Interim Results
Weir Group PLC
18 August 2005
THE WEIR GROUP PLC INTERIM RESULTS 2005
Results for 26 weeks ended 1 July 2005
HIGHLIGHTS
Continuing Operations
• Order input (2) up 10.1% to £445.0m (2004: £404.3m)
• Revenue up 9.7% to £354.1m (2004: £322.7m)
• Pre-tax profit (1) up 1.5% to £24.4m (2004: £24.0m)
• Dividend increase of 2.9% to 3.55p (2004: 3.45p)
• Disposal of Techna water treatment businesses
• Agreement to acquire Pompe Gabbioneta SpA
• Restructuring on target and within budget
----------------------------- --------------------------
Total Operations Continuing Operations(3)
2005 2004 Change 2005 2004 Change
----------------------------- --------------------------
Order Input(2) £480.7m £456.1m +5.4% £445.0m £404.3m +10.1%
Revenue £388.3m £338.0m +14.9% £354.1m £322.7m +9.7%
Profit from
Operations(1) £25.1m £23.8m +5.5% £25.9m £25.0m +3.9%
Pre-Tax Profit(1) £23.5m £23.1m +2.1% £24.4m £24.0m +1.5%
Earnings per Share(1) 9.4p 9.3p +1.1%
Dividend 3.55p 3.45p +2.9%
Net Debt £26.3m £23.0m +£3.3m
(1) Excluding restructuring charges and profit and loss on business disposals
(2) Excluding joint ventures and associates; calculated at 1 July average
exchange rates
(3) Excludes discontinued businesses
The Chairman of The Weir Group, Sir Robert Smith, commented: 'In the first half
of 2005, the Group's continuing operations delivered increased order input,
revenue and pre-tax profit, excluding restructuring charges, when compared to
the same period in 2004.
The previously announced restructuring activities in our UK Clear Liquid and
Valve businesses are proceeding to plan and we remain confident that these
reorganisations will return the respective businesses to profitability in the
first full year, 2006, with full recoveries of cash outflows expected during the
course of 2007.
In the first half, we concluded the disposal of Weir Flowguard, a small non-core
pulsation dampener business, for a total consideration of £2.9m and in July, the
Group announced the disposal of Techna's water treatment businesses for an
aggregate value of £27.7m. These disposals further improve our focus, releasing
financial and management resources to facilitate the ongoing operational and
strategic development of the Group.
In August, the Board announced our agreement to purchase Pompe Gabbioneta SpA, a
specialist petrochemical pump producer located in Milan, for a debt free
consideration of €100m (£69m(1)). This acquisition achieves twin objectives of
adding high quality businesses in our higher growth sectors and building our
position in the specialist pump market.
The Group's recent announcements regarding the restructuring activities in Clear
Liquid and Valves, our geographic expansion in China and the Middle East and the
acquisition of Gabbioneta, do not affect our ability to pursue new capital
investments and acquisitions while delivering increasing returns for
shareholders. In particular, the Board continues to target the completion of a
share buy-back of up to £50m in the current year.'
(1) The exchange rate used for the above £ sterling equivalent is € 1.45 = £1
being the rate prevailing at the close of business on 12 August 2005.
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)
The Maitland Consultancy Tel. 020 7379 5151
Suzanne Bartch (Mobile: 07769 710 335)
Peter Ogden (Mobile: 07811 124 197)
Note to Editors: Print quality images are available to download at http://
www.newscast.co.uk
FINANCIAL HIGHLIGHTS
2005 first half input at £445.0m was 10.1% higher than the same period in 2004
with Engineering Products and the retained Techna businesses (which following
the disposal of the water treatment businesses will collectively be reported as
the Defence, Nuclear and Gas Division) all showing improvement. Geographically,
the main areas of input growth were Australia, up by 30%, the Middle East and
Africa, up by 50%, and the Indo-Pacific region, up by 17%.
Revenue from Group continuing operations grew by 9.7% to £354.1m (2004: £322.7m)
due in part to £3.9m of favourable foreign exchange translation effects. Good
growth was achieved across the Engineering Products and Defence, Nuclear and Gas
businesses offsetting in total a £4.0m reduction in Engineering Services.
First half profit from operations before restructuring charges and finance costs
at £25.9m (2004: £25.0m) was 3.9% above the same period in 2004. The 2005 result
includes a £0.5m benefit from foreign exchange translation but also includes a
£0.3m charge for IFRS related foreign exchange transactions and a £0.3m increase
in the charge for share based payments.
Attributable profits from our Joint Ventures and Associates companies
contributed £3.4m against £2.7m in the first half of 2004.
First half pre-tax profit, pre-restructuring, was up 1.5% on the previous year
at £24.4m (2004: £24.0m).
There were two separate items in the first half of 2005 which affected the
pre-tax results. The first arose from the disposal of Weir Flowguard, our small
UK pulsation dampener business, in June 2005 which crystallised an exceptional
loss of £2.1m which included a £3.1m write-off of previously capitalised
goodwill. The second related to the previously announced restructuring of the UK
Valves and Clear Liquid operations which resulted in costs totalling £18m in the
period.
In early July 2005, we announced the sale of the water treatment businesses of
Techna for an aggregate price of £27.7m. During the first half of 2005, these
businesses produced revenue of £33.4m and generated an operating loss of £1.1m.
The budgeted second half profits associated with these businesses were £2.5m.
The disposal is expected to crystallise an exceptional profit on completion.
The balance sheet remains strong with net cash generated from operations at
£14.1m (2004: £16.8m). This was before a £9.2m cash outflow on the share buy
back and first half costs of £8.2m related to our previously announced
restructuring activities. Net debt at the half year was £26.3m against the prior
year balance of £23.0m.
A tax charge of £5.0m (2004: £4.9m) gives a normalised tax rate of 26% on profit
before tax and restructuring costs, as adjusted for Joint Ventures, Associates
and discontinued operations.
The resulting earnings per share for continuing operations, pre-restructuring
costs, was 9.4p (2004: 9.3p).
DIVIDEND
An interim dividend of 3.55p (2004: 3.45p) is proposed and will be paid on 11
November 2005 to shareholders on the register at the close of business on 14
October 2005.
REVIEW OF RESULTS
To assist in meaningful comparisons, the following review of results restates
comparative 2004 figures at 1 July 2005, average exchange rates and excludes
figures for the Valves pulsation dampener business, Flowguard, which was sold in
June and the Techna water treatment businesses Weir Westgarth, Weir Envig and
Weir Entropie, which were contracted for disposal early in July.
Engineering Products
The Engineering Products Division includes the operations of our Minerals, Clear
Liquid and Valves & Controls businesses. Revenue from our continuing businesses
increased 13.0% to £231.2m (2004: £204.7m) while operating profit, excluding
restructuring costs, increased 18.0% to £16.1m (2004: £13.7m).
At the operating profit level, the margin was 7.0% compared with 6.7% in 2004,
underpinned by a continued strong performance from Minerals, while both Valves
and Clear Liquid's operating performances and previously announced restructuring
activities were in line with expectations.
Minerals had an excellent first half growing its order input, revenue and profit
through a combination of buoyant commodity markets, new product offerings and
the improvements in operational efficiency. The 26% growth in order input was
driven by a strong investment climate in mining, particularly in Australia,
Brazil and North America. The United States continued to benefit from the growth
in demand of flue gas desulphurisation for the power generation market, as did
the Chinese market where orders more than doubled.
Despite the impact of the test shop fire at Cathcart, Clear Liquid performed in
line with expectations in the first half of 2005 with order input 6.2% lower at
£77.1m (2004: £82.2m) as a result of planned restructuring activities. The award
of large scale oil order projects in the Middle East and UK offset continued
softness in the North American and European power markets.
The restructuring programme at our UK Clear Liquid business is on track and
proceeding within budget. The realignment of our product portfolio to become
less reliant on large scale lower margin work and more focused on higher margin
niche products made good progress in the first half of 2005. The niche
businesses collectively grew their input by 6.1% against the same period last
year. As a consequence of the reorganisation of the Cathcart site, the Group's
head office will move to Glasgow city centre towards the end of this year. The
head office move will result in deferral of some of the restructuring activities
into 2006.
Valves & Controls performed well in the first half of 2005, increasing revenue
and reducing losses when compared to the same period in 2004. The US Valves
business continued the progress made in building our position in the high growth
Chinese power market and increased revenue and profits when compared to the same
period in 2004. The French operations benefited from nuclear orders from the
Former Soviet Union booked in the second half of 2004 and improved revenue and
profitability when compared to the same period last year. The previously
announced restructuring of our UK Valve business remains on track and within
budget. We are working to complete the fit out of a leased, modern manufacturing
facility three miles from the existing Huddersfield site with a planned transfer
of work scheduled to start in September.
We remain confident that both UK reorganisations will return the respective
businesses to profitability in the first full year, 2006, with full recoveries
of cash outflows expected during the course of 2007.
Engineering Services
First half input from Engineering Services reduced 5.8% to £99.4m (2004:
£105.9m) due to delays in expected service work in Iraq and the loss, on rebid,
of an asset management contract with Yorkshire Water to a competitor at margins
we considered too low. The Australian, Canadian and US Services businesses all
recorded input growth when compared to the same period in the prior year.
As a result, revenue in the first half decreased 4.1% to £91.9m (2004: £95.9m)
producing a first half profit of £6.0m against £9.8m in 2004 due, not only to
lower business volumes, but also increased operating costs incurred as part of
the Group's investment of £1.3m into extending our offerings in the US market.
During the first half of the year, we committed an additional $5.0m investment
into laser scanning, rapid prototyping and logistics software support, all of
which will enhance the quality and delivery of our global parts strategy for the
Services Division. Future plans include building on the US successes by
investing in similar systems and technology in our European and Middle East
service facilities.
The expansion of our geographic position into higher growth markets continued to
progress in the first half of 2005. In June, we finalised, subject to regulatory
approval, a £5.1m investment with Amco in a Joint Venture services business in
Saudi Arabia focused on developing Weir's position in the strategically
important Middle East oil market.
With local government structures now in place in Iraq, new asset management
contracts commencing for BP and others in Azerbaijan, and a strong demand for
oil and gas services in the Middle East, the second half should produce broadly
similar results to the same period last year.
We continue to see good prospects for growth within our Services Division. The
investments made in the US Service Centres, organic growth in Australia and
Canada and our most recent investment in Saudi Arabia, provide a solid
foundation for the future growth of the division.
Defence, Nuclear & Gas
Following the sale of Techna's water treatment businesses, the remaining
operations of Weir Strachan & Henshaw and Weir LGE now form the Defence, Nuclear
& Gas Division. These businesses are involved in design and manufacture of
specialist engineering equipment for the naval and energy markets.
First half revenue from the Defence, Nuclear & Gas Division increased 19.0% to
£31.0m (2004: £26.1m) producing a profit of £3.2m against a prior year profit of
£1.7m. In the first half of 2005, input increased by 37.5% to £77.9m against
£56.6m in the previous year.
The defence and nuclear business, Weir Strachan & Henshaw, delivered an increase
in revenue and operating profit when compared to the first half of 2004. Order
input at £14.7m was £8.4m below the same period in 2004. However, the UK
submarine and carrier programmes and the good level of enquiries outside of the
UK continue to offer extensive scope for significant progress in the second half
of 2005.
The liquid gas storage business, Weir LGE, achieved a significant increase in
revenue and operating profit when compared to the first half of 2004. New orders
from Korean shipbuilders and the award of onshore storage work in the Middle
East delivered first half input of £63.2m compared with £33.6m in the same
period last year. Future market demand and limited shipbuilding capacity
continue to underpin Weir LGE's revenue and profit growth in 2005 and beyond.
Joint Ventures and Associates
Weir's share of revenue from Joint Ventures and Associates in the first half of
£58.8m was 8.8% above the same period in 2004 (2004: £54.0m). Profit after
interest and tax at £3.4m (2004: £2.7m) reflects continued strong performance
from DML which manages the dockyard at Devonport and provides support services
to the naval base.
The contribution from Joint Ventures and Associates was adversely affected by a
£0.3m increase in the charge for the Group's previously announced, exciting
research project to develop commercially viable renewable energy with Scottish &
Southern Energy.
STRATEGY
The Group is currently focused on a transformation programme underpinned by the
core principles of operational excellence and continued expansion in higher
margin, higher growth markets. In the first half of the year, our corporate
activities reflected the ongoing development of this strategy. The sale of the
lower margin, higher risk water treatment businesses, the acquisition of Pompe
Gabbioneta and the restructuring of underperforming UK operations, are all
catalysts to improving the Group's financial profile.
One of the key focuses in the first half has been the restructuring at our two
UK operations in Engineering Products. Progress on both projects has been in
line with expectations and we remain confident that these reorganisations will
return the respective businesses to profitability in the first full year, 2006,
with full recovery of cash outflows expected during the course of 2007.
In July 2005, the Group announced the disposal of the water treatment businesses
of its Techna Division for a total consideration of £27.7m. The disposal, once
fully complete, will provide cash and management resource for more profitable
investment elsewhere. We also concluded the disposal of Weir Flowguard, a small
non-core pulsation dampener business, in June 2005 for a total consideration of
£2.9m. This sale resulted in an exceptional loss of £2.1m which included the
write-off of £3.1m of previously capitalised goodwill.
On 15 August 2005, the Group announced the acquisition of Gabbioneta, a leading
specialist pump supplier to the oil industry, for a debt free consideration of
€100m. Through this purchase, which is expected to formally close by the end of
September, we are significantly enhancing our portfolio of oil processing
capabilities and expect the breadth of the enlarged client base to provide
additional opportunities for other Weir products. The business will report
through Clear Liquid, consolidating the Group's position in the European and
Middle East oil markets while providing a route to market for Gabbioneta's
products into South America and Asia.
The Group continues to invest in developing a geographic presence in high growth
markets. Our growing infrastructure in China and plans to expand our Engineering
Products' operations in the region complement the recent investments made by
Minerals and Services in India. Investments in the global parts business, the
joint venture in Saudi Arabia and the acquisition of Gabbioneta are all clear
indications of our plans for future top line growth.
Our strong balance sheet and good level of cash generation support our desire to
pursue the full range of options for future growth.
SHARE BUY-BACK
As outlined at the March announcement, the strength of the Group's cash
generation and strong balance sheet led the Board to the decision to implement a
share buy-back of up to £50m. As at 1 July 2005, a total of 2.9m shares had been
purchased at a cost of £9.2m. The Board continues to be committed to a share
buy-back of up to £50m.
THE BOARD
Due to family considerations Chris Rickard, the Group Finance Director, has
indicated his intention to leave the Group following a managed handover of
responsibilities towards the end of 2005. His technical skills and personal
contribution during his time on the board have been of immense value to the Group.
OUTLOOK
In the second half of 2005, excluding restructuring costs, the Engineering
Products division is expected to deliver growth in revenue, margins and profits
when compared to the same period in 2004.
Minerals is expecting another good year against a backdrop of buoyant commodity
markets, new product offerings and the continuing benefits being delivered from
their operational improvement activities. The increased proportion of new
equipment revenue against previous years will produce a proportionate decline in
margins although net profits are expected to grow in absolute terms.
Despite restructuring activities and the fire at Cathcart earlier in the year,
the underlying outlook for Clear Liquid remains encouraging. Growth in second
half sales from the higher margin businesses combined with reduced losses from
Weir Pumps are expected to produce improved results on marginally lower sales
when compared to the same period in 2004. The potential to include Gabbioneta in
the last quarter of the year provides further upside in our Clear results.
Valves is expected to deliver improved results from its French and US
businesses, bolstered by stronger order books secured in 2004. The UK
restructuring remains on plan and before exceptionals the business is expected
to deliver an improved second half result on marginally lower sales, when
compared to last year.
In the Engineering Services Division, the investments made in our US and Middle
East Service Centres are expected to deliver increased revenue in the second
half of the year. Reduced start-up costs in the USA, continued strong trading in
Canada and recent contract awards in the Middle East are expected to offset the
contract loss in the UK and provide a second half financial performance at
similar levels to 2004.
The Defence, Nuclear & Gas Division is well positioned to deliver further
progress in the second half of 2005. LGE's exceptional input during the past
twelve months has secured their order book for the medium term. Strachan &
Henshaw is well positioned to secure significant new build work in the UK,
Europe and Australia however precise timing remains subject to the respective
defence department approvals.
Our Joint Ventures and Associates businesses are expected to continue their good
performance in the second half of 2005.
The Group remains in good financial condition with an improving order book and
good level of visibility in our most important markets. Assuming no adverse
movements in foreign exchange rates from current levels, overall we expect to
deliver improved second half sales and profits when compared to the same period
last year.
* * * * * * * * *
CONSOLIDATED INCOME STATEMENT
-----------------------------
53 weeks ended 26 weeks ended 26 weeks ended
31 December 1 July 2005 25 June 2004
2004 (restated) (restated)
£'000 Notes £'000 £'000
-------------- ---------------------------------------------------------------------------
Continuing operations
690,063 Revenue 2 354,098 322,731
(499,221) Cost of sales (254,640) (232,655)
-------------- ---------------------------------------------------------------------------
190,842 Gross profit 99,458 90,076
2,049 Other revenue and income 290 72
(92,624) Selling and distribution costs (50,644) (44,712)
(48,255) Administrative expenses (26,560) (23,182)
541 Share of results of - joint 115 330
ventures
5,894 - associates 3,282 2,383
-------------- ---------------------------------------------------------------------------
58,447 Profit from continuing operations 2 25,941 24,967
before restructuring costs, net
finance costs and tax
- Restructuring costs (17,950) -
-------------- ---------------------------------------------------------------------------
58,447 Profit from continuing operations 7,991 24,967
before net finance costs and tax
(6,387) Finance costs (2,844) (3,017)
2,379 Revenue - finance income 1,040 1,609
887 Employee benefits interest income 266 472
-------------- ---------------------------------------------------------------------------
55,326 Profit from continuing operations 6,453 24,031
before tax
11,338 Income tax expense 3 5,035 4,904
-------------- ---------------------------------------------------------------------------
43,988 Profit for the period from 1,418 19,127
continuing operations
68 Profit (loss) for the period from 4 (3,078) (810)
discontinued operations
-------------- ---------------------------------------------------------------------------
44,056 Profit (loss) for the period (1,660) 18,317
-------------- ---------------------------------------------------------------------------
Attributable to:
44,015 Equity holders of the parent (1,669) 18,314
41 Minority interests 9 3
-------------- ---------------------------------------------------------------------------
44,056 (1,660) 18,317
-------------- ---------------------------------------------------------------------------
Earnings per share
21.4p Basic - continuing 0.7p 9.3p
21.4p Basic - continuing (pre 9.4p 9.3p
restructuring costs)
- Basic - discontinued (1.5)p (0.4)p
21.3p Diluted - continuing 0.7p 9.3p
21.3p Diluted - continuing (pre 9.3p 9.3p
restructuring costs)
- Diluted - discontinued (1.5)p (0.4)p
Dividends
12.50p Dividend paid per share 9.35p 9.05p
9.35p Dividend proposed per share 3.55p 3.45p
25,688 Dividend paid 19,308 18,564
19,362 Dividend proposed 7,285 7,111
CONSOLIDATED BALANCE SHEET
--------------------------
31 December 1 July 2005 25 June 2004
2004(restated) (restated)
£'000 £'000 £'000
----------- --------------------------------------------------------------------------
ASSETS
Non-current assets
106,050 Property, plant & equipment 108,287 98,112
114,707 Intangible assets 113,419 110,260
5,725 Investments in joint ventures & 9,569 13,804
associates
24,704 Deferred tax receivable 25,313 24,344
----------- --------------------------------------------------------------------------
251,186 Total non-current assets 256,588 246,520
----------- --------------------------------------------------------------------------
Current assets
93,170 Inventories 106,604 87,353
177,652 Trade & other receivables 175,506 164,470
45,905 Construction contracts 32,473 35,183
- Forward foreign currency contracts 5,348 -
1,589 Income tax receivable 1,562 2,705
213 Investments - 277
97,622 Cash & short term deposits 63,137 60,793
- Assets classified as held for sale 31,556 -
----------- --------------------------------------------------------------------------
416,151 Total current assets 416,186 350,781
----------- --------------------------------------------------------------------------
----------- --------------------------------------------------------------------------
667,337 Total assets 672,774 597,301
----------- --------------------------------------------------------------------------
EQUITY AND LIABILITIES
25,882 Share capital 26,011 25,691
26,451 Share premium 28,662 23,179
- Treasury shares (9,172) -
531 Other reserves 531 531
(4,011) Foreign currency translation reserve 5,191 (9,353)
- Hedge accounting reserve (1,855) -
215,881 Retained earnings 194,205 203,954
----------- --------------------------------------------------------------------------
264,734 Shareholders' equity 243,573 244,002
573 Minority interest 339 530
----------- --------------------------------------------------------------------------
265,307 Total equity 243,912 244,532
----------- --------------------------------------------------------------------------
Non-current liabilities
81,994 Interest-bearing loans and borrowings 85,455 1,316
95,334 Retirement benefit obligations 93,899 93,204
6,958 Provisions for liabilities & charges 6,404 7,064
675 Deferred tax payable 719 726
----------- --------------------------------------------------------------------------
184,961 Total non-current liabilities 186,477 102,310
----------- --------------------------------------------------------------------------
Current liabilities
3,028 Interest-bearing loans and borrowings 17,187 82,456
167,753 Trade and other payables 140,509 131,039
29,836 Construction contracts 31,264 24,753
- Forward foreign currency contracts 6,952 -
5,034 Income tax payable 5,143 4,457
11,418 Provisions for liabilities & charges 18,477 7,754
- Liabilities directly associated with assets 22,853 -
classified as held for sale
----------- --------------------------------------------------------------------------
217,069 Total current liabilities 242,385 250,459
----------- --------------------------------------------------------------------------
----------- --------------------------------------------------------------------------
402,030 Total liabilities 428,862 352,769
----------- --------------------------------------------------------------------------
----------- --------------------------------------------------------------------------
667,337 Total equity and liabilities 672,774 597,301
----------- --------------------------------------------------------------------------
CONSOLIDATED CASH FLOW STATEMENT
--------------------------------
53 weeks ended 26 weeks ended 26 weeks ended
31 December 1 July 2005 25 June 2004
2004 (restated) (restated)
£'000 Note £'000 £'000
-------------- ------------------------------------------------------------------------
Cash flows from operating 5
activities
67,010 Cash generated by operations 14,053 16,750
(12,096) Exceptional pension contributions (2,000) (12,096)
- Restructuring costs paid (8,210) -
(8,815) Income tax paid (4,468) (4,461)
-------------- ------------------------------------------------------------------------
46,099 Net cash generated from (absorbed (625) 193
by) operating activities
-------------- ------------------------------------------------------------------------
Cash flows from investing
activities
(897) Acquisitions (1,008) (182)
4,602 Disposals 1,881 40
(24,250) Purchases of property, plant & (10,306) (10,000)
equipment & intangible assets
489 Proceeds from sale of property, 31 58
plant & equipment & intangible
assets
(550) Purchases of other investments - (215)
782 Proceeds from sale of other 129 356
investments
5,298 Dividends received - 1,295
(4,765) Interest paid (2,949) (3,431)
2,675 Interest received 1,073 1,518
-------------- ------------------------------------------------------------------------
(16,616) Net cash used in investing (11,149) (10,561)
activities
-------------- ------------------------------------------------------------------------
Cash flows from financing
activities
5,488 Proceeds from issuance of ordinary 2,340 2,025
shares
- Purchase of treasury shares (9,172) -
80,842 Proceeds from borrowings 25,922 -
(113,140) Repayments of borrowings (10,283) (28,592)
2,478 Foreign exchange hedging - 181
(25,688) Dividends paid to equity holders of (19,308) (18,564)
the parent
(29) Dividends paid to minority - -
interests
-------------- ------------------------------------------------------------------------
(50,049) Net cash used in financing (10,501) (44,950)
activities
-------------- ------------------------------------------------------------------------
(20,566) Net decrease in cash and cash (22,275) (55,318)
equivalents
117,725 Cash and cash equivalents at 95,611 117,725
beginning of period
(1,548) Foreign currency translation 2,761 (3,924)
differences
-------------- ------------------------------------------------------------------------
95,611 Cash and cash equivalents at end of 76,097 58,483
period
-------------- ------------------------------------------------------------------------
Cash and cash equivalents at end of
period comprised:
97,622 Cash & short term deposits 63,137 60,793
- Cash & short term deposits included 13,257 -
in assets classified as held for
sale
(2,011) Bank overdrafts (297) (2,310)
-------------- ------------------------------------------------------------------------
95,611 76,097 58,483
-------------- ------------------------------------------------------------------------
Reconciliation of net decrease in cash and cash
equivalents to movement in net (debt) funds
(20,566) Decrease in cash and cash (22,275) (55,318)
equivalents
32,298 Decrease (increase) in debt (15,639) 28,592
-------------- ------------------------------------------------------------------------
11,732 Change in net funds resulting from (37,914) (26,726)
cash flows
(216) Lease inception - (6)
580 Foreign currency translation (965) 3,249
differences
-------------- ------------------------------------------------------------------------
12,096 Change in net funds during the (38,879) (23,483)
period
504 Net funds at beginning of period 12,600 504
-------------- ------------------------------------------------------------------------
12,600 Net (debt) funds at end of period (26,279) (22,979)
-------------- ------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
-------------------------------------------------------
53 weeks 26 weeks ended 26 weeks ended
ended 31 1 July 2005 25 June 2004
December (restated)
2004
(restated)
£'000 £'000 £'000
-------- ----------------------------------------------------------------------------
- Adjustments relating to adoption of IAS32 and 2,439 -
IAS39 from 1 January 2005
- Cash flow hedges - gains (losses) taken to (6,109) -
equity
- - transferred to profit or loss for the (1,624) -
period
(4,011) Exchange differences on translation of foreign 9,211 (9,354)
operations
(3,437) Actuarial loss on defined benefit plans - -
(4,459) Share of associate's actuarial loss on defined - -
benefit plans
972 Tax on items taken directly to equity 2,326 -
-------- ----------------------------------------------------------------------------
(10,935) Net income (expense) recognised directly in 6,243 (9,354)
equity
44,056 Profit (loss) for the period (1,660) 18,317
-------- ----------------------------------------------------------------------------
33,121 Total recognised income and expense for the 4,583 8,963
period
-------- ----------------------------------------------------------------------------
Attributable to:
33,080 Equity holders of the parent 4,574 8,960
41 Minority interests 9 3
-------- ----------------------------------------------------------------------------
33,121 4,583 8,963
-------- ----------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
1. BASIS OF PREPARATION
-----------------------
European law requires that the Group's financial statements for the 52 weeks
ending 30 December 2005 are prepared on the basis of IFRS as endorsed for use
in the European Union. IFRS are subject to amendment or interpretation by the
IASB and there is an ongoing process of review and endorsement by the
European Commission. These interim financial statements have been prepared on
the basis of IFRS that the directors expect to apply in the Group's first
IFRS compliant full year financial statements for the 52 weeks ending 30
December 2005 using the accounting policies published by the company on 1
July 2005 (available in the IFRS press release on the company website at
www.weir.co.uk). This includes all existing IFRS and anticipates that the
amendment to IAS 19 'Actuarial gains and losses, group plans and disclosure' will
be formally endorsed for use in the European Union. The Group has not applied
IAS 34 'Interim financial reporting', which is not mandatory for UK groups, in the
preparation of these interim financial statements. For the reasons outlined
above, it is possible that the information presented in this report and the
accounting policies used, may be subject to change before their inclusion in
the Group's first complete financial statements prepared in accordance with
IFRS.
As previously announced, as permitted under IFRS1 'First-time adoption of
IFRS', the Group has elected to apply IAS 32 'Financial Instruments:
disclosure and presentation' and IAS 39 'Financial Instruments: recognition
and measurement' prospectively from 1 January 2005 without restating the
comparative periods. The principal impact of these standards is in respect of
derivative financial instruments which are used to manage economic exposure
to movements in currency exchange rates. Such instruments are now required to
be recognised in the balance sheet as financial assets or financial
liabilities measured at their fair value with changes in their fair value
being recognised in the income statement, except where hedge accounting is
used. Hedge accounting is applied where exchange risk is considered to be
material, and, to the extent the hedge is effective, changes in the fair
value of hedge instruments are recognised directly in equity and recycled to
the income statement when the hedged item is recognised. The net effect of
this at 1 January 2005 is to increase equity by £2.4m.
The interim financial statements are unaudited and do not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. These
financial statements were approved by the Board of Directors on 18 August
2005. Financial statements for the 53 weeks to 31 December 2004 are abridged
statements; full accounts with an unqualified audit report have been lodged
with the Registrar.
2. SEGMENT ANALYSIS - CONTINUING OPERATIONS
-------------------------------------------
Engineering Engineering Techna * Continuing
Products Services operations
£'000 £'000 £'000 £'000
----------------------------------------------------------------------------------
26 weeks ended 1 July 2005
--------------------------
Revenue
Segment revenue 240,436 93,083 30,978 364,497
Inter-segment
sales 9,213 1,186 - 10,399
---------------------------------------------
Sales to
external
customers 231,223 91,897 30,978 354,098
---------------------------------------------
Result
Segment result 16,111 6,019 3,163 25,293
Share of
results of -
joint ventures - 115 - 115
- associates - - 3,282 3,282
---------------------------------------------
16,111 6,134 6,445 28,690
---------------------------------
Central costs (2,749)
---------
Profit before
restructuring
costs, net
finance costs
and tax 25,941
---------
26 weeks ended 25 June 2004 (restated)
--------------------------------------
Revenue
Segment
revenue 211,095 93,962 26,032 331,089
Inter-segment
sales 7,860 498 - 8,358
---------------------------------------------
Sales to
external
customers 203,235 93,464 26,032 322,731
---------------------------------------------
Sales to
external
customers at 1
July 2005
exchange rates 204,683 95,861 26,071 326,615
---------------------------------------------
Result
Segment result 13,432 9,528 1,653 24,613
Share of
results of -
joint ventures - 330 - 330
- associates - - 2,383 2,383
---------------------------------------------
13,432 9,858 4,036 27,326
----------------------------------
Central costs (2,359)
----------
Profit before
restructuring
costs, net
finance costs
and tax 24,967
----------
Segment result
at 1 July 2005
exchange rates 13,657 9,759 1,664 25,080
---------------------------------------------
53 weeks ended 31 December 2004 (restated)
------------------------------------------
Revenue
Segment
revenue 457,775 200,664 54,767 713,206
Inter-segment
sales 21,201 1,942 - 23,143
---------------------------------------------
Sales to
external
customers 436,574 198,722 54,767 690,063
---------------------------------------------
Sales to
external
customers at 1
July 2005
exchange rates 438,924 201,593 54,859 695,376
---------------------------------------------
Result
Segment result 30,723 20,481 3,889 55,093
Share of
results of -
joint ventures - 541 - 541
- associates - - 5,894 5,894
---------------------------------------------
30,723 21,022 9,783 61,528
--------------------------------
Central costs (3,081)
---------
Profit before
restructuring
costs, net
finance costs
and tax 58,447
---------
Segment result
at 1 July 2005
exchange rates 31,211 20,717 3,897 55,825
---------------------------------------------
* Techna now comprises the Defence, Nuclear & Gas operations
3. INCOME TAX EXPENSE
---------------------
53 weeks 26 weeks ended 26 weeks ended
ended 31 1 July 2005 25 June 2004
December (restated)
2004
(restated)
£'000 £'000 £'000
---------- ------------------------------------------------------------------------
1,562 Group - United Kingdom 21 594
9,774 Group - overseas 5,110 4,142
---------- ------------------------------------------------------------------------
11,336 5,131 4,736
(2) Less: discontinued operations 96 (168)
---------- ------------------------------------------------------------------------
11,338 Income tax expense 5,035 4,904
---------- ------------------------------------------------------------------------
21 Joint ventures 21 169
2,349 Associates 1,316 911
---------- ------------------------------------------------------------------------
4. DISCONTINUED OPERATIONS
--------------------------
On 1 June 2005, the Group disposed of Weir Flowguard Limited and its results are
included in discontinued operations in the consolidated income statement. On 8
July 2005, the Group disposed of the desalination and water treatment businesses
of its Techna division (Weir Westgarth, Weir Entropie and Weir Envig). The
results of these companies are included in the consolidated income statement as
discontinued operations and the assets and liabilities are shown in the consolidated
balance sheet as 'assets classified as held for sale' or 'liabilities directly
associated with assets and liabilities classified as held for sale' respectively.
The revenue, results and cash flows relating to discontinued operations were as follows:
53 weeks 26 weeks ended 26 weeks ended
ended 31 1 July 2005 25 June 2004
December (restated)
2004
(restated)
£'000 £'000 £'000
---------- ------------------------------------------------------------------------
48,599 Revenue 34,200 15,227
(48,839) Expenses (34,994) (16,355)
---------- ------------------------------------------------------------------------
(240) Loss before net finance costs and tax (794) (1,128)
306 Net finance income (costs) (70) 150
---------- ------------------------------------------------------------------------
66 Profit (loss) from discontinuing (864) (978)
operations before tax
(2) Income tax 96 (168)
---------- ------------------------------------------------------------------------
68 Profit (loss) from discontinuing (960) (810)
operations after tax
- Loss on disposal of Flowguard (2,118) -
---------- ------------------------------------------------------------------------
68 Profit (loss) for the period from (3,078) (810)
discontinuing operations
---------- ------------------------------------------------------------------------
(438) Cash from operating activities 5,763 (399)
(482) Cash from investing activities (283) (142)
513 Cash from financing activities 737 721
---------- ------------------------------------------------------------------------
5. NET CASH GENERATED FROM OPERATIONS
-------------------------------------
53 weeks 26 weeks ended 26 weeks ended
ended 31 1 July 2005 25 June 2004
December (restated)
2004
(restated)
£'000 £'000 £'000
---------- -----------------------------------------------------------------------
58,447 Profit from continuing operations before 25,941 24,967
restructuring costs, net finance costs
and tax
(240) Loss from discontinued operations before (794) (1,128)
net finance costs and tax
(6,435) Share of results of joint ventures and (3,397) (2,713)
associates
15,208 Depreciation & grant credits 8,224 7,451
(173) (Profit) loss on disposal of property, 76 19
plant & equipment & investments
(733) Funding of pension & post retirement 88 (153)
costs
1,895 Increase in provisions 1,176 550
356 Employee share scheme 405 83
(203) Exchange (gain) loss on intra group 44 331
loans
232 Decrease (increase) in inventories (13,317) 5,174
(43,378) Decrease (increase) in trade & other 1,260 (21,351)
receivables & construction contracts
42,034 Increase (decrease) in trade & other (5,653) 3,520
payables & construction contracts
---------- -----------------------------------------------------------------------
67,010 Cash generated by operations 14,053 16,750
(12,096) Exceptional pension contributions (2,000) (12,096)
- Restructuring costs paid (8,210) -
(8,815) Income tax paid (4,468) (4,461)
---------- -----------------------------------------------------------------------
46,099 Net cash generated from (absorbed by) (625) 193
operating activities
---------- -----------------------------------------------------------------------
6. INSURANCE MATTERS
--------------------
No account is taken in the consolidated income statement of any potential future
insurance recoveries in respect of the test shop fire at Cathcart as the directors
consider that, as at 18 August 2005, it is impractical to reliably assess the
financial impact with reasonable certainty.
7. IFRS RECONCILIATIONS OF NET ASSETS AND PROFIT
------------------------------------------------
The following tables supplement the information contained within the press release
of 1 July 2005, which described the conversion of the Group's basis of accounting
from UK GAAP to IFRS, and, contained the Group's consolidated income statement,
consolidated cash flow statement, consolidated balance sheet as at 31 December
2004, consolidated statement of recognised income and expense and consolidated
summary of changes in shareholders' equity for the 53 weeks ended 31 December 2004,
restated in accordance with IFRS.
NET ASSETS £'000
---------------------------------------------------------------------------
Net assets as at 25 June
2004 as reported underUK GAAP 235,533
Goodwill amortisation 3,258
Proposed dividend 7,111
Mid to bid pensions valuation (706)
Associates (10,642)
Share based payments (69)
Holiday pay accruals (306)
Tax 9,823
Minority interest 530
---------------------------------------------------------------------------
Net assets as
at 25 June 2004 as
restated under IFRS 244,532
---------------------------------------------------------------------------
PROFIT FROM
CONTINUING
OPERATIONS
BEFORE
RESTRUCTURING
COSTS, NET
FINANCE COSTS
AND TAX £'000
---------------------------------------------------------------------------
Profit for the 26 weeks ended 25 June 2004
as reported under UK GAAP 21,830
Joint ventures and associates interest (115)
Joint ventures and associates tax (1,224)
Goodwill amortisation 3,522
Exchange on intra group loans (331)
Associates (214)
Share based payments 343
Holiday pay accruals 28
Discontinued operations 1,128
---------------------------------------------------------------------------
Profit for the 26 weeks ended 25 June 2004
as restated under IFRS 24,967
---------------------------------------------------------------------------
PROFIT FOR THE
PERIOD £'000
---------------------------------------------------------------------------
Profit for the 26 weeks ended
25 June 2004 as reported under UK GAAP 15,088
Goodwill amortisation 3,522
Exchange on intra group loans (335)
Mid to bid pensions valuation (24)
Associates (214)
Share based payments 274
Holiday pay accruals 20
Tax (17)
Minority 3
---------------------------------------------------------------------------
Profit for the 26 weeks ended 25 June 2004
as restated under IFRS 18,317
---------------------------------------------------------------------------
---------------------------------------------------------------------------
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 1 July 2005 which comprises the Consolidated Income Statement,
Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated
Statement of Recognised Income and Expense, and the related notes 1 to 7. 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.
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with those IFRSs adopted for use by the European Union.
The accounting policies are consistent with those that the directors intend to
use in the next financial statements. There is, however, a possibility that the
directors may determine that some changes to these policies are necessary when
preparing the full annual financial statements for the first time in accordance
with those IFRSs adopted for use by the European Union. This is because, as
disclosed in note 1, the directors have anticipated that the amendments to IAS
19 'Actuarial Gains and Losses, Group Plans and Disclosure', which has yet to be
formally adopted for use in the EU will be so adopted in time to be applicable to
the next annual financial statements.
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 have been applied. 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 United Kingdom Auditing Standards 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
1 July 2005.
Ernst & Young LLP
Glasgow
18 August 2005
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