The Weir Group PLC

John Heasley - CFO and Director Jonathan Stanton - CEO and Director

Max Yates - Credit Suisse Mark Jones - Stifel, Nicolaus & Company Robert Davies - Morgan Stanley Stephen Swanton - Redburn Alexander Virgo - Bank of America Merrill Lynch Jonathan Hurn - Deutsche Bank AG Sandeep Gandhi - Exane BNP Paribas Alasdair Leslie - Societe Generale Wasi Rizvi - RBC Capital Markets Edward Maravanyika - Citigroup Lars Brorson - Barclays PLC David Larkam - Numis Securities Ltd

Thank you, operator and good morning, ladies and gentlemen. Thank you for joining us as we update you on the group's first quarter performance.

I'm joined by our Chief Financial Officer, John Heasley. And we'll both be pleased to answer any questions you have after some introductory remarks from myself.

So let me start with a brief overview of the quarter that's saw our main markets continue to recover strongly, with the group's input increasing 15% on a constant currency basis compared to the prior year period. Minerals, our largest division, continued to perform well and take full advantage of improving market conditions.

Oil & Gas saw momentum increase, driven by strong activity in North America which was slightly ahead of our prior expectations. However, Flow Control's markets were even tougher than anticipated, particularly in downstream oil and gas which is late to cycle and will therefore take longer to recover.

First quarter group revenues were in line with our expectations and slightly up on the first quarter of 2016. There was a healthy increase in the order book, with a book-to-bill of 1.14 in the period.

And delivery of this will support the sequential growth we expect through the year. So after a good start, we're on track for a strong recovery in 2017 and expect to deliver full year results in line with current market consensus.

This is slightly ahead of our previous guidance with a stronger-than-expected Oil & Gas performance, partially offset by weaker conditions in Flow Control. We continue to expect good growth in constant-currency revenues and strong cash generation in 2017.

Profit growth will be supported by foreign currency translation benefits, partly offset by incremental investments in people and technology. I'll expand on these later.

But first, let me give you a little more color on the performance of our 3 divisions in turn, starting with Minerals. And as usual, our input commentary is all on a constant-currency basis.

So as you know, the division has a huge installed base of equipment on mines throughout the world. And as oil production increases and processing becomes more intense, we benefit from aftermarket demand for spares and services.

That model delivered a 10% growth in input for the quarter. Aftermarket orders grew 13%, with pumps, spares, valves, mill liners and spools all showing good year-on-year growth.

In absolute terms, first quarter aftermarket input was higher than we saw in any quarter of 2016 which is an encouraging start. However, I'd remind you that this Q1 performance is also against a weak comparator, given the beginning of 2016 saw extended shutdowns and destocking by miners as they conserve cash.

In contrast, Q1 2017 had more normalized maintenance activity and probably included some restocking. So in subsequent quarters, I'd expect to see input growth rates to revert to trend.

In terms of original equipment, the quarter saw 4% year-on-year growth. That's a good performance in a highly competitive environment and again, was higher than any we achieved in any quarter of 2016.

The division continued to benefit from its focus on brand-build activity, where more of our engineers are on-site, analyzing customer processes and suggesting solutions that allow them to meet their objectives of increased production at a lower total cost. In terms of pricing, OE was competitive, but aftermarket pricing and margins remained resilient.

Looking regionally, we saw growth in North America, Australia and Africa. Europe continued to make steady progress, while Latin America also maintained strong activity rates.

The division was impacted by the strike at Escondida in Chile and Cyclone Debbie in Eastern Australia earlier in the year. But as with the Canadian wildfires in the first half of 2016, we expect to recover the majority of these orders later in the year.

Full year guidance for the Minerals division is unchanged, with constant currency revenues anticipated to be moderately higher and operating margins expected to be broadly stable compared to the prior year. We expect to see a return to normal seasonality, with profits and margins more weighted towards the second half than last year, reflecting previously announced incremental investments and project delivery schedules.

Profits at GEHO, for instance, our longest lead-time business, were first half weighted last year, reflecting the timing in revenue recognition on projects. We have the opposite effect this year, resulting in a GBP 5 million swing from H1 to H2 in this business alone.

Let me now turn to Oil & Gas where we've seen momentum accelerate as the rig count has risen. North American service companies are increasingly refurbishing their fleets to make sure they can benefit from additional activity.

And as industry leaders, we're benefiting. The division saw a 50% increase in input compared to the prior year period.

Demand for flow iron, power ends, fluid ends and other expendables was strong. While in pressure control markets, we saw good demand for the division's wellhead and surface control offerings.

Most recently, in March and early April, momentum has continued to increase, with a surge in refurbishments driven by the growing rig counts. Growth will slow as refurbishments are completed.

It means volumes are trending above previous expectations. Underlying completion activity continued to lag drilling, with the number of drills that are on completed wells continuing to increase.

As the refurbished fleet is fully staffed and put to work in the second half, we'll see refurb work diminish and gradually be replaced by normalized aftermarket activity. Pricing remains subdued and at low levels, although we did see a slight improvement in a limited number of product categories.

As we said in February, we still don't have to debate a wholesale change in the pricing environment in 2017, although we continue to see price increases wherever we can. Outside North America, international markets continue to be challenging, with project delays and pricing pressure remaining.

In the latter part of the quarter, we started to see early signs of stabilization. And the division secured a large maintenance contract in Iraq, benefiting from prior investments in the country.

Across the year and assuming supporting oil prices, we now expect the division to deliver revenues and margins slightly above our previous expectations, driven by additional volumes and the associated operating leverage. Finally, Flow Control had a disappointing first quarter as markets continued to be challenging.

Across its main end market, the power and downstream oil and gas, customers continued to delay projects in maintenance as available project opportunity is both rare and highly competitive. In terms of guidance for the division, full year revenue expectations remain unchanged, but will be second half weighted as a result of normal seasonality and project delivery delays.

Full year division operating margins will also be significantly second half weighted and lower than previously anticipated as a result of market conditions and legacy contract delivery challenges in the Gabbioneta business. Turning to the balance sheet.

As expected, net debt was up on the year-end position and in line with our usual seasonal patterns. As I said earlier, we continue to expect strong cash generation across the full year, reflecting profit trends.

In conclusion, overall, the group remains on track for a strong recovery in 2017, in line with market expectations. Minerals will return to its more usual seasonal profile, with profits weighted to H2.

Oil & Gas is experiencing better-than-expected volumes, with the benefits partially offset by tougher-than-expected Flow Control markets. First half margins will also reflect our previously announced investments in people and technology.

As part of our We're Weir strategy, we significantly increased training across the group, including leadership and operational programs. We're driving a new behavioral safety culture that will lead us towards our goal of becoming a zero-harm workplace.

We're making good progress in accelerating our innovation framework to ensure that we always lead technology change in our markets. For example, we will announce a range of new Oil & Gas products next week at the Offshore Technology Conference in Houston, all aimed at helping our customers achieve their objectives using Weir solutions.

Our drive to improve performance in inventory turns and on-time deliveries have seen a value chain improvement framework rolled out. And market improvement plans for each business now in development.

These initiatives and investments are important steps as we transition the business back to growth mode. As I've traveled around the group this year, I've been delighted by the engagement and enthusiasm for the new strategy and the opportunity before us.

We have real momentum in much of our business and our people are ready to take full advantage as markets improve further. Thank you for your time and John and I would be happy now to take any questions you have.

Back to you, operator.

Just a first question would be on kind of industry utilization across pressure pumping. And you talked about that -- sort of previously talked about that holding back pricing.

Could you just give us an idea of where you think industry utilization is as a whole? And how much higher your Oil & Gas business and the overall industry needs to be before we start to see a tick-up in pricing?

Max, the first thing to say is, if we look at utilization on 2 perspectives, first in terms of the factory itself and then in terms of the overall utilization capacities in the equipment manufacturing space. I think our view at the moment is in terms of fleet utilization in North America probably now getting to 50%.

And our view has always been that it starts to get tight when you get north of 60%. So with all the refurb work happening, we're moving in the right direction, but there is still a fairly significant excess capacity in the frac community in North America.

And I think from an equipment manufacturer's perspective, clearly, it's difficult to know where the industry broadly fits. But from our own experience, we're still in the process of ramping up.

We have got significant theoretical excess capacity in our manufacturing footprint service centers. We're probably only at 50% of our theoretical capacity at the moment.

And I would imagine that our competitors are in a similar space as well. So again, more capacity to take up.

And we're probably quite a long way off to the point where we need to start extending lead times on delivery which is always one of the points where you start to maybe get some tightness and then pricing improvement coming through.

Okay. And just second question is just around the flow business, I guess sort of 2 parts to this.

I mean, if I look at sort of one of your peers that reported sort of in Europe sort of last week, I mean, they were talking about they'd still seen sort of a tough environment in kind of large projects in mid and downstream oil and gas, but actually day-to-day demand for their product sort of picked up. How much of your business is related to large projects?

And how much is sort of shorter-cycle, day-to-day sales within flow? And are you seeing any sort of difference between the 2?

Yes, I mean, it's around 50-50 in terms of the split between OE and aftermarket in the division. It's -- I would characterize it by saying that we're in -- across the Flow Control division, we're in niche markets around the world.

And as we talk about mid and downstream versus dominance then, we're probably talking about slightly different parts of the markets and there will be nuances in that. I think the markets that we're exposed to are particularly challenging at the moment.

If you look at our input, I think the aftermarket is only down slightly. It's still very tough, but it's sort of okay and it's more the project environment that is very difficult and securing the -- in the spaces that we're in at the moment.

And just on pricing in that division. I mean, I guess sort of your margin guidance, so Flow implies that will be coming down to sort of mid-single digit.

Could you just give us a rough idea of what margins are like on new orders that you're taking relative to what you're delivering on as revenues right now?

It's probably fair to say -- I can't release that number. But it's probably fair to say that they are lower on new projects and that's because there are very few projects around.

There's quite a lot of capacity chasing those projects. And the pricing environment is incredibly keen -- is very keen at the moment.

So I don't expect that to change substantially as we work through 2017. I think we've always said that we expect 2017 to be a really tough year and that's proving to be the case, even slightly tougher than we'd anticipated.

But it's just a late-cycle business. And as the cycle works its way through, so as we move towards the back end of the year in 2018, we may start to see some improvement.

Can I ask you about margins, particularly in the first half. Of the GBP 15 million of additional investment you flagged at the full year, how much of that is really going to be in the run rate in the first half?

And should we expect, as a result of that and what you're saying about Flow Control, the year-on-year margins to be actually down year-on-year in the first half or if it's not as severe as that?

I'll let John Heasley answer that one, Mark.

Sure, Mark. In terms of the incremental GBP 15 million then, I think it will be sort of very -- sort of broadly even for the year, as you would expect.

As we ramp up our investment, it will be slightly phased towards the second half. But certainly, the run rates are already seeing that spend coming through.

And then with the overall year-on-year phasing then, 2016 was probably a little bit unusual for The Weir Group, in that it was broadly 50-50 profitability first half / second half. I think we expect 2017 to be back to the more normal sort of phasing that we've seen over previous years.

So slightly -- or more significantly weighted to the second half.

And can I just coming back quickly on Flow Control. Because you're not actually lowering your volume outlook there, but obviously, the margins have deteriorated further.

Could you talk a little bit more? You mentioned in passing some project delivery issues around Gabbioneta.

Are there delivery issues there or delays? Or is that partly execution rather than just markets?

Yes, let me just deal with the Gabbioneta issue that we're leaking in the IMS and then John will talk about the impact on the numbers. So we got a large backlog of OE projects coming through that we won over the last 2 or 3 years in the environment we're in with some project delays and scope changes on those projects which has been impacting completion of the contracts.

We've also identified some procurement and job costing issues which have impacted margins and that's been compounded by a facility consolidation in 2016. Upon that, the current market conditions mean it's going to be difficult to get any variations in recoveries from our customers.

So we're seeing a margin erosion hit on those contracts as they go through the plants. So we've done a full review of the backlog.

We're very happy the issue is contained and inherent in the guidance that we've now given. And then, John, in terms of the impact on Flow Control margins?

Yes. In terms of the impact on the margins there, it's probably, first of all, it's really important [indiscernible] in terms of the issues in Gabbioneta, as Jon has just described, and what happened during the first half.

Again, as the market conditions [indiscernible] first half / second half, [indiscernible] low single-digit margins for Flow Control in the first half of the year. And then as we move into the second half, we'll be back to a more normal Flow Control type margin, high single digit.

And then you can sort of do the math in terms of what that means for the full year margins.

Just a couple of questions from me. First one was just whether you could flesh out some of the trends around the mining aftermarket sort of trajectory I realize there's lots of sort of views out there in terms of what's going on.

Perhaps you could just give us a bit more color on what you're seeing, what your customers are seeing, the kind of balance between replacing and CapEx versus brownfield activity that you were talking about? And then the second one is just around the Oil & Gas business.

I guess I'm struggling to see -- I mean, I've seen quite a few of the U.S. pressure pumpers talking about pricing up very high double-digit already.

I just want to sort of, I guess, kind of coordinate the messages kind of coming out of those with some of the equipment providers like yourself. I guess, why do you not feel that pricing will come through sooner in the Oil & Gas business in 2017?

I mean, we've already seen the utilization levels pick up faster than expected.

Yes, Robert, yes, in the mining aftermarket, obviously, a good first quarter in terms of the input that we saw. Basically, our customers are in full on production mode at the moment.

It's a very different quarter, obviously, to the quarter we saw at the beginning of 2016. All of the mines are running, they're running hard, there's some restocking going on to replace some of the destocking that took place last year.

So I would say it's pretty -- and it's pretty global, to be honest, we don't think there's any region, I would say is particularly weak at the moment. So we're just seeing a very strong production environment.

Of course, it's driving our aftermarket and we're on top of that in terms of pulling the orders through. And in terms of the OE environment, we're building up a good pipeline of brownfield opportunities.

We're very happy with the focus that we've put on that. And the front end of the business is starting to pay dividends.

Our customers are very focused on how they can get more production and how they can lower the cost on their existing mine sites. And any way that we can help them with debottlenecking solutions or efficiency improvements are being greeted with pretty open arms at the moment, so heading in the right direction.

The bigger project environment is still quite soft. But there are 1 or 2, I would say, plans where the dust is being wiped off the project pile.

And so there is a potential for the OE environment, I think, to further improve as we move out over the next couple of years. From a replacement perspective, I think we can expect the normal levels as customers seek to take full advantage of low commodity prices at the moment.

So generally speaking, it's a very good environment. And I think on the Oil & Gas pricing point, my view really hasn't changed in the last 2 months.

We're pushing hard. I've always said it's going to take time to come through.

It will be the last thing to come through as the market recovers. And that's where I sit today.

We've seen a little bit here and there, but principally being in the pressure control businesses and we've seen that. But in those markets, very specific, no district where the market has already got quite tight.

And then we can get pricing. But we still got an unutilized fleet.

We still got customers getting back to profitability. We still got manufacturers with excess capacity.

We're focused on growing share, keeping our customers happy. I'm very happy with the volume that's coming through, very happy with the operating leverage that we're seeing in the business.

The pricing, if the market continues to recover, it will come. But I'm not going to call it until I actually see it on the ground and I've been consistent with that and that's where I sit today.

Great. And maybe just one sort of follow-up.

Just wondered, what was the sort of activity levels like in terms of your continuous duty pumps and your sort of EPIX offering that you put together last year? In terms of the incoming sort of queries from the new customers, how are you kind of managing that sort of new technology and new offering versus, I guess, your more legacy products?

So I'm really pleased with the inquiry levels, lots of interest in the new pump. Our pilot customer, Canyon, has been delighted with the performance that they've seen in that pump.

So we're talking to them about potentially further orders. Some of our larger customers are also interested now in trialing the pump.

I should add that the QEM is being designed for new build. It's not something in and of itself that could be retrofitted onto old trailers.

So it is going to require new capital builds or replacement cycles to kick in. The CME will pick up in sales of that product.

That's been a long time coming and there are different views that, that will come back. But what we have done, though, is to actually reengineer some of the new technology features into the legacy products.

And that's being again very well-received by our customers in terms of the performance that's delivering for them as they go through their refurb and retrofit work. And EPIX, we just sort of launched the JV in the first quarter.

In terms of closing that deal, we're getting it up and running. And again, interest is high.

We'll have another trailer on the stand at the OTC next week. And actually, we sold the first one that we built last year.

So encouraging signs in terms of how that new technology is being accepted by the market.

I've got a couple of questions. On Oil & Gas, I was wondering kind of whether you're seeing any kind of pinch points on kind of cost inflation, kind of label kind of buying new components, whether there's any issues there.

And the second question is on Minerals. And I'm kind of cognizant of your messaging on pricing, but have you seen payment terms change at all last in the quarters?

I think things have got better. Have you seen your -- the kind of debtor days improve, too?

Whilst you're talking of extended payment times materialize over the last 3 or 4 years, I was wondering if there's any improvement there coming through.

Stephen, yes, on the Oil & Gas inflation point, not really. I think on the materials side and cost of goods sold, then we negotiated long term price points with our suppliers as part of the cost savings that we achieved over the last few years and that's still coming through.

That's part of the operating leverage. And I think we're going to be hanging on to most of that through the balance of 2017.

Yes, there's a lot of activity. As you well know, given what you look at in the labor market at the moment, no major concerns at the moment.

But it's certainly starting to get a little bit competitive in certain parts of North America as everybody's hiring. And as you know, we've put a lot of effort into that.

And what job players going on at the moment. One of the really, really pleasing things is that when we let all those people go over the course of the last 2 to 3 years, we treated them very well and we kept in touch with them.

And a lot of them are now coming back to work for us which only is just a testament to the way that we handled that. And the loyalty they still have to Weir and the Oil & Gas business which is very good to see.

In terms of payment terms on Minerals, no real change. I think we did a great job on that through the downturn, didn't really have any bad debt issues, didn't really see our debtor days move very much.

So they're in line with where we should be through the cycle, in my mind.

Just a quick one really, coming back on Oil & Gas and picking up a little bit on the products question asked earlier on. I'm just wondering if you can talk about what customers are asking for as they refurbish those fleets?

Are they coming in and asking for top of the range, longer-lasting, high-quality products? Or are they coming back and just taking whatever they can get?

I think the interesting thing is that probably the refurb work is happening more aggressively among our larger customers. There is other customers that are more savvy, I would say, when it comes to total cost of ownership.

So I think the debate around quality, technology, reliability is absolutely front of mind in what they are looking for. So I think in terms of the mix, if you take fluid end, it's very, very significantly weighted now towards Duralast technology, stainless steel technology, combination of both.

The legacy carbon steel, low technology product is now much a lower proportion of our total revenues than it was. So yes, I think it is a bit more technology weighted now than it has been for a while.

Okay, good. And in terms of your sort of products on the market or versus what other people are doing, if I think back 2 or 3 years, we had some big announcements from companies like Caterpillar and NOV in terms of coming into the market which they did at a point when the market wasn't really able to accept them because there wasn't enough demand.

Are you seeing anything like that happening so far? Or is it still the same old competitors?

I don't think there's been any huge change. Frankly, I'm very pleased with where we're sitting today from a market share perspective.

I mean, in our core product lines, we're holding if not gaining a little bit of share here and there. So look, I think, it's competitive.

But our brand name, quality, reliability, technology that we talked about continue to pay dividends in terms of us holding onto or be growing our market share. And I've not seen anything that really worries me in terms of new entrants and moves in the market from a competitive landscape perspective.

Okay, great. And then last one, if I may.

Just on Flow Control, is there anything -- at any point do you kind of reconsider what your position is on this division? I appreciate that's a very difficult thing for you to say publicly without actually having anything to announce, if you like.

But obviously, we've had some pretty tough years on this one now. I appreciate the industry is difficult, but it does seem like it's an improvement waiting to happen every time we talk about it.

I think you just answered your own question there, Alex. But I would say that 2017, we always said it's going to be tough.

We had a very strong leader in that position. He is very focused on how we turn the business to growth and get through all the challenges that we've had in the last couple of years and that remains the priority.

It's actually Jonathan Hurn. So 2 questions from me, please.

Firstly, just on Minerals. Obviously, you talked about year-on-year order input rate.

Can you just give us a feel for the sequential growth rates in both OE and aftermarket for the Minerals, please? And also, just following on to that, maybe just a little bit of color on the particular subsegments of the division, maybe just in terms of sort of aggregates and what you're seeing on the Oil & Gas exposure there, please?

That was the first question.

Okay. I'll ask John to answer the question on the sequential growth rates.

In terms of the different verticals within the division, then obviously I've talked quite a bit about the mining and given -- might have given some color there? I think generally speaking the environment is much more positive and we're making good progress.

The oil sands part of the business is also performing strongly. There's never going to be any new investment in the Canadian oil sands for obvious reasons.

But they're running hard to maximize production out of the existing resources. It's a very brazen environment which is very good for us in terms of the aftermarket.

And that part of the business is growing strongly at the moment. I would say aftermarket -- sorry, aggregates is probably a little bit patchy, depending on domestic economic environments around the world.

Generally speaking, in terms of the Trio product line, I'm very pleased with the pipeline opportunities that we're building there. So we expect that to move into growth.

And particularly, if you take the U.S. for example, if we should see investment in domestic infrastructure and construction picking up, then that should be a good market for us.

So it's probably a bit slowly, but again, we're making decent progress. And on the growth rates, John?

Jonathan, as Jon said, the important one [indiscernible] aftermarket, they are, in absolute terms, strong and strongest of any quarter over the last 12 months. If you look at it sequentially as opposed to year-on-year, then the growth rate will pull through sequentially.

First of all, those rates would be more akin to sort of expectations over the -- during the year in terms of the [indiscernible] on aftermarket and certainly higher on OE sales. [Indiscernible] aftermarket and towards double-digit on OE.

Great. And second question was just on Oil & Gas.

Obviously, in the statement, you talked about good operational gearing and probably gearing [indiscernible] thinking. I mean, what do you think about that kind of level going forward for the year now just in terms of that sort of drop-through?

And then just on the back of that, also, can you just give us a feel for the utilization rate within that Oil & Gas business right now, please?

Yes. I'll do that, Jonathan.

So in terms of the [indiscernible] Jon has given flavor on pricing and therefore, we're not seeing a whole lot there. But volumes are certainly running ahead of what we previously anticipated.

[Indiscernible], we said 25%. And we still believe that, that's what we'll see over the course of the year.

So as you sort of -- previously, we said mid single-digit margins for the business. If you put the extra volume on that we're seeing, [indiscernible] another couple of points of margin to come in the year and you see sort of mid to upper single as opposed to mid-single digits from a margin perspective.

Sorry, Jon.

No, sorry, go ahead. I was just going to ask about utilization, obviously.

Yes. In terms of utilization, then obviously we're ramping up.

But we're not [indiscernible] control of that.

Just the one question. So within the LNG position, how has the competitive environment changed during the downturn?

And are we seeing it consolidate at all?

In terms of the fuel competitive environment, Sandeep, as I said earlier, there's not been really any change. There's been actually quite limited consolidation around the edges, I would say, some of the smaller players, smaller parts, the contract manufacturers who came into this space a few years ago have probably gone by the wayside.

But if you look at pressure pumping, the big 3 players are ourselves, Gardner Denver and FMC, 3 strong companies. And we remain the key 3 players in the market.

I would say our priority through the downturn or through this year, as I said earlier, has been around maintaining and be growing where we can our market share. And I'm very happy with the performance of the division in that regard.

So somebody mentioned Caterpillar and NOV earlier, they are in the market around the edges. But again, they've not made any substantial progress in terms of share gains.

Slightly odd, but the competitive environment has not really changed very much despite the downturn that we've been through the last few years.

Just a follow-up on Minerals. So I was just wondering whether you saw a sequential strengthening through the quarter.

Some peers have talked of a very strong March. And I'm just wondering whether you saw the same and that continued into April.

It just sounds from your opening comments that the message appears to be one of moderating growth in Minerals going forward into the subsequent quarters. Just wanted to reconcile that.

Yes, look, I think there's no sequential trend to touch through month-by-month through the first quarter. I think what you've seen -- I think you just have to wind back through the beginning of 2016 where we had that very weak quarter.

And then as commodity prices recovered throughout the year, our aftermarket sort of got back up to more normalized levels and moderated. So the growth that we've seen this first quarter of 13% was against that very, very weak comp and as we move forward over the balance of the year, the main growth that we expect to see in our aftermarket is low to mid-single digit.

And that's where it is, has always historically been, all other things remaining equal, driven by growth in production volumes and declining yields and these factors. So our aftermarket will revert to that kind of growth rate as we move through the balance of the year.

I think the other thing you have to remember, against the other competitors, we've recorded very strong and maybe sequentially improvement, we didn't come off in any way like most of our competitors did. So there's probably less for us to bounce back, if you like.

Yes, absolutely. Just a further clarification.

I think you also -- did you say there were some one-off issues as well in Q1 '17 on the aftermarket side in the northern -- in places like Chile? I just wondered if you could quantify that effect.

Was that a couple of percentage points off the [indiscernible]?

Escondida was on strike for a while and therefore, the mine was shut down. It's one of our biggest customers, so there were no spares going up to Escondida.

And then Cyclone Debbie in Queensland, the coal mines in Eastern Australia are big customers as well and they were impacted by that weather event. So it's a few million pounds in terms of the input that was lost.

But as you said, that will come back in the balance of the year.

I think most things have been covered. But the one that I had left was one of the big pressure pumpers was talking about kind of intelligent pumps in the sense that they're now working to measuring the pump health and using data to improve the fracking.

Where are you on that? Are you seeing any demand from customers for some of the investments?

Or have any of your competitors got anything similar?

Yes, no, it's really a big thing for us, Wasi. I mean, the key is that -- the more that we sort of engage and learn and drive forward with our digital efforts, the more we learn.

And what is really interesting is just how our customer base is segmenting and different customers want different things. It's not where you can just go and give a digital offering to your entire customer base.

Our really big customers in the pressure pumping will -- are already very sophisticated in terms of their data capture and analysis and I suspect that's what you're picking up. So when they look to Weir as a supplier, they're not that interested in our digital offering.

They just want the best-quality products. Some of the smaller players in the market, however, don't have the capability to develop their own digital systems.

And therefore, they would look to us to supply subsystems which may include some digital capability in our overall offering. So it's definitely a big theme.

We're pushing hard on it. As we announced in February, we've appointed Geetha Dabir as our new Chief Technology Officer who is leading the charge and she's already had a terrific impact in the business in terms of driving the focus and prioritization of what we do.

But it's going to mean different things to different customers. And I think that's the learning that we're seeing at the moment.

And that's kind of changing the way we're thinking about it going forward in terms of how we develop the offering, but it is going to be the core of what we do as we move forward.

Right. So that's something for the future at the moment, is it?

No, I mean, we're already doing it on a number of -- we already got sensing, base capture and analytics, control systems working on some of our equipment. The Synertrex brand is being -- had been launched and is actually going live in Q2 on a number of Minerals pilot sites.

So no, it's happening. We're making good progress.

And as I say, it will be a core part of our offering as we move forward, but as I say, different things to different customers.

What's your view on the ability to sort of further cannibalize parts from stacked equipment in Oil & Gas? And do you think that there's kind of a huge replacement cycle coming, given there was an influx of new -- sort of new pumps around 2011, 2012?

And then secondly, on Minerals, what would you need for that division's margin to kind of move significantly above the kind of 18% to 20% range that the division margins have been locked in over the past few years?

Ed, so yes, on the -- I mean, the cannibalization theme is now done. I mean, we're in decannibalization mode, obviously.

All of that equipment that was cannibalized and stacked in our customers' yards is now being refurbed and coming back to work. That's been the key driver of the over input growth that we've seen in the Oil & Gas division during the first quarter.

So I mean, the question is, as that comes back, is there a part of that fleet that's stacked that customers decide -- to your point about replacement -- is actually too old, too rusty, not-good-enough technology and it's just not worth bringing it back. But they need more capacity, then do we start to see our new build or essentially a replacement cycle for that old equipment.

There hasn't been a lot of new build in the fleet over the last few years. We all know that.

So in theory, if the market sort of stabilizes at decent activity levels, you would expect a replacement cycle to kick in at some point. Difficult to call when that will be.

Certainly not this year because it's all about refurb. But if we normalize at decent levels, then maybe that will be a theme in '18 and '19 as we move forward.

On the Minerals margin, we've always said it's a 17% to 20% margin business through the cycle. I am very happy with that.

If we see OE growth come through more strongly over the next few years, then that is going to have a depressing effect on margins because we sell original equipment at a lower margin than we do aftermarket. But we [indiscernible] quality problem perhaps because that's delivering installed base and that means aftermarket revenues in the future and we grow and sustain the business.

So I think a business that's delivered 20%, posted 20% margins at the bottom of the cycle, being incredibly resilient. And I think that's something to be pretty happy about.

And you've got to be happy. You got to be a little bit conscious about being too greedy with margins, given that there's a virtue of customers and so on.

Sorry, I was a bit late on the call, so apologies if you've already gone through this. But can I just ask, John, to the guidance for Minerals this year which you've kept unchanged with like-for-like revenues moderately higher.

That seems a little bit conservative to me in light of how the backlog is building up, 2 quarters of double-digit order growth. And as obviously you pointed out sequentially improving.

Can you help me understand a little bit better the delivery of the OE backlog and how I should think about lead times here? I guess what I'm trying to understand, if I am looking at your latest consensus numbers and see Minerals revenues of GBP 1.2 billion this year, that's, call it 10%, 11% and I add back an FX translation tailwind of 8%, that leaves organic revenue growth of 2%, 3%.

That doesn't seem quite right to me. Maybe you could help me a little bit there.

Yes, I'll do that, Lars. So in terms of Minerals there, I think what we've said previously from a sort of top line growth perspective there and we expect OE growth to be towards 10%.

We expect the aftermarket to be in the sort of low to mid-single digits. And the margins would flow through consistent with what we've seen in -- probably consistent with what we saw in the prior year.

And then obviously, there is the FX to come on top of that. In terms of the phasing of the OE order book, then clearly the longer lead time deal business extends out.

That can be 8 months plus. But generally, on the OE on pumps is less than 6 months, so it should pull through.

I think that really hasn't changed from what we said before. But certainly, the underlying revenue growth mix between OE and aftermarket, as we have, is great.

And sorry, how does your low mid-single digit revenue number for aftermarket square with what has been a mid-teens like-for-like order growth in the last couple of quarters? What are you seeing in the aftermarket that makes you concerned about deliveries here this year?

Maybe you weren't on the call, Lars, but first of all, the comp that we had for 2016 in the first quarter was very weak. You remember that there were a number of main shutdowns, et cetera, at that point in time.

On a sequential basis, the growth is more modest in the first quarter and more akin with what we expect during the balance of the year, because really sequentially last year, the aftermarket had a soft first quarter before recovering through the balance of the year. So the comps are going to bet harder as we go through the year.

And that's really -- we're not expecting to see any sequential drop off from where we're today. But on year-on-year terms, it will moderate naturally towards that growth, the mid-single-digit growth rate as the year progresses.

Just on Oil & Gas. Since we last met, obviously, you've had the Schlumberger getting work to the extent.

There's been quite a lot of consolidation going on sort of at that customer level. How are you sort of expecting that to come through to you?

I mean, do you think this is going to mean that they specialize and you get sort of fewer but larger orders? Just talk about this dynamic.

Yes. I talked a bit about it on the earnings call in February, David.

I think ultimately, it's neutral to positive for us. I think if we see the pressure pumpers consolidate and we see a smaller number of larger, quality, more sophisticated customers, then I think that's a good thing because that plays to our strength in terms of our product lines, the technology that we have, the service and the footprint that we have, the ability to deliver what our customers need when they need it.

So I would say that's pretty positive. Even as I think about the key account plans that we have in the business with the big pressure pumpers in the market, I am very happy with the penetration that we've got there and the way that we expect those accounts to develop and the integration that we have with those customers.

I think we're in a good place. And so I don't see any real negative in summary in the consolidation that's happening among our customers at the moment.

Do they tend to be sort of good in their buying patterns? I mean, in terms of putting everything together in one large contract?

Or are they kind of disparate and sort of buying from regional hubs?

No, they're much more sophisticated than they were when this industry -- our own share North America was forming. They are disciplined in terms of their procurement and buying.

They don't just -- they were burned very badly when it is just driven by their districts back in '10 and '11 and everybody had piles of inventory coming out of their ears. They got quite good at procurement functions.

What I would say is they're also -- certainly the bigger pressure pumpers are very sophisticated in their understanding of total cost of ownership and quality and understanding our capacity and our ability to deliver to them. So they're very sophisticated buyers.

And again, that plays to our strengths. In terms of the profile, it can vary.

I mean, we can get day-by-day orders. And occasionally, we get big orders which certain product lines for the next 3 months.

It really depends on the customer and then how their profile of refurb and the repair work is developing. So it's a bit of a mix in terms of the profile of orders.

But I would say it's [indiscernible]. Fundamentally, I think, we're in a very good place in terms of our relationships with those big customers.

Okay. Well, thank you, everybody, for that.

And if there's any further follow-up questions over the course of the day, obviously, our team is very happy to deal with those. But thank you very much for your participation this morning.

Thank you.