got
by
far
the
largest
business
in
Russia,
just
talk
about
how
that
business
works
and
were
there
any
supply
chain
concerns,
and
the
fourth
quarter
orders
question.
So,
look,
I
think
it's
difficult for
me
to
talk
about our
peers
on
the
technology
positioning,
but
I
think
when
I
look
at
where
we
are
unique
in
the
positions
with
leading
brands
that
we
have
from
the
pit
right
through
to
the
process
plant
right
through to
tailings,
it
gives
us
unique
touch
points
and
boots
on
the
ground
as
to
what's
going
on.
As
we
said
in
the
prepared
remarks,
customers
are
hugely
focused
at
the
moment
on
trying
to maximize
production
out
of
their
existing
facilities
and
we're
positioned
to
help
them
both
tactically
with
that,
but
also
by
having
bigger
picture
conversations
about
how
all
of
that
run-of-mine
process
is
working,
listening
to
voice
of
customer,
and
then
feeding
that
into
our
technology
and
R&D
pipeline
so
that
we
can
bring
technology
to
bear.
And
that's
our
traditional
technology,
materials
science,
mechanical
skills,
hydraulics
now
supplemented
by
the
digital
touch
points
and
the
data
we're
getting
through
Synertrex
in
Mineral,
now
with
Motion
Metrics
in
ESCO.
So
we've
got
a
great
position
and
we're
really
excited
about
the
combination
of
the
touch
points
that
we
have
in
the
mine.
Our
technology
skills
are
supplemented
by
digital
as
to
how
we
can
then
help
our
mining
customers
in
the
future
on
process
optimization
and
getting
more
from
less,
which
is
really
what
they
need
to
try
to
do.
So
I
think
we're
in
a
great
space.
On
the
margin
point,
of
course,
we
thought
it was
very
important
today
that
we
are
absolutely
clear
on
the
pathway
to
getting
to
17%
margins
and
we've
explained
that
through
the
course of
the
presentation.
We
are
determined
to
get
there
in
2023.
Are
we
going
to
stop
there?
Of
course,
we're
not.
But
we
want
to deliver
over
the
course
of
the
next
two
years,
give
you
the
evidence
of
execution,
and
then we'll
go
on
from
there.
Ricardo,
on
the
two
points
about
the
structure
of
the
Russian
business
and
it's
all
in
there,
isn't
it?
R
Ricardo Garib
President-Weir Minerals, The Weir Group Plc
Yeah.
Well,
of
course,
the
situation
in
Russia
today
is
very
liquid
that
we
still
– but
what
I
can
say
is
that
we
have
invested
in
the last
three
years,
through
Ukrainian
[ph]
invasion
(01:00:45), on
making
sure
that
Russian
customers
understand
that
with
modern
Western
technology,
they
can
improve
efficiency
and
productivity. And
we've
been
very
successful
on
that.
So
everything
is
at
home
now.
But,
of
course,
there
are
big
expansion
that
happened
before
that.
We
were
a
big
player.
So,
we
would
wait
and
see
what
– how
it
develops,
but
I
think
we've
proven
to
our
Russian
customers
that
the
Western
technology –
the Warman pump, HPGRs, our Trio
crushers –
works
pretty
well.
In
terms
of
the
quarter
four
growth,
we'll
talk
about
mining,
but
mining
has
two
really
big
sectors.
There
was
one
on
the
pit
on
the
[ph]
front
end and (01:01:22)
there was
one
on
the
plants.
I
mean,
our
playground
is
mostly
in
the
plants.
And
there
have been
a
delay
on
decisions
on
CapEx
investment
in the
plants
in
the
past
years
and
probably
be
coming in
the
year-end
and
budgets
of
investment
not
been
used.
We
see
a
huge
sprint
on
orders
come
in,
especially
in
the
bottlenecks,
mostly
another
pump,
another
[ph]
HGPR (01:01:44),
another
crusher
here,
there.
More
cycles
to
improve
production.
So,
I'm
glad
to
say
that
that
continues
on
Q1
this
year.
So,
also,
a
very
healthy
OE
growth
on
quarter
four
and
the
thing
will
stay, will
stay
with
us.
J
Jon Stanton
Yeah.
And
it's just –
[indiscernible]
(01:01:58) a point I made earlier around the –
it can be
quite
lumpy
in
terms
of
when
the
big
orders
land.
And
actually,
we
had
a
couple
of quite
large
ones
that
we
were
expecting
in
the
fourth
quarter,
for
various
reasons,
just
slipped
into
Q1.
But
it
is
a
very
positive
environment.
We
have
a
really
strong
pipeline,
lots
of
activity.
I
think
your
point
on
Russia
was
the –
are
we
dependent
on
– from
a
supply
chain
perspective
for
supply
within
Russia?
And
that is
not
the
case.
Everything
that
we
do
in
Russia,
we
have
done
that
until
now,
is
based
on
product
that
is
shipped
into
Russia.
We
have
no
reliance
on
Russia
for
components or
anything,
any
other
part
of the
world,
if
that
was
your question.
A
Andrew Douglas
Analyst, Jefferies International Ltd.
Okay.
That's
loud
and
clear.
Thank
you
very
much.
Well done.
Operator
Our
next
question
comes
from
the
line
of
Robert
Davies
from
Morgan
Stanley.
Robert,
please
proceed.
R
Robert J. Davies
Analyst, Morgan Stanley & Co. International Plc
Yeah.
Morning.
Thanks
for
taking
my
questions.
My
first
one was
just
on,
I
guess,
there's
short-
and
medium-term
cash
targets. Just
kind
of
interested
in
that.
I
know
you
sort
of
guided
to slightly
lower
in the
next
two
years
relative
to
what
you're
seeing
over
the
medium
term.
Just
maybe
if you
could
kind
of
walk
us
though
the
biggest
risks
to
delivering
on
those
cash
targets
and
where
that
extra
CapEx
is
going
over
the
next sort of
24
months.
And
is
it
safe
to
assume that's
going
to
take
a
[indiscernible]
(01:03:25)
or what
are
the
sort
of
relative
sort
of
moving
parts
there? That
was
my
first
question.
Thank
you.
J
Jon Stanton
Can
I
just
start
by
saying
we
know
that
the
subject
of
cash
conversion
has
been
a
topic
of
discussion
in
the
markets?
We
thought
it
was
important that
today
we
came
out
with
a
very
clear
analysis
of
where
our
cash
conversion
has
been
and
where
it
is
going
over
the
next
few
years.
And
we
know
that
it's
important
to
deliver
on
the
targets
that
we've
set
ourselves
through
to
2024
and
beyond.
In
terms
of
the
specific
moving
parts,
John?
J
John Heasley
Yeah.
Morning,
Robert.
So,
I'd
probably
start
by
just
commenting
on
the
2021
cash
conversion,
which
obviously
was
lower
than
we
expect
going
forward.
That
was
really
due
to
the
build
of
working
capital
as
a
result
of,
firstly,
the
cyber
incident,
which
meant
our
revenues
were
very
back end
loaded
this
year.
That
didn't
give
us
time
to
collect
the
amounts
due
from
our
customers,
so
that
will
reverse
as
we
move
into
2022.
Secondly,
with
the
big
build
in
our
order
book,
you
saw
the
difference
between
orders
and
revenue
in
the
year
was
more
than
£260
million
and
therefore,
we've
had
to
be
building
that
inventory
to
support
revenue
that
will
be
delivered
next
year.
So
really
clear
reasons
why
working
capital
was
outflow
this
year.
As
we
move
into
next
year,
we
will
grow
into
that
new
level
of
working
capital
and
therefore,
we
will
be
back
in
the
range
of
20%
to
25%
of
revenues.
And
from
a
cash
perspective,
that
effectively
means
we'll
see
a
broadly
neutral
cash
effect
of
working
capital
through
2022.
So
coming
to
the
free
cash
conversion
targets
which
starts
with
clearly
working
capital
being
in
that
normal
range,
so
I
think
as
we
move
into
2022,
we're
confident
of
that.
And
then
beyond
the
operational
improvement
initiatives
that
both
Ricardo
and Andrew
have
already
talked
to,
especially
with SAP
in
Minerals
and
then
the
digital
supply
chain
initiatives
in
ESCO
will
really
ensure
that
we've
got
underlying
internal
improvements
to
keep
that
working
capital
in
the
right
place.
Then
medium
term
CapEx
spend
1
times
depreciation,
we
think
that's
appropriate
for
the
next
two
years.
There
are
some
specific
good
reasons
to
support
future
growth
in
the
business
that
we'll
be
spending
closer
to
1.5
times
which
is
about
an
extra
£40 million
to
£50
million
a
year,
Robert.
The
big
items
in
there,
the
ESCO
foundry
in
China
to
support
both
operating
efficiency
and
future
growth.
SAP
final
rollout
in
Minerals,
as
well
as,
further
investment
in
some
of
the
technology.
Jon
was
talking
around
the
digital
aspects
of
our
business
especially
on
Motion
Metrics
and
we
are
100%
behind
making
that
investment.
So,
to
your
specific
point
on
risk,
we're
very
comfortable
with
that
90%
to
100%
medium-term
target
and
then
the
80%
to
90%
likewise
is we've
got
a
clear
path
to
it.
R
Robert J. Davies
Analyst, Morgan Stanley & Co. International Plc
Thank
you.
So,
I
guess
partly
picking
up
on
those
comments
and
some
comments
you
made
earlier,
just
in
terms
of
sort
of
the
lean
journey
and
everything
you're
doing
to
sort
of improve
the
underlying
performance of
the
business
itself,
is
there
anything
else
from
a
sort of
manufacturing
footprint
that
needs
addressing?
I
guess,
I'm
just
asking
within
the
sort
of
context
of,
is
there
any
risks
to
sort
of
taking sort
of
one-off
charges
or
restructuring
costs
or
reshaping
the
business,
moving
production
around,
obviously,
kind
of customers'
supply/demand
sort of
moves
around
the
different parts
of the
world,
it's
difficult
sometimes
looking
too
far
out.
But
is
there
anything
on
the
medium-term
horizon
where
you
think
we
need
to
build
a
new
factory, we
need
to
consolidate
these
service
networks,
anything
that
we
should
be
aware
of?
J
Jon Stanton
The
answer
to
that
is
no,
Robert.
I
think
John's
explained
clearly
there the
investments
we
need
to
make
over
the
course
of
the
next
couple
of
years,
which
we
have
actually
flagged
before
and
are
very,
very
important.
And
then
from
there,
it's
about
getting
our
CapEx
down
to
closer
to
1
times
depreciation.
Within
that,
we
will
continue
to
develop
the
capacity
that
we
have
through
investment
in
the
existing
facilities,
as
we've
demonstrated
with
some
of the
examples
we
gave
in
2021.
We've
talked
in
the
past
about
a
new
minerals
Heavy
Bay
Foundry.
A
minerals
Heavy
Bay
Foundry
is
a
much
sort
of
simpler
beast
than
ESCO,
high-volume,
low-mix
sort
of –
products –
sort
of
foundry.
So,
we
would
expect
to
be –
if
we
need
to
do
that,
the
jury
is
still
out.
If
we
need
to
do
that,
that's
the sort
of
investment
that
we
will
be
able
to
cover
over
a
couple
of
years
within
the
1
times
depreciation.
So,
we're
very,
very
focused
on
getting
down
to
that
after
we've
gone
through
this
period
where
we
make
these
investments
that
we
need
to
make
to
set
the
business
up
for
the
growth
that
lies
ahead.
R
Robert J. Davies
Analyst, Morgan Stanley & Co. International Plc
Thank
you. And
then
my
final
one,
if
I
can
squeeze
one
more
in,
it's
just
– I
think
you've
mentioned
you were
stepping
up
R&D
spend
a
little bit.
I'd just
be
curious
to
know,
is
any
of
that
sort
of incremental
R&D
money
going
into
developing,
I
guess,
kind
of
more
ESG-friendly
products?
Is
that
likely
to
sort
of
be
a
bit
of
a
continuing
situation over
the
next few
years? Clearly,
it's
becoming
a
more and
more
important
issue.
You've
flagged
it
in
a
few
of
the
slides.
Just
wondering,
I
guess,
where
that
incremental
money
is
going
into
developing
those
products
and
any
uptake
from
customers
for
those
new
things?
Is it
just
becoming
part
and parcel
of
the
overall
selling
package
or
the
customer
sort
of
look
at
the
traditional
products
and
then
just
sort of
more
ESG
kind
of
leaning
bits
as
two
different
pockets
of
spend?
J
Jon Stanton
Yeah.
No.
I
mean,
it's
a
huge
driver
of
sustainability.
It's
a
huge
driver
of
where
we
are
investing
further
in
R&D
but
it's
not
in
one
specific
bucket.
It's
pervasive
across
all
of
the
categories,
and
that's
the
existing
product
and
making
them
last
longer,
improve
wear
life
and
so
on,
which
inherently
reduce
the
CO2
footprint.
It's
then
creating
the
new sort
of
sustainable
solutions,
integrated
solutions
that
help
our
customers
use
less
energy
and
less
water.
And
then
it's
also
looking
at
some
of
the
longer
horizon
things
that
also
play
to
that
theme,
which
is
around
all
fragmentation,
characterization,
core
particle
flotation
comes
back
to
what
I
said
about
earlier
about
the
touch
points
we
have
across
the
mine
and
where
we
can
see
things
need
to
be
better.
Mine
is –
one
of
the
ways that
you
get
more
from
less
is
by
processing
less.
And
how
can
you use
discrimination
in
terms
of
the
ore
body
that
you're
actually
processing
versus
that
which
is
waste
because
everything
gets
processed
today,
basically.
So
that's
the
question
that
we're
trying
to solve
for
in
the
longer
term.
So,
yeah,
it's
pervasive
across
the
sort
of
technology
and
R&D
investments
that
we're
making
at
the
moment.
R
Robert J. Davies
Analyst, Morgan Stanley & Co. International Plc
Very
interesting.
Thank
you
very
much.
Operator
Our
next question
comes
from
the
line
of
Will
Turner
from
Goldman
Sachs.
Will, please
go
ahead.
W
William Turner
Analyst, Goldman Sachs International
Hi.
Good morning,
everyone.
It
would
be
great
if
we
could
just
go
in
a
bit
more
detail
on
how
you
see
the
order
intake
outlook
in
2022.
Clearly,
as
you've
emphasized
throughout
the
conversation,
you're
very
optimistic
on
your
end
market
and
your market
demand
and
some
of
the
new
products
that
you've
launched.
But
is there
any
more
color
you
can
give
in
terms
of
like
order
intake?
For
example,
how
has
the
order
intake
performed
year-on-year
in
the
first
two
months?
And
also,
anything
that
we
need
to
be
aware
of
in
terms
of
orders?
Obviously,
we
got
the
Iron
Bridge
aftermarket
orders.
Should
they
start
to
impact
the
business
this
year?
And,
yeah,
any
type
of
color
on
order
intake
outlook?
That
would
be great.
Thanks.
J
Jon Stanton
Okay.
I
mean,
I
sort
of stand
by
the
comments
I
made
earlier
about
how
we
expect
the
profile
to
come
through,
2022
has
started
really
well.
So,
we're
sort
of
halfway
through
the
quarter.
So
but
I –
my
sort
of expectation
at
this
point
is
that
we
will
probably
be
up
year-on-year.
Q4
2021
was
a
massive
quarter
particularly
on
the aftermarket
side.
So,
whether
we
achieve
that
sequentially
remains
to
be
seen.
But
I
come
back
to
the
–
our
markets
are
very,
very
buoyant
around
the
world.
Customers
are
very,
very
focused
on
maximizing
production
activity.
That
plays
to
our
sweet
spot
in
terms
of
the
spare
parts
and
service
that
we
can
provide.
So,
we're
not
seeing
anything
that
sort
of
changes
the
dynamic
at
this
point
in
time
at
all.
Specifically,
you
asked
about
Iron
Bridge,
I
think
that's
[ph]
the
best
start
(01:12:09) right
at
the
end
of
this
year
or
2023. Yeah.
R
Ricardo Garib
President-Weir Minerals, The Weir Group Plc
Maybe
2023 because
[indiscernible]
(01:12:13).
J
Jon Stanton
Yeah. Because
it was
six
months,
yeah,
six
months
behind.
So,
I
think
that's
all
I
can
say
at
this
point,
Will,
to
be
honest.
W
William Turner
Analyst, Goldman Sachs International
Okay.
Sure.
It
was
great.
And
then
now,
if
we
break
down
the
kind
of
aftermarket
order
intake
growth
that
you
had
in
the
fourth
quarter, like
you said,
it
was
very
strong.
But
when
we
look
at
like
mine
production
rates,
they'd
certainly
won't
grow
that
fast.
There's
obviously
an
element of
pricing
which
you
said
is
mid-single
digits.
What
were
the
other
reasons
for
the
aftermarket
growing
so
strongly?
And
yeah,
could
you
break
that
down
a
little
bit
more?
Has
there
been
any
kind
of pre-buying
orders
just
kind
of
a
pent-up
demand
because
you
didn't
see
a
strong
aftermarket
growth
earlier
out
in
2021
and
in
2020?
J
Jon Stanton
Yeah.
I
mean,
let
me
make
some
comments
and
if
Andrew, if you
kind
of have
anything
to
add,
please
do
so.
But,
I
think
it's a
combination
of
momentum
building
through
the
course
of
the
year.
So,
as
I
said
in
ESCO,
the
large
mining
machines,
utilization
was
lower
at
the
end
of
the
year
– at
the
beginning
of the
year,
and
it
gradually
built
up
through
the
course
of
the
year,
so
you've
got
activity
ramping
up
and
momentum
going
on
as
we
went
through
the
year.
There
were
specific
parts
of
the
regions
around
the
world
that we
supply
which
were
quieter
earlier
in
the
year.
So,
Canadian
Oil
Sands
for
example
when
oil
prices
were
lower
early
in
the
year,
they
were
slow
to
spend
on
the
OpEx
side.
And
that
really
sort
of ramped
up,
I
think,
in
the
third
and
fourth
quarter,
but
getting
back
to
sort
of
normal
levels.
So,
I
think
those
are
a
couple
of
features
that
I
would
call
out.
Yeah.
And
I
think
you
probably
did
see
the
effect
that
you
mentioned
of
some
deferred
maintenance
earlier
in
the
year,
catching
up
on
people,
and
customers
wanting
to
be
ready
going
into
2022
in
order
to
sort
of
continue
the
journey
of
maximizing
production.
But
in
terms
of
restocking,
destocking,
I
don't think
we
really
saw
any
of
that
in
terms
of
across the
two
businesses.
Andrew or
Ricardo?
R
Ricardo Garib
President-Weir Minerals, The Weir Group Plc
I
would
say,
Jon,
that
in
general
terms
what
we
see
on
quarter
four
was
an
accelerating
of
the
uses
of
our
equipment.
When
you
speed
up
a
pump
at
10%,
that
doesn't
mean
10% more
uses,
go
to
20%,
30%
more
because
there
were
increases
a
lot.
So,
we
see
the
production
improvements
given
us
much
more
uses
of
equipment
and
spares.
Also,
we
see
that
as
we –
as
COVID
is
not
out
but
is
still
we're going to
have
to live with
COVID
might
have
seen
more
service
coming
from
– request
of
service
from
our
companies
to
come
and
do
some
service
works.
So,
we
see
a
lot demand comes with that. So, it's
basically accelerating
[ph]
for (01:15:04).
A
Andrew Neilson
President-ESCO division, The Weir Group Plc
And I
think ESCO very
much
followed
a
similar
trends
in
terms
of,
as
Jon
said,
we
saw
recovery
really
coming
fully
in
the
mining
side
into
Q4
as
the
mines
are now
fully
adjusted
to
COVID
operating
environment.
They're
getting
far
better
utilization
of
machines
as
that
area
normalizes.
So,
there's
no
real
restocking,
destocking,
no other
features
for
me
in
the
fourth
quarter
for
ESCO
where
the
construction
site
that
we
talked
about
earlier,
we
didn't
see
a
seasonal
tail
off.
That
can
remain
strong
through
the
quarter.
And
then,
as
Jon
touched
on
oil
sands,
we
saw
some
delayed
maintenance
orders
starting
to
come
through
as
that
sector
really
started
to
face
up
to
some
of
the
issues
they
had
delayed.
And
again,
the
reason
they
were
delaying
that
was
in
terms
of
COVID
operations
and
having
to
keep
people
in
the
site
safe.
So,
really
just
a full
return
to
normalization
for
me
in
the
fourth
quarter.
W
William Turner
Analyst, Goldman Sachs International
Okay.
Great.
Thank
you.
J
Jon Stanton
Thanks,
Will.
Operator,
I
think
we've
got time
for
one
more
question.
Operator
Perfect.
So
our
next
question
comes
from
the
line
of
Mark
Davies
Jones
from
Stifel.
Mark,
please
go
ahead.
M
Mark Davies Jones
Analyst, Stifel Financial Corp.
Just
snuck
in.
Thank
you
very much,
Jon.
Hello,
all.
Firstly,
can
I
go
back
to
the
grim
situation
in
Ukraine?
You've
been
clear
on
your
relatively
limited
direct
exposure,
but
two
things.
Firstly,
is
there
anything
you can
say
on
the
current
status
of
that
important
Ferrexpo HPGR
order
given
that
backdrop?
And
secondly,
perhaps
to
broaden
on
Andy's
question
earlier,
what
do
you
think
the
risks
in
terms
of
indirect
impact
on
your
end
markets
might
be? Obviously,
we've
seen
massive
increases
in
energy
prices.
We've
seen
disruption
to
some
supply
chains,
if
not
yours.
Do
you
think
that
could
actually
have
a
material
impact
on
end
demand
elsewhere
in
the
world
this
year?
J
Jon Stanton
Yeah. Okay.
Hi, Mark.
So, yeah,
on
the
Ferrexpo
contract,
you'll
recall
that
was
actually
a
multiyear
contract
in
terms
of
delivery.
So,
the
first
phase
was
actually
built
and
shipped,
and
we
have
the
cash
in
2021.
I
think
it
was
about
£10
million in
the
round.
The
rest
of
that
is
in – there's
no
deliveries
in
2022. The
rest
is
in
2023
and
beyond.
So,
that's
how
that
phase
is.
So,
we've
got
no
sort
of
net
exposure
on
that
contract
as
we
sit
here
today,
and
obviously,
we'll
wait
and
see
what
the
future
holds.
Yeah.
So,
that's
a
really
big
question
to
end
on
the
risks.
So,
I
think,
I
would
say
a
couple of
things.
First
of
all,
we're
a
totally
global
business.
So,
if
production
of
commodities
in
Russia
is
essentially
isolated
and
cut
off,
that
is
probably
going
to
create
more
commodity
inflation
where
we
are
today.
But
I
would
expect
that
supply
will
expand
where
it
can
elsewhere
to
try
and
cover
that
off.
Obviously,
the
big
macro
thing
that
we
should
all
worry
about, not
that
we
can
–
sitting
here,
it's
above
my
pay
grade,
but
if
we
see
commodity
prices
rise
to
such
an
extent
that
there
is
demand
destruction
and
stagflation,
then
that's
a
different
world
that
we're
in
today.
So,
I
mean,
I
hope that's
low
risk,
but
it
clearly
is
a
possibility
that's
out
there
at
the
moment.
So,
we
think
about
that.
But
as
we
sit
here
today
in
terms
of
other
indirect
effects,
I
think
the
global
nature
of
our
business,
the
fact
that
we
have
regional
manufacturing
and
supply
chain
in
large
parts
of the
world,
and
as
demonstrated
in
2021,
means
that
we
are
perhaps
more
insulated
than
others,
actually.
The
vertically
integrated
operating
model
that
we
have
is
highly,
highly
resilient.
And
so,
I
would
– whatever
happens
I
would
expect
us
to
fair
reasonably
well
and
probably
better
than
most
because
of
the
footprint
that
we
have.
M
Mark Davies Jones
Analyst, Stifel Financial Corp.
Thank
you
very
much.
J
Jon Stanton
Thanks, Mark.
J
Jon Stanton
Okay.
Well,
thank
you,
everybody, for
your...
Operator
This concludes
the
Q&A
session.
So
I'll
hand
back to
you
for
any
closing
remarks.
J
Jon Stanton
Well,
thank
you
very
much,
everybody,
for
your
questions.
Great
to have
the
opportunity
to
talk
to
you
in
what
is
a
very,
very
challenging
time
around
the
world.
But
as I
said,
I
think
Weir
is
very
well
set
for
the
long-term
and
excited
about
what
we
can
deliver.
So
– and,
of
course,
if
there
are
any
further
questions,
then
our
IR
team
will
be
ready
today
to
help
you
with
those.
So
thanks
again
and
have
a
good
day.
Good morning, everyone and welcome to Weir's Full Year Results Presentation. I'm joined today by our CFO, John Heasley and we'll follow our usual format. So, after some opening remarks for me, I'll hand over to John to take you through the financial review in detail. I'll then return with a business review and strategy update before we open up for questions.
Ricardo Garib, President of our Minerals division and Andrew Neilson, President of ESCO are also here with us for the Q&A. Before I start our presentation, I would like to say a few words on the shocking events in Ukraine which have rapidly escalated over the last week. Our first priority has been the safety of our impacted colleagues and their families, and our thoughts are very much with them.
We're doing all we can to support them through this very difficult and dynamic situation. I'll say a little more on the business context of these events later on in the presentation. But first, I'll move on to reflect on 2021.
2021 has been a milestone year for Weir on many fronts not least because it marked 150 years since the company's foundation. It also saw us complete our strategic transformation into a premium mining technology business and the emergence of the new Weir that's being positioned to take advantage of highly attractive opportunities that lie ahead, and which is already demonstrating the benefits.
It was also a year characterized by an extremely complex operating environment exacerbated by the cybersecurity incident we had to deal with in the fourth quarter. So, let me start by giving you the headlines from these results. In 2021, we delivered very strong order growth which accelerated later in the year, and we expanded our operating margins despite the external challenges.
We remain on track to deliver our medium-term financial and sustainability goals where we see a clear pathway to 17% operating margins and have added new operating cash conversion targets and are enhancing our CO2 reduction targets.
2021 has seen a real strengthening in global commitments to take action on climate change, adding impetus to the opportunity for Weir to enable the ongoing and transformational shift in the environmental performance of the mining sector. We continue to deliver world-beating technologies today, and we're upping our investment in the next generation of technologies that will make mining smarter, more efficient and sustainable.
And we're making these investments because we believe the structural growth opportunities in our markets are going to be phenomenal for many years ahead. Our performance reflects the fundamental strength of our business and is testament to the magnificent efforts of everyone across the company. It's not been an easy year, and I'd like to personally thank all of our employees for their commitment and hard work to overcome the challenges we faced.
Speaking of challenges, I wanted to deal with the cyber incident up front. I'm pleased to say that the attack, which we flagged in October, is now behind us, and we finished the year well. Internally, it has been hugely disruptive, and so I just wanted to give you a flavor of how we have dealt with it and how we emerged stronger from the experience.
Our security operations team first detected suspicious activity in late September, and it quickly became clear that the initial breach was escalating into a very sophisticated human-controlled ransomware attack. We acted quickly to contain the threat actors and took down all of our corporate Internet activity and connected devices.
Well, this meant a shift to manual processes for a period of time. It enabled us to quickly contain the attack, avoided a full shutdown of our business, and we saw no evidence of any exfiltration of our data. It also allowed us to move rapidly on to recovery and restoration, according to business priority, which continued through to the end of the year.
The financial impact of £25 million at the lower end of our guidance range was a good outcome in the circumstances, and John will go into more detail on how that breaks down in the financial review. But it was transitory. We did not engage or pay any ransom. And by the end of January, we were largely back to normal operations, having delivered an uninterrupted level of customer service throughout.
The impact of the attack touched everyone in the business in one way or another and consumed a lot of time and resources. But we've learned a lot and emerged stronger with an even more resilient IT infrastructure. The way our teams responded and adapted to keep delivering for our customers has been outstanding, exemplifying everything that is so special about the culture and attitude at Weir.
The cyber incident was a pretty major bump in the road but we had to deal with it and it did not stop us making strong strategic progress in the year. Among the highlights in the year were maintaining best-in-class safety standards and staying focused on safety despite the operational disruptions caused by the cyber incident; winning large orders for sustainable solutions, such as high pressure grinding rolls and electric dewatering pumps; acquiring Motion Metrics, strengthening our ability to offer data-led insights and accelerating our broader digital strategy while also increasing R&D spend to 1.7% of revenue, committing to set science-based targets in 2022 to further drive reductions in our Scope 1, Scope 2, and Scope 3 emissions, improving gender diversity at senior management levels by 4% to 26%, and announcing the forthcoming appointment of Barbara Jeremiah as the first woman to Chair Weir. So, pleasing progress across all aspects of our strategic priorities which I'll build on shortly. But first, I'll hand over to John to take you through the numbers. John?
Thank you, Jon, and good morning, everyone. 2021 was characterized by excellent order growth with revenues and operating profits showing more modest progress after being negatively impacted by the cyberattack, albeit our actions ensured that the impact was minimized to the low end of the range that we outlined in October.
Orders at £2.2 billion increased 22% with the second half seeing our latest cycle aftermarket really accelerate across both divisions. Revenues at £1.9 billion or 2% up on last year which combined with the strong orders through the second half, meaning that the book-to-bill 1.14% and resulted in a record order book at the start of 2022.
Operating profit of £296 million was 5% higher than last year, with the impact of the cyber incident being limited to the lower end of the previously guided range of £25 million to £40 million, with £10 million of overhead under-recoveries, £10 million of lost profit on revenue slippage, and £5 million of direct costs which have now been treated as exceptional.
Operating margins improved by 40 basis points to 15.3% with the impact of freight and raw material inflation being fully mitigated. Profit before tax of £249 million was in line with last year including an FX translation headwind of £15 million with EPS at £0.713 per share. Operating cash flow was more impacted by the cyber incident, but even so, net debt to EBITDA was 1.9 times and keeping with our capital allocation policy.
I will now turn to provide some detailed commentary on each of the divisions. Starting with Minerals, as expected, we saw strong market conditions reach our later point in the cycle with OE orders starting to convert, and aftermarket demand build through the year to reach record levels in Q4. Those market conditions continue to be supported by strong commodity prices and demand for energy and water-efficient solutions for expansion and upgrade projects.
On the project side, key wins in the first half included the Ferrexpo HPGR order for £36 million and the Indonesian electric dewatering pump order for £33 million supporting 57% OE order growth in H1. The second half was characterized by solid conversion of smaller brownfield and expansion projects still driving 34% growth in H2. HPGRs and associated comminution products continue to be a key growth driver with orders up 60%, representing 7% of the total division.
Regionally, we've seen strong growth across the board with standout performances in Asia, Africa, and North America, which all bounced back strongly from a COVID-impacted 2020. [indiscernible] (00:09:21) orders 22% higher with OE up 45%, and aftermarket up 13%. Q4 aftermarket orders were up 29% year-on-year, and 19% sequentially, reaching record levels in absolute terms. Revenues were 1% lower than the prior year with aftermarket up 2%, and OE down 8% with a non-repeat of £80 million of Iron Bridge OE revenue from last year and the impact of the cyber incident, which net-net meant we saw a bit a week of revenues slip into 2022.
Book-to-bill at 1.16 means we enter 2022 with a record order book. Operating profit increased by £1 million in a constant currency basis to £251 million with margins up 20 basis points to 17.7% with the benefits of mix and efficiency gains being offset by cyber-related overhead under-recoveries.
While inflationary pressures across raw material and freight were significant in the year, we managed to maintain gross margins at a product level through a combination of focus on material recycling, robust supplier negotiations, and aftermarket price increases. The aftermarket revenue mix increased in the year to 71% compared to 69% last year, providing a margin benefit of around 60 basis points.
As we expected, while some of the temporary cost savings realized last year such as bonus and T&E returned, these were largely offset by lower levels of under-recoveries as we face fewer COVID-related plant disruptions. However, the division's operations and, therefore, H2 margins were impacted by the cybersecurity incident, which resulted in an estimated £10 million of under-recoveries with the slippage of around a week's revenues also having about a £10 million impact on operating profit.
Moving briefly to the next slide, our margins continue to be supported by operational efficiencies. These included a refresh of the Weir production system that assesses every production and service facility against the standard set of lean criteria, as well as further progressing our back office shared services rollout.
On the operational side, we consolidated two facilities in China, thereby, realizing overhead savings while optimizing our foundry network with an upgrade in Australia. In the back office, we continue to roll out our finance shared services such that 70% of the group is now covered by a common shared service function.
We expect that to increase to 90% over the course of 2022. And as set out in our strategic framework, some of the benefits of these activities have been and will continue to be reinvested in R&D as we look to achieve our medium term investment target of at least 2% of revenues.
Moving on to ESCO where we experienced similar mining market conditions as the Minerals division, with mining orders running at significantly higher levels than last year as machine utilization returned to pre-COVID levels. Infrastructure and construction markets in Europe and North America recovered strongly, supported by easing of COVID restrictions and government stimulus, resulting in record order levels. Total orders have now increased sequentially for six straight quarters with Q4 orders 37% higher than last year and 7% sequentially, leaving the year 25% ahead.
Revenues were up 11%, lagging orders due to phasing and lead times. This was demonstrated with H2 revenue being up 20%, compared to 1% in the first half. And with book-to-bill at 1.07, the highest since we acquired the business in 2018, we carry a strong order book into 2022. Operating profit at £83 million was £8 million or 11% higher than last year, with margins up 10 basis points at 16.3%. The margin performance was especially pleasing, given the significant raw material and freight inflation, which is more impactful than in Minerals. This is due to exposure to North American steel plate and ESCO centralized manufacturing model, which results in more freight costs.
Both those input costs more than doubled in the year. Our market leading position allows us to be the price setter unless pricing power is what has enabled us to maintain gross margins through a series of price increases and surcharges as appropriate. As highlighted in July, H2 margins were slightly lower than H1 which benefited from the phasing of sales price increases and advance of input costs given extended period purchase agreements.
You will remember that last year, ESCO profits benefited from COVID-related temporary cost savings, such as bonus and T&E with no significant offsetting recovery impact. As these costs have largely returned this year, they've been offset by the leverage benefit of higher revenues and ongoing efficiency savings. These factors resulted in an operating margin of 16.3%, up 10 basis points from last year, and we remain on track to achieve our medium term target of 17% set at the time of the acquisition.
Now, bringing things together to look at the group operating margins. Overall group margins as reported averages 20 basis points to 15.3%. After restating the prior year downwards by 60 basis points for accounting adjustments and FX, we delivered a 40 basis points increase across three main areas as I would describe shortly.
2020 margins have been restated from 15.5% to 14.9% to reflect accounting changes and latest foreign exchange rates. Accounting guidance was issued in the year by the International Financial Reporting Interpretations Committee clarifying the treatment of accounting for Software-as-a-Service.
Essentially, it is ruled that any configuration cost should be expensed rather than capitalized. With the implementation of our global HR management system and dollar cloud based software in 2020 and 2021, we incurred £7 million of configuration cost in 2020 and £4 million in 2021 which historically would have been capitalized.
These have now been expensed in both years and included largely within our allocated costs resulting in a restatement of the 2020 results with a 30 basis points impact on margins. Going forward, we would expect the impact to be modest as our system transformation activities reduce, thereby, having no significant impact on our medium-term targets. Translational FX has reduced the margins by 30 basis points, simply due to the mix of profitability relative to currency movements in the year. And of course, that can move positively or negatively as we move forward.
Now moving on to the three drivers of underlying margin improvement in the year. Firstly, as expected and in line with our three-year plan, we delivered a 40 basis points underlying improvement in margins driven by ESCO operating leverage and operational improvements across the group, including those examples previously described. This amounted to around 80 basis points with a 40 basis points offset for our increase in strategic R&D investment. Secondly, the 2 percentage points movements in Minerals mix towards aftermarket had a 60 basis points favorable impact. And thirdly, the net impact of the cyber incident and residual COVID impact was a negative 60 basis points.
COVID was net neutral and Minerals at returning costs were offset by lower under-recoveries. In ESCO, COVID was a slight negative as costs returned, but without the corresponding opportunity to improve recoveries, which as we said last year, were less impacted than Minerals. The main net impact, therefore, related to cyber and was mainly driven by under-recoveries in the Minerals Division. These costs are expected to reverse next year and beyond. Well, there have been a number of moving parts this year, we've been pleased with the underlying improvements and challenging circumstances. It was great to see the resilience of our gross margins supported by robust sales price increases.
With the impact of cyber and COVID to reverse and Software-as-a-Service to be less significant going forward, we remain on track to deliver a 17% constant currency margin by 2023. As we said last year, this improvement will be driven by operating leverage, continued operational efficiencies and a focus on maintaining our gross margins through this inflationary period and will be spread broadly evenly over the next two years. Specifically, for 2022, we will see some headwinds from mix as revenue moves towards OE and from our increased investment in R&D.
For the avoidance of doubt, we see higher OE mix as a positive in terms of value creation with every OE seal setting the foundation for a long-term, highly profitable aftermarket annuity. These margin headwinds will be more than offset by operating leverage as we deliver on a strong order book from within existing production capacity, and we see a reversal of the cyber overhead recovery impact while continuing to mitigate the effects of raw material and freight inflation. H1 margins are expected to be lower, driven by a heavier weighting of OE shipments seen in the opening order book.
Turning to cash flow, we've seen a more significant impact from the cyber incident and our growing order book. The working capital outflow of £103 million is reflective of an increase in trade receivables following the back-end loading of revenues related to the cyber incident and a buildup of inventories in both Minerals and ESCO to support a record closing order book.
As a result, working capital as a percentage of sales at 27.9% was above normal levels. CapEx was lower than last year, and our plans as overall spend was delayed during the cyber incident and final permits for our new China foundry for ESCO takes slightly longer than planned. CapEx also includes the benefit from the proceeds from the sale of a property in China as part of our efficiency program.
We're also starting to report a free operating cash flow conversion measure, and this will become a KPI for the group. This reflects the conversion of adjusted operating profit to operating cash flow after CapEx, lease payments, dividends from JVs, and purchase of shares for employee share plans. Over the course of 2019 and 2020, this averaged 82% and clearly this year at 63% has been impacted by the working capital outflow. I will talk about our targets for operating cash flow conversion shortly.
Turning to the next slide, free cash flow of £62 million is £70 million lower than last year, mainly due to the operating cash flow just described. Net interest is £8 million lower than the prior year, reflecting a lower net debt, while cash tax is £19 million adverse due to a higher tax charge and some payment deferrals from last year. With regards to net debt, we saw absolute levels reduced by £279 million. This follows the completion of the sale of oil and gas, partially offset by the acquisition of Motion Metrics in November, and leaves net debt to EBITDA at 1.9 times on a lender covenant basis.
Returning now to operating cash conversion and our targets going forward. As you can see, our free operating cash conversion has averaged 82% over the course of 2019 and 2020. Over the medium term, we target this to improve to between 90% and 100%. This will be driven by maintaining working capital to sales between 20% and 25%, and CapEx and lease costs being at around 1 times depreciation. Our working capital will be optimized as we continue to leverage the benefits of our global SAP platform in Minerals to allow global inventory management and the increasing digitization of our supply chain in ESCO.
For 2022 and 2023, we expect CapEx and leases to be elevated to around 1.5 times depreciation amounting to an incremental £40 million to £50 million per year. This is to support the build of the new ESCO foundry in China, the final SAP rollout in Minerals, as well as other digital initiatives. This will reduce cash conversion to 80% to 90% over the next two years before settling at a long-term through cycle target of 90% to 100%. Below operating cash flow, we do not expect any unusual items going forward. Exceptional cash costs will be minimized, legacy-defined benefit pension deficit repair costs are expected to be £10 million to £15 million per annum, while interest on tax should broadly match the income statement charge. These operational cash flow targets provide further context and underpinning detail to our capital allocation policy as announced last year.
Very briefly, this slide sets out some financial guidance for this year. I would just remind you from a cash perspective that we still have £12 million of the initial Motion Metrics consideration and some integration costs appear in 2022. And from an income statement and cash perspective, we will see around a £6 million saving and interest this year.
In summary, we minimized the cyber impact on profit to the lower end of our previous guidance while cash conversion was impacted by a higher than normal level of working capital. Even with the cyber challenges, net debt to EBITDA of 1.9 times shows our financial strength. We are managing through the inflationary environment with scale as gross margins have been maintained across both divisions.
Order momentum is strong and we enter 2022 with a record order book. Execution of that order book and associated operating leverage together with further ongoing efficiency benefits means we remain confident in our medium-term growth, margin, and cash targets.
Thank you, and I would now hand back to Jon.
Thank you, John. In this next section, I'll update you on the strategic progress we're making towards our medium-term goals and share why we are so excited and confident about the future. First, let me remind you of where we play, what we do, and why customers choose to work with us. Weir has a unique position in the mining value chain. No other business provides the same range of premium solutions from the pit to the processing plant. We have leading market positions and premium brands from extraction, through comminution, to the mill circuit and tailings management. We're operating every day at the very heart of the mining processes. Our highly engineered technology is mission critical to our customers who rely on our solutions to avoid downtime, downtime that can easily cost $10 million a day.
We're very focused on where we operate, concentrating on high abrasion applications which generate strong aftermarket demand, and we support that demand through our extensive service network. It's a highly resilient, razor-razorblade business model. Once we sell the original equipment, we have the opportunity to provide spares and service in the aftermarket. And for every original equipment sale we make, we'll, in average, achieve around 30% of the original value in spare parts per year. And that figure is even higher for our large warm and slurry pumps. So we have a reliable, sustained revenue stream throughout the mining cycle.
Increasingly, we are extending digital connectivity across our portfolio with our proprietary Synertrex platform and the recent addition of Motion Metrics rugged camera and AI visualization technology is adding to our leadership in mechanical engineering and materials science.
With such a broad portfolio across the mine and a trusted reputation, customers look to Weir as a key enabler of innovation and performance improvement in the industry. Strategically, we're working even more closely in partnership with customers to develop new technologies that will help make the mines of the future smarter, more efficient, and sustainable.
Our deliberate repositioning to focus on mining technology is enabling us to take advantage of the multi-decade growth opportunities that exist in partnership with the industry we serve. Demand for metals will continue to increase with demographic drivers, but these factors have now been overtaken by expected demand from the clean energy transition, driven by ever-increasing global action against climate change.
As the rise of electric vehicles and transition to renewable energy generation gathers pace, this is translating into significant increases in demand for metals like copper, nickel, and lithium. And at the same time, there's a technology shift underway in mining as the industry grapples with the ongoing challenge of ore grade declines, meaning more material needs to be mined and processed, while keeping safety as a top priority and also while responding to pressure to decarbonize and reduce energy and water intensity.
Without a reduced environmental impact, our customers will not have the social license to operate. So the challenge is twofold. More essential resources are needed to meet the levels of electrification and renewable power generation required to get to net zero, but the way those resources are produced must significantly change. And that's why mining needs to become smarter, more efficient and sustainable, and this presents Weir with tremendous opportunities as we leverage our leading market positions and global footprint, all of which plays right to the core of our organization's purpose.
Our strategic ambitions ensure that we focus on the areas that will deliver against those opportunities, accelerating sustainable profitable growth in the future for the benefit of all our stakeholders. They are aligned to our We are Weir framework and its four pillars of people, customers, technology, and performance.
First and foremost, we want to be a zero harm workplace. We're determined to get there, building on the significant progress we've made in recent years, and to help our customers with their journey, too. We also know the benefits of an inclusive, diverse, and equitable workplace where people can be themselves and feel like they belong. And this helps reinforce a vibrant and purpose-driven culture.
At the same time, we continue to invest in our people at all levels across Weir, giving them the opportunity to do the best work of their lives and creating the talent and capabilities we need to be successful in the future.
Turning to customers, our goal is to grow ahead of our markets by getting closer to customers, working in partnership to solve their biggest challenges. And more broadly, we will raise our voice to show leadership in the mining industries' transformation to net zero.
In technology, we continue to invest to expand our development pipeline, marrying our engineering excellence with digital capability to create new, smarter ways of doing business that are based on data-driven decisions and insights.
And as we grow profitably, we will continuously work to be leaner, cleaner and more efficient, which will support expanded margins and strong cash conversion, demonstrating the quality inherent in our business.
In 2021, we made good progress towards realizing these ambitions. And over the next few slides, I want to give more color on the level of our ambition.
Starting with people. Safety remains our number one priority. And throughout Weir, we do everything we can to ensure we all have a safe start, safe finish, and safe journey home every day.
For the group as a whole, in 2021, our Total Incident Rate of 0.45 is broadly in line with the prior year, which I believe is very creditable given the ongoing challenges around COVID and other disruptions. ESCO continue to significantly improve its safety performance and this TIR is now over 50% lower than when we acquired the business in 2018, a terrific achievement.
Overall, our TIR continues to place us among the leaders in our sector. Our absolute goal remains zero harm. And in 2022, we'll focus on further embedding the right safety behaviors in order to drive a breakthrough in performance.
2021 has thrown a lot at the organization, but we continue to listen to our employees. I was delighted to see participation reach 90% in our 2021 employee survey and our Employee Net Promoter Score increased again, putting us in the top quartile against industrial benchmarks. Meanwhile, the completed deployment of the Workday HR system has been a major step forward in streamlining and enhancing our people processes and gives us a great platform from which to drive further progress on talent in 2022.
We saw our purpose come alive in 2021, most notably in celebration of our 150th anniversary, when employees on every corner of the globe took part in our Day of Purpose program to give something back to their families and communities. People gave blood, spent time in schools, overhauled community gardens, cycled in major charities, and much, much more. We continue to support our people and their families with company-organized vaccine clinics such as the one at our site in India where over 700 individuals took part.
And it's been great to see the expansion of our global affinity groups as more and more colleagues engaged in our ID&E activities. This caring and purposeful culture is an enormous asset to Weir and one that requires continual investment. It is the absolute bedrock of our ongoing success as an organization and will underpin our ability to deliver on our strategy in the future.
Turning to growth, we continue to expect our markets, principally driven by oil production, to grow at around 3% per annum in line with long-term averages. In contrast, our goal is to grow faster than our markets and to deliver mid- to high-single-digit growth through the cycle. This will be achieved through our strategic growth initiatives where we will build further on our existing momentum.
For Minerals, the largest growth driver will be our further expansion in comminution, where we are rapidly growing our installed base of HPGRs, our market-leading technology that supports increased production while reducing energy consumption by around 40% compared to alternatives. Over the last year, we saw comminution orders increase by 60% as miners recognize the benefits of this more efficient and sustainable solution. In 2021, we won around 80% of the hard rock expansion projects, which specify high volume, large format HPGRs. And with currently around £150 million of sales per annum, comminution has the potential to triple on a sustainable basis over the next five years.
The focus for geographic expansion in Minerals is Central America, Eastern Europe, Central Africa, and Central and Southeast Asia, where we are rapidly expanding our service footprint to support new mines and expansion projects. We have a deeply embedded philosophy of having boots on the ground with our customers, and this remains core to our offer. During the last year, we've opened seven new service centers across these regions including two joint mineral ESCO centers as we leverage our complete mining technology portfolio into new markets.
We will continue to grow market share of our core products, particularly in territories where we have been underrepresented or lost some share in the past, and we'll introduce new products, such as hydro-hoisting, drawing on our traditional strengths in material science, mechanical engineering, and hydraulic technology to make our customers' operations smarter, more efficient, and sustainable.
Customer intimacy is a big differentiator for Weir. Mining is a 24/7 need-it-now industry and we aim to have engineers on the ground no more than 200 kilometers from any customer so that we can provide them with the high-quality products and service they need to keep production going. Our approach means we're able to develop and maintain long-standing relationships built on trust, and with that trust, and our unique viewpoint at the heart of the core processes across the mine will develop integrated solutions.
This activity ranges from basic problem solving and debottlenecking to expand production and productivity right through to process transformation where we've been able to combine our technical capabilities to offer novel approaches to customer challenges. For example, our customer at a copper mine in the north of Chile needed to increase plant capacity and equipment availability. Our engineering team designed a new solution comprising a larger capacity, Synertrex-enabled Cavex hydrocyclone cluster together with a large Warman cyclone feed pump.
Using 3D scanning to design the new layout within the existing footprint, minimize downtime for the customer and the new integrated solution increased capacity by over 20% and service life by more than 65%. It's through examples such as this that we continue to grow our integrated solutions. Orders in 2021 increased by 32% to £210 million, representing some 10% of our total orders in the year.
In ESCO, we will continue to leverage the strong value propositions of our core product range to grow our share, such as in the case of our Nemisys GET system, which is now established as the market leader across all mining systems, delivering over 200 net conversions in 2021, and underpinning our leading market share in mining GET.
Beyond the core GET product range, we're extending the range of parts we offer on large mining machines to other Weir areas and having more capital equipment such as truck trays to our offering. We're extending a number of markets where we offer bespoke engineered bucket solutions with a target that we become the global number one in aftermarket mining machine attachments.
Geographic expansion will follow in similar regions to Minerals for mining. But in ESCO, additionally, we're expanding our infrastructure business for premium applications beyond our core markets of North America and Europe to create a global business. And similar to Minerals, ESCO has an opportunity to offer its own version of integrated solutions in the mine, such as load/haul optimization solutions that enable our customers to significantly increase productivity and reduce energy consumption.
For example, when a South African-based hard rock mining customer approached us to bid for a replacement rope shovel bucket, our engineers saw an opportunity for a more innovative and impactful solution. They proposed an alternative option to the customer, which through our superior engineering design, lightweight construction, and development of a custom lip system would enable them to use a larger shovel bucket and, hence, transfer more material onto their haul trucks each time the bucket was filled.
To get a sense of how much these units move, each bucket scoop is over 100 tonnes and the shovel will excavate the equivalent of an Olympic swimming pool in less than an hour. The customer accepted the proposal and we've now installed our latest Nemisys N3 shovel bucket and lip system at the mine, and the results have been impressive. The average payload realized in each bucket is exceeding designed outcomes.
Whole trucks are now filled consistently in three passes, not four, while realizing higher average target payloads. We're doing more with less. Each scoop saved reduces truck idle time under the shovel, directly reducing truck fuel burn and, therefore, CO2 emissions per unit of mine production. Additionally, a 25% increase in shovel capacity allows the client to maximize their lowest cost and most efficient loading unit while deprioritizing more expensive and less efficient loading units, an efficient and more productive solution all round.
Superior technology is a hallmark at Weir and we're investing more in R&D to support future growth. As I've already said, a technology-led transition is gathering pace as the global mining industry looks to achieve net zero and fulfill its ESG promises while producing more of the essential natural resources needed for a sustainable future. This will see accelerated investment in the development of new breakthrough technologies, which, of course, will provide tremendous future growth opportunities for us.
Our goal is to play a leading role in developing and deploying the technologies that will support our customers on this journey. Our technology strategy is underpinned by our world-class core expertise in material science, mechanical engineering, and hydraulics now augmented with digital capability. We're directing our technology towards smart, efficient, sustainable solutions, and allocating increased levels of R&D investment across three key arenas to grow our technology pipeline.
Firstly, we're investing to maintain the competitive advantages of our existing products through advances in material science, and the mechanical and hydraulic properties of our equipment. For example, we recently launched the new super resilient mill lining rubber compound, which is tear and heat-resistant which will support our expansion in that market.
Secondly, we're investing more in developing new sustainable solutions to help customers reduce their emissions and water consumption, building on the success we've had with HPGRs in comminution, where we're now the clear market leader. We'll also continue to focus on integrated solutions where we can combine our existing technologies or with those of strategic partners to solve difficult problems for our customers.
And thirdly, we're increasing our investment in scouting and technology foresighting to identify new opportunities that have the potential to deliver more from less in mining processes, such as ore fragmentation and characterization, coarse particle flotation, and additive manufacturing. We believe the transformation to a net zero future can only be achieved through partnership and system solutions. So, we'll continue to develop the right strategic alliances and technology partners to complement our expertise such as those announced with Henkel and Andritz in 2021.
Turning to the digital arena, of course, it's a given as for any industrial company that everything we do today has to be digitized to drive efficiency, automation, and deliver an overall enhanced customer experience. ESCO, for example, is digitizing its supply chain to deliver an Amazon-like experience for customers. And in Minerals, our Field Service Management tool is shifting the end-to-end management of our installed base from analog to digital, bringing real-time performance data and technical product information into the hands of service technicians in the field.
But beyond this, we're seeking out new ways to create data and insights for our customers across our touch points in the mine and process plant. Our capability in this regard gained a significant boost late last year when we acquired Motion Metrics, a market leading developer of innovative AI and 3D Machine Vision Technology. The Motion Metrics technology is already used in several mines around the world and comprises smart, rugged cameras which were initially developed to provide tooth loss and wear rate detection to shovel and loader operators, whereby data from the cameras is processed by artificial intelligence to provide real-time feedback that enables immediate identification of potential issues that could compromise safety or cause unplanned downtime at the mine.
The market demand for this technology has increased rapidly and will be complemented by our sensor-based technology, with growth significantly accelerated through our global distribution networks. But we believe there's a much broader opportunity to use 3D visual technology and AI to provide data on the performance of equipment, faults, payloads and rock fragmentation through comminution and across the mining process, offering the possibility of end-to-end process optimization as part of our wider digital strategy.
Motion Metrics will report through the ESCO division, but recognizing this broader opportunity will serve as Weir's global center of excellence for AI and Machine Vision Technology, supporting the increased digitalization of our broader product portfolio and with a direct line into me. We have already secured early orders as we leverage our global sales network and ESCO's large installed base to expand adoption and drive significant revenue growth. I am very excited about the potential of this acquisition.
As well as supporting our customers with more sustainable and digitized solutions, we're also making progress on our own path to net zero aiming to deliver a 30% reduction in Scope 1 and 2 emissions relative to revenue by 2024 and SBTi-aligned absolute reduction by 2030. We've made further progress in 2021, reaching a cumulative 15% reduction in CO2 emissions versus our 2019 baseline, focusing on targeted actions to reduce our overall energy intensity and increase the proportion of energy from renewables.
For example, our Chinese foundry was named a green foundry by a prestigious government-certified scheme in 2021. And in Chile, a power purchase agreement in our operations has reduced our local carbon footprint from electricity consumption by 95% per annum. We're also pleased to retain our A- score with CDP, despite the bar being raised once again.
And looking beyond our own operations, we've now completed our assessment of Scope 3 emissions, which confirms that, by far, the biggest overall impact we can have as a business is by reducing the energy consumption of our products in use on our customers' sites. That's why our business strategy is focused on helping our customers meet their net-zero ambitions both in terms of the products we have in the field and those we're developing. This includes Scope 4 offerings where, for example, emissions are avoided due to increased wear life or energy efficiency, which is our sweet spot.
We remain on track with the strategy we set out in 2020, and accordingly, we've now pledged our commitment to the Science Based Targets initiative, which means we will set strengthened emissions reduction targets aligned with the Paris Agreement on climate change across Scopes 1, 2, and 3. We expect to publish these more ambitious, externally validated emission targets later this year. And of course, we're providing both our first full TCFD disclosures and our Scope 3 evaluation in our forthcoming annual report.
Putting that all together, I want to reaffirm our confidence in delivering the following medium-term goals. Firstly, growing revenue strongly ahead of our markets through the strategic growth initiatives that I outlined in detail earlier. Second, expanding group operating margins to 17% in 2023 through operational leverage, the elimination of recent one-off effects, and driving back-office efficiency, as John outlined earlier. Third, achieving 90% to 100% operating cash conversion in 2024 and beyond. And finally, not only fulfilling our existing sustainability-linked targets but going on to set more ambitious, externally validated ones. And we'll deliver all of this while investing more in our people and technology to support our strategic ambition.
Let me close with a few words on what we're seeing in the market and the outlook for 2022. Current market conditions are extremely favorable. Our customers are focused on maximizing production to benefit from record commodity prices, supporting underlying spares and service demand. We have seen really good activity in smaller brownfield projects where paybacks are quick and don't disrupt ongoing production. For larger brownfield and greenfield opportunities, we have a strong pipeline, but conversion remains slow although customers are focusing more on new supply, given expectations for future demand and expected shortages for the key future-facing metals.
So, on to outlook. 2022 has started well, and the impact of last year's cybersecurity incident is behind us. We have a record order book, and our markets are buoyant, which is expected to remain the case. We expect to continue to have to deal with ongoing disruption from COVID-19 and inflationary and logistics challenges in the supply chain while remaining vigilant of a heightened geopolitical risk. Specifically, the rapid escalation of events in Ukraine and Russia has created significant uncertainty about our operations and trading in those countries. Our priority is the safety of our impacted colleagues, and we continue to provide them with all the support we can. Our overall exposure is small with combined Ukraine and Russia net assets of around 2% of the group's total, and combined revenue and profit being less than 5%.
We are actively assessing the situation closely and considering options as to how best look after our people and protect our assets, and we'll update further as required. Subject to the ongoing geopolitical uncertainty, in 2022, we expect to deliver strong growth in constant currency revenue and profit consistent with our medium-term objectives.
Before we move to questions, let me quickly summarize the key messages from this presentation. Today, Weir is a premium, highly resilient mining technology business, and we have a major opportunity to make mining smarter, more efficient, and sustainable. Long-term trends from technology-led transition to net-zero mining are in our favor. And we have a clear strategy to deliver profitable growth ahead of our markets while delivering sustainable margin improvement. That's why I remain excited by the prospects for our business in 2022 and beyond.
Thank you. John and I, together with Ricardo and Andrew, will be pleased to take any questions that you have.
Thank you. [Operator Instructions] Our first question comes from the line of Max Yates from Credit Suisse. Max, please go ahead.
Thank you. Good morning, everyone. Just my first question would be on pricing in the aftermarket. I think we've previously been used to mine production growing at around 3%, maybe the overall business growing at 5%, but I guess this is largely volume related. So, I just wanted to understand sort of how much pricing would be likely to contribute to order growth this year for the aftermarket business.
Good morning, Max. How are you? Yeah. So, I think on pricing, as you've seen from the release, we did a great job in 2021. I think getting ahead of the curve, getting the price increases out so that we protected our gross margins. We expect to continue to do the same in 2022. We have already issued new price increases beginning of this year across both businesses. And as I look at 2022, the realization I would expect from those price increases is probably approaching mid-single-digit contribution to our growth as the price increases kick in through the course of the year.
Okay. That's okay. Just the follow-up question would be around – I think there was a comment where you started talking about the Lean manufacturing and benchmarking all of your facilities to certain metrics. And I just wanted to understand sort of how long – how far along we are in that process. Is that something that's been going on for a couple of years now, or you've just started? And do you have internally kind of as a bridge to get to those sort of 2023 targets, any cost savings, absolute numbers of cost savings that these actions may yield over the next couple of years?
Yeah. Well, let me make an overarching comment. And then maybe I'll ask Ricardo and Andrew to talk about what they're doing on manufacturing efficiencies in each of the two businesses. I would say that I think Lean is something that we've refocused on over the course of the last two years, recognizing as we emerged from the portfolio transformation as a mining technology pure play, that the operational improvements and efficiencies, maximizing our capacity utilization is going to be an important factor in terms of driving the operating leverage that will extend our margins over the course of the next two or three years. So, it has been an area that we have reprioritized that we're making really good progress on. But maybe Andrew and Ricardo could give a little bit of color on each division.
Yeah. Thank you, Jon. Yes, Max, Lean is a never-ending journey. You're never finished with that. There's always ways to improve. We have absolutely in our shops huge amount of [ph] casing walls (00:52:54) so we can get from the base of our employees exactly what are the ideas to improve production. But structurally, the whole division – 80% division now is on SAP, so we have a really good tool we can really see live what is going on [ph] is the (00:53:11) inventory, manufacturing, production. We're rolling out new system like 42Q where we can see our job efficiency, and also, structurally, we just expanded our shop in Australia, our foundry in Artarmon after we expand our shop in Santiago and Todmorden, and now we're getting the efficiency of 15%, 16%. Also, we shut down our shop in China; opened a complete new modern facility. So, efficiency is absolutely in our mindset.
In the supply chain, we also expanded our supply chain base in China, Mexico, and the Black Sea, so we're now getting access to new sources of suppliers that are out of the traditional ones. Of course, the supply chain is always the case, but Lean, as I said before, it's a journey that never ends, and we have a good firm to go for the base to ideas to make things quicker, cheaper, and faster. Andrew?
Yeah. I think for ESCO, Max, we really reinvigorated this over the last 12, 18 months. We do feel there's a lot more to come over the next three, four years. And it's really about, as Ricardo says, lean continuous improvement journey. It's one big focus area for us, also process control. And around supporting that, we actually inputted last year a new system OSI PI, which lets us digitally see data far quicker, put actually some of the visualization in the hands of the operator so we can react quickly when we see process control moving away from optimal performance.
So, for example, that drives directly to lower scrap, less rework, and it gives us the benefit of also efficiencies, but also effectively more capacity in the system. We also will see the benefits of investment we've made over the last couple of years and ongoing, which improves the quality of the assets and makes us deliver better. And then, lastly, and as Ricardo says, supply chain is always an ongoing area where we're looking to best co-source where we can and optimize our cost across the supply chain, including looking at logistics routes, for example, given the stress we see in that right now.
Okay, very helpful. Thanks. Maybe just one very quick final one on ESCO. I think we're used to an ESCO, seeing the business have a sort of seasonal Q1 uptick in line with activity. We obviously exited this year at a pretty healthy order level. So I just wanted to understand, as the year has started, have you seen the normal sort of Q1 versus Q4 seasonal uptick in ESCO or were you already running at very high levels in Q4?
Andrew?
Yeah. Yeah. I think so in terms of Q1, we're going into the year kind of underlying similar levels, continued strong performance really. And really, the driver of that uptick is typically the start to the year, seeing some customers placing orders for the year and the construction market tends to be quite seasonal and you see more orders in Q1, which are delivered over the course of the year. So we are seeing a degree of those patterns continuing, albeit the construction industry, obviously, [ph] left the year (00:56:10) a very high rate and we don't really see the tail off in Q4 in construction orders that you would normally see.
And then, if you remember, Max, last year was sort of characterized by infrastructure spending and orders ramping up really, really quickly at the beginning of the year, and that continued at a high level throughout the year. The mining GET lagged that as the large mining machine sort of came back on line over the course of the year. So we saw the growth in mining GET catch up over the course of the year and that part of the business exits with momentum, whereas the infrastructure piece is probably sort of at high levels of activity but not going to leg up again from where it is at the moment.
Very clear. Thanks, everyone.
Our next question comes from the line of Andrew Douglas from Jefferies. Andrew, please go ahead.
Good morning, guys. I've got four questions, [ph] two I hope will be nice and quick, two hopefully a bit more big picture-y (00:57:05). Could we just talk about Russia and your supply chains? I just want to make sure that there's nothing that we need to worry about [ph] that. All we're hearing (00:57:15) is one or two automotive companies now suggest that they're struggling because they would get [ph] their parents under Russia, which they can't get hold of (00:57:22). So, appreciate it's a small profit number but just want to make sure there's nothing untoward there.
I'm slightly surprised by the fourth quarter order intake in original equipment in Minerals, plus 9%. It was on a weak comp, minus 18%, which might be under strong comp the prior year before that, but just thought 9% might have been a bit better. So, I just want to make sure that I'm not missing anything or there's nothing untoward there.
And then two slightly bigger picture questions, can you just talk about how you think you're positioned relative to your peers from a mining technology perspective? I appreciate your recent acquisition gives you another leg up, but I've got no idea how you compare to your peer groups. So, it would be just helpful to understand that a bit more.
And then this is really an unfair question but I'm going to ask it anyway. Your 17% margin target, you're nice and robust in terms of [indiscernible] (00:58:09) in 2023. Is there any structural reason why 17% margins for Weir as a group can't be higher?
Okay. Well, let me start with the third and fourth questions, Andy, the bigger picture ones. And I'll ask Ricardo to talk because he's got by far the largest business in Russia, just talk about how that business works and were there any supply chain concerns, and the fourth quarter orders question.
So, look, I think it's difficult for me to talk about our peers on the technology positioning, but I think when I look at where we are unique in the positions with leading brands that we have from the pit right through to the process plant right through to tailings, it gives us unique touch points and boots on the ground as to what's going on.
As we said in the prepared remarks, customers are hugely focused at the moment on trying to maximize production out of their existing facilities and we're positioned to help them both tactically with that, but also by having bigger picture conversations about how all of that run-of-mine process is working, listening to voice of customer, and then feeding that into our technology and R&D pipeline so that we can bring technology to bear. And that's our traditional technology, materials science, mechanical skills, hydraulics now supplemented by the digital touch points and the data we're getting through Synertrex in Mineral, now with Motion Metrics in ESCO.
So we've got a great position and we're really excited about the combination of the touch points that we have in the mine. Our technology skills are supplemented by digital as to how we can then help our mining customers in the future on process optimization and getting more from less, which is really what they need to try to do. So I think we're in a great space.
On the margin point, of course, we thought it was very important today that we are absolutely clear on the pathway to getting to 17% margins and we've explained that through the course of the presentation. We are determined to get there in 2023. Are we going to stop there? Of course, we're not. But we want to deliver over the course of the next two years, give you the evidence of execution, and then we'll go on from there.
Ricardo, on the two points about the structure of the Russian business and it's all in there, isn't it?
Yeah. Well, of course, the situation in Russia today is very liquid that we still – but what I can say is that we have invested in the last three years, through Ukrainian [ph] invasion (01:00:45), on making sure that Russian customers understand that with modern Western technology, they can improve efficiency and productivity. And we've been very successful on that.
So everything is at home now. But, of course, there are big expansion that happened before that. We were a big player. So, we would wait and see what – how it develops, but I think we've proven to our Russian customers that the Western technology – the Warman pump, HPGRs, our Trio crushers – works pretty well.
In terms of the quarter four growth, we'll talk about mining, but mining has two really big sectors. There was one on the pit on the [ph] front end and (01:01:22) there was one on the plants. I mean, our playground is mostly in the plants. And there have been a delay on decisions on CapEx investment in the plants in the past years and probably be coming in the year-end and budgets of investment not been used. We see a huge sprint on orders come in, especially in the bottlenecks, mostly another pump, another [ph] HGPR (01:01:44), another crusher here, there. More cycles to improve production.
So, I'm glad to say that that continues on Q1 this year. So, also, a very healthy OE growth on quarter four and the thing will stay, will stay with us.
Yeah. And it's just – [indiscernible] (01:01:58) a point I made earlier around the – it can be quite lumpy in terms of when the big orders land. And actually, we had a couple of quite large ones that we were expecting in the fourth quarter, for various reasons, just slipped into Q1. But it is a very positive environment. We have a really strong pipeline, lots of activity.
I think your point on Russia was the – are we dependent on – from a supply chain perspective for supply within Russia? And that is not the case. Everything that we do in Russia, we have done that until now, is based on product that is shipped into Russia. We have no reliance on Russia for components or anything, any other part of the world, if that was your question.
Okay. That's loud and clear. Thank you very much. Well done.
Our next question comes from the line of Robert Davies from Morgan Stanley. Robert, please proceed.
Yeah. Morning. Thanks for taking my questions. My first one was just on, I guess, there's short- and medium-term cash targets. Just kind of interested in that. I know you sort of guided to slightly lower in the next two years relative to what you're seeing over the medium term. Just maybe if you could kind of walk us though the biggest risks to delivering on those cash targets and where that extra CapEx is going over the next sort of 24 months. And is it safe to assume that's going to take a [indiscernible] (01:03:25) or what are the sort of relative sort of moving parts there? That was my first question. Thank you.
Can I just start by saying we know that the subject of cash conversion has been a topic of discussion in the markets? We thought it was important that today we came out with a very clear analysis of where our cash conversion has been and where it is going over the next few years. And we know that it's important to deliver on the targets that we've set ourselves through to 2024 and beyond.
In terms of the specific moving parts, John?
Yeah. Morning, Robert. So, I'd probably start by just commenting on the 2021 cash conversion, which obviously was lower than we expect going forward. That was really due to the build of working capital as a result of, firstly, the cyber incident, which meant our revenues were very back end loaded this year. That didn't give us time to collect the amounts due from our customers, so that will reverse as we move into 2022.
Secondly, with the big build in our order book, you saw the difference between orders and revenue in the year was more than £260 million and therefore, we've had to be building that inventory to support revenue that will be delivered next year. So really clear reasons why working capital was outflow this year. As we move into next year, we will grow into that new level of working capital and therefore, we will be back in the range of 20% to 25% of revenues. And from a cash perspective, that effectively means we'll see a broadly neutral cash effect of working capital through 2022.
So coming to the free cash conversion targets which starts with clearly working capital being in that normal range, so I think as we move into 2022, we're confident of that. And then beyond the operational improvement initiatives that both Ricardo and Andrew have already talked to, especially with SAP in Minerals and then the digital supply chain initiatives in ESCO will really ensure that we've got underlying internal improvements to keep that working capital in the right place.
Then medium term CapEx spend 1 times depreciation, we think that's appropriate for the next two years. There are some specific good reasons to support future growth in the business that we'll be spending closer to 1.5 times which is about an extra £40 million to £50 million a year, Robert.
The big items in there, the ESCO foundry in China to support both operating efficiency and future growth. SAP final rollout in Minerals, as well as, further investment in some of the technology. Jon was talking around the digital aspects of our business especially on Motion Metrics and we are 100% behind making that investment. So, to your specific point on risk, we're very comfortable with that 90% to 100% medium-term target and then the 80% to 90% likewise is we've got a clear path to it.
Thank you. So, I guess partly picking up on those comments and some comments you made earlier, just in terms of sort of the lean journey and everything you're doing to sort of improve the underlying performance of the business itself, is there anything else from a sort of manufacturing footprint that needs addressing? I guess, I'm just asking within the sort of context of, is there any risks to sort of taking sort of one-off charges or restructuring costs or reshaping the business, moving production around, obviously, kind of customers' supply/demand sort of moves around the different parts of the world, it's difficult sometimes looking too far out. But is there anything on the medium-term horizon where you think we need to build a new factory, we need to consolidate these service networks, anything that we should be aware of?
The answer to that is no, Robert. I think John's explained clearly there the investments we need to make over the course of the next couple of years, which we have actually flagged before and are very, very important. And then from there, it's about getting our CapEx down to closer to 1 times depreciation. Within that, we will continue to develop the capacity that we have through investment in the existing facilities, as we've demonstrated with some of the examples we gave in 2021.
We've talked in the past about a new minerals Heavy Bay Foundry. A minerals Heavy Bay Foundry is a much sort of simpler beast than ESCO, high-volume, low-mix sort of – products – sort of foundry. So, we would expect to be – if we need to do that, the jury is still out. If we need to do that, that's the sort of investment that we will be able to cover over a couple of years within the 1 times depreciation. So, we're very, very focused on getting down to that after we've gone through this period where we make these investments that we need to make to set the business up for the growth that lies ahead.
Thank you. And then my final one, if I can squeeze one more in, it's just – I think you've mentioned you were stepping up R&D spend a little bit. I'd just be curious to know, is any of that sort of incremental R&D money going into developing, I guess, kind of more ESG-friendly products? Is that likely to sort of be a bit of a continuing situation over the next few years? Clearly, it's becoming a more and more important issue. You've flagged it in a few of the slides. Just wondering, I guess, where that incremental money is going into developing those products and any uptake from customers for those new things? Is it just becoming part and parcel of the overall selling package or the customer sort of look at the traditional products and then just sort of more ESG kind of leaning bits as two different pockets of spend?
Yeah. No. I mean, it's a huge driver of sustainability. It's a huge driver of where we are investing further in R&D but it's not in one specific bucket. It's pervasive across all of the categories, and that's the existing product and making them last longer, improve wear life and so on, which inherently reduce the CO2 footprint. It's then creating the new sort of sustainable solutions, integrated solutions that help our customers use less energy and less water.
And then it's also looking at some of the longer horizon things that also play to that theme, which is around all fragmentation, characterization, core particle flotation comes back to what I said about earlier about the touch points we have across the mine and where we can see things need to be better.
Mine is – one of the ways that you get more from less is by processing less. And how can you use discrimination in terms of the ore body that you're actually processing versus that which is waste because everything gets processed today, basically. So that's the question that we're trying to solve for in the longer term. So, yeah, it's pervasive across the sort of technology and R&D investments that we're making at the moment.
Very interesting. Thank you very much.
Our next question comes from the line of Will Turner from Goldman Sachs. Will, please go ahead.
Hi. Good morning, everyone. It would be great if we could just go in a bit more detail on how you see the order intake outlook in 2022. Clearly, as you've emphasized throughout the conversation, you're very optimistic on your end market and your market demand and some of the new products that you've launched. But is there any more color you can give in terms of like order intake? For example, how has the order intake performed year-on-year in the first two months? And also, anything that we need to be aware of in terms of orders? Obviously, we got the Iron Bridge aftermarket orders. Should they start to impact the business this year? And, yeah, any type of color on order intake outlook? That would be great. Thanks.
Okay. I mean, I sort of stand by the comments I made earlier about how we expect the profile to come through, 2022 has started really well. So, we're sort of halfway through the quarter. So but I – my sort of expectation at this point is that we will probably be up year-on-year. Q4 2021 was a massive quarter particularly on the aftermarket side. So, whether we achieve that sequentially remains to be seen.
But I come back to the – our markets are very, very buoyant around the world. Customers are very, very focused on maximizing production activity. That plays to our sweet spot in terms of the spare parts and service that we can provide. So, we're not seeing anything that sort of changes the dynamic at this point in time at all. Specifically, you asked about Iron Bridge, I think that's [ph] the best start (01:12:09) right at the end of this year or 2023. Yeah.
Maybe 2023 because [indiscernible] (01:12:13).
Yeah. Because it was six months, yeah, six months behind. So, I think that's all I can say at this point, Will, to be honest.
Okay. Sure. It was great. And then now, if we break down the kind of aftermarket order intake growth that you had in the fourth quarter, like you said, it was very strong. But when we look at like mine production rates, they'd certainly won't grow that fast. There's obviously an element of pricing which you said is mid-single digits. What were the other reasons for the aftermarket growing so strongly? And yeah, could you break that down a little bit more? Has there been any kind of pre-buying orders just kind of a pent-up demand because you didn't see a strong aftermarket growth earlier out in 2021 and in 2020?
Yeah. I mean, let me make some comments and if Andrew, if you kind of have anything to add, please do so. But, I think it's a combination of momentum building through the course of the year. So, as I said in ESCO, the large mining machines, utilization was lower at the end of the year – at the beginning of the year, and it gradually built up through the course of the year, so you've got activity ramping up and momentum going on as we went through the year.
There were specific parts of the regions around the world that we supply which were quieter earlier in the year. So, Canadian Oil Sands for example when oil prices were lower early in the year, they were slow to spend on the OpEx side. And that really sort of ramped up, I think, in the third and fourth quarter, but getting back to sort of normal levels. So, I think those are a couple of features that I would call out.
Yeah. And I think you probably did see the effect that you mentioned of some deferred maintenance earlier in the year, catching up on people, and customers wanting to be ready going into 2022 in order to sort of continue the journey of maximizing production. But in terms of restocking, destocking, I don't think we really saw any of that in terms of across the two businesses. Andrew or Ricardo?
I would say, Jon, that in general terms what we see on quarter four was an accelerating of the uses of our equipment. When you speed up a pump at 10%, that doesn't mean 10% more uses, go to 20%, 30% more because there were increases a lot. So, we see the production improvements given us much more uses of equipment and spares. Also, we see that as we – as COVID is not out but is still we're going to have to live with COVID might have seen more service coming from – request of service from our companies to come and do some service works. So, we see a lot demand comes with that. So, it's basically accelerating [ph] for (01:15:04).
And I think ESCO very much followed a similar trends in terms of, as Jon said, we saw recovery really coming fully in the mining side into Q4 as the mines are now fully adjusted to COVID operating environment. They're getting far better utilization of machines as that area normalizes. So, there's no real restocking, destocking, no other features for me in the fourth quarter for ESCO where the construction site that we talked about earlier, we didn't see a seasonal tail off. That can remain strong through the quarter.
And then, as Jon touched on oil sands, we saw some delayed maintenance orders starting to come through as that sector really started to face up to some of the issues they had delayed. And again, the reason they were delaying that was in terms of COVID operations and having to keep people in the site safe. So, really just a full return to normalization for me in the fourth quarter.
Okay. Great. Thank you.
Thanks, Will. Operator, I think we've got time for one more question.
Perfect. So our next question comes from the line of Mark Davies Jones from Stifel. Mark, please go ahead.
Just snuck in. Thank you very much, Jon. Hello, all. Firstly, can I go back to the grim situation in Ukraine? You've been clear on your relatively limited direct exposure, but two things. Firstly, is there anything you can say on the current status of that important Ferrexpo HPGR order given that backdrop?
And secondly, perhaps to broaden on Andy's question earlier, what do you think the risks in terms of indirect impact on your end markets might be? Obviously, we've seen massive increases in energy prices. We've seen disruption to some supply chains, if not yours. Do you think that could actually have a material impact on end demand elsewhere in the world this year?
Yeah. Okay. Hi, Mark. So, yeah, on the Ferrexpo contract, you'll recall that was actually a multiyear contract in terms of delivery. So, the first phase was actually built and shipped, and we have the cash in 2021. I think it was about £10 million in the round. The rest of that is in – there's no deliveries in 2022. The rest is in 2023 and beyond. So, that's how that phase is. So, we've got no sort of net exposure on that contract as we sit here today, and obviously, we'll wait and see what the future holds.
Yeah. So, that's a really big question to end on the risks. So, I think, I would say a couple of things. First of all, we're a totally global business. So, if production of commodities in Russia is essentially isolated and cut off, that is probably going to create more commodity inflation where we are today. But I would expect that supply will expand where it can elsewhere to try and cover that off. Obviously, the big macro thing that we should all worry about, not that we can – sitting here, it's above my pay grade, but if we see commodity prices rise to such an extent that there is demand destruction and stagflation, then that's a different world that we're in today. So, I mean, I hope that's low risk, but it clearly is a possibility that's out there at the moment. So, we think about that.
But as we sit here today in terms of other indirect effects, I think the global nature of our business, the fact that we have regional manufacturing and supply chain in large parts of the world, and as demonstrated in 2021, means that we are perhaps more insulated than others, actually. The vertically integrated operating model that we have is highly, highly resilient. And so, I would – whatever happens I would expect us to fair reasonably well and probably better than most because of the footprint that we have.
Thank you very much.
Thanks, Mark.
Okay. Well, thank you, everybody, for your...
This concludes the Q&A session. So I'll hand back to you for any closing remarks.
Well, thank you very much, everybody, for your questions. Great to have the opportunity to talk to you in what is a very, very challenging time around the world. But as I said, I think Weir is very well set for the long-term and excited about what we can deliver. So – and, of course, if there are any further questions, then our IR team will be ready today to help you with those. So thanks again and have a good day.