Acquisition of CH Warman - The Weir Group
Acquisition of CH Warman - The Weir Group
Acquisition of CH Warman - The Weir Group
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<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | Analyst Pack<br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Final
2<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong>: at-a-glance<br />
2002<br />
Share price £2.12<br />
Market cap £433m<br />
2007<br />
Share price<br />
c 800p<br />
Market cap<br />
c £1.6bn<br />
Up 270%<br />
Portfolio<br />
transformed<br />
Non core businesses sold<br />
• Under-performers restructured<br />
• All progressing to best practice<br />
Market<br />
attractiveness<br />
Competitive<br />
position<br />
2006 results<br />
2006<br />
Input<br />
£1.1bn<br />
Up 23%<br />
2006<br />
Pre-tax pr<strong>of</strong>it<br />
£87.1m<br />
Up 40%<br />
2006<br />
Cash generated<br />
from operations<br />
£135m<br />
Recent acquisitions
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
<br />
Exposure to the fast growing African mining<br />
market with high aftermarket content<br />
<strong>Group</strong> Revenue<br />
Naval & marine<br />
Power generation<br />
Oil & gas<br />
Minerals processing<br />
Water<br />
General industrial<br />
<br />
Consolidated operations will benefit from <strong>Weir</strong>’s<br />
lean and operational improvement programmes<br />
Manufacturing<br />
excellence<br />
<br />
Strong earnings momentum - will have positive<br />
impact on <strong>Weir</strong> <strong>Group</strong> results<br />
<br />
Will be immediately earnings accretive, while<br />
providing improved capital structure<br />
<br />
100% aligned to <strong>Weir</strong>’s stated strategy for growth<br />
3
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
History <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
<strong>The</strong> <strong>CH</strong> <strong>Warman</strong> Pump<br />
<strong>Group</strong> was founded in<br />
1938 by Australian<br />
mining engineer and<br />
entrepreneur, Dr<br />
Charles Harold <strong>Warman</strong>.<br />
1938<br />
In the late 1960’s, the main<br />
international operations were<br />
sold to a large Australian<br />
public company, trading as<br />
<strong>Warman</strong> International Ltd<br />
1970<br />
<strong>Warman</strong> International Ltd<br />
In 1999 the international pump<br />
business was purchased by<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC, trading<br />
as <strong>Weir</strong> <strong>Warman</strong>.<br />
1999<br />
<strong>Weir</strong> <strong>Warman</strong><br />
In 2008 <strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC<br />
acquires <strong>CH</strong> <strong>Warman</strong> Pump<br />
<strong>Group</strong>, creating a complete,<br />
worldwide operation, trading<br />
as <strong>Weir</strong> <strong>Warman</strong>.<br />
2008<br />
<strong>CH</strong> <strong>Warman</strong> Pump <strong>Group</strong><br />
continued to manufacture and<br />
market the <strong>Warman</strong> products<br />
in Africa and non-exclusive<br />
internal markets.<br />
“This acquisition is<br />
in line with our<br />
strategic objective to<br />
grow our business in<br />
higher margin, high<br />
growth specialist<br />
markets.”<br />
Mark Selway, CEO, <strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC<br />
4
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>CH</strong> <strong>Warman</strong>: at-a-glance<br />
FINANCIALS<br />
• $80m supplier <strong>of</strong> slurry pumps and<br />
associated equipment and services to<br />
the African mining industry<br />
• Based in Johannesburg with network <strong>of</strong> 11 service<br />
centres: 7 in South Africa and one each in Ghana,<br />
Zambia, Namibia and Botswana.<br />
• Additional sales <strong>of</strong>fices are located in UAE and Morocco.<br />
• 35% pumps, 57% spares and liners, 8% related services<br />
• Diversified blue-chip customer base, with high level <strong>of</strong><br />
customer loyalty – top 10 customers represent ca. 30% <strong>of</strong><br />
sales<br />
• 60% <strong>of</strong> sales in South Africa, 10% Ghana, 8% Zambia,<br />
19% rest <strong>of</strong> Africa, 3% rest <strong>of</strong> world.<br />
Sales by<br />
Product / Service<br />
Spares<br />
57%<br />
Services<br />
8%<br />
Pumps /<br />
ancillaries<br />
35%<br />
Aftermarket<br />
Sales<br />
Aftermarket<br />
65%<br />
O/E<br />
35%<br />
Sales by<br />
Geography<br />
Russia<br />
2%<br />
Namibia<br />
3%<br />
Botswana<br />
4%<br />
Zambia<br />
8%<br />
Ghana<br />
10%<br />
Others<br />
13%<br />
South<br />
Africa<br />
60%<br />
5
6<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>CH</strong> <strong>Warman</strong>: products & services<br />
Pumps<br />
Spares<br />
Service<br />
CAGR: 31% CAGR: 20% CAGR: 26%<br />
Extensive range <strong>of</strong> pump<br />
products and associated spare<br />
parts used mainly in the<br />
aggressive mining and<br />
industrial markets.<br />
Comprehensive parts<br />
stockholdings and service<br />
exchange components ensure<br />
customer support at all times.<br />
Fully equipped, strategically<br />
located service centres <strong>of</strong>fer<br />
rebuilding and component<br />
refurbishment facilities.
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>CH</strong> <strong>Warman</strong>: key market drivers<br />
African GDP on the up…<br />
Sub-Saharan Africa – Real GDP growth<br />
(annual % change)<br />
Mining capex expanding…<br />
Global capex by major mining companies<br />
36.2bn<br />
20.0bn<br />
24.6bn<br />
13.9bn<br />
Average copper grade <strong>of</strong> ore<br />
Source: FT, 19 Nov 2007<br />
processed<br />
2.00%<br />
1.50%<br />
1.00%<br />
0.50%<br />
0.00%<br />
Source: AME Consulting, Nov 2007<br />
Ore grade diluting…<br />
African ore grade dilution - copper<br />
Concentrate<br />
2004 2005 2006 2007 2008 2009 2010<br />
Source: Dresdner Kleinwort, Nov 2007<br />
Commodity prices remain strong…<br />
Historic spot and forward prices <strong>of</strong> key metals<br />
Source: LME, Datastream<br />
7
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>CH</strong> <strong>Warman</strong>: consolidation objectives<br />
Manufacturing and systems review,<br />
utilising <strong>Weir</strong> <strong>Group</strong> Intranet & IT toolset<br />
Identify location / operational synergies<br />
and new market opportunities<br />
Utilising experienced executive<br />
team to connect the pieces<br />
Move best products forward<br />
and put structure to<br />
successful portfolio<br />
management<br />
Supply base review<br />
Review Products<br />
Consolidation<br />
plan<br />
Operational<br />
improvements<br />
Services<br />
strategy<br />
Growth<br />
plan<br />
1 March 2008 1 June 2008<br />
8
9<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
World class capability:<br />
Leading product to growing market<br />
Excellent<br />
Engineering<br />
Solutions<br />
WORLD CLASS CAPABILITY<br />
• High-wear materials<br />
• Lean processes<br />
• Global sourcing<br />
• Service culture<br />
Enhanced capabilities<br />
to improve performance<br />
OPPORTUNITY TO EXCEED<br />
CUSTOMER EXPECTATIONS<br />
• Products<br />
− Cross selling to existing customers: latest<br />
technology/ new products<br />
• Productivity<br />
− Strengthened supply base to meet demand<br />
− Lean investment to improve performance<br />
• Aftermarket<br />
− Optimised spares delivery and service<br />
support<br />
Comparison:<br />
<strong>Weir</strong><br />
<strong>CH</strong>W<br />
WELL POSITIONED IN<br />
SOUTH AFRICA<br />
• Strong portfolio <strong>of</strong> pumps,<br />
cyclones, mill liners and valves<br />
• BEE compliant foundation for<br />
the future<br />
• Vertical integration provides<br />
efficiency potential<br />
Sales (£m) 20.1 38.8<br />
Employees 493 430<br />
Expanded presence<br />
to drive revenues<br />
STRONG THROUGHOUT AFRICA<br />
• Leading customer list including<br />
mining blue-chips<br />
• Service operations near key<br />
customer locations<br />
• Significant position in developing<br />
markets:<br />
- West Africa: Ghana<br />
- Central Africa: Zambia, Congo<br />
- East Africa: Tanzania
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>Weir</strong> <strong>Group</strong> + <strong>CH</strong> <strong>Warman</strong><br />
An increasingly focused portfolio with exposure to high<br />
growth markets and segments<br />
PRO FORMA REVENUE<br />
BY SECTOR<br />
PRO FORMA REVENUE<br />
BY GEOGRAPHY<br />
22%<br />
Industrial, Naval,<br />
Marine & Water<br />
General<br />
Industry<br />
10%<br />
Power<br />
15%<br />
Naval,<br />
Marine &<br />
Water<br />
12%<br />
Oil & Gas<br />
31%<br />
Mining<br />
32%<br />
78%<br />
Oil & Gas, Power<br />
and Mining<br />
73%<br />
Mature Markets<br />
Australia<br />
11%<br />
South<br />
America<br />
9%<br />
North<br />
America<br />
33%<br />
Africa<br />
7%<br />
Middle<br />
East<br />
7%<br />
Emerging<br />
Markets<br />
13%<br />
UK<br />
12%<br />
PRO FORMA REVENUE<br />
Europe<br />
BY GEOGRAPHY 8%<br />
27%<br />
Developing<br />
Markets<br />
10
11<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Conclusion:<br />
Excellent match with key <strong>Weir</strong> criteria<br />
Excellent<br />
Engineering<br />
Solutions<br />
<br />
Adds to <strong>Weir</strong>’s portfolio <strong>of</strong> high growth, high<br />
margin Minerals business<br />
<br />
Provides critical mass to enhance<br />
productivity through application <strong>of</strong> <strong>Weir</strong>’s<br />
proven management processes<br />
<br />
Combination provides stronger position in<br />
the African minerals markets<br />
<br />
Extends geographic reach to critical future<br />
African mining markets<br />
<br />
Specialist materials, high-wear, high<br />
aftermarket business drivers<br />
<br />
Earnings enhancing and value accretive<br />
<br />
Opportunity to sell <strong>Weir</strong>’s extended portfolio<br />
to new customers<br />
<br />
Provides more efficient capital structure yet<br />
retains flexibility for future development
12<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> Analyst Pack <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Financials
13<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
Transaction Details<br />
• Purchase Consideration $231m<br />
• $2m net debt<br />
• annualised EBIT multiple <strong>of</strong> 12.9 times<br />
• annualised EBITDA multiple <strong>of</strong> 12.1 times<br />
• Purchase price payable in cash at completion<br />
• existing cash balances<br />
• bank facilities<br />
• Transaction conditions<br />
• South Africa Competition Commission approval<br />
• Transaction terms<br />
• usual representations & warranties<br />
• price adjustment mechanisms
14<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
Target timetable<br />
Today<br />
Announcement <strong>of</strong> agreement on terms<br />
10 December<br />
Submission for South African merger approval<br />
29 February<br />
Merger approval granted<br />
29 February<br />
Completion <strong>of</strong> transaction
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>CH</strong> <strong>Warman</strong> Financials<br />
Year<br />
End<br />
Year<br />
End<br />
$m June ‘06 June ‘07<br />
Revenue 59.3 79.6<br />
EBITDA 10.9 19.0<br />
Operating pr<strong>of</strong>it 9.9 17.8<br />
Operating Margin (%) 16.7 22.4<br />
Effective tax rate (%) 8.0 14.0<br />
Operating cash flow 9.4 2.5<br />
Working Capital 21.8 38.5<br />
Net Assets 19.5 26.2<br />
Source: Pr<strong>of</strong>orma company financials<br />
15
16<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
Summary<br />
<br />
<br />
Financially attractive<br />
• Immediate earnings enhancement<br />
• Annualised post tax ROI 6.6%<br />
• Pro forma Net Debt / EBITDA 2.1 times<br />
Consistent with group strategy<br />
<br />
Broadens geographic footprint<br />
<br />
Platform for future growth<br />
<br />
Current Trading
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
Trading Update – 4 Dec 2007<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC today issues the following trading update in respect <strong>of</strong> the 52 weeks ending 28 December 2007.<br />
In the second half, the <strong>Group</strong>’s financial performance has been strong as a result <strong>of</strong> better than expected revenue growth reflecting continued strong<br />
market conditions across the mining, oil and gas and power sectors.<br />
Revenue for the 44 weeks to 2 November 2007 was 15% ahead on a like for like constant currency basis. Additionally, revenues <strong>of</strong> around £55m were<br />
recognised by SPM for the 15 week post acquisition period to 2 November 2007.<br />
As a result, we now expect pr<strong>of</strong>it from continuing operations before tax, intangibles amortisation and exceptional items to be around the upper end <strong>of</strong><br />
current Reuters market estimates.<br />
Divisional Trading Comment<br />
Engineering Products<br />
In the 18 week period to 2 November 2007, the Engineering Products Division (excluding SPM) has achieved good levels <strong>of</strong> growth in order input,<br />
revenue and pr<strong>of</strong>it leading to continued improvement in underlying operating margins when compared to 2006.<br />
<strong>The</strong> integration <strong>of</strong> SPM is proceeding well. Year to date revenue is ahead <strong>of</strong> initial expectations and we now expect revenue for calendar year 2007 to<br />
be around $350m. Operating margin remains broadly in line with expectations as outlined in our acquisition announcement.<br />
Engineering Services<br />
As anticipated, revenue for the 18 week period to 2 November 2007 is broadly in line with 2006. As a result <strong>of</strong> the 2006 restructurings undertaken in<br />
the Middle East, USA and UK pr<strong>of</strong>itability has, however, improved over the same period.<br />
Defence, Nuclear & Gas<br />
<strong>The</strong> Defence, Nuclear and Gas Division performed in line with expectations. Operating pr<strong>of</strong>it for the 18 week period to 2 November 2007 is consistent<br />
with the prior year period.<br />
Outlook for 2008<br />
Further progress across all divisions is anticipated in 2008 as a result <strong>of</strong> the continuing level <strong>of</strong> input growth in 2007 and the inclusion <strong>of</strong> SPM for a full<br />
year.<br />
Footnote:<br />
1. <strong>The</strong> range <strong>of</strong> analysts’ forecasts on Reuters Knowledge Consensus at 29 November 2007 for Continuing Operations pr<strong>of</strong>it before tax, intangibles amortisation and<br />
exceptional items was £105.5m to £114.5m with a consensus <strong>of</strong> £110.1m.<br />
2. Like for like revenue growth refers to the comparison <strong>of</strong> current year results to the equivalent prior year period for those businesses that have been part <strong>of</strong> the <strong>Group</strong><br />
throughout the current and prior year reporting period, on a constant currency basis.<br />
3. <strong>The</strong> <strong>Group</strong> expects to publish its preliminary results for the year ended 28 December 2007 on 11 March 2008.<br />
17
18<br />
<strong>The</strong> <strong>Weir</strong> <strong>Group</strong> PLC | <strong>Acquisition</strong> Analyst Pack <strong>of</strong> <strong>CH</strong> <strong>Warman</strong><br />
Excellent<br />
Engineering<br />
Solutions<br />
<strong>Acquisition</strong> <strong>of</strong> <strong>CH</strong> <strong>Warman</strong>
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