The Weir Group PLC, H1-16 interim results
The Weir Group PLC today reports its interim results for the six months up to 30 June 2016.
First half performance ahead of market expectations
- First half performance ahead of market expectations, constant currency full year guidance unchanged.
- Robust Minerals performance: margins and profits up; record quarterly aftermarket revenues in Q2.
- Oil & Gas remains cash generative but margins below break-even, reflecting tough market conditions.
- Improved Flow Control: margins and profits up, benefiting from strong cost control.
- Group-wide £50m of annualised cost reductions announced in 2016 on track:
- Cumulative annualised savings of £160m since Q4 2014.
- Up to £100m asset disposal programme progressing to plan: £46m achieved by end of July:
- Net debt/EBITDA2 of 2.8x, expected to fall during H2 despite forex movements.
- Substantial progress in innovation agenda: £38m in revenues from new products.
- Board changes: Keith Cochrane to be succeeded as CEO by Jon Stanton from 1 October 2016
| Continuing Operations5 | H1 2016 | H1 2015 | Reported Growth | Constant Currency1 |
| Order input1 | £873m | £1,038m | n/a | -16% |
| Revenue | £866m | £981m | -12% | -13% |
| Operating profit2 | £103m | £128m | -20% | -22% |
| Operating margin2 | 11.9% | 13.1% | -120bps | -130bps |
| Profit before tax2 | £82m | £108m | -25% | -25% |
| Reported profit after tax | £24m | £38m | -37% | n/a |
| Cash from operations6 | £133m | £202m | -34% | n/a |
| Earnings per share2 | 29.6p | 38.6p | -23% | n/a |
| Dividend per share | 15.0p | 15.0p | 0% | n/a |
| Return on Capital Employed3 | 8.4% | 13.7% | n/a | -530bps |
| Net debt | £853m | £825m4 | -£28m | n/a |
Keith Cochrane, Chief Executive, commented:
"Our first half performance was ahead of market expectations and demonstrated the Group's fundamental strength and resilience. While markets remained challenging, the Minerals division fully captured available opportunities, Flow Control improved margins and Oil & Gas grew market share in important product categories. As a whole, the Group continued to be highly cash generative and aggressively reduce costs, while also extending its technology leadership in products and services which are vital to our customers' operations.
Our full year guidance for a reduction in constant currency Group operating profits is unchanged. Our reported numbers will benefit from a positive currency effect in the second half if current rates prevail. While there have been early signs of stability in oil and gas markets, activity remains at very low levels with only a modest improvement expected in late 2016. Conversely, there are signs of mining markets normalising, supported by commodity prices and an improving pipeline of brownfield opportunities. Looking ahead, we will continue to prioritise strong cash generation and invest in the strategic priorities which will ensure the Group is positioned to benefit fully as markets recover."
A live webcast of the management presentation to the investment community will begin at 8:30am (BST) on 28 July 2016 at www.investors.weir
| Enquiries: | |
| Investors: Stephen Christie | +44 (0) 7795 110456 |
| Media: Raymond Buchanan | +44 (0) 7713 261447 |
| Brunswick: Patrick Handley / Diana Vaughton | +44 (0) 2074 045959 |
Notes:
- 2015 restated at H1 2016 average exchange rates.
- Adjusted to exclude exceptional items and intangibles amortisation. Reported operating profit and profit before tax from continuing operations was £49m (2015: £61m) and £25m (2015: £39m) respectively. Reported earnings per share from continuing operations were 11.0p (2015: 17.5p).
- Continuing operations EBIT before exceptional items on a constant currency basis (excluding Delta EBIT) divided by average net assets (excluding Delta net assets) excluding net debt and pension deficit (net of deferred tax asset).
- Net Debt at 1 January 2016.
- Continuing operations excludes American Hydro Corporation and Ynfiniti Engineering Services, which were disposed of during H1 2016 and are reported as discontinued operations.
- Cash from operations includes both continuing and discontinued operations.
Strategic overview
The Group's strategy is to strengthen and extend its position as a leading provider of highly engineered solutions for use in global mining, oil and gas, power and other aftermarket-orientated processing industries. Weir aims to achieve sustainable growth ahead of its markets, while responding to short term market conditions. The Group executes its strategy by focusing on four strategic pillars: innovation; collaboration; value chain excellence; and global capability.
Improving competitiveness
The Group continued its aggressive approach to cost reduction and is on track to deliver a further £50m in annualised savings by the end of 2016. In the first half, this included the Minerals division delivering £24m of incremental annualised savings involving a reduction in management layers as part of a wider series of initiatives, with an associated 150 workforce reduction. Oil & Gas reduced its workforce by 340, primarily in North America, and continued its facility consolidation programme with the closure of 12 service centres in the period and is on track to deliver £23m in incremental annualised savings by the year end. In total, by the end of 2016, the division will have closed 2 manufacturing sites and 24 service centres since the start of 2015 and across the Group £160m in annualised savings will have been delivered since Q4 2014.
Innovation
The Oil & Gas division launched a series of new products in the first half of the year including a new SPM® Valve and Seat solution for well stimulation pumps which doubles the life of the current product. The division also introduced the MathenaTM Electric-Actuated Choke, the first hydraulic-equivalent electric drilling choke engineered to provide precise flow and pressure control in any type of environment. Field trials of the SPM® QEM 3000 frack pump are ongoing with customers reporting substantial cost of ownership reductions.
Trials of the Group's SynertrexTM Internet of Things (IoT) solution are under way with Minerals and Oil & Gas customers. These will be supported by technology agreements with Microsoft Corporation and other leading technology providers. The trials include developing smart solutions for cyclones used in mining applications. The division also launched a new range of Trio® crushers which operate at a higher speed than predecessors. Flow Control introduced the ASME1 safety relief valve for conventional power markets and a new Roto-Jet pump for light hydrocarbon processing which delivers significant performance advantages over competitor products. It also commercialised its first alloy component manufactured using additive manufacturing or so-called 3D printing.
In total, £38m in first half revenues were generated from new products developed in the past three years. Research and Development (R&D) expenditure was maintained at £14m, despite market challenges, representing 1.6% of revenues (2015: 1.4%).
Collaboration
The transfer of pump businesses Gabbioneta and Floway from Oil & Gas and Minerals respectively to the new Flow Control division was completed, following the success of the Group's downstream forum, which encouraged collaboration across all three divisions. As part of their integration into Flow Control, both businesses are sharing routes to market and providing the division with broader access to EPC (Engineering, Procurement and Construction) customers for its pumps and valves offering. In Oil & Gas, the division integrated the Seaboard® and MathenaTM Pressure Control businesses, reducing administration costs and consolidating service centres. The division also announced the launch of EPIX, a joint venture project with Rolls Royce subsidiary MTU America, to supply the fracking industry's first integrated power system which will be supported by Weir's extensive service centre network.
Value Chain Excellence
There are a significant number of projects under way across the Group's global operations to improve performance, reduce working capital and shorten lead times, which resulted in a £10m constant currency inventory reduction. Flow Control continued its programme of product transfers to best-cost sourcing facilities, supporting competitiveness across a wider range of solutions. Minerals optimised its foundry operations allowing it to also transfer products to best-cost sources. Progress is continuing in establishing a common Enterprise Resource Planning (ERP) tool across the division which will eventually consolidate fifteen ERP systems into one. The Group achieved £18m (4%) of direct procurement cost savings in the period, despite reduced purchasing volumes as a result of lower activity levels and a focus on inventory reduction.
Global Capability
The Group is about to formally open a new Flow Control manufacturing facility in Milan, with significantly enhanced test capabilities, which will extend our addressable market for centrifugal pumps and other solutions for downstream customers. Minerals deployed a greater number of application engineers in service centres in support of its intensified pursuit of brownfield opportunities, enabling the division to perform more plant audits with customers and jointly identify opportunities to increase plant optimisation. Similarly, Oil & Gas is upgrading its test capabilities in service centre locations, while also introducing new service capabilities to support its EPIX joint venture project.
H1-16 financial performance overview1 - Continuing operations
Order input and revenue on a constant currency basis decreased by 16% and 13% respectively. Aftermarket input declined 20% while original equipment orders fell by 5%. Aftermarket represented 68% of total orders, down from 71% last year. On a reported basis, revenues were 12% lower, supported by a £17m foreign exchange tailwind. In constant currency terms, operating margins declined 130bps and reported profit before tax from continuing operations1 of £82m was down 25%, primarily impacted by declines in North American oil and gas markets. The Group generated £78m of free cash inflow pre-dividend in the period.
In the Minerals division, orders were in line with the prior year period. Original equipment orders were up, despite industry capital expenditure declines, as the division fully captured brownfield and plant optimisation opportunities. Aftermarket orders were slightly down due to extended mine shutdowns early in the year, but orders grew sequentially through the period as activity normalised. Revenues were slightly higher than prior expectations and ahead of H1-15, with record quarterly aftermarket revenues in the second quarter. Operating margins were higher than the prior year, which was impacted by acquisition integration costs, and supported by cost reductions and prior restructuring benefits.
In Oil & Gas, all businesses were affected by the severe market downturn with oil prices falling below $30/barrel in the period, before recovering to US$45-$50. This led to significant further reductions in activity, with expenditure in North American unconventional markets estimated to have fallen by more than 50%. International markets were also impacted, with spending estimated to have reduced by more than 20%. These trends were reflected in the material decline in divisional input and revenues. Operating margins fell below breakeven levels, and reduced through the period as a result of the sequential decline in market activity, despite further restructuring and cost saving initiatives.
Flow Control was also impacted by the decline in the oil price as activity levels in mid and downstream markets reduced. Activity in most power and industrial markets also remained subdued and projects across all markets were subject to delay and increased price competition. Aftermarket input also fell and was impacted by the timing of power plant outages. Revenues were stable but operating margins were up 130bps on a constant currency basis, reflecting benefits from prior cost reduction actions and further operational improvement measures.
| H1-16 segmental analysis1 | |||||||
| Continuing Operations £m | Minerals | Oil & Gas | Flow Control | Unallocated Expenses | Total | Total OE | Total AM |
| Input (constant currency) | |||||||
| 2016 | 531 | 178 | 164 | n/a | 873 | 282 | 591 |
| 2015 | 531 | 313 | 194 | n/a | 1,038 | 297 | 741 |
| Variance: | |||||||
| - Constant currency | 0% | -43% | -15% | -16% | -5% | -20% | |
| - Like-for-like2 | -1% | -43% | -15% | -16% | -7% | -20% | |
| Revenue | |||||||
| 2016 | 524 | 183 | 159 | n/a | 866 | 279 | 587 |
| 2015 (as reported) | 507 | 320 | 154 | n/a | 981 | 270 | 711 |
| Variance: | |||||||
| - As reported | 3% | -43% | 3% | -12% | 3% | -17% | |
| - Constant currency | 4% | -46% | 0% | -13% | 1% | -19% | |
| - Like-for-like2 | 3% | -46% | 0% | -14% | -1% | -19% | |
| Operating profit3 | |||||||
| 2016 | 103 | (2) | 14 | (12) | 103 | ||
| 2015 (as reported) | 91 | 36 | 12 | (11) | 128 | ||
| Variance: | |||||||
| - As reported | 12% | -104% | 20% | -5% | -20% | ||
| - Constant currency | 11% | -104% | 17% | -4% | -22% | ||
| - Like-for-like2 | 10% | -104% | 17% | -4% | -22% | ||
| Operating margin3 | |||||||
| 2016 | 19.5% | (0.8)% | 8.8% | n/a | 11.9% | ||
| 2015 (as reported) | 18.0% | 11.4% | 7.6% | n/a | 13.1% | ||
| Variance: | |||||||
| - As reported | +150bps | -1220bps | +120bps | -120bps | |||
| - Constant currency | +110bps | -1210bps | +130bps | -130bps | |||
| - Like-for-like2 | +120bps | -1210bps | +130bps | -130bps | |||
1The financial overview includes a mixture of GAAP measures and those which have been derived from our reported results in order to provide a useful basis for measuring our operational performance. Operating results are for continuing operations before exceptional items and intangibles amortisation as provided in the Consolidated Income Statement. Details of other non GAAP measures are provided in note 1 of the financial statements.
2Like-for-like excludes the impact of acquisitions and related transaction costs. American Hydro and YES are classed as discontinued operations.
3Adjusted to exclude exceptional items and intangibles amortisation.
Minerals
Weir Minerals is a global leader in the provision of mill circuit technology and services, as well as the market leader in slurry handling equipment and associated aftermarket support for abrasive high wear applications. Its differentiated technology is used in mining, oil & gas and general industrial markets around the world.
| Constant currency £m | H1 2016 | H1 20151 | Growth | LFL3 Growth | H2 20151 |
| Input OE | 163 | 142 | 14% | 10% | 153 |
| Input aftermarket | 368 | 389 | -5% | -5% | 344 |
| Input Total | 531 | 531 | 0% | -1% | 497 |
| Revenue OE | 155 | 126 | 24% | 19% | 158 |
| Revenue aftermarket | 369 | 377 | -2% | -2% | 364 |
| Revenue Total | 524 | 503 | 4% | 3% | 522 |
| Operating profit2 | 103 | 92 | 11% | 10% | 108 |
| Operating margin2 | 19.5% | 18.4% | +110bps | +120bps | 20.6% |
| Operating cash flow | 105 | 115 | -9% | n/a | 116 |
| Book-to-bill | 1.01 | 1.06 | 0.95 | ||
| 12015 restated at H1 2016 average exchange rates. | |||||
| 2Adjusted to exclude exceptional items and intangibles amortisation. 3Like-for-like excludes the impact of acquisitions and related transaction and integration costs. Delta Valves was acquired on 8 July 2015. | |||||
Key points
- Return to year-on-year order growth in Q2-16
- Sequential growth in Minerals aftermarket revenues; record quarter in Q2-16.
- Strong margin performance supported by cost control.
- Outlook: Good sequential revenue growth in second half, full year margins in line with H1-16 and prior year.
Market review
Mining markets remained challenging despite a recovery in commodity prices such as gold (up 24%), iron ore (up 30%) and copper (up 3%), Weir's three largest exposures. Prices remained below investment incentive levels for the majority of commodities. As expected, mining sector capital expenditure continued to fall.
An extended shut down at the end of 2015 and into the start of 2016 impacted aftermarket demand, alongside destocking and the execution of mine closures first announced in 2015. As operations normalised through the first quarter, aftermarket demand returned to levels reflecting underlying growth in ore production volumes. However, miners continued to focus on reducing operational expenditure and cost per tonne, resulting in ongoing pricing pressure on equipment and services and continued pressure on customer stocking levels.
Regionally, mining markets in South America benefited from the ramp up to full production of a number of large mine projects. Europe and Asia-Pacific saw stable production levels, although capital expenditure remained subdued. Markets in China reflected the slowdown in economic growth. North America mining markets remained challenging but were relatively stable. African markets were particularly challenging in Central and Western Africa as a result of previously announced mine closures, although activity in South Africa was more resilient.
Sand and aggregate demand remained subdued in China and North America. The impact of the wild fires in Canada included suspensions or delays in oil sands production in the second quarter, but the underlying trend of growing production remained intact as the region recovered.
Order input was stable and in line with expectations at £531m (2015: £531m), with original equipment orders 14% higher and 10% up on a like-for-like basis, supported by a strong first half performance from the GEHO® product line; normally an early indicator of project activity, and a number of good brownfield contract wins, particularly in gold markets. There was also good demand for the division's centrifugal slurry and mine dewatering pumps as miners' operations normalised following an extended end of year shutdown and focused on improving productivity. Comminution input was impacted by the slowdown in Chinese mining markets and delays to projects in other regions.
Overall, divisional aftermarket orders fell by 5% in H1-16 (also 5% on like-for-like basis) and represented 69% of total input (2015: 73%) reflecting the extended shut-down by miners at the beginning of the year. However after a soft start to the year, aftermarket trends picked up and the division exited Q1-16 with more momentum, which was maintained through the second quarter. Consequently aftermarket orders were flat year-on-year in Q2-16, despite lower oil sands input as a result of wild fires in Canada.
There was a good year-on-year performance from specialty pumps, valves and hoses while aftermarket demand for longer-life products such as spools and rubber linings has been slower to recover. Sequential aftermarket improvement was also supported by increased processing as a result of declining ore grades and growing ore production, as new mines ramped up.
Emerging markets accounted for 51% of input, unchanged on the prior year, with South America benefiting from additional ore production. Africa was impacted by mine shut-downs announced in the second half of 2015 while other markets remained challenging but relatively stable. Mining end markets accounted for 72% of total input (2015: 76%) with a decline in orders reflecting reduced activity from miners at the beginning of the year. Input from non-mining markets was 28% of orders (2015: 24%) with a stronger performance in industrial and power markets offsetting the impact of slowing Chinese growth on sand and aggregate markets. The order book was stable in the period with a book to bill ratio of 1.01.
Revenue was 4% higher at £524m on a constant currency basis (2015: £503m), slightly higher than prior expectations and 3% higher on a like-for-like basis. Original equipment sales were 24% higher (19% higher on a like-for-like basis), reflecting conversion of shorter lead time orders, and accounted for 30% (2015: 25%) of divisional revenue. Aftermarket revenues were relatively stable, down 2% (2% on a like-for-like basis) over the prior year period. As miners increased production following the extended shut-down in the first quarter, there was a sequential improvement such that second quarter aftermarket revenues reached record levels and were slightly ahead of the prior year.
Reported revenues increased by 3%, reflecting a 1% foreign exchange headwind (2015: £507m).
Operating profit increased 11% on a constant currency basis to £103m (2015: £92m), supported by benefits from restructuring actions, procurement savings and the absence of acquisition integration costs. Actions were taken in the period to deliver £24m of annualised cost savings, including reducing management layers and administrative support. Reported operating profit increased by 12% after a 1% foreign exchange tailwind (2015: £91m).
Operating margin increased by 110bps to 19.5% (2015: 18.4%) and by 120bps on a like-for-like basis as the division's cost reduction and efficiency measures delivered higher manufacturing overhead recoveries and reduced administrative costs, more than offsetting pricing pressure and the higher contribution from original equipment. Margins were also supported by the improved operational performance in Africa and a reduction in integration costs to £0.3m (2015: £2.2m).
Operating cash flow of £105m was broadly in line with operating profit but decreased by 9% (2015: £115m) as the division saw a £10m cash outflow from higher working capital as activity levels rose through the period.
2016 divisional outlook
Assuming commodity prices remain around current levels, mining markets are expected to remain relatively stable through the second half, with ongoing ore production supporting good demand for aftermarket products and services benefiting from miners seeking to normalise maintenance schedules. Greenfield project activity is expected to remain at negligible levels, although we are pursuing a good pipeline of brownfield and debottlenecking opportunities across mining and sand and aggregate markets. Overall, the division expects aftermarket demand to remain at levels similar to the second quarter and original equipment order levels to be maintained, despite overall market conditions.
Full year constant currency revenues are now anticipated to be slightly up on the prior year, ahead of previous expectations and supported by the opening order book. Full year operating margins are expected to be broadly in line with the first half and the prior year, in line with previous guidance. Product mix and a slightly higher original equipment contribution, together with increased bonus costs compared to 2015, will offset the normal seasonal uplift in margins.
Oil & Gas
Weir Oil & Gas provides superior products and service solutions to upstream markets. Products include pressure pumping equipment and services and pressure control products and rental services. Equipment repairs, upgrades, certification and asset management & field services are delivered globally by Weir Oil & Gas Services.
| Constant currency £m | H1 2016 | H1 20151 | Growth | H2 20151 | |
| Input OE | 33 | 55 | -39% | 40 | |
| Input aftermarket | 145 | 258 | -44% | 186 | |
| Input Total | 178 | 313 | -43% | 226 | |
| Revenue OE | 35 | 64 | -46% | 47 | |
| Revenue aftermarket | 148 | 273 | -46% | 189 | |
| Revenue Total | 183 | 337 | -46% | 236 | |
| Operating (loss)/profit2 | (1.5) | 38.2 | -104% | 17.0 | |
| Operating margin2 | (0.8)% | 11.3% | -1210bps | 7.2% | |
| Operating cash flow | 18.2 | 108.3 | -83% | 51.3 | |
| Book-to-bill | 0.98 | 0.93 | 0.96 | ||
| 12015 restated at H1 2016 average exchange rates. | |||||
| 2Adjusted to exclude exceptional items and intangibles amortisation. Includes contribution from joint ventures. | |||||
Key points
- 56% year-on-year decline in average North American rig count reflected in revenue performance.
- Aftermarket decline exacerbated by ongoing destocking and asset cannibalisation.
- Outlook: Q2 run-rates to persist through Q3, sequential improvement in Q4 with associated return to profit.
Market review
The average rig count in North America fell by 56% year-on-year with the US land rig count falling 80% peak to trough since the beginning of the downturn in October 2014. International markets also saw a material decrease in activity, with the average rig count in the first half of 2016 19% lower than the prior year. The severe downturn in North America contributed to oil production falling by more than 1mbpd year-on-year, although production in the Middle East continued to grow as OPEC increased market share. A small increase in North American rigs since the beginning of June was supported by rising oil prices with WTI increasing by more than 30% and Brent Crude gaining more than 35% in the first half of the year. Natural gas prices rose 25%, closer to incentive levels.
Oil and gas companies have continued to reduce capital spending with an estimated reduction in 2016 of 40% in North America and approximately 20% internationally. These declines in activity have been reflected in demand for both original equipment and aftermarket products and services, with widespread pricing pressure. In North America, pressure pumping markets continued to be affected by destocking and cannibalisation as customers sought to reduce costs. In addition, demand for completion equipment and services continued to be impacted by some Exploration & Production companies electing to drill, but not complete, wells. It is estimated there were over 3,000 drilled but uncompleted wells at the end of the first half.
North American frack fleet utilisation has fallen to an estimated 28% compared to more than 80% in 2014, further reducing pressure pumping aftermarket demand. Pressure control markets were also impacted by the significant reduction in activity, while both markets saw further pricing declines as both E&P's and Service companies sought to further reduce their costs. The number of pressure pumping companies serving the market reduced materially in the period, while E&P customers remained cash-focused as they significantly reduced capital expenditure.
International markets also saw an intensification of the market downturn, despite producers in the Middle East growing production. Average international rig count was 20% lower year-on-year. National Oil Companies sought to reduce capital and operating expenditure with increased pricing pressure seen in the region, alongside lower drilling related activity. Conditions in the North Sea and Caspian markets remained challenging.
Order input at £178m (2015: £313m) was 43% lower as a result of reduced activity reflecting subdued commodity prices. Aftermarket input was down 44% year-on-year as a result of activity declines, destocking and cannibalisation by customers, primarily in North America but also in international markets including the Middle East. Aftermarket orders were 81% (2015: 82%) of divisional orders. Original equipment input was 39% lower, primarily driven by lack of demand for new equipment, as frack fleet utilisation continued to decline, and a further fall in the number of wells drilled. There was a sequential quarterly decline in orders through the period reflecting tough market conditions.
Pressure Pumping input declined sequentially, although it appeared to stabilise at low levels during the second quarter. The majority of product lines declined in line with activity levels, although fluid end orders saw a smaller decline as the impacts of destocking eased and the division gained market share as more customers converted to its differentiated technology. Flow revenues declined materially, although customer and market share gains were made in this product category as the division drove sales of its combined offering.
Pressure Control input also fell significantly, with orders stabilising at low levels during the second quarter. Market share is being maintained in a very competitive market and early benefits seen from the full combination of Mathena and Seaboard. Input from international markets also fell significantly across the period as activity reduced in the Middle East and markets became increasingly competitive. Project delays impacted higher cost regions such as the North Sea and Caspian.
Revenue decreased by 46% to £183m on a constant currency basis (2015: £337m), reflecting input trends. Original equipment and aftermarket revenues both reduced by 46%, with aftermarket accounting for 81% of total revenues (2015: 81%). Revenue run rates decreased month-to-month through to April and stabilised at low levels at the end of the period. Reported revenues fell by 43%, after a 5% foreign exchange benefit (2015: £320m).
An operating loss including joint ventures of £1.5m (2015: £38.2m profit on a constant currency basis) was recognised in the period. This reflected ongoing activity declines, particularly in North America. The benefits of restructuring and cost reduction actions taken in the period were outweighed by widespread pricing pressure across all product and service categories. The reported operating loss of £1.5m (2015: £36.4m profit) included a £1.8m foreign exchange benefit. Income of £3.5m (2015: £4.0m) from joint ventures was recognised in the period.
Operating margin was down 1210bps at -0.8% (2015: 11.3%), reflecting market conditions, particularly in North America, negative operating leverage and pricing pressure. Reflecting declining activity levels, second quarter operating margins were below the average for the period.
Operating cash flow decreased by 83% to £18.2m (2015: £108.3m) as a £16m cash inflow from further reductions in working capital enabled the division to remain cash positive during the period, despite the operating loss.
2016 divisional outlook
Oil prices continue to be relatively volatile, but have settled at a level above the lows seen earlier in the year. This translated into early signs of stabilisation late in the first half, albeit with activity at very low levels which are expected to continue through the third quarter of the year. Assuming the North American rig count continues to rise gradually, a modest pick-up in activity is expected in late 2016. International markets are expected to continue at the current low levels throughout 2016, impacting trading in Europe and the Middle East.
As a result of these market trends, full year constant currency revenues are expected to be slightly lower than prior expectations, with a return to modest profitability in the fourth quarter as activity increases. The division is expected to remain cash generative throughout the second half.
Flow Control
Weir Flow Control designs and manufactures valves and pumps as well as providing specialist support services to the global power generation, industrial, oil and gas and other aftermarket-orientated process industries.
| Constant currency £m | H1 2016 | H1 20151 | Growth | H2 20151 | |
| Input OE | 86 | 100 | -14% | 91 | |
| Input aftermarket | 78 | 94 | -16% | 63 | |
| Input Total | 164 | 194 | -15% | 154 | |
| Revenue OE | 89 | 85 | 4% | 117 | |
| Revenue aftermarket | 70 | 73 | -4% | 77 | |
| Revenue Total | 159 | 158 | 0% | 194 | |
| Operating profit2 | 13.9 | 11.9 | 17% | 22.1 | |
| Operating margin2 | 8.8% | 7.5% | +130bps | 11.4% | |
| Operating cash flow | 17.5 | 2.5 | 607% | 23.6 | |
| Book-to-bill | 1.04 | 1.23 | 0.79 | ||
| 12015 restated at H1 2016 average exchange rates. | |||||
| 2Adjusted to exclude exceptional items and intangibles amortisation. | |||||
Key points
- Profit and margin improvement supported by cost control and a strong pumps opening order book.
- Valves performance impacted by lower service levels due to timing of power outages in the UK.
- Outlook: Full year constant currency revenue growth; Margins in-line with H1.
Market review
Ongoing economic uncertainty and subdued oil and gas prices led to continued customer caution, project delays and increased price competition in power, industrial and downstream markets. Power customers in the United States and Europe continued to be cautious regarding maintenance spending, impacting aftermarket demand, while the pipeline of new nuclear opportunities in China, Korea and the UK was more promising.
Reduced spending by downstream oil and gas customers impacted original equipment and aftermarket demand although there were opportunities in the Middle East. Industrial markets continue to be subdued, particularly in the UK, although municipal wastewater markets in North America were more active.
Order input decreased by 15% to £164m (2015: £194m) against a strong prior year comparator and was affected by the timing of UK nuclear power outage schedules and declines in mid and downstream oil and gas markets.
Original equipment orders fell 14% with pump demand impacted by the ongoing oil and gas downturn. Aftermarket input fell by 16%, principally across valves, as a result of the timing of power outages negatively impacting service activity, although valve and pump parts sales held up well. Oil and gas orders were 27% lower reflecting challenging market conditions.
Power markets represented 39% of orders (2015: 36%) and benefited from increased cost competitiveness as a result of increased sourcing of products from the Group's Malaysian foundry. The proportion of orders from oil and gas markets decreased to 29% (2015: 33%). Emerging markets accounted for 36% of input (2015: 43%). Orders from the Middle East, Africa and Korea reduced while input from China and the United States was more stable.
Revenue was stable on a constant currency basis at £159m (2015: £158m), with an aftermarket decline of 4% offset by original equipment growth of 4%. Pumps revenues were supported by a strong opening order book, particularly in downstream markets. Valves revenues were stable year-on-year. Across both valves and pumps, revenue timing was affected by customers evolving project delivery schedules. Divisional book-to-bill was positive at 1.04 (2015: 1.23). Reported revenues increased by 3% after a 3% foreign exchange benefit (2015: £154m).
Operating profit increased to £13.9m on a constant currency basis (2015: £11.9m), as the division benefited from ongoing cost control measures, a strong opening order book in pumps, and continued operational improvement actions.
Operating margin was up 130bps to 8.8% (2015: 7.5%) on a constant currency basis, as an improved operational performance, strong cost control and supply chain benefits more than offset pricing pressure.
Operating cash flow increased by 607% to £17.5m (2015: £2.5m) due to higher operating profit and an improved working capital performance.
2016 divisional outlook
Full year divisional revenues, on a constant currency basis, are expected to be higher than the prior year and in line with prior guidance. Full year operating margins are expected to be broadly in line with the first half and prior guidance. A higher original equipment mix, supported by the strong order book for original equipment pumps and increased bonus costs compared to 2015, is expected to offset the normal seasonal increase in margins.
Group financial overview
Order input at £873m (2015: £1,038m) decreased 16% in constant currency terms and 16% on a like for like basis. Original equipment orders were down 5% with growth of 14% in Minerals more than offset as a result of continued challenging market conditions in Oil & Gas and Flow Control. Aftermarket orders were down 20% and represented 68% of total input (2015: 71%), with the decline principally driven by Oil & Gas.
Revenue decreased by 13% to £866m on a constant currency basis, down 12% as reported and reflecting order input trends. Aftermarket revenues accounted for 68% of the total (2015: 72%). Minerals aftermarket grew sequentially quarter on quarter during the period, with record revenues in the second quarter. Original equipment revenues were broadly flat with 23% growth in Minerals offset by Oil & Gas. The proportion of total Group revenues from emerging markets increased to 43% (2015: 37%), supported by good absolute growth in Asia Pacific and Latin America. The Group's order book increased in the period with a positive book to bill ratio of 1.01.
Operating profit from continuing operations (before exceptional items and intangibles amortisation) was down 22% on a constant currency basis to £103m. This performance was primarily driven by the continued decline in North American oil and gas markets. Operating profit in the Minerals division was up 11% on a constant currency basis, while Flow Control was up 17% against the prior period. On a reported basis, operating profit from continuing operations before exceptional items and intangibles amortisation was down 20% (2015: £128m). The foreign exchange impact year on year is a net gain of £3m. One-off costs incurred in the period, excluding exceptional items, were £0.3m (2015: £2.2m) and related entirely to the integration of Delta, which is now complete. Unallocated costs were £12m (2015: £11m) with underlying reductions in discretionary spend and the benefit of other cost reduction initiatives offset by increased investment in innovation. EBITDA was £130m (2015: £162m).
Operating margin from continuing operations before exceptional items and intangibles amortisation was 11.9%, a reduction of 120bps on the prior year period and 130bps lower on a constant currency basis (2015: 13.1% and 13.2% on a constant currency basis). Current market conditions had a significant negative impact on the Oil & Gas division offsetting improvements in both Minerals and Flow Control.
An exceptional charge from continuing operations of £32m (net) (2015: £45m) was recorded in the period, primarily in relation to restructuring and rationalisation charges which represent the committed cost of on-going programmes to right size operations and discontinue certain activities in light of the prolonged down turn across the Group's major end markets. The restructuring and rationalisation cost of £31m comprises £23m of cash restructuring costs, an impairment charge of £4m relating to working capital and £4m in relation to plant & equipment. The cash outflow in respect of restructuring programmes in the period totals £27m with £11m relating to 2016 and the remainder to costs incurred in 2015. Other exceptional items of £2m in the period relate to contingent consideration, including a fair value adjustment and unwind of the discount on the liability (recorded in finance costs).
A loss from discontinued operations in the period of £7m was recognised. The balance primarily relates to the disposal of two renewables focused operations, American Hydro Corporation and Ynfiniti Engineering Services, with a loss after tax of £1m and loss on disposal of £3m. In addition the Group recognised a charge of £4m (£3m net of tax) on reassessment of liabilities related to previous discontinued operations.
Net finance costs before exceptional items were £21m in total (2015: £20m) with the increase due to the movement in the US dollar to Sterling exchange rate.
Profit before tax from continuing operations (before exceptional items and intangibles amortisation), on a constant currency basis, decreased by 25% to £82m. On a reported basis, profit before tax (before exceptional items and intangibles amortisation) decreased by £26m on the equivalent prior year period (2015: £108m). Reported profit before tax from continuing operations decreased by £14m to £25m (2015: £39m).
The tax charge for the period of £18m (2015: £26m) on profit before tax from continuing operations (before exceptional items and intangibles amortisation) of £82m (2015: £108m) represents an underlying effective tax rate of 21.9% (2015: 23.6%).
Earnings per share from continuing operations (before exceptional items and intangibles amortisation) decreased by 9.0p to 29.6p (2015: 38.6p). Reported earnings per share including exceptional items, intangibles amortisation and the impact of discontinued operations was 7.6p (2015: 17.5p).
Cash generated from total operations decreased by 34% from £202m to £133m reflecting the decline in operating profit but represented an EBITDA to cash conversion ratio of 103% (2015: 124%). Working capital cash inflows were £6m (2015: inflow of £39m) with good progress in inventory management, particularly in Oil & Gas. Free cash flow from continuing operations was an inflow of £46m (2015: £59m).
Net debt at the half year increased to £853m (December 2015: £825m). The movement in the period includes the impact of the cash consideration from disposal of non-core renewable assets of £35m. This was more than offset by the adverse foreign exchange translational impact of £66m, following the depreciation of Sterling at the end of the period. Cash dividend payments were £30m lower than the prior year period as a result of the strong take up of the scrip dividend alternative. The ratio of net debt to EBITDA on a covenant basis was 2.8 times, compared to a covenant of 3.5 times.
Net capital expenditure was lower than the prior year period at £34m (2015: £41m) with spend remaining largely limited to areas of safety or key strategic projects.
Return on capital employed of 8.4% for the 12 months ended 30 June 2016 (on a constant currency and like for like basis, excluding Delta Valves) was down on the prior year period reflecting current market conditions (2015: 13.7%).
Dividend: The Board has decided to hold the interim dividend flat at 15.0p (2015: 15.0p). The interim dividend will be paid on 4 November 2016 to shareholders on the register on 23 September 2016. As approved at the 2016 Annual General Meeting, a scrip dividend alternative will be offered. The scrip price will be announced on 29 September 2016 and the last date for elections is 21 October 2016.
Asset disposal programme update
The Group remains on track to deliver up to £100m from its programme of disposing non-core businesses and properties. In the period the Group completed the sale of its renewables focused businesses (American Hydro Corporation and Ynfiniti Engineering Services) for a combined initial consideration of £39m, increasing to up to £41m subject to certain conditions being satisfied. In July, the Group signed an agreement to dispose of a property for £7m with completion expected in the third quarter of 2016 and expects further transactions during the remainder of the year.
Board and management changes
Group Finance Director Jon Stanton will succeed Keith Cochrane as Chief Executive from 1 October 2016. He will step down from the Board at the end of September, having ensured a smooth handover, and will remain on hand to assist until the end of December 2016, when his employment with the Company will end. In addition, as previously announced, Dean Jenkins, Chief Operating Officer, will step down from the Board in September and will leave the Group at the end of 2016. His responsibilities will be distributed amongst the other Group Executive members.
Principal risks and uncertainties
On the 23 June the United Kingdom electorate voted to leave the European Union. The UK government has yet to trigger Article 50, which would begin a two-year period of negotiation. At this point it is unclear what precise impacts this may or may not have on the Group. In 2015, c.2% of the Group's revenues were generated by exports from the UK to the EU. The other principal risks and uncertainties affecting the business activities of the Group remain those listed below and detailed on pages 20 to 29 of the 2015 Annual report, a copy of which is available on the Group website at www.global.weir. The Board considers that combined these remain a current reflection of the risks and uncertainties facing the business for the remaining six months of the financial year.
- Global economic conditions
- Technology and innovation
- Political and social risk
- Supply chain management
- Environment, health and safety (EHS)
- Contract risk
- IT security and continuity
- Cost competitiveness
- Ethics and governance
- Staff recruitment, development and retention
Appendix 1 - 2015 / 2016 quarterly input trends
| Reported growth1 | Like-for-like growth2 | |||||||||||
| Division | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | ||||
| Original Equipment | 24% | -33% | 15% | 13% | 11% | -44% | 11% | 9% | ||||
| Aftermarket | -9% | -8% | -11% | 0% | -11% | -8% | -11% | 0% | ||||
| Minerals | 1% | -16% | -4% | 4% | -4% | -20% | -5% | 2% | ||||
| Original Equipment | -68% | -77% | -40% | -37% | -68% | -77% | -40% | -37% | ||||
| Aftermarket | -59% | -53% | -49% | -37% | -59% | -53% | -49% | -37% | ||||
| Oil & Gas | -61% | -59% | -47% | -37% | -61% | -59% | -47% | -37% | ||||
| Original Equipment | -19% | 3% | -32% | 10% | -19% | 3% | -32% | 10% | ||||
| Aftermarket | -3% | -2% | -17% | -16% | -3% | -2% | -17% | -16% | ||||
| Flow Control | -13% | 1% | -26% | -4% | -13% | 1% | -26% | -4% | ||||
| Original Equipment | -21% | -38% | -12% | 3% | -25% | -42% | -14% | 1% | ||||
| Aftermarket | -33% | -29% | -26% | -14% | -34% | -30% | -26% | -14% | ||||
| Continuing Ops | -29% | -32% | -22% | -9% | -31% | -34% | -23% | -9% | ||||
1 Continuing operations (excludes American Hydro Corporation and Ynfiniti Engineering Services which were disposed of in the period)
2 Like-for-like excludes the impact of acquisitions and related transaction and integration costs. Trio Engineered Products was acquired on 22 October 2014 and Delta Valves was acquired on 8 July 2015.
| Consolidated Income Statement | |||||||||
| for the period ended 30 June 2016 | |||||||||
| Period ended 30 June 2016 | Period ended 3 July 2015 | ||||||||
| Restated (note 1) | |||||||||
| 52 weeks ended | Before exceptional items & intangibles amortisation | Exceptional items & intangibles amortisation (note 3) | Total | Before exceptional items & intangibles amortisation | Exceptional items & intangibles amortisation (note 3) | Total | |||
| 1 January 2016 | |||||||||
| Restated (note 1) | |||||||||
| Total | |||||||||
| £m | Notes | £m | £m | £m | £m | £m | £m | ||
| Continuing operations | |||||||||
| 1,879.8 | Revenue | 2 | 866.1 | - | 866.1 | 981.3 | - | 981.3 | |
| Continuing operations | |||||||||
| (141.4) | Operating profit (loss) before share of results of joint ventures | 99.5 | (54.3) | 45.2 | 124.4 | (67.3) | 57.1 | ||
| 8.3 | Share of results of joint ventures | 3.5 | - | 3.5 | 4.0 | - | 4.0 | ||
| (133.1) | Operating profit (loss) | 2 | 103.0 | (54.3) | 48.7 | 128.4 | (67.3) | 61.1 | |
| (42.6) | Finance costs | (22.4) | (1.9) | (24.3) | (20.0) | (1.8) | (21.8) | ||
| 4.7 | Finance income | 2.6 | - | 2.6 | 1.3 | - | 1.3 | ||
| (3.3) | Other finance costs - retirement benefits | (1.6) | - | (1.6) | (1.6) | - | (1.6) | ||
| (174.3) | Profit (loss) before tax from continuing operations | 81.6 | (56.2) | 25.4 | 108.1 | (69.1) | 39.0 | ||
| 17.7 | Tax (expense) credit | 4 | (17.9) | 16.3 | (1.6) | (25.5) | 24.1 | (1.4) | |
| (156.6) | Profit (loss) for the period from continuing operations | 63.7 | (39.9) | 23.8 | 82.6 | (45.0) | 37.6 | ||
| (22.4) | (Loss) profit for the period from discontinued operations | 5 | (0.9) | (6.4) | (7.3) | 0.1 | (0.2) | (0.1) | |
| (179.0) | Profit (loss) for the period | 62.8 | (46.3) | 16.5 | 82.7 | (45.2) | 37.5 | ||
| Attributable to: | |||||||||
| (178.7) | Equity holders of the Company | 62.5 | (46.3) | 16.2 | 82.5 | (45.2) | 37.3 | ||
| (0.3) | Non-controlling interests | 0.3 | - | 0.3 | 0.2 | - | 0.2 | ||
| (179.0) | 62.8 | (46.3) | 16.5 | 82.7 | (45.2) | 37.5 | |||
| Earnings (loss) per share | 6 | ||||||||
| (83.6p) | Basic - total operations | 7.6p | 17.5p | ||||||
| (73.1p) | Basic - continuing operations | 29.6p | 11.0p | 38.6p | 17.5p | ||||
| (83.6p) | Diluted - total operations | 7.5p | 17.4p | ||||||
| (73.1p) | Diluted - continuing operations | 29.4p | 10.9p | 38.5p | 17.4p | ||||
| Consolidated Statement of Comprehensive Income | |||||
| for the period ended 30 June 2016 | |||||
| 52 weeks ended | Period ended | Period ended | |||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | |||
| £m | Note | £m | £m | ||
| (179.0) | Profit (loss) for the period | 16.5 | 37.5 | ||
| Other comprehensive income (expense) | |||||
| (2.8) | Gains (losses) taken to equity on cash flow hedges | 0.4 | (0.5) | ||
| (13.0) | Exchange gains (losses) on translation of foreign operations | 224.9 | (76.6) | ||
| - | Reclassification of exchange gains on discontinued operations | 0.8 | - | ||
| (16.5) | Exchange (losses) gains on net investment hedges | (69.6) | 14.4 | ||
| 1.6 | Reclassification adjustments on cash flow hedges | 1.4 | (0.4) | ||
| 1.2 | Tax relating to other comprehensive income (expense) to be reclassified in subsequent periods | 4.7 | - | ||
| (29.5) | Items that are or may be reclassified to profit or loss in subsequent periods | 162.6 | (63.1) | ||
| 13.5 | Remeasurements on defined benefit plans | 11 | (40.8) | 7.3 | |
| (2.1) | Tax relating to other comprehensive (expense) income not to be reclassified in subsequent periods | 8.2 | (1.5) | ||
| 11.4 | Items that will not be reclassified to profit or loss in subsequent periods | (32.6) | 5.8 | ||
| (18.1) | Net other comprehensive income (expense) | 130.0 | (57.3) | ||
| (197.1) | Total net comprehensive income (expense) for the period | 146.5 | (19.8) | ||
| Attributable to: | |||||
| (196.5) | Equity holders of the Company | 144.1 | (19.5) | ||
| (0.6) | Non-controlling interests | 2.4 | (0.3) | ||
| (197.1) | 146.5 | (19.8) | |||
| Total comprehensive income (expense) for the period attributable to equity holders of the Company | |||||
| (174.0) | Continuing operations | 150.5 | (18.7) | ||
| (22.5) | Discontinued operations | (6.4) | (0.8) | ||
| (196.5) | 144.1 | (19.5) | |||
Consolidated Balance Sheet | |||||
| at 30 June 2016 | |||||
| 1 January 2016 | |||||
| Restated (note 1) | 30 June 2016 | 3 July 2015 | |||
| £m | Notes | £m | £m | ||
| ASSETS | |||||
| Non-current assets | |||||
| 388.3 | Property, plant & equipment | 413.4 | 403.4 | ||
| 1,411.8 | Intangible assets | 1,542.8 | 1,582.0 | ||
| 33.4 | Investments in joint ventures | 39.6 | 31.8 | ||
| 20.2 | Deferred tax assets | 37.5 | 25.7 | ||
| 22.3 | Other receivables | 22.3 | 22.3 | ||
| 8.2 | Retirement benefit plan assets | 11 | 7.1 | 3.8 | |
| 8.5 | Derivative financial instruments | 12 | 0.3 | 9.1 | |
| 1,892.7 | Total non-current assets | 2,063.0 | 2,078.1 | ||
| Current assets | |||||
| 478.7 | Inventories | 524.6 | 530.2 | ||
| 444.7 | Trade & other receivables | 450.8 | 429.7 | ||
| 28.5 | Construction contracts | 29.0 | 24.5 | ||
| 14.2 | Derivative financial instruments | 12 | 49.0 | 12.8 | |
| 29.1 | Income tax receivable | 17.6 | 22.2 | ||
| 184.0 | Cash & short-term deposits | 211.0 | 233.5 | ||
| 1,179.2 | Total current assets | 1,282.0 | 1,252.9 | ||
| 3,071.9 | Total assets | 3,345.0 | 3,331.0 | ||
| LIABILITIES | |||||
| Current liabilities | |||||
| 195.6 | Interest-bearing loans & borrowings | 217.2 | 160.5 | ||
| 459.8 | Trade & other payables | 470.1 | 450.0 | ||
| 8.9 | Construction contracts | 5.4 | 7.6 | ||
| 14.1 | Derivative financial instruments | 12 | 53.5 | 14.8 | |
| 31.6 | Income tax payable | 30.0 | 30.9 | ||
| 70.3 | Provisions | 9 | 64.0 | 54.9 | |
| 780.3 | Total current liabilities | 840.2 | 718.7 | ||
| Non-current liabilities | |||||
| 813.4 | Interest-bearing loans & borrowings | 847.2 | 889.7 | ||
| 22.6 | Other payables | 27.3 | 21.8 | ||
| 5.8 | Derivative financial instruments | 12 | 13.8 | 2.8 | |
| 46.7 | Provisions | 9 | 51.9 | 48.0 | |
| 115.3 | Deferred tax liabilities | 116.4 | 157.9 | ||
| 90.0 | Retirement benefit plan deficits | 11 | 132.6 | 91.9 | |
| 1,093.8 | Total non-current liabilities | 1,189.2 | 1,212.1 | ||
| 1,874.1 | Total liabilities | 2,029.4 | 1,930.8 | ||
| 1,197.8 | NET ASSETS | 1,315.6 | 1,400.2 | ||
| CAPITAL & RESERVES | |||||
| 26.8 | Share capital | 27.2 | 26.8 | ||
| 38.0 | Share premium | 67.3 | 38.0 | ||
| 9.4 | Merger reserve | 9.4 | - | ||
| (5.8) | Treasury shares | (5.9) | (5.8) | ||
| 0.5 | Capital redemption reserve | 0.5 | 0.5 | ||
| (41.8) | Foreign currency translation reserve | 117.3 | (74.3) | ||
| (2.0) | Hedge accounting reserve | (0.6) | (2.9) | ||
| 1,166.5 | Retained earnings | 1,088.8 | 1,411.4 | ||
| 1,191.6 | Shareholders' equity | 1,304.0 | 1,393.7 | ||
| 6.2 | Non-controlling interests | 11.6 | 6.5 | ||
| 1,197.8 | TOTAL EQUITY | 1,315.6 | 1,400.2 | ||
Consolidated Cash Flow Statement | |||||
| for the period ended 30 June 2016 | |||||
| 52 weeks ended | Period ended | Period ended | |||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | |||
| £m | Notes | £m | £m | ||
| Cash flows from operating activities | 13 | ||||
| 396.5 | Cash generated from operations | 133.0 | 201.8 | ||
| (2.6) | Additional pension contributions paid | - | - | ||
| (33.4) | Exceptional cash items | (30.5) | (16.1) | ||
| (50.4) | Income tax received (paid) | 2.1 | (25.0) | ||
| 310.1 | Net cash generated from operating activities | 104.6 | 160.7 | ||
| Cash flows from investing activities | |||||
| (14.1) | Acquisitions of subsidiaries | 13 | (7.1) | (1.2) | |
| (92.1) | Purchases of property, plant & equipment and intangible assets | (34.1) | (42.7) | ||
| 4.4 | Other proceeds from sale of property, plant & equipment and intangible assets | 0.6 | 2.0 | ||
| - | Disposals of discontinued operations, net of cash disposed | 13 | 30.8 | - | |
| 3.9 | Interest received | 2.4 | 1.3 | ||
| 10.0 | Dividends received from joint ventures | 1.1 | 5.4 | ||
| (87.9) | Net cash used in investing activities | (6.3) | (35.2) | ||
| Cash flows from financing activities | |||||
| 541.9 | Proceeds from borrowings | 143.7 | 239.3 | ||
| (591.2) | Repayments of borrowings | (184.6) | (216.9) | ||
| (1.2) | Settlement of external debt of subsidiary on acquisition | - | - | ||
| (1.7) | Settlement of derivative financial instruments | (4.8) | (1.4) | ||
| (41.8) | Interest paid | (21.7) | (20.8) | ||
| (94.0) | Dividends paid to equity holders of the Company | 7 | (32.4) | (61.9) | |
| - | Purchase of shares for LTIP & other awards | (0.1) | - | ||
| (188.0) | Net cash used in financing activities | (99.9) | (61.7) | ||
| 34.2 | Net increase in cash & cash equivalents | (1.6) | 63.8 | ||
| 166.6 | Cash & cash equivalents at the beginning of the period | 179.3 | 166.6 | ||
| (21.5) | Foreign currency translation differences | 31.3 | (13.9) | ||
| 179.3 | Cash & cash equivalents at the end of the period | 13 | 209.0 | 216.5 | |
| The cash flows from discontinued operations included above are disclosed separately in note 5. | |||||
| Consolidated Statement of Changes in Equity | |||||||||||
| for the period ended 30 June 2016 | |||||||||||
| Share capital | Share premium | Merger reserve | Treasury shares | Capital redemption reserve | Foreign currency trans- lation reserve | Hedge accounting reserve | Retained earnings | Attribut- able to equity holders of the Company | Non- controlling interests | Total equity | |
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |
| At 2 January 2015 | 26.8 | 38.0 | - | (5.8) | 0.5 | (12.6) | (2.0) | 1,430.5 | 1,475.4 | 6.8 | 1,482.2 |
| Profit for the period | - | - | - | - | - | - | - | 37.3 | 37.3 | 0.2 | 37.5 |
| Losses taken to equity on cash flow hedges | - | - | - | - | - | - | (0.5) | - | (0.5) | - | (0.5) |
| Exchange losses on translation of foreign operations | - | - | - | - | - | (76.1) | - | - | (76.1) | (0.5) | (76.6) |
| Exchange gains on net investment hedges | - | - | - | - | - | 14.4 | - | - | 14.4 | - | 14.4 |
| Remeasurements on defined benefit plans | - | - | - | - | - | - | - | 7.3 | 7.3 | - | 7.3 |
| Reclassification adjustments taken to the income statement on cash flow hedges | - | - | - | - | - | - | (0.4) | - | (0.4) | - | (0.4) |
| Tax relating to other comprehensive expense | - | - | - | - | - | - | - | (1.5) | (1.5) | - | (1.5) |
| Total net comprehensive expense for the period | - | - | - | - | - | (61.7) | (0.9) | 43.1 | (19.5) | (0.3) | (19.8) |
| Cost of share- based payments inclusive of tax charge | - | - | - | - | - | - | - | (0.3) | (0.3) | - | (0.3) |
| Dividends | - | - | - | - | - | - | - | (61.9) | (61.9) | - | (61.9) |
| At 3 July 2015 | 26.8 | 38.0 | - | (5.8) | 0.5 | (74.3) | (2.9) | 1,411.4 | 1,393.7 | 6.5 | 1,400.2 |
| At 1 January 2016 | 26.8 | 38.0 | 9.4 | (5.8) | 0.5 | (41.8) | (2.0) | 1,166.5 | 1,191.6 | 6.2 | 1,197.8 |
| Profit for the period | - | - | - | - | - | - | - | 16.2 | 16.2 | 0.3 | 16.5 |
| Gains taken to equity on cash flow hedges | - | - | - | - | - | - | 0.4 | - | 0.4 | - | 0.4 |
| Exchange gains on translation of foreign operations | - | - | - | - | - | 222.8 | - | - | 222.8 | 2.1 | 224.9 |
| Reclassification of exchange gains on discontinued operations | - | - | - | - | - | 0.8 | - | - | 0.8 | - | 0.8 |
| Exchange losses on net investment hedges | - | - | - | - | - | (69.6) | - | - | (69.6) | - | (69.6) |
| Remeasurements on defined benefit plans | - | - | - | - | - | - | - | (40.8) | (40.8) | - | (40.8) |
| Reclassification adjustments taken to the income statement on cash flow hedges | - | - | - | - | - | - | 1.4 | - | 1.4 | - | 1.4 |
| Tax relating to other comprehensive income | - | - | - | - | - | 5.1 | (0.4) | 8.2 | 12.9 | - | 12.9 |
| Total net comprehensive income for the period | - | - | - | - | - | 159.1 | 1.4 | (16.4) | 144.1 | 2.4 | 146.5 |
| Proceeds from increase in non- controlling interests | - | - | - | - | - | - | - | (3.0) | (3.0) | 3.0 | - |
| Cost of share- based payments inclusive of tax charge | - | - | - | - | - | - | - | 3.7 | 3.7 | - | 3.7 |
| Dividends | - | - | - | - | - | - | - | (62.0) | (62.0) | - | (62.0) |
| Purchase of shares* | - | - | - | (0.1) | - | - | - | - | (0.1) | - | (0.1) |
| Issue of shares | 0.4 | 29.3 | - | - | - | - | - | - | 29.7 | - | 29.7 |
| At 30 June 2016 | 27.2 | 67.3 | 9.4 | (5.9) | 0.5 | 117.3 | (0.6) | 1,088.8 | 1,304.0 | 11.6 | 1,315.6 |
| At 2 January 2015 | 26.8 | 38.0 | - | (5.8) | 0.5 | (12.6) | (2.0) | 1,430.5 | 1,475.4 | 6.8 | 1,482.2 |
| Loss for the period | - | - | - | - | - | - | - | (178.7) | (178.7) | (0.3) | (179.0) |
| Losses taken to equity on cash flow hedges | - | - | - | - | - | - | (2.8) | - | (2.8) | - | (2.8) |
| Exchange losses on translation of foreign operations | - | - | - | - | - | (12.7) | - | - | (12.7) | (0.3) | (13.0) |
| Exchange losses on net investment hedges | - | - | - | - | - | (16.5) | - | - | (16.5) | - | (16.5) |
| Remeasurements on defined benefit plans | - | - | - | - | - | - | - | 13.5 | 13.5 | - | 13.5 |
| Reclassification adjustments on cash flow hedges | - | - | - | - | - | - | 1.6 | - | 1.6 | - | 1.6 |
| Tax relating to other comprehensive expense | - | - | - | - | - | - | 1.2 | (2.1) | (0.9) | - | (0.9) |
| Total net comprehensive expense for the period | - | - | - | - | - | (29.2) | - | (167.3) | (196.5) | (0.6) | (197.1) |
| Issue of shares | - | - | 9.4 | - | - | - | - | - | 9.4 | - | 9.4 |
| Share-based payments credit inclusive of tax charge | - | - | - | - | - | - | - | (2.7) | (2.7) | - | (2.7) |
| Dividends | - | - | - | - | - | - | - | (94.0) | (94.0) | - | (94.0) |
| At 1 January 2016 | 26.8 | 38.0 | 9.4 | (5.8) | 0.5 | (41.8) | (2.0) | 1,166.5 | 1,191.6 | 6.2 | 1,197.8 |
| * These shares were purchased on the open market and are held by the Appleby EBT on behalf of the Group for satisfaction of any future vesting of the deferred bonus plan. | |||||||||||
Notes to the Financial Statements
1. Basis of preparation
These interim condensed financial statements are for the period ended 30 June 2016 and have been prepared on the basis of the accounting policies set out in the Group's 2015 Annual Report and in accordance with IAS34 "Interim Financial Reporting (Revised)" as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Services Authority. For the 52 week period ended 1 January 2016 and previous periods, the Group reported its financial statements to the week ending closest to the Company reference date of 31 December. For practical purposes, a decision has been made to alter the reporting basis to reflect a calendar year, with the next annual reporting date being 31 December 2016 and the resulting current interim financial period end being 30 June 2016. This change has not impacted the interim statement and is not expected to significantly impact the reported full year results in 2016.
These financial statements have been re-presented and restated where required as if operations discontinued during the current year had been discontinued from the start of the comparative period (note 5).
These interim condensed financial statements have been prepared on the going concern basis as the Directors, having considered available relevant information, have a reasonable expectation that the Group has adequate resources to continue to operate as a going concern.
Several new standards and amendments apply for the first time in 2016. However, they do not impact the annual consolidated financial statements or the interim condensed financial statements of the Group. The European Markets and Securities Authority has issued 'Guidelines on Alternative Performance Measures' which are effective from 3 July 2016 and which have been followed in explaining the Group's use of non-GAAP measures in this interim statement.
A resolution to appoint PricewaterhouseCoopers LLP as the Company's auditor was put to the 2016 Annual General Meeting and upheld. These interim condensed financial statements are unaudited but have been formally reviewed by our newly-appointed auditors and their report to the Company is set out on page 31. The information shown for the 52 weeks ended 1 January 2016 does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006 and has been extracted from the Group's 2015 Annual Report which has been filed with the Registrar of Companies. The report of our former auditors, Ernst & Young LLP, on the financial statements contained within the Group's 2015 Annual Report was unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006.
These interim condensed financial statements were approved by the Board of Directors on 28 July 2016.
Business combinations - update to provisional fair values
During the period ended 30 June 2016, the provisional fair values attributed to the 2015 Delta Industrial Valves, Inc. (Delta Valves) acquisition were finalised. In accordance with IFRS3 "Business Combinations", the net impact of the adjustments to the provisional fair values has been recognised by means of an increase to goodwill and the adjustments to the provisional amounts have been recognised as if the accounting for the business combination had been completed at the relevant acquisition date. As such, all affected balances and amounts have been restated in the financial statements. The table below reflects the adjustments made to finalise the Delta Valves fair values.
| Provisional | Final | ||
| fair | fair | Adjustments | |
| values | values | to fair | |
| 1 January 2016 | 1 January 2016 | values | |
| £m | £m | £m | |
| Trade & other payables | (3.1) | (3.3) | (0.2) |
| Goodwill arising on acquisition | 14.8 | 15.0 | 0.2 |
| Impact on net assets | - |
There was no impact on the Consolidated Income Statement or Consolidated Statement of Comprehensive Income as a result of the finalisation of the provisional fair values.
Non-GAAP measures
Our reported interim results are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures. We believe this information, along with comparable GAAP measurements, is useful to investors in providing a basis for measuring our operational performance. Our management uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our performance and value creation. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information in compliance with GAAP. Non-GAAP financial measures as reported by the Group may not be comparable with similarly titled amounts reported by other companies.
Below we set out our definitions of non-GAAP measures and provide reconciliations to relevant GAAP measures.
| Free cash flow | ||||
| Free cash flow (FCF) is defined as cash flow from operating activities adjusted for income taxes, net capital expenditures, net interest payments and dividends paid. FCF reflects an additional way of viewing our liquidity that we believe is useful to investors as it represents cash flows that could be used for repayment of debt or to fund our strategic initiatives, including acquisitions, if any. | ||||
| The reconciliation of cash flow from operating activities to FCF is as follows. | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| 396.5 | Cash flow from operating activities | 133.0 | 201.8 | |
| (50.4) | Income tax received (paid) | 2.1 | (25.0) | |
| (87.7) | Net capital expenditure | (33.5) | (40.7) | |
| (37.9) | Net interest paid | (19.3) | (19.5) | |
| (94.0) | Dividends paid to equity holders of the Company | (32.4) | (61.9) | |
| 10.0 | Dividends received from joint ventures | 1.1 | 5.4 | |
| (1.7) | Settlement of derivative financial instruments | (4.8) | (1.4) | |
| - | Purchase of shares for LTIP & other awards | (0.1) | - | |
| (2.6) | Additional pension contributions paid | - | - | |
| 132.2 | Free cash flow | 46.1 | 58.7 | |
| 1. Basis of preparation (continued) | ||||
| EBITDA | ||||
| EBITDA is operating profit from continuing operations, before exceptional items and intangibles amortisation, excluding depreciation. EBITDA is used in conjunction with other GAAP and non-GAAP financial measures to assess our operating performance. A reconciliation of EBITDA to the closest equivalent GAAP measure, operating profit, is provided. | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| Restated (note 1) | Restated (note 1) | |||
| £m | £m | £m | ||
| Continuing operations | ||||
| (133.1) | Operating profit (loss) | 48.7 | 61.1 | |
| Adjusted for: | ||||
| 51.8 | Intangibles amortisation | 23.8 | 24.3 | |
| 338.8 | Exceptional items | 30.5 | 43.0 | |
| 62.0 | Depreciation of property, plant & equipment | 26.6 | 33.5 | |
| 319.5 | EBITDA | 129.6 | 161.9 | |
| Net debt | ||||
| A reconciliation of Net debt to Cash & short-term deposits and Interest-bearing loans & borrowings is provided in Note 13. | ||||
2. Segment information
For strategic reasons, the Group has re-organised into three operating divisions: Minerals, Oil & Gas and Flow Control. These three divisions are organised and managed separately based on the key markets served and each is treated as an operating segment and a reportable segment under IFRS8. The operating and reportable segments were determined based on the reports reviewed by the Chief Executive which are used to make operational decisions.
The Minerals segment is the global leader in the provision of slurry handling equipment and associated aftermarket support for abrasive high wear applications used in the mining and oil sands markets. The Oil & Gas segment provides products and service solutions to upstream, production, transportation, refining and related industries. The Flow Control segment designs and manufactures valves and pumps as well as providing specialist support services to the global power generation, industrial and oil and gas sectors.
The Group was previously organised into three operating divisions (Minerals, Oil & Gas and Power & Industrial) and the comparative information has been restated to reflect the change in management structure.
The Chief Executive assesses the performance of the operating segments based on operating profit from continuing operations before exceptional items (including impairments) and intangibles amortisation ('segment result'). Finance income and expenditure and associated interest-bearing liabilities and derivative financial instruments are not allocated to segments as all treasury activity is managed centrally by the Group treasury function. The amounts provided to the Chief Executive with respect to assets and liabilities are measured in a manner consistent with that of the financial statements. The assets are allocated based on the operations of the segment and the physical location of the asset. The liabilities are allocated based on the operations of the segment.
Transfer prices between segments are set on an arm's length basis, in a manner similar to transactions with third parties.
The segment information for the reportable segments for the period ended 30 June 2016, the period ended 3 July 2015 and the 52 weeks ended 1 January 2016 is disclosed below.
| Minerals | Oil & Gas | Flow Control | Total continuing operations | |||||
| Restated (note 1) | Restated (note 1) | Restated (note 1) | Restated (note 1) | |||||
| 30 June 2016 | 3 July 2015 | 30 June 2016 | 3 July 2015 | 30 June 2016 | 3 July 2015 | 30 June 2016 | 3 July 2015 | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Revenue | ||||||||
| Sales to external customers | 524.9 | 507.3 | 182.6 | 320.4 | 158.6 | 153.6 | 866.1 | 981.3 |
| Inter-segment sales | 2.8 | 1.5 | 5.7 | 5.9 | 6.9 | 8.1 | 15.4 | 15.5 |
| Segment revenue | 527.7 | 508.8 | 188.3 | 326.3 | 165.5 | 161.7 | 881.5 | 996.8 |
| Eliminations | (15.4) | (15.5) | ||||||
| 866.1 | 981.3 | |||||||
| Sales to external customers - 2015 at 2016 average exchange rates | ||||||||
| Sales to external customers | 524.9 | 502.5 | 182.6 | 337.5 | 158.6 | 158.2 | 866.1 | 998.2 |
| Segment result | ||||||||
| Segment result before share of results of joint ventures | 102.2 | 91.5 | (5.0) | 32.4 | 13.9 | 11.6 | 111.1 | 135.5 |
| Share of results of joint ventures | - | - | 3.5 | 4.0 | - | - | 3.5 | 4.0 |
| Segment result | 102.2 | 91.5 | (1.5) | 36.4 | 13.9 | 11.6 | 114.6 | 139.5 |
| Unallocated expenses | (11.6) | (11.1) | ||||||
| Operating profit before exceptional items & intangibles amortisation | 103.0 | 128.4 | ||||||
| Total exceptional items & intangibles amortisation | (56.2) | (69.1) | ||||||
| Net finance costs before exceptional items | (19.8) | (18.7) | ||||||
| Other finance costs - retirement benefits | (1.6) | (1.6) | ||||||
| Profit before tax from continuing operations | 25.4 | 39.0 | ||||||
| Segment result - 2015 at 2016 average exchange rates | ||||||||
| Segment result before share of results of joint ventures | 102.2 | 92.4 | (5.0) | 34.0 | 13.9 | 11.9 | 111.1 | 138.3 |
| Share of results of joint ventures | - | - | 3.5 | 4.2 | - | - | 3.5 | 4.2 |
| Segment result | 102.2 | 92.4 | (1.5) | 38.2 | 13.9 | 11.9 | 114.6 | 142.5 |
| Unallocated expenses | (11.6) | (11.1) | ||||||
| Operating profit before exceptional items & intangibles amortisation | 103.0 | 131.4 | ||||||
| Total Group | ||||||||
| Assets & liabilities | ||||||||
| Intangible assets | 617.7 | 518.8 | 766.4 | 891.5 | 113.6 | 152.0 | 1,497.7 | 1,562.3 |
| Property, plant & equipment | 215.6 | 196.1 | 119.0 | 140.4 | 74.2 | 50.4 | 408.8 | 386.9 |
| Working capital assets | 484.1 | 434.0 | 274.3 | 318.5 | 248.7 | 225.8 | 1,007.1 | 978.3 |
| 1,317.4 | 1,148.9 | 1,159.7 | 1,350.4 | 436.5 | 428.2 | 2,913.6 | 2,927.5 | |
| Investments in joint ventures | - | - | 39.6 | 31.8 | - | - | 39.6 | 31.8 |
| Segment assets | 1,317.4 | 1,148.9 | 1,199.3 | 1,382.2 | 436.5 | 428.2 | 2,953.2 | 2,959.3 |
| Unallocated assets | 391.8 | 371.7 | ||||||
| Total assets | 3,345.0 | 3,331.0 | ||||||
| Working capital liabilities | 271.0 | 237.7 | 106.4 | 116.3 | 163.2 | 141.4 | 540.6 | 495.4 |
| Unallocated liabilities | 1,488.8 | 1,435.4 | ||||||
| Total liabilities | 2,029.4 | 1,930.8 | ||||||
Unallocated assets primarily comprise cash and short-term deposits, derivative financial instruments, income tax receivable, deferred tax assets and retirement benefit surpluses as well as those assets which are used for general head office purposes. Unallocated liabilities primarily comprise interest-bearing loans and borrowings, derivative financial instruments, income tax payable, provisions, deferred tax liabilities and retirement benefit deficits as well as liabilities relating to head office activities.
| 2. Segment information (continued) | ||||
| 52 weeks ended 1 January 2016 restated (note 1) | Minerals | Oil & Gas | Flow Control | Total continuing operations |
| £m | £m | £m | £m | |
| Revenue | ||||
| Sales to external customers | 1,000.8 | 541.4 | 337.6 | 1,879.8 |
| Inter-segment sales | 4.4 | 13.5 | 15.5 | 33.4 |
| Segment revenue | 1,005.2 | 554.9 | 353.1 | 1,913.2 |
| Eliminations | (33.4) | |||
| 1,879.8 | ||||
| Sales to external customers - 2015 at 2016 average exchange rates | ||||
| Sales to external customers | 1,025.1 | 572.9 | 352.4 | 1,950.4 |
| Segment result | ||||
| Segment result before share of results of joint ventures | 192.4 | 43.5 | 32.2 | 268.1 |
| Share of results of joint ventures | - | 8.3 | - | 8.3 |
| Segment result | 192.4 | 51.8 | 32.2 | 276.4 |
| Unallocated expenses | (18.8) | |||
| Operating profit before exceptional items & intangibles amortisation | 257.6 | |||
| Total exceptional items & intangibles amortisation | (393.1) | |||
| Net finance costs before exceptional items | (35.5) | |||
| Other finance costs - retirement benefits | (3.3) | |||
| Loss before tax from continuing operations | (174.3) | |||
| Segment result - 2015 at 2016 average exchange rates | ||||
| Segment result before share of results of joint ventures | 200.1 | 46.3 | 34.0 | 280.4 |
| Share of results of joint ventures | - | 8.8 | - | 8.8 |
| Segment result | 200.1 | 55.1 | 34.0 | 289.2 |
| Unallocated expenses | (18.9) | |||
| Operating profit before exceptional items & intangibles amortisation | 270.3 | |||
| Total Group | ||||
| Assets & liabilities | ||||
| Intangible assets | 562.0 | 776.3 | 130.0 | 1,468.3 |
| Property, plant & equipment | 191.6 | 115.6 | 61.5 | 368.7 |
| Working capital assets | 422.9 | 277.4 | 245.8 | 946.1 |
| 1,176.5 | 1,169.3 | 437.3 | 2,783.1 | |
| Investments in joint ventures | - | 33.4 | - | 33.4 |
| Segment assets | 1,176.5 | 1,202.7 | 437.3 | 2,816.5 |
| Unallocated assets | 255.4 | |||
| Total assets | 3,071.9 | |||
| Working capital liabilities | 254.8 | 124.3 | 181.5 | 560.6 |
| Unallocated liabilities | 1,313.5 | |||
| Total liabilities | 1,874.1 | |||
3. Exceptional items & intangibles amortisation | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| Recognised in arriving at operating profit from continuing operations | ||||
| (51.8) | Intangibles amortisation | (23.8) | (24.3) | |
| (225.5) | Exceptional item - intangibles impairment | - | - | |
| (116.4) | Exceptional item - restructuring and rationalisation charges | (30.6) | (47.0) | |
| (2.4) | Exceptional item - charging of fair value inventory uplift | - | (1.1) | |
| 3.8 | Exceptional item - release of expired indemnity provisions for LGE Process disposal | - | 3.8 | |
| - | Exceptional item - release of contingent consideration liability | - | 1.3 | |
| 1.7 | Exceptional item - fair value adjustment to contingent consideration liability | 0.1 | - | |
| (390.6) | (54.3) | (67.3) | ||
| Recognised in finance costs | ||||
| (2.4) | Exceptional item - unwind in respect of contingent consideration liability | (1.9) | (1.8) | |
| (2.4) | (1.9) | (1.8) | ||
Restructuring and rationalisation charges represent the committed cost of on-going programmes to right size operations and discontinue certain activities in light of the prolonged downturn across the Group's major end markets.
The total continuing operations exceptional cost of £30.6m comprises £22.5m of cash restructuring costs, an impairment charge of £1.0m relating to inventory, £3.1m relating to receivables and £4.0m in relation to plant & equipment. The cash outflow in respect of restructuring programmes in the period totals £26.5m with £10.9m relating to 2016 and the remainder to costs incurred in 2015.
The other exceptional items in the period relate to contingent consideration, including a fair value adjustment and the unwind of discount on the liability.
Exceptional costs arising on discontinued operations are summarised in note 5.
| 4. Tax expense | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| Restated (note 1) | Restated (note 1) | |||
| £m | £m | £m | ||
| Continuing operations | ||||
| (6.5) | Group - UK | 1.3 | (3.0) | |
| 24.2 | Group - overseas | (2.9) | 1.6 | |
| 17.7 | Total income tax (expense) credit in the Consolidated Income Statement | (1.6) | (1.4) | |
| The total income tax (expense) credit is disclosed in the Consolidated Income Statement as follows: | ||||
| (52.3) | - continuing operations before exceptional items & intangibles amortisation | (17.9) | (25.5) | |
| 32.2 | - exceptional items | 8.3 | 17.0 | |
| 37.8 | - intangibles amortisation and impairment | 8.0 | 7.1 | |
| 17.7 | Total income tax (expense) credit in the Consolidated Income Statement | (1.6) | (1.4) | |
| (1.6) | Total income tax expense included in the Group's share of results of joint ventures | (0.8) | (1.3) | |
| The underlying effective tax rate for the full financial year 2016 is estimated at 21.9% (full year 2015: 23.9%), based on the weighted average across all jurisdictions. Therefore the underlying effective tax rate used for the half year 2016 was 21.9% (half year 2015: 23.6%). | ||||
5. Discontinued operations | ||||||||||
| Description | ||||||||||
| On 24 February 2016, the Group announced its intention to sell its non-core renewable assets within the Flow Control division: principally Ynfiniti Engineering Services SL and American Hydro Corporation. The Group initiated an active programme to sell these businesses and the associated assets and liabilities were consequently accounted for as held for sale. | ||||||||||
| The Group disposed of Ynfiniti Engineering Services (31 May 2016), American Hydro Corporation and the trade and assets of the Montreal business of Weir Canada Inc. (30 June 2016) for a combined consideration of £38.6m of which £3.8m will be held in escrow for one year. In addition, there is a maximum contingent consideration of £1.9m and based on current expectations we have recorded £0.8m. Their results are presented in this interim information as discontinued operations. | ||||||||||
| Financial information relating to the discontinued operations for the period to the date of disposal is set out in the table below. Comparative figures have been restated accordingly. The exceptional items and intangibles amortisation recognised in the 52 weeks ended 1 January 2016 relate to impairment of goodwill of £25.9m and intangibles amortisation of £0.7m. | ||||||||||
| There were no disposals of core businesses during the prior period. | ||||||||||
| Exceptional items and intangibles amortisation in the current period relate to intangibles amortisation of £0.1m (2015: £0.4m) and a charge of £4.0m in the current year for reassessment of liabilities related to previous disposals. | ||||||||||
| Financial performance and cash flow information for discontinued operations | ||||||||||
| 52 weeks ended 1 January 2016 Total | Period ended 30 June 2016 | Period ended 3 July 2015 | ||||||||
| Before exceptional items & intangibles amortisation | Exceptional items & intangibles amortisation | Total | Before exceptional items & intangibles amortisation | Exceptional items & intangibles amortisation | Total | |||||
| £m | £m | £m | £m | £m | £m | £m | ||||
| Discontinued operations | ||||||||||
| 37.9 | Revenue | 18.2 | - | 18.2 | 18.4 | - | 18.4 | |||
| Discontinued operations | ||||||||||
| (25.2) | Operating profit (loss) | 0.3 | (4.1) | (3.8) | 0.3 | (0.4) | (0.1) | |||
| (0.3) | Finance costs | - | - | - | (0.2) | - | (0.2) | |||
| (25.5) | Profit (loss) before tax from discontinued operations | 0.3 | (4.1) | (3.8) | 0.1 | (0.4) | (0.3) | |||
| 3.1 | Tax (expense) credit | (1.2) | 0.8 | (0.4) | - | 0.2 | 0.2 | |||
| (22.4) | (Loss) profit after tax from discontinued operations | (0.9) | (3.3) | (4.2) | 0.1 | (0.2) | (0.1) | |||
| - | Loss on sale of the subsidiaries after income tax (see below) | - | (3.1) | (3.1) | - | - | - | |||
| (22.4) | (Loss) profit for the period from discontinued operations | (0.9) | (6.4) | (7.3) | 0.1 | (0.2) | (0.1) | |||
| - | Reclassification of foreign currency translation reserve | 0.8 | - | 0.8 | - | - | - | |||
| - | Other comprehensive income from discontinued operations | 0.8 | - | 0.8 | - | - | - | |||
| 52 weeks ended | Period ended | Period ended | ||||||||
| 1 January 2016 | 30 June 2016 | 30 June 2016 | ||||||||
| £m | £m | £m | ||||||||
| 2.4 | Cash flows from operating activities | (4.3) | 1.2 | |||||||
| (0.4) | Cash flows from investing activities | (0.4) | (0.5) | |||||||
| 2.0 | Net (decrease) increase in cash and cash equivalents from discontinued operations | (4.7) | 0.7 | |||||||
| Details of the sale of the subsidiaries | ||||||||||
| 30 June 2016 | ||||||||||
| £m | ||||||||||
| Consideration received | ||||||||||
| Cash received | 34.8 | |||||||||
| Cash in escrow | 3.8 | |||||||||
| Contingent consideration | 0.8 | |||||||||
| Total disposal consideration | 39.4 | |||||||||
| Carrying amount of net assets sold | (46.6) | |||||||||
| Costs of disposal | (0.6) | |||||||||
| Loss on sale before income tax and reclassification of foreign currency translation reserve | (7.8) | |||||||||
| Reclassification of foreign currency translation reserve | (0.8) | |||||||||
| Income tax credit on loss | 5.5 | |||||||||
| Loss on sale after income tax | (3.1) | |||||||||
| The carrying amount of assets and liabilities as at the date of sale were: | ||||||||||
| 30 June 2016 | ||||||||||
| £m | ||||||||||
| Property, plant & equipment | 17.2 | |||||||||
| Intangible assets | 21.1 | |||||||||
| Inventories | 0.9 | |||||||||
| Trade & other receivables | 10.9 | |||||||||
| Cash & short-term deposits | 4.0 | |||||||||
| Trade & other payables | (7.1) | |||||||||
| Provisions | (0.4) | |||||||||
| Net assets | 46.6 | |||||||||
| Loss per share | ||||||||||
| Loss per share from discontinued operations were as follows. | ||||||||||
| 52 weeks ended | Period ended | Period ended | ||||||||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||||||||
| pence | pence | pence | ||||||||
| (10.5) | Basic | (3.4) | nil | |||||||
| (10.5) | Diluted | (3.4) | nil | |||||||
| These earnings per share figures were derived by dividing the net profit attributable to equity holders of the Company from discontinued operations by the weighted average number of ordinary shares, for both basic and diluted amounts, shown in note 6. | ||||||||||
| 6. Earnings (loss) per share | |||||
| Basic earnings per share amounts are calculated by dividing net profit for the period attributable to 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 equity holders of the Company by the weighted average number of ordinary shares outstanding during the period (adjusted for the effects of dilutive share awards). | |||||
| The following reflects the earnings and share data used in the calculation of earnings per share. | |||||
| 52 weeks ended | Period ended | Period ended | |||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | |||
| Restated (note 1) | Restated (note 1) | ||||
| Profit (loss) attributable to equity holders of the Company | |||||
| (178.7) | Total operations* (£m) | 16.2 | 37.3 | ||
| (156.3) | Continuing operations* (£m) | 23.5 | 37.4 | ||
| 166.7 | Continuing operations before exceptional items & intangibles amortisation* (£m) | 63.4 | 82.4 | ||
| Weighted average share capital | |||||
| 213.7 | Basic earnings per share (number of shares, million) | 214.3 | 213.4 | ||
| 213.7 | Diluted earnings per share (number of shares, million) | 215.6 | 214.1 | ||
| The difference between the weighted average share capital for the purposes of the basic and the diluted earnings per share calculations is analysed as follows. | |||||
| 52 weeks ended | Period ended | Period ended | |||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | |||
| Shares | Shares | Shares | |||
| Million | Million | Million | |||
| 213.7 | Weighted average number of ordinary shares for basic earnings per share | 214.3 | 213.4 | ||
| - | Effect of dilution: LTIP awards and deferred bonus awards | 1.3 | 0.7 | ||
| 213.7 | Adjusted weighted average number of ordinary shares for diluted earnings per share | 215.6 | 214.1 | ||
| The profit attributable to equity holders of the Company used in the calculation of both basic and diluted earnings per share from continuing operations before exceptional items and intangibles amortisation is calculated as follows. | |||||
| 52 weeks ended | Period ended | Period ended | |||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | |||
| Restated (note 1) | Restated (note 1) | ||||
| £m | £m | £m | |||
| (156.3) | Net profit (loss) attributable to equity holders from continuing operations* | 23.5 | 37.4 | ||
| 323.0 | Exceptional items & intangibles amortisation net of tax | 39.9 | 45.0 | ||
| 166.7 | Net profit attributable to equity holders from continuing operations before exceptional items & intangibles amortisation * | 63.4 | 82.4 | ||
| 52 weeks ended | Period ended | Period ended | |||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | |||
| pence | pence | pence | |||
| Restated (note 1) | Restated (note 1) | ||||
| Basic earnings (loss) per share: | |||||
| (83.6) | Total operations* | 7.6 | 17.5 | ||
| (73.1) | Continuing operations* | 11.0 | 17.5 | ||
| 78.0 | Continuing operations before exceptional items & intangibles amortisation* | 29.6 | 38.6 | ||
| Diluted earnings (loss) per share: | |||||
| (83.6) | Total operations* | 7.5 | 17.4 | ||
| (73.1) | Continuing operations* | 10.9 | 17.4 | ||
| 78.0 | Continuing operations before exceptional items & intangibles amortisation* | 29.4 | 38.5 | ||
| *Adjusted for £0.3m (2015: £0.2m) in respect of non-controlling interests. | |||||
| There have been no share options (2015: nil) exercised between the reporting date and the date of signing of these financial statements. | |||||
| Earnings per share from discontinued operations are disclosed in note 5. | |||||
| 7. Dividends paid & proposed | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| Declared & paid during the period | ||||
| Equity dividends on ordinary shares | ||||
| 61.9 | Final dividend for 2015: 29.0p (2014: 29.0p) | 62.0 | 61.9 | |
| 32.1 | Interim dividend: see below (2015: 15.0p) | - | - | |
| 94.0 | 62.0 | 61.9 | ||
| 62.1 | Final dividend for 2015 proposed for approval by shareholders at the AGM: 29.0p | - | - | |
| - | Interim dividend for 2016 declared by the Board: 15.0p (2015: 15.0p) | 32.5 | 32.0 | |
| For the 2015 final dividend, shareholders on record were provided the opportunity to elect to receive dividends in the form of new fully paid ordinary shares through The Weir Group PLC Scrip Dividend Scheme. Participation in the Scheme resulted in a cash dividend paid of £32.4m. | ||||
| 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. | ||||
| | ||||
| 8. Property, plant & equipment & intangible assets | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| Additions of property, plant & equipment & intangible assets | ||||
| 13.1 | Land & buildings | 11.9 | 3.5 | |
| 58.6 | Plant & equipment | 12.7 | 27.3 | |
| 18.2 | Intangible assets | 17.6 | 8.0 | |
| 89.9 | 42.2 | 38.8 | ||
| The above additions relate to the normal course of business and do not include any additions made by way of business combinations. | ||||
9. Provisions | |||||
| Warranties & onerous sales contracts | Employee related | Exceptional rationalisation | Other | Total | |
| £m | £m | £m | £m | £m | |
| At 1 January 2016 | 27.6 | 50.6 | 36.3 | 2.5 | 117.0 |
| Additions | 4.8 | 2.2 | 26.5 | 0.7 | 34.2 |
| Disposal of business | (0.4) | - | - | 0.1 | (0.3) |
| Utilised | (8.9) | (2.0) | (30.5) | (0.5) | (41.9) |
| Unutilised | (1.2) | 0.1 | - | - | (1.1) |
| Exchange adjustment | 2.0 | 2.1 | 3.3 | 0.6 | 8.0 |
| At 30 June 2016 | 23.9 | 53.0 | 35.6 | 3.4 | 115.9 |
| Current | 19.1 | 12.7 | 29.4 | 2.8 | 64.0 |
| Non-current | 4.8 | 40.3 | 6.2 | 0.6 | 51.9 |
| At 30 June 2016 | 23.9 | 53.0 | 35.6 | 3.4 | 115.9 |
| Current | 24.6 | 10.5 | 18.1 | 1.7 | 54.9 |
| Non-current | 5.9 | 40.9 | - | 1.2 | 48.0 |
| At 3 July 2015 | 30.5 | 51.4 | 18.1 | 2.9 | 102.9 |
| Current | 21.9 | 10.9 | 35.8 | 1.7 | 70.3 |
| Non-current | 5.7 | 39.7 | 0.5 | 0.8 | 46.7 |
| At 1 January 2016 | 27.6 | 50.6 | 36.3 | 2.5 | 117.0 |
Warranties & onerous sales contracts
Provision has been made in respect of actual warranty and contract penalty claims on goods sold and services provided and allowance has been made for potential warranty claims based on past experience for goods and services sold with a warranty guarantee. It is expected that all costs related to such claims will have been incurred within five years of the balance sheet date.
Provision has been made in respect of sales contracts entered into for the sale of goods in the normal course of business where the unavoidable costs of meeting the obligations under the contracts exceed the economic benefits expected to be received from the contracts. Provision is made immediately when it becomes apparent that expected costs will exceed the expected benefits of the contract. It is expected that the majority of these costs will be incurred within one year of the balance sheet date.
Employee related
Employee related provisions arise from legal obligations, some of which relate to compensation associated with periods of service, while others are for asbestos-related claims.
Asbestos-related claims
Certain of the Group's US-based subsidiaries are co-defendants in lawsuits pending in the United States in which plaintiffs are claiming damages arising from alleged exposure to products previously manufactured which contained asbestos. The Group has comprehensive insurance cover for these cases with all claims directly managed by the Group's insurers who also meet all associated defence costs. The insurers and their legal advisers agree and execute the defence strategy between them and there are no related cash flows to or from the Group. We expect this to continue for the foreseeable future as long as the litigation arises.
A review was completed in 2014, in conjunction with external advisers, to assess the adequacy of the Group's insurance policies to meet future settlement and defence costs. As a result of this review, a provision of £28m was recorded in 2014 with an equivalent receivable for insurance proceeds based on an estimate of settlement and defence costs for existing and projected claims received in the subsequent five year period. The cash flows associated with this claim profile have been assessed as extending to a period of 10 years from the balance sheet date and the modelling coincides with this period. During 2015, the estimates underlying the provision were reassessed and refined. The period of claims history was further analysed to improve understanding of key drivers, including the originating State of claims, average settlement and defence costs per State and the occurrence of one-off claims and/or settlements. This analysis, coupled with the further year of claims experience supported the estimates made in 2014 and therefore the same principles were used consistently to form the basis of the financial modelling in 2015.
In the current period costs have been charged against the provision however further charges have been made to reflect new claims. A provision of £28m continues to represent the Directors' best estimate of the future liability, although these estimates and the period over which they are assessed will continue to be refined over the remainder of the year as the claims history continues to build. An equivalent asset continues to be recognised for insurance proceeds.
Due to the inherent uncertainty associated with estimating future costs in respect of asbestos-related diseases, there can be no guarantee that the assumptions used to estimate the provision will result in an accurate prediction of the actual costs that may be incurred. However, we do not expect there to be a net financial exposure to the Group given the comprehensive insurance cover in place.
In the UK, there are outstanding asbestos-related claims which are not the subject of insurance cover. The Group provides for both based on management's best estimate of the likely costs given past experience of the volume and cost of similar claims brought against the Group. It is expected that these costs will be incurred in the period up to 2025.
Exceptional rationalisation
Restructuring and rationalisation charges led to additions to the provision of £26.5m during the period. The provision represents the committed cost of on-going programmes to right size operations and discontinue certain activities in light of the prolonged downturn across the Group's major end markets. The majority of the provision will be utilised in 2016.
Other
Other provisions relate to an environmental clean up programme in the United States for a company acquired in 1992, the discontinued operations and indemnity provision, and various other legal claims and exposures across the Group. The environmental provision is based on management's current best estimate of the expected costs under the programme. It is expected that these costs will be incurred in the period up to 2019.
10. Interest-bearing loans and borrowings
The Group utilises a number of sources of funding including private placement debt, Euro commercial paper issuance, revolving credit facilities and uncommitted facilities. At 30 June 2016, a total of £185.0m (2015: £71.8m) was issued under the commercial paper programme whilst £nil (2015: £165.0m) was drawn under the revolving credit facility. Total unamortised issue costs at 30 June 2016 were £3.1m (2015: £4.2m).
| 11. Pensions & other post-employment benefit plans | ||||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| 8.2 | Plans in surplus | 7.1 | 3.8 | |
| (90.0) | Plans in deficit | (132.6) | (91.9) | |
| (81.8) | Net liability | (125.5) | (88.1) | |
| The increase in net liability of £43.7m in the period ended 30 June 2016 was primarily due to losses on the liability side driven by changes in market conditions following the result of the EU referendum. This is partially offset by gains on the asset side and the charge to the Income Statement in the period. A charge of £40.8m (2015: credit of £7.3m) has been recognised in the Consolidated Statement of Comprehensive Income. | ||||
| 12. Financial instruments | ||||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| Included in non-current assets | ||||
| 0.1 | Forward foreign currency contracts designated as cash flow hedges | - | 0.1 | |
| 8.3 | Cross currency swaps designated as net investment hedges | - | 8.9 | |
| 0.1 | Other forward foreign currency contracts | 0.3 | 0.1 | |
| 8.5 | 0.3 | 9.1 | ||
| Included in current assets | ||||
| 0.2 | Forward foreign currency contracts designated as cash flow hedges | 0.4 | - | |
| 0.9 | Forward foreign currency contracts designated as net investment hedges | - | 1.3 | |
| 13.1 | Other forward foreign currency contracts | 48.6 | 11.5 | |
| 14.2 | 49.0 | 12.8 | ||
| Included in current liabilities | ||||
| (1.5) | Forward foreign currency contracts designated as cash flow hedges | (1.0) | (1.8) | |
| (4.4) | Forward foreign currency contracts designated as net investment hedges | (26.7) | (0.5) | |
| (8.2) | Other forward foreign currency contracts | (25.8) | (12.5) | |
| (14.1) | (53.5) | (14.8) | ||
| Included in non-current liabilities | ||||
| (0.9) | Forward foreign currency contracts designated as cash flow hedges | (0.4) | (0.4) | |
| (4.8) | Forward foreign currency contracts designated as net investment hedges | - | - | |
| - | Cross currency swaps designated as net investment hedges | (12.4) | (2.2) | |
| (0.1) | Other forward foreign currency contracts | (1.0) | (0.2) | |
| (5.8) | (13.8) | (2.8) | ||
| 2.8 | Net derivative financial (liabilities) assets | (18.0) | 4.3 | |
| Carrying amounts & fair values | |||||||
| Set out below is a comparison of carrying amounts and fair values of all of the Group's financial instruments that are reported in the financial statements. | |||||||
| Carrying amount | Fair value | ||||||
| 1 January 2016 | 1 January 2016 | ||||||
| Restated | Restated | Carrying amount | Fair value | Carrying amount | Fair value | ||
| (note 1) | (note 1) | 30 June 2016 | 30 June 2016 | 3 July 2015 | 3 July 2015 | ||
| £m | £m | £m | £m | £m | £m | ||
| Financial assets | |||||||
| 13.2 | 13.2 | Derivative financial instruments recognised at fair value through profit or loss | 48.9 | 48.9 | 11.6 | 11.6 | |
| 9.5 | 9.5 | Derivative financial instruments in designated hedge accounting relationships | 0.4 | 0.4 | 10.3 | 10.3 | |
| 434.4 | 434.4 | Trade & other receivables excluding statutory assets & prepayments* | 443.2 | 443.2 | 421.7 | 421.7 | |
| 184.0 | 184.0 | Cash & short term deposits* | 211.0 | 211.0 | 233.5 | 233.5 | |
| 641.1 | 641.1 | 703.5 | 703.5 | 677.1 | 677.1 | ||
| Financial liabilities | |||||||
| (8.3) | (8.3) | Derivative financial instruments recognised at fair value through profit or loss | (26.8) | (26.8) | (12.7) | (12.7) | |
| (11.6) | (11.6) | Derivative financial instruments in designated hedge accounting relationships | (40.5) | (40.5) | (4.9) | (4.9) | |
| (35.9) | (35.9) | Contingent consideration | (34.5) | (34.5) | (31.4) | (31.4) | |
| Amortised cost: | |||||||
| (767.7) | (745.2) | Fixed rate borrowings | (846.5) | (988.3) | (726.8) | (721.7) | |
| (236.3) | (236.3) | Floating rate borrowings | (215.0) | (215.0) | (306.1) | (306.1) | |
| (0.3) | (0.3) | Obligations under finance leases | (0.9) | (0.9) | (0.3) | (0.3) | |
| (4.7) | (4.7) | Bank overdrafts & short-term borrowings* | (2.0) | (2.0) | (17.0) | (17.0) | |
| (367.3) | (367.3) | Trade & other payables excluding statutory liabilities & deferred income* | (384.2) | (384.2) | (358.4) | (358.4) | |
| (1,432.1) | (1,409.6) | (1,550.4) | (1,692.2) | (1,457.6) | (1,452.5) | ||
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. The derivative financial instruments are valued using valuation techniques with market observable inputs including spot and forward foreign exchange rates, interest rate curves, counterparty and own credit risk. The fair value of cross currency swaps is calculated as the present value of the estimated future cash flows based on spot foreign exchange rates. The fair value of forward foreign currency contracts is calculated as the present value of the estimated future cash flows based on spot and forward foreign exchange rates.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Group holds all financial instruments at level 2 fair value measurement, with the exception of contingent consideration assessed as level 3. Contingent consideration at 1 January 2016 and 3 July 2015 primarily relates to the acquisition of Weir International in 2011. The movements in the period to 30 June 2016 include the unwind of the discount reflected in the Income Statement and the settlement of a contingent liability in relation to Trio. In addition the disposal of American Hydro in the period has resulted in a contingent asset of £0.8m which is expected to mature before the end of the year. There have been no other significant changes to the key performance indicators or the inputs to the fair value calculation.
*The fair value of cash and short-term deposits, trade and other receivables and trade and other payables approximates their carrying amount due to the short-term maturities of these instruments. As such disclosure of the fair value hierarchy for these items is not required.
| 12. Financial instruments (continued) | |
| A reconciliation of the fair value measurement of the contingent consideration liability is provided below. | |
| Total | |
| £m | |
| Balance as at 2 January 2015 | 34.6 |
| Fair value changes in profit or loss | (1.3) |
| Exchange movements in the period | (0.9) |
| Contingent consideration paid | (2.8) |
| Unwind of discount | 1.8 |
| Balance as at 3 July 2015 | 31.4 |
| Balance as at 1 January 2016 | 35.9 |
| Fair value changes in profit or loss | (0.1) |
| Exchange movements in the period | 3.9 |
| Contingent consideration paid | (7.1) |
| Unwind of discount | 1.9 |
| Balance as at 30 June 2016 | 34.5 |
| Balance as at 2 January 2015 | 34.6 |
| Liability arising on business combinations | 3.2 |
| Fair value changes in profit or loss | (1.7) |
| Exchange movements in the period | 0.2 |
| Contingent consideration paid | (2.8) |
| Unwind of discount | 2.4 |
| Balance as at 1 January 2016 | 35.9 |
During the period ended 30 June 2016 and the 52 weeks ended 1 January 2016, there were no transfers between level 1 and level 2 fair value measurements and no transfers into or out of level 3 fair value measurements.
The fair value of borrowings and obligations under finance leases is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. The fair value of cash and short-term deposits, trade and other receivables and trade and other payables approximates their carrying amount due to the short-term maturities of these instruments.
The estimated fair value of the contingent consideration at the date of acquisition is based on an assessment of the probability of possible outcomes discounted to net present value. Subsequent changes to the fair value of the contingent consideration are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs. A substantial change in the expected future results of the entities to which contingent liabilities relate or a significant change in the discount rate applied in the fair value calculation may result in a change to the fair value recognised.
| 13. Additional cash flow information | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| Total operations | ||||
| Net cash generated from operations | ||||
| (133.1) | Operating profit (loss) - continuing operations | 48.7 | 61.1 | |
| (25.2) | Operating loss - discontinued operations | (3.8) | (0.1) | |
| (158.3) | Operating profit (loss) - total | 44.9 | 61.0 | |
| 113.3 | Exceptional item - other | 34.7 | 43.0 | |
| 251.4 | Exceptional impairment of intangible assets | - | - | |
| (8.3) | Share of results of joint ventures | (3.5) | (4.0) | |
| 63.4 | Depreciation of property, plant & equipment | 26.9 | 34.2 | |
| 52.5 | Amortisation of intangible assets | 23.8 | 24.7 | |
| 0.3 | Impairment of plant & equipment | - | - | |
| (1.6) | Gains on disposal of property, plant & equipment | (0.2) | (0.5) | |
| - | Funding of pension & post-retirement costs | (0.2) | (0.1) | |
| (2.3) | Employee share schemes | 4.7 | (0.3) | |
| 4.5 | Net foreign exchange including derivative financial instruments | 1.2 | 5.6 | |
| (5.7) | Decrease in provisions | (5.4) | (0.6) | |
| 309.2 | Cash generated from operations before working capital cashflows | 126.9 | 163.0 | |
| 25.2 | Decrease (increase) in inventories | 10.3 | (25.6) | |
| 189.3 | Decrease in trade & other receivables & construction contracts | 25.7 | 178.7 | |
| (127.2) | Decrease in trade & other payables & construction contracts | (29.9) | (114.3) | |
| 396.5 | Cash generated from operations | 133.0 | 201.8 | |
| (2.6) | Additional pension contributions paid | - | - | |
| (33.4) | Exceptional cash items | (30.5) | (16.1) | |
| (50.4) | Income tax received (paid) | 2.1 | (25.0) | |
| 310.1 | Net cash generated from operating activities | 104.6 | 160.7 | |
| The employee related provision and associated insurance asset in relation to US asbestos-related claims disclosed in note 9 will not result in any cash flows either to or from the Group and therefore they have been excluded from the table above. | ||||
| Cash flows from discontinued operations are disclosed in note 5. | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| The following tables summarise the cash flows arising on acquisitions and disposals: | ||||
| Acquisitions of subsidiaries | ||||
| (12.9) | Current period acquisitions (see below) | - | - | |
| (2.8) | Prior periods acquisitions contingent consideration paid | (7.1) | (2.8) | |
| 1.6 | Prior periods acquisitions completion adjustment | - | 1.6 | |
| (14.1) | (7.1) | (1.2) | ||
| (14.4) | Acquisition of subsidiaries - cash paid | - | (0.4) | |
| 1.5 | Cash and cash equivalents acquired | - | 0.4 | |
| (12.9) | Acquisition of subsidiaries - current year acquisitions | - | - | |
| (1.2) | Settlement of external debt of subsidiary on acquisition | - | - | |
| (14.1) | Total cash outflow on acquisition of subsidiaries - current year | - | - | |
| (2.8) | Prior periods acquisitions contingent consideration paid | (7.1) | (2.8) | |
| 1.6 | Prior periods acquisitions completion adjustment | - | 1.6 | |
| (15.3) | Total cash outflow relating to acquisitions | (7.1) | (1.2) | |
| Net cash inflow arising on disposal: | ||||
| - | Consideration received in cash and cash equivalents | 34.8 | - | |
| - | Less: cash and cash equivalents disposed of | (4.0) | - | |
| - | 30.8 | - | ||
| Cash & cash equivalents comprise the following. | ||||
| Cash & cash equivalents | ||||
| 184.0 | Cash & short-term deposits | 211.0 | 233.5 | |
| (4.7) | Bank overdrafts & short-term borrowings | (2.0) | (17.0) | |
| 179.3 | 209.0 | 216.5 | ||
| The Group has a number of cash pooling arrangements whereby individual entities have bank accounts with the same bank under a master pooling facility which are subject to rights of offset. Cash & short-term deposits of £211.0m (2015: £233.5m) and bank overdrafts & short-term borrowings of £2.0m (2015: £17.0m) are presented after elimination of debit and credit balances within individual pools of £524.9m (2015: £283.9m). | ||||
| The following tables summarise the net debt position. | ||||
| Reconciliation of net increase in cash & cash equivalents to movement in net debt | ||||
| 34.2 | Net (decrease) increase in cash & cash equivalents from total operations | (1.6) | 63.8 | |
| 49.4 | Net decrease (increase) in debt | 40.9 | (22.4) | |
| 83.6 | Change in net debt resulting from cash flows | 39.3 | 41.4 | |
| (0.1) | Lease inceptions | (1.2) | - | |
| - | Loans/leases disposed | (0.2) | - | |
| (47.8) | Foreign currency translation differences | (66.3) | 2.6 | |
| 35.7 | Change in net debt during the period | (28.4) | 44.0 | |
| (860.7) | Net debt at the beginning of the period | (825.0) | (860.7) | |
| (825.0) | Net debt at the end of the period | (853.4) | (816.7) | |
| Net debt comprises the following | ||||
| 184.0 | Cash & short-term deposits | 211.0 | 233.5 | |
| (195.6) | Current interest-bearing loans & borrowings | (217.2) | (160.5) | |
| (813.4) | Non-current interest-bearing loans & borrowings | (847.2) | (889.7) | |
| (825.0) | (853.4) | (816.7) | ||
14. Related party disclosure | ||||
| The following table provides the total amount of significant transactions which have been entered into with related parties for the relevant financial period and outstanding balances at the period end. | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| £m | £m | £m | ||
| 18.4 | Sales of goods to related parties - joint ventures | 7.7 | 9.0 | |
| 0.4 | Sales of services to related parties - joint ventures | - | 1.8 | |
| 1.4 | Purchases of goods from related parties - joint ventures | 0.5 | 1.2 | |
| 0.8 | Purchases of services from related parties - joint ventures | 0.3 | 0.5 | |
| 2.1 | Amounts owed to related parties - group pension plans | 1.6 | 0.9 | |
| | ||||
| 15. Exchange rates | ||||
| The principal exchange rates applied in the preparation of these interim condensed financial statements were as follows. | ||||
| 52 weeks ended | Period ended | Period ended | ||
| 1 January 2016 | 30 June 2016 | 3 July 2015 | ||
| Average rate (per £) | ||||
| 1.53 | US dollar | 1.43 | 1.52 | |
| 2.04 | Australian dollar | 1.96 | 1.95 | |
| 1.38 | Euro | 1.29 | 1.37 | |
| 1.96 | Canadian dollar | 1.91 | 1.88 | |
| 5.61 | United Arab Emirates dirham | 5.27 | 5.56 | |
| 1,000.85 | Chilean peso | 989.17 | 947.40 | |
| 19.53 | South African rand | 22.10 | 18.18 | |
| 5.10 | Brazilian real | 5.32 | 4.53 | |
| 93.65 | Russian rouble | 100.72 | 87.92 | |
| Closing rate (per £) | ||||
| 1.47 | US dollar | 1.33 | 1.56 | |
| 2.02 | Australian dollar | 1.78 | 2.04 | |
| 1.36 | Euro | 1.20 | 1.41 | |
| 2.04 | Canadian dollar | 1.72 | 1.96 | |
| 5.41 | United Arab Emirates dirham | 4.87 | 5.73 | |
| 1,044.14 | Chilean peso | 875.31 | 990.05 | |
| 22.81 | South African rand | 19.49 | 19.15 | |
| 5.84 | Brazilian real | 4.23 | 4.84 | |
| 107.45 | Russian rouble | 84.84 | 86.52 | |
Directors' Statement of Responsibilities
The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS34 "Interim Financial Reporting" as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by the Disclosure and Transparency Rules of the Financial Conduct Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.
The directors of The Weir Group PLC are listed in the Group's 2015 Annual Report.
A list of current directors is maintained on The Weir Group PLC website which can be found at www.global.weir.
On behalf of the Board
Jon Stanton
Finance Director
28 July 2016
Independent Review Report to The Weir Group PLC
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed The Weir Group PLC's condensed interim financial statements (the "interim financial statements") in the Interim report of The Weir Group PLC for the period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
- the condensed consolidated interim balance sheet as at 30 June 2016;
- the condensed consolidated interim statement of comprehensive income for the period then ended;
- the condensed consolidated interim statement of cash flows for the period then ended;
- the condensed consolidated interim statement of changes in equity for the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquires, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
Responsibilities for the condensed consolidated interim financial statements and the review
Our responsibilities and those of the directors
The interim financial report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on the interim financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Glasgow
28 July 2016
(a) The maintenance and integrity of The Weir Group PLC web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial report since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.
Shareholder Information
The Board have declared an interim dividend of 15.0p (2015: 15.0p). The dividend will be paid on 4 November 2016 to shareholders on the register on 23 September 2016. Shareholders may opt to participate in the Scrip Dividend Programme (SCRIP). The price for the SCRIP dividend will be announced on 29 September 2016. The final date for receipt of SCRIP elections is 21 October 2016.
Financial Calendar
Ex-dividend date for interim dividend
22 September 2016
Record date for interim dividend
23 September 2016
Shareholders on the register at this date will receive the dividend
Final day for receipt of SCRIP elections
21 October 2016
Interim dividend paid
4 November 2016
Our Interim Report will be available to download from The Weir Group PLC website at global.weir shortly.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: The Weir Group PLC via Globenewswire
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