The Weir Group PLC : Final Results
The Weir Group PLC : Final Results
The Weir Group PLC
27 February 2013
THE WEIR GROUP PLC 2012 FULL YEAR RESULTS
DOUBLE DIGIT REVENUE AND PROFIT GROWTH IN TOUGHER END MARKETS
The Weir Group PLC, a global engineering solutions provider to the mining, oil
& gas and power markets, today reports its results for the 52 week period
ended 28 December 2012.
Continuing Operations 2012 2011 Growth
Order input^1 £2,397m £2,442m -2%
Revenue £2,538m £2,292m +11%
Operating profit^2 £486m £413m +18%
Operating margin^2 19.1% 18.0% +110 bps
Profit before tax^2 £443m £396m +12%
Cash from operations £399m £303m +32%
Earnings per share^2 150.1p 133.6p +12%
Dividend per share 38.0p 33.0p +15%
Return on Capital Employed^3 29.1% 29.2% - 10bps
Net debt £689m £673m -£16m
^1 2011 restated at 2012 average exchange rates.
^2 Adjusted to exclude exceptional items and intangibles amortisation.
Reported operating profit, profit before tax and earnings per share were
£469m (2011: £408m); £424m (2011: £391m) and 147.1p (2011: 131.8p)
respectively, 2011 restated for fair value acquisition accounting.
^3 Continuing operations EBIT (excluding Seaboard and Novatech EBIT and
exceptional items) divided by average net assets excluding net debt, pension
deficit (net of deferred tax asset) and Seaboard and Novatech net assets.
HIGHLIGHTS
* Record pre-tax profits up 12% to £443m;
* Record Group operating margin, supported by strong performance by
Minerals;
* Strengthening aftermarket input: 57% of total orders (2011: 52%);
* Resilient Oil & Gas performance, supported by positive contributions from
acquisitions;
* Strategic progress: higher R & D investment; expanded product portfolio
and service presence;
* Full year dividend increased by 15% to 38.0p with further double digit
increase planned in 2013.
Keith Cochrane, Chief Executive, commented:
"Weir delivered a strong performance for shareholders in 2012 despite
challenging pressure pumping markets. We responded rapidly to changing market
conditions, realigned capacity, reduced costs in affected areas and continued
to maximise operational and cost efficiencies. This allowed us to deliver
2012 results in line with our mid-year expectations. We continued to invest in
the Group's capabilities, underpinning our strategy to grow ahead of our end
markets.
Looking ahead into 2013, despite more challenging markets, the Group will
continue to deliver profitable growth through new product introductions and a
range of operational initiatives. Assuming a gradual economic and end market
improvement, we expect to deliver low single digit revenue growth and broadly
stable margins in 2013 with lower first half profits offset by growth in the
second half. Alongside substantially higher cash generation, the Group plans
the eighth consecutive year of double digit dividend growth."
A live webcast of today's presentation commences at 8:30am GMT at
www.weir.co.uk.
Contact details: The Weir Group PLC
Andrew Neilson, Head of Corporate Affairs and (Mobile: 07753 622 357)
Strategy
Jonathan Milne, Communications Manager (Mobile: 07713 789 536)
Maitland - Tom Buchanan Tel. 020 7379 5151
2012 OVERVIEW
The strong financial performance was underpinned by a good performance by the
Minerals division with robust project activity in most key mining equipment
markets which, alongside strong aftermarket growth and procurement,
productivity and cost initiatives, delivered record Minerals operating
margins, ahead of our expectations. Sales of the Minerals division's broader
product portfolio grew, enhanced by the development of our own screens range
and new product introductions.
Oil & Gas delivered a resilient financial performance, despite the substantial
downturn seen in North American pressure pumping markets with full year
revenues and margins in line with prior guidance as cost and productivity
initiatives supported profitability.
Despite a relatively subdued global power sector, strategic momentum in the
Power & Industrial Division continued with strong input, output and profit
growth. Cash generated from operations increased by 32% with an improved
working capital performance in the second half.
SEGMENTAL ANALYSIS
Continuing Oil & Power & Group Unallocated Total Total
Operations £m Minerals Gas Ind. Comp. Expenses Total OE AM
Input (constant
currency)
2012 1,322 677 361 37 - 2,397 1,024 1,373
2011 1,239 870 306 27 - 2,442 1,180 1,262
Growth:
- Constant
currency 7% -22% 18% 33% -2% -13% 9%
- Like for
like^1 7% -41% 13% 33% -9% -23% 4%
Revenue
2012 1,334 844 323 37 - 2,538 1,132 1,406
2011 (as
reported) 1,216 743 307 26 - 2,292 1,090 1,202
Growth:
- As reported 10% 14% 5% 43% 11% 4% 17%
- Constant
currency 12% 13% 7% 43% 12% 5% 18%
- Like for
like^1 12% -10% 5% 43% 4% -5% 12%
Operating
profit
2012 256 211 31 3 -15 486
2011 (as
reported) 214 183 27 3 -14 413
Growth:
- As reported 20% 15% 17% -17% -7% 18%
- Constant
currency 21% 14% 20% -17% -7% 18%
- Like for
like^1 21% -12% 1% -17% -7% 5%
Operating
margin
2012 19.2% 25.0% 9.7% 6.7% 19.1%
2011 (as
reported) 17.6% 24.7% 8.8% 11.2% 18.0%
Growth:
- As reported 160bps 30bps 90bps -450bps 110bps
- Constant
currency 150bps 20bps 100bps -450bps 100bps
- Like for
like^1 140bps -40bps -40bps -450bps 30bps
^1 Like for like excludes the impact of acquisitions and related transaction
and integration costs. Weir International was acquired on 1 July 2011,
Seaboard was acquired on 14 December 2011 and Novatech was acquired on 22
February 2012.
FINANCIAL HIGHLIGHTS
Order input at £2,397m on a constant currency basis decreased 2% and was 9%
lower on a like for like basis. Original equipment orders were down 13% (down
23% like for like) with the impact of North American pressure pumping market
weakness partly offset by growth in most key Minerals markets and very good
input growth at Power & Industrial. Aftermarket orders were up 9% (4% like
for like) with double digit increases in Minerals and Power & Industrial.
Aftermarket orders represented 57% of overall input (2011: 52%).
Revenue grew by 12% to £2,538m on a constant currency basis, up 4% like for
like. Original equipment represented 45% of revenues with aftermarket revenues
accounting for 55%, a 200bps increase over the prior year. Emerging markets
revenues increased by 23% with the proportion of total revenues from these
markets increasing to 37% (2011: 34%). Together, the acquisitions made in 2011
and 2012 (Weir International, Seaboard and Novatech) contributed £182m of
revenue against a 2011 equivalent proforma figure of £172m. Revenues from
other Group companies (LGE Process) were £37m in the year (2011: £26m).
Operating profit from continuing operations before exceptional items and
intangibles amortisation increased by 18% to £486m (2011: £413m) after a net
negative currency translation impact of £1m. The increase in underlying
performance was driven by strong growth and margin expansion in Minerals, a
positive contribution from acquisitions, and reduced one-off costs, offset
partly by second half weakness in upstream Oil & Gas operations. One-off costs
of £9m were incurred in the period (2011: £17m) of which £4m (2011: £9m)
related to acquisition transaction and integration costs. The 2011 and 2012
acquisitions contributed £48m to operating profit against a 2011 equivalent
proforma contribution of £41m, excluding transaction and integration costs.
EBITDA was £535m (2011: £450m).
Operating margin was 19.1%, an increase of 110bps on the prior year (2011:
18.0% and 18.1% on a constant currency basis) reflecting a strong second half
improvement in Minerals and continued margin resilience in Oil & Gas. On a
like for like basis, the operating margin was 18.8% (2011: 18.5%).
Net finance costs were £45.1m in total (2011: £17.1m) due to the increase in
net debt following the Seaboard and Novatech acquisitions and related US
private placement issue.
Profit before tax from continuing operations but before exceptional items and
intangibles amortisation increased by 12% to £443m (2011: £396m) and 4% on a
like for like basis. Reported profit before tax from continuing operations
increased by 8% to £424m (2011 restated: £391m) after intangibles amortisation
of £37m (2011 restated: £24m) and the net exceptional credit of £20m (2011:
£19m) including the £30m gain on the sale of LGE Process, completed on 28
December 2012.
Tax charge for the year of £124m (2011: £114m) on profit before tax from
continuing operations before exceptional items and intangibles amortisation of
£443m (2011: £396m) represents an underlying effective tax rate of 28.0%
(2011: 28.8%), reflecting a reduction in US state taxes as a result of the
changing profile of our business within the US and the reduction of the rate
of UK corporation tax.
Discontinued operations profit of £3.3m (2011: £19.9m) represents the release
of unutilised provisions in relation to previous disposals on expiration of
the tax warranty periods.
Earnings per share from continuing operations before exceptional items and
intangibles amortisation increased by 12% to 150.1p (2011: 133.6p). Reported
earnings per share including exceptional items, intangibles amortisation and
profit from discontinued operations was 148.6p (2011 restated: 141.2p).
Cash generated from operations before working capital movements increased by
13% to £516m (2011: £458m). Working capital outflows of £117m (2011: £155m)
were driven by higher than expected inventory levels and a subsequent
reduction in payables due to lower materials purchases in upstream Oil & Gas,
partly offset by an overall improvement in receivables. The initial benefits
of a number of supply chain initiatives resulted in second half working
capital inflows of £10m. Net cash generated from operations increased by 32%
from £303m to £399m representing an EBITDA to cash conversion ratio of 75%
(2011: 67%). Net capital expenditure increased from £91m in 2011 to £116m in
2012 principally to add capacity in the Minerals division and investment in
expanded flow capacity in SPM. Free cash flow from continuing operations was
£62m (2011: £29m). Outflows in respect of acquisitions were £125m with cash
generation from disposals of £23m giving a year end net debt of £689m (2011:
£673m, £679m constant currency). On a reported basis, the ratio of net debt to
EBITDA was 1.3 times and on a proforma basis including the Mathena acquisition
was 1.5 times.
Return on capital employed of 29.1% for 2012 on a like for like basis
(excluding Seaboard and Novatech) was broadly in line with the prior year
(2011: 29.2%).
Dividend The Board is recommending a 15.2% increase in the full year dividend,
the 29th consecutive year of dividend growth, with a final dividend of 30.0p
(2011: 25.8p) making a total of 38.0p for the year (2011: 33.0p). If approved
at the annual general meeting it will be paid on 31 May 2013 to shareholders
on the register on 3 May 2013. The Board also plans a further double digit
increase in the full year dividend in 2013.
DIVISIONAL HIGHLIGHTS
MINERALS
Weir Minerals is the global leader in the provision of slurry handling
equipment and associated aftermarket support for abrasive high wear
applications used in the mining and oil sands markets.
£m H1^1 H2 2012 2011^1 Growth
Input OE 309 218 527 514 +3%
Input aftermarket 411 384 795 725 +10%
Input Total 720 602 1,322 1,239 +7%
Revenue OE 257 283 540 494 +9%
Revenue aftermarket 403 391 794 701 +13%
Revenue Total 660 674 1,334 1,195 +12%
EBITA 119 137 256 211 +21%
Operating margin^2 18.1% 20.3% 19.2% 17.7% +150bps
^12011 and H1 restated at 2012 average exchange rates
^2Adjusted to exclude exceptional items and intangibles amortisation
Market drivers
Global ore production increased by an estimated 3% in 2012, underpinned by
continued demand growth in Chinese and emerging markets for key commodities
such as copper. Average ore yields continued to fall, requiring greater levels
of processing to maintain the same volume of refined commodity and further
supporting aftermarket demand growth.
Capital expenditure in the mining sector in 2012 remained ahead of the
historically high levels seen in 2011, with over £65bn committed to a number
of greenfield developments and brownfield expansions, a 9% increase on 2011
despite new project activity cooling off from the peak seen in the first half
of the year. Prices remained above incentive levels for most key commodities
during the year. Second half macro-economic concerns over Europe and China
resulted in commodity price falls, particularly in iron ore and coal markets,
leading to the deferral of some project decisions in Australia and Brasil.
Industrial unrest impacted activity in South Africa in the second half of the
year. Elsewhere, conditions in key minerals regions were positive. Buoyant
activity levels continued in South America and the rest of Africa, driven by
copper and gold projects. Weir has benefited from its exposure to these
process-intensive commodities.
The completion of existing oil sands projects and resulting increases in
production levels supported activity in North America, although new project
activity levels were low, reflecting the emerging price discount of Canadian
heavy oil compared to the WTI benchmark price as a result of transportation
constraints.
Divisional highlights
Targeted capacity addition and product localisation has supported growth in
the division's broad range of ancillary products and services. This growth has
been supported by expansion of the sales and service footprint, a key source
of market differentiation, with 13 new sites opened worldwide. Service
capability has also been enhanced through investment in local machining
capability and technical skills to support the growing product portfolio. The
division enhanced its differentiated technology position during the year with
a number of advances in materials technology which will contribute to
prolonged wear resistance in customers' critical applications. Minerals
research and development efforts have also been at the heart of major product
launches in oil and gas markets.
Order input increased by 7% to £1,322m (2011: £1,239m). Original equipment
orders grew 3% with growth weighted to the first half of the year.
Aftermarket orders grew 10%, with the growth rate recovering in the fourth
quarter following third quarter destocking in Australia and Brasil.
Aftermarket orders represented 60% of total input (2011: 58%).
Linked to new project activity, the division continued to experience good
levels of demand for slurry pumps. Aftermarket input strengthened across a
range of commodities with the benefits of a large and growing installed base
reflected in 10% order growth in slurry pump spares and strong input trends
across a larger aftermarket portfolio including several multi-million pound
orders for cyclones and valves in South America and Canada and a multi-million
pound hose contract for a Latin American project. The division also grew its
presence in the screen machine and screen media market, benefiting from
investment in localised manufacturing. The first major contract awards for
Linatex wear resistant lined valves and cyclones were received for one of the
world's largest minerals sands projects in East Africa, a highlight of a
strong overall 2012 performance in the African market. Emerging markets
accounted for 53% of input (2011: 47%) with order growth from South American
and African markets rising by 18% and 30% respectively.
Revenue increased by 12% to £1,334m (2011: £1,195m). Original equipment sales
increased 9% and accounted for 40% of revenues (2011: 41%) with second half
sales broadly matching the prior year record. Production-driven aftermarket
revenues increased by 13%.
Operating profit increased by 21% to £256m (2011: £211m) as the division
benefited from strong revenue growth and margin expansion.
Operating margin increased to 19.2% (2011: 17.7%) and was ahead of
expectations reflecting the strengthening aftermarket revenue mix alongside
benefits from procurement initiatives, productivity gains and effective cost
control. In the second half of the year margins were also supported by
targeted cost and headcount reductions in Brasil and Australia, the markets
hardest hit by falling coal and iron ore prices, with total one-off costs of
£4m incurred in the year (2011: £1m).
Capital expenditure of £50m (2011: £49m) was invested in foundry and wear
resistant lining production, as well as expansion of the division's global
sales and service footprint. Research and development spend increased by 22%
to £13m as the division continued to develop its materials technology
positions and supported collaborative innovation efforts across the Group.
OIL & GAS
Weir Oil & Gas provides superior products and service solutions to upstream,
production, transportation, refining and related industries. Upstream products
include pressure pumping equipment and services and pressure control products
and rental services. Downstream products include API 610 pumps and spare
parts. Equipment repairs, upgrades, certification and asset management & field
services are delivered globally by Weir Oil & Gas Services.
£m H1^1 H2 2012 2011^1 Growth LFL Growth
Input OE 157 110 267 479 -44% -66%
Input aftermarket 214 196 410 391 +5% -12%
Input Total 371 306 677 870 -22% -41%
Revenue OE 252 132 384 388 -1% -28%
Revenue aftermarket 238 222 460 359 +28% +8%
Revenue Total 490 354 844 747 +13% -10%
EBITA 123 88 211 185 +14% -12%
Operating margin^2 25.0% 24.9% 25.0% 24.8% +20bps -40bps
^12011 and H1 restated at 2012 average exchange rates
^2Adjusted to exclude exceptional items and intangibles amortisation
Market drivers
In North American pressure pumping markets, the dual effects of US natural gas
prices falling below economic incentive levels and relatively high, stable oil
prices resulted in a shift of drilling and completion activity from dry gas to
oil and liquids-rich shale formations. Over the year, US horizontal
gas-directed rig count declined by 43% while horizontal oil and liquids rig
count increased by around 28% with total US land rig count falling by 13%. A
decline was seen in customer activity over the final quarter of the year as
2012 drilling and completion budgets were exhausted.
Advances in technology continue to reduce the time required to drill and
complete a well, with the number of wells drilled outstripping the movement in
average rig count, supporting demand for pressure control equipment providers.
In pressure pumping, analysts estimate that frac equipment utilisation rates
had fallen to around 75% by the end of 2012 (PacWest February 2013). Total
North American frac demand of around 13 million horsepower at the end of 2012
was at similar levels to H1 2011.
Aftermarket activity was also impacted, with overstocking of fluid ends in
anticipation of higher activity and lower equipment utilisation and service
intensity, leading to pricing pressure in specific product categories. Demand
in international pressure pumping markets grew strongly during the year with
38% growth in the frac fleet outside North America to 4.4m (PacWest February
2013) horsepower.
Middle East services markets grew strongly, with increased Saudi production
and the ongoing rebuilding of Iraqi oilfield infrastructure. In downstream
markets, pricing pressure in original equipment markets began to ease with
good market opportunities in the FPSO (Floating Production, Storage and
Offloading) sector.
Divisional highlights
As anticipated, the division has maintained overall margins despite fast
changing market conditions. In a challenging North American upstream
environment, operational capability and capacity was rapidly aligned to market
needs. The division grew its market share in certain product segments despite
lower overall activity levels and the integrations of the Seaboard and
Novatech acquisitions were completed, with plans developed to internationalise
both businesses and to enter the frac flowback market.
Weir's pressure pumping focused operations (SPM, Mesa and Novatech) responded
rapidly to changing market conditions by reducing headcount, in-sourcing
machining and implementing lean initiatives and cost reduction programmes with
total annualised cost savings of cUS$25m. The expanded aftermarket pressure
pumping portfolio has enabled the successful bundling of SPM, Mesa and
Novatech products with annual commitments secured from a number of large
service companies. Outside North America, like for like upstream international
input grew by over a third during the year.
Good progress was also made by the Middle East Service operations with the
award of a number of significant contracts including a multi-million pound
rotating equipment maintenance contract for the refurbishment of the Rumaila
oilfield in Iraq. Downstream operations delivered a much improved performance
on last year due to the first benefits of the completed restructuring of the
operations.
Order input at £677m (2011: £870m) was 22% lower and 41% lower like for like
due to weakness in pressure pumping markets. Original equipment input fell 44%
and 66% like for like as pressure pumping demand fell sharply as a result of
frac pump overcapacity. Aftermarket input was up 5% but down 12% like for like
with strong growth in Services offset by lower aftermarket pressure pumping
orders.
Like for like upstream business input (SPM and Mesa) fell 51% to £359m
(US$569m), with quarterly order levels broadly flat since the second quarter
against the background of a declining rig count. A total of US$139m of 2011
orders were cancelled in the year and reflected as an opening orderbook
adjustment. Input from Seaboard was up on the equivalent pre-acquisition
period although growth moderated in the second half as market activity levels
fell.
Strong input growth was achieved at downstream and Service operations, with
Middle East Services benefiting from an enhanced operational presence and
increased activity levels in Saudi Arabia and Iraq. Improving conditions in
downstream markets contributed to higher original equipment orders including a
strategic contract in the FPSO market.
Revenue increased 13% to £844m (2011: £747m), but was down 10% like for like
with equivalent upstream revenues of £511m (US$810m) (2011: US$982m) in line
with expectations. Seaboard revenues increased 10% on the pre-acquisition
period while Novatech revenues declined, reflecting pressure pumping market
conditions. Service and downstream revenues grew by 25%.
Operating profit including joint ventures increased by 14% to £211m (2011:
£185m) but fell 12% on a like for like basis. Seaboard and Novatech
contributed £45m before integration costs of £3m (2011 acquisition and
integration costs: £5m), 10% higher than the equivalent pre-acquisition
period. Total one off costs of £4m were incurred in the year (2011: £11m).
Good profit progression at Service operations and a positive downstream profit
performance also contributed.
Operating margin of 25.0% (2011: 24.8%) increased year on year, with upstream
margins resilient despite challenging pressure pumping markets, an improved
performance in downstream and Service businesses, and lower one off costs. On
a like for like basis, margins of 25.1% were down 40bps and in line with
expectations. The division reacted quickly to the changing pressure pumping
market conditions by introducing a range of efficiency and cost reduction
measures to preserve profitability. Underlying margins at Seaboard and
Novatech were in line with the divisional average, representing a 180bps
improvement on the equivalent pre-acquisition period.
Capital expenditure of £52m (2011: £32m) was invested in support of growth
plans including flow capacity expansion at Weir SPM, integration projects at
Seaboard and Novatech and rapid response manufacturing centres in Canada and
Dubai as well as new service centres in the US, Iraq and Singapore. In
response to the lower demand environment in North America, the previously
announced US$75m expansion of Weir SPM was reduced to less than US$60m.
Overall spending on research and development increased by 46% to £8m as the
division seeks to maintain the strong new product development momentum
established in 2012.
POWER & INDUSTRIAL
Weir Power & Industrial designs and manufactures valves, pumps and turbines as
well as providing specialist support services to the global power generation,
industrial and oil and gas sectors.
Reported
£m H1^1 H2 2012 2011^1 Growth LFL Growth
Input OE 99 94 193 160 +20% +12%
Input aftermarket 96 72 168 146 +15% +14%
Input Total 195 166 361 306 +18% +13%
Revenue OE 85 85 170 169 +1% -3%
Revenue aftermarket 68 85 153 132 +15% +15%
Revenue Total 153 170 323 301 +7% +5%
EBITA 11 20 31 26 +20% +1%
Operating margin^2 7.5% 11.7% 9.7% 8.7% +100bps -40bps
^12011 and H1 restated at 2012 average exchange rates
^2Adjusted to exclude exceptional items and intangibles amortisation
Market drivers
Nuclear new build activity in the US and Europe remained on hold as
post-Fukushima safety reviews concluded, with activity throughout the year
centred on Asia-Pacific, Eastern Europe and the Middle East, where Korean EPCs
(Engineering, Procurement and Construction) won a number of major projects.
Nuclear maintenance and repair markets were positive in the US and the UK
which together with increased CCGT (Combined Cycle Gas Turbine) new build
activity in North America, provided some mitigation against lower nuclear new
build activity. In North America, low economic growth and power prices led to
project cancellations and difficult trading conditions in general industrial,
power and hydro markets although a number of hydro project opportunities
emerged towards the end of the year. While European renewables markets
continued to be subdued, the division gained traction towards the end of the
year in international projects.
Divisional highlights
The strategic focus of the division during 2012 has been driving input and
order book growth, with restructuring of the valves businesses undertaken in
order to develop a strong and unified global platform for the valves
portfolio. At the same time, initiatives to enhance operational performance
and improve margins have gained momentum, with further leverage of the low
cost supply chain and additional supply chain actions underway across the
manufacturing operations.
Order input increased by 18% to £361m (2011: £306m) with strong growth from
valves and service operations. Nuclear input of £72m (2011: £71m) included a
multi-million pound project award from a Korean EPC for nuclear service
control valves in new build reactors in the Middle East. Overall, control
valve orders more than doubled, benefiting from momentum in strategic growth
initiatives and a strong first full year performance by Weir International.
Low levels of activity in North America affected the US commercial valve
business in the second half of the year while Weir American Hydro secured a
number of multi-million dollar orders from major North American power
companies for rehabilitation, turbine runner replacement and related field
service work, including the Nine Mile Dam hydro project towards the end of the
period. European input was up year on year despite difficult economic
conditions in the eurozone. Aftermarket input of £168m (2011: £146m) benefited
from valve and service opportunities. The proportion of orders from power
markets was 60% (2011: 57%), with input from the oil and gas market growing by
12% year on year. Input from the Middle East, Africa and Asia increased by
over 30%.
Revenue increased by 7% to £323m (2011: £301m) with a strong full year
contribution from Weir International in South Korea. Like for like revenues
were up 5% with revenues from emerging markets increasing by 11% as the
division benefits from its increased routes to market.
Operating profit increased by 20% to £31m (2011: £26m), 1% like for like,
benefiting from strong revenue growth in the valve operations and a first full
year contribution from Weir International.
Operating margin increased to 9.7% (2011: 8.7%) benefiting from measures to
improve cost competitiveness alongside a reduction in one-off costs, which
totalled £1m (2011: £5m).
Capital expenditure of £19m (2011: £13m) included a new Montreal service
centre and the consolidation in July of the US valve production facilities in
a single facility at Ipswich, Massachusetts supporting the creation of a
unified global valves platform. The opening of a sales office in Seoul, South
Korea provides additional traction within the Asia-Pacific region for our
control valve, service and speciality pump businesses. Investment in research
and development was £2m.
STRATEGIC PROGRESS
The Group has delivered on its 2012 strategic priorities, strengthening the
business through targeted investment in new products and research &
development and effective management of the cost base to support continued
sustainable profit growth ahead of our end markets.
Seaboard and Novatech have been successfully integrated into the Oil & Gas
division, with both businesses performing well in challenging market
conditions. Seaboard supports the strategy of diversifying the Group's
upstream exposure to pressure pumping into the adjacent pressure control
market, which will also benefit from the long term growth prospects for
unconventional production. Growth opportunities for Seaboard have been
validated and the product range is already being taken to international
markets. At the end of the calendar year we extended our pressure control
presence in the drilling phase of the well lifecycle through an agreement to
acquire Mathena, Inc.
Flow control production capacity was added at Weir SPM, with the development
of a bundled product offering gaining traction in the second half of the year.
An initial phase of planned foundry expansion increases our ability to serve
global minerals and oil sands markets with capacity additions underway at our
European foundry centre in the UK.
The innovation framework developed in the last two years continues to bring
new products to market. The highlight in 2012 has been the five new products
launched for oil and gas customers, increasing our addressable market by some
US$500m and leveraging market leading technology from all our divisions into
the North American upstream oil and gas sector. This year, good progress has
been made on supply chain and procurement initiatives, safety performance and
the ongoing development of the people who work for Weir.
The strategy is underpinned by four pillars which drive growth - Value Chain
ExcelIence, Innovation, Collaboration and Global Capability. In 2013, we will
continue to pursue this strategy, enhancing supply chain performance to
increase customer responsiveness as we aim to grow ahead of our end markets.
We will extend the presence of the Minerals division in the comminution
market, capture the North American and international growth opportunities
available to Seaboard and Mathena in our enlarged pressure control business
and we will continue to drive growth in power markets through an integrated
global valves platform. Collaboration across the Group will be supported by
developing the IT platform and we will enhance returns through an improved
working capital performance.
MANAGEMENT AND BOARD CHANGES
As previously announced, Keith Ruddock joined the Group as General Counsel and
Company Secretary following the retirement of Alan Mitchelson at the Group's
AGM in May. Scot Smith resigned and was replaced as Divisional Managing
Director, Minerals by Dean Jenkins in August 2012, with Kevin Spencer,
previously Regional Managing Director Weir Minerals Europe replacing Dean as
Divisional Managing Director, Power & Industrial. On 15 February 2013 the
Group announced the appointment of Charles Berry to the Board as a
Non-Executive Director, with effect from 1 March 2013
POST- BALANCE SHEET EVENTS
On 31 December 2012 Weir Oil & Gas completed the acquisition of Mathena, Inc,
a leading provider of pressure control rental equipment and services for
onshore oil and gas drilling applications. Consideration was via an initial
payment of US$240m (£148m) with a further maximum deferred consideration of
US$145m payable over two years, contingent upon meeting profit growth targets.
On 20 February 2013 the Group announced the acquisition of R Wales group of
companies and the Cheong foundry in Malaysia, with agreement also reached to
acquire the Xmeco foundry in South Africa. The combined consideration for the
three acquisitions will be £55m.
OUTLOOK
MINERALS
Weir Minerals remains well positioned to benefit from the strong long term
market fundamentals in mining and minerals processing, underpinned by
urbanisation in emerging markets and their demand for raw materials. This
ongoing demand, coupled with declining ore grades, supports continued
substantial investment above historic levels by miners over the coming years,
although the medium term nature of capital investment may increasingly focus
on brownfield and production optimisation projects with absolute industry
capital expenditure levels expected to remain above 2010 levels. Global ore
production is expected to grow by over 3% per annum through to 2015,
supporting aftermarket products and services growth.
In 2013 we expect mining capex to decline relative to 2012 but remain at
levels supportive of the continued expansion of the installed base. While
fewer greenfield projects are expected to reach order point compared to the
run rate in the first half of 2012, we expect a number of brownfield
expansions as miners focus on maximising returns from existing production
assets. With the order mix continuing to shift towards aftermarket products
and services, market forecasts of positive ore production volume growth and a
continuing focus on increasing our market share of ancillary products and
services mean that we anticipate good growth in shorter cycle aftermarket
orders. Together with delivery of a strong opening order book, this is
expected to result in higher 2013 revenues and operating profits. After a
stronger than expected second half 2012 margin performance, operating margins
are expected to be at a broadly similar level to 2012 as the business balances
the benefits from the growing aftermarket mix alongside sensible cost control
and continued investment in its growth plans.
OIL & GAS
The medium term outlook for global pressure pumping and pressure control
markets remains positive, with continued investment in North American shale
plays by national and international oil companies. A relatively high and
stable oil price should support continuing North American production increases
as the US pursues energy independence. Low US gas prices are expected to
support increased US gas fired power and industrial demand as US businesses
benefit from the competitiveness of lower energy input costs. International
shale development is expected to continue to grow, with Russia, China,
Argentina, North Africa, Saudi Arabia and Australia becoming larger markets
over the next two to three years.
Pressure pumping markets are expected to remain competitive in 2013 and our
pressure pumping business unit (SPM, Mesa and Novatech) entered the year with
a considerably lower orderbook than the prior year period. Minimal levels of
original equipment capex are expected throughout 2013 with material
overcapacity continuing to affect frac pump demand. With low single digit rig
count growth forecast, aftermarket input is expected to progressively increase
as customers work through inventory levels.
In pressure control, Seaboard is expected to make good progress, as the
business seeks to benefit from the organic growth opportunities available in
frac rental, frac flowback and international markets. Additional geographic
growth opportunities also exist for Mathena's product range through the
division's leading service network.
At the Middle East Services businesses Iraqi and Saudi Arabian markets are
expected to be particularly strong. A continuation of the improved downstream
performance is forecast.
In total, divisional revenues including Mathena are expected to be slightly
lower year on year with underlying operating margins broadly in line with 2012
as exposure to pressure pumping falls to around 50% of divisional revenues
(c.15% of Group revenues).
POWER & INDUSTRIAL
Global macro-economic concerns continue to slow the recovery of general
industrial markets with an expected improvement in global power markets
leading to increased service and aftermarket demand. Several major Korean
nuclear and conventional domestic power plant projects are proceeding in 2013
and Korean EPCs continue to successfully capture global opportunities. Weir is
well positioned to benefit through its global presence and its broadened valve
range, including good control valve opportunities. As the business continues
to expand internationally we see an increasing range of opportunities for the
renewables operations. The division also expects to benefit from targeting the
aftermarket opportunities of the large valve installed base outside North
America. Strategic initiatives are expected to support increased organic
growth, particularly in Asia-Pacific and the oil and gas sector.
The financial performance in 2013 is expected to benefit from a strong opening
orderbook, steadily improving power markets, continuing momentum in strategic
initiatives and ongoing operational excellence actions resulting in revenue
and profit growth with margins broadly in line with 2012.
SUMMARY
Over the medium term the Group remains well positioned to benefit from the
structural growth expected in each of our end markets. Demand for minerals,
oil and gas and power is underpinned by continuing population growth and
industrialisation in developing economies. Growing desire for energy security
will support the international development of unconventional oil and gas
resources and industrialisation, environmental concerns and ageing power
plants will accelerate the need for new and refurbished power infrastructure.
In 2013, despite more challenging markets, the Group will continue to deliver
profitable growth through new product introductions and a range of operational
initiatives. Assuming a gradual economic and end market improvement, we expect
to deliver low single digit revenue growth and broadly stable margins in 2013
with lower first half profits offset by growth in the second half. Alongside
substantially higher cash generation the Group plans the eighth consecutive
year of double digit dividend growth.
This information includes 'forward-looking statements'. All statements other
than statements of historical fact included in this presentation, including,
without limitation, those regarding the Weir Group's financial position,
business strategy, plans (including development plans and objectives relating
to the Company's products and services) and objectives of management for
future operations, are forward-looking statements. These statements contain
the words "anticipate", "believe", "intend", "estimate", "expect" and words of
similar meaning. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are based on
numerous assumptions regarding the Company's present and future business
strategies and the environment in which the Company will operate in the
future. These forward-looking statements speak only as at the date of this
document. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based. Past business and financial performance cannot be
relied on as an indication of future performance.
AUDITED RESULTS
Consolidated Income Statement
for the 52 weeks ended 28 December 2012
52 weeks ended 30 December 2011
52 weeks ended 28 December 2012 (Restated note 1)
Before Exceptional Before Exceptional
exceptional items & exceptional items &
items & intangibles items & intangibles
intangibles amortisation intangibles amortisation
amortisation (note 3) Total amortisation (note 3) Total
Notes £m £m £m £m £m £m
Continuing
operations
Revenue 2 2,538.3 - 2,538.3 2,292.0 - 2,292.0
Continuing
operations
Operating
profit before
share of
results of
joint ventures 479.2 (16.5) 462.7 407.9 (4.8) 403.1
Share of
results of
joint ventures 6.4 - 6.4 4.8 - 4.8
Operating
profit 485.6 (16.5) 469.1 412.7 (4.8) 407.9
Finance costs (46.5) (2.6) (49.1) (19.4) (0.7) (20.1)
Finance income 5.2 - 5.2 4.3 - 4.3
Other finance
costs -
retirement
benefits (1.2) - (1.2) (1.3) - (1.3)
Profit before
tax from
continuing
operations 443.1 (19.1) 424.0 396.3 (5.5) 390.8
Tax expense 4 (124.2) 12.6 (111.6) (114.2) 1.8 (112.4)
Profit for the
period from
continuing
operations 318.9 (6.5) 312.4 282.1 (3.7) 278.4
Profit for the
period from
discontinued
operations 5 - 3.3 3.3 - 19.9 19.9
Profit for the
period 318.9 (3.2) 315.7 282.1 16.2 298.3
Attributable to
Equity holders
of the Company 318.6 (3.2) 315.4 282.1 16.2 298.3
Non-controlling
interests 0.3 - 0.3 - - -
318.9 (3.2) 315.7 282.1 16.2 298.3
Earnings per
share 6
Basic - total
operations 148.6p 141.2p
Basic -
continuing
operations 150.1p 147.1p 133.6p 131.8p
Diluted - total
operations 147.7p 139.8p
Diluted -
continuing
operations 149.2p 146.2p 132.2p 130.5p
Consolidated Statement of Comprehensive Income
for the 52 weeks ended 28 December 2012
(Restated
note 1)
52 weeks 52 weeks
ended 28 ended 30
December December
2012 2011
£m £m
Profit for the period 315.7 298.3
Other comprehensive income
Gains (losses) taken to equity on cash flow hedges 1.4 (1.1)
Exchange losses on translation of foreign operations (84.9) (18.9)
Exchange gains (losses) on net investment hedges 38.6 (1.4)
Actuarial losses on defined benefit plans (14.1) (45.0)
Reclassification adjustments taken to the income statement on cash
flow hedges 0.8 (1.5)
Tax relating to other comprehensive income 3.0 12.2
Net other comprehensive income (55.2) (55.7)
Total net comprehensive income for the period 260.5 242.6
Attributable to
Equity holders of the Company 260.5 242.6
Non-controlling interests - -
260.5 242.6
Consolidated Balance Sheet
at 28 December 2012
(Restated
note 1)
30
28 December December
2012 2011
Notes £m £m
ASSETS
Non-current assets
Property, plant & equipment 374.0 318.9
Intangible assets 1,454.1 1,415.1
Investments in joint ventures 12.0 11.4
Deferred tax assets 30.4 38.7
Derivative financial instruments 11 0.8 0.1
Total non-current assets 1,871.3 1,784.2
Current assets
Inventories 512.7 463.8
Trade & other receivables 478.2 516.1
Construction contracts 21.7 19.6
Derivative financial instruments 11 3.6 6.4
Income tax receivable 4.1 11.6
Cash & short-term deposits 391.1 113.9
Total current assets 1,411.4 1,131.4
Total assets 3,282.7 2,915.6
LIABILITIES
Current liabilities
Interest-bearing loans & borrowings 65.4 92.0
Trade & other payables 485.8 569.1
Construction contracts 13.7 26.8
Derivative financial instruments 11 14.7 24.4
Income tax payable 28.6 33.4
Provisions 36.4 55.5
Total current liabilities 644.6 801.2
Non-current liabilities
Interest-bearing loans & borrowings 1,014.6 695.1
Other payables 26.3 15.5
Derivative financial instruments 11 0.8 15.2
Provisions 33.2 37.1
Deferred tax liabilities 162.5 149.3
Retirement benefit plan deficits 10 90.4 84.7
Total non-current liabilities 1,327.8 996.9
Total liabilities 1,972.4 1,798.1
NET ASSETS 1,310.3 1,117.5
CAPITAL & RESERVES
Share capital 26.7 26.6
Share premium 38.0 38.0
Treasury shares (5.6) (5.6)
Capital redemption reserve 0.5 0.5
Foreign currency translation reserve 37.5 83.5
Hedge accounting reserve 0.2 (1.6)
Retained earnings 1,209.8 974.0
Shareholders equity 1,307.1 1,115.4
Non-controlling interests 3.2 2.1
TOTAL EQUITY 1,310.3 1,117.5
Consolidated Cash Flow Statement
for the 52 weeks ended 28 December 2012
52 weeks 52 weeks
ended 28 ended 30
December December
2012 2011
Notes £m £m
Continuing operations
Cash flows from operating activities 12
Cash generated from operations 398.6 302.6
Additional pension contributions paid (7.5) (6.6)
Income tax paid (104.9) (97.3)
Net cash generated from operating activities 286.2 198.7
Continuing operations
Cash flows from investing activities
Acquisitions of subsidiaries 12 (123.3) (386.0)
Disposals of subsidiaries 12 22.9 -
Purchases of property, plant & equipment & intangible
assets 8 (123.6) (95.4)
Other proceeds from sale of property, plant & equipment
& intangible assets 7.3 4.0
Interest received 5.1 4.3
Dividends received from joint ventures 5.4 4.1
Net cash used in investing activities (206.2) (469.0)
Continuing operations
Cash flows from financing activities
Purchase of shares for equity settled share-based
incentives (3.0) (0.4)
Proceeds from borrowings 786.9 469.0
Repayments of borrowings (462.5) (50.8)
Settlement of external debt of subsidiary on
acquisition 12 (1.9) (55.4)
Settlement of derivative financial instruments (11.0) (10.9)
Interest paid (33.4) (17.7)
Proceeds from increase in non-controlling interests 1.0 1.7
Dividends paid to equity holders of the Company (71.7) (59.5)
Net cash generated from financing activities 204.4 276.0
Net increase in cash & cash equivalents from continuing
operations 284.4 5.7
Net increase in cash & cash equivalents from
discontinued operations - investing activities - 24.6
Cash & cash equivalents at the beginning of the period 108.6 79.5
Foreign currency translation differences (8.8) (1.2)
Cash & cash equivalents at the end of the period 12 384.2 108.6
Consolidated Statement of Changes in Equity
for the 52 weeks ended 28 December 2012
Foreign Attributable
Capital currency Hedge to equity
Share Share Treasury redemption translation accounting Retained holders of Non-controlling Total
capital premium shares reserve reserve reserve earnings the Company interests equity
£m £m £m £m £m £m £m £m £m £m
At 31 December
2010 26.6 38.0 (6.8) 0.5 103.8 0.4 758.8 921.3 0.4 921.7
Profit for the
period - - - - - - 298.3 298.3 - 298.3
Losses taken to
equity on cash
flow hedges - - - - - (1.1) - (1.1) - (1.1)
Exchange losses
on translation
of foreign
operations - - - - (18.9) - - (18.9) - (18.9)
Exchange losses
on net
investment
hedges - - - - (1.4) - - (1.4) - (1.4)
Actuarial losses
on defined
benefit plans - - - - - - (45.0) (45.0) - (45.0)
Reclassification
adjustments
taken to the
income statement
on cash flow
hedges - - - - - (1.5) - (1.5) - (1.5)
Tax relating to
other
comprehensive
income - - - - - 0.6 11.6 12.2 - 12.2
Total net
comprehensive
income for the
period - - - - (20.3) (2.0) 264.9 242.6 - 242.6
Proceeds from
increase in
non-controlling
interests - - - - - - - - 1.7 1.7
Cost of
share-based
payments
inclusive of tax
credits - - - - - - 11.0 11.0 - 11.0
Dividends - - - - - - (59.5) (59.5) - (59.5)
Exercise of LTIP
awards - - 1.2 - - - (1.2) - - -
At 30 December
2011 (restated
note 1) 26.6 38.0 (5.6) 0.5 83.5 (1.6) 974.0 1,115.4 2.1 1,117.5
Profit for the
period - - - - - - 315.4 315.4 0.3 315.7
Gains taken to
equity on cash
flow hedges - - - - - 1.4 - 1.4 - 1.4
Exchange losses
on translation
of foreign
operations - - - - (84.6) - - (84.6) (0.3) (84.9)
Exchange gains
on net
investment
hedges - - - - 38.6 - - 38.6 - 38.6
Actuarial losses
on defined
benefit plans - - - - - - (14.1) (14.1) - (14.1)
Reclassification
adjustments
taken to the
income statement
on cash flow
hedges - - - - - 0.8 - 0.8 - 0.8
Tax relating to
other
comprehensive
income - - - - - (0.4) 3.4 3.0 - 3.0
Total net
comprehensive
income for the
period - - - - (46.0) 1.8 304.7 260.5 - 260.5
Proceeds from
increase in
non-controlling
interests - - - - - - - - 1.1 1.1
Cost of
share-based
payments
inclusive of tax
charge - - - - - - 4.9 4.9 - 4.9
Dividends - - - - - - (71.7) (71.7) - (71.7)
Purchase of
shares* - - (2.0) - - - - (2.0) - (2.0)
Exercise of LTIP
awards 0.1 - 2.0 - - - (2.1) - - -
At 28 December
2012 26.7 38.0 (5.6) 0.5 37.5 0.2 1,209.8 1,307.1 3.2 1,310.3
* These shares were purchased on the open market and are held by the Appleby
EBT on behalf of the Group for satisfaction of any future vesting of the
deferred bonus plan.
Notes to the Audited Results
1. Accounting policies
Basis of preparation
The audited results for the 52 weeks ended 28 December 2012 ("2012") have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with the
provisions of The Companies Act 2006.
The financial information set out in the audited results does not constitute the Group's statutory financial
statements for the 52 weeks ended 28 December 2012 within the meaning of section 434 of the Companies Act 2006 and has
been extracted from the full financial statements for the 52 weeks ended 28 December 2012.
Statutory financial statements for the 52 weeks ended 30 December 2011, which received an unqualified audit report,
have been delivered to the Registrar of Companies. The reports of the auditors on the financial statements for each
of the 52 weeks ended 30 December 2011 and 28 December 2012 were unqualified and did not contain a statement under
either section 498(2) or section 498(3) of the Companies Act 2006. The financial statements for the 52 weeks ended 28
December 2012 will be delivered to the Registrar of Companies and made available to all shareholders in due course.
The accounting policies applied in preparing these audited results are unchanged from those set out in the Group's
2011 annual report except as described below.
The following standards and interpretations have been adopted in these financial statements and have not had a
material impact on the Group's financial statements in the period of initial application:
IFRS 7 Financial Instruments: Disclosure (Amendment)
IAS12 Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets
These financial statements are presented in sterling. All values are rounded to the nearest 0.1 million pounds (£m)
except where otherwise indicated.
In order to provide the users of the financial statements with a more relevant presentation of the Group's underlying
performance, profit for each financial year has been analysed between:
i) profit before exceptional items and intangibles amortisation; and
ii) the effect of exceptional items and intangibles amortisation.
a. Exceptional items are items of income and expense which, because of the nature, size and / or infrequency of
the events giving rise to them, merit separate presentation to allow a better understanding of the elements of the
Group's financial performance for the period and are presented on the face of the income statement to facilitate
comparisons with prior periods and assessment of trends in financial performance. Exceptional items may include but
are not restricted to: profits or losses arising on disposal of business or on closures of business; the cost of
significant business restructuring; significant impairments of intangible or tangible assets; adjustments to the fair
value of acquisition related items such as contingent consideration and inventory; other items deemed exceptional due
to their significance, size or nature; and the related exceptional taxation.
b. Intangibles amortisation, including impairment, has been shown separately to provide increased visibility over
the impact of increased acquisition activity on intangible assets.
Further analysis of the items included in the column "Exceptional items & intangibles amortisation" is provided in
note 3 to the financial statements.
During the 52 weeks ended 28 December 2012, the provisional fair values attributed to the 2011 acquisitions of Weir
International and Seaboard were finalised. In accordance with IFRS3, the net impact of the adjustments to the
provisional fair values has been recognised by means of a decrease to goodwill and the adjustments to the provisional
amounts have been recognised as if the accounting for the business combinations had been completed at the relevant
acquisition dates. As such, all affected balances and amounts have been restated in the financial statements. To this
effect, the Consolidated Balance Sheet and affected notes present restated comparative information as at 30 December
2011. The Consolidated Income Statement for the 52 weeks ended 30 December 2011 has been restated to reflect £0.7m
amortisation of customer relationships. Further details of the adjustments made to the provisional fair values can be
found in note 9.
In addition, the provisional fair values of the acquisition of Novatech in February 2012 were also finalised during
the period and details can be found in note 9.
2. Segment information
For management purposes, the Group is organised into three operating divisions: Minerals, Oil & Gas and Power &
Industrial. These three divisions are organised and managed separately based on the key markets served and each is
treated as an operating segment and a reportable segment in accordance with IFRS8. The operating and reportable
segments were determined based on the reports reviewed by the Chief Executive which are used to make operational
decisions.
The Minerals segment is the global leader in the provision of slurry handling equipment and associated aftermarket
support for abrasive high wear applications used in the mining and oil sands. The Oil & Gas segment provides products
and service solutions to upstream, production, transportation, refining and related industries. The Power & Industrial
segment designs and manufactures valves, pumps and turbines as well as providing specialist support services to the
global power generation, industrial and oil and gas sectors. All other segments, which are disclosed as Group
companies, include the results of LGE Process which supplies equipment to the liquefied petroleum gas marine and
onshore markets. This business was sold on 28 December 2012 (note 3).
The Chief Executive assesses the performance of the operating segments based on operating profit from continuing
operations before exceptional items and intangibles amortisation, including impairment ("segment result"). Finance
income and expenditure and associated interest-bearing liabilities and derivative financial instruments are not
allocated to segments as all treasury activity is managed centrally by the Group treasury function. The amounts
provided to the Chief Executive with respect to assets and liabilities are measured in a manner consistent with that
of the financial statements. The assets are allocated based on the operations of the segment and the physical location
of the asset. The liabilities are allocated based on the operations of the segment.
Transfer prices between business segments are set on an arm's length basis in a manner similar to transactions with
third parties.
The segment information for the reportable segments for the 52 weeks ended 28 December 2012 and the 52 weeks ended 30
December 2011 is disclosed below.
Total continuing
Minerals Oil & Gas Power & Industrial operations
2012 2011 2012 2011 2012 2011 2012 2011
£m £m £m £m £m £m £m £m
Revenue
Sales to external
customers 1,333.6 1,216.3 843.6 742.7 323.4 306.7 2,500.6 2,265.7
Inter-segment sales 4.3 5.2 15.3 14.7 4.0 6.6 23.6 26.5
Segment revenue 1,337.9 1,221.5 858.9 757.4 327.4 313.3 2,524.2 2,292.2
Group companies sales
to external customers 37.7 26.3
Eliminations (23.6) (26.5)
2,538.3 2,292.0
Sales to external customers - 2011
at 2012 average exchange rates
Sales to external
customers 1,333.6 1,195.3 843.6 746.8 323.4 301.4 2,500.6 2,243.5
Group companies sales
to external customers 37.7 26.3
2,538.3 2,269.8
Result (restated note
1)
Segment result before
share of results of
joint ventures 255.9 213.9 204.2 178.3 31.5 26.8 491.6 419.0
Share of results of
joint ventures - - 6.4 4.8 - - 6.4 4.8
Segment result 255.9 213.9 210.6 183.1 31.5 26.8 498.0 423.8
Group companies 2.5 3.0
Unallocated expenses (14.9) (14.1)
Operating profit before
exceptional items &
intangibles
amortisation 485.6 412.7
Total exceptional items
& intangibles
amortisation (19.1) (5.5)
Net finance costs
before exceptional
items (41.3) (15.1)
Other finance costs -
retirement benefits (1.2) (1.3)
Profit before tax from
continuing operations 424.0 390.8
Segment result - 2011
at 2012 average
exchange rates
Segment result before
share of results of
joint ventures 255.9 211.5 204.2 180.2 31.5 26.0 491.6 417.7
Share of results of
joint ventures - - 6.4 4.9 - - 6.4 4.9
Segment result 255.9 211.5 210.6 185.1 31.5 26.0 498.0 422.6
Group companies 2.5 3.0
Unallocated expenses (14.9) (14.1)
Operating profit before
exceptional items &
intangibles
amortisation 485.6 411.5
There are no material revenues derived from a single external customer.
3. Exceptional items & intangibles amortisation
2011
Restated
2012 (note 1)
£m £m
Recognised in arriving at operating profit from continuing operations
Intangibles amortisation (36.7) (23.8)
Exceptional item - charging of fair value inventory uplift (4.5) -
Exceptional item - gain on sale of LGE Process 30.5 -
Exceptional item - uplift in respect of contingent consideration liability (5.8) -
Exceptional item - past service gain on UK defined benefit scheme - 19.0
(16.5) (4.8)
Recognised in finance costs
Exceptional item - unwind of discount in respect of contingent consideration liability (2.6) (0.7)
Recognised in arriving at profit for the period from discontinued operations
Exceptional items (note 5) 3.3 19.9
4. Income tax expense
2011
Restated
2012 (note 1)
£m £m
Group - UK (5.8) (11.4)
Group - overseas (105.8) (101.0)
Total income tax expense in the Consolidated Income Statement (111.6) (112.4)
The total income tax expense is disclosed in the Consolidated Income Statement as follows.
Tax expense - continuing operations before exceptional items & intangibles amortisation (124.2) (114.2)
- exceptional items 1.5 (4.8)
- intangibles amortisation 11.1 6.6
Total income tax expense in the Consolidated Income Statement (111.6) (112.4)
The total income tax expense included in the Group's share of results of joint ventures is as
follows.
Joint ventures (1.2) (0.6)
5. Discontinued operations
There were no disposals of core businesses during the 52 weeks ended 28 December 2012 or the 52 weeks ended 30
December 2011. The profit arising from discontinued operations of £3.3m was as a result of the release of unutilised
provisions relating to prior year disposals on expiration of the tax warranty periods.
In December 2011, the Group disposed of the former Weir Pumps site at Cathcart to SPX Clyde UK Limited for cash
proceeds of £25.0m resulting in a net gain of £19.9m (net of tax of £nil) after taking account of disposal costs and
other costs arising from discontinued operations. Since the property was used by the Weir Pumps business, which was
sold in 2007, the net gain was shown as a profit from discontinued operations.
Earnings per share from discontinued operations were as follows.
2012 2011
pence pence
Basic 1.6 9.4
Diluted 1.5 9.3
These earnings per share figures were derived by dividing the net loss attributable to equity holders of the Company
from discontinued operations of £3.3m (2011: £19.9m) by the weighted average number of ordinary shares for both basic
and diluted amounts shown in note 6.
6. Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the period attributable to equity holders
of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per
share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average
number of ordinary shares outstanding during the period (adjusted for the effects of dilutive share awards).
The following reflects the profit and share data used in the calculation of earnings per share.
2011
Restated
2012 (note 1)
Profit attributable to equity holders of the Company
Total operations * (£m) 315.4 298.3
Continuing operations * (£m) 312.1 278.4
Continuing operations before exceptional items & intangibles amortisation * (£m) 318.6 282.1
Weighted average share capital
Basic earning per share (number of shares, million) 212.2 211.2
Diluted earnings per share (number of shares, million) 213.5 213.4
The difference between the weighted average share capital for the purposes of the basic and the diluted earnings per
share calculations is analysed as follows.
2012 2011
Shares
Shares Million Million
Weighted average number of ordinary shares for basic earnings per share 212.2 211.2
Effect of dilution: LTIP and deferred bonus awards 1.3 2.2
Adjusted weighted average number of ordinary shares for diluted earnings per share 213.5 213.4
The profit attributable to equity holders of the Company used in the calculation of both basic and diluted earnings
per share from continuing operations before exceptional items and intangibles amortisation is calculated as follows.
2011
Restated
2012 (note 1)
£m £m
Net profit attributable to equity holders from continuing operations * 312.1 278.4
Exceptional items & intangibles amortisation net of tax 6.5 3.7
Net profit attributable to equity holders from continuing operations before exceptional items
& intangibles amortisation * 318.6 282.1
2012 2011
pence pence
Basic earnings per share:
Total operations* 148.6 141.2
Continuing operations* 147.1 131.8
Continuing operations before exceptional items & intangibles amortisation* 150.1 133.6
Diluted earnings per share:
Total operations* 147.7 139.8
Continuing operations* 146.2 130.5
Continuing operations before exceptional items & intangibles amortisation* 149.2 132.2
*Adjusted for £0.3m (2011: £nil) in respect of non-controlling interests.
There have been no share options (2011: nil) exercised between the reporting date and the date of signing of these
financial statements.
7. Dividends paid & proposed
2012 2011
£m £m
Declared & paid during the period
Equity dividends on ordinary shares
Final dividend for 2011: 25.8p (2010: 21.0p) 54.8 44.3
Interim dividend for 2012: 8.0p (2011: 7.2p) 16.9 15.2
71.7 59.5
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2012: 30.0p (2011: 25.8p) 63.8 54.5
The proposed dividend is based on the number of shares in issue, excluding treasury shares held, at the date the
financial statements were approved and authorised for issue.
The final dividend may differ due to increases or decreases in the number of shares in issue between the date of
approval of the report and financial statements and the record date for the final dividend.
8. Property, plant & equipment & intangible assets
2012 2011
£m £m
Purchases of property, plant & equipment & intangible assets
- land & buildings 27.9 18.0
- plant & equipment 87.4 72.1
- intangible assets 8.3 5.3
123.6 95.4
Impairment of plant & equipment - 0.4
In 2011 the impairment charge of £0.4m related to specific assets in one location which were unable to be transferred
to that operation's new location.
9. Business combinations
On 4 January 2012, the Group completed the acquisition of Gema Industri AB and Gema Industrigummi AB ("Gema") for an
initial net cash consideration of £5m. Based in Gallivare, Sweden, Gema's core business is providing maintenance
services to mines in northern Sweden. At 28 December 2012, the Group had acquired 100% of the voting shares of Gema
Industrigummi AB and 99% of the voting shares of Gema Industri AB and is in the process of acquiring the remaining
shares in accordance with Swedish company law which has resulted in a further cash consideration of £0.6m.
On 22 February 2012, the Group completed the acquisition of 100% of the voting shares of Novatech LLC ("Novatech") for
a cash consideration of US$192m (£121m), net cash consideration of US$176m (£111m). Based in Dallas, Texas, Novatech
produces a wide variety of valves for high pressure applications used in unconventional upstream oil and gas
operations. The fair values of Novatech are disclosed in the following table. The fair values are final following the
completion of the fair value exercise in respect of each class of asset. There are certain intangible assets included
in the £52.6m of goodwill recognised that cannot be individually separated and reliably measured due to their nature.
These items include anticipated business growth, synergies and an assembled workforce. The fair value and gross amount
of the trade receivables amount to £5.2m. None of the trade receivables have been impaired.
Weir
Novatech
2012
Fair
values
£m
Property, plant & equipment 6.7
Inventories 7.3
Intangible assets
- customer relationships 53.4
- brand name 4.5
- order backlog 1.8
- intellectual property 4.7
Trade & other receivables 5.2
Cash & cash equivalents 10.2
Interest-bearing loans & borrowings (1.9)
Trade & other payables (1.9)
Provisions (0.1)
Deferred tax (23.0)
Fair value of net assets 66.9
Goodwill arising on acquisition 52.6
Total consideration 119.5
Cash consideration 121.4
Settlement of external debt of subsidiaries on acquisition (1.9)
Total consideration 119.5
The total net cash outflow on current year acquisitions was as follows:
Weir Novatech
- cash & cash equivalents acquired 10.2
- cash paid (121.4)
Gema - net cash outflow (5.6)
Total cash outflow (116.8)
The Group acquired 60% of the voting shares of Weir International on 1 July 2011 and 100% of the voting shares of
Seaboard on 14 December 2011. The remaining 40% of the voting shares of Weir International is subject to put and call
options exercisable between 2014 and 2019 and based upon an EBITDA multiple of profit in the two years preceding the
exercise of the options. The cash consideration paid was £9.8m and the estimated fair value of the contingent
consideration is £19.6m. This is based on an assessment of the probability of possible outcomes discounted to net
present value. The range of possible outcomes on an undiscounted basis is between zero and £50.0m.
In the 2011 annual report and accounts, the fair values on acquisition of Seaboard and Weir International were
provisional, due to the timing of the transactions. In the 52 weeks ended 28 December 2012, the fair values of
Seaboard and Weir International have been finalised resulting in adjustments to the provisional fair values
attributed. The following table summarises the adjustments made to the provisional fair values during the period.
Adjustments to provisional fair
Provisional fair values values Restated fair values
Weir Weir Weir Weir Weir Weir
Seaboard International Total Seaboard International Total Seaboard International Total
2011 2011 2011 2011 2011 2011 2011 2011 2011
£m £m £m £m £m £m £m £m £m
Property, plant
& equipment
- land &
buildings 0.6 - 0.6 0.3 - 0.3 0.9 - 0.9
- plant &
equipment 22.5 0.1 22.6 (3.2) - (3.2) 19.3 0.1 19.4
Intangible
assets
- brand name - - - 31.6 - 31.6 31.6 - 31.6
- customer
relationships - - - 157.6 7.6 165.2 157.6 7.6 165.2
Inventories 29.6 0.7 30.3 (6.0) - (6.0) 23.6 0.7 24.3
Trade & other
receivables 42.3 1.1 43.4 (1.1) - (1.1) 41.2 1.1 42.3
Cash & cash
equivalents 2.2 0.2 2.4 - - - 2.2 0.2 2.4
Interest-bearing
loans &
borrowings (55.4) (0.2) (55.6) - - - (55.4) (0.2) (55.6)
Trade & other
payables (41.5) (1.6) (43.1) (3.6) - (3.6) (45.1) (1.6) (46.7)
Provisions
- warranty (1.5) - (1.5) (1.8) - (1.8) (3.3) - (3.3)
- other - - - (0.5) - (0.5) (0.5) - (0.5)
Income tax 6.3 (0.1) 6.2 - - - 6.3 (0.1) 6.2
Deferred tax 1.1 - 1.1 (67.2) - (67.2) (66.1) - (66.1)
Fair value of
net assets 6.2 0.2 6.4 106.1 7.6 113.7 112.3 7.8 120.1
Goodwill arising
on acquisition 379.6 23.6 403.2 (106.1) (7.6) (113.7) 273.5 16.0 289.5
Total
consideration 385.8 23.8 409.6 - - - 385.8 23.8 409.6
Cash
consideration 432.1 9.8 441.9 - - - 432.1 9.8 441.9
Settlement of
external debt on
acquisition (55.4) - (55.4) - - - (55.4) - (55.4)
Contingent
consideration 9.1 14.0 23.1 - - - 9.1 14.0 23.1
Total
consideration 385.8 23.8 409.6 - - - 385.8 23.8 409.6
The cash outflow
on acquisitions
was as follows
Cash & cash
equivalents
acquired 2.2 0.2 2.4 - - - 2.2 0.2 2.4
Cash paid (432.1) (9.8) (441.9) - - - (432.1) (9.8) (441.9)
Net cash outflow (429.9) (9.6) (439.5) - - - (429.9) (9.6) (439.5)
Together, Seaboard and Novatech contributed £173.3m to revenue and £45.5m to operating profit in the 52 weeks ended 28
December 2012. The contribution of Novatech to revenue and to profit for the period from continuing operations after
exceptional items and intangibles amortisation was not material and so has not been separately disclosed. The combined
revenue and profit for the period from continuing operations after exceptional items and intangibles' amortisation of
the Group, assuming that Novatech had been acquired at the start of 2012, would have been £2,544.9m and £313.9m
respectively. The revenue and operating profit of Gema have not been disclosed as they are deemed to be immaterial.
Acquisition costs in relation to Novatech of £0.3m have been included within operating profit.
10. Pensions & other post-employment benefit plans
2012 2011
£m £m
Plans in deficit 90.4 84.7
The net Group deficit for retirement benefit obligations at the period end was £90.4m (2011: £84.7m) reflecting
equity / bond market performance and yield movements.
The past service gain for 2011 of £19.0m arose as a result of a decision by the Trustees of The Weir Group Pension and
Retirement Saving Scheme that, following the Government's change in legislation, certain elements of pension would
increase in line with Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). This decision was
announced to the members of the scheme in July 2011. The past service gain was recognised last year as an exceptional
item in the Consolidated Income Statement.
11. Derivative financial instruments
Set out in the table below is a summary of the types of derivative financial instruments included within each balance
sheet category.
2012 2011
£m £m
Included in non-current assets
Forward foreign currency contracts designated as cash flow hedges - 0.1
Other forward foreign currency contracts 0.8 -
0.8 0.1
Included in current assets
Forward foreign currency contracts designated as cash flow hedges 0.2 0.6
Other forward foreign currency contracts 3.4 5.8
3.6 6.4
Included in current liabilities
Forward foreign currency contracts designated as cash flow hedges 0.1 2.1
Forward foreign currency contracts designated as net investment hedges 0.3 0.4
Cross currency swaps designated as net investment hedges - 12.9
Other cross currency swaps 9.1 -
Other forward foreign currency contracts 5.2 9.0
14.7 24.4
Included in non-current liabilities
Forward foreign currency contracts designated as cash flow hedges - 0.7
Cross currency swaps designated as net investment hedges 0.5 14.3
Other forward foreign currency contracts 0.3 0.2
0.8 15.2
Net derivative financial liabilities 11.1 33.1
12. Additional cash flow information
2011
Restated
2012 (note 1)
£m £m
Continuing operations
Net cash generated from operations
Operating profit 469.1 407.9
Non cash exceptional items (20.2) -
Share of results of joint ventures (6.4) (4.8)
Depreciation of property, plant & equipment 49.4 37.3
Amortisation of intangible assets 36.7 23.8
Impairment of plant & equipment - 0.4
Gains on disposal of property, plant & equipment (0.9) (0.8)
Defined benefit plans past service credit - (19.0)
Funding of pension & post-retirement costs (1.3) (1.3)
Employee share schemes 7.5 4.9
Net foreign exchange including derivative financial instruments 0.3 4.5
(Decrease) increase in provisions (18.7) 5.0
Cash generated from operations before working capital cash flows 515.5 457.9
Increase in inventories (61.6) (137.6)
Decrease (increase) in trade & other receivables & construction contracts 24.4 (127.8)
(Decrease) increase in trade & other payables & construction contracts (79.7) 110.1
Cash generated from operations 398.6 302.6
Additional pension contributions paid (7.5) (6.6)
Income tax paid (104.9) (97.3)
Net cash generated from operating activities 286.2 198.7
The settlement of the external debt of Seaboard and Novatech on acquisition has been classified as a financing cash
flow in accordance with IAS7
The following tables summarise the cashflows arising on acquisitions:
2012 2011
£m £m
Acquisitions of subsidiaries
Current period acquisitions (see below) (114.9) (384.1)
Previous periods acquisitions contingent consideration paid (8.4) (1.9)
(123.3) (386.0)
Settlement of external debt of subsidiary on acquisition (1.9) (55.4)
Acquisition of subsidiaries - current year acquisitions (114.9) (384.1)
Total cash outflow on acquisition of subsidiaries - current year (note 9) (116.8) (439.5)
Previous periods acquisitions contingent consideration paid (8.4) (1.9)
Total cash outflow relating to acquisitions (125.2) (441.4)
Disposals of subsidiaries
Current period disposals - proceeds 25.2 -
- cash disposed of (1.8) -
Prior period disposals (0.5) -
22.9 -
Cash and cash equivalents comprise the following
Cash & short term deposits 391.1 113.9
Bank overdrafts & short-term borrowings (6.9) (5.3)
384.2 108.6
Reconciliation of net increase in cash & cash equivalents to movement in net debt
Net increase in cash & cash equivalents from continuing operations 284.4 5.7
Net increase in cash & cash equivalents from discontinued operations - investing activities
(note 5) - 24.6
Net increase in debt (322.6) (362.8)
Change in net debt resulting from cash flows (38.2) (332.5)
Lease inceptions (0.1) (0.9)
Loans acquired (2.3) (55.6)
Foreign currency translation differences 24.9 (0.6)
Change in net debt during the period (15.7) (389.6)
Net debt at the beginning of the period (673.2) (283.6)
Net debt at the end of the period (688.9) (673.2)
Net debt comprises the following
Cash & short-term deposits 391.1 113.9
Current interest-bearing loans & borrowings (65.4) (92.0)
Non-current interest-bearing loans & borrowings (1,014.6) (695.1)
(688.9) (673.2)
Proceeds from sale 25.2 -
Cash disposed (1.8) -
Net cash inflow from current year disposals 23.4 -
Current year disposals had the following effect on the Group's assets and liabilities
Trade and other receivables 6.2 -
Construction contract assets 0.9 -
Net derivative financial instruments (0.6) -
Trade and other payables (8.1) -
Construction contract liabilities (6.7) -
Provisions (2.9) -
Net assets disposed (11.2) -
13. Related party disclosures
The following table provides the total amount of significant transactions which have been entered into with related
parties for the relevant financial year and outstanding balances at the period end.
2012 2011
£m £m
Sales of goods to related parties - joint ventures 1.0 0.5
Sales of services to related parties - joint ventures 0.2 0.2
Purchases of goods from related parties - joint ventures 1.7 0.8
Purchases of services from related parties - joint ventures 2.6 1.6
Amounts owed to related parties - group pension plans 1.4 1.5
14. Legal claims
The company and certain subsidiaries are, from time to time, parties to legal proceedings and claims which arise in
the normal course of business.
On 6 February 2013, an Opinion & Order was filed with the United States District Court, Southern District of New York
dismissing the claim against the Company (being one of many companies targeted) relating to a civil action for damages
arising from the UN Oil for Food programme which was raised in the US. Subsequently the Iraqi Government filed notice
of appeal and at the time of writing there has been no ruling by the Court on this appeal. We will continue to defend
this action vigorously.
To the extent not already provided for, the directors do not anticipate that the outcome of these proceedings and
claims, either individually or in aggregate, will have a material adverse effect upon the Group's financial position.
15. Exchange rates
The principal exchange rates applied in the preparation of these financial statements were as follows.
2012 2011
Average rate (per £)
US dollar 1.58 1.60
Australian dollar 1.53 1.56
Euro 1.23 1.15
Canadian dollar 1.58 1.59
Brazilian real 3.10 2.68
Chilean peso 770.51 774.99
South African rand 13.01 11.64
Closing rate (per £)
US dollar 1.62 1.55
Australian dollar 1.56 1.51
Euro 1.22 1.20
Canadian dollar 1.61 1.58
Brazilian real 3.30 2.89
Chilean peso 775.72 805.90
South African rand 13.69 12.53
The Group's operating profit from continuing operations before exceptional items and intangibles amortisation was
denominated in the following currencies.
2012 2011
£m £m
US dollar 302.5 253.5
Australian dollar 57.4 57.0
Euro 36.4 27.7
Canadian dollar 34.9 29.5
Brazilian real 7.8 11.7
Chilean peso 31.3 24.4
South African rand 8.8 8.4
United Kingdom pound (19.2) (18.8)
Other 25.7 19.3
Operating profit from continuing operations before exceptional items & intangibles
amortisation 485.6 412.7
16. Events after the balance sheet
On 31 December 2012, the Group completed the acquisition of Mathena Inc for an initial cash consideration of US$240m
(£148m) with potential additional payments of US$145m payable over two years, contingent upon meeting profit growth
targets.
On 20 February 2013, the Group announced the acquisition of R Wales and Cheong foundry and the agreement to acquire a
heavy bay foundry in South Africa for a total combined consideration of £55m.
No further disclosures have been provided under IFRS3 in respect of business combinations after the balance sheet date
on the basis that the initial accounting is not yet complete.
------------------------------------------------------------------------------
This announcement is distributed by Thomson Reuters on behalf of Thomson
Reuters clients.
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other
applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of
the
information contained therein.
Source: The Weir Group PLC via Thomson Reuters ONE
HUG#1681279
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