By Scott Wright

ENGINEERING giant Weir Group has revealed it is ramping up its cost-saving measures in the US as it prepares to exit the oil and gas sector, as it flagged “increasing interruption” to its operations and supply chain because of government measures to halt the spread of Covid-19.

Glasgow-based Weir, which supplies parts to support the mining and oil and gas sectors around the world, is looking to save an additional $30 million (£25m) a year in the expectation of a further fall in activity in the US shale market. The downturn is being driven by the collapse in oil prices and disruption caused by coronavirus.

Weir told investors the latest cost-savings measures will involve a further 25 per cent reduction in the company’s US workforce and periodic furlough. It comes as Weir anticipates a significant further drop-off in capital expenditure in oil and gas exploration and production activity, which is now expected to be down at least 30%

year on year versus its prior expectation of 10%.

The company has already cut about 600 from its payroll in North America in recent months amid a sharp downturn in shale activity, which led to demand for original equipment and after-market orders dropping off. Before yesterday’s announcement it employed about 2,500 people in the oil and gas division, most of whom are based across the Atlantic.

The company has a global workforce of about 15,000 in 50 countries.

Weir now generates about 90% of its operating profits from the minerals business, which supports the mining industries across the globe.

Updating the market yesterday, it said that, while its three facilities in China are now operating at full capacity, the main impact of the disruption caused by the pandemic was being seen at its facilities in the US, UK, South Africa, Peru and Malaysia. And it expects

there to be further disruption, conceding that the “extent and duration remains unknown”.

However, the company said it had seen most mining operations continue, with the exception of South Africa, where a national lockdown was due to come into effect last night.

Weir said overall aftermarket demand in its main mining markets has remained robust so far. There has been slowdown in original equipment orders in March, but the company said its project pipeline “remains active” for the longer term.

The move to downsize operations in the US is part of wider cost-saving measures being implemented to mitigate the impact of coronavirus, which includes withdrawing its recommendation to pay a dividend

for 2019.

The company said it had put a freeze on recruitment, and is restricting all discretionary spending and curtailing all non-essential capital expenditure, meaning that spending in 2020

will be significantly lower than previously guided.

Weir added: “More broadly, given the highly uncertain environment, we are planning for a number of potential downside scenarios of varying severity which consider widespread disruption to our operations and supply chain; deferment of original equipment orders; and, reduced aftermarket demand. Each scenario considers a range of further mitigating actions to reduce costs and conserve cash at both the operational and corporate level.”

In February, Weir signalled its intention to withdraw from the oil and gas sector completely as it reported a loss of £372m for 2019. The accounts for the year included a charge for £546m to reflect the “ongoing market dynamics” in the US.

Chief executive Jon Stanton said at the time: “The financial profile of our oil and gas business, which is largely North American shale dominated, has changed – the market has become more short-cycled and unpredictable.

“The two businesses now present quite a different investment case.”

Shares closed up 8.2p at 745p.