Weir Group posts 46% decline in pre-tax profit

Unprecedented market challenges saw revenue and earnings take a tumble at Weir Group in the year to 1 January.

The FTSE 250 engineering group, which published its annual results on Wednesday, saw revenue slide 21% on a reported basis to £1.92bn, from £2.44bn. On a constant currency basis, revenue was down 22%.

Operating profit fell 42% to £259m, with Weir's operating margin down 490 basis points to 13.5%. Its profit before tax was down 46% to £220m. The company had £365m of operating exceptional costs during the year, including a £225m impairment in Oil & Gas.

Earnings per share were down 45% to 78.4p. Weir Group's final dividend was announced at 29p, leaving the year's total dividend unchanged at 44p.

"Despite market challenges which are unprecedented in recent years, Weir has delivered a resilient performance in Minerals, maintained leadership and market share in Oil & Gas, and created an additional platform for growth with the new Flow Control division," said chief executive Keith Cochrane.

"As Weir has always done, we adapted quickly to market conditions. Costs were aggressively reduced while the cash generative nature of the business supported continued investment in our strategic priorities," he added.

The company said it saw continued resilience in Minerals, with aftermarket revenues stable, and a sequential input decline in Oil & Gas, which was in line with market conditions.

Weir's Power & Industrial division reportedly saw improved profitability, despite what the board described as challenging markets.

The board said it was aggressively responding to market conditions, with cost reductions of £110m delivered in annualised savings in 2015, and an additional cost reduction programme of £40m in 2016.

Weir Group also saw strong cash generation, with free cash flow up 67% to £132m. Net debt was also reduced by £36m, despite a £48m foreign exchange headwind, and the company said up to £100m would be realised from the disposal of non-core assets in the 2016 year.

"Given ongoing market conditions, 2016 will be another challenging year. As a result, we are planning for a further reduction in constant currency Group operating profits, driven primarily by lower activity levels in upstream oil and gas markets," Cochrane said.

"We will continue to invest for the medium term supported by our aftermarket-focused business model, further cost reduction initiatives, non-core asset disposals and a clear focus on cash generation, to ensure we benefit fully and quickly when markets improve," he explained.