Weir Group PLC Interim Management Statement (4749D)

TIDMWEIR

RNS Number : 4749D

Weir Group PLC

27 April 2017

The Weir Group PLC Interim Management Statement for the period to 26 April 2017(1)

On track for strong recovery in 2017

   --      Full-year profits anticipated to be in line with current market expectations 
   --      First quarter order input(2) grew 15% 
   --      Minerals aftermarket orders increased 13%; original equipment was up 4% 
   --      Oil & Gas orders rose 50% driven by significant growth in North America 
   --      Flow Control orders fell 11%; downstream and power markets continued to be challenging 
   --      Continued strong cash generation in 2017 

Jon Stanton, Chief Executive, commented:

"Mining and oil and gas markets continued to grow in the first quarter, supporting the view that we are at the beginning of a cyclical upturn in our main markets and I'm confident the Group is well positioned to benefit.

Demand for the group's mission-critical technology was supported by miners investing in productivity gains and a significant increase in North American onshore oil and gas activity, although pricing in this market remained at low levels. Power, mid and downstream markets, which are later cycle, continued to be challenging and will take longer to recover.

Assuming commodity prices remain supportive, we continue to anticipate good growth in constant currency revenues and strong cash generation, with full year profits anticipated to be in line with current market expectations and weighted towards the second half. The Minerals division is expected to perform as anticipated with more challenging conditions in Flow Control partially offsetting additional momentum in Oil & Gas."

First quarter review

First quarter input was 15% higher than the prior year period with good sequential growth primarily driven by increased activity levels in North American Oil & Gas and strong aftermarket orders in Minerals. Group-wide aftermarket orders were 21% higher than the prior year period with original equipment orders up 5%.

Revenues, on a constant currency basis, were in line with expectations and slightly higher than the first quarter of 2016. The Group generated a positive book to bill ratio of 1.14 over the three-month period supporting the sequential growth expected during the balance of the year. As previously stated, full year profit growth will be supported by foreign currency translation benefits, partly offset by continued incremental investments in people and technology.

Divisional review

Minerals

Order input for the first quarter was up 10%, driven by a 13% increase in aftermarket input compared to a weak prior year comparator, which included the impact from the extended mining industry shut-down at the start of 2016. Original equipment input was up 4% against a strong prior year comparator, as customer demand continued to reflect increased investment in sustaining capital expenditure to support plant optimisation and maintenance. On a sequential basis, both aftermarket and original equipment input were higher. The division's order book increased in the quarter with a book to bill ratio of 1.19.

Full year divisional revenue and operating margin expectations are unchanged, with constant currency revenues anticipated to be moderately higher and operating margins expected to be broadly stable compared to the prior year. Operating profit and margins are expected to be more second half weighted than last year, reflecting the additional investments in growth announced in February and the timing of project revenues in Geho, the division's longest lead-time business.

Oil & Gas

Order input for the first quarter was 50% higher than the prior year period. This was slightly ahead of prior expectations and reflected increased activity levels in North America. Original equipment orders increased 56% and aftermarket orders were 48% higher. On a sequential basis, input also increased significantly as customers accelerated the refurbishment of their frack fleets, with March and April orders well above prior expectations. Pricing levels remain depressed, with only slight improvements achieved in certain minor product lines. Progress in North America was partially offset by a slight decline in the Middle East where customers continued to reduce activity and postpone orders and maintenance. The division's book to bill ratio in the first quarter was 1.15.

Assuming oil and gas prices remain at or above current levels, we expect a strong increase in constant currency divisional revenues slightly ahead of prior guidance, driven by growth in North America and early signs of stabilisation in International markets. Divisional margins are expected to be slightly higher than previous guidance, primarily reflecting additional operating leverage.

Flow Control

Order input for the first quarter was down 11% on the prior year period as trading conditions remained challenging, with customers cautious and delaying projects across the division's end markets, particularly downstream oil and gas. Power markets also remained tough with low wholesale electricity prices driving customers to defer all but essential investment and minimise operating costs. Markets remained highly competitive with ongoing pricing pressure. Original equipment orders were down 18% and aftermarket orders reduced by 3% against the prior year period as customers delayed maintenance schedules.

Full year revenue expectations remain unchanged, but will be second half weighted as a result of project delivery delays. As a result of market conditions and legacy contract delivery challenges in the Gabbioneta business, full year divisional operating margins will be lower than previously anticipated and significantly second half weighted.

Net debt

Net debt at 31 March 2017 was higher than that reported at 31 December 2016, but in line with expectations and normal seasonal patterns. The group remains confident of delivering strong underlying cash generation in 2017, which like profits will be second half weighted.

Notes:

1. Financial information is given for the three months ended 31 March 2017 and relates to continuing operations and excludes exceptional items.

2. Order input is reported on a constant currency basis. First quarter refers to the financial period three months ended 31 March 2017.

Analyst and investor conference call

A conference call for analysts and investors will be held at 0800 (BST) on Thursday 27 April to discuss this statement. Participants can join the call by registering in advance by visiting www.global.weir/investors and following the link on the page.

A recording of this conference call will be available until Wednesday 10 May on [phone] using the conference ID 97017930.

 
 Enquiries: 
------------------------------  --------------------------------------- 
 Investors: Stephen Christie     [phone] / (0) 7795 110456 
------------------------------  --------------------------------------- 
 Media: Raymond Buchanan         [phone] / (0) 7713 261447 
------------------------------  --------------------------------------- 
 Brunswick: Patrick Handley / 
  Diana Vaughton                 [phone] 
------------------------------  --------------------------------------- 
 

About The Weir Group PLC

Founded in 1871, Weir is one of the world's leading engineering businesses providing mission-critical equipment and aftermarket solutions to energy and natural resources customers in more than 70 countries. The group, which employs around 14,000 people, comprises three divisions: Minerals; Oil & Gas; and Flow Control, and is headquartered in Glasgow, Scotland, UK.

Weir's ordinary shares trade on the London Stock Exchange (ticker: WEIR LN) and its American Depositary Receipts trade over-the-counter in the USA (ticker: WEGRY).

Appendix 1 - quarterly input trends (constant currency)

 
                       Reported growth                    Like for like(2) growth 
                       2016   2016   2016   2016   2017   2016   2016   2016   2016   2017 
 Division                Q1     Q2     Q3     Q4     Q1     Q1     Q2     Q3     Q4     Q1 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 Original Equipment     15%    13%   -28%    34%     4%    11%     9%   -28%    36%     4% 
 Aftermarket           -11%     0%     4%    19%    13%   -11%     0%     4%    19%    13% 
 Minerals               -4%     4%    -7%    23%    10%    -5%     2%    -7%    23%    10% 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 
 Original Equipment    -40%   -37%   -24%    13%    56%   -40%   -37%   -24%    13%    56% 
 Aftermarket           -49%   -37%    -6%     0%    48%   -49%   -37%    -6%     0%    48% 
 Oil & Gas             -47%   -37%   -10%     2%    50%   -47%   -37%   -10%     2%    50% 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 
 Original Equipment    -32%    10%     0%   -17%   -18%   -32%    10%     0%   -17%   -18% 
 Aftermarket           -17%   -16%   -10%    -8%    -3%   -17%   -16%   -10%    -8%    -3% 
 Flow Control          -26%    -4%    -4%   -14%   -11%   -26%    -4%    -4%   -14%   -11% 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 
 Original Equipment    -12%     3%   -20%    11%     5%   -14%     1%   -20%    11%     5% 
 Aftermarket           -26%   -14%    -1%    10%    21%   -26%   -14%    -1%    10%    21% 
 Continuing Ops(1)     -22%    -9%    -7%    10%    15%   -23%    -9%    -7%    10%    15% 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 Book to Bill          1.02   0.99   1.02   0.99   1.14   1.02   0.99   1.02   0.99   1.14 
--------------------  -----  -----  -----  -----  -----  -----  -----  -----  -----  ----- 
 

(1) Continuing operations (excludes American Hydro Corporation and YES which were disposed of in Q2 2016).

(2) Like-for-like excludes the impact of acquisitions. Delta Valves was acquired on 8 July 2015 and excluded for 2015 and 2016.

This information includes 'forward-looking statements'. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding The Weir Group PLC's ("the Company") financial position, business strategy, plans (including development plans and objectives relating to the Company's products and services) and objectives of management for future operations, are forward-looking statements. These statements contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this document. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Past business and financial performance cannot be relied on as an indication of future performance.

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April 27, 2017 02:01 ET (06:01 GMT)