Weir Group PLC
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Weir Group PLC
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Good morning, everybody, and thank you for joining us at short notice. I'm joined here today by our Chief Financial Officer, John Heasley, and we will be walking through the slide deck that you should have in front of you. So we're very excited to be talking today about our large acquisition in the Minerals space and our intention to sell the Flow Control division. I've signaled our intent over the last few months to build on our strengths around the abrasive applications in Minerals and Oil & Gas, with large aftermarket potential and this acquisition is a major shift in that direction, which gives us real focus as we go forward. So the acquisition we are announcing this morning is ESCO, a premium brand in ground engaging tools, the global market leader, with 40% share of surface mining and a razor/razor blade business model, which drives 90% of revenues from the aftermarket. A great business with incredible parallels to the Minerals division, driven by the mission-critical nature of the product, and the wear life and intense applications that it is exposed to in the mine. This moves us upstream from our current position into the pit into extraction and materials handling, and with the disposal of Flow Control that we have announced in terms of our intention, really focuses the portfolio on those highly abrasive aftermarket intensive applications. We create by bringing these 2 businesses together a unique mining services provider positioned across the best bits of the mine and we will be the only provider of mission-critical solutions from extraction, concentration and play into the theme of supply consolidation, supply chain efficiency as it is attractive to our customers. This acquisition will drive significant value creation opportunities. Our base case includes $30 million of cost synergies around 5% of revenues and the base case excludes further benefits to come from long-term value creation in terms of revenue synergies, technology combinations and the potential to further develop the platform from where we are in terms of what we are creating today. The transaction meets our financial criteria, a 12.6x EV/EBITDA of 2018. It's a good price given the timing of the acquisition and the potential upside. Now the transaction will be EPS accretive in its first full year and the returns will beat our weighted average cost of capital in year 3. Consideration mix is 41% equity to the ESCO shareholders, 59% cash. There's a high proportion of equity going to the ESCO shareholders reflecting the fact that they are excited about the story, they want to own the shares going forward and be part of the upside. The cash element will be financed through our existing debt facilities at a 7.4% placing, which has gone live this morning. The whole financial package is designed to deliver as net debt-to-EBITDA of around 2x by the end of the year, and that's before the disposal of Flow Control, which will come on through in terms of ongoing process. So the financials are good. Strong base case, but the real story in terms of what we create and where we can go from here. Obviously, in announcing the acquisition and the placing, we pulled forward our Q1 IMS by a week and the headline there is strong order momentum in the first quarter, a good start to the year which underpins our guidance, which is unchanged. So in summary, an important moment for Weir, drives real focus in our portfolio: it's the right deal at the right time, a great fit for our business both strategically and culturally and significant upside in terms of value creation. So moving on to Slide 3, and looking at our ongoing portfolio. In Minerals and Oil & Gas, we've got market-leading franchises with high barriers to entry supported by strong fundamentals in terms of production and demand for the commodities that they're exposed to. And we've got great capability in those businesses; our knowledge of high abrasion applications; mission-critical situations for our customers, which drive that high aftermarket content; top quartile margins and highly resilient business model. Flow Control is a good business and it is turning a corner, but it has niche positions and it needs scale. The strength of Minerals and Oil & Gas means that they attract the capital so we've concluded that Flow Control deserves a better owner that can give it more scale and give it the capital that it deserves to grow and move forward in the future. So we've not yet commenced the process. We're at very early days with that, but we will aim to maximize shareholder value and find the right owner for the business as the process commences and we will judge the nature and timing of that process based on the reaction we get from potential buyers over the course of the next few days and weeks. Moving on to Slide 4. So what is ESCO? It's a large independent company which is family-owned and has been so for 105 years. It's a large business with 2,600 people around the world operating out of 19 countries. And as I said earlier, it's the number 1 brand in ground engaging tools, which is a classic razor/razor blade business model just like the Weir Minerals business, which drives 90% of the aftermarket. In terms of how that model works, the red bits on the slide on Page 4, such as the lip system, is the razor; and the green pieces, which are the ground engaging tools, are the razor blades, which is the consumable that drives the aftermarket. What are they? Ground engaging tools, well, they're the highly engineered consumables used on the front end of surface machines. Their mission-critical nature drives yield from the pit into the comminution process and they have significant technology differentiators. So the geometry of the ground engaging tool, the [ metalogy ] (sic) [ metallurgy ] in the ground engaging tool, drives yield from the mine and drives wear life out of the tool. The fit of the tool to the lip system is absolutely critical. If the tool detaches and goes downstream into the crushers, for example, it can seriously damage a million dollars worth of equipment and of course, the mine would stop operating. So it's really, really important that the teeth remain attached to the lip and the fit is critical in doing that. In addition, ESCO has proprietary locking systems for their ground engaging tools, which means that they can afford very quick changeover. So for the customer in terms of value proposition, the ESCO products with those technology advantages; it moves more rock, it lasts longer, it's quicker to change and it doesn't fall off, which drives lowest total cost of ownership which is the absolute focus of our customers and an absolute parallel to what we see in the wet processing circuit with the Warman pumps. Moving on to Slide 5, and looking at how ESCO fits with the existing Minerals. If we start on the right-hand side, you can see our existing, leading strong position in the mill circuits; in the middle, our developing position in dry processing and comminution, which we are developing with the Trio business and our high-pressure grinding roll technology. And ESCO just takes us one step further upstream into the pit, into extraction and materials handling. And this is really the core of the mine site. It's where the abrasion is, it's where the wear life and the service support are absolutely critical. So it really plays to our existing strength in terms of being aligned with our current business model, and create a unique combination with a very strong customer proposition across the mine site. Turning to Slide 6. Just to give you a brief example of the razor/razor blade business model, which drives that high proportion of revenues coming from the aftermarket. This slide shows the Nemisys lip system, again, exactly the same business model as Warman pumps in the mill circuit. Once the lip is installed, the proprietary fit and locking systems mean that the consumables have to be at ESCO. So drive an annuity aftermarket revenue stream. So over the life of the lip system, it's at 5 or 10 years, it will generate 5x to 10x the OEM value in aftermarket sales. On average, as you can see from the numbers here for a tooth set, the life cycle might be around 5 weeks. But in the really extreme abrasive applications such as the oil sands, which is where we see high abrasion as well, this product can last no more than 8 or 9 hours before it is worn down and needs to be changed, which comes back to that very high aftermarket content in terms of revenues. Moving on to Slide 7. So ground engaging tools, they're adjacent to where we are in the mine. It's in the sweet spot business model and ESCO is the global market leader in this technology. We recognize it's a large acquisition and we needed to be certain of cultural fit and our ability to integrate well to drive the value creation. And so we've spent a lot of time, from a diligence point of view, looking at the culture and values of the business alongside the core financial, IT, tax, legal diligence and so on. And we find a business with huge parallels to Weir in its long family-owned history, its commitment to innovation and technology, a world-class leadership team, very strong corporate governance and through the process of getting to know ESCO. We've spent several months in that process. We've had terrific access to the business and been able to do complete diligence including meeting many senior people multiple times, visits to every manufacturing location around the world. And a lot of time spent talking about the research and development and technology capabilities. So a really strong process that we've been through in terms of getting to know the business and that process has been exclusive. So this has not been an auction process deal. Moving on to Slide 8. ESCO as I said, is a great business, great strategic fit, great cultural fit. But what we're really excited about is what we create going forward, which to me is mentally exciting. And there's 3 legs to that. Delivering on our financial criteria, further value creation opportunities beyond that and then, in the long term, how we transform our Minerals business. I'll come back to talk about the growth in transformational options and opportunities, but first of all, I'm going to hand it over to John, who will take you through the financial criteria.
Thank you, Jon, and good morning, everyone. Turning to Slide 9, I'll just start with a little bit of data on the ESCO business before coming on to look at the transaction from a financial perspective. You can see here that ESCO is a truly global business, as is Weir Minerals. The 52% of ESCO that is U.S. is principally driven by the 30% of revenues that come from construction, aggregate and infrastructure, which, as Jon will go on to describe, represents a good opportunity for us going forward. In terms of the commodity mix, as you know, we like hard rock mining in terms of gold, copper, and iron ore. And as you can see here, ESCO fits that bill with almost 60% of mining revenues from those 3 commodities. In terms of the operations, a truly global business. As you can see, 6 foundries around the world and all of that is run off a very mature single instance of Oracle. Turning to Slide 10, and looking at the market, as you know, we've been talking very positively about the mining markets for over a year now and we continue to see that on the ground with our quarter 1 trading. And so we feel very strongly that this is the right business to be buying at the right time in the cycle. We recognize then that Minerals can be cyclical. And so if you look at the bottom left of Slide 10, you can see that the ESCO business has tracked the peer group in terms of Atlas Copco, Sandvik and Metso, right in line during the downturn. And as we have seen the market recover, we can see that the revenue starts to grow and in 2018 first quarter, with very strong growth of 12% through the first 3 months. Turning to Slide 11. The earnings follow a similar pattern. You can see in 2012, EBITDA margins of 18% and that's come down to 2015 at the bottom of the cycle, just below 10%. Through that period, as you would expect, for a premium market-leading business, gross margins were broadly stable and the reduction in margin over that period was principally volume driven. As a private business, they were late to restructure and in the last couple of years, they restructured their cost base with -- closing around 5 of 6 foundries and we're starting to see the benefit of that now with margins improving from '16 and into '17. And as we look at 2018, as Jon says, we've had very good access to the business, very strong diligence. And so, following that strong start to the year, the business is trading with great momentum and we feel comfortable that we will continue to see revenue and margin growth. We expect 2018 to deliver revenues of around USD 675 million and EBITDA of around USD 80 million. So for 2018, that represents about a 16% EBITDA margin and a 12% EBITA margin. Looking to the future, we see a really strong opportunity in our base case set of assumptions to get the ESCO margins from the 12% that we expect this year, towards the lower end of the Weir Minerals margin range and that's really predicated upon 2 key assumptions. First of all, mid-single digit market growth that we feel comfortable and confident in, given our knowledge and experience on the ground of business in this sector; and secondly, cost synergies of USD 30 million by year 3, which again, we've really had a strong opportunity to diligence and that principally comprises board, governance and corporate type costs, service centers where we operate in similar locations and we can share facilities; and lastly, we have a good access to their purchasing costs and supply chain costs and we benchmarked those against our own and see opportunities for saving there. So those are the assumptions that we've used to drive the financial returns, which, if you turn to Slide 12, you can see that in terms of EV to EBITDA multiple against 2018 estimated earnings that I have just described, 12.6x including run rate synergies, then that reduces to 10x, which we believe is an attractive price from the growth on offer at this point in the cycle. In terms of those base case assumptions, that will drive earnings accretion in the first full year and we expect to exceed our group's cost of capital in the third full year. In terms of financing the transaction, as Jon mentioned, pleased that 41% of the consideration will be in equity issued to ESCO shareholders and that will represent about 6% of the enlarged Weir Group, and of that equity that is issued, more than 50% of that will be subject to lockup for 6 months post-completion. The balance of the consideration, a combination of debt from existing facilities and the 7.4% accelerated bookbuild that commenced this morning. In terms of the bridge to enterprise value, we will be assuming USD 200 million of ESCO debt, which we will refinance on completion and around USD 30 million of pension liability. Just touching briefly on the acquisition mechanics. We do have unanimous approval for the ESCO board from this transaction. However, given the family nature of the shareholder base, there is a long tail, and therefore, it does go to the formal shareholder vote on around the 7th of May this year. And finally, we expect to close the transaction in early Q3 and that's subject to normal conditions. So with that, I will hand back to Jon to talk about the opportunities beyond the base case that I have just outlined.
Thank you very much, John. So, yes. So the base case includes the $30 million of assumed cost synergies, but no revenue synergies or other opportunities beyond that. And if you turn to Slide 13, you can see why we are excited immediately about the revenue synergy opportunity. The blue dots represent, of course, the unrivaled Weir global service center network where we are within 200 kilometers at every major mine site of the world, with the ESCO direct channels more focused in the Americas, in North America in particular. So we see from a global perspective significant opportunities to push ESCO capability and product into the Weir service center, our network, and we've already had a number of detailed discussions with ESCO in terms of specific country-by-country opportunities where we are going to have the opportunity to do that. So we're very excited as we move into integration to get into the granular detail, country-by-country, get our regional sales teams together to put forward and develop and execute against the revenue synergy opportunity that's available. Conversely, in North America, ESCO has very strong distribution channels through third parties, which is stronger than we have. And we see that as a great opportunity to actually drive some of our products, particularly Trio crushers and crusher wear parts into North America, which is a further opportunity over and above the global revenue synergies using our channels. So we're pretty excited about the revenue synergy potential that's going to be available to us as we move forward, leveraging that key competitive advantage that we have in the global service center network. Moving on to Slide 14, and technology. We've also been incredibly impressed by the ESCO technology and research and development capability. It's highly complementary to Weir with some fantastic capability. We've observed that we both have strengths in particular areas, be they metalogy (sic) [ metallurgy ], where we are on our digital journeys in terms of manufacturing process know-how. So again, getting our engineers and technicians together presents an exciting opportunity to leverage each other's capability. Like Weir, ESCO kept on investing in R&D through the downturn. So they have a great pipeline of new technology coming through which is also, potentially, very exciting. Some of the highest tech things that they do includes putting GPS positioners in each tooth. So as I said earlier, a detachment event can be very significant in terms of downstream damage, so GPS systems allow the operator of the primary machine to be warned if there is a detachment and, therefore, prevent downstream damage. Likewise, they're putting sensors and accelerometers into the teeth so that they can measure the forces on those teeth as they engage with the material, which then feeds back into the design process. So doing some very exciting things and quite aligned with us, I would say, in terms of their IOT journey. Moving on to Slide 15. Of course, as I said earlier, we pulled forward our Q1 IMS by a week, reflecting the placing that's been announced, and we've had a good start to the year. You can see group orders up 22% with all divisions ahead of the prior year. Minerals orders up 13%, with double-digit growth in both original equipment and aftermarket. Oil & Gas orders up 50%, driven by strong demand in North America for pressure pumping product and Flow Control also up 2% with a fourth quarter of consecutive growth in the aftermarket. So in the round, a good, pleasing start to the year which underpins our guidance that we gave at the end of February of strong constant currency revenue and profit growth. I wanted to summarize and conclude with a couple of slides, so starting with 16 and sort of stepping back, of what we create with the ESCO acquisition. And that is that we become a unique provider, the only provider across the extractions, the concentration part of the mining equipment value chain. And this is really the best bits of the mine. I think it's compelling because it's what we're good at, it's where the abrasion and wear parts are critical. So in terms of the Weir business model, highly engineered mission-critical products with intensive aftermarket and global support required, it really ticks all of our boxes. And we believe it's what our customers want. So a comprehensive portfolio of solutions that drive productivity, that help them simplify their supply chain. And with this broader portfolio, we have more touch points with our mining customers and therefore, become more strategically important for them. And importantly, as a platform, that we can continue to build on as we move forward. And turning to Slide 17. What does it do for the group as a whole? Well, it makes Weir even stronger. Going forward, we will have a portfolio of 3 major leading brands, all supported by sub-brands, but global leading franchises in Warman, SPM and ESCO. And with the disposal of Flow Control, our more niche exposures will, of course, leave the portfolio. It means we're really focused on that highly abrasive upstream market in mining and Oil & Gas with more than 80% of our revenues on a pro forma basis coming from those sectors. And of course, that drives exposures to the resilient aftermarket revenues and again, our pro forma revenues from aftermarket will move up to around 77%, which drives resiliency in revenues and a higher margin profile for the group going forward. And as I said earlier, the financial package in terms of financing the deal mean that we will be alongside our underlying cash generation at 2x, net debt-to-EBITDA by the end of 2018. And that is before the disposal of Flow Control and any proceeds coming in for that acquisition. So we will be, post the disposal of Flow Control, a really focused business with a strong balance sheet and the ability to go on from there to further build out and grow our portfolio. So in summary, on Slide 18, ESCO is a great business. We're delighted to be welcoming ESCO to the Weir family. It's the right time to do this deal in the cycle and in terms of the growth profile that's ahead of us, and it's a great fit for us both strategically and culturally. So as I say, we're delighted to be announcing that acquisition today and the equity placing to support of that. So with that, I will pause and we have a few minutes for some questions. Thank you.
[Operator Instructions] Our first question today comes from the line of Lars Brorson of Barclays.
Congratulations on what I think is a very significant step for Weir, both in terms of delivering comminution but also exiting Flow Control. I wanted to just get a little more color, Jon, perhaps on the cost synergies, the $30 million. I mean, I hear you talk about leveraging service centers, but I didn't hear a huge amount around cost base in ESCO. I noticed that ESCO specifically say that they don't expect a meaningful change to employee numbers or facilities. Can you help me a little more with the -- what's the component of the cost synergy? And also, the source around ESCO's business model. It looks very vertically integrated, 6 foundries. Any thoughts around what can drive cost synergies beyond leveraging your service centers. That's the first question.
Okay. So the cost synergy is $30 million baked into the base case. And as I said earlier, ESCO is almost like a mini-public company with board and governance structures that were put in place a while ago in contemplation of an IPO that it pulled in 2011. So there are governance costs in terms of board and functional capability that will be essentially eliminated and subsumed within Weir. The service centers, there will be a little bit of overlap across the service center platform so it's mostly complementary, but where there are -- we have duplicate service centers, and clearly over time, we'll drive efficiency there. And there are other corporate costs in the course of time we will speak to, again, merge into Weir essentially. So the base case post-synergies are those sorts of costs. In terms of broader operational platform then, our foundry footprint is complementary. So for example, we do not have a foundry in North America and we've always thought it would be good to have one, so we will be able to leverage the ESCO footprint in North America. But fundamentally, it is a vertically integrated business in the same way that Weir Minerals is, and that's because security of supply and security of capacity, essentially, for the mining customers is really absolutely critical and that's what drives the vertical integration. But ESCO, as their product is more biased towards steel alloys where Weir is more biased towards chrome iron alloys, so our foundries are a little bit different. So we don't see that there will be a big sort of restructuring in the operating cost base. They're broadly complementary. What we will do is the business is going to be run stand-alone for probably the balance of 2018, 6 months or so. As we go through that process of integration, the intent is that we will [ crack ] on very quickly with the revenue and cost synergies, but use that stand-alone period to really sort of get beneath the hood of the business, understand the plumbing and think really hard about the strength of ESCO, the strength of Weir Minerals. How do we put the 2 businesses together to create the optimal platform moving forward that is future-proofed, scalable and will allow us to go on and take the business forward in a meaningful way.
That's helpful. I presume they're investing into growth in '18. I mean, if they're delivering what looks like 100 basis point-or-so margin improvement this year on mid-to-high single-digit growth, can you help me understand what drove the, you said what, about a 400-or-so basis point improvement in 2017, on what was low single-digit growth back then?
So as John said, they restructured their business through the downturn, but as a private company, probably weren't as aggressive as we were as a public company. So I think they got later to their restructuring, probably the family-owned nature of the business. It was a consideration there. So I think that the 2017 momentum was really driven by some revenue growth by the benefits of their restructuring playing through, driving some margin expansion. I think the really critical thing is the momentum that the business has at the moment with the further benefits of their restructuring coming through the market momentum that they have at the moment, which is very strong and sort of consistent with the trends that we are seeing in our business. So alongside further market growth, the cost synergies, we see substantial opportunities to improve the margins further from here.
Helpful. Secondly, can I ask to the competitive universe, who is number two and number three in this market? And what are the key areas that is differentiation for ESCO?
So ESCO competes against the OEMs, so Caterpillar, Komatsu, the guys who produce the large primary moving machines; and there are smaller independents as well that they also compete with. I think the key differentiator for ESCO is number one, having their salespeople and engineers on the mine site, working with customers on a specific ore body and helping to get the right geometry in terms of the ground engaging tool, the right metalogy (sic) [ metallurgy ] in terms of the ground engaging tool so that they can drive yield and reduce wear life, which goes to total cost of ownership. And the OEMs tends to have a more one-size-fits-all. They don't have that sales approach in terms of really customization for the customers. So even though -- these are large pieces of metal operating in extreme environments, but there's a lot of technology that goes into the metalogy (sic) [ metallurgy ], the geometry, the fit to the lip and the locking systems, of course, which reduce changeout time. So there's a lot of technological differentiation in the ESCO products.
That's helpful color. And just thirdly and finally if I can, on Flow Control. Can you give me a little more of a sense of where you are in this process? I was a bit late on the call, but I think I heard you say that you're about to gauge some interest over next few days or weeks. Could you just give us a little more color around specifically where you are?
Yes. I'll be very quick on that one, Lars. We need to move on to somebody else because we haven't got much time. But yes, so we're very early days in terms of the process. We felt that it was right to be transparent and announce the plans for disposal of the business today, alongside the announcement of the acquisition of ESCO. And as you've quite rightly said, we will judge what reaction we get to that in terms of buyer interest over the course of the next few days and weeks and then design a process to maximize value-add to that.
Our next question today comes from the line of Alexander Virgo of Bank of America Merrill Lynch.
Just 2 quick questions. One follow-up, I guess, on the dynamics of competition, given you're competing against the OEMs. Just wondered if you can make a comment on pricing and how that dynamic has changed perhaps through the downturn. And then second one just on the underlying business. Given you have reported some very strong order intake numbers, I just wondered if you could comment a little bit about the sequential development. And any comment on pricing in each of the divisions would be very helpful.
Yes. Alex, in terms of the question on the competitive environment then, as I said earlier, ESCO has a strong technological differentiation in terms of its market position. We've concluded -- completed extensive commercial diligence as part of the exercise as you would imagine. And when you get feedback from the customers, competitors, ESCO clearly scales as the number one brand, which has technological differentiation and delivers lower total cost of ownership for customers. And just like us, they have broadly premium pricing reflected in that position. Through the downturn, again, like Weir Minerals, as a high aftermarket content business, pricing has been relatively stable. Just like us, they have not really been able to push prices up through the downturn, but that would be an emerging dynamic for the business as we see growth going forward. In terms of the underlying business, yes, as I said earlier, a good start to the year. I think in the mineral -- two things that stand out as particularly strong would be the Minerals aftermarket and original equipment in Oil & Gas. At this stage, we believe that's driven by customers coming back in the new year with capital budgets. And within Oil & Gas, particularly strong pumps and power frames as customers have accelerated reactivation and bringing fleet online to get ready for the contracts they have over the balance of 2018. But it feels like that's a Q1 bounce and certainly not believing at this point that it is the start of a bigger trend in terms of capital replacement cycle. In terms of pricing across the business, it's broadly developed as we expected in the first quarter. So you know, actually, the commentary around Oil & Gas in particular, where we expect only a couple of points of improvement in pricing over the balance of the year. We are very much in that environment, of course, with more of an OE mix. As well, margins slightly lower as a result of that mix, offsetting the sort of upside from a revenue point of view. But very much as we expected and a nice start to the year.
[Operator Instructions] Our next question today comes from the line of Max Yates of Crédit Suisse.
Just my first question is just around the revenue trajectory of the business in the downturn. It looks like there were sort of a couple of years of around 10% growth and I was just trying to sort of square that with kind of Weir's aftermarket, given they do seem to have kind of similar aftermarket content. What really drives that decline? Because it looks like mine production kind of continued to grow through the downturn. So just trying to really understand that. Is that moves in sort of stock levels, inventories of customers? What was really driving that through the downturn given the aftermarket content of the business?
Yes. Mike, I'll take that. So really, as you know, the Weir Minerals business operates in the processing plant in the mill circuit and, therefore, regardless really of what's going on in that processing plant is operating. Obviously, ESCO operating in the pit, then what you tend to find is that there's a bit of stockpiling and then when things get tough and costs are being cut to the core, then what -- run down those stockpiles. So that's the key difference between the Weir Minerals and ESCO is that there's just that little bit of a lag as stockpiling is run down during the deepest of downturns. But I would emphasize, again, the chart that shows that this is ESCO is right in line with that peer group of the other mining equipment players who sit just below Weir Minerals in terms of resiliency through that downturn for the reasons I've outlined.
Okay. And just secondly, I mean, this might be sort of slightly obvious question, but I mean, you mentioned the competitors, Cat and Komatsu, so presumably the guys that actually make the excavators. Therefore, I would assume they also put their own sort of -- their own buckets on the end of the excavators and therefore, have sort of some control over the aftermarket for those. So I'm just trying to understand, is there sort of interchangeability between the consumables and other manufacturers' buckets on the end of these excavators? How does that work in relation to sort of servicing other people's excavators and other people's kind of OE products in this market?
There's not really interchangeability between lip systems so let me -- if I could just sort of step back and describe the way the sales process works. So when the mine is ordering a machine, you can either order the machine with the OEM lip system on it, or you could specify an ESCO lip system so it comes with it, or you can specify it with just the bucket and no lip system and then you can choose the lip system on the mine site and weld it on. But once you have the lip system, that really is the installed base. It's the razor and the razor blade business model and then, because of the proprietary nature of the fit and locking systems, it's essentially a captive aftermarket and the consumables revenues flow. So the sales process for ESCO is really having boots on the ground, in the mine talking to the people who are making the decisions about buying the mining machine, talking to them about lowest total cost of ownership, the differentiators that ESCO has in terms of metalogy (sic) [ metallurgy ], wear life, fit and locking systems which drive the lowest total cost of ownership and convincing the customers to specify that they order the machine with ESCO lip systems fitters. And that's why on those primary surface moving machines on hard rock mining, they have about 40% global market share. I mean, they're the number one by quite a margin.
Okay. So -- I mean -- so the next biggest competitor, what, may have sort of half of that. Is that a fair assumption?
Yes. That's probably right in terms of those primary moving machines. We've only got time for one more question, guys. Thank you.
Our next question comes from the line of Mark Davies Jones of Stifel.
I got lucky on that one. Two things. Firstly, I think one Jon said the other John was going to talk to the non-mining part of ESCO. We didn't actually get around to that. You said it was 30% of the business. Can we just address that and whether that's core, and what the prospects are there? And then more broadly on the question of sales synergies, the quite distinct part of the mine and the mining process. Is it really credible to think that, that is going to give you, particularly, additional leverage over the customers on their rather distinct purchase decisions?
So yes, I'll take the second question first. You're right. You are actually selling to a different customer, generally speaking, on the mine site. We are obviously selling into the comminution and wet processing part of the mine. ESCO is selling into the pit so it's a different person you're selling to, but it's the same customer. So you leverage the infrastructure that you have and going back to the revenue synergies and looking at the map that we looked at earlier. In lots of countries, ESCO doesn't have direct representation and will be able to put sales capability and stock parts in our service centers where ESCO is not able to go direct at the moment. So it's about leveraging the infrastructure, albeit you are selling to a different person. But as I say, it's the same customer and the overarching -- it makes you more strategically important across the value chain with a particular mine site. In terms of the 30% exposure of the construction and infrastructure, a large part of that is in North America and these are the smaller parts with less technology that go into construction backhoes and smaller moving machines. And so at the moment, that is -- it's a meaningful business and ESCO used it to essentially create load in their foundries, which recovers overheads. Over time, is there an opportunity to direct more of the capacity towards copper, gold, hard rock mining, the higher tech part of the business? Yes, that's right. So that maybe the direction of travel, but we'll judge that as we move into integration. There are also some really, really exciting bits within that piece as well. So if you -- if I go back -- if you look at the slide on Page 4, we didn't talk about dredging. I mean, they are the global leader in dredging by some considerable margin and that is an area where there are exciting growth potential opportunities going forward. Then you have port and harbor development thinking about offshore wind, whether there are lots of opportunities emerging and that's a strong leading position with higher margins. And so I think I need to wrap up and move on. Sorry, guys. I know there are a couple of people still waiting to ask questions, but thanks again for joining the call at short notice. I repeat my closing comments that ESCO is a fantastic business, a great fit for Weir. It takes us forward significantly, strategically driving the focus that will come alongside as opposed to the Flow Control. And we're very excited about the value that this will create for our business going forward. So thank you very much for your time and we'll catch up with you later in a day and a date.