Capital Markets Day London, June 2013
Agenda
Introduction Keith Cochrane
Power & Industrial Kevin Spencer
Coffee Break
Value Chain Excellence Gavin Nicol
Conclusion Keith Cochrane
Questions & Answers
2 Disclaimer
This presentation contains certain forward-looking risk and uncertainty because they relate to events statements. These forward-looking statements can and depend on circumstances that may or may not be identified by the fact that they do not relate only occur in the future. There are a number of factors to historical or current facts. In particular, all that could cause actual results or developments to statements that express forecasts, expectations and differ materially from those expressed or implied by projections with respect to future matters, including these forward-looking statements and forecasts. The trends in results of operations, margins, growth forward-looking statements reflect the knowledge rates, overall market trends, the impact of interest or and information available at the date of preparation exchange rates, the availability of financing to the of this Capital Markets Day Presentation, and this Company, anticipated cost savings or synergies presentation will not be updated during the year. and the completion of the Company's strategic Nothing in this Capital Markets Day Presentation transactions, are forward-looking statements. By should be construed as a profit forecast. their nature, these statements and forecasts involve
3 Weir Group: Providing engineering solutions to the natural resources industries Keith Cochrane, Chief Executive
4 Delivering sustainable growth through the cycle
. Divisions with shared characteristics > Serving structural growth markets > Highly engineered equipment > Extreme and remote environments Power & Oil & Gas > Intensive aftermarket demand Industrial . Portfolio benefit > Complementary technologies and footprint Minerals > Diversified end markets > Exposure to different capex cycles > Underpins earnings sustainability
Coherent and complementary Group focused on sustainable growth
5 Common growth drivers and strategy
Coherent and complementary Group focused on sustainable growth 5 Multiple levers to enhance competitive positioning
. Unified approach across the value chain
Customer > Customer intimacy > Innovative engineering > Supply chain excellence Sales / Operations / engineering Logistics > Strategic supplier partnerships
Planning > Lean philosophy > End to end planning & coordination
Supply Procurement chain
Coherent and complementary Group focused on sustainable growth
7 Weir Power & Industrial: Developing a platform for revenue and margin growth Kevin Spencer, Divisional Managing Director
8 Agenda
Divisional review Kevin Spencer
Weir valves overview John Heasley
Control valves case study Roger Griffin
Operational excellence & concluding remarks Kevin Spencer
9 Power & Industrial division overview
Valves Hydro Pumps (52% of input) (14%) (7%)
2012 input: £361m
Services (27%)
. Provider of valves, pumps, turbines and engineering services . Serving global power generation, industrial and oil & gas sectors . Engineered valves business ca. 60% of divisional profit
Three distinct product pillars supported by extensive service capability
10 Overview of P&I business: Financial performance
. Strong performance over past 3-years Revenue (£m)
> Revenue increase of over 40% 400 > Steady performance through the cycle, 300 underpinned by valves and targeted M&A 200 44% 47% Aftermarket 55% Original equipment . Broadly stable EBITA margins 100 59% 0 41% 45% 56% 53% > Margin reflects high proportion of Services 2009 2010 2011 2012 work (c.8-10%) Book to bill 1.1 1.1 1.0 1.1 > Re-aligning business after Fukushima to expand in non-nuclear end markets Operating profit (£m) and margin (%) 35 16% . High organic returns on capital (30%+) 30 12% EBITA > Low level of invested capital in Services 25 20 8% 15 . Margin and return on funds employed uplift EBITA margin 10 4% after one offs expected as volumes and aftermarket mix 5 increase 0 0% 2009 2010 2011 2012
Strong revenue growth and double-digit margins
11 Overview of P&I business: Product and market split
Increasing product contribution (input) Increasing focus on core Weir Group markets (input)
27% 28% Valves 35% 33% Power generation 2012 Hydro 2009 49% 52% 2009 2012 Oil and gas Pumps 56% 7% 12% 60% General industrial +8% 11% Services businesses +5% 11% 5% 14%
Increasing emerging markets exposure Growing the installed base (input) (input)
30% 27% 18% Indo Pacific/ Asia 35% 35% OE 9% 2012 Other emerging 43% 43% 2009 2009 2012 Spares North America 54% 7% Service 38% +7% UK and Europe 14% 11% 36%
+11%
Balanced portfolio with growing emerging markets exposure
12 Developing global presence
Key P&I valves manufacturing plant P&I non-valves manufacturing plant P&I sales / service facility Divisional HQ
Vendin Le Vieil, France Montréal, Canada Saint Victoret, France Ipswich, MA USA Madrid, Spain Beijing, China Seoul, S. Korea Salt Lake City, UT, USA York, PA, USA Ansan, S. Korea
Sharjah, UAE Suzhou, China
Hubli, India Bangalore, India Manila, Philippines
Alloa East Kilbride Singapore Sao Paulo, Brazil Teesside Elland Johannesburg, S. Africa Gosford, Australia
Barton on Humber
Warwick Bedford
A global business with ambitions to continue geographical expansion
13 Product and market positioning (excluding valves)
Services Industrial pumps Hydro (27% of 2012 input) (7% of 2012 input) (14% of 2012 input)
. Services – overhaul, repair and . Products – speciality pumps and . Products – rehabilitation/ upgrade of upgrade of pumps, valves, pumping systems medium to large hydro turbine turbomachinery and hydro/ wind . Key end markets – municipal runners; site services turbines; outage management wastewater, O&G/ power, food & . Key end market – hydro rehabilitation . Key end markets – nuclear and beverage, general industrial . Key customers – Ameren, Seattle conventional power, renewables, . Key customers – General Electric, City Light, Rochester Gas & Electric O&G, general industrial Daelim, BOS . Geographical strengths – North . Key customers – EDF, SSE, Rolls . Geographical strengths – North America Royce, Gamesa America . Project lifecycle – delivery: 6 months . Geographical strengths – UK & . Project lifecycle – delivery: 2 weeks to to 3 years Ireland, Spain, South East Asia 6 months; time to spares: 2 to 4 years . Project lifecycle – delivery: 1 week to 18 months
Application-critical products and services
14 Key end markets aligned to structural growth drivers
Mega trends Resource Ageing Globalisation Sustainability scarcity population . Increased demand for energy, power and Emerging Climate efficiency markets Urbanisation Water security change growth
Addressable market CAGR 2012-17, % Addressable market CAGR 2012-17, % Market growth (products and services) (end markets)
Valves Nuclear
Hydro Fossil . Markets growing at or faster than GDP Ind. pumps O&G growth Services (incl. Industrial wind O&M) 0% 2% 4% 6% 8% 0% 2% 4% 6% 8%
Addressable market growing at c.4%-5% p.a. 15 Strategic framework underpins revenue growth
End markets/ Valves Hydro Industrial pumps Services niches . ~£5.6bn addressable . ~£0.3bn addressable . ~£0.6bn addressable . ~£1.8bn addressable market market market market . ~4% market share . ~13% market share . ~6% market share . ~5% share
Niche leadership: Niche leadership: Niche leadership: Niche leadership: . Nuclear safety valves . North America hydro . North America . UK Services overhaul, (~40% share) turbine/ pump-turbine specialty industrial repair and upgrade . China coal-isolation rehab (~26% share) pumps (~11% share) (~13% UK share) valves (~10% share)
Capabilities & Highly engineered Service presence Best-cost Operational excellence differentiators products/ unique . Global footprint manufacturing . Margin enhancement technology . Aftermarket capability . Cost-competitiveness . Increased volumes . Customer intimacy
Strategy to grow revenues faster than end-markets . Expand in and beyond niches . Align with growth markets . Leverage global network
Strategic platform established to grow revenues faster than end-markets 16 P&I strategy and priorities
Geographical . Extend product businesses globally expansion . Expand Services presence in Asia and South America
Best-cost . Expand Valves and Industrial pumps best-cost sourcing sourcing . Utilise Group wide procurement resources and expertise
Product . Extend range of applications for Valves, Hydro and Industrial Pumps development . Further develop hydro turbine runner technologies
. Maximise return from installed base, leveraging Services and Weir Group Aftermarket footprint enhancement . Extend range and scope of Services and Hydro offering
Underpinned by operational excellence, customer intimacy, quality and safety
Platform to sustain revenue growth and transform margins
17 Valves: Growth and profit engine of the division John Heasley, Valves Managing Director
18 Weir valves timeline
1989 1998 Weir acquired Weir opened 1871 1964 2008 Hopkinsons sales office in G & J Weir Batley Valve Atwood & Morrill and China established in established in Tricentric Sebim acquires Glasgow, Scotland Batley, England manufacturing moved to Sarasin Weir acquired Sebim Ipswich, USA
1843 1975 1995 2003 2011 J Hopkinson began Tricentric Weir acquired Sarasin-RSBD Weir acquired 60% manufacturing in designed by Tricentric product line share in HIM Tech (now Huddersfield, England Adams created Weir International South Korea)
1800 1900 1960 1980 1990 2000 2010
1848 1900 1966 1988 1996 2010 Defays & Sarasin Atwood & Morrill Sebim Hopkinsons Weir acquired Weir acquired BDK established in founded founded acquired Batley Valve Engineering Industries Lille, France Blakeborough Singapore office opened 1860 1981 1990 R & T Blakeborough Sebim Weir acquired started manufacturing acquired Atwood & Morrill valves in Brighouse, RSBD 2006 2012 England Weir opened Weir’s southern France manufacturing facility facility moved to new in Suzhou, China custom-built premises in Saint Victoret
170 years history of established brands, supplemented by recent M&A
19 Valves business today
. Provider of highly engineered valves to Input (£m) - Valves
a number of key market niches 200 25% > Specialist equipment targeting critical 150 28% 27% & technically challenging applications 100 31% Aftermarket 50 Original equipment > Power and oil and gas end 69% 73% 72% 75% 0 market focus 2009 2010 2011 2012 Book 1.1 1.2 1.1 1.2 . Control, Isolation and Safety valves to bill
> World renowned brands in critical Operating profit (£m) and margin (%) power applications 20 16% . 7 manufacturing plants worldwide 15 12% EBITA
. Integration and coordination of 3 product 10 8% lines to leverage global capability EBITA margin 5 4% after one offs
0 0% 2009 2010 2011 2012
Significant opportunities for geographical and end market expansion
20 Creating a global valves platform
Diverse Product range manufacturing base Valves platform Operational Integrated excellence sales structure Elland Vendin Le Vieil Ipswich Saint Victoret Ansan, S. Korea
Suzhou Key: Hubli Western plants Kuala Lumpur
Eastern plants >30% of 2012 Group foundries Port Elizabeth total valve revenue sourced from best- Sales & service cost countries facilities
Valves are the core of the division, providing a solid global platform for growth
21 Product line overview
Isolation valves Safety valves Control valves (48% of 2012 input) (24% of 2012 input) (28% of 2012 input)
. Application – stop flow of fluid for . Application – open in event of system . Application – control flow of gases or technical or safety reasons; ASME overpressure; ASME pressure class liquids in critical applications; ASME pressure class 150 to 4500; short 150 to 4500; sizes 0.5” to 24” pressure class 150 to 4500; sizes reaction time; sizes 0.5” to 96” . Project lifecycle – delivery: 12 weeks 0.5” to 36” . Project lifecycle – delivery: 12 weeks to 2 years; aftermarket: from 2 years . Project lifecycle – delivery: 12 weeks (commercial) to 3 years (nuclear); (plant certification) to 5 years; aftermarket: from 6-24 aftermarket: from 2 to 4 years . Weir installed base – medium months . Weir installed base – high, focused on . Spares potential – good . Weir installed base – low Commonwealth countries . Service potential – medium . Spares potential – excellent . Spares potential – good . Service potential – medium/ high . Service potential – medium/ high
Application-critical products with strong aftermarket potential
22 Market positioning
Isolation valves Safety valves Control valves (48% of 2012 input) (24% of 2012 input) (28% of 2012 input)
. Key customers – Westinghouse, . Key customers – EDF, China Nuclear . Key customers – KHNP, China China Nuclear Energy, Dongfang Energy, Technip, Air Liquide Nuclear Energy, Samsung Heavy . Geographical strengths – North . Geographical strengths – Europe, Industries, Alstom, SBM America, China, Europe, India China . Geographical strengths – China, rest . Key end markets – O&G, nuclear, . Key end markets – O&G, nuclear, of Asia, Europe coal, CCGT, general industrial coal, general industrial . Key end markets – O&G, nuclear, . Addressable market share – ~5% . Addressable market share – ~6% coal, general industrial . Addressable market share – ~4%
Total global market: ~£17bn Total global market: ~£2.5bn Total global market: ~£3bn
Pentair/ Tyco Pentair/ Tyco Emerson Fisher Flowserve GE/ Dresser GE/ Dresser Curtiss Wright/ Farris Velan Flowserve £3-4bn <£1bn Leser <£1bn addressable Crane addressable addressable IMI market market Bopp & Reuther market Weir Weir Weir Others Others Others
Source: Weir estimates Source: Weir estimates Source: Weir estimates
Niche market positions in fragmented markets
23 Geographic and end market analysis
End market OE trend AM trend Increasing emerging markets focus (input) & growth Nuclear Subdued Demand increasing 24% (3%-4% p.a) post-Fukushima driven by safety 29% Indo Pacific/ Asia 34% regulations and 44% Other emerging plant life extensions 2009 2012 North America 9% Coal Strong demand Annual operational 20% 28% UK and Europe (4%-5% p.a.) from India and China spend remains robust; 12% plant life extensions prolonging AM +13% CCGT Strong US demand Plant life extensions Increasing non-nuclear contribution (input) (5%-6% p.a.) driven by low gas prices; in US/ Europe present China and Middle East upgrade opportunities growing fast 31% 31% 20% Power gen. - fossil O&G Emerging market focus Increased operating Oil & Gas (7%-8% p.a.) for refining and pressures/ severe 53% 2009 14% 2012 General Industrial petrochemical, esp. applications driving Middle East & BRICS demand 13% Power gen. - nuclear 22% 16% Industrial Sluggish in North Stable, driven by (c.4% p.a.) America and Europe; critical need for +22% stronger in developing routine maintenance markets and repairs
Significant emerging markets and selected end market opportunities
24 Valves: Strategic priorities
Geographical . Establish presence in Russia and North/ Eastern Europe expansion . Drive sales through hubs; leverage Korean platform
Best-cost . Complete product transfer programmes to best-cost countries sourcing . Utilise Group wide procurement resources and expertise
Product . Explore new markets/ applications for existing products development . Enhance super/ ultra-critical and packaging capability
. Maximise return from existing valves installed base, leveraging Services Aftermarket business expertise enhancement . Execute plans to rapidly grow installed base to deliver future aftermarket revenue streams
Underpinned by operational excellence, customer intimacy, quality and safety
Positioned to continue to grow faster than end-markets
25 Control valves case study: Delivering rapid growth Roger Griffin, Managing Director, Control & Choke Valve products
26 Delivering rapid growth from low base
60 £m Input up 7x Product 50 since 2009 40 development 30 20 Revenue up 10 3x since 2009 Geographic 0 2009 2010 2011 2012 expansion Order input Revenue
. Key aspects of the control valves rapid growth plan: Best cost sourcing > Development of existing but underweight product line > Develop new product lines > Enter new geographies Aftermarket > Utilise best-cost sourcing capability enhancement > Provide installed base for future aftermarket opportunities
Strategic focus leveraging common capabilities
27 Product development and patented technology
Tungsten Carbide Rendered Stack Sand passes around Animation X-Stream™ Disc smooth corners with less impact erosion
. X-Stream™ trim designs Feature Benefit
> Used in control and choke Minimises areas for re-circulating flow Reduced cavitation and clogging valve product line Velocity controlled and limited at all points Reduced potential for erosion > Provide greater control of within trim pressure drops whilst reducing Maximises control of flow passage diameters Reduced noise noise and erosion Up to 30 stages of pressure reduction Prevents excessive vibration > Application in high value, high Smooth/ streamlined flow path without end technical performance Larger capacities than competitors control valve market limiting capacity 28 Geographic expansion
Weir International South Korea (WISK) Ansan facility . Acquisition in H1-2011 > Majority owned with option for full ownership > Returns beat cost of capital in first full year > On track to double revenue in 2013
. Control valves for general and severe service > O&G, power and petrochemical applications
. Providing access to new markets and customers > South Korean and adjacent markets WISK third party input (£m) 25 > Access to internationally influential Korean Input up > 7x EPCs 20 since 2010 . 2012 highlights: 15 > Input significantly ahead of original target 10 5 > Seoul sales office opened 0 2009 2010 2011 2012
Acquisition delivering strong returns and strategic benefits
29 Best cost sourcing - Leveraging global presence
Best-cost sourcing Leveraging presence & capabilities . Diaphragm actuators from India . Shin Ulchin and Braka nuclear orders . Piston actuators from Korea > First nuclear control valve orders . Complete valves from China > Leveraging UK/ Korean capabilities . Strong progress in O&G and new geographies > FPSO for BG Norge North Sea Joint UK/ Korea effort > FPSO for Petrobras Brasil Joint UK/ China capabilities > FPSO Sulphate Removal Systems Brasil and Angola
Leveraging global platform to accelerate growth and support margins
30 Aftermarket enhancement: Leveraging installed base
. Growing control valves installed base will Valves aftermarket input (£m) drive increased AM mix 50 AM input up 24% for all valves > ~2.5x increase in control valves AM 45 revenue since 2009 since 2009 40 . Global installed base being harvested for all valve types 35 2009 2010 2011 2012 > Canada valves aftermarket hub >£7m revenues since 2009 start-up > Providing rapid turnaround solutions . Replicating Canadian aftermarket structure in UK and Australia > Further opportunities in US and Commonwealth countries
Capturing the aftermarket potential across the valve portfolio
31 Operational excellence and concluding remarks Kevin Spencer, Divisional Managing Director
32 Operational excellence
Position Actions and impact Priorities . Performance in line with . Restructured valves . Employ Weir best practice to valves peers businesses to drive enhance plant performance > But not as strong as Weir operational focus . Backlog and lead-time Minerals . Plant managing directors reductions . Opportunity for differentiation complementing successful . Leverage best-cost supply . Cultural change required product line leaders chain . Example: Lens conventional > Strong growth requiring new approach safety valves plant > Up to 40% lead time reductions since Nov-12 > ~20% inventory reduction since Nov-12 > ~20% revenue improvement Q1 2013 versus 2012 average > Improved customer OTD
Setting a new standard to create competitive advantage and grow margins
33 Positioned for sustainable, profitable growth
Process critical . Design and manufacture of valves, hydro turbines and specialist pumps products . Full-scope specialist support through service centres and hubs
Structural growth . Growing global demand for energy products and services markets . Diversified end market exposure (power, O&G, and industrial)
Increasing . Global manufacturing and sales footprint – support customers globally market share . Broad valves portfolio generates cross-selling opportunities
TM Differentiated . Hydro turbine runners, X-Stream trim and Sebim nuclear safety valves technology . Replacing ageing infrastructure with market-leading technology
Leveraging the . Best-cost manufacturing, sourcing and supply chain initiatives platform . Bolt-on and step change acquisitions supporting growth
Medium term goals: Sustained high single digit revenue growth; Increase operating margins to 13-14%
34 Value Chain Excellence Gavin Nicol
35 Agenda
Value Chain Excellence Gavin Nicol
Extending the lean journey - Pressure Pumping Paul Coppinger
Developing the Weir Procurement System Trevor Latham
Strategic supply chain development - Minerals Africa Dave Athey
Competitive advantage through technology Chris Poole
36 Weir’s operational excellence journey
. Long established culture of operational Weir operational excellence timeline excellence 2005 > Lean manufacturing principles introduced Weir Production System (WPS) > Continuous improvement culture embedded 2009 Weir Commercial . Remit broadened over past 4 years System/ Net > Commercial, engineering, procurement Promoter Score 2010 Engineering Excellence . Next phase of journey focused on Committee integrating interdependent functions 2011 > Value Chain Excellence Weir Procurement System
Excellence committees operating independently Established culture of operational excellence underpins performance
37 Value Chain Excellence
. Recognises need to exploit
interdependent clusters Customer . Links clusters to optimise both customer and shareholder value Sales / Operations / . Positions Weir as partner Engineering Logistics > Not just a supplier Planning . Requires customer and supplier intimacy . Order generation and order fulfilment processes closely aligned Supply chain Procurement
Value Chain Excellence: Next chapter of operational excellence
38 Extending the lean journey – Pressure Pumping Paul Coppinger, Pressure Pumping Managing Director, Weir Oil & Gas
39 Overview of Pressure Pumping lean journey
. Run rate nearly trebled in 18-months to Dec-11 LFL upstream revenue ($m) > Supply chain and operations stretched 600 > Outsourced activities 500 > Operational focus on enabling 400 capacity expansion 300 200 . Lean journey extended in H2-11 100 0 > Providing flexibility to cope with rapid 10-H1 10-H2 11-H1 11-H2 12-H1 12-H2 demand changes Run rate nearly halved in 12 months Oil & Gas divisional margins (%) to Dec-12 30% > Delivered cost, efficiency, lead time & 25% inventory benefits 20% > 75 full week Kaizen events (>350 staff involved) 15% 10% . Supporting broadly flat margins through 2011-12 5% 0% 10-H1 10-H2 11-H1 11-H2 12-H1 12-H2
Lean activities supporting stable margins in dynamic environment
40 Redesigning the value chain
Aligning business to key value streams Value Streams Product Categories . MTS – Make to Stock Swivel . ATO – Assemble to Order . MTO – Make to Order Product line . MTS – Make to Stock Flow Valve . ATO – Assemble to Order . MTO – Make to Order
. MTS – Make to Stock Integral . ATO – Assemble to Order . MTO – Make to Order
Understanding the customer requirements High Movers - Make to Stock (MTS) . 6 sigma model created . Demand segmentation executed to understand customers’ demand Finished goods demand 600 Swivel 500 27% of part #’s = 88% volume = 92% of sales
400 Valve 300
Mean High Movers - 31% of part #’s = 95% volume = 91% of sales Define Strategy: 200 base (MTS) ATO or Make-to-Order (MTO) Integral 100 (MTS/MTO) 22% of part #’s = 84% volume = 62% of sales 0 0 2 4 Statistics 6 8 41 Value stream mapping – plug valve production
> Long lead time: 23 weeks > Low OTD: 30% > Safety hazards: High TIR > Excess inventory
Current State Future State
Before After
. Production: 24 valves per shift . 30 Valves per shift (25% improvement) . Batch process of 8 . Creation of one-piece flow, WIP eliminated . Push system . Takt time: 14 min (18% improvement) . Takt time: 17 min . Supermarket, Kanban, signals developed . No supermarket, Kanban or signals . Reduced customer lead time . Higher lead times for customer . Better designed assembly operation 42 Realigning supply base
Inventory optimisation by linking products, Plug valve example components and suppliers
Number Total parts Valve types of MTS Suppliers needed 22 products Swivel 26 52 12 Number of components 117 Valves 60 274 53
Integrals 173 215 43 Suppliers 80 suppliers 25 out of 450 in total Total Total cost components Top 10 80% 60%
4” Plug Valve > Components for MTS products identified > Identify key suppliers by volume and value > Rationalisation of inventory requirements > Deeper engagement initiated > Supported 10% inventory reduction in quarter > Conducted Kaizen events with key suppliers 43 Realigning distribution channels
Optimised distribution centre to Fort Worth Optimised distribution centre to operations channel service centres Before Before After FT. Worth Service Swivel/Integral Pump Centre
Each site operates own truck to transfer material
Distribution Valve Centre > Trips between distribution centre on demand, not systematic > Manufacturing disruption due to non availability of parts > Excess material across manufacturing site
After . Service centre journeys reduced over 60% FT. Worth Service > 1,650 reduction in miles driven/week Swivel Integral Pump Centre . Hub strategy for service centre clusters > Materially reducing inventory requirements . Product and inventory movement to service Single truck makes “milk Distribution centres optimised round” covering all sites Valve Centre with higher frequency > Frequent and systemic trips covering all sites during each trip 44 Results of lean improvement
Lead time and efficiency Footprint and cost savings Lead time eliminated for high movers Quoted lead time (weeks) Fort Worth main – 71k sq.ft. footprint saving 0 . Pump assembly: 8,400 sq.ft. 3" WYE 8 4" 15K TEE 0 27 . Integrals 11,000 sq.ft. 4" 15K SWIVELS 0 32 > Transfer from Washington to Ft.Worth 4" 15K PLUG VALVE 0 23 4" 15K LAT.CROSSOVER 0 4 . Plungers/cement pumps 21,400 sq.ft. 4" 15K CROSSOVER 0 14 3" CROSS 0 8 > Transfer from Odessa to Ft. Worth 2" PUP JOINT 3 21 . Distribution centre: 27,500 sq.ft. 0 5 10 15 20 25 30 35 Q1 2013 Q4 2011 Cost savings . Distribution Overall Labour Efficiency % (Labour Utilisation % x Production Efficiency %) > Fort Worth savings: $500k p.a. > Distribution centre savings: $200k p.a. Swivel – 10% Valve - 9% Integral – 31% Improvement Improvement Improvement . Manufacturing 81% 67% 82% > Closure of Washington & Odessa facilities > Fixed cost saving of $7m p.a. 36% 71% 73% > No reduction in effective capacity
Q1 2012 Q4 2012 Q1 2012 Q4 2012 Q1 2012 Q4 2012
45 Developing the Weir Procurement System Trevor Latham, Head of Procurement
46 Procurement: Identifying the global opportunity
Weir procurement in 2010:
. £825m total spend North America 44% of direct spend EMEA . 77% OTD from supply base 9% from BCC 35% of direct spend 11% from BCC . Fragmented spend Asia Pac . Tactical purchasing activity 11% of direct spend South America 19% from BCC . Low levels of best-cost country 10% of direct spend sourcing (BCC) 18% from BCC . Limited standardisation
. No key supplier management £165m Indirect Spend . >20% spend under contract or long term agreement £660m Direct Spend Goal established to develop a best in class procurement organisation
47 Creating best in class framework and processes
. Introduced Weir Supplier Strategic Data approval, sourcing, Procurement System management, performance negotiation reporting and and and > Standardised Group-wide compliance development contracting process > Web based eProcurement tools
. Rolled out category Working Quality and capital, management on-time price, lead > Structured approach delivery time, cost to procure to procurement and supplier management > Increases supply chain value > Value driven – not cost Value > Make vs buy strategies equation > Customer centric approach Introduced processes to leverage ‘whole of Group’ buying power
48 Delivering change – key activities
. Centre of Excellence Expected 2012 spend of £1,400m teams established Benefit 2 8 > Strategic direction on High 7 3 key spend categories 11 > Initial focus – quick wins 10 6 & critical categories 4 5 9 > Leverages Group scale 1 in spend allocation Low 12 13 . Global supplier performance scorecard Phase 1 (2012) High Low > Defined KPIs – quality, Difficulty / Complexity delivery, cost and service Phase 2 (2013) > Tracks performance by Categories business and region 1. Machining 6. Mechanical Seals 11. Valves > Applies to all Centre of 2. Castings 7. Fabrications 12. Pumps & Spares Excellence suppliers 3. Forgings 8. Foundry Materials 13. Bearings > Outcomes used to dictate 4. Steel 9. Powertrain future sourcing decisions 5. Motors 10. Rubber/Latex
Delivering immediate benefits and embedding cultural change
49 Improvements in procurement performance
Metric 2010 2012 2013 (% inc) target
Supplier on time 77% 91% 95% North EMEA delivery America 28% of direct spend 14% 14% from BCC 49% of direct spend Supplier quality levels 97% 99% 99.5% 15% from BCC Asia Pac ‘first pass yield’ 2% 13% of direct spend 42% from BCC Best cost sourcing 12% 30% 40% South America 18% 10% of direct spend Suppliers under 18% 40% 60% 41% from BCC contract/ long term 22% agreement £300m Spend managed by 80% 85% 90% Indirect Spend procurement 5% £1,100m Direct Spend
Demonstrable benefits from early initiatives
50 £28m annualised procurement savings in 2012
% of total savings 2012
10% 27% 12%
14%
24% 13%
Proprietary Products Forgings & Castings Freight Steel & Fabrications Powertrain Components Other
2012 activity a building block for continued results in 2013
51 2013-2014 objectives
. Improve operational performance > Robust planning processes > Better quality data . Increase supplier intimacy > Support working capital reduction > Involvement in new product introduction process . Improve overall capability of suppliers > Consolidating spend on high performers > Eliminating consistently poor performers . Embed effective risk management of key suppliers > Ensure sustainability and business continuity
Targeting £30m+ cost reduction in 2013: 2.5%-3.0% of Group spend
52 Strategic supply chain development Dave Athey, Regional Managing Director Africa, Weir Minerals
53 Importance of supply chain to Minerals Africa
Number of suppliers Supplier spend (% of total)
20 20
Strategic Strategic Non Strategic Non Strategic
80 770
. Challenging regional environment . Strategic suppliers cover range of categories: > Transport infrastructure > Machine shops > Border restrictions > Foundries > Political/social instability > Fabricators
3rd party suppliers account for 70% of cost of goods sold
54 Minerals Africa supplier performance 2010
. Poor on time delivery performance On time delivery
> Impacting customer on time delivery 66% > Buffer stock increasing inventory levels Pull system lead times
. Ineffective pull system 28 days > Long lead time Pull system - % of inventory > Covering limited proportion of demand 5%
> Low inventory turns Inventory turns . Supply chain unable to support growth expectations 1.5
> Low volume of parts shipped Parts shipped daily volume > Product portfolio expanding 2,500
Number of line items 150
Transactional relationships resulted in poor supplier performance
55 Strategic approach taken to supplier development
. Supplier development audits . Front end levelling tool > Lean principles . e-Procurement > 5S > Flow & process improvements . Implementation of JIT (Just In Time) supply . Training of Suppliers . Developed web based barcode capability > Pull system methodology – simulation model
Developing supplier capabilities through partnerships
56 Improving supplier performance
Initial findings: Before After . Little or no:
> Flow, FIFO, 5S, lean principles . Lower regard for safety
. Poor reliability SupplierA
Benefits including: . Lead time reductions . Integration into Weir pull system supply chain . Improved supplier output & profitability . Improved supplier Supplier B reliability (safety, quality, OTD etc)
Delivering tangible benefits for the supplier, Weir and the customer
57 Minerals Africa supplier performance 2012
. Materially improved overall supplier performance On time delivery 92% > On time delivery materially increased up 40% > Inventory turns materially increased Pull System lead times 7 days . Pull system reset and expanded 75% lower > Pull system inventory turns doubled Pull System - % of inventory > Step change in proportion of inventory covered 43% up 760% . Supply chain supporting materially increased demand Inventory turns
> Daily volume trebled 3.1 up 100% > Growing supply chain complexity Parts shipped daily volume 8,000 up 220% Number of line items
2,399 up 1500%
Enhanced supply chain performance during period of rapid growth
58 Next phase of supply chain development
. Piloting consignment stock holding Service Centre distribution model . Roll-out of JIT part supply . Focus on supplier capacity management to enable growth . Further developing maturity of pull system part supply . Distribution network: best practice roll out
Creating competitive advantage through supplier partnerships
59 Competitive advantage through technology Chris Poole, Engineering Excellence Committee Chairman
60 The environment in which we operate
. Natural resources more difficult to access > Strain on existing technologies . Customers demanding more innovation and faster-to-market execution > Traditional product development processes unable to meet expectations . Enhanced environmental awareness drives need for smaller carbon footprints > Pushes boundaries of product efficiencies . New technologies opening up new opportunities
Opportunity to differentiate through new innovative solutions
61 Increasing investment in innovative technology
. 2010 – Launched innovation as strategic pillar . Since 2009, doubled investment in research & development > c.1% of sales in 2012 . Nearly doubled R&D engineers to over 1,100 . Embedded innovation process to drive new product & technology development . Between 2008 and 2012, threefold increase in number of patents filed
Targeting increase in R&D spend to 1.5%-2% of sales within 3-5 years
62 Weir Group’s approach to technology development
Technology readiness Engineering level (TRL) systems Product launch 9 Design centres of origin 32 global . Common core competencies New product product 8 > Materials science development DCOs Product > Wear mechanism qualification 7 understanding Detailed > Hydraulics design design Process > Fluid dynamics Innovation 6 technology systems Technology centres Pump tech centre . Common processes Technology Mat’ls tech centre 5 > CAD/design platforms Weir Advanced Technology > Integrated systems Research Centre assessment > Virtual product development 4 > Engineering best practice 3 Applied research Product Fundamental Weir Advanced 2 design research Research Centre Other universities Fundamental Time research horizon 1
Structured approach focused in four areas of technology leadership
63 Case studies
Minerals Oil & Gas . WBH® range of slurry pumps . New range of high pressure pumps for hydraulic fracturing (Destiny™) . Establishment of screens design centre > Development of range of screen machines . Introduction of advanced fluid end technology for mining applications (Duralast™) . Development of wear resistant alloys for oil . Launch of a new range of centrifugal sands applications Gladiator™ water and slurry pumps . Introduction of “smart products” . Extension of the range of flowline safety restraints for high pressure systems > Control systems for optimising cyclone performance > Up to 30k psi applications > Wear indicators for hoses
WBH® slurry pump Cavex® cyclone Destiny™ quintuplex frack pump Gladiator™ slurry pump
64 Case studies
Power & industrial Weir Advanced Research Centre . Introduction of X-stream™ trim for severe . Advancing surface treatment technology service control valves > Reducing erosion and corrosion in high . Extension of isolation and control valve range wear environments for critical nuclear applications . Improving algorithms modeling behaviour of . New Starsteam® safety valve for ASME 1 abrasive flow through centrifugal slurry pumps boiler & pressure vessel applications . Optimisation of service life for forgings . Implementation of leading edge analytical operating in a high load, fatigue environment techniques to enhance hydro and power
product performance
Control valve with X-stream™ trim Starsteam® safety valve Finite element analysis forging model 65 Future technology development strategy
. Common need for technology enhancements across the Group: > Application of mechatronics Integration of sensing, data acquisition & interrogation, communications infrastructure, electronic control > Advanced manufacturing and process technologies > Leading edge research into new even higher strength, wear resistant materials
Co-ordinated research expanding pipeline of next generation technology
66 Conclusion Keith Cochrane, Chief Executive
67 Key takeaways
Power & Industrial Value Chain Excellence . Strong underlying performance . Substantial opportunity for operational improvements . Robust global platform established . Lean expanded across value chain . Range of growth opportunities . Leveraging value from functional . Scope for margin enhancement interdependencies . Extending technical differentiation
Clear priorities to drive and support profitable growth
68 Positioned for sustainable profitable growth
Minerals Oil & Gas Power & Industrial
. Leadership in core mill circuit . Leading upstream surface . Niche provider of engineered Process critical technologies equipment & service provider valves, turbines and pumps products . Exposed to high wear and . Exposed to high temperatures, . Specialist service abrasion pressures and abrasion requirements
. Emerging market growth, . Growth in unconventional drilling . Growing global energy Structural urbanisation and industrialisation and well complexity demand growth markets . Aligned to higher growth . Growth in shale oil & gas in the US . Strong emerging markets commodities (e.g. copper) and internationally exposure
. Leading global service network. . Expanding into adjacent Pressure . Expanding geographic sales Increasing Growing installed base Control markets (e.g. flow back) coverage across global platform market share . Comminution platform . Increasing international market . Valves portfolio provides cross- established (c.£1bn market) share (Middle East, Asia) selling opportunities
. Unique materials and flow design . Developing differentiated product . Patented and proprietary valve technologies offering Differentiated and hydro technologies . Acquisition of innovative HPGR . Developing innovative pressure technology . Upgrading ageing infrastructure & centrifuge technologies pumping technologies
. Cost reduction and best-cost . Cost reduction and best-cost . Best-cost sourcing, operational Leveraging the sourcing sourcing excellence platform . Strategic acquisitions . Strategic acquisitions . Strategic acquisitions
69 Delivering growth through the cycle Operating Profit¹ (£m) 600
500 5-Year CAGR: 33%² 400 Power & Industrial Oil & Gas 300 Minerals
200
100
0 2007 2008 2009 2010 2011 2012 2013 3 1 Excluding Group companies and unallocated costs 2 Reported operating profit, including Group companies and unallocated costs 3 Consensus expectations (Vuma 17 June 2013)* Business model underpinning strong, consistent performance * The consensus numbers are a collection of analysts own projections and the circulation of the consensus does not provide or imply any check on, or endorsement of, these numbers by Weir Group PLC 70 Delivering returns through the cycle
Dividend (pence) 45
40 5-Year CAGR: 18% 35
30
25
20
15
10
5
0 2007 2008 2009 2010 2011 2012 2013
2013: 30th year of dividend growth and 8th year of double digit growth
71 Delivering profitable growth in the future
Process critical THE WEIR GROUP MODEL products . 5%-10% organic revenue growth over the cycle > Growing faster than our end markets (4%-7%) Structural growth markets . Top-quartile margins and returns > Sustainable competitive advantage, value chain excellence Increasing > Large aftermarket provides sustainable platform market share . Continued investment to support growth > Capacity, technology Differentiated . Leveraging returns through acquisitions technology > Track record of value enhancing acquisitions . Strong dividend growth Leveraging the > 30-year track record platform
Positioned to continue to deliver superior returns across the cycle
72 Questions & Answers
73 Attendees: Weir Group PLC
KEITH COCHRANE JON STANTON GAVIN NICOL Chief Executive Finance Director Director of Operations Support and Development
Appointed Chief Executive in November 2009, Joined the Board in April 2010 from Ernst & Young Gavin joined the Group Executive in July 2011 having been Finance Director since 2006. London where he led the audit of several FTSE100 following two years as President of Weir SPM, part of A qualified accountant, Keith joined Stagecoach companies. Jon was with Ernst & Young since 1988, the Weir Oil & Gas Division. He initially joined Weir in Group in 1993, becoming Chief Executive in 2000. becoming a partner in 2001 after extensive 2005 and was MD of the Weir Pumps business prior to He joined Scottish Power PLC in 2003 where he international experience including two-years in Detroit. its sale in 2007. Gavin previously worked for a number became director of group finance. of multinationals including the Terex Corporation, PWC and Coats Viyella.
ANDREW NEILSON JONATHAN MILNE TREVOR LATHAM Group Head of Group Group Head Corporate Affairs & Communications of Procurement Strategy
Joined Weir in 2010 from HBOS, where he managed Joined Weir in 2011 from the Institute of Chartered Joined Weir in January 2011 as Weir’s first private equity investments. A graduate engineer and Accountants of Scotland, where he was Director of Group Head of Procurement. Trevor has held several qualified accountant, Andrew has a background in Communications. He previously worked at the BBC senior supply chain and procurement transformation strategy, mergers & acquisitions. He was an as a television news editor and producer of current roles including 12 years at Federal Mogul Corporation investment banker with HSBC before joining affairs programmes. and 4 years as Group Head of Procurement at Scottish Power PLC as Corporate Strategy JCB Excavators Manager.
74 Attendees: Weir Power & Industrial Division
KEVIN SPENCER JOHN HEASLEY PHILIP CROOKES Divisional Managing Valves Managing Divisional Finance Director Director Director
Joined Weir Minerals in 2005 from Joy Global, Joined Weir in 2008 as Group Financial Controller. Joined Weir in 2008. He was Head of Internal Audit where he held several senior positions. He became He was Strategic Development Director for the at Group for 2 1/2 years before becoming the Weir Power & Industrial Divisional MD in 2012 after Power & Industrial Division for 18 months prior to Divisional Finance Director of Power & Industrial in 3 years as European Regional MD for the Minerals his current role. He is a chartered accountant who 2011. A qualified accountant who has previously Division. Graduate mechanical engineer who worked has worked in a number of commercial and financial held senior finance roles at FirstGroup PLC and in the mining industry for 17 years, before moving roles, including 7 years experience at Scottish LASMO and a number of years at KPMG in various into the mining supply industry. Power PLC and a number of years with PwC and roles. Arthur Andersen.
LUKE LOGAN GRAHAM SUZANNE Divisional STEWART HOUSTON Engineering Director Divisional Strategy Divisional Marketing Manager Manager
Joined Weir in 2011. He is responsible for the Joined Weir Group’s Corporate Development team Joined Weir in 2008 to lead the marketing function development of the Division’s Engineering and in 2008 before moving to the Power & Industrial for the Power & Industrial Division. Background in Technology capability. He has 23 years experience division in April 2011. Prior to joining Weir, he spent strategic industrial marketing, as well as marketing in the aerospace sector with Rolls-Royce PLC. He 8 years in PwC’s Transaction Services team. He is a communications. Has extensive experience in the has held a range of senior roles including Research chartered accountant with a background in mergers power sector, including Alstom and RWE. & Development Programme Management, Head of & acquisitions, strategy and due diligence. Development Engineering and Chief Engineer.
75 Attendees: Weir Power & Industrial Division
PIERO RICOTTI ROGER GRIFFIN Managing Director Managing Director Isolation Valves Control & Choke Products Valve Products
Joined Weir in 2012. Piero has nearly 11 years’ Joined Weir in 1995 from Dresser Valves & Controls experience with CCI, part of IMI plc, where he was to establish a Valve Sales Operation in the Middle VP Global Sales and MD EAMEI for the East. Spent 16 years in the Middle East covering Aftermarket Division. He has extensive international product sales and aftermarket support. He has been commercial experience. UK based for the past 15 years in senior roles and actively involved in the development of our global sales and manufacturing footprint.
YANNICK MADIOT PIETER Managing Director SCHOEMAN Power & Industrial Managing Director France Valves & Controls UK
Joined Weir Power & Industrial France in 2010 as Joined Weir Minerals Africa in 2009 as General Finance Director and appointed MD of the French Manager Operations before moving to the Power & business in 2013. Previous experience includes 20 Industrial Division as MD of the valve facility in Elland years in the automotive and boating industry most of in the UK. He previously worked in the automotive which was in the USA. He holds dual US / French industry for 14 years and is a graduate engineer. citizenship and graduated with an MBA from HEC in Paris.
76 Attendees: Weir Minerals Division
DAVE ATHEY WIM VAN VLIET Regional Managing Supply Chain Director: Africa Director, Africa
Joined Weir in 2008. Previously held Managing Joined Weir in 2010. Previously held General Director positions in Murray & Roberts Engineering Manager position at De Beers for 7 years. Prior to Solutions and Ingersol Rand Africa, as well as joining De Beers worked as a Management serving AECI / ICI in numerous managerial positions Consultant with a leading Management Consulting for 7 years. Completed Engineer in Training with concern for 4 years. Completed engineer in training Gold Fields. He is a graduate engineer and an with Impala Platinum and is a graduate engineer and MBA. MBA.
77 Attendees: Weir Oil & Gas Division
STEVE NOON PAUL COPPINGER Divisional Managing President, Pressure Director Pumping
Joined Weir in 2007 as President of Weir SPM Joined Weir in June 2011 as the President of Weir before he became Divisional Managing Director of SPM, assuming the role of President, Pressure the Oil & Gas Division in early 2009. Prior to Weir, Pumping in August 2012. Between 2001-2011 he he held the position of President Schefenacker was Circor International’s Group President in charge Vision Systems, NA and has previously worked with of the energy segment. Prior to this, he spent 13 James Hardie Industries and The Toro Company. years with Baker Hughes. He holds a Bachelor of He is an MBA, CPA Science Degree in Petroleum Engineering from Texas Tech University.
CHRIS POOLE ROBERTO Divisional Vice KUAHARA President, Executive VP of Engineering Operations for Pressure Pumping
Joined Weir in 2007 after working in the automotive Joined Weir in September 2011 as Executive VP of industry. He is the Chairman of Weir’s Engineering Operations for Pressure Pumping and more recently Excellence Committee and sits on the board of the becoming the Divisional Value Chain Champion. Weir Advanced Research Centre. Previously, he led Prior to joining Weir he worked for Circor Oil & Gas SPM’s product engineering team in Fort Worth, as Divisional Lean Director. He spent almost 20 Texas. He is a qualified engineer with an MBA from years working for Dana Corporation where he was Cranfield University. resident at Toyota Motor Company. He also worked for Ford Motor Company, Volkswagen, Scania and Saab in the US, Sweden and Brasil. 78 Head office Clydesdale Bank Exchange 20 Waterloo Street Glasgow G2 6DB