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The-Weir-Group-PLC-Annual-Report-2013

The-Weir-Group-PLC-Annual-Report-2013

Strategic

Strategic Report: Understanding Our Markets UNDERSTANDING OUR MARKETS Weir operates in three main markets: minerals; oil and gas; and power. Together, these markets contribute more than 90% of Group revenue. Minerals Weir Minerals operates primarily in the global minerals processing sector. Our equipment and services are applied across the ‘mill circuit’, the process by which rock ores are broken down into end commodities such as copper, gold and iron ore. Our largest exposures are to those commodities which need the greatest amount of processing and have the strongest long term prospects for growth. See Figure 2 which shows forecast copper demand versus supply. Figure 1: Weir mining sector commodity exposure 1 Mining sector commodity mix Copper 35% Gold 14% Iron 11% Coal 6% Phosphate 5% Nickel 4% Alumina 3% Other minerals 22% Demand for these commodities comes from the growing world population and the trend towards urbanisation – where greater numbers of people move from the countryside to cities. This is particularly the case in emerging economies. Our original equipment orders are driven by capital expenditure from mining companies. This can come in the form of greenfield expenditure on new projects or brownfield spending, where existing assets are developed to increase production or efficiencies. The abrasive process of turning rock into a valuable end commodity means our equipment is exposed to significant wear and tear. This generates aftermarket sales – where our products need regular servicing and replacement parts. This process is supported by another trend: global ore grades are in decline which means more processing is needed to produce the same amount of raw commodity over time. Key links to business model and strategy: • Highly engineered products used in critical processes. • High levels of aftermarket support provide resilience. • Strong service presence builds customer intimacy. • Leadership in core mill circuit technologies. • Broad product portfolio across mill circuit process flow. • Global industry: diversity of revenue and technological and operational leverage. Figure 2: Forecast copper ore demand and supply 2 (million tonnes) 4,000 3,600 3,200 2,800 2013f 2014f 2015f 2016f 2017f Probable projects Current production forecast (including mine closures) 00 Committed projects Total ore demand 1. Source: Weir Minerals mining sector revenues, 2013. 2. Source: SNL, February 2014. 3. Source: EIA 2014 annual report (early release version). 4. Includes shale formations. 5. Includes CO 2 enhanced oil recovery. 6. Source: EIA 2013 International energy outlook. 7. Source: EIA 2013 International energy outlook. 4 The Weir Group PLC Annual Report and Financial Statements 2013

Overview Strategic Review Operational Review Corporate Governance Financial Statements Oil & Gas Weir Oil & Gas operates in the conventional and unconventional upstream oil and gas markets, with a niche position supplying specialist pumps to downstream markets. Our largest exposure is to the North American onshore unconventional market with international unconventional opportunities beginning to emerge. Unconventional drilling involves the extraction of shale oil and gas using hydraulic fracturing where high pressure water, sand and chemicals are used to release gas and oil from rock far below the surface. We serve these markets in three main ways: pressure control equipment and services to Exploration and Production (E&P) companies to ensure drilling, completion and production processes can be carried out efficiently and safely; pressure pumping equipment and services, which provide original equipment to oil and gas service companies for use in hydraulic fracturing (fracking); and Weir Oil & Gas services, where dedicated engineering support and spares are provided to both conventional and unconventional markets in Europe and the Middle East. We also serve mid and downstream oil and gas markets with products for use in Floating Production Storage and Offloading (FPSO), Liquefied Natural Gas (LNG) and refining operations. Figure 3: US oil production forecast, 2011–2020 (million barrels per day) 3 History 10 8 6 4 2 2013 Tight Oil 2 4 (onshore) Others 3 5 (onshore) Projections 2011 2014 2017 6 Lower 48 (offshore) Alaska Figure 4: World tight gas, shale gas, coalbed methane production (excluding US, Canada) (trillion cubic feet) 6 2013 2020 The main growth driver in these markets is growing global oil and gas demand. The number of wells drilled determines the level of demand for our equipment. The intensity and growing complexity of drilling and completion applications leads to strong aftermarket sales. Our downstream business is primarily influenced by refining activity levels. 4 2 Key links to business model and strategy: • Highly engineered products used in critical processes. • High pressure abrasive applications increase aftermarket requirements. • Leading service presence in all shale plays: strong customer partnership. • Pump to wellhead capability: broad portfolio provides opportunities in conventional and unconventional markets. • Global manufacturing and service footprint to capture international opportunities. Power Weir Power & Industrial operates in the conventional, nuclear and renewables power generation, industrial and mid and downstream oil and gas markets. We serve these markets through the design and manufacture of valves, pumps and turbines and the provision of specialist support services. Growing global energy demand, particularly from emerging economies, and the replacement of ageing facilities to meet new environmental regulations are the main growth drivers in this market. The increasing global population dictates the need for new power plants and the refurbishment of existing facilities along with the development of renewable projects and oilfield infrastructure development. 2011 2014 2017 2020 7,000 6,000 5,000 4,000 3,000 2,000 1,000 OECD Europe Australia/New Zealand Russia Coal Natural gas Liquids Nuclear China Middle East Central and South America Rest of World Figure 5: Total world installed generation capacity by source (Gigawatts) 7 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Hydro and other renewables Key links to business model and strategy: • Highly engineered products used in critical processes. • High temperature, high pressure application. • Global manufacturing and service footprint to capture international opportunities. • Broad valves portfolio provides cross-selling opportunities. The Weir Group PLC Annual Report and Financial Statements 2013 5

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