Interim Results

WEIR GROUP PLC 18 August 1999 THE WEIR GROUP PLC INTERIM RESULTS 1999 Results for 26 weeks ended 2nd July 1999 Unaudited Highlights - Significant strategic development 1999 1998 - Turnover £357.0m £344.5m - Pre-Tax Profit (pre-exceptional and goodwill amortisation) £28.3m £29.5m - Earnings per share (pre-exceptional and goodwill amortisation) 10.4p 10.6p - Dividend 2.9p 2.75p - Order Input £348m £316m The Chairman, Sir Ron Garrick, commented as follows: 'The first half results are in line with our previous statements. Despite difficult market conditions, order input is 10% above the 1998 level, lifted by strong naval, general industrial and water business. Growth is beginning to return to world markets and, with an expectation of completing the Warman acquisition shortly, we believe the Group is very well placed to make further progress in creating shareholder value in the years ahead.' Enquiries The Weir Group PLC - available through Warburg Dillon Read Sir Ron Garrick, Chairman Rooms 34 & 35, Seventh Floor Duncan Whyte, Chief Executive Tel: 0171 567 8000 (switchboard) Emrys Inker, Public Relations Manager Tel: 0171 568 8733 (direct) The Maitland Consultancy Charlotte Hamilton - Tel: 0171 379 5151 GENERAL OVERVIEW The first half of 1999 has been an excellent period for the development of the Group's strategy and financial results are in line with expectations and previous statements. Market conditions were difficult, particularly for short lead time business, and the profit before tax and goodwill amortisation amounted to £28.3m, which was down 4% from 1998 (£29.5m, excluding exceptional gains and before goodwill amortisation). It is pleasing to report that earnings for the Group's engineered products and services have shown further improvement in the period. The reduction in profit is the result of lower Associate and Joint Venture profits and interest income. More demanding contract conditions in railway maintenance, lower activity in the oil service industry and lower interest rates are the main reasons for the profit reduction. Order input for the period was £348m, 10% above the level experienced in 1998 (£316m at constant exchange rates) and this includes the £57m defence order won by Strachan & Henshaw for which work will be spread over a number of years. This ability to increase order input in difficult market conditions represents an excellent performance. The increase in orders has come from strong naval, general industrial and water business and this has more than offset poorer performances from the oil, power and minerals processing markets. We indicated in our Annual Report that we expected present market conditions to provide opportunities to move the Group's strategy forward and we were delighted to announce recently that agreement had been reached to acquire the Warman Group of companies from North Ltd. Shareholder approval for this transaction was obtained at the EGM held on 11th August and we now expect to complete the transaction on August 31st, 1999. The acquisition of Warman is a significant strategic development. It enhances Weir's presence in the global pump market and is an important step in implementing the Group's strategy to take an active role in any consolidation taking place in our industry. The aggressive duties performed by Warman pumps will provide opportunities to grow Weir's engineering services capabilities which already cover the Weir range of industrial pumps. The acquisition should be earnings enhancing pre-goodwill amortisation in its first full year of ownership. THE WEIR GROUP RESULTS The Weir Group profit before tax for the 26 weeks to 2nd July 1999 was £27.8m. The profit before tax, pre-exceptionals and goodwill amortisation amounted to £28.3m (1998: £29.5m). - Turnover from the Group's Engineering Products and Services operations amounted to £301.3m (1998: £300.5m) and our share of Associates and Joint Venture turnover was £55.7m (1998: £48.9m). The profit generated from Engineering Products and Services increased by £1.5m compared to 1998 but Associates and Joint Venture profit was £1.1m less. Interest received was £1.3m less than in the first half of 1998. - The interim tax charge is based on the estimate that the likely effective rate for the full year will be 27% (1998 excluding exceptional gain, 26.9%). - Earnings per share pre-exceptionals and goodwill amortisation is 10.4p (1998: 10.6p). - Funds generated by operations amounted to £31m (1998: £29.7m) but working capital increased over the period by £18.4m due mainly to contract payment timings. - An interim dividend of 2.9p (1998: 2.75p) is declared. ENGINEERING PRODUCTS Turnover in the first half of the year was £230.7m (1998: £228.9m). Profit amounted to £19.1m, giving a margin for the period of 8.3% compared with 7.7% in 1998. Market conditions for pump and valve products have been difficult, particularly in the oil and minerals processing markets. As a result, the earnings from our pump companies are less than last year but pumps continue to make a major contribution to profitability. Valve company fortunes were mixed, with Hopkinsons having a poor first half, but this was offset by a stronger performance in the USA by Atwood & Morrill due to increased power generation business and by SEBIM in France. Darchem, Strachan & Henshaw, Liquid Gas Equipment and Tooling Products have all increased earnings. ENGINEERING SERVICES Turnover in Engineering Services in 1999 was £70.6m (1998: £71.6m). Profit amounted to £6.1m, giving a margin for the period of 8.6% compared with 8.4% in 1998. There has been a reduction in turnover at Peacock in Canada and at Neyrfor-Weir, our oil drilling services company, as a result of lower activity in the oil industry. The higher oil price, if sustained, should eventually result in better market conditions for our service businesses but it may be some months before improvements are evident. ASSOCIATES AND JOINT VENTURE Our Associate and Joint Venture service businesses had mixed fortunes. Devonport had a similar year to 1998 but Weir-Houston Engineers experienced a significant downturn due to oil sector cutbacks. First Engineering's earnings were in line with expectations but as new contract conditions began to take effect, margins were reduced. ORDER INPUT Overall, order input showed a very satisfactory increase in difficult market conditions. The total value of orders booked in the first half of 1999 was £348m compared with £316m in the first half of 1998. There were some notable successes: - A £57m order for Strachan & Henshaw for the Astute Class submarine weapon handling system. - A £15m desalination plant order for Entropie for a project in Bahrain. - A £10.5m order for surface and downhole pumping equipment for the Texaco Captain field expansion, which was the only major development to be ordered in 1999 in the North Sea. - In July 1999, Weir Engineering Services was awarded a contract by Yorkshire Water for a five year maintenance programme, which could be worth £37.5m. This will only be booked as input when specific expenditure is approved. To maintain this satisfactory order book situation it is essential for the Group to retain its competitiveness. A high priority will continue to be given to improving costs and efficiencies as a normal part of ongoing operations. ACQUISITIONS Apart from the agreement to acquire Warman, the Group made a number of bolt-on acquisitions in the first half of 1999 for a total consideration of £7.7m. These included INGO, which added to our service capability in South America; two heat treatment businesses to strengthen Darchem's service activity; Diametric will strengthen the mould manufacturing operations of Tooling Products; while Envig Holdings increases the industrial water treatment product range of Weir Westgarth. THE BOARD Duncan Whyte took up his appointment on 1st June as Chief Executive of The Weir Group. Day to day activities of all Group companies became the responsibility of two executive directors reporting to Mr Whyte, David Dunbar (pump and service operations) and Kevin Gamble (valves, material handling and all other companies). STRATEGY AND PROSPECTS The Group's stated strategy to build on its successful range of engineering products designed and manufactured for specific projects has been significantly enhanced by the agreement to acquire Warman from North Ltd. We remain committed to growing our service business by internal growth and acquisition and we still have capacity for further corporate development. The Group still expects a stronger second half performance, and a broadly similar outcome for the year as a whole to that achieved in 1998. There is some evidence to support the view that growth is returning to world economies and with the completion of the Warman transaction expected shortly, the Group is very well placed to create further shareholder value in the years ahead. CONSOLIDATED PROFIT AND LOSS ACCOUNT ------------------------------------ 26 weeks to 26 weeks to 53 weeks to 2nd July 1999 26th June 1998 1st January 1999 £'000 £'000 £'000 ----- ----- ----- TURNOVER Group 301,286 295,591 624,418 Share of - Joint Venture 2,393 2,734 4,621 - Associates 53,338 46,141 95,897 ------- ------- ------- 357,017 344,466 724,936 ------- ------- ------- ------- ------- ------- OPERATING PROFIT Group - Before Goodwill Amortisation 24,210 22,994 51,257 - Goodwill Amortisation (577) (36) (415) Share of - Joint Venture 447 873 1,992 - Associates 3,555 4,229 8,334 ------- ------- ------- 27,635 28,060 61,168 EXCEPTIONAL ITEM Profit on Disposal - 7,935 7,935 INTEREST AND OTHER INCOME Group 241 1,502 2,641 Joint Venture (17) 15 21 Associates (87) (122) (201) ------- ------- ------- 137 1,395 2,461 ------- ------- ------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAX 27,772 37,390 71,564 ESTIMATED TAX ON PROFIT ON ORDINARY ACTIVITIES 7,498 9,406 18,640 ------- ------- ------- PROFIT ON ORDINARY ACTIVITIES AFTER TAX 20,274 27,984 52,924 Minority Interest 31 38 94 ------- ------- ------- PROFIT ATTRIBUTABLE TO THE WEIR GROUP PLC 20,243 27,946 52,830 ------- ------- ------- ------- ------- ------- EARNINGS PER SHARE 10.2p 13.7p 26.1p EARNINGS PER SHARE EXCLUDING GOODWILL AMORTISATION AND EXCEPTIONAL ITEM 10.4p 10.6p 23.2p DILUTED EARNINGS PER SHARE 10.1p 13.7P 26.0P DIVIDENDS --------- 26 weeks to 26 weeks to 53 weeks to 2nd July 1999 26th June 1998 1st January 1999 Ordinary Shares pence per share 2.9 2.75 9.9 costing - £'000 5,784 5,541 19,790 An interim dividend of 2.9p (net) per ordinary share (1998: 2.75p per ordinary share) will be paid on 9th November 1999 to shareholders on the register at close of business on 17th September 1999. TAX --- 26 weeks to 26 weeks to 53 weeks to 2nd July 1999 26th June 1998 1st January 1999 £'000 £'000 £'000 Group - United Kingdom 4,234 4,464 9,923 Group - Overseas 2,061 1,905 4,247 Joint Venture 145 276 599 Associates 1,058 1,307 2,370 Overseas tax on Exceptional Item - 1,454 1,501 ----- ----- ------ Tax on Profit on Ordinary Activities 7,498 9,406 18,640 ----- ----- ------ BASIS OF PREPARATION -------------------- The interim financial statements are unaudited and do not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. These statements have been prepared on the basis of the accounting policies set out in the Group's 1998 Annual Report and Accounts, except as noted below, and were approved by the board of directors on 18th August 1999. Financial statements for the 53 weeks to 1st January 1999 are abridged statements; full accounts with an unqualified audit report have been lodged with the Registrar. ACCOUNTING STANDARDS -------------------- FRS 12 'Provisions, Contingent Liabilities and Contingent Assets' has been adopted in the interim statement for the period ended 2nd July 1999. The adoption of FRS 12 has no significant impact on the results of either the current period or the comparative periods. There is a presentational impact on the Balance Sheet and the Cash Flow Statement and comparative figures for 1998 have been re-presented to comply with FRS 12. CONSOLIDATED BALANCE SHEET -------------------------- 2nd July 1999 26th June 1998 1st January 1999 £'000 £'000 £'000 FIXED ASSETS Goodwill 22,745 2,233 19,931 Tangible assets 106,419 99,627 104,076 Investments Joint venture - share of gross assets 7,017 6,750 7,510 - share of gross liabilities 2,070 2,324 2,864 ------- ------- ------ 4,947 4,426 4,646 Associates 17,255 14,823 14,870 Other 225 207 218 ------- ------- ------- 22,427 19,456 19,734 ------- ------- ------- TOTAL FIXED ASSETS 151,591 121,316 143,741 CURRENT ASSETS Stocks 100,453 99,226 96,094 Debtors 194,159 164,443 181,446 Cash at bank and in hand 36,633 66,475 58,201 ------- ------- ------- 331,245 330,144 335,741 ------- ------- ------- CREDITORS falling due within one year: Bank overdrafts and short term debt 7,362 4,765 9,515 Other borrowings 5,322 5,801 4,970 Other creditors 169,335 163,735 179,869 ------- ------- ------- 182,019 174,301 194,354 ------- ------- ------- NET CURRENT ASSETS 149,226 155,843 141,387 ------- ------- ------- TOTAL ASSETS LESS CURRENT LIABILITIES 300,817 277,159 285,128 Less CREDITORS falling due after more than one year Loan capital 11,300 15,196 13,415 Obligations under finance leases 766 675 910 PROVISIONS FOR LIABILITIES AND CHARGES Deferred Tax 8,155 871 5,523 Pension costs 1,973 1,890 2,047 Other provisions 12,160 11,379 12,083 DEFERRED INCOME Grants not yet credited to profit 558 722 611 MINORITY INTEREST 412 370 395 ------- ------- ------- 265,493 246,056 250,144 ------- ------- ------- CAPITAL AND RESERVES Called up share capital 24,916 25,438 24,908 Reserves 240,577 220,618 225,236 ------- ------- ------- 265,493 246,056 250,144 ------- ------- ------- CONSOLIDATED CASH FLOW STATEMENT -------------------------------- 26 weeks to 26 weeks to 53 weeks to 2nd July 1999 26th June 1998 1st January 1999 £'000 £'000 £'000 Cash inflow from operating activities Funds generated by operations 30,951 29,671 64,657 (Increase) decrease in working capital (18,363) 6,240 3,329 ------- ------- ------- 12,588 35,911 67,986 Dividends received from joint venture - - 550 Dividends received from associates 4 230 3,625 Returns on investments and servicing of finance 297 1,354 1,858 Taxation (2,981) (3,420) (11,722) Capital expenditure and financial investment (5,620) (8,587) (15,850) Acquisitions (5,558) (3,180) (20,847) Disposals - 11,141 11,141 Equity dividends paid (14,249) (13,141) (18,680) ------- ------- ------- Cash (outflow) inflow before liquid resources and financing (15,519) 20,308 18,061 Management of liquid resources 24,227 (12,470) (6,876) Financing - issue of shares 161 473 495 - purchase of shares - - (7,633) - debt repaid (3,194) (2,968) (7,525) - foreign exchange hedging (57) 185 200 ------- ------- ------- (3,090) (2,310) (14,463) ------- ------- ------- Increase (decrease) in Cash 5,618 5,528 (3,278) ------- ------- ------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS -------------------------------------------------------- £'000 £'000 £'000 Increase (decrease) in cash 5,618 5,528 (3,278) Cash flow from debt repaid 3,194 2,968 7,525 Cash flow from management of liquid resources (24,227) 12,470 6,876 ------- ------- ------- CHANGE IN NET FUNDS RESULTING FROM CASH FLOWS (15,415) 20,966 11,123 Net debt acquired - (1,058) (3,270) Exchange (1,484) 221 1,437 ------- ------- ------- MOVEMENT IN NET FUNDS DURING THE PERIOD (16,899) 20,129 9,290 Net funds at 1st January 1999 28,407 19,117 19,117 ------- ------- ------- NET FUNDS AT 2ND JULY 1999 11,508 39,246 28,407 ------- ------- ------- RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING -------------------------------------------------------------------- ACTIVITIES ---------- £'000 £'000 £'000 Operating profit 23,633 22,958 50,842 Depreciation, goodwill amortisation, and grant credits 8,987 7,782 15,694 Surplus on disposal of tangible assets and investments (282) (316) (675) Funding of pension costs (1,350) (1,135) (2,231) (Decrease) increase in provisions (37) 382 1,027 (Increase) decrease in working capital (18,363) 6,240 3,329 ------- ------- ------- Cash inflow from operating activities 12,588 35,911 67,986 ------- ------- ------- SEGMENTAL ANALYSIS ------------------ Turnover and profit on ordinary activities before tax were contributed as follows: 26 weeks 26 weeks 53 weeks 26 weeks 26 weeks 53 weeks to to to to to to 2/7/99 26/6/98 1/1/99 2/7/99 26/6/98 1/1/99 Turnover Turnover Turnover Profit Profit Profit £'000 £'000 £'000 £'000 £'000 £'000 ENGINEERING PRODUCTS Group 230,709 228,946 483,093 19,067 17,650 40,080 Associates 147 47 546 3 (6) 23 ------- ------- ------- ------ ------- ------ 230,856 228,993 483,639 19,070 17,644 40,103 ------- ------- ------- ------ ------- ------ ENGINEERING SERVICES Group 70,577 71,575 149,924 6,138 6,011 12,142 Joint Venture 2,393 2,734 4,621 447 873 1,992 Associates 53,191 46,094 95,351 3,552 4,235 8,311 ------- ------- ------- ------ ------- ------ 126,161 120,403 249,896 10,137 11,119 22,445 ------- ------- ------- ------ ------- ------ TOTAL Group 301,286 300,521 633,017 25,205 23,661 52,222 Joint Venture and Associates 55,731 48,875 100,518 4,002 5,102 10,326 Goodwill amortisation Engineering Products (577) (36) (415) Unallocated costs (995) (557) (816) Exchange adjustment - Group - (4,930) (8,599) - (110) (149) ------- ------- ------- ------ ------- ------ 357,017 344,466 724,936 27,635 28,060 61,168 Exceptional item Engineering Products - 7,935 7,935 Interest and other income 137 1,395 2,461 ------- ------- ------- ------ ------- ------ 357,017 344,466 724,936 27,772 37,390 71,564 ------- ------- ------- ------ ------- ------ For comparative purposes 1998 figures have been restated at the 2nd July 1999 closing exchange rates.

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