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Weir Group profits are buffeted by the pound

WEIR Group has seen the strength of the pound hit its profits and revenues in the first six months of the year, while prospects at its key minerals division remain affected by mining strikes in Africa.

OPTIMISTIC: Weir Group's CEO Keith Cochrane anticipates strong revenue and profit growth in the second half of 2014.
OPTIMISTIC: Weir Group's CEO Keith Cochrane anticipates strong revenue and profit growth in the second half of 2014.

However the Glasgow engineering giant, run by chief executive Keith Cochrane, reported a 10 per cent lift in order input to £1.24 billion and said it was confident of hitting full-year targets. Revenue in the period came in at £1.14 billion, down five per cent from almost £1.2 billion, although up 10 per cent on a constant currency basis.

Original equipment orders made up 34 per cent of the revenue with the remainder coming from the aftermarket, which deals with areas such as repairs, spare parts and servicing.

Underlying pre-tax profit fell six per cent from £193 million to £182 million for the 26 weeks to July 4 but stripping out currency fluctuations the profit was said to have risen seven per cent.

After taking off an intangibles amortisation charge of £21 million and exceptional costs of £3 million, the reported pre-tax profits were £158 million, down from £165 million.

Weir noted £2 million of the exceptional costs were related to its unsuccessful pursuit of Finnish engineering company Metso.

The minerals arm, Weir's largest and most profitable segment, saw revenue dip from £578 million to £548 million as that sector is still seeing delays in projects around the world and customers are cautious about expanding existing operations.

Industrial action at mines across South Africa as well as the Ebola outbreak in West Africa also affected Weir's operations. Orders came in at £566 million with earnings before interest, tax and amortisation (EBITA) slipping nine per cent from £114 million to £104 million.

The group's focus on the shale market in North America boosted the oil and gas division with orders there up by a better-than-expected 40 per cent to £499 million. Revenue grew 23 per cent from £353 million to £453 million with acceleration in the pace of growth between April and the end of the period.

Weir also highlighted improving performance in the Middle East as the oil and gas section saw its EBITA up by 27 per cent to £99 million

The group's power and industrial arm, its smallest division, saw input rise seven per cent to £175 million citing a recovery in hydro markets in the United States as well as strong valve orders in China and India.

While revenue was hiked by nine per cent to £161 million, the EBITA slipped 16 per cent to £9 million which was largely as a result of fewer of its high margin nuclear safety valve products being sold.

Across the group around £25 million of costs were shaved through procurement initiatives.

Mr Cochrane indicated his confidence of an improvement across all three divisions in the second half of the year although strikes by metal workers in South Africa in July have resulted in a £3 million hit to profit. He said: "We anticipate strong revenue and profit growth in the second half of 2014, assuming no further deterioration or disruption in mining end markets."

The company also sealed a deal for Canadian wellhead supply firm Metra, based in Saskatchewan, which has revenue of around C$8  million (£4.35 million).

Mr Cochrane told analysts the business remained in the market for further deals across its divisions and said: "There are some interesting opportunities in oil and gas markets in North America, [which are] more in the bolt-on category for us to broaden out the portfolio."

Shares in Weir, which have been on a strong run recently, closed down 101p, or 3.8 per cent, at 2567p.

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