WEIR Group has hiked profits and revenue during a “transformational year” for the engineering giant, which saw it sharpen its focus on its core minerals and oil and gas markets.
Shares in Weir rose nearly three per cent after it delivered a 22% rise in pre-tax profit to £310 million for the year ended December 31. And it flagged its expectation of further revenue and profit growth in 2019, driven by its dominant minerals division.
Profits grew at Weir during a year which saw it complete its biggest-ever acquisition with the $1.3 billion deal to buy ESCO, an Oregon-based supplier of ground-engaging tools to the surface mining and construction sectors, last April. The deal coincided with the announcement that it would sell its loss-making Flow Control division, which was ultimately offloaded to US private equity firm First Reserve for £275m on Monday this week.
READ MORE: Glasgow engineering giant sells division for £275m
Weir said the combination of the ESCO acquisition and the Flow Control sale means the group now generates more than 80% of its revenues from the upstream mining and oil and gas markets.
The company said 2018 had seen it achieve record order intake for its minerals division, which grew by 14 per cent to exceed £1 billion for the first time.
Weir chief executive Jon Stanton said: “[It was] a huge year for the group. It has taken a huge amount of effort to deliver what we did, but from the outset we have had absolute conviction that expanding our core platform in mining, alongside oil and gas, was focusing on our strengths.
“Frankly, selling Flow Control to put it in a position where it is going to get more investment and care and attention than it would do in the Weir Group was exactly the right thing to do.”
READ MORE: Weir reaps the benefits as oil and mining start to recover
Mr Stanton highlighted the progress made by ESCO under the Weir Group, noting that it was ahead of schedule in terms of delivering cost synergies “with more still to come there”. He said Weir remains confident of delivering the $30m of cost synergies envisaged at the time of the acquisition, and pointed out for the first time the company’s hope of achieving $50m of revenue synergies in the next few years.
Mr Stanton added: “From a functional integration [perspective] we are in pretty good shape. [But] we have more to do in terms of delivering those synergies.”
Weir reported a 23% rise in revenue to £2.45bn across the group last year. Its minerals division, which serves the mining industry around the world, saw revenue climb by 13% to £1.47bn, and operating profits rise by 14% to £250m.
Weir’s oil and gas division, which is largely focused on the North American fracking sector, saw an 18% rise in revenue to £781m, and a 13% improvement in operating profit to £96m. The company said growth came as oilfield services refurbished frack fleets in response to increased demand. However, it noted that market conditions changed early in the third quarter because of capacity constraints in the Permian Basin, the major oil-producing region in the US, and as exploration and production budgets were exhausted ahead of schedule, leading to a 60% fall in frack fleet utilisation.
READ MORE: Weir highlights oil and gas market challenge
Mr Stanton said Weir anticipates more capacity coming on stream in the Permian Basin in the second half of the year, “which should alleviate some of those constraints”.
Noting that the outlook has improved as oil prices have picked up following a dip towards the end of last year, he said: “We are forecasting really only a modest recovery from current activity levels as we move through 2019. But the more important thing is [that for] the long-term fundamentals for unconventional oil and gas, particularly the Permian Basin where the level of technically recoverable oil and gas reserves is very substantial, we are going to have the capacity fixed. All the infrastructure is there.”
Meanwhile, Mr Stanton said Weir has benefited from the recent pick-up in North Sea activity. He said: “It’s a relatively small portion of the overall oil and business, but we have seen the flow through of that pick-up in activity. We have had a little bit of a tailwind from that which has been nice after a few tough years for that part of the business. “
Mr Stanton said Weir would consider further acquisitions in the long-term, but its current focus is on achieving synergies from the ESCO deal, and preparing the separation of the Flow Control unit.
Shares closed up 45.5p at 1,642.5p.
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