REG - Weir Group PLC - Final Results <Origin Href="QuoteRef">WEIR.L</Origin> - Part 3
28/02/2018 07:05
- Part 3: For the preceding part double click ID:nRSb1279Gb
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 general head office activities. Segment additions to non-current assets do not include those
additions which have arisen from business combinations (note 8).
2. Segment information (continued)
Geographical information
Geographical information in respect of revenue and non-current assets for 2017 and 2016 is disclosed below. Revenues are
allocated based on the location to which the product is shipped. Assets are allocated based on the location of the assets
and operations. Non-current assets consist of property, plant & equipment, intangible assets and investments in joint
ventures.
UK US Canada Europe & FSU Asia Pacific Australia South America Middle East & Africa Total
Year ended 31 December 2017 £m £m £m £m £m £m £m £m £m
Revenue from continuing operations
Sales to external customers 72.5 712.7 239.9 179.7 316.0 193.8 310.7 330.6 2,355.9
Non-current assets 345.4 723.0 49.0 171.2 333.5 155.7 65.1 118.5 1,961.4
UK US Canada Europe & FSU Asia Pacific Australia South America Middle East & Africa Total
Period ended 31 December 2016 £m £m £m £m £m £m £m £m £m
Revenue from continuing operations
Sales to external customers 74.9 474.5 180.8 153.9 257.7 178.3 261.2 263.6 1,844.9
Non-current assets 366.5 847.7 44.1 168.1 290.1 157.4 63.8 133.6 2,071.3
The following disclosures are given in relation to continuing operations.
2017 2016
£m £m
An analysis of the Group's revenue is as follows
Original equipment 666.9 523.2
Aftermarket parts 1,280.5 982.8
Sales of goods 1,947.4 1,506.0
Provision of services 350.4 282.1
Construction contracts 58.1 56.8
Revenue 2,355.9 1,844.9
3. Exceptional items & intangibles amortisation
2017 2016
£m £m
Recognised in arriving at operating profit from continuing operations
Intangibles amortisation (55.4) (50.2)
Exceptional item - intangibles impairment - (0.4)
Exceptional item - restructuring and rationalisation charges (12.5) (63.8)
Exceptional item - China operations - (17.0)
Exceptional item - gain on sale and leaseback of properties - 5.1
Exceptional item - legal claims (2.1) (1.1)
Exceptional item - gain on sale of EPI joint venture 10.4 -
Exceptional item - fair value adjustment to contingent consideration liability (9.1) 3.7
(68.7) (123.7)
Recognised in finance costs
Exceptional item - unwind in respect of contingent consideration liability (0.8) (3.8)
Restructuring and rationalisation charges represent the committed costs of programmes to right size operations and
discontinue certain activities. The restructuring and rationalisation exceptional cost of £12.5m comprises £13.4m of
restructuring costs for programmes commenced in 2016 offset by the release of unutilised restructuring provisions. These
relate to headcount reduction and service centre closures and comprise £4.3m net cash restructuring costs, £4.8m inventory
write down and a net £3.4m relating to plant & equipment.
An exceptional gain of £10.4m has been recognised on the sale of the 49% stake in the Energy Products LLC (EPI) joint
venture sold in November 2017.
An exceptional cost of £2.1m relates to the continuation of a prior period legal claim. A fair value adjustment to
contingent consideration liability of £9.6m related to the acquisition of the remaining 40% of Weir International, offset
by a £0.5m credit following the settlement of Delta Industrial Valves deferred consideration and £0.8m unwind of contingent
consideration liability for Weir International.
4. Income tax expense
2017 2016
£m £m
Group - UK 2.3 (1.6)
Group - Overseas (21.4) 2.0
Total income tax (expense) credit in the Consolidated Income Statement (19.1) 0.4
The total income tax credit (expense) is disclosed in the Consolidated Income Statement as follows.
Tax (expense) credit
- continuing operations before exceptional items & intangibles amortisation (59.7) (38.4)
- exceptional items 22.9 21.0
- intangibles amortisation and impairment 17.7 17.8
Total income tax (expense) credit in the Consolidated Income Statement (19.1) 0.4
The total income tax expense included in the Group's share of results of joint ventures is as follows.
Joint ventures (1.0) (1.6)
The United States Tax Cuts and Jobs Act was signed on 22 December 2017 and included a broad range of tax reform including a
reduction in the Federal rate of corporate income tax from 35% to 21% (effective 1 January 2018) as well as significant
changes to business deductions and other international tax provisions including changes to the rules governing interest
deductibility.
US tax reform gives rise to a transitional one-off non-cash tax credit of £24.0m included within exceptional items and
primarily due to the revaluation of the Group's aggregate US deferred tax assets and deferred tax liabilities following the
reduction in the US Federal rate from 35% to 21%.
5. Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for the effect of dilutive share awards.
The following reflects the earnings and share data used in the calculation of earnings per share.
2017 2016
Profit attributable to equity holders of the Company
Total operations* (£m) 161.7 38.3
Continuing operations* (£m) 161.7 43.3
Continuing operations before exceptional items & intangibles amortisation* (£m) 190.6 132.0
Weighted average share capital
Basic earnings per share (number of shares, million) 219.9 215.6
Diluted earnings per share (number of shares, million) 221.3 216.9
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.
2017 2016
SharesMillion SharesMillion
Weighted average number of ordinary shares for basic earnings per share 219.9 215.6
Effect of dilution: LTIP awards 1.4 1.3
Adjusted weighted average number of ordinary shares for diluted earnings per share 221.3 216.9
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.
2017 2016
£m £m
Net profit attributable to equity holders from continuing operations* 161.7 43.3
Exceptional items & intangibles amortisation net of tax 28.9 88.7
Net profit attributable to equity holders from continuing operations before exceptional items & intangibles amortisation 190.6 132.0
2017 2016
pence pence
Basic earnings per share:
Total operations* 73.5 17.8
Continuing operations* 73.5 20.1
Continuing operations before exceptional items & intangibles amortisation* 86.7 61.2
Diluted earnings per share:
Total operations* 73.1 17.7
Continuing operations* 73.1 20.0
Continuing operations before exceptional items & intangibles amortisation* 86.1 60.8
*Adjusted for a loss of £0.2m (2016: £0.1m) in respect of non-controlling interests.
There have been no share options (2016: nil) exercised between the reporting date and the date of signing of these financial statements.
6. Dividends paid & proposed
2017 2016
£m £m
Declared & paid during the year
Equity dividends on ordinary shares
Final dividend for 2016: 29.0p (2015: 29.0p) 63.1 62.0
Interim dividend for 2017: 15.0p (2016: 15.0p) 33.6 32.5
96.7 94.5
Proposed for approval by shareholders at the Annual General Meeting
Final dividend for 2017: 29.0p (2016: 29.0p) 65.0 63.1
In 2016 and 2017, shareholders on record were provided the opportunity 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 final dividend for 2016 of £6.4m share issue and a cash dividend of £56.7m (final dividend for 2015: £29.6m share issue; £32.4m cash). The interim dividend for 2017 was split £16.1m share issue and £17.5m cash dividend (interim dividend for 2016: £19.1m share issue; £13.4m
cash).
The proposed dividend is 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 final dividend may differ due to increases or decreases in the number of shares in issue between the date of approval of this Annual Report and Financial Statements and the record date for the final dividend.
Dividends have been maintained in the year with dividend cover of 1.97 times (2016: 1.39 times) as explained in the Group Financial Highlights.
7. Property, plant & equipment & intangible assets
2017 2016
£m £m
Additions of property, plant & equipment & intangible assets
- land & buildings 9.3 19.2
- plant & equipment 58.0 35.1
- intangible assets 18.4 23.5
85.7 77.8
The above additions relate to the normal course of business and do not include any additions made by way of business combinations.
8. Business combinations
On 27 July 2017, the Group completed the acquisition of KOP Surface Products, a South Asian provider of advanced pressure
control wellhead technologies, systems and services for a consideration of $118.0m less cash acquired of $3.9m. The
acquisition was funded by the issue of shares totalling £90.0m. The provisional fair values, which are subject to
finalisation during the first half of 2018, are disclosed in the table below.
There are certain intangible assets included in the £51.6m of goodwill recognised that cannot be individually separated and
reliably measured due to their nature. These items include anticipated business growth, synergies and an assembled
workforce.
KOP provisional fair values
2017
£m
Property, plant & equipment 7.9
Inventories 3.4
Intangible assets
- customer relationships 5.4
- brand name 4.4
- intellectual property 12.4
Trade & other receivables 10.4
Cash & cash equivalents 3.2
Trade & other payables (7.0)
Provisions (4.1)
Current tax 1.4
Deferred tax 3.5
Fair value of net assets 40.9
Goodwill arising on acquisition 51.6
Total consideration 92.5
The total net cash outflow on current year acquisitions was as follows
- cash paid (92.5)
- cash & cash equivalents acquired 3.2
Total cash outflow (note 13) (89.3)
The gross amount and fair value of KOP trade receivables amounts to £10.4m. It is expected that virtually all the
contractual amounts will be collected.
KOP contributed £13.3m to revenue and an operating loss of £4.3m (including exceptional items and intangibles amortisation)
in the period from acquisition to 31 December 2017. If the acquisition had occurred at the start of 2017 the revenue and
profit for the year from acquired operations after exceptional items and intangibles amortisation, would not have been
materially different from the results disclosed in the Consolidated Income Statement. Acquisition costs totalled £1.5m in
the year.
8. Business combinations (continued)
Contingent consideration
Asset Liability
2017 2016 2017 2016
£m £m £m £m
Opening balance 3.9 - (31.0) (35.9)
Liability arising on business combinations - - - (0.6)
Asset arising on business disposal 0.4 4.6 - -
Fair value changes in profit or loss (note 3) (0.1) (0.4) (9.1) 3.7
Contingent consideration (received) paid (note 13) (3.5) (0.6) 38.0 10.6
Unwind of discount (note 3) - - (0.8) (3.8)
Exchange movements in the year (0.3) 0.3 (0.5) (5.0)
Closing balance 0.4 3.9 (3.4) (31.0)
Any contingent consideration is recognised at the date of acquisition or disposal of a subsidiary.
i) Contingent consideration receivable
The disposal of American Hydro Corporation in 2016 included a final escrow payment of £3.6m due for settlement in 2017.
This balance was settled during the year with £3.5m cash received and a £0.1m adjustment recorded in discontinued
operations.
An escrow receivable of £0.4m was booked in the year relating to the sale of the joint venture entity, Energy Products LLC
(EPI). The balance is to be received early 2018.
ii) Contingent consideration payable
The deferred consideration payable in relation to the acquisition of Weir International in 2011 has been settled in the
year following an agreement being reached to complete the purchase of the remaining minority interest. In 2017 a fair value
adjustment of £9.6m and an unwind of £0.8m was recorded with payment of the closing deferred consideration in December 2017
to complete the purchase of the remaining minority interest for payment proceeds of £36.6m.
The remaining deferred consideration of £1.3m for the 2015 acquisition of Delta Valves was settled in the year. Based on
final negotiations, £0.8m was paid in cash with the remainder of the balance written off as a fair value adjustment. The
deferred consideration of £0.6m relating to the 2016 purchase of the remaining shareholding of Shengli Oilfield Weir
Highland Pump Company Ltd (Shengli) was paid during the year.
There is contingent consideration payable of £3.4m remaining in relation to the 2014 Weir Trio acquisition. This relates to
working capital balances and is now expected to be finalised in 2018. A reconciliation of fair value measurement of the
contingent consideration asset and liability is provided above.
9. Interest-bearing loans & borrowings
At 31 December 2017, a total of £293.4m equivalent (2016: £142.1m equivalent) was outstanding under the Group's US$1bn
commercial paper programme.
At 31 December 2017, US$nil (2016: US$40.0m) was drawn under the revolving credit facility. The US$800m multi-currency
revolving credit facility matures in two tranches between September 2020 and September 2021. Total unamortised issue costs
at 31 December 2017 were £1.5m (2016: £2.5m).
10. Provisions
Warranties & onerous sales contracts Asbestos-related Employee-related Exceptionalrationalisation Other Total
£m £m £m £m £m £m
At 31 December 2016 23.5 52.7 16.7 47.1 3.4 143.4
Additions 21.8 15.6 4.1 7.3 3.6 52.4
Acquisitions 1.8 - 2.0 - 0.3 4.1
Utilised (17.4) (6.4) (3.4) (32.8) (1.7) (61.7)
Unwind - 0.7 - - - 0.7
Unutilised (4.3) - (0.3) (0.9) (0.3) (5.8)
Transfers 5.2 - - (5.2) - -
Exchange adjustment (1.0) (4.6) (0.6) (1.9) (0.4) (8.5)
At 31 December 2017 29.6 58.0 18.5 13.6 4.9 124.6
Current 2017 - Part 3: For the preceding part double click ID:nRSb1279Gb
periods in the 1960's and 1970's. In 1989 the
Group's employer's liability insurer (Chester Street Employers Association
Ltd) was placed into run-off which effectively generated an uninsured
liability exposure for all future long tail disease claims with an exposure
period pre-dating 1 January 1972. All claims with a disease exposure post 1
January 1972 are fully compensated via the Government established Financial
Services Compensation Scheme (FSCS). Any settlement to a former employee whose
service period straddles 1972 is calculated on a pro rata basis. The Group
provides for these claims 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.
The UK provision was reviewed and adjusted accordingly for claims experience
in the year resulting in a provision of £4.7m (2016: £5.2m).
Employee-related
Employee-related provisions arise from legal obligations, the majority of
which relate to compensation associated with periods of service.
Exceptional rationalisation
Restructuring and rationalisation charges led to additions of £7.3m (2016:
£63.0m) during the year which related to continued costs from 2016
restructuring projects and additional costs of £2.1m as a result of an
extension of a prior period legal claim.
During 2017 a transfer has been made from exceptional rationalisation to the
warranties and onerous sales contract provision. Included in the utilisation
of the exceptional rationalisation provision in the year is non-cash
utilisation items of £4.2m which led to a cash outflow of £28.6m.
Other
Other provisions relate to penalties, duties due, legal claims and other
exposures across the Group.
11. Pensions & other post-employment benefit plans
2017 2016
£m £m
Plans in surplus - 9.8
Plans in deficit (137.7) (147.0)
Net liability (137.7) (137.2)
The net Group deficit for retirement benefit obligations at the year end was
£137.7m (2016: £137.2m). The increase in deficit is a result of actuarial
losses on the liability side due to changes in financial conditions offset in
part by changes in demographic assumptions. This was largely offset by a
gain on scheme assets, together with employer contributions and currency
gains.
12. Derivative financial instruments
The Group enters into derivative financial instruments in the normal course of
business in order to hedge its exposure to foreign exchange risk. Derivatives
are only used for economic hedging purposes and no speculative positions are
taken. Derivatives are recognised as held for trading and at fair value
through profit and loss unless they are designated in IAS 39 compliant hedge
relationships.
The table below summarises the types of derivative financial instrument
included within each balance sheet category.
2017 2016
£m £m
Included in non-current assets
Other forward foreign currency contracts 0.3 -
0.3 -
Included in current assets
Forward foreign currency contracts designated as cash flow hedges 0.3 -
Forward foreign currency contracts designated as net investment hedges 7.5 -
Other forward foreign currency contracts 8.9 24.0
16.7 24.0
Included in current liabilities
Forward foreign currency contracts designated as cash flow hedges (0.1) (1.2)
Forward foreign currency contracts designated as net investment hedges (1.6) (15.2)
Cross currency swaps designated as net investment hedges (8.9) (6.3)
Other forward foreign currency contracts (15.2) (7.5)
(25.8) (30.2)
Included in non-current liabilities
Cross currency swaps designated as net investment hedges (0.7) (14.7)
Other forward foreign currency contracts - (0.2)
(0.7) (14.9)
Net derivative financial liabilities (9.5) (21.1)
13. Additional cash flow information
2017 2016
Notes £m £m
Total operations
Net cash generated from operations
Operating profit - continuing operations 223.1 90.3
Operating loss - discontinued operations (0.1) (3.8)
Operating profit - total operations 223.0 86.5
Exceptional items 3 23.8 77.5
Amortisation of intangible assets 55.4 50.3
Share of results of joint ventures (10.9) (7.2)
Depreciation of property, plant & equipment 58.2 56.2
Impairment of property, plant & equipment 0.1 -
Grants received (1.2) -
Gains on disposal of property, plant & equipment (0.1) (1.1)
Gains on disposal of joint ventures (10.4) -
Funding of pension & post-retirement costs (4.8) (0.6)
Employee share schemes 7.0 4.1
Transactional foreign exchange (0.4) 6.6
Decrease in provisions (0.5) (11.3)
Cash generated from operations before working capital cash flows 339.2 261.0
(Increase) decrease in inventories (64.2) 7.1
(Increase) decrease in trade & other receivables and construction (117.8) 57.5
contracts
Increase (decrease) in trade & other payables and construction contracts 63.3 (33.0)
Cash generated from operations 220.5 292.6
Additional pension contributions paid (3.0) (2.8)
Exceptional cash items 10 (28.6) (58.1)
Income tax paid (60.5) (15.7)
Net cash generated from operating activities 128.4 216.0
Exceptional items are detailed in note 3.
The employee-related provision and associated insurance asset in relation to
US asbestos-related claims disclosed in note 10 will not result in any cash
flows either to or from the Group and therefore they have been excluded from
the table above.
13. Additional cash flow information (continued)
The following tables summarise the cash flows arising on acquisitions and
disposals.
2017 2016
£m £m
Acquisitions of subsidiaries
Current year acquisitions (see below) (89.3) -
Prior period acquisitions contingent consideration paid (0.8) (10.6)
(90.1) (10.6)
Acquisition of subsidiaries - cash paid (92.5) -
Cash & cash equivalents acquired 3.2 -
Acquisition of subsidiaries - current year acquisitions (89.3) -
Total cash outflow on current year acquisitions (89.3) -
Prior period acquisitions contingent consideration paid (0.8) (10.6)
Total cash outflow relating to acquisitions (90.1) (10.6)
Net cash inflow arising on prior period disposals
Consideration received in cash & cash equivalents - 35.4
Less: cash & cash equivalents disposed of - (4.0)
Prior period disposals completion adjustment 3.5 -
Total cash inflow relating to prior period disposals 3.5 31.4
2017 2016
£m £m
Net debt comprises the following
Cash & short-term deposits 284.6 258.6
Current interest-bearing loans & borrowings (388.4) (144.0)
Non-current interest-bearing loans & borrowings (739.4) (949.1)
(843.2) (834.5)
Reconciliation of financing cash flows to movement in net debt
Opening balance Cash movements Additions FX Non cash movements Total
£m £m £m £m £m £m
Third party loans (1,093.2) (110.1) - 75.1 - (1,128.2)
Leases (0.8) 0.4 (0.6) - - (1.0)
Unamortised issue costs 2.5 - - - (1.0) 1.5
Amounts included in gross debt (1,091.5) (109.7) (0.6) 75.1 (1.0) (1,127.7)
Cash & cash equivalents 257.0 53.5 - (26.0) - 284.5
Amounts included in net debt (834.5) (56.2) (0.6) 49.1 (1.0) (843.2)
Financing derivatives (21.4) 6.6 - - 5.6 (9.2)
Contingent consideration (31.0) 38.0 - (0.5) (9.9) (3.4)
Other liabilities relating to financing activities (52.4) 44.6 - (0.5) (4.3) (12.6)
Total financing liabilities(*) (1,143.9) (65.1) (0.6) 74.6 (5.3) (1,140.3)
(*) Total financing liabilities comprise gross debt plus other liabilities
relating to financing activities.
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
year and outstanding balances at the year end.
Sales to related parties - goods Sales to related parties - services Purchases from related parties - goods Purchases from related parties - services Amounts owed to related parties
Related party £m £m £m £m £m
Joint ventures 2017 48.7 0.5 0.2 0.3 -
2016 26.0 0.1 0.2 0.4 -
Group pension plans 2017 - - - - 4.3
2016 - - - - 4.1
15. Legal claims
The Company and certain subsidiaries are, from time to time, parties to legal
proceedings and claims which arise in the normal course of business.
Provisions have been made where the Directors have assessed that a cash
outflow is likely and they believe all other claims are remote.
16. Exchange rates
The principal exchange rates applied in the preparation of these financial
statements were as follows.
2017 2016
Average rate (per £)
US Dollar 1.29 1.36
Australian Dollar 1.68 1.83
Euro 1.14 1.22
Canadian Dollar 1.67 1.80
United Arab Emirates Dirham 4.73 4.98
Chilean Peso 835.52 918.59
South African Rand 17.15 20.00
Brazilian Real 4.11 4.75
Russian Rouble 75.17 91.20
Closing rate (per £)
US Dollar 1.35 1.22
Australian Dollar 1.73 1.70
Euro 1.13 1.17
Canadian Dollar 1.69 1.65
United Arab Emirates Dirham 4.97 4.49
Chilean Peso 832.26 813.76
South African Rand 16.76 16.63
Brazilian Real 4.48 3.97
Russian Rouble 77.86 73.89
16. Exchange rates (continued)
The Group's operating profit from continuing operations before exceptional
items and intangibles amortisation was denominated in the following
currencies.
Translational foreign exchange
2017 2016
£m £m
US Dollar 176.4 70.0
Australian Dollar 29.0 33.8
Euro 6.8 26.2
Canadian Dollar 33.9 36.6
United Arab Emirates Dirham 3.2 5.8
Chilean Peso 39.0 35.6
South African Rand 11.1 4.9
Brazilian Real 4.9 3.6
Russian Rouble 5.2 6.9
UK Sterling (21.6) (11.2)
Other 3.9 1.8
Operating profit from continuing operations before exceptional items & 291.8 214.0
intangibles amortisation
This information is provided by RNS
The company news service from the London Stock Exchange
21.2 10.7 5.3 10.7 4.7 52.6
Non-current 2017 8.4 47.3 13.2 2.9 0.2 72.0
At 31 December 2017 29.6 58.0 18.5 13.6 4.9 124.6
Current 2016 18.2 13.6 6.2 42.5 2.7 83.2
Non-current 2016 5.3 39.1 10.5 4.6 0.7 60.2
At 31 December 2016 23.5 52.7 16.7 47.1 3.4 143.4
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.
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 cases of this nature with all claims directly managed by the Group's insurers who
also meet associated defence costs. The insurers and their legal advisers agree and execute the defence strategy between
them. There are currently no related cash flows to or from the Group, and we expect this to continue for the foreseeable
future.
10. Provisions (continued)
There remains inherent uncertainty associated with estimating future costs in respect of asbestos-related diseases.
Actuarial estimates of future indemnity and defence costs associated with asbestos-related diseases are subject to
significantly greater uncertainty than actuarial estimates for other types of exposures. This uncertainty results from
factors that are unique to the asbestos claims litigation and settlement process including but not limited to:
i) The possibility of future state or federal legislation applying to claims for asbestos-related diseases;
ii) The ability of the plaintiff's bar to develop and sustain new legal theory and/or develop new populations
of claimants;
iii) Changes in focus of the plaintiff's bar;
iv) Changes in the Group's defence strategy; and
v) Changes in the financial condition of other co-defendants in suits naming the Group and affiliated
businesses.
A review of both the Group's expected liability for US asbestos-related diseases and the adequacy of the Group's insurance
policies to meet future settlement and defence costs was completed in conjunction with external advisers. The exercise was
originally completed in 2014 and has been repeated in 2017 as part of our planned triennial actuarial update. This review
estimated future claims experience based on an industry standard epidemiological decay model, and Weir's claims settlement
history. Due to the inherent uncertainty resulting from the changing nature of the US litigation environment as outlined
above, and in conjunction with the actuarial review, the Directors consider 10 years (2016: 10 years) of projected claims
to provide a reliable estimate of the future liability. A provision of £53.3m represents the Directors' best estimate of
the future liability, although these estimates and the period over which they are assessed will continue to be refined as
the claims history develops. Confirmation was also received from external advisers that the insurance asset remains
sufficient to match the Directors' best estimate of the future liability and therefore a corresponding asset continues to
be recognised for insurance proceeds.
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. Sensitivity analysis has been conducted which involved:
i) Increasing/decreasing the number of projected future settled claims and estimated settlement value by 10%;
or
ii) Increasing/decreasing the basis of provision by 2 years.
Application of these sensitivities would not lead to a material change in the provision.
In the UK, there are outstanding asbestos-related claims which are not the subject of insurance cover. The extent of the UK
asbestos exposure involves a series of legacy employers liability claims which all relate to former UK operations and
employment periods in the 1960's and 1970's. In 1989 the Group's employer's liability insurer (Chester Street Employers
Association Ltd) was placed into run-off which effectively generated an uninsured liability exposure for all future long
tail disease claims with an exposure period pre-dating 1 January 1972. All claims with a disease exposure post 1 January
1972 are fully compensated via the Government established Financial Services Compensation Scheme (FSCS). Any settlement to
a former employee whose service period straddles 1972 is calculated on a pro rata basis. The Group provides for these
claims 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.
The UK provision was reviewed and adjusted accordingly for claims experience in the year resulting in a provision of £4.7m
(2016: £5.2m).
Employee-related
Employee-related provisions arise from legal obligations, the majority of which relate to compensation associated with
periods of service.
Exceptional rationalisation
Restructuring and rationalisation charges led to additions of £7.3m (2016: £63.0m) during the year which related to
continued costs from 2016 restructuring projects and additional costs of £2.1m as a result of an extension of a prior
period legal claim.
During 2017 a transfer has been made from exceptional rationalisation to the warranties and onerous sales contract
provision. Included in the utilisation of the exceptional rationalisation provision in the year is non-cash utilisation
items of £4.2m which led to a cash outflow of £28.6m.
Other
Other provisions relate to penalties, duties due, legal claims and other exposures across the Group.
11. Pensions & other post-employment benefit plans
2017 2016
£m £m
Plans in surplus - 9.8
Plans in deficit (137.7) (147.0)
Net liability (137.7) (137.2)
The net Group deficit for retirement benefit obligations at the year end was £137.7m (2016: £137.2m). The increase in
deficit is a result of actuarial losses on the liability side due to changes in financial conditions offset in part by
changes in demographic assumptions. This was largely offset by a gain on scheme assets, together with employer
contributions and currency gains.
12. Derivative financial instruments
The Group enters into derivative financial instruments in the normal course of business in order to hedge its exposure to
foreign exchange risk. Derivatives are only used for economic hedging purposes and no speculative positions are taken.
Derivatives are recognised as held for trading and at fair value through profit and loss unless they are designated in IAS
39 compliant hedge relationships.
The table below summarises the types of derivative financial instrument included within each balance sheet category.
2017 2016
£m £m
Included in non-current assets
Other forward foreign currency contracts 0.3 -
0.3 -
Included in current assets
Forward foreign currency contracts designated as cash flow hedges 0.3 -
Forward foreign currency contracts designated as net investment hedges 7.5 -
Other forward foreign currency contracts 8.9 24.0
16.7 24.0
Included in current liabilities
Forward foreign currency contracts designated as cash flow hedges (0.1) (1.2)
Forward foreign currency contracts designated as net investment hedges (1.6) (15.2)
Cross currency swaps designated as net investment hedges (8.9) (6.3)
Other forward foreign currency contracts (15.2) (7.5)
(25.8) (30.2)
Included in non-current liabilities
Cross currency swaps designated as net investment hedges (0.7) (14.7)
Other forward foreign currency contracts - (0.2)
(0.7) (14.9)
Net derivative financial liabilities (9.5) (21.1)
13. Additional cash flow information
2017 2016
Notes £m £m
Total operations
Net cash generated from operations
Operating profit - continuing operations 223.1 90.3
Operating loss - discontinued operations (0.1) (3.8)
Operating profit - total operations 223.0 86.5
Exceptional items 3 23.8 77.5
Amortisation of intangible assets 55.4 50.3
Share of results of joint ventures (10.9) (7.2)
Depreciation of property, plant & equipment 58.2 56.2
Impairment of property, plant & equipment 0.1 -
Grants received (1.2) -
Gains on disposal of property, plant & equipment (0.1) (1.1)
Gains on disposal of joint ventures (10.4) -
Funding of pension & post-retirement costs (4.8) (0.6)
Employee share schemes 7.0 4.1
Transactional
- More to follow, for following part double click ID:nRSb1279GdRecent news on Weir
See all newsREG - Weir Group PLC - Holding(s) in Company
AnnouncementREG - Weir Group PLC - Holding(s) in Company
AnnouncementRCS - Weir Group PLC - Weir receives 'A' score from CDP
AnnouncementRCS - Weir Group PLC - Weir and Olayan announce key milestone
AnnouncementREG - Weir Group PLC - Directorate change
Announcement