Interim Results
Weir Group PLC
17 August 2006
The Weir Group PLC
17 August 2006
THE WEIR GROUP PLC INTERIM RESULTS 2006
Results for 26 weeks ended 30 June 2006
HIGHLIGHTS
'Primed to Perform'
• Order input(*1) up 36% to £606.4m (2005: £445.0m)
• Revenue up 24% to £438.2m (2005: £354.1m)
• Operating profit(*2) up 44% to £38.0m (2005: £26.4m)
• Earnings per share(*3) up 45% to 13.9p (2005: 9.60p)
• Cash generated by operations £51.5m, up £37.4m
(2005: £14.1m)
• Dividend increase of 6% to 3.75p (2005: 3.55p)
• Restructuring on target and delivering benefits
2006 2005 Change
------ ------ --------
Continuing Operations
Order Input (*1) £606.4m £445.0m +36%
Revenue £438.2m £354.1m +24%
Operating Profit (*2) £38.0m £26.4m +44%
Profit before tax (*3) £37.2m £24.8m +50%
Earnings per share (*3) 13.90p 9.60p +45%
Dividend 3.75p 3.55p +6%
Total Operations
Earnings per share 13.30p (0.80)p
*1 Excludes Joint Ventures and Associates
*2 Profit from continuing operations before restructuring costs, net finance
costs and tax
*3 Adjusted to exclude restructuring costs
The Chairman of The Weir Group, Sir Robert Smith, commented: 'In the first half
of 2006, the Group's continuing operations delivered significantly improved
order input, revenue, profit and earnings per share when compared to the same
period in 2005.
This improved performance, together with the ongoing strength of the order book
and restructured portfolio of businesses, increases our confidence in the
outlook for 2006.
In consideration of the excellent first half results and our confidence in the
second half of the year the Board has declared a 6% increase in the dividend to
3.75p per share.'
Contact details: The Weir Group PLC Available through UBS
Mark Selway, Chief Executive Tel. 020 7567 8000 (switchboard)
Helen Walker, Public Relations Manager (Mobile: 07789 032296)
Maitland Tel. 020 7379 5151
Suzanne Bartch (Mobile: 07769 710 335)
Michelle Jeffery (Mobile: 07989 977 837)
FINANCIAL HIGHLIGHTS
2006 first half order input at £606.4m was 36% higher than the same period in
2005. Engineering Products order input grew 36% to £365.0m (2005: £267.7m) with
good progress from Minerals, Clear Liquid and Valves coupled to a first time
contribution of £31.7m from Gabbioneta. Services order input at £137.9m was 39%
above the same period in 2005 while Defence, Nuclear & Gas benefited from large
contract awards helping to produce a first half order input of £103.5m against
£77.9m in the first half of 2005.
Revenue from Group continuing operations increased 24% to £438.2m (2005:
£354.1m). Engineering Products grew 22% to £283.0m (2005: £231.2m) with
excellent performances from Minerals and Clear Liquid offsetting a planned
reduction resulting from the restructuring of Valves. Engineering Services
revenue in the first half increased 16% to £106.9m (2005: £91.9m) with good
progress in Canada, the USA and Australia. The Defence, Nuclear & Gas Division
grew their revenue 56% to £48.3m (2005: £31.0m) as a result of new gas contracts
at LGE.
First half operating profit(*2) at £38.0m (2005: £26.4m) was 44% above the same
period in 2005. Engineering Products operating profit(*2) increased 66% to
£26.7m (2005: £16.1m) with the combination of strong end markets, restructuring
benefits and the acquisition of Gabbioneta all contributing to excellent
progress in the first half of the year. Services operating profit(*2) increased
2% to £6.2m (2005: £6.0m) while Defence, Nuclear & Gas achieved a 29% increase
to £4.1m (2005: £3.2m).
Joint Ventures and Associates contributed £4.8m against £3.9m in the same period
last year. Good progress was made from our Joint Venture in Abu Dhabi and from
the first time contribution of our latest business in Saudi Arabia.
Profit before tax(*3) at £37.2m (2005: £24.8m) was 50% above the same period in
2005. Net finance costs of £3.2m were largely offset by other finance income of
£2.4m arising from the improved performance of the Group's pension schemes.
Further restructuring costs of £1.8m were incurred in the first half in respect
of the previously announced UK restructuring.
A tax charge of £8.0m (2005: £5.0m) gives an effective tax rate of 26%. Earnings
per share(*3) for continuing operations were 13.9p (2005: 9.6p). Basic earnings
per share for total operations rose to 13.3p from a loss of 0.8p in the
comparable period last year.
The Group's net debt at the half year was £64.8m reducing from £76.4m at the
start of the year. The first half inflow is after payment of £20.0m for the
final 2005 dividend and a £5.1m cash outflow related to previously announced
restructuring activities. Good progress was made in managing the Group's working
capital with a £7.9m increase in advance payments and improvements in inventory
and debtor ratios all contributing to the results.
DIVIDEND
An interim dividend of 3.75p (2005: 3.55p) is declared and will be paid on 10
November 2006 to shareholders on the register at the close of business on 13
October 2006.
REVIEW OF RESULTS
To assist in meaningful comparisons, the following review of results restates
comparative 2005 figures at 2006 average exchange rates. The addition of first
time earnings from the acquisitions of Gabbioneta and the shareholding in the
Joint Venture in Saudi Arabia are included in the reviews of the respective
Engineering Products and Joint Ventures and Associates segmental results.
Engineering Products
The Engineering Products Division includes the operations of our Minerals, Clear
Liquid and Valves businesses. First half order input grew 32% to £365.0m (2005:
£276.2m) with good progress in each of Minerals, Clear Liquid and Valves.
Revenue from continuing businesses increased 19% to £283.0m (2005: £238.5m)
while operating profit(*2) increased 57% to £26.7m (2005: £17.1m).
At the operating profit(*2) level, the margin was 9.5% compared with 7.2% in
2005. This margin increase was underpinned by a continued strong performance
from Minerals, the first time contribution from Gabbioneta and stronger
operating performances from Valves and Clear Liquid as a result of restructuring
activities.
Minerals had an excellent first half growing its order input, revenue and
operating profit(*2) through the combination of buoyant commodity markets, new
product offerings and improvements in operational efficiency. The 20% growth in
order input was driven in part by the strong investment climate and build-up of
mining spares evident in the Americas, Australia and Europe. North America
benefited from continued success in the Canadian oil sands, where it has gained
early entry into this newly developing market, and from a significant £9.1m new
order from Canadian Natural Resources Limited secured in the first half.
In the FSU large projects were awarded from the Russian iron ore and copper
markets and in Europe there was a continued strong demand for mine upgrades and
spares from our more traditional markets.
Clear Liquid performed well in the first half growing its order input, revenue
and operating profit(*2) when compared to the same period in 2005. The benefits
from restructuring at Weir Pumps were ahead of expectations while both
Gabbioneta and the speciality businesses continue to experience strong end
markets.
First half input at £118.4 m (2005: £75.1m) was 58% above the first half of
2005. Gabbioneta provided a first time addition of £31.7m, Weir Pumps benefited
from the move into new markets securing a number of large-scale power projects
in China, upstream work in Russia and an oil platform project in Thailand. The
speciality businesses continued to make good progress collectively growing their
input 9% against the same period last year.
The UK restructuring programme made good progress delivering profit and cash
benefits ahead of schedule. Plans to move from the existing Cathcart site to a
modern, purpose built facility in late 2008 or 2009, are expected to incur
progressively a cash cost of approximately £30m which we expect to be largely
recovered from the sale of the existing property.
The acquisition of Gabbioneta contributed £12.3m of revenue in the first half of
2006. The integration within Clear Liquid operations is progressing very well.
Its order book is at a historic high with significant new oil orders secured in
the first half of the year. Plans are in place to fast track the Weir Production
System into Gabbioneta's operations to free up capacity to accommodate further
growth. In the longer term (2008-9) we anticipate investing in a new site to
meet increased demands on capacity.
Valves performed well in the first half of 2006 increasing order input by 37% to
£39.5m (2005: £28.9m) and improving profitability when compared to the same
period in 2005. The US business strengthened its position in its domestic market
winning contracts to upgrade nuclear and coal fired plants in western USA. The
new Chinese operation, a modern facility located west of Shanghai acquired in
February, made a small anticipated loss in the first half of the year.
The French operations benefited from nuclear orders from the Ukraine and China
and delivered improved revenue and profitability when compared to the same
period last year.
The UK restructuring programme is in the final stages of completion with the new
plant, designed around Weir production methodology, becoming operational at the
end of March 2006. The outsourcing of non-core manufacturing activities, was
completed without disruption and, while slower than anticipated, the new supply
chain is making solid progress in its endeavours to support the growing order
book. In the first half the UK business secured new orders for a gas
transmission project and an upgrade project in Iran.
Engineering Services
Engineering Services first half order input increased 31% to £137.9m (2005:
£105.4m) with good progress being made in the Middle East, Canada, USA and the
UK. The UK business secured nearly £5m of new hydro business from Scottish Power
and Scottish & Southern Energy and made further progress in the North Sea. The
Canadian market remains strong and the US Service Centres grew their input to
£4.6m, an increase of 41% when compared to the same period in 2005.
Revenue increased 9% to £106.9m (2005: £97.6m) with good progress in Canada,
Australia and the USA. UK revenue was 15% lower at £27.7m reflecting the last
period where the Yorkshire Water contract affects comparisons. First half
operating profit(*2) at £6.2m (2005: £6.5m) was 6% below the same period in
2005. Improved profit from the Canadian and Australian operations helped in part
to offset declines in the Middle East, the UK and USA.
In the Middle East, as expected we continued to experience lower sales due to
ongoing security issues in the higher margin markets. A plan has been put into
action to realign the business to opportunities elsewhere in the Middle East and
bring overheads in line with future market needs. The addition of our new Joint
Venture in Saudi Arabia has opened up opportunities in that region and large
project awards were placed in Dubai. In the UK we are consolidating the number
of sites to improve plant utilisation and achieve a better geographic spread,
which will reduce costs. These actions are expected to incur additional costs of
£1.7m in the second half in addition to the £0.9m charge which was incurred to
realign overheads in the USA and Canada in the first half of the year.
We continue to see encouraging prospects for growth of our Services Division.
The investments in geographic expansion and productivity enhancements both in
the UK and Middle East provide a solid foundation for the future growth and
margin progress of the division.
Defence, Nuclear & Gas
The Defence, Nuclear & Gas businesses are involved in the design and manufacture
of specialist engineering equipment for the naval and energy markets.
First half revenue from the division increased 56% to £48.3m (2005: £31.0m)
producing operating profit(*2) of £4.1m against a prior year profit of £3.2m. In
the first half of 2006, order input increased by 33% to £103.5m against £77.9m
in the previous year.
The defence and nuclear business, Weir Strachan & Henshaw, delivered marginally
lower revenue and operating profit(*2) when compared to the first half of 2005
reflecting the favourable profit taking position on major projects last year.
Order input at £58.8m was £44.1m above the same period in 2005 and included the
recently announced £37m contract to engineer weapons handling systems for the
Spanish Navy.
The liquid gas storage business, Weir LGE, achieved a significant increase in
revenue and operating profit(*2) when compared to the first half of 2005. Recent
orders from Norwegian shipbuilders and a continuation of strong demand from
Korea delivered first half order input of £44.7m compared with £63.2m in what
was an exceptional input period last year. Future market demand and a
strengthened order book continue to underpin Weir LGE's revenue and profit
growth in 2006 and beyond.
Joint Ventures and Associates
Weir's share of revenue from Joint Ventures and Associates in the first half at
£59.5m was marginally above the same period in 2005 (2005: £58.9m). Our share of
profit after tax from Joint Ventures and Associates at £4.8m (2005: £3.9m)
reflects the good performances from Services Joint Ventures in Saudi Arabia and
Abu Dhabi.
STRATEGY
The Group remains focused on a programme underpinned by the core principles of
operational excellence and continued expansion in higher margin, higher growth
markets. In 2005, our corporate activities reflected the continuation of this
strategy selling off the lower margin, higher risk water treatment businesses,
acquiring Pompe Gabbioneta and restructuring the underperforming UK operations.
These activities all contributed to the Group's improved financial performance
in the first half of 2006.
The key focus in the first half has been delivering the benefits from the
restructuring at our two UK operations within Engineering Products. Good
progress has been made and we remain confident that these reorganisations will
continue to contribute to the improved performance of the Group.
The Group continues to invest in organic development and extending our
geographic presence in high growth markets. Our growing infrastructure in China
and extension of our Engineering Products operations in the region complement
our ongoing investments by Minerals, Valves and Services in India. Our continued
investments in the global parts business, investment in organic growth and
ongoing search for high quality aligned acquisitions underpin our near term
plans for future top line growth.
Our strong balance sheet and good level of cash generation support our intention
to pursue the full range of options for future growth.
THE BOARD
In March, the Group announced the appointment of Keith Cochrane to the position
of Group Finance Director, taking over from Chris Rickard on 3 July 2006.
Previously Group Director of Finance at Scottish Power, Keith brings to Weir the
necessary skill and expertise to make a major contribution to the future
development of the Group.
OUTLOOK
In the second half of 2006, the Engineering Products Division is expected to
deliver growth in revenue and profits when compared to the same period in 2005.
Minerals anticipates another good year, supported by continuing strong commodity
markets and the large-project work which is likely to feature in our Netherlands
and US businesses. Continued strength in the new equipment end of the market,
together with projected £0.5m start-up costs in China, are expected to restrain
second half margins, although profit is anticipated to grow in absolute terms
relative to the same period last year.
The outlook for Clear is also encouraging. Expected growth in second half sales
due to an additional quarter of contribution from Gabbioneta, and increased
profitability from Weir Pumps in the UK, will deliver improved second half
results when compared to 2005.
Valves is also expected to demonstrate better performance in the second half of
2006, bolstered by strong order books in all of our core territories and
benefits from the restructuring of the UK operation. A second half charge of
approximately £0.4m is planned to be incurred in the development of the new
Chinese business.
The Engineering Services Division is forecast to deliver margin and profit
growth after one time charges in the second half of the year. The inclusion last
year of mine refurbishment work in Canada and the Ravensthorpe uranium project
in Australia will influence revenue comparisons, although absolute profits are
expected to improve.
The Defence, Nuclear & Gas Division is well-positioned to show further revenue
and profit progress in the second half. Joint Ventures and Associates will also
continue their good contribution, with the new Saudi Joint Venture expected to
partially offset a shortfall against last year's exceptional second half at DML.
The relative performance in the first half of 2006, when compared to the same
period last year, should translate to a more balanced second half result and
clearly demonstrates the generally improving condition of the Group. The
sustained strength of the order book and restructured portfolio of businesses
increases our confidence in the outlook for 2006. We now expect profit before
tax(*3) to be ahead of the top end of recent market estimates(*4).
*4 The range of market estimates for profit before tax and restructuring costs
for 2006, based on Reuters estimates, is £70.0m to £76.9m.
CONSOLIDATED INCOME STATEMENT
-----------------------------
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m Notes £m £m
--------------------------------------------------------------------------------
Continuing operations
789.4 Revenue 2 438.2 354.1
(570.7) Cost of sales (310.2) (254.6)
--------------------------------------------------------------------------------
218.7 Gross profit 128.0 99.5
1.5 Other operating income 0.7 0.3
(106.6) Selling & distribution costs (58.4) (50.7)
(56.5) Administrative expenses (37.1) (26.6)
1.7 Share of results of - joint ventures 1.3 0.6
7.5 - associates 3.5 3.3
--------------------------------------------------------------------------------
Profit from continuing operations before
66.3 restructuring costs, net finance costs & tax 38.0 26.4
(24.7) Restructuring costs 3 (1.8) (18.0)
--------------------------------------------------------------------------------
Profit from continuing operations before
41.6 net finance costs & tax 2 36.2 8.4
(6.6) Finance costs (5.9) (2.9)
2.0 Finance income 2.7 1.0
0.5 Other finance income - retirement benefits 2.4 0.3
--------------------------------------------------------------------------------
37.5 Profit from continuing operations before tax 35.4 6.8
(13.8) Income tax expense 4 (8.0) (5.0)
--------------------------------------------------------------------------------
23.7 Profit from continuing operations 27.4 1.8
2.3 Profit (loss) from discontinued operations 5 - (3.5)
--------------------------------------------------------------------------------
26.0 Profit (loss) for the period 27.4 (1.7)
--------------------------------------------------------------------------------
Attributable to:
25.9 Equity holders of the Company 27.4 (1.7)
0.1 Minority interests - -
--------------------------------------------------------------------------------
26.0 27.4 (1.7)
--------------------------------------------------------------------------------
Earnings per share 6
12.6p Basic 13.3p (0.8)p
1.1p Basic - discontinued - (1.7)p
11.5p Basic - continuing 13.3p 0.9p
23.5p Basic - continuing (pre restructuring costs) 13.9p 9.6p
12.5p Diluted 13.1p (0.8)p
1.1p Diluted - discontinued - (1.7)p
11.4p Diluted - continuing 13.1p 0.9p
23.4p Diluted - continuing (pre restructuring costs) 13.7p 9.5p
CONSOLIDATED BALANCE SHEET
--------------------------
30 Dec 2005 30 June 2006 1 July 2005
£m £m £m
--------------------------------------------------------------------------------
ASSETS
Non-current assets
119.2 Property, plant & equipment 114.4 108.3
187.5 Intangible assets 184.5 113.4
20.9 Investments in joint ventures & associates 25.5 9.6
17.4 Deferred tax assets 9.8 25.3
0.4 Forward foreign currency contracts 2.5 1.1
--------------------------------------------------------------------------------
345.4 Total non-current assets 336.7 257.7
--------------------------------------------------------------------------------
Current assets
122.8 Inventories 128.2 106.6
207.3 Trade & other receivables 194.4 175.5
28.2 Construction contracts 31.9 32.5
2.3 Forward foreign currency contracts 4.1 4.2
0.6 Income tax receivable 1.2 1.6
- Assets classified as held for sale 1.9 31.6
109.6 Cash & short term deposits 118.1 63.1
--------------------------------------------------------------------------------
470.8 Total current assets 479.8 415.1
--------------------------------------------------------------------------------
816.2 Total assets 816.5 672.8
--------------------------------------------------------------------------------
LIABILITIES
Current liabilities
10.9 Interest-bearing loans & borrowings 12.6 17.2
178.8 Trade & other payables 184.4 140.5
39.2 Construction contracts 44.4 31.3
4.6 Forward foreign currency contracts 2.8 4.4
7.3 Income tax payable 9.6 5.1
26.1 Provisions for liabilities & charges 22.0 18.5
Liabilities directly associated with assets
- classified as held for sale - 22.9
--------------------------------------------------------------------------------
266.9 Total current liabilities 275.8 239.9
--------------------------------------------------------------------------------
Non-current liabilities
175.1 Interest-bearing loans & borrowings 170.3 85.5
3.1 Forward foreign currency contracts 1.5 2.5
61.6 Retirement benefit obligations 43.7 93.9
14.6 Provisions for liabilities & charges 14.7 6.4
3.9 Deferred tax liabilities 4.5 0.7
--------------------------------------------------------------------------------
258.3 Total non-current liabilities 234.7 189.0
--------------------------------------------------------------------------------
525.2 Total liabilities 510.5 428.9
--------------------------------------------------------------------------------
291.0 NET ASSETS 306.0 243.9
--------------------------------------------------------------------------------
CAPITAL & RESERVES
26.2 Share capital 26.3 26.0
32.5 Share premium 33.6 28.7
(10.7) Treasury shares (10.7) (9.2)
0.5 Capital redemption reserve 0.5 0.5
9.9 Foreign currency translation reserve 0.7 5.2
(3.7) Hedge accounting reserve 0.9 (1.8)
235.9 Retained earnings 254.3 194.2
--------------------------------------------------------------------------------
290.6 Shareholders equity 305.6 243.6
0.4 Minority interest 0.4 0.3
--------------------------------------------------------------------------------
291.0 TOTAL EQUITY 306.0 243.9
--------------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
--------------------------------
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m Note £m £m
--------------------------------------------------------------------------------
Cash flows from operating activities
71.3 Cash generated by operations 7 51.5 14.1
(10.0) Exceptional pension contributions paid - (2.0)
(16.6) Fundamental restructuring costs paid (5.1) (8.2)
(7.9) Income tax paid (4.6) (4.5)
--------------------------------------------------------------------------------
Net cash generated from (absorbed by)
36.8 operating activities 41.8 (0.6)
--------------------------------------------------------------------------------
Cash flows from investing activities
(75.6) Acquisitions of subsidiaries & joint ventures (2.6) (1.0)
14.2 Disposals of subsidiaries & joint ventures - 1.9
Purchases of property, plant & equipment
(25.7) & intangible assets (10.6) (10.3)
Proceeds from sale of property, plant
0.4 & equipment & intangible assets 0.4 -
0.2 Proceeds from sale of other investments - 0.1
1.9 Interest received 2.6 1.1
4.0 Dividends received - -
--------------------------------------------------------------------------------
(80.6) Net cash used in investing activities (10.2) (8.2)
--------------------------------------------------------------------------------
Cash flows from financing activities
6.3 Proceeds from issuance of ordinary shares 1.2 2.3
(10.7) Purchase of treasury shares - (9.2)
170.0 Proceeds from borrowings 88.6 25.9
(84.5) Repayments of borrowings (93.4) (10.3)
(8.3) Interest paid (3.8) (2.9)
Dividends paid to equity holders of the
(26.6) Company (20.0) (19.3)
--------------------------------------------------------------------------------
46.2 Net cash used in financing activities (27.4) (13.5)
--------------------------------------------------------------------------------
Net increase (decrease) in cash &
2.4 cash equivalents 4.2 (22.3)
Cash & cash equivalents at beginning
95.6 of period 104.0 95.6
6.0 Foreign currency translation differences (2.4) 2.8
--------------------------------------------------------------------------------
104.0 Cash & cash equivalents at end of period 105.8 76.1
--------------------------------------------------------------------------------
Cash & cash equivalents comprises the
following:
109.6 Cash & short-term deposits 118.1 63.1
Cash & short-term deposits included in
- assets classified as held for sale - 13.3
(5.6) Bank overdrafts (12.3) (0.3)
--------------------------------------------------------------------------------
104.0 105.8 76.1
--------------------------------------------------------------------------------
Reconciliation of net increase (decrease)
in cash & cash equivalents to movement in
net (debt) funds
Net increase (decrease) in cash & cash
2.4 equivalents 4.2 (22.3)
(85.5) Net decrease (increase) in debt 4.8 (15.6)
--------------------------------------------------------------------------------
Change in net (debt) funds resulting from
(83.1) cash flows 9.0 (37.9)
(0.2) Lease acquired - -
(0.1) Lease inception - -
(5.6) Foreign currency translation differences 2.6 (1.0)
--------------------------------------------------------------------------------
(89.0) Change in net (debt) funds during the period 11.6 (38.9)
12.6 Net (debt) funds at beginning of period (76.4) 12.6
--------------------------------------------------------------------------------
(76.4) Net debt at end of period (64.8) (26.3)
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF RECOGNISED INCOME & EXPENSE
-----------------------------------------------------
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m £m £m
--------------------------------------------------------------------------------
Income & expense recognised directly
in equity
Gains (losses) taken to equity on cash
(10.7) flow hedges 6.5 (6.1)
Exchange differences on translation of
13.9 foreign operations (9.2) 9.2
22.1 Actuarial gain on defined benefit plans 14.7 -
Share of associate's actuarial gain on
4.8 defined benefit plans - -
Transfers to the income statement
0.3 On cash flow hedges 0.1 (1.6)
Tax on items taken directly to or
(2.9) transferred from equity (6.4) 2.3
--------------------------------------------------------------------------------
27.5 Net income recognised directly in equity 5.7 3.8
26.0 Profit (loss) for the period 27.4 (1.7)
--------------------------------------------------------------------------------
Total recognised income & expense for
53.5 the period 33.1 2.1
--------------------------------------------------------------------------------
Attributable to:
53.4 Equity holders of the Company 33.1 2.1
0.1 Minority interests - -
--------------------------------------------------------------------------------
53.5 33.1 2.1
--------------------------------------------------------------------------------
Effect of changes in accounting policy:
Net gain on cash flow hedges on first
2.5 time application of IAS39 - 2.5
--------------------------------------------------------------------------------
Notes to the Financial Statements
1. Basis of preparation
These interim financial statements have been prepared on the basis of the
accounting policies set out in the Group's 2005 Annual Report and were approved
by the Board of Directors on 17 August 2006. The Group has not applied IAS34
'Interim financial reporting', which is not mandatory for UK groups, in the
preparation of these interim financial statements. The interim financial
statements are unaudited but have been formally reviewed by the auditors and
their report to the Company is set out on page 16. The information shown for the
52 weeks ended 30 December 2005 does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985 and has been extracted from the
Group's 2005 Annual Report which has been filed with the Registrar of
Companies. The report of the auditors on the financial statements contained
within the Group's 2005 Annual Report was unqualified and did not contain a
statement under either Section 237(2) or Section 237(3) of the Companies Act
1985.
Notes to the Financial Statements
2. Segment information - Continuing Operations
The following tables present revenue and profit information regarding the
Group's business segments for the 26 weeks ended 30 June 2006, 26 weeks ended
1 July 2005 and the 52 weeks ended 30 December 2005. For comparative purposes,
sales to external customers and segment result before restructuring costs for
the 26 weeks ended 1 July 2005 and for the 52 weeks ended 30 December 2005 have
been restated to 2006 average exchange rates. Inter-segment sales are not
material in relation to total Group revenue.
Continuing
Engineering Engineering Defence, Nuclear Operations
Products Services & Gas Total
June June June June June June June June
2006 2005 2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m £m £m
--------------------------------------------------------------------------------
Sales to
external
customers 283.0 231.2 106.9 91.9 48.3 31.0 438.2 354.1
--------------------------------------------------------------------------------
Sales to
external
customers at
2006 average
exchange rates 283.0 238.5 106.9 97.6 48.3 31.0 438.2 367.1
--------------------------------------------------------------------------------
Segment result
before
restructuring
costs 26.7 16.1 6.2 6.0 4.1 3.2 37.0 25.3
Restructuring
costs (1.8) (18.0) - - - - (1.8) (18.0)
--------------------------------------------------------------------------------
Segment result 24.9 (1.9) 6.2 6.0 4.1 3.2 35.2 7.3
----------------------------------------------------------------
Share of
results of:
- joint
ventures 1.3 0.6
- associates 3.5 3.3
Unallocated
expenses (3.8) (2.8)
--------------------------------------------------------------------------------
Profit before
net finance
costs & tax 36.2 8.4
--------------------------------------------------------------------------------
Segment result
before
restructuring
costs at 2006
average
exchange rates 26.7 17.1 6.2 6.5 4.1 3.2 37.0 26.8
--------------------------------------------------------------------------------
Defence, Continuing
Engineering Engineering Nuclear Operations
Products Services & Gas Total
Dec 2005 Dec 2005 Dec 2005 Dec 2005
£m £m £m £m
--------------------------------------------------------------------------------
Sales to external customers 505.6 215.4 68.4 789.4
--------------------------------------------------------------------------------
Sales to external customers at
2006 average exchange rates 511.3 223.1 68.3 802.7
--------------------------------------------------------------------------------
Segment result before
restructuring costs 42.3 13.1 6.8 62.2
Restructuring costs (24.7) - - (24.7)
--------------------------------------------------------------------------------
Segment result 17.6 13.1 6.8 37.5
-------------------------------------------------------------------
Share of results of:
- joint ventures 1.7
- associates 7.5
Unallocated expenses (5.1)
--------------------------------------------------------------------------------
Profit before net finance
costs & tax 41.6
--------------------------------------------------------------------------------
Segment result before
restructuring costs at 2006
average exchange rates 43.0 13.9 6.7 63.6
--------------------------------------------------------------------------------
Notes to the Financial Statements
3. Restructuring costs
During 2005 the Group incurred costs of £21.4m and impairment losses of £3.3m
in connection with the previously announced fundamental restructuring activities
in the UK Engineering Products businesses. Further costs of £1.8m have been
incurred in 2006. These costs arose from activities that are not considered to
be operating in nature and accordingly have been disclosed separately as to
include them in operating activities would impair the comparability of the
financial statements. Other non fundamental restructuring activities throughout
the Group are included in operating activities.
4. Income tax expense
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m £m £m
--------------------------------------------------------------------------------
(0.9) Group - United Kingdom (2.0) -
(13.0) Group - overseas (6.0) (5.1)
--------------------------------------------------------------------------------
Total income tax expense included
(13.9) in the consolidated income statement (8.0) (5.1)
Less: income tax expense on discontinued
(0.1) operations - (0.1)
--------------------------------------------------------------------------------
(13.8) Income tax expense on continuing operations (8.0) (5.0)
--------------------------------------------------------------------------------
The total income tax expense included in
the Group's share of results of joint
ventures & associates is as follows:
(0.2) Joint ventures (0.2) -
(3.0) Associates (1.4) (1.3)
--------------------------------------------------------------------------------
5. Discontinued operations
The loss from discontinued operations for the 26 weeks ended 1 July 2005 related
principally to the trading results of the water treatment businesses of the
Group's Techna division (Weir Westgarth, Weir Entropie and Weir Envig) which
were disposed of on 8 July 2005 and the loss on disposal of Weir Flowguard which
took place on 1 June 2005. The assets and liabilities of Weir Westgarth, Weir
Entropie and Weir Envig are shown in the consolidated balance sheet as at 1 July
2005 as 'assets classified as held for sale' or 'liabilities directly
associated with assets classified as held for sale' respectively. The profit
from discontinued operations for the 52 weeks ended 30 December 2005 included
the gain on disposal of these companies.
6. Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the
period attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the period. 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 period (adjusted for the
effects of dilutive options and L-TIP awards). The following reflects the income
and share data used in the calculation of basic and diluted earnings per share:
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m £m £m
--------------------------------------------------------------------------------
23.7 Profit from continuing operations 27.4 1.8
(0.1) Minority interests - -
--------------------------------------------------------------------------------
Net profit attributable to ordinary
23.6 shareholders from continuing operations 27.4 1.8
Profit (loss) attributable to ordinary
2.3 shareholders from discontinued operations - (3.5)
--------------------------------------------------------------------------------
25.9 Net profit attributable to ordinary shareholders 27.4 (1.7)
--------------------------------------------------------------------------------
No. of No. of No. of
shares shares shares
million million million
--------------------------------------------------------------------------------
Weighted average number of ordinary shares
206.1 for basic earnings per share 206.7 206.5
1.4 Effect of dilution: share options 1.2 1.5
0.2 L-TIP awards 1.2 0.3
--------------------------------------------------------------------------------
Adjusted weighted average number of ordinary
207.7 shares for diluted earnings per share 209.1 208.3
--------------------------------------------------------------------------------
To calculate earnings per share pre restructuring costs, the weighted average
number of ordinary shares for both basic and diluted is as per the table above.
The following table provides the profit figure used as the numerator:
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m £m £m
--------------------------------------------------------------------------------
Net profit attributable to ordinary
23.6 shareholders from continuing operations 27.4 1.8
Restructuring costs net of tax
24.7 (2005: no tax benefit was recognised) 1.3 18.0
--------------------------------------------------------------------------------
Net profit attributable to ordinary
shareholders from continuing operations
48.3 before restructuring costs 28.7 19.8
--------------------------------------------------------------------------------
7. Cash generated by operations
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m £m £m
--------------------------------------------------------------------------------
Profit from continuing operations before
66.3 restructuring costs, net finance costs & tax 38.0 26.4
Loss from discontinued Group operations
(0.7) before net finance costs & tax - (0.8)
(9.2) Share of results of joint ventures & associates (4.8) (3.9)
17.0 Depreciation & amortisation 9.9 8.2
(Gain) loss on disposal of property, plant
0.3 & equipment & investments (0.1) 0.1
(0.8) Funding of pension & post-retirement costs (0.2) 0.1
0.4 Exchange - -
1.0 Employee share scheme 0.7 0.4
2.4 (Decrease) increase in provisions (0.3) 1.2
(18.9) Increase in inventories (9.8) (13.3)
Decrease (increase) in trade & other
(12.3) receivables & construction contracts 4.5 1.3
Increase (decrease) in trade & other
25.8 payables & construction contracts 13.6 (5.6)
--------------------------------------------------------------------------------
71.3 Cash generated by operations 51.5 14.1
--------------------------------------------------------------------------------
8. Dividends paid & proposed
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m £m £m
--------------------------------------------------------------------------------
Equity dividends declared & paid during
the period on ordinary shares:
Final dividend for 2005: 9.65p
19.3 (2004: 9.35p) 20.0 19.3
Interim dividend for 2006:
7.3 see below (2005: 3.55p) - -
--------------------------------------------------------------------------------
26.6 20.0 19.3
--------------------------------------------------------------------------------
Final dividend for 2005 proposed for approval
19.9 by shareholders at the AGM: 9.65p - -
Interim dividend for 2006 declared
- by the Board: 3.75p (2005: 3.55p) 7.8 7.3
--------------------------------------------------------------------------------
The proposed final dividend and the declared interim dividend are 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 actual dividend
paid may differ due to increases or decreases in the number of shares in issue
between the date of approval of the financial statements and the record date for
the dividend.
9. Reconciliation of movements in equity
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
£m £m £m
--------------------------------------------------------------------------------
Total recognised income & expense for
53.5 the period 33.1 2.1
1.0 Cost of share-based payment 0.7 0.4
(26.6) Equity dividends (20.0) (19.3)
6.3 Exercise of options 1.2 2.3
(10.7) Cost of purchase of treasury shares - (9.2)
(0.3) Acquisition of minority interest - (0.2)
--------------------------------------------------------------------------------
23.2 Net movement in equity 15.0 (23.9)
265.3 Opening equity 291.0 265.3
Adjustments relating to adoption of IAS32
2.5 and IAS39 from 1 January 2005 - 2.5
--------------------------------------------------------------------------------
291.0 Closing equity 306.0 243.9
--------------------------------------------------------------------------------
10. Exchange rates
The principal exchange rates applied in the preparation of these interim
financial statements were as follows:
52 weeks 26 weeks 26 weeks
ended 30 ended 30 ended 1
Dec 2005 June 2006 July 2005
--------------------------------------------------------------------------------
Average rate
1.81 US dollar (per £) 1.80 1.86
2.39 Australian dollar (per £) 2.42 2.42
1.47 Euro (per £) 1.45 1.47
2.19 Canadian dollar (per £) 2.03 2.30
--------------------------------------------------------------------------------
Closing rate
1.72 US dollar (per £) 1.83 1.79
2.35 Australian dollar (per £) 2.48 2.35
1.46 Euro (per £) 1.44 1.48
2.01 Canadian dollar (per £) 2.03 2.19
--------------------------------------------------------------------------------
INTERIM RESULTS
---------------
The interim results will be sent to shareholders and copies will be available
from The Weir Group PLC, Clydesdale Bank Exchange, 20 Waterloo Street, Glasgow
G2 6DB.
Interim Dividend Payable:
10 November 2006
Interim dividend will be paid to shareholders on the register at close of
business on 13 October 2006.
Details contained in the interim report can be downloaded from The Weir Group
website at:
www.weir.co.uk
INDEPENDENT REVIEW REPORT TO THE WEIR GROUP PLC
Introduction
We have been instructed by the Company to review the financial information for
the 26 weeks ended 30 June 2006 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Recognised Income & Expenditure and the related notes
1 to 10. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report, or for the conclusions we have formed.
Directors responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of Group management and applying analytical procedures to the financial
information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied, unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing (UK and Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 26 weeks ended
30 June 2006.
Ernst & Young LLP
Glasgow
17 August 2006
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