Interim Management Statement <Origin Href="QuoteRef">WEIR.L</Origin>

WeirAnnouncement

03/11/2015 07:00

The Weir Group PLC 
 Interim Management Statement for the period to 2 November 2015 1 
 
 Highlights: 
 
* Full year earnings expectations broadly in line with current market
consensus 2 
* £25m incremental cost savings, bringing annualised impact of actions taken
in last year to over £110m 3 
* Q3 Group order input 4 down 29% year-on-year and 8% compared to Q2 2015 
* Minerals orders resilient in increasingly challenging markets 
* Further declines in Oil & Gas activity - US oil rig count down 14% in the
past two months 


* Operational progress in Power & Industrial; margins increased 
* Weir Technology Advisory Board established; High-horsepower crusher launched


 
 Keith Cochrane, Chief Executive, commented: 
 "The challenges in our end markets intensified during September and October.
Mining customers took measures to preserve cash by delaying investments,
reducing purchases of consumables and mothballing or curtailing production
volumes at higher cost mines. Trading conditions in oil and gas markets were
impacted by a double-digit decline in North American rig count as WTI oil
prices fell below $50. In response to these market-issues, the Group has taken
further action to support profitability.  These measures will generate an
additional £25m in annualised cost savings and include additional workforce
reductions and service centre consolidations. We continue to invest in
technology to further extend our global leadership positions, ensuring the
Group is positioned to fully benefit from the good long-term structural growth
prospects of our end markets. 
 
 Looking ahead, we expect trading conditions to remain challenging through the
fourth quarter with further declines in upstream oil and gas activity.  We
will focus on delivering further cost and procurement savings, alongside
strong cash generation.  We continue to expect a sequential improvement in
our second half performance with our full year earnings expectations broadly
in line with market consensus 2 ." 
 
 Third quarter review 
 Third quarter 5 input was 29% lower than the prior year period and 8% lower
than the second quarter of 2015, primarily driven by a significant drop in
activity levels across oil, gas, power and industrial markets.  Original
equipment orders were down 20% and aftermarket orders 33% lower than the prior
year period.  On a like for like basis 6 (excluding the acquisitions of Trio
and Delta Valves), order input fell 31%, with original equipment down 25% and
aftermarket down 33%. Order input for the 39 weeks was 22% lower (H1: 18%
lower) with aftermarket orders down 20% (H1: 13% lower) and original equipment
orders down 26% (H1: 29% lower). 
 
 Revenues, on a constant currency basis, were down compared to the third
quarter of 2014 chiefly due to reduced North American oil and gas activity
levels, but in line with the second quarter. The Group maintained a positive
book to bill ratio of 1.01 over the 39 week period.   Group operating
margins were lower than the prior year, primarily due to the decline in
margins of the Oil & Gas division. As a result of cost reduction measures
taken in the third quarter the Group's workforce will reduce by a further 400
posts. 
 
 Recognising the long-term potential of its markets and business model, the
Group continued to prioritise investment in products and technology.  A new
range of high-horsepower crushers was launched by Minerals and positive test
results gathered from new frack-pump valve designs in Oil & Gas.  The
Group-wide IoT (Internet of Things) programme, which aims to use big data
analytics to monitor, improve and control performance, progressed well with
the Group close to finalising strategic partnerships with global technology
leaders.  The Weir Technology Advisory Board was launched in the period and
will ensure the Group has access to leading technologists from a range of
industries. 
 
 Divisional review 
 
 Minerals 
 Order input for the third quarter was down 1% against a strong prior year,
reflecting a resilient performance in more challenging market conditions.  On
a like for like basis, orders were up 5% on a sequential basis and down 5%
year-on-year.  Original equipment input was 18% higher than the prior year
period, supported by a good contribution from Trio and Delta Valves (the
latter acquired on 8 July 2015), and up 7% on a like for like basis reflecting
the realisation of the anticipated strong performance from the Geho product
line, which captured a large share of available projects.   
 
 Aftermarket input was down 9%, and 10% lower on a like for like basis,
compared to a strong prior year figure as customers responded to weak
commodity prices by closing mines, cutting safety stock levels and postponing
scheduled maintenance in the latter part of the period.   
 
 Pressure on commodity prices continued with copper down 11% since the end of
the second quarter, contributing to further mine closures and customers
intensifying their efforts to reduce operational expenditure.  Orders in
Africa were in line with the prior year as higher original equipment orders
offset a decline in aftermarket, largely as a result of mine closures in
Zambia, the Democratic Republic of Congo and South Africa, and customers'
aggressive cost control. In North America orders declined as a result of mine
closures in the first half across iron ore and coal industries with copper
production volumes also falling.  Orders also declined in Asia Pacific,
although net production volumes in Australia remained resilent.  Activity
levels in South America remained robust, although customers sought to reduce
stock levels and stepped up efforts to reduce consumables expenditure. 
 
 Despite these market conditions, constant currency revenues in the third
quarter were slightly ahead of the prior year, supported by resilient
aftermarket sales and a good contribution from recent acquisitions.  The
order book increased in the period with a book to bill ratio of 1.03. The
division's efficiency programme continues on schedule, with the closure of a
small manufacturing site in France completed in the quarter, while further
workforce reductions took place in Africa, Australia and China.  These
measures effectively offset the impacts of pricing pressure, which continued
through the period, with third quarter margins ahead of the first half. 
 
 Assuming third quarter trading conditions continue through the balance of
2015, the division expects broadly flat full year constant currency revenues,
with the contribution from acquisitions offsetting the reduction in original
equipment revenues.  Operating margins will improve sequentially with full
year operating margins expected to be slightly down on the prior year,
consistent with the trends seen in the first half. 
 
 Oil & Gas 
 Order input for the third quarter was down 58% on the prior year period,
which was the highest quarterly input in 2014, with original equipment down
60% and aftermarket 57% lower.  On a sequential basis, input was 12% lower
than the second quarter of 2015, slightly below prior expectations, reflecting
declining activity levels in North American markets including a weaker than
expected seasonal recovery in Canada. 
 
 Oil and gas markets became increasingly challenging through the period with
oil prices falling nearly 25% since  the end of the second quarter.  After
stabilising in July and August, the US rig count fell a further 12% in the
past two months with the oil-directed rig count now down 64% from its peak in
October 2014.  Gas-directed rigs have reduced by 40% since the start of 2015,
as E&P companies reacted to falling energy prices by making further cuts to
capital spending. In response to these evolving market conditions, further
cost reduction measures are being implemented across the division's upstream
businesses, including additional workforce reductions and service centre
consolidations, which will deliver annualised savings of £20m. 
 
 Both Upstream operations (Pressure Pumping and Pressure Control) saw low
double-digit sequential order declines as customers reversed prior plans to
increase activity levels.  In Pressure Pumping, order levels fell below the
2009 lows and continued to be impacted by destocking and cannibilisation as
the further decline in activity levels increased the proportion of excess
equipment.  Pressure Control was also impacted by a weak recovery in Canadian
markets from the spring break-up, although it continues to hold market share
in both Canada and the US.  Conditions continue to be challenging in
international and downstream markets with evidence of a slowdown in
construction related activity in the Middle East. 
 
 Divisional revenues were materially lower than the prior year on a constant
currency basis.  Third quarter revenues increased sequentially, supported by
delivery on the order backlog in Gabbioneta and flat Upstream revenues
compared to the second quarter, such that book to bill reduced to 0.89. 
Operating margins fell to single-digit levels and slightly below the second
quarter reflecting on-going pricing pressure, lower volumes and a higher mix
of lower-margin original equipment in Gabbioneta, partially offset by cost
saving measures and a slight decrease in manufacturing overhead
under-recoveries. 
 
 Industry expectations are that activity levels in North America will continue
to decline through the fourth quarter, reflecting depressed energy prices,
such that full year constant currency revenues will be slightly lower than
previous expectations.  Reflecting these lower volumes, second half margins
are expected to be slightly lower than prior guidance as a result of continued
manufacturing overhead under-recoveries.     
 
 
 Power & Industrial 
 Order input for the third quarter was down 15% on the prior year period, as
on-going economic uncertainty led to continued customer caution and project
delays across the division's power and industrial markets, with further oil
price reductions impacting downstream oil and gas activity levels. Original
equipment orders were down 18% and aftermarket orders reduced by 11% against
the prior year period. Valve original equipment orders were down on the prior
year, reflecting end market conditions, although aftermarket input was more
resilient.  Order input was also lower in the division's Hydro operations as
a result of the phasing of orders from its strong pipeline of work, while the
announcement of power plant closures in the UK impacted Services input.    
 
 Divisional revenues, on a constant currency basis, were slightly lower than
the prior year period but operating margins increased as a result of cost
reductions and operational improvements.  Further restructuring actions have
been taken across the division's services operations which will support
performance in 2016 and beyond. 
 
 Full year divisional revenues, on a constant currency basis, are expected to
be slightly lower than the prior year.  Operating margins are expected to
improve sequentially in the second half and compared to the prior year.    
 
 Net debt 
 Net debt at 2 October 2015 was higher than that reported at 3 July 2015 as a
result of foreign exchange movements, the consideration in respect of the
acquisition of Delta Valves and cash restructuring costs.  Full year
restructuring costs will be higher than previously indicated as a result of
the additional measures taken in the third quarter.  The Group remains
confident of delivering strong cash generation in 2015, with inventory reduced
by over £30m in the third quarter. 
 
 Notes: 
 
1Financial information is given for the 39 weeks ended 2 October
2015.2Earnings based on PBTA (before amortisation and exceptionals).  Market
consensus gathered between 29 August and 28 October 2015 and disclosed at
http://www.weir.co.uk/investors/key-financials/company-gathered-consensus.3£110m
total consists of £85m of annualised run rate cost savings previously
announced at our interim results on July 30 2015 combined with the £25m of
measures taken in Q3 2015.4Order input is reported on a constant currency
basis.Third quarter refers to the financial period 13 weeks ended 2 October
2015.5Where growth is provided on a like for like basis, like for like is
defined as the comparison of the current year results to the equivalent prior
year period for those businesses that have been part of the Group throughout
the current and prior year reporting period, on a constant currency basis.
 
 Analyst and investor conference call 
 A conference call for analysts and investors will be held at 0800 (GMT) on
Tuesday 3 November to discuss this statement.  Participants can join the call
by registering in advance by visiting weir.co.uk and following the link on the
homepage. 
 
 A recording of this conference call will be available until Monday 16
November on +44 (0) 1452 550 000 using the conference ID 63238104. 
 
  Enquiries:                                                                                          
  Investors: Stephen Christie               +44 (0) 141 637 7111 / (0) 7795 110456                     
  Media: Raymond Buchanan / Ross Easton     +44 (0) 141 637 7111 / (0) 7713 261447 / (0) 7920 190994   
  Brunswick: Patrick Handley / Nina Coad    +44 (0) 20 7404 5959                                      
 Appendix - quarterly input trends (constant currency) 
 
                       Reported growth                                       Like for like growth                     
  Division              2014 Q4    2015    2015    2015    2015               2014    2015    2015    2015    2015     
                                   Q1      Q2      Q3      Q1-Q3               Q4      Q1      Q2      Q3      Q1-Q3    
  OE                    -7%        4%      -14%    18%     2%                 -7%     -13%    -26%    7%      -12%     
  Aftermarket           5%         6%      -2%     -9%     -2%                5%      3%      -4%     -10%    -4%      
  Minerals              1%         5%      -5%     -1%     0%                 1%      -2%     -11%    -5%     -6%      
                                                                                                             
 
                                                                                                                      
                                                                                                                        
  OE                    37%        -41%    -63%    -60%    -56%               37%     -41%    -63%    -60%    -56%     
  Aftermarket           13%        -15%    -47%    -57%    -41%               13%     -15%    -47%    -57%    -41%     
  Oil & Gas             19%        -23%    -52%    -58%    -46%               19%     -23%    -52%    -58%    -46%     
                                                                                                             
 
                                                                                                                      
                                                                                                                        
  OE                    -11%       -34%    -16%    -18%    -24%               -11%    -34%    -16%    -18%    -24%     
  Aftermarket           -31%       12%     -2%     -11%    0%                 -31%    12%     -2%     -11%    0%       
  Power & Industrial    -21%       -14%    -8%     -15%    -12%               -21%    -14%    -8%     -15%    -12%     
                                                                                                             
 
                                                                                                                      
                                                                                                                        
  OE                    4%         -22%    -35%    -20%    -26%               4%      -28%    -40%    -25%    -32%     
  Aftermarket           4%         -2%     -22%    -33%    -20%               4%      -4%     -23%    -33%    -21%     
  Continuing Ops        4%         -9%     -26%    -29%    -22%               4%      -12%    -28%    -31%    -24%     
                                                                                                            
  Book to bill          0.89       1.05    1.03    0.95    1.01               0.89    1.03    1.02    0.95    1.00     
 Notes: 
 1. Input for Q3 and Q4 2014 restated to remove the impact of a large Minerals
order placed in Q3 2014 and subsequently cancelled in Q4 2014. 
 
 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.  
 

 This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf
of NASDAQ OMX Corporate Solutions clients. 
 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 
 HUG#1963487