31st Jul 2014 12:36
LONDON (Alliance News) - Engineering company Weir Group PLC Thursday saw its shares slide after reporting a fall in pretax profit for the first half, although a strong performance from its upstream Oil & Gas division promoted the company to retain its guidance for the full-year.
Glasgow-based Weir posted pretax profit of GBP157.7 million for the six months ended July 4, down from GBP165.3 million in the six months to June 28. Pretax profit before exceptional items also dipped to GBP181.8 million from GBP193.1 million a year earlier. Revenue fell 5% to GBP1.14 billion from GBP1.20 billion a year earlier.
Shares in Weir Group slumped 3.3% to 2,582.00 pence Thursday afternoon, making it the biggest faller on the FTSE 100.
Despite its woes, the company increased its interim dividend 70% to 15.0 pence per share from the 8.8 pence per share paid last year.
As reported in June, the company cited the expected impact of currency headwinds on its full-year results; Weir Group said Thursday that adverse foreign currency exchange rate movements hit its balance sheet during the first-half, causing an 11% reduction in its reported operating profits, a GBP23 million hit.
The company, whose bid to takeover Metso Oyj was rejected by the Finnish company earlier this year, said overall its results were in line with expectations on a constant currency basis, with its minerals division delivering a resilient performance amid challenging mining market conditions, including the effect of platinum mine strikes in South Africa.
The platinum sector in South Africa has been crippled by strikes at mines owned by a number of London-listed company including Lonmin PLC and Anglo American Platinum Ltd, as the South Africa's Association of Mineworkers and Construction Union attempts to achieve significantly better wages.
Weir Minerals saw profit fall 5% to GBP548 million from GBP578 million a year earlier. It said commodity markets were mixed with a limited recovery in precious and industrial metal prices offset by a material decline in iron ore prices. Additionally, the first-half saw a continued reduction in mining capital expenditure with an absence of new greenfield projects and customers displaying caution in proceeding with brownfield investment.
The company said global ore production increased for most commodities, with the exception of platinum where the five-month strike in South Africa impacted volumes.
Conversely, recovery in upstream North American Oil and Gas markets accelerated, leading to strong double digit input and revenue growth, ahead of prior expectations for this division. The Oil and Gas division saw revenue rise 23% to GBP435 million, from GBP353 million a year earlier. Operating margin moved up 80 basis points to 22.5% from 21.7%.
However, Weir said strong revenue growth for its Power & Industrial division was more than offset by a decline in margins, as a result of lower high-margin nuclear valve revenues such that operating profit was lower than a year ago.
Revenue for the Power and Industrial arm rose 9% to GBP161 million from GBP148 million a year earlier. Operating margin fell 160 basis points to 5.7% from 7.3% a year earlier.
Financially, group net debt increased to GBP751 million from GBP747 million a year earlier.
Looking ahead, Weir Group is confident in its second-half prospects and believes that it is well-positioned to take advantage of opportunities across its markets in the period, although remains cautious about continuing currency headwinds.
"We anticipate strong revenue and profit growth in the second half of 2014, assuming no further deterioration or disruption in mining end markets. As a result we remain on track to meet our full year expectations of good constant currency revenue and profit growth with Group margins broadly in line with 2013 levels. Reported results will continue to be affected by foreign currency headwinds, which strengthened over the first half," said Chief Executive Kevin Cochrane.
By Alice Attwood; [email protected]; @AliceAtAlliance; additional reporting by Anthony Tshibangu; [email protected]
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