25th Feb 2015 11:55
LONDON (Alliance News) - Weir Group PLC Wednesday increased its full-year dividend, saying it was for the 31st consecutive year, despite reporting a small drop in earnings, but its shares were sold off after it warned it is preparing for a "significant reduction" in revenue and operating margins in 2015.
Weir shares were down 9.6% to 1,684.00 pence per share on Wednesday morning, having touched an intraday low of 1,666.00p.
For the year ended January 2, the oil and gas service company reported a rise in revenue to GBP2.77 billion from GBP2.27 billion in 2013, caused by the company's investment in new products which has "driven" revenue growth.
Weir's operating profit for the year was GBP450 million, slightly down from GBP467 million a year earlier, leading to a profit before tax of GBP409 million, also a slight drop from GBP418 million.
Despite the small drop in earnings, the company increased its dividend to 44.0 pence per share, compared to the 42.0 pence paid in 2013.
"While visibility in oil and gas remains limited, it is clear that the group's strategic progress and cost initiatives will only partly offset the impact of a substantial reduction in demand and the associated pricing pressure," said Chief Executive Keith Cochrane.
"As a result we are planning for a significant reduction in constant currency group revenues and lower operating margins in 2015," he added.
Net capital expenditure reached GBP101 million in 2014, up from GBP97 million a year earlier.
The company said that during 2014, it made GBP46 million in procurement savings, and said it will deliver GBP20 million worth of savings in 2015 as part of its savings programme announced in November to try to save a total of GBP35 million per year. Weir also reduced its North American workforce by 22% in 2014.
Total exceptional items in 2014 totalled GBP212 million, primarily driven by GBP49 million of efficiency review costs and GBP160 million in non-cash impairment caused by the slide in the oil price, it said in a statement.
"In terms of outlook for 2015, we will continue to make progress in delivering our strategy while responding to market conditions as they evolve. The group has already acted following steep price declines in key commodities, particularly oil, taking additional measures to reduce operating costs," said Cochrane.
In 2014, Weir's mineral division saw a fall in orders "as expected", and lower margins as mining companies reduced their capital expenditure on average by 17% during the year. Industrial actions, including strikes that took place in South Africa also hurt demand for both original and after-market equipment, it said.
"As a result there were very few greenfield project opportunities and customers displayed caution in proceeding with brownfield investment...Industrial action in South Africa significantly impacted local production levels, and the outbreak of the Ebola virus also caused disruption in West Africa," Weir said.
In 2015, Weir said it is expecting mining companies to reduce their capital expenditure budgets for the third consecutive year, with further reductions expected in both brownfield and greenfield developments.
Weir's oil and gas division "achieved good order growth" in the period, with pressure pumping benefiting from its "market-leadership" and "lean manufacturing platform2, which allowed it to capture opportunities in North American unconventional plays.
"Both pressure pumping and pressure control expanded market share and experienced strong demand for both original and after-market equipment as drilling and completion activity increased and fracking processes became more intense," it said.
In 2015, Weir is expecting oil prices to remain "substantially below their average of the last three years", but said global demand continues to grow, with unconventional oil ready to react quickly when market conditions improve.
However, its power and industrial unit provided a "disappointing" financial performance as orders fell by 4% as strong growth in hydro markets was more than offset by project delays in power and waste-water markets, said Weir.
"Uncertain global economic conditions generally led to customer caution and subsequent project delays in power, industrial and downstream oil and gas projects, with a few limited exceptions," it said.
In 2015, Weir is expecting the power end-markets to "remain subdued", with expenditure in Europe limited by low projected economic growth rates and the majority of project activity continuing to be located in emerging markets.
By Joshua Warner; [email protected]; @JoshAlliance
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