Final Results - Year Ended 31 December 1999

Weir Group PLC 22 March 2000 THE WEIR GROUP PLC PRELIMINARY RESULTS FOR 1999 RESULTS FOR THE 52 WEEKS TO 31ST DECEMBER 1999 HIGHLIGHTS 1999 1998 % - Turnover £754.9m £724.9m +4.1 - Operating Profit (pre-exceptional and goodwill amortisation) £56.9m £61.6m -7.6 - Pre-Tax Profit (pre-exceptional and goodwill amortisation) £53.3m £64.0m -16.7 - Earnings per share (pre-exceptional and goodwill amortisation) 19.6p 23.2p -15.5 - Dividend 10.4p 9.9p +5.1 - Order Intake (1999 exchange rates) £691m £633m +9.2 The Chairman of The Weir Group PLC, Sir Ron Garrick, commented: 'In 1999 the Group made further progress in a year of difficult market conditions. Our performance compared well with our major international competitors and by the end of the year the Group was in a good position to take advantage of improving markets. 'During the year we took a significant strategic step in the acquisition of Warman International, the Australian based specialist pump group. The acquisition makes us the market leader in the supply of heavy duty slurry pumps to the minerals processing industry. '2000 should be a year of substantial growth for the Group. With our capacity for further acquisitions and a likelihood of continuing consolidation in our core product areas, we look forward to a year of significant opportunities to enhance shareholder value.' Enquiries The Weir Group PLC - available through Warburg Dillon Read Sir Ron Garrick, Chairman Tel: 0171 567 8000 (switchboard) Duncan Whyte, Chief Executive or The Weir Group PLC Emrys Inker, Public Relations Manager Tel: 0141 637 7111 The Maitland Consultancy Angus Maitland Charlotte Hamilton - Tel: 0171 379 5151 THE WEIR GROUP RESULTS Summary of results In 1999 the Group made further progress in a year of difficult market conditions. Our performance compared well with our major international competitors and by the end of the year the Group was in a good position to take advantage of improving markets. During the year we took a significant strategic step in the acquisition of Warman International, the Australian based specialist pump group. The acquisition makes us the market leader in the supply of heavy duty slurry pumps to the minerals processing industry. Although operating profits were lower than those achieved in 1998 due to short lead time business being depressed, order input was well ahead of invoiced sales, as a result of winning some significant long term contracts. Profit before interest, exceptionals and goodwill amortisation amounted to £56.9 million (1998 : £61.6m). This figure includes a contribution of £3.5m from Warman, which was acquired on 1st September 1999. We announced in December that there would be an exceptional charge in the 1999 accounts to cover the costs of integrating Warman into the Group's operations. This charge amounts to £8.3m and with interest costs of £3.6m and goodwill amortisation of £3.3m, mainly arising from the Warman acquisition, the pre-tax profit for 1999 was £41.6m (1998 : £71.6m). Total turnover, including Warman, was £754.9m (1998 : £724.9m). Excluding our share of Joint Venture and Associates, turnover was £637.5m (1998 : £624.4m) and order input booked in 1999, on the same basis, amounted to £691.5m (1998 : £633m). Orders on hand at the year end were at record levels. The effective tax rate was 26.6% on profit before exceptionals and goodwill amortisation (1998 : 26.8%) and earnings per share on the same basis were 19.6p (1998 : 23.2p). A final dividend of 7.5p is proposed (1998 : 7.15p). An interim dividend of 2.9p has already been paid and the total distribution for the year will, therefore, be 10.4p (1998 : 9.9p), an increase of 5.1 per cent. At year-end, we had net debt of £146.5m, giving a gearing ratio of 57%. Interest cover remains comfortable, even after the acquisition of Warman, and our balance sheet remains strong allowing us to consider further corporate development opportunities. Review of results A decline in short term orders, particularly in the second half of the year, meant that most of our companies had difficulty in reaching last year's record levels of operating profit. The weak oil price in 1998 and the first half of 1999 led to a lack of spending by the oil industry and had a major impact on our results. As a result of reduced activity in the oil sector, combined with a deferral of projects in the Indo Pacific region, our Engineering Products business narrowly failed to meet 1999 operating profit levels and showed a decrease of 1.3% to £39.0m (1998 : £39.5m) including a £3.5m contribution from Warman. Turnover increased to £496.7m from £476.9m in 1998. Significant steps were taken to cut costs and increase efficiency. These included closure of foundries, a restructuring into market led business units and increased international sourcing of components and materials. Turnover in Engineering Services reduced by 5% to £140.9m (1998 : £148.7m) again largely due to the oil industry slowdown. Overall margins increased slightly to 8.2% (1998 : 8.1%) with profits at £11.6m (1998 : £12m). Our main UK operation, Weir Engineering Services, recorded turnover similar to that of 1998. Prospects, particularly in the outsourcing of maintenance by utilities, are better than ever before and we intend to build on our succesful experience to date. Earnings from our Joint Venture and Associates were disappointing with a reduced profit of £7.7m (1998 : £10.3m) despite our share of turnover increasing to £117.4m (1998 : £100.5m). These results were caused by the downturn in the oil industry and the early renegotiation and introduction of new extended maintenance contracts with Railtrack. Corporate activity The acquisition of Warman was a major step in implementing the Group's strategy to focus on core products where we can establish a leading global market position, offering greater growth potential. Combined with our EnviroTech business, this acquisition makes the Group the world leader in heavy duty slurry pumps. With commodity prices showing signs of improvement, there should be rising demand for our enhanced pump range. The integration plan to secure synergies from the combined business is well on course with savings identified in excess of £8m a year by 2001. Some £4m of savings are expected to be achieved, mainly in the second half of 2000. In addition to Warman, we acquired five small businesses at a net cost of £8.3m and these have been integrated into existing operations in the UK and South America. Strategy As expected, global consolidation in our core product areas is showing increased momentum, giving us excellent opportunities to advance the Group's strategy. This has proven to be the case with the acquisition of Warman. We will continue to play an active role in this process. Following Duncan Whyte's appointment as Chief Executive of the Group on 1st June 1999 a review of strategy was conducted. We are convinced that our future success will come from focusing even more on our strengths and concentrating our resources on those areas of the business where we can establish significant market positions which will lead to greater growth. Inevitably those businesses for which we cannot achieve such positions are likely to be worth more to an outside party and will be considered for divestment. These divestments, together with our strong balance sheet, will ensure that the Group maintains its ability to continue to make value enhancing acquisitions. This is extremely important at this time as there is clearly a disconnect between the present valuation being placed on the company in the London Stock Exchange and the prospects we see for the business. We must ensure that we are a globally competitive organisation and we see the need continuously to drive costs out of our operations. Efforts in this direction have been given new impetus in all of our subsidiaries as we seek to achieve higher levels of performance. e-commerce We are also aware of the challenges and opportunities afforded by the use of the internet and electronic commerce. We have always had strong and direct links with our major customers. We believe that such links will continue to be important to the Group as business practices adjust to this technology. A Group executive director, Kevin Gamble, has been given responsibility for leading the Group's development of new systems to ensure that all of our subsidiaries gain competitive advantage from the use of the Web and e-commerce. Most of our businesses procure significant quantities of raw materials and finished products and this is an area where early benefits can be obtained. Prospects Predicting prospects is never easy but having come through difficult market conditions we are seeing higher levels of activity in many subsidiaries. Although oil and gas was our most difficult market in 1999 the continuing strength of the oil price gives us confidence that the worst has passed and we expect to see improvement and new project activity in 2000. The most disappointing geographical territory was the Indo Pacific region, where many projects and orders, particularly for power generation business, were deferred. Again, the current situation in this territory suggests that prospects are improving. In addition, we shall have the impact of a full year of Warman in our 2000 results and we shall begin to see some of the synergy benefits impact on our results later in the year. Our current projections indicate that most of the growth will take place in the second half of the year. Hence, 2000 should be a year of substantial growth for the Group. With our capacity for further acquisitions and a likelihood of continuing consolidation in our core product areas, we look forward to a year of further opportunities to enhance shareholder value. AUDITED RESULTS --------------- The Consolidated Profit and Loss Account for the 52 weeks ended 31st December 1999 is as follows: 52 weeks to 53 weeks to 31st December 1999 1st January 1999 £'000 £'000 TURNOVER Group - Ongoing operations 600,021 624,418 - Warman acquisition 37,501 - ------- ------- 637,522 624,418 Share of - Joint Venture 3,754 4,621 - Associates 113,631 95,897 ------- ------- 754,907 724,936 ------- ------- OPERATING PROFIT Group - Ongoing operations 45,659 51,257 - Warman acquisition 3,487 - - Goodwill amortisation (3,330) (415) ------- ------- 45,816 50,842 Share of - Joint Venture 711 1,992 - Associates 7,034 8,334 ------- ------- 53,561 61,168 EXCEPTIONAL ITEMS Reorganisation costs arising from Warman acquisition (8,329) - Profit on disposal of discontinued operation - 7,935 INTEREST AND OTHER INCOME (3,635) 2,461 ------- ------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 41,597 71,564 Tax on profit on ordinary activities 12,410 18,640 ------- ------- PROFIT ON ORDINARY ACTIVITIES AFTER TAX 29,187 52,924 Minority interest 43 94 ------- ------- PROFIT ATTRIBUTABLE TO THE WEIR GROUP PLC 29,144 52,830 Dividends 20,789 19,790 ------- ------- Transfer to reserves 8,355 33,040 ------- ------- ------- ------- EARNINGS PER SHARE 14.6p 26.1p ---- ---- EARNINGS PER SHARE EXCLUDING GOODWILL AMORTISATION AND EXCEPTIONAL ITEM 19.6p 23.2p ---- ---- DILUTED EARNINGS PER SHARE 14.5p 26.0p ---- ---- DIVIDENDS --------- 52 weeks to 53 weeks to 31st December 1999 1st January 1999 £'000 £'000 Ordinary Shares Interim 2.9p per 12.5p share (1998: 2.75p) 5,792 5,541 Final 7.5p per 12.5p share (1998: 7.15p) 14,997 14,249 ------ ------ 20,789 19,790 ------ ------ The directors recommend payment of a final dividend of 7.5p per ordinary share for 1999 (1998: 7.15p) which with the interim dividend of 2.9p per ordinary share (1998: 2.75p) will make a total distribution for the year of 10.4p per ordinary share (1998: 9.9p). Subject to the approval of shareholders at the annual general meeting, payment will be made on 9th June 2000 to ordinary shareholders on the register at close of business on 7th April 2000. TAX 52 weeks to 53 weeks to 31st December 1999 1st January 1999 £'000 £'000 Group - United Kingdom 7,865 9,923 Group - Overseas 4,190 4,247 Joint Venture 175 599 Associates 1,933 2,370 Overseas tax on exceptional item (1,092) 1,501 UK tax on exceptional item (661) - ------ ------ Profit and Loss Account tax charge 12,410 18,640 ------ ------ BASIS OF PREPARATION The preliminary results for the 52 weeks ended 31st December 1999 do not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. These statements have been prepared on the basis of the accounting policies set out in the Group's 1998 Annual Report and Accounts, except as noted below, and were approved by the board of directors on 22nd March 2000. Full accounts with an unqualified audit report will be lodged with the Registrar in due course. Financial statements for the 53 weeks to 1st January 1999 are abridged statements; full accounts with an unqualified audit report have been lodged with the Registrar. ACCOUNTING STANDARDS FRS 12 'Provisions, Contingent Liabilities and Contingent Assets' has been adopted in the preliminary results for the 52 weeks to 31st December 1999. The adoption of FRS 12 has no significant impact on the results of either the current period or the comparative periods. There is a presentational impact on the Balance Sheet and the Cash Flow Statement and comparative figures for 1998 have been re-presented to comply with FRS 12. Divisional contributions were: 1999 1998 1999 1998 Turnover Turnover Profit Profit £'000 £'000 £'000 £'000 Engineering Products: Group - ongoing 459,157 476,879 35,494 39,510 Warman acquisition 37,501 - 3,487 - ------- ------- ------ ------ 496,658 476,879 38,981 39,510 Share of Associates 295 546 14 23 ------- ------- ------ ------ 496,953 477,425 38,995 39,533 ------- ------- ------ ------ Engineering Services: Group 140,864 148,695 11,555 12,032 Share of Joint Venture 3,754 4,621 711 1,992 Share of Associates 113,336 95,351 7,020 8,311 ------- ------- ------ ------ 257,954 248,667 19,286 22,335 ------- ------- ------ ------ Segmental totals Group 637,522 625,574 50,536 51,542 Joint Venture and Associates 117,385 100,518 7,745 10,326 Goodwill amortisation - Engineering Products - - (3,330) (415) Unallocated costs - - (1,390) (814) *Exchange adjustment - Group - (1,156) - 529 ------- ------- ------ ------ 754,907 724,936 53,561 61,168 Exceptional item - Engineering Products - - (8,329) 7,935 Interest and other income - - (3,635) 2,461 ------- ------- ------ ------ 754,907 724,936 41,597 71,564 ------- ------- ------ ------ *For comparative purposes 1998 figures have been restated at the 1999 closing exchange rates. The Consolidated Balance Sheet as at 31st December 1999 is as follows:- 1999 1998 £'000 £'000 FIXED ASSETS Intangible assets - goodwill 146,010 19,931 Tangible assets 138,316 104,076 Investments Joint Venture - share of gross assets 6,460 7,510 - share of gross liabilities 1,704 2,864 ------- ------- 4,756 4,646 Associates 16,989 14,870 Other 388 218 ------- ------- 22,133 19,734 ------- ------- TOTAL FIXED ASSETS 306,459 143,741 ------- ------- CURRENT ASSETS Stocks 126,281 96,094 Debtors 208,364 181,446 Cash at bank and in hand 24,696 58,201 ------- ------- 359,341 335,741 ------- ------- CREDITORS falling due within one year: Borrowings 22,726 14,485 Other creditors 197,600 179,267 ------- ------- 220,326 193,752 ------- ------- NET CURRENT ASSETS 139,015 141,989 ------- ------- TOTAL ASSETS LESS CURRENT LIABILITIES 445,474 285,730 Less CREDITORS falling due after more than one year: Loan capital 147,489 13,415 Obligations under finance leases 696 910 PROVISIONS FOR LIABILITIES AND CHARGES 37,641 20,255 DEFERRED INCOME Grants not yet credited to profit 506 611 MINORITY INTEREST 374 395 ------- ------- 258,768 250,144 ------- ------- CAPITAL AND RESERVES Called up share capital 24,995 24,908 Share premium account 10,147 8,449 Capital redemption reserve 531 531 Special reserves - 1,882 Profit and loss account 223,095 214,374 ------- ------- 258,768 250,144 ------- ------- The Consolidated Cash Flow Statement for the 52 weeks ended 31st December 1999 is as follows: 1999 1998 £'000 £'000 £'000 £'000 Cash inflow from operating activities - funds generated by operations 63,162 65,259 - (increase) decrease in working capital (3,344) 2,727 - cash spent on reorganisation costs (1,030) - ------ ------ 58,788 67,986 Dividend received from Joint Venture 400 550 Dividends received from Associates 3,236 3,625 Returns on investments and servicing of finance (2,633) 1,858 Taxation (8,268) (11,722) Capital expenditure and financial investment (12,433) (15,850) Acquisitions and disposals - acquisition - Warman (186,982) - - acquisition - others (5,819) (20,847) - disposal - 11,141 ------- ------ (192,801) (9,706) Equity dividends paid (20,041) (18,680) ------- ------ Cash (outflow) inflow before liquid resources and financing (173,752) 18,061 Management of liquid resources 28,162 (6,876) Financing - issue of shares 1,610 495 purchase of shares - (7,633) new loans 202,668 - debt repaid (58,677) (7,525) foreign exchange hedging - 200 ------- ------ 145,601 (14,463) ------- ------ Increase (decrease) in cash 11 (3,278) ------- ------ RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT) FUNDS 1999 1998 £'000 £'000 £'000 £'000 Increase (decrease) in cash 11 (3,278) Cash flow from debt repaid 58,677 7,525 Cash flow from new loans (202,668) - Cash flow from management of liquid resources (28,162) 6,876 ------- ----- CHANGE IN NET (DEBT) FUNDS RESULTING FROM CASH FLOWS (172,142) 11,123 Short term debt - acquired - (1,896) Leases - inceptions (57) (413) - acquired - (961) Exchange (2,669) 1,437 ------- ------ MOVEMENT IN NET (DEBT) FUNDS DURING THE YEAR (174,868) 9,290 Net funds at 2nd January 1999 28,407 19,117 ------- ------ NET (DEBT) FUNDS AT 31st December 1999 (146,461) 28,407 ------- ------ Additional Statements for the 52 weeks ended 31st December 1999 are as follows: RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES 1999 1998 £'000 £'000 Operating Profit 45,816 50,842 Depreciation, goodwill amortisation and grant credits 20,923 15,694 Surplus on disposal of tangible assets and investments (543) (675) Pension prepayments (2,608) (2,388) Provision movements (426) 1,786 ------ ------ Funds generated by operations 63,162 65,259 ------ ------ Decrease in stocks 80 4,459 (Increase) decrease in debtors (1,679) 16,194 Decrease in creditors (1,745) (17,926) ------ ------ (Increase) decrease in working capital (3,344) 2,727 ------ ------ Exceptional reorganisation costs (8,329) - Accelerated depreciation 350 - Provision movements 6,803 - Increase in creditors 146 - ----- ------ Cash spent on reorganisation costs (1,030) - ----- ------ NET CASH INFLOW FROM OPERATING ACTIVITIES 58,788 67,986 ------ ------ STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 1999 1998 £'000 £'000 Profit excluding share of profits of Joint Venture and Associates 23,764 45,653 Share of Joint Venture profit 510 1,414 Share of Associates' profit 4,870 5,763 ------ ------ Profit attributable to The Weir Group PLC 29,144 52,830 Exchange differences on foreign currency net investments (813) (1,579) Tax thereon (581) 304 ------ ------ TOTAL RECOGNISED GAINS 27,750 51,555 ------ ------ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 1999 1998 £'000 £'000 Total recognised gains 27,750 51,555 Dividends (20,789) (19,790) Other movements New share capital subscribed 1,785 537 Cost of issuing shares (122) (29) Share purchase - (7,633) ------ ------ Net addition to shareholders' funds 8,624 24,640 Opening shareholders' funds 250,144 225,504 ------- ------- CLOSING SHAREHOLDERS' FUNDS 258,768 250,144 ------- ------- Shareholders' funds are entirely attributable to equity interests

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