Interim Management Statement

4 November 2014

THE WEIR GROUP PLC

Interim Management Statement for the period to 3 November 2014¹

STRONG Q3 INPUT TRENDS, FURTHER STRATEGIC AND OPERATIONAL PROGRESS

HIGHLIGHTS

• Full year expectations unchanged
• Third quarter input growth up 14% in constant currency
• Strong Q3 aftermarket trends; Minerals +12%, Oil & Gas +44%, Power & Industrial +9%
• Revenues and operating margins in line with expectations
• Acquisition of Trio completed, expanding Minerals comminution offering
• New Group-wide efficiency programme to deliver £35m annualised savings in 2016

Keith Cochrane, Chief Executive, said:

"While the global economic and end market outlook remains uncertain, our strong competitive positioning enables us to continue to invest through the cycle to deliver sustainable, profitable growth.  Our large installed base continues to provide a solid platform for high-quality, recurring aftermarket revenues that drive growth.  We've also continued to make good operational and strategic progress in the third quarter, taking actions to further improve efficiencies across the Group and accelerating our Minerals strategy with the acquisition of Trio.  Weir is well placed to deliver good organic growth in 2014, in line with our earlier guidance."

THIRD QUARTER REVIEW

The Weir Group PLC ("Weir" or "Group") announces positive order input trends in the third quarter of 2014, with the benefits of Weir's aftermarket focused business model underpinning performance.

Third quarter² input³ was in line with expectations and was 14% higher than the prior year comparator on a constant currency basis as strong growth in Oil & Gas was partly offset by a flat performance in Minerals and a decline in Power & Industrial orders.  Original equipment orders, 32% of order input, were down 4% while aftermarket orders, 68% of input, were up 25% with strong growth in each division.   A positive book to bill ratio of 1.05 was recorded in the third quarter.  Order input for the 39 week period was 11% higher than the prior year (H1⁴: 10% higher).

Third quarter revenues and operating profits were up on the prior year and in line with expectations, with double digit constant currency revenue growth partially offset by foreign currency headwinds.  As a result the Group remains on track to meet its full year expectations of good constant currency revenue and profit growth with underlying Group margins broadly in line with 2013 levels.  Full year reported operating profits will be impacted by an estimated £38m adverse foreign currency exchange rate movement, assuming fourth quarter average exchange rates are in line with the closing rates at the end of the third quarter.     

DIVISIONAL REVIEW

Minerals

Order input for the third quarter was up 1% against the prior year period, in line with expectations and slightly ahead of the second quarter.  Original equipment orders were 18% lower than the prior year period and in line with the second quarter.  Aftermarket orders were up 12% on the prior year period and grew sequentially from the second quarter.  Order input for the 39 weeks was 5% lower (H1: 7% lower) with original equipment orders down 24% (H1: 27% lower) and aftermarket orders up 7% (H1: 5% higher) on the prior year period.

Mining end markets remained challenging, with declines across a number of key commodity prices, particularly iron ore, impacting sentiment and ensuring a continued reduction in mining capital expenditure as customers display caution in proceeding with brownfield investments.  In Europe, weak economic conditions and the impacts of geopolitical unrest in Eastern Europe have also impacted activity.  Original equipment orders were supported by further success in comminution (crushing, grinding and screening) including a large High Pressure Grinding Rolls (HPGR) order.

Aftermarket input was supported by growing ore production volumes, benefits from the commissioning of greenfield mines in South America and HPGR spares orders for delivery in 2015.  Good growth was seen in most regions with the exception of Europe and Africa.  The latter continues to recover from the South African industrial actions which ended in late July, while the effects of the Ebola outbreak are impacting activity in Western Africa.

The acquisition of Trio was completed on 22 October 2014, expanding the division's comminution offering, increasing its presence in Chinese mining markets and providing scale in growing US and global aggregates markets.  The acquisition will also generate a number of synergies from leveraging Trio's cost effective platform and Weir's global distribution network.  After one-off acquisition and integration costs, Trio's contribution to 2014 divisional profits will not be material.

Full year divisional revenue and operating margin expectations are unchanged, with constant currency revenues slightly down on 2013, assuming no material project delivery delays.  Underlying margin expectations are also unchanged, increasing sequentially in the second half such that full year margins are slightly down on the prior year.

Oil & Gas

Order input for the third quarter was up 40% against the prior year period, ahead of prior expectations and slightly up on the second quarter.  Original equipment orders were up 28% but down on the level seen in the second quarter and remain significantly below peak levels.  Aftermarket orders were up 44% on the prior year period with good sequential growth compared to the second quarter of 2014 and accounted for 72% of divisional input.  Order input for the 39 weeks was also 40% higher (H1: 40% up) despite the higher comparator period.  Original equipment orders for the 39 weeks were up 50% (H1: 63% higher) and aftermarket orders up 36% (H1: 32% higher) on the prior year period.

Upstream markets remained supportive with the number of land wells drilled in the US in the third quarter 5% up on the prior year and slightly ahead of the second quarter.  Activity continues to be focused on oil and liquid rich formations with recent oil price declines thus far having no impact on activity levels.  US gas prices remained below incentive levels.  Pressure Pumping aftermarket input was supported by the increasing intensity of shale completions with fluid end and flow control orders reaching record levels in the third quarter. Pressure Pumping original equipment orders remained at a relatively low level.  Pressure Control benefited from the growing rig count and continuing bias towards more complex unconventional drilling and completion.

Services and Gabbioneta performed in line with expectations with Services ramping up activity through the quarter under its Lukoil contract.

We now expect full year constant currency divisional revenues to be slightly higher than our expectations in July, with stronger revenue growth in the second half, assuming current end market conditions continue through the fourth quarter.   Full year operating margins are expected to be in line with the second half of 2013 and prior guidance. 

Power & Industrial

Order input for the third quarter was down 4% on the prior year period and below expectations.  Original equipment orders were down 14% as project delays continued to impact input across power, industrial and downstream oil and gas markets.  Aftermarket orders were up 9% on the prior year period.  Order input for the 39 weeks was up 4% (H1: 7% up) with original equipment orders in line with the prior year (H1: 7% up) and aftermarket orders up 7% (H1: 7% up).

As a result of third quarter input trends, full year constant currency divisional revenues are now expected to be slightly lower than previous expectations.  Second half margins, while improving sequentially, will be lower than prior expectations, meaning full year margins will be below 2013 levels.

GROUP-WIDE EFFICIENCY PROGRAMME

A Group-wide review was undertaken in the third quarter to identify opportunities to reduce costs, increase customer responsiveness and efficiency while aligning resources globally to capture end market opportunities.  As a result the Group intends, subject to consultation, to close five small manufacturing facilities over the course of 2015 and consolidate a number of service centres, alongside other workforce reductions and the exit of certain lower margin activities.  Manufacturing activities will be consolidated into larger existing facilities, which will require a small amount of capital expenditure.  These actions are expected to deliver annualised benefits of £35m, of which approximately £20m will be realised in 2015.  It is estimated that one-off cash restructuring costs of approximately £25m and impairment charges of around £20m, arising on facility closures, will be incurred and recognised as an exceptional item.  It is expected that the majority of the restructuring expense will be provided in the 2014 results although an element may be deferred to 2015, primarily depending on the outcome of employee consultations.  

NET DEBT

Net debt at 3 October 2014 was in line with that reported at 4 July 2014 with positive cash generation in the third quarter offset by the foreign exchange translation of US$ denominated debt.  The Group is expected to continue to be cash generative in the fourth quarter, although this will be more than offset by cash outflows in respect of the acquisition of Trio.

FINANCIAL CALENDAR

Results for the 52 week period ending 2 January 2015 will be announced on 25 February 2015.

ANALYST AND INVESTOR CONFERENCE CALL

A conference call for analysts and investors will be held at 0800 (GMT) on Tuesday 4 November to discuss this statement.   Participants can join the call by registering in advance by visiting weir.co.uk and following the link on the homepage.

A recording of this conference call will be available until Monday 10 November on [phone] using the conference ID 23911974.

Notes:

 1.   Financial information is given for the 39 weeks ended 3 October 2014.

 2.    Third quarter refers to the financial period 13 weeks ended 3 October 2014.

 3.    Order input is reported on a constant currency basis.

 4.    H1 refers to the financial period 26 weeks ended 4 July 2014.

 5.    Where growth is provided on a like for like basis, like for like is defined as the comparison of current year results to the equivalent prior year period for those businesses that have been part of the Group throughout the current and prior year reporting period, on a constant currency basis.

Contact details:
The Weir Group PLC
Stephen Christie, Head of Investor Relations	[phone]
Raymond Buchanan, Head of Communications	[phone] / [phone]
Ross Easton, Communications Manager	[phone] / [phone]
Brunswick Group
Patrick Handley/ Nina Coad	[phone]

About the Weir Group PLC

The Weir Group is one of the world's leading engineering businesses. We are committed to creating innovative engineering solutions. We provide products and services to customers in the minerals, oil and gas and power sectors around the world. Weir's customer base includes the world's largest mining houses, major oil services businesses and nuclear and conventional power generation companies.

Weir is a FTSE 100 company founded in 1871 and headquartered in Glasgow, Scotland. Our commitment to engineering excellence, research and customer focus extends equipment wear life and operational capability in some of the world's most challenging environments.

Weir is committed to going where our customers go, with a worldwide network of around 200 manufacturing facilities and service centres. The business has a presence in more than 70 countries, with over 15,000 people around the world working in three divisions: Minerals; Oil & Gas; and Power & Industrial.

Annual revenues were more than £2.4 billion in 2013, of which almost two thirds came from the provision of services and aftermarket support.

See weir.co.uk for further information. Follow us on Twitter @WeirGroup

2014 CONTINUING OPERATIONS INPUT GROWTH (constant currency)

		Reported growth						Like for Like5 growth
	Q4-13		Q1	Q2	Q3	Q1-Q3		Q4-13	Q1	Q2	Q3	Q1-Q3
Minerals
OE	19%		-27%	-28%	-18%	-24%		19%	-27%	-28%	-18%	-24%
AM	7%		4%	6%	12%	7%		5%	4%	6%	12%	7%
Total	11%		-7%	-8%	1%	-5%		9%	-7%	-8%	1%	-5%
Oil & Gas
OE		2%	33%	99%	28%	50%		2%	33%	99%	28%	50%
AM		69%	33%	31%	44%	36%		56%	33%	31%	44%	36%
Total		45%	33%	47%	40%	40%		37%	33%	47%	40%	40%
Power & Industrial
OE		5%	19%	-4%	-14%	0%		5%	19%	-4%	-14%	0%
AM		45%	-9%	20%	9%	7%		45%	-9%	20%	9%	7%
Total		22%	5%	8%	-4%	4%		22%	5%	8%	-4%	4%
Continuing Operations
OE		4%	-2%	4%	-4%	-1%		11%	-2%	4%	-4%	-1%
AM		30%	13%	17%	25%	18%		25%	13%	17%	25%	18%
Total		20%	7%	12%	14%	11%		20%	7%	12%	14%	11%

2014 EXCHANGE RATES

	H1	Q3	Q1-Q3	Q3	% of 2013
Currency	average	average	average	closing	operating profit
US $	1.67	1.67	1.67	1.62	52%
Australian $	1.82	1.81	1.82	1.86	10%
Canadian $	1.83	1.82	1.83	1.81	9%
Euro €	1.22	1.26	1.23	1.28	10%
Chilean Peso	925	965	938	968	7%
S. African Rand	17.9	18.0	17.9	18.2	2%
Brazilian Real	3.83	3.80	3.82	4.03	1%
Other	n/a	n/a	n/a	n/a	9%

 This information includes 'forward-looking statements'.  All statements other than statements of historical fact included in this release, 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.

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The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: The Weir Group PLC via Globenewswire

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