Interim Management Statement

The Weir Group PLC Interim Management Statement for the period to 31 October 2016¹

Tough Q3 trading conditions, but signs of market improvements

• Third quarter aftermarket orders stable with overall order input² down 7%
• Minerals - Aftermarket orders grew 4%; original equipment fell against a strong prior year period
• Oil & Gas - Sequential quarterly input growth in North America; further declines in the Middle East
• Flow Control - Continued operational progress; mid and downstream oil and gas more challenging
• Disposal programme on track to deliver up to £100m by year end; £79m achieved by end of October
• Full year profits anticipated to be slightly lower than current market expectations
• Continued strong cash generation expected in 2016

Jon Stanton, Chief Executive, commented:

"There are signs in the Group's third quarter performance that our core markets have started to improve.  Minerals aftermarket orders returned to growth and North American Oil and Gas customers started planning for higher activity levels next year.  The Group's trading results reflected the low point in the North American oil and gas market and tougher conditions in the Middle East.

"Assuming commodity prices remain supportive, we anticipate further sequential growth for the Oil & Gas division in the fourth quarter but little improvement in the pricing environment.  Given conditions in the Middle East as well, we now expect the division to be around breakeven in the fourth quarter and slightly lossmaking for the full year.  The combined outlook for Minerals and Flow Control is unchanged.  Therefore, including a small further foreign exchange benefit, the Group's full year 2016 profits are expected to be slightly lower than current market expectations.

"Weir is well placed to benefit as markets recover.  The strength of the team together with our global leadership positions in mining and oil and gas, deep customer relationships and investment in innovative technology, give the Group a robust platform for long term growth." 

Third quarter review
Third quarter input reduced 7% compared to the prior year period, primarily driven by a reduction in activity levels across Oil & Gas and lower original equipment orders in Minerals.  Aftermarket orders were resilient and only 1% lower than the prior year period with original equipment input down 20%.

Revenues, on a constant currency basis, were in line with expectations. The Group maintained a positive book to bill ratio of 1.02 over the 3 month period.  Operating margins were lower than the prior year, principally due to losses in Oil & Gas, and broadly in line with first half levels.  The Group remains on track to deliver cumulative annualised cost reductions of £160m since Q4-2014, including £50m of savings actioned in the current year.  Agreements for a further £33m of property disposals were signed in the period.

The Group continued to make good progress with its technology agenda which positions it to take full advantage as markets recover.  Oil & Gas received its first order for its next generation frac pump with a number of other customer trials ongoing and the EPIX joint venture is now preparing to start trading.  Minerals launched a new high-horsepower cone crusher while trials of the Group's Synertrex IoT solutions continue across a number of products, working closely with Microsoft and Dell.

Divisional review

Minerals
Order input for the third quarter was down 7%, driven by a 28% decline in original equipment input compared to the strong prior year comparator which included a number of significant project wins.  On a sequential basis original equipment input was 15% lower, with expected orders delayed.  Aftermarket input was up 4% reflecting the continued normalisation of activity levels following the slow start to 2016, as demand returned to reflect underlying ore production volume growth, with orders broadly in line with second quarter levels.

Mining equipment markets remained challenging as customers continue to focus on cost per tonne and reducing operational costs.  Customer sentiment continues to slowly improve and the division has developed an encouraging pipeline of brownfield and plant optimisation opportunities.  After a good first half performance we saw a number of Geho project delays and comminution projects slipping as sand and aggregates markets remained subdued.  Geographically, South America remained strong and we saw increased activity in Africa, particularly in gold markets. In Europe conditions improved while in North America coal markets continued to decline, offset by Canadian oil sands volume recovery after the recent wild fires.

Third quarter revenues were in line with expectations and margins continued to be supported by strong cost control and efficiency improvements.

Full year divisional revenue and operating margin expectations are unchanged, with constant currency revenues anticipated to be slightly up on the prior year and operating margins expected to be broadly in line with 2015 levels. 

Oil & Gas
Order input for the third quarter was down 10%, reflecting the decline in activity levels in all markets compared to the prior year period.  Original equipment orders were down 24% and aftermarket orders were 6% lower.  On a sequential basis input increased, reflecting customer anticipation of higher activity levels in North America partially offset by declines in the Middle East.

In North America, the division's biggest end market, the average US land rig count increased by 16% quarter on quarter. As a result demand for pressure pumping and pressure control equipment troughed early in the third quarter with subsequent sequential improvement supported by rig count trends.  In addition Pressure Pumping benefited from customers beginning to refurbish previously stacked equipment and an easing in cannibalisation and destocking.  This helped contribute to a positive book to bill ratio of 1.13 for the division.  In contrast international markets have become increasingly challenging, with customers postponing orders and reducing activity levels. 

Reflecting input trends revenues were sequentially higher than the second quarter and lower than the prior year on a constant currency basis.  In North America volume growth was offset by sustained pricing pressure which, combined with the division's focus on reducing inventory and maximising cash generation, restricted flow through to profits. Competitive pressures increased in the Middle East, with both volumes and margins slightly down on prior expectations.  As a result the division remained loss making in the third quarter.

Assuming the North American rig count continues to recover slowly, a modest pick-up in Pressure Pumping and Pressure Control activity is expected in the fourth quarter, albeit with ongoing pricing pressure. International markets are expected to continue at the current low levels throughout 2016, impacting trading in the Middle East.  Profitability is expected to reach breakeven levels in the fourth quarter, such that a small operating loss is now expected for the full year.  The division will remain cash generative throughout the second half.

Flow Control
Order input for the third quarter was down 4% on the prior year period with customers remaining cautious and delaying projects across the division's end markets, particularly oil and gas.  Original equipment orders were flat and aftermarket orders reduced by 10% against the prior year period as customers delayed maintenance schedules.

Pump orders were materially lower, both sequentially and compared to the prior year, reflecting declines in mid and downstream oil and gas markets with customers delaying investment and maintenance.  Conversely, Valve input was higher year on year and in line with first half levels, supported by a higher number of small power and industrial opportunities.

Divisional revenues, on a constant currency basis, were lower against a strong prior year period, with both pumps and valves down, as customers delayed project deliveries.  Operating margins were in line with expectations.

Full year constant currency divisional revenues are now anticipated to be slightly lower than the prior year, reflecting a softening of mid and downstream oil and gas markets.  Second half operating margins are expected to be slightly higher than H1 2016 levels.

Net debt
Net debt at 30 September 2016 was higher than that reported at 30 June 2016 as a result of normal seasonal patterns and foreign exchange movements.  The Group remains confident of delivering strong underlying cash generation in 2016.

Board composition
As previously announced, Jon Stanton succeeded Keith Cochrane as Chief Executive on 1 October.  John Heasley joined the Board on 3 October as Chief Financial Officer, while Keith Cochrane and Chief Operating Officer Dean Jenkins stepped down from the Board on 30 September.  

Notes:

1. Financial information is given for the 9 months ended 30 September 2016 and relates to continuing operations and excludes exceptional items.
2. Order input is reported on a constant currency basis. Third quarter refers to the financial period 3 months ended 30 September 2016.

Analyst and investor conference call

A conference call for analysts and investors will be held at 0800 (GMT) on Tuesday 1 November to discuss this statement.  Participants can join the call by registering in advance by visiting www.global.weir/investors and following the link on the page.

A recording of this conference call will be available until Monday 15 November on [phone] using the conference ID 94303195.

Enquiries:
Investors: Stephen Christie	[phone] / (0) 7795 110456
Media: Raymond Buchanan	[phone] / (0) 7713 261447
Brunswick: Patrick Handley / Diana Vaughton	[phone]

About the Weir Group
Founded in 1871, The Weir Group PLC is based in Glasgow, Scotland and is one of the world's leading engineering businesses. Weir designs, manufactures and services innovative solutions which make our minerals, oil and gas, power and other process industry customers more efficient. This is recognised in the global leadership positions we have developed in our core markets. The Group aims to be a partner of choice to our customers with a worldwide network of around 200 manufacturing and service facilities. Weir has a presence in more than 70 countries, with approximately 14,000 people around the world working in three divisions: Minerals, Oil & Gas and Flow Control.

Weir's ordinary shares trade on the London Stock Exchange (ticker: WEIR LN) and its American Depositary Receipts trade over-the-counter in the USA (ticker: WEGRY).

Appendix 1 - quarterly input trends (constant currency)

	Reported growth							Like for like growth2
Division	2015 Q4	2016 Q1	2016 Q2	2016 Q3	2016 Q1-Q3			2015 Q4	2016 Q1	2016 Q2	2016 Q3	2016 Q1-Q3
OE	-33%	15%	13%	-28%	-3%			-44%	11%	9%	-28%	-5%
Aftermarket	-8%	-11%	0%	4%	-3%			-8%	-11%	0%	4%	-3%
Minerals	-16%	-4%	4%	-7%	-3%			-20%	-5%	2%	-7%	-3%
OE	-77%	-40%	-37%	-24%	-35%			-77%	-40%	-37%	-24%	-35%
Aftermarket	-53%	-49%	-37%	-6%	-34%			-53%	-49%	-37%	-6%	-34%
Oil & Gas	-59%	-47%	-37%	-10%	-34%			-59%	-47%	-37%	-10%	-34%
OE	3%	-32%	10%	0%	-10%			3%	-32%	10%	0%	-10%
Aftermarket	-2%	-17%	-16%	-10%	-15%			-2%	-17%	-16%	-10%	-15%
Flow Control	1%	-26%	-4%	-4%	-12%			1%	-26%	-4%	-4%	-12%
OE	-38%	-12%	3%	-20%	-10%			-42%	-14%	1%	-20%	-12%
Aftermarket	-29%	-26%	-14%	-1%	-15%			-30%	-26%	-14%	-1%	-15%
Continuing Ops1	-32%	-22%	-9%	-7%	-13%			-34%	-23%	-9%	-7%	-14%
Book to bill	0.88	1.02	0.99	1.02	1.01			0.89	1.02	0.99	1.02	1.01

Notes:

1. Continuing operations (excludes American Hydro Corporation and Ynfiniti Engineering Services which were disposed of in Q2).
2. Like for like excludes the impact of acquisitions (Trio excluded for 2015 and Delta excluded for 2015 and 2016).

This information includes 'forward-looking statements'.  All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding The Weir Group PLC's ("the Company") financial position, business strategy, plans (including development plans and objectives relating to the Company's products and services) and objectives of management for future operations, are forward-looking statements.  These statements contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning.  Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.  Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future.  These forward-looking statements speak only as at the date of this document.  The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.  Past business and financial performance cannot be relied on as an indication of future performance. 

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Source: The Weir Group PLC via Globenewswire