Scottish engineering giant Weir Group said it expects full-year pre-tax profits to hit £360 million this year – £65m more than its 2010 result – and apologised to shareholders yesterday for bribing Saddam Hussein's henchmen to win lucrative contracts in Iraq before the 2003 war.
Chief executive Keith Cochrane said 2011 growth was being driven primarily by China’s seemingly insatiable demand for metals, which in turn was accelerating demand for Weir-made mining equipment from the world’s top six mining corporations, and also by the boom in shale oil and gas exploration around the world, particularly in North America.
However, speaking at the company’s 117th annual meeting at the Radisson Hotel in Glasgow, yesterday Weir chairman Lord Smith of Kelvin began his address to shareholders by saying: “In December, we pleaded guilty to two charges of breaching UN sanctions imposed on Iraq.
“It was wrong and I am disappointed that this went on within the group. Weir has taken full responsibility and I apologise.”
The FTSE-100 engineering giant admitted legal responsibility in December at the High Court in Edinburgh for giving kickbacks that contravened sanctions imposed on Iraq by the United Nations between 2000 and 2002.
Lord Smith added: “This is a very different group now with a different management team, and the board is determined to maintain... the highest ethical behaviour.”
Meanwhile, Glasgow-based Weir said a record opening order book and contributions from last year’s acquisitions had increased its confidence in achieving further good progress in 2011 and that it expects full-year pre-tax profit to be around £20m ahead of previous expectations of £340m, following a robust first quarter.
Weir, which makes pumps and valves for moving minerals, oil and seawater, said the strong revenue growth had been achieved in the first quarter by both organic growth and by its five acquisitions last year, and that there had been record quarterly orders for the minerals and oil and gas divisions. Total order input was up 39%, compared with the year-earlier period on a reported basis and advanced 30% on a like-for-like basis.
Original equipment orders were up 49%, while aftermarket orders rose 31%.
China’s booming economy and its hunger for raw materials has vaulted many mining companies back to pre-recession-era profit levels, helping drive growth at Weir’s minerals division, which counts global giants BHP Billiton, Rio Tinto and Anglo American as customers.
Order input in the minerals division was up 13% in the first quarter.
The explosive increase in metals demand from China has also escalated activity in metal mining regions around the world, such as South America, Africa and Australia.
Industry observers have estimated that China’s demand for refined copper, for example, will reach 8 million tons by 2015, increasing at an average rate of 5%-6% each year.
However, China’s policymakers are now scrambling to contain inflation and a real estate bubble that many fear could sap demand for metals just as commodity producers are beginning to spend again.
Asked after yesterday’s AGM if he was concerned about the possibility that China’s economy will overheat, Mr Cochrane said: “We are not seeing any slowdown in China. Because of the lead times, we will get plenty warning of a slowdown, it comes.
“At the moment, we are about 60% aftermarket orders and 40% original equipment orders, but I expect that will come back to 50-50 over the next couple of years as we see mining activity picking up.
“There is a lot of activity out there.”
Meanwhile, orders in its oil and gas business were up 129% and Weir said it was stepping up a £25m investment in its Fort Worth site in Texas on the back of the continuing North American shale boom.
“In this particular area, Middle East volatility helps us, because it helps drive the growth in North American shale,” he said.
Meanwhile, Mr Cochrane also said the “tragic events” in Japan would likely delay orders from the nuclear sector by about 12 months, as the industry “understandably” makes fundamental safety checks.
Shares in Weir yesterday slipped almost 4% to 1860p.
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