Interim Management Statement

The Weir Group PLC
Interim Management Statement for the period 3 January 2015 to 28 April 2015¹

First quarter impacted by challenging oil and gas markets

• Minerals resilient despite subdued end markets - order input² up 5%; continued aftermarket growth
• Significant decline in upstream oil and gas markets - order input down 23%; further decline expected in Q2
• Good operational progress in Power & Industrial; margins up as cost actions take effect
• Q1 Group order input down 9%; revenue decline broadly in line with input
• Group operating margins down 400bps; largely due to declines in North American oil and gas
• Taking further action to support profitability; additional £10m of cost reductions planned in Oil & Gas  

Keith Cochrane, Chief Executive, commented:
"While mining markets remained subdued, the performance of the Minerals division once again demonstrated its resilience.  Trading conditions in oil and gas markets were challenging through the quarter with a steeper decline in the North American rig count than the market had anticipated.  Oil and gas activity levels are still falling and we expect a further decline in divisional revenues in the second quarter.  In response the Group is taking further actions to support profitability, including additional workforce reductions and service centre consolidations."

First quarter review
First quarter input was 9% lower than the prior year period and 10% lower than the fourth quarter of 2014, primarily driven by a significant drop in North American oil and gas activity levels.  Original equipment orders were down 22% and aftermarket orders were down 2% against the prior year period.  On a like for like basis³ (excluding Trio), order input was down 12%, with original equipment down 28% and aftermarket down 4%.

Revenues on a constant currency basis were down in the first quarter compared to the prior year period, broadly in line with input, primarily driven by reduced North American Oil & Gas activity levels.  Aftermarket revenues were slightly up on the prior year on a constant currency basis, with good growth from Minerals and Power & Industrial more than offsetting the Oil & Gas decline.  Original equipment revenues were materially lower.  The order book increased in the period with a positive book to bill ratio of 1.05.  Group operating margins were down 400bps compared to the prior year, with the decline largely due to lower margins in Oil & Gas.  As stated in February, the Group is planning for a significant reduction in constant currency revenues and lower operating margins in 2015.

Divisional review

Minerals
Order input for the 13 weeks was up 5% against the prior year period, in line with expectations.  On a like for like basis orders were down 2%, although 6% higher on a sequential basis.  Original equipment input was 4% higher than the prior year period, supported by a good contribution from Trio, but down 13% on a like for like basis.  Aftermarket input was up 6%, and up 3% on a like for like basis, as miners continue to drive production and ramp up recently commissioned mines.  The order book increased in the period with a book to bill ratio of 1.13.

Mining end markets continue to be challenging.  Iron ore prices fell further in the first quarter and higher cost iron ore and coal mines reduced production levels.  Copper prices declined in early January but recovered towards the end of the period while gold prices remained relatively stable.  As expected, capital expenditure across the industry reduced, albeit at a slower rate than 2013 and 2014, with projects continuing to be deferred.  The integration of Trio is progressing well with total comminution (crushing, screening and grinding) orders representing 8% of divisional input.  Orders in Africa were in line with the prior year with a recovery in the platinum sector, following strike action which began in the first quarter of 2014, offset by declines in coal markets.  In Asia-Pacific, project activity declined but performance was underpinned by resilient aftermarket demand.  In Europe and South America first quarter input was up year on year, driven by strong aftermarket growth in the latter.  Orders in North America were affected by lower oil prices impacting volumes and pricing in oil sands and upstream related activities.

Constant currency divisional revenues and operating margins were slightly down on the prior year, consistent with previous guidance.  The division's efficiency programme continues on schedule, with the closure of a small manufacturing site in Hazleton, Pennsylvania completed in the quarter. 

Full year divisional revenue and operating margin expectations remain unchanged.

Oil & Gas
Order input was down 23% on the prior year, with original equipment down 41% and aftermarket 15% lower.  On a sequential basis, input was 29% lower than the fourth quarter of 2014.  The book to bill ratio in the period was negative at 0.95, with first quarter revenues benefiting from the opening order book, with only £6m of prior-year orders cancelled in the period. 

Oil and gas markets were impacted as oil prices remained around 50% lower than the prior year period, leading to significant reductions in activity levels.  Since the start of 2015, the US oil-directed rig count has fallen by more than 50% and gas-directed rigs have reduced by nearly one-third as E&P companies cut capital spending in response to lower prices.  These rig count declines were greater than the Group's previous planning assumptions and there remains limited visibility on when the market will stabilise, with divisional revenues expected to decline further in the second quarter.  In response, further efficiency measures are being implemented across the division's upstream businesses including additional workforce reductions and service centre consolidations, which will deliver annualised savings of £10m.  The cost reduction actions announced in November and February have largely been completed. 

In Pressure Pumping, original equipment demand fell below levels seen in the 2013 downturn as frack fleet utilisation reduced to around 50% by the end of the quarter.  Cannibalisation of idle frack fleets, combined with destocking, impacted aftermarket input levels and these factors are expected to continue to affect orders through the second quarter.  Pressure Control order input also fell heavily as a result of North American market conditions although profitability was supported by the closure of a small manufacturing facility and other previously announced efficiency measures.  Pricing discussions are ongoing with a range of customers across Pressure Pumping and Pressure Control with discounts, where agreed, ranging between 5% and 20% across the product portfolio.  Conditions were also challenging in international and downstream markets, although the impact was less pronounced than in North America.  Order input from Services and Gabbioneta increased slightly compared to the prior year period. 

Divisional revenues were materially lower than the prior year on a constant currency basis, as a result of North American market conditions.  Operating margins reduced, reflecting lower volumes and pricing pressure in the higher-margin North American upstream operations.  This was partly offset by cost reduction measures. 

Visibility over the full year outturn continues to be limited, with a substantial reduction in divisional revenues and a lower operating margin expected over the full year.

Power & Industrial
Order input for the first quarter was down 14% on the prior year period.  Original equipment orders were down 34% against the prior year period which included large hydro and steam turbine orders.  Valve and Hydro orders were affected by project delays across mid and downstream oil and gas and power markets.  Aftermarket input was up 12% on the back of a strong Valves performance.  On a sequential basis input was down 7%, with original equipment down 26% and aftermarket up 15%.  The book to bill ratio in the period was slightly positive at 1.01.

Divisional revenues, on a constant currency basis, were lower than the prior year period but margins increased as a result of the first benefits from cost reduction and operational improvement measures taken at the end of 2014.

Full year divisional revenue and operating margin expectations remain unchanged.

Net debt
Net debt at 3 April 2015 was slightly higher than that reported at 2 January 2015, with improved underlying cash generation offset by the negative foreign exchange translation impact of US$ denominated debt.  The Group remains confident of delivering strong cash generation in 2015.

Notes:

1. Financial information is given for the 13 week quarter ended 3 April 2015.
2. Order input is reported on a constant currency basis.
3. Where growth is provided on a like for like basis, like for like is defined as the comparison of the 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.

Analyst and investor conference call
A Conference call for analysts and investors will be held at 0800 (GMT) on Wednesday 29 April 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 Tuesday 5 May on [phone] using the conference ID 31375938.

Enquiries:
Investors: Stephen Christie	[phone] / (0) 7795 110456
Media: Raymond Buchanan / Ross Easton	[phone] / (0) 7713 261447 / (0) 7920 190994
Brunswick: Patrick Handley / Nina Coad	[phone]

Appendix - quarterly input trends (constant currency)

	Reported growth					Like for like growth
Division	2014 Q2	2014 Q3	2014 Q4	2015 Q1		2014 Q2	2014 Q3	2014 Q4	2015 Q1
Original Equipment	-28%	-18%	-14%	4%		-28%	-18%	-14%	-13%
Aftermarket	6%	12%	3%	6%		6%	12%	3%	3%
Minerals	-8%	1%	-3%	5%		-8%	1%	-3%	-2%
Original Equipment	99%	28%	37%	-41%		99%	28%	37%	-41%
Aftermarket	31%	44%	13%	-15%		31%	44%	13%	-15%
Oil & Gas	47%	40%	19%	-23%		47%	40%	19%	-23%
Original Equipment	-4%	-14%	-11%	-34%		-4%	-14%	-11%	-34%
Aftermarket	20%	9%	-31%	12%		20%	9%	-31%	12%
Power & Industrial	8%	-4%	-21%	-14%		8%	-4%	-21%	-14%
Original Equipment	4%	-4%	0%	-22%		4%	-4%	0%	-28%
Aftermarket	17%	25%	3%	-2%		17%	25%	3%	-4%
Continuing Ops	12%	14%	2%	-9%		12%	14%	2%	-12%

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 ("the Company") 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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Source: The Weir Group PLC via Globenewswire

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