Final Results
Weir Group PLC
11 March 2008
The Weir Group PLC
11 March 2008
THE WEIR GROUP PLC PRELIMINARY RESULTS 2007
Results for 52 weeks ended 28 December 2007
HIGHLIGHTS
Continuing Operations
• Revenue up 22% to £1060.6m (2006: £870.4m)
• Operating profit(*1) up 57% to £122.1m (2006: £77.7m)
• Profit before tax(*1) up 56% to £120.2m (2006: £77.1m)
• Earnings per share(*1) up 49% to 41.4p (2006: 27.8p)
• Dividend increase of 14% to 16.5p (2006: 14.5p)
• Cash generation improved significantly to £151.8m (2006: £111.0m)
• SPM acquired, integrated and exceeding year one expectations
• Secured acquisition of CH Warman for £113m(*2)
2007 2006 Change
------ ------ ------
Continuing Operations
Revenue £1,060.6m £870.4m +22%
Operating Profit(*1) £122.1m £77.7m +57%
Profit before tax(*1) £120.2m £77.1m +56%
Earnings per share(*1) 41.4p 27.8p +49%
Total Operations
Profit for the period £175.0m £81.6m +114%
Earnings per share 83.8p 39.4p +113%
Dividend per share 16.5p 14.5p +14%
Net debt £171.3m £7.1m
*1 Adjusted to exclude intangibles amortisation and exceptional items.
*2 Using a US $ / £ exchange rate of 2.05 as at 3 December 2007.
The Chairman of The Weir Group, Sir Robert Smith, commented: 'In 2007, Weir
enjoyed its best operating year in company history delivering record sales,
earnings and cash flow generation. During the year we realigned the portfolio of
businesses, significantly improved operational performance and added high
quality businesses to the Group.
We enter 2008 with an even more robust portfolio of businesses operating in
longer cycle end markets, a healthy balance sheet and cash generation. We have
the necessary flexibility to fund organic growth and pursue aligned acquisitions
and are confident of further progress in 2008.'
Contact details:
The Weir Group PLC
Mark Selway, Chief Executive Tel. 0141 637 7111 (switchboard);
Helen Walker, Public Relations Manager Tel. 0141 308 3739 (Mobile: 07789 032296)
Maitland Tel. 020 7379 5151
Suzanne Bartch (Mobile: 07769 710 335)
Peter Ogden
FINANCIAL HIGHLIGHTS
2007 input(*3) for continuing operations at £1095.3m was 10% higher than 2006
with good progress from Engineering Products and Engineering Services offsetting
the anticipated decline from the exceptional 2006 bookings in the Defence,
Nuclear & Gas businesses.
Revenue growth was achieved across all divisions with revenue from Group
continuing operations increasing 22% to £1060.6m (2006: £870.4m). More than 75%
of the year's output was generated from the power, oil and gas and mining
markets. Operating profit from continuing operations, before intangibles
amortisation and exceptional items, at £122.1m (2006: £77.7m) was 57% above
2006.
Pre-tax profit from continuing operations, before intangibles amortisation and
exceptional items, was up 56% on the previous year at £120.2m (2006: £77.1m)
after net finance costs of £1.9m (2006: £0.6m). Reported profit before tax
increased 26% to £114m (2006: £90.5m) reflecting the impact of additional
intangibles amortisation of £3.9m in the current year and exceptional items in
the prior year. Profit for the period was £175.0m (2006: £81.6m) and included a
gain from the sale of the Weir Pumps Glasgow operations of £26.0m and profit on
the disposal of the Group's interest in DML of £54.9m. Profit of £8.5m was
recognised for these two businesses for the periods prior to disposal and
profits of £3.3m in respect of prior period disposals.
A tax charge of £31.7m (2006: £21.6m) gives a normalised tax rate of 27.8% on
profit before tax for continuing operations.
The resulting underlying earnings per share for continuing operations, before
intangible amortisation and exceptional items, were 49% higher at 41.4p (2006:
27.8p). Basic earnings per share for total operations rose to 83.8p from 39.4p
last year, reflecting the positive impact of exceptional items and discontinued
operations.
Cash generated from operations of £151.8m was substantially ahead of the prior
year (2006: £111.0m) resulting from increased profitability and further
improvement in our working capital management. Net capital expenditure was
£40.3m (2006: £23.9m) reflecting continued investment across the business.
Proceeds from the sale of the Weir Pumps Glasgow operations and our interest in
DML were offset by related net acquisition costs of £317.7m for the acquisitions
of SPM and Multiflo. Net debt at the year end was £171.3m compared to £7.1m for
the prior year.
The Group has 16 pension plans around the world of which six are defined benefit
plans, the most significant being the UK and Canadian plans. All defined benefit
plans were closed to new members in 2002 and the net Group surplus for
retirement benefit obligations at 28 December 2007 was £36.9m (2006: £3.9m
deficit). The Group reviews the level of funding on an annual basis and in 2007
made a special contribution of £6.5m. This facilitated the purchase of an
insurance policy from Legal & General Assurance Society to secure the current
pensioners liabilities of the main UK plan and a similar process was also
undertaken in Canada. This will substantially reduce the Group's exposure to
future investment and mortality risks.
DIVIDEND
A final dividend of 12.35p (2006: 10.75p) is proposed making a total payment for
the year of 16.5p (2006: 14.5p). Subject to shareholder approval, the final
dividend will be paid on 2 June 2008 to shareholders on the register at the
close of business on 2 May 2008.
REVIEW OF RESULTS
To assist in meaningful comparison, the following review of results, with the
exception of Joint Ventures, restates comparative 2006 figures at constant
exchange rates.
Engineering Products
The Engineering Products Division includes the operations of our Minerals, Clear
Liquid and Valves & Controls businesses which supply pumps, valves and ancillary
products to the oil and gas, mining and power industries. The division delivered
record results with input increasing 30% to £760.7m (2006: £585.2m) with more
than 80% from the mining, oil & gas and power markets. Revenue from continuing
businesses increased 35% to £711.6m (2006: £525.5m) while operating profit,
before intangibles amortisation and exceptional items from continuing
operations, increased 70% to £98.7m (2006: £58.1m). Like for like revenue
growth, excluding the part year effect of the SPM acquisition, was 20% with
operating profit increasing from £58.1m to £79.6m on the same basis. Workload
was largely balanced between new project and aftermarket activity.
Operating margins increased to 13.9% compared with 11.1% in 2006. Positive
operating leverage from increased revenues across all operations, the inclusion
of SPM's higher margin product sales for a part year and improvements in
operational performance resulting from the focus on lean, each contributed to
this result. The SPM operating margin was in line with our expectations at
24.3%.
Minerals
Our Minerals business posted another year of excellent progress with significant
gains in input, revenue and profit when compared with 2006. The principal market
for the business is global mining which accounted for almost 70% of revenues in
the year.
Order input grew 28% to £491.2m and revenue 19% to £424.0m, reflecting the
ongoing strength of global mining markets, as well as the benefits of
management's emerging market strategy and our entry into specialised areas of
the power generation and oil sectors. The combination of an ongoing spares
stream from the existing installed base together with the year end order book
provides a solid platform for further progress in 2008 and beyond.
Our Netherlands business secured significant new project work in the mining
markets of Madagascar and Brazil. Power generation orders from India also
contributed to this company's highest ever order input of £101m in 2007 against
£57m in 2006.
The Americas also delivered impressive growth with significant new project work
in Chile and Brazil adding to the success of our flue gas desulphurisation
products in North America. In total, input grew 35% to £230m.
Recognising the need to respond to the changing geographic profile of the global
mining market, the Minerals businesses continued to invest in growing their
presence in the emerging territories of South America, Asia and the Former
Soviet Union.
Further to our announcement on 4 December 2007 of the conditional acquisition of
the CH Warman Pump Group, the Group has now received approval for the
transaction from the South African competition authorities. This acquisition,
which is due to complete on 18 March 2008, will further complement our
geographic expansion agenda and provides a strong foundation for growth in a
rapidly developing market.
Going forward, the Minerals business will benefit from the growing demand for
basic commodities and continue to progress its strategic goals.
Clear Liquid
Our Clear Liquid businesses contributed significantly to the results of
Engineering Products in 2007. The acquisition of SPM, our disposal of Weir Pumps
and the excellent growth at Gabbioneta were all significant contributors to
Clear Liquid's improved results.
Clear Liquid now comprises a portfolio of businesses with solid positions in
growing and attractive markets. In 2007, input increased 43% to £191.9m and
revenue 99% to £214.7m. This reflects the addition of SPM and a further 3%
increase from the speciality businesses against the record high input achieved
in 2006. The oil, power and general industrial markets collectively represent
more than 75% of total orders booked in the year.
Gabbioneta, our downstream oil business, performed exceptionally well and gained
from strong market conditions and the two year investment in the Weir Production
System. Productivity and plant throughput improved dramatically underpinning a
year of substantial growth in revenue and profit. The Clear Liquid speciality
businesses continued to perform well with excellent progress at our operations
in Missouri, California and Utah as a result of continued buoyant domestic
demand and the increased geographic reach of the Group.
The results for Clear Liquid include a partial year contribution from SPM from
July of 2007, when the acquisition was completed. SPM contributed £78.7m of
revenue and £19.1m of operating profit, exceeding our expectations at the time
of the announcement of the acquisition. The business has been successfully
integrated and the Weir Production System is in the early stages of
implementation. SPM's market is largely tied to the upstream drilling of gas
wells in North America where gas storage levels, gas prices and North American
weather conditions are key market drivers. While we are likely to see some
unwinding of favourable market conditions during 2008, we remain confident that
growth from servicing the installed base and the continued success of our
improvement initiatives will underpin further profit progress in the year.
The medium term outlook for Clear Liquid and the oil, power and related general
industrial markets remain positive and this, when coupled with our plans for
ambitious operational improvement, will provide a solid platform for further
progress in 2008.
Valves & Controls
The Valves & Controls businesses made solid progress in 2007 and contributed to
revenue and profit growth within the Engineering Products Division during the
year. Overall input grew 13% to £77.6m and revenue 17% to £72.9m, with the power
and oil markets representing more than 80% of total orders booked in the year.
During 2007, our US operations grew their order input considerably through the
award of new power generation projects in China and plant upgrades in the USA.
Valves & Controls also recorded growth in oil related orders as a result of
continued buoyant market conditions in the UK, Indo Pacific and FSU, all regions
which we expect will maintain a positive outlook for 2008.
As outlined in our last update, Valves & Controls USA has disposed of the
inefficient Salem Massachusetts facility and has completed plans to move to
larger premises in the first quarter of 2008 to capitalise on the growing
opportunities in its domestic market.
Our Valves & Controls business in China continued to make good progress and
contributed positively to the results of the division. Orders in the Chinese new
build power sector increased substantially during the year and the outlook
remains positive for 2008 and beyond.
We remain encouraged by the prospects for the Valves & Controls businesses. The
European and North American power markets are entering a period of life
extensions and new build projects. In addition, we expect good levels of growth
in China, India and South Africa and remain well placed to capitalise on these
opportunities as we enter 2008.
Engineering Services
Input from Engineering Services increased 8% to £250.6m (2006: £232.9m). Revenue
grew 4% to £231.4m (2006: £221.7m) producing an increase in operating profit
before intangibles amortisation and exceptional items of 41% to £18.5m (2006:
£13.1m). This reflects the benefits of our 2006 restructuring initiatives in the
UK, USA and Middle East. The division's operating margin of 8.0% exceeded our
expectations and is expected to progress further in 2008.
In the UK, input grew 5% to £74.2m (2006: £70.9m) with new hydro orders
contributing to solid growth in our power generation activities. Rationalisation
of the number of UK Service Centres, which was completed in 2006, underpinned
the 2007 results and this is expected to provide further improvements in the
year ahead.
Our Middle East business grew input by 15% to £28.9m (2006: £25.1m) with
significant new orders booked in oil services. Our Joint Venture Service
operations in Saudi Arabia and Abu Dhabi continued to benefit from strong market
conditions in their regions and contributed £3.4m of operating profit for the
Group compared with £2.4m in 2006.
The Canadian operation had another successful year, benefiting in particular
from continued buoyant market conditions and Weir's growing position in the oil
sands sector. In the USA, the 2006 closure of our loss making service centres
resulted in the remaining US businesses contributing positively to the
division's results in 2007.
The Australian operations performed well in the year, growing both revenue and
profit when compared with 2006. Our investment in larger facilities in Western
Australia, which came on-line in the first half, made a solid first time
contribution in the year.
We remain optimistic about the prospects for our Services Division which is
increasingly aligned with the higher growth oil and gas, power, mining and
industrial markets. The facility investments made in 2007, together with the
excellent progress from our Joint Ventures in Saudi Arabia and Abu Dhabi provide
the foundations for further improvement in 2008.
Defence, Nuclear & Gas
Revenue from the Defence, Nuclear & Gas Division increased 10% to £117.6m (2006:
£107.3m) and produced an operating profit, before intangible amortisation and
exceptional items, of £10.4m against a prior year of £10.0m. 2007 input
decreased 53% to £84.0m against the exceptional level of orders in the previous
year.
Our liquid gas operation, Weir LGE, is the market leader in the design, project
management and commissioning of facilities for the shipbuilding and onshore
storage of liquid gas. In 2007, revenue grew 13% to £65.8m compared with £58.1m
in the previous year. The majority of growth during the year was due to the
successful achievement of predetermined milestones on new ship contracts which
had been booked previously.
The defence and nuclear businesses delivered an increase in revenue and
operating profit. Order input at £72.2m was 10% below 2006 due to last year's
award of the £38m Spanish defence contract. Revenue grew 5% to £51.8m compared
with £49.2m in the prior year. We remain confident of securing a number of
significant opportunities in the defence and nuclear activities in 2008.
The outlook for the defence markets in the UK, Australia and Canada, which are
all key markets for Weir defence products, remains encouraging and the
decommissioning activities in the UK nuclear market provide a positive outlook
for 2008. The shipbuild market is fully committed which will limit LGE's future
order book. 2008 profitability will be tied to delivery of orders already
secured and should provide the gas business with broadly equivalent results in
the year ahead.
STRATEGY
The successful execution of our programme to transform the Weir Group is evident
in our 2007 results. We have realigned our portfolio of businesses,
significantly improved operational performance across all divisions and added
high quality businesses to the Group. In the year, we delivered further
significant growth in revenue, operating profit and earnings per share and
achieved our best operating year ever.
In May, the Group announced the sale of the Weir Pumps Glasgow operations for a
cash consideration of £45.5m. The business represented less than 8% of Group
revenue and a smaller percentage of profit and its sale was consistent with our
stated intention to exit lower margin activities where the Group had limited
opportunity to lead.
In June, the Group announced its largest ever acquisition, - SPM, for a cash
consideration of £328m(*4) ($653m). SPM is a Texas based supplier of pumps and
flow equipment for the upstream oil and gas market. The business is now fully
integrated and plans are well progressed to improve operational performance and
to extend its geographic reach using Weir's global footprint.
In August, the Group acquired Multiflo, a small dewatering company in Australia,
for a cash consideration of £9.3m, with the objective of extending the portfolio
of offerings to the Group's mining customers. The business was integrated
successfully and plans are in place to extend its reach to the wider Minerals
markets.
The acquisition of CH Warman provides the Group with a platform in the
strategically important sub-Saharan mining market. Our immediate objectives are
to improve the respective performance of both the local Weir and CH Warman
businesses to provide a solid foundation for future integration and growth.
THE BOARD
Christopher Clarke has confirmed his intention to retire from the Board at the
end of 2008 following nine years of valued service to the Group. In preparation
for this change, John Mogford has been appointed a Non Executive Director with
effect from 1 June 2008. John is currently a senior Executive with BP and brings
30 years experience in the Oil and Gas sector.
OUTLOOK
In 2008, the Engineering Products Division is expected to deliver growth in
revenue and profits when compared to 2007.
The Engineering Services Division is forecast to deliver margin and profit
growth in 2008.
The Defence, Nuclear & Gas Division is positioned to deliver equivalent revenue
and profit as achieved last year and Joint Ventures are also expected to
continue their good contribution.
The Group is in good financial condition with a robust order book which supports
our continuing level of confidence in our outlook for the year ahead. By
remaining on course and capitalising on our position in strong end markets we
are confident in achieving Reuters current market consensus for 2008.(*5)
*3 Calculated at 2007 average exchange rates.
*4 Using a US$/£ exchange rate of 1.99 as at 19 June 2007.
*5 Reuters Knowledge Consensus at 4 March 2008 for profit before tax for
continuing operations was £140.0m.
AUDITED RESULTS
Consolidated Income Statement
for the 52 weeks ended 28 December 2007
52 weeks ended 28 December 2007 52 weeks ended 29 December 2006
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 1,060.6 - 1,060.6 870.4 - 870.4
=======================================================================================================================
Continuing operations
Operating profit 118.7 (6.2) 112.5 75.3 13.4 88.7
Share of results of joint ventures 3.4 - 3.4 2.4 - 2.4
-----------------------------------------------------------------------------------------------------------------------
Operating profit 2 122.1 (6.2) 115.9 77.7 13.4 91.1
Finance costs (12.7) - (12.7) (10.8) - (10.8)
Finance income 7.6 - 7.6 5.3 - 5.3
Other finance income - retirement benefits 3.2 - 3.2 4.9 - 4.9
-----------------------------------------------------------------------------------------------------------------------
Profit before tax from continuing operations 120.2 (6.2) 114.0 77.1 13.4 90.5
Tax expense 4 (33.8) 2.1 (31.7) (19.6) (2.0) (21.6)
-----------------------------------------------------------------------------------------------------------------------
Profit for the period from continuing
operations 86.4 (4.1) 82.3 57.5 11.4 68.9
Profit for the period from discontinued
operations 5 11.8 80.9 92.7 12.8 (0.1) 12.7
-----------------------------------------------------------------------------------------------------------------------
Profit for the period 98.2 76.8 175.0 70.3 11.3 81.6
=======================================================================================================================
Attributable to
Equity holders of the Company 98.1 76.8 174.9 70.3 11.3 81.6
Minority interests 0.1 - 0.1 - - -
-----------------------------------------------------------------------------------------------------------------------
98.2 76.8 175.0 70.3 11.3 81.6
=======================================================================================================================
Earnings per share 6
Basic - total operations 83.8p 39.4p
Basic - continuing operations 41.4p 39.4p 27.8p 33.3p
Diluted - total operations 82.9p 38.8p
Diluted - continuing operations 40.9p 39.0p 27.4p 32.8p
Consolidated Balance Sheet
at 28 December 2007
28 December 29 December
2007 2006
Note £m £m
-----------------------------------------------------------------------------------------------------------------------
ASSETS
Non-current assets
Property, plant & equipment 136.3 116.6
Investment property 4.8 -
Intangible assets 503.2 180.1
Investments in joint ventures & associate 7.2 33.5
Deferred tax assets 3.1 19.3
Retirement benefit plan surpluses 45.5 7.8
Derivative financial instruments 1.2 4.9
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Total non-current assets 701.3 362.2
-----------------------------------------------------------------------------------------------------------------------
Current assets
Inventories 173.5 120.9
Trade & other receivables 255.2 203.8
Construction contracts 32.8 34.9
Derivative financial instruments 10.6 6.5
Income tax receivable 1.8 0.1
Cash & short term deposits 54.2 146.3
-----------------------------------------------------------------------------------------------------------------------
Total current assets 528.1 512.5
-----------------------------------------------------------------------------------------------------------------------
Total assets 1,229.4 874.7
=======================================================================================================================
LIABILITIES
Current liabilities
Interest-bearing loans & borrowings 8.5 7.5
Trade & other payables 257.8 212.4
Construction contracts 55.9 46.3
Derivative financial instruments 11.8 3.0
Income tax payable 20.8 19.4
Provisions 22.8 27.3
-----------------------------------------------------------------------------------------------------------------------
Total current liabilities 377.6 315.9
-----------------------------------------------------------------------------------------------------------------------
Non-current liabilities
Interest-bearing loans & borrowings 217.0 145.9
Derivative financial instruments 5.1 1.8
Provisions 22.6 13.6
Deferred tax liabilities 53.3 13.9
Retirement benefit plan deficits 8.6 11.7
-----------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 306.6 186.9
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 684.2 502.8
=======================================================================================================================
NET ASSETS 545.2 371.9
=======================================================================================================================
CAPITAL & RESERVES
Share capital 9 26.5 26.4
Share premium 9 37.7 35.4
Treasury shares 9 (9.3) (10.7)
Capital redemption reserve 0.5 0.5
Foreign currency translation reserve 0.2 (2.9)
Hedge accounting reserve 3.5 3.5
Retained earnings 485.6 319.3
-----------------------------------------------------------------------------------------------------------------------
Shareholders equity 9 544.7 371.5
Minority interest 9 0.5 0.4
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TOTAL EQUITY 9 545.2 371.9
=======================================================================================================================
Consolidated Cash Flow Statement
for the 52 weeks ended 28 December 2007
52 weeks 52 weeks
ended 28 ended 29
December December
2007 2006
Note £m £m
-----------------------------------------------------------------------------------------------------------------------
Continuing operations
Cash flows from operating activities
Cash generated from operations 10 151.8 111.0
Additional pension contributions paid (6.5) (7.0)
Fundamental restructuring costs paid (0.4) (3.3)
Income tax paid (33.1) (16.5)
-----------------------------------------------------------------------------------------------------------------------
Net cash generated from operating activities 111.8 84.2
-----------------------------------------------------------------------------------------------------------------------
Continuing operations
Cash flows from investing activities
Acquisitions of subsidiaries 10 (317.8) (2.1)
Disposals of subsidiaries & associate 127.3 (1.8)
Purchases of property, plant & equipment & intangible assets (43.5) (24.7)
Exceptional proceeds on sale of property - 8.3
Other proceeds from sale of property, plant & equipment & intangible assets 3.2 0.8
Interest received 7.5 5.3
Dividend received from discontinued associate 2.5 -
Other dividends received 3.7 1.5
-----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (217.1) (12.7)
-----------------------------------------------------------------------------------------------------------------------
Continuing operations
Cash flows from financing activities
Proceeds from issue of ordinary shares 2.4 3.1
Proceeds from borrowings 124.3 90.7
Repayments of borrowings (73.7) (110.2)
Interest paid (12.6) (10.2)
Dividends paid to equity holders of the Company (31.1) (27.7)
-----------------------------------------------------------------------------------------------------------------------
Net cash generated from (used in) financing activities 9.3 (54.3)
-----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash & cash equivalents from continuing operations (96.0) 17.2
Net increase in cash & cash equivalents from discontinued operations - operating activities 1.4 22.9
Net decrease in cash & cash equivalents from discontinued operations - investing activities (0.5) (2.7)
Cash & cash equivalents at beginning of period 139.1 104.0
Foreign currency translation differences 2.1 (2.3)
-----------------------------------------------------------------------------------------------------------------------
Cash & cash equivalents at end of period 46.1 139.1
=======================================================================================================================
Cash & cash equivalents comprises the following
Cash & short-term deposits 54.2 146.3
Bank overdrafts & short-term borrowings (8.1) (7.2)
-----------------------------------------------------------------------------------------------------------------------
46.1 139.1
=======================================================================================================================
Reconciliation of net (decrease) increase in cash & cash equivalents to movement in net debt
Net (decrease) increase in cash & cash equivalents from continuing operations (96.0) 17.2
Net increase in cash & cash equivalents from discontinued operations 0.9 20.2
Net (increase) decrease in debt (50.6) 19.5
-----------------------------------------------------------------------------------------------------------------------
Change in net debt resulting from cash flows (145.7) 56.9
Lease acquired (0.2) -
Foreign currency translation differences (18.3) 12.4
-----------------------------------------------------------------------------------------------------------------------
Change in net debt during the period (164.2) 69.3
Net debt at beginning of period (7.1) (76.4)
-----------------------------------------------------------------------------------------------------------------------
Net debt at end of period (171.3) (7.1)
=======================================================================================================================
Consolidated Statement of Recognised Income & Expense
for the 52 weeks ended 28 December 2007
52 weeks 52 weeks
ended 28 ended 29
December December
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Income & expense recognised directly in equity
Gains taken to equity on cash flow hedges 6.2 11.5
Exchange differences on translation of foreign operations 3.1 (12.8)
Actuarial gains on defined benefit plans 29.5 33.0
Share of associate's actuarial gain on defined benefit plans - 4.4
Transfers to the income statement
On cash flow hedges (1.9) (1.1)
On cash flow hedges - discontinued operations (4.3) -
Tax on items taken directly to or transferred from equity (7.0) (12.5)
-----------------------------------------------------------------------------------------------------------------------
Net income recognised directly in equity 25.6 22.5
Profit for the period 175.0 81.6
-----------------------------------------------------------------------------------------------------------------------
Total recognised income & expense for the period 200.6 104.1
=======================================================================================================================
Attributable to
Equity holders of the Company 200.5 104.1
Minority interests 0.1 -
-----------------------------------------------------------------------------------------------------------------------
200.6 104.1
=======================================================================================================================
Notes to the Financial Statements
1. Basis of preparation
The preliminary results for the 52 weeks ended 28 December 2007 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 1985. The accounting policies applied in preparing these
preliminary results are unchanged from those set out in the Group's 2006 Annual
Report. In preparing this preliminary announcement the Group has also applied
IAS40 'Investment Property'. Following the disposal of Weir Pumps, a property
held by the company now meets the definition of investment property. The
application of IAS40 resulted in a reclassification, amounting to £4.8m, from
property, plant & equipment to investment property in the balance sheet. The
directors have chosen to apply the cost model within IAS40, therefore there has
been no adjustment necessary to the measurement basis of the property and as
such there is no other impact from the adoption of this accounting policy, which
is detailed below, in these preliminary results.
The format of the consolidated income statement presented in these preliminary
results differs from that used in the Group's consolidated financial statements
for the 52 weeks ended 29 December 2006 and the Group's 2007 Interim Report. The
format of the consolidated income statement included within these preliminary
results, which now presents intangibles amortisation in a separate column with
exceptional items, has been adopted as it presents information in a format that
is more relevant to users of the financial statements by improving the
visibility of the impact that increased acquisition activity has had on
intangible assets. In addition, the analysis of expenses has been transferred
from the face of the income statement to the notes to the financial statements
in order to present the key performance indicators more clearly to users of the
financial statements. The comparative information has been reclassified
accordingly, resulting in the reclassification of intangibles amortisation of
£2.3m.
The format of the consolidated cash flow statement presented in these
preliminary results differs from that used in the Group's consolidated financial
statements for the 52 weeks ended 29 December 2006. The format of the
consolidated cash flow statement included within these preliminary results,
which presents cash flows for continuing operations only, has been adopted as it
presents information in a format that is more relevant to users of the financial
statements. The comparative information has been restated accordingly, resulting
in £22.9m of cash inflows from operating activities and £2.7m of cash outflows
from investing activities being reclassified as relating to discontinued
operations.
These preliminary results for the 52 weeks ended 28 December 2007 do not
constitute statutory accounts as defined in Section 240 of The Companies Act
1985. They are extracted from the full statutory accounts, which were approved
by a Committee of the Board of Directors on 11 March 2008. A copy of those full
statutory accounts will be lodged with the Registrar of Companies in due course.
The report of the auditors on those financial statements is unqualified and does
not contain a statement under Section 237 (2) or Section 237 (3) of The
Companies Act 1985 concerning accounting records or failure to obtain necessary
information and explanations.
Investment property
The Group has one property which is currently being held to earn rentals and for
capital appreciation rather than for use in the production or supply of goods
and services and as such this property is classified as investment property.
Investment property is stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over 40 years.
2. Segment information - Continuing Operations
The following table presents revenue and profit information on the Group's
continuing operations for the 52 weeks ended 28 December 2007 and the 52 weeks
ended 29 December 2006.
Total
Engineering Engineering Defence, continuing
Products Services Nuclear & Gas operations
2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m
-----------------------------------------------------------------------------------------------------------------------
Revenue
Sales to external customers
- existing operations 632.9 538.0 231.4 225.2 117.6 107.2 981.9 870.4
- acquisitions 78.7 - - - - - 78.7 -
-----------------------------------------------------------------------------------------------------------------------
Sales to external customers 711.6 538.0 231.4 225.2 117.6 107.2 1,060.6 870.4
Inter-segment sales 22.1 22.4 1.2 1.6 - - 23.3 24.0
-----------------------------------------------------------------------------------------------------------------------
Segment revenue 733.7 560.4 232.6 226.8 117.6 107.2 1,083.9 894.4
=======================================================================================================================
Sales to external customers - existing
operations - at 2007 average exchange rates 632.9 525.5 231.4 221.7 117.6 107.3 981.9 854.5
=======================================================================================================================
Result
Segment result before exceptional items
& intangibles amortisation
- existing operations 79.6 59.9 18.5 12.9 10.4 10.0 108.5 82.8
- acquisitions 19.1 - - - - - 19.1 -
Exceptional income (net)
- existing operations - 5.0 - - - - - 5.0
Intangibles amortisation
- existing operations (1.7) (1.5) (0.5) (0.5) (0.2) (0.2) (2.4) (2.2)
- acquisitions (3.7) - - - - - (3.7) -
-----------------------------------------------------------------------------------------------------------------------
93.3 63.4 18.0 12.4 10.2 9.8 121.5 85.6
Share of results of joint ventures - - 3.4 2.4 - - 3.4 2.4
-----------------------------------------------------------------------------------------------------------------------
93.3 63.4 21.4 14.8 10.2 9.8 124.9 88.0
=========================================================
Unallocated expenses* (9.0) (7.6)
Unallocated exceptional income - 10.7
-----------------
Operating profit 115.9 91.1
=================
Segment result before exceptional items
& intangibles amortisation - existing
operations - at 2007 average exchange rates 79.6 58.1 18.5 13.1 10.4 10.0 108.5 81.2
=======================================================================================================================
* Unallocated expenses include intangibles amortisation of £0.1m (2006: £0.1m).
3. Exceptional items & intangibles amortisation
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Recognised in arriving at operating profit from continuing operations
Profit on sale of property - 6.8
Pension plan gain - 10.7
Restructuring costs - (1.8)
-----------------------------------------------------------------------------------------------------------------------
Exceptional items - 15.7
Intangibles amortisation (6.2) (2.3)
-----------------------------------------------------------------------------------------------------------------------
Exceptional items & intangibles amortisation (6.2) 13.4
=======================================================================================================================
4. Income tax expense
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Group - UK (6.8) (1.6)
Group - overseas (25.5) (21.0)
-----------------------------------------------------------------------------------------------------------------------
Total income tax expense in the consolidated income statement (32.3) (22.6)
=======================================================================================================================
The total income tax expense is disclosed in the consolidated income statement as follows.
Tax expense - continuing operations before exceptional items & intangibles amortisation (33.8) (19.6)
- exceptional items - (2.7)
- intangibles amortisation 2.1 0.7
- within profit from discontinued operations (0.6) (1.0)
=======================================================================================================================
The total income tax expense included in the Group's share of results of joint ventures &
associates is as follows.
Joint ventures (0.6) (0.4)
Associate (within profit from discontinued operations) (1.3) (3.3)
=======================================================================================================================
5. Discontinued operations
On 8 May 2007, the Group disposed of its Glasgow-based pump manufacturing
operation Weir Pumps for a total cash consideration of £45.5m resulting in a
gain on disposal of £26.0m after a tax charge of £nil. Of the disposal proceeds,
£1.7m has been allocated to the ongoing lease of the Cathcart site by the
purchaser and has been deferred. The net assets disposed of amounted to £13.7m
and direct disposal costs and provisions amounted to £8.4m, including estimated
costs of £2.6m associated with separating the discontinued operations of Weir
Pumps from the remaining Weir Engineering Services and Materials and Foundry
operations. The net gain suspended in equity on cash flow hedges, amounting to
£4.3m, has been recycled to the income statement as part of the gain on sale in
accordance with IAS39.
On 28 June 2007, the Group completed the sale of its 24.5% interest in its
associate, Devonport Management Limited, for a total cash consideration of
£85.7m. Approval of the sale was obtained from the Ministry of Defence on 26
June 2007, at which time the investment became held for sale. The carrying value
of the investment at the date of sale was £26.8m. Costs and provisions
associated with the disposal amounted to £4.0m resulting in a gain on disposal
of £54.9m after a tax charge of £nil.
The results of Weir Pumps, which were previously included within the Engineering
Products segment, and the Group's share of the results of Devonport Management
Limited which were previously reported in the Engineering Services segment, have
been included in the consolidated income statement as discontinued operations.
The net gain of £80.9m made on these disposals has been recorded as an
exceptional item in the consolidated income statement. Profits recognised in
respect of prior years' disposals relate to the negotiated settlement of claims
connected to prior period disposals and the release of certain provisions no
longer required.
The revenue, results and cash flows relating to discontinued operations are as
follows.
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Sale of goods 9.9 29.9
Revenue from construction contracts 12.1 40.6
-----------------------------------------------------------------------------------------------------------------------
Revenue 22.0 70.5
Cost of sales (13.9) (55.9)
Other operating income 1.2 2.2
Selling & distribution costs (2.7) (8.6)
Administrative expenses (1.4) (4.0)
Share of results of associate (after tax) 3.3 8.1
-----------------------------------------------------------------------------------------------------------------------
Operating profit 8.5 12.3
Income tax - (1.0)
-----------------------------------------------------------------------------------------------------------------------
Profit after tax 8.5 11.3
Profits recognised in respect of prior years' disposals (after tax) 3.3 1.4
-----------------------------------------------------------------------------------------------------------------------
Profit for the period from discontinued operations * 11.8 12.7
Net gain on current year disposals - exceptional items (on which no tax has been provided) 80.9 -
-----------------------------------------------------------------------------------------------------------------------
Profit for the period from discontinued operations 92.7 12.7
=======================================================================================================================
*including intangibles amortisation net of tax of £nil (2006: £0.1m)
The cash inflow from current year disposals was as follows:
Consideration 129.5 -
Costs associated with the disposals (4.3) -
-----------------------------------------------------------------------------------------------------------------------
Net cash inflow 125.2 -
=======================================================================================================================
6. Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the Company by the weighted average
number of ordinary shares outstanding during the year (adjusted for the effects
of dilutive options and LTIP awards).
The following reflects the profit and share data used in the calculation of
earnings per share.
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Basic earnings per share
Profit attributable to equity holders of the Company
- Total operations* 174.9 81.6
- Continuing* 82.2 68.9
- Continuing (before exceptional items & intangible amortisation)* 86.3 57.5
Weighted average share capital (number of shares, million) 208.6 207.1
=======================================================================================================================
Diluted earnings per share
Profit attributable to equity holders of the Company
- Total operations* 174.9 81.6
- Continuing* 82.2 68.9
- Continuing (before exceptional items & intangible amortisation)* 86.3 57.5
Weighted average share capital (number of shares, million) 210.9 210.1
=======================================================================================================================
The difference between the weighted average share capital for the purposes of
the basic and diluted earnings per share calculations is analysed as follows.
2007 2006
Shares Shares
Million Million
-----------------------------------------------------------------------------------------------------------------------
Weighted average number of ordinary shares for basic earnings per share 208.6 207.1
Effect of dilution: share options 0.4 1.0
LTIP awards 1.9 2.0
-----------------------------------------------------------------------------------------------------------------------
Adjusted weighted average number of ordinary shares for diluted earnings per share 210.9 210.1
=======================================================================================================================
The profit attributable to equity holders of the Company used in the calculation
of both basic and diluted earnings per share on continuing operations before
exceptional items and intangibles amortisation is calculated as follows.
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Net profit attributable to ordinary shareholders from continuing operations* 82.2 68.9
Exceptional items & intangibles amortisation net of tax 4.1 (11.4)
-----------------------------------------------------------------------------------------------------------------------
Net profit attributable to ordinary shareholders from continuing operations
before exceptional items & intangibles amortisation* 86.3 57.5
=======================================================================================================================
*adjusted for £0.1m (2006: £nil) attributable to minority interests.
7. Dividends paid & proposed
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Declared & paid during the period
Equity dividends on ordinary shares
Final dividend for 2006: 10.75p (2005: 9.65p) 22.4 19.9
Interim dividend for 2007: 4.15p (2006: 3.75p) 8.7 7.8
-----------------------------------------------------------------------------------------------------------------------
31.1 27.7
=======================================================================================================================
Proposed for approval by shareholders at the AGM
Final dividend for 2007: 12.35p (2006: 10.75p) 25.8 22.3
=======================================================================================================================
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. Business combinations
On 19 July 2007, the Group acquired 100% of the share capital of SPM Flow
Control, Inc., a company based in Fort Worth, Texas, specialising in the
manufacture of high-pressure well service pumps and related flow control
equipment which operate in abrasive, high-wear applications in oil and gas
drilling and extraction. The total cash consideration was £321.9m. On 21 August
2007, the Group acquired Multiflo, a privately owned specialist mine dewatering
pump business based in Caloundra, Australia. The total cash consideration was
£9.3m. Both acquisitions have been accounted for on a provisional basis as a
limited number of fair values have still to be finalised.
The provisional fair values of the identifiable assets and liabilities at the
relevant dates of acquisition are as follows.
2007 2007 2007 2007 2007
Recognised Recognised Recognised
Carrying on Carrying on on
values acquisition values acquisition acquisition
Multiflo Multiflo SPM SPM Total
£m £m £m £m £m
-----------------------------------------------------------------------------------------------------------------------
Property, plant & equipment 0.1 0.2 11.5 10.9 11.1
Intangible assets - 4.4 - 121.4 125.8
Inventories 1.3 0.3 29.6 37.2 37.5
Trade & other receivables 1.5 1.5 36.8 35.6 37.1
Cash & cash equivalents - - 13.5 13.5 13.5
Interest-bearing loans & borrowings - - (0.2) (0.2) (0.2)
Trade & other payables (2.1) (1.4) (21.7) (21.9) (23.3)
Provisions (0.1) (0.1) (1.0) (2.7) (2.8)
Income tax - - (0.2) (4.2) (4.2)
Deferred tax - - 0.8 (41.4) (41.4)
-----------------------------------------------------------------------------------------------------------------------
Fair value of net assets 0.7 4.9 69.1 148.2 153.1
============ ============
Goodwill arising on acquisition 4.4 173.7 178.1
------------- ----------------------
Total consideration 9.3 321.9 331.2
=======================================================================================================================
Consideration 9.2 319.3 328.5
Costs associated with the acquisition 0.1 2.6 2.7
-----------------------------------------------------------------------------------------------------------------------
Total consideration 9.3 321.9 331.2
=======================================================================================================================
The cash outflow on acquisition was as follows
Cash & cash equivalents acquired - 13.5 13.5
Cash paid (9.3) (321.9) (331.2)
-----------------------------------------------------------------------------------------------------------------------
Net cash outflow (9.3) (308.4) (317.7)
=======================================================================================================================
From the date of the acquisition SPM Flow Control, Inc. contributed £9.8m to the
2007 profit for the period from continuing operations of the Group. The results
of Multiflo were not significant. The combined revenue and profit of the Group,
assuming that SPM Flow Control, Inc. and Multiflo had been acquired at the start
of 2007, would have been £1,164.9m and £98.5m respectively.
On 16 February 2006, the Group acquired the business and certain trading assets
of Loftyman Engineering Limited, a company registered in Hong Kong. The amount
payable for the goodwill associated with the business was £0.8m and a total of
£0.4m was payable for the trading assets.
Included in the £178.1m of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include the expected value of
synergies and an assembled workforce.
9. Reconciliation of movements in equity
Minority Total
Attributable to equity holders of the Company interest equity
-----------------------------------------------------------------------------------------------------------------------
Share Share Treasury
capital premium shares Reserves Total
£m £m £m £m £m £m £m
-----------------------------------------------------------------------------------------------------------------------
At 30 December 2005 26.2 32.5 (10.7) 242.6 290.6 0.4 291.0
Total recognised income & expense for the period - - - 104.1 104.1 - 104.1
Cost of share-based payments - - - 1.4 1.4 - 1.4
Dividends - - - (27.7) (27.7) - (27.7)
Exercise of options 0.2 2.9 - - 3.1 - 3.1
-----------------------------------------------------------------------------------------------------------------------
At 29 December 2006 26.4 35.4 (10.7) 320.4 371.5 0.4 371.9
Total recognised income & expense for the period - - - 200.5 200.5 0.1 200.6
Cost of share-based payments - - - 1.4 1.4 - 1.4
Dividends - - - (31.1) (31.1) - (31.1)
Exercise of options & L-TIP awards 0.1 2.3 1.4 (1.4) 2.4 - 2.4
-----------------------------------------------------------------------------------------------------------------------
At 28 December 2007 26.5 37.7 (9.3) 489.8 544.7 0.5 545.2
=======================================================================================================================
10. Cash generated from operations
2007 2006
£m £m
-----------------------------------------------------------------------------------------------------------------------
Continuing operations
Net cash generated from operations
Operating profit 115.9 91.1
Exceptional items - (15.7)
Share of results of joint ventures (3.4) (2.4)
Depreciation & amortisation 23.7 17.5
(Gains) losses on disposal of property, plant & equipment & investments (0.6) 0.2
Funding of pension & post retirement costs (1.2) (0.9)
(Gains) losses on derivatives that have been taken to operating profit (1.9) -
Employee share schemes 1.4 1.4
Increase in provisions 7.3 1.9
Increase in inventories (16.1) (6.6)
Increase in trade & other receivables & construction contracts & derivative financial instruments (20.7) (20.1)
Increase in trade & other payables & construction contracts & derivative financial instruments 47.4 44.6
-----------------------------------------------------------------------------------------------------------------------
Cash generated from operations 151.8 111.0
=======================================================================================================================
Acquisitions of subsidiaries
Current year acquisitions (note 8) (317.7) (0.8)
Previous year acquisitions deferred consideration paid (0.1) (1.3)
-----------------------------------------------------------------------------------------------------------------------
(317.8) (2.1)
=======================================================================================================================
11. Exchange rates
The principal exchange rates applied in the preparation of these financial
statements were as follows.
2007 2006
--------------------------------------------------------------------------------
Average rate
US dollar (per £) 2.01 1.86
Australian dollar (per £) 2.39 2.45
Euro (per £) 1.46 1.47
Canadian dollar (per £) 2.14 2.10
--------------------------------------------------------------------------------
Closing rate
US dollar (per £) 2.00 1.96
Australian dollar (per £) 2.27 2.48
Euro (per £) 1.37 1.49
Canadian dollar (per £) 1.96 2.28
--------------------------------------------------------------------------------
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