21st Mar 2006 07:00
Weir Group PLC21 March 2006 Press release | The Weir Group PLC 21 March 2006 THE WEIR GROUP PLC PRELIMINARY RESULTS 2005 Results for 52 weeks ended 30 December 2005 "A YEAR OF SIGNIFICANT PROGRESS" HIGHLIGHTS Continuing Operations • Order input(*1) up 8.1% to £893.7m (2004: £826.5m)• Revenue up 14.4% to £789.4m (2004: £690.1m)• Pre-tax profit(*2) up 11.2% to £62.2m (2004: £55.9m)• Dividend increase of 3.1% to 13.2p (2004: 12.8p)• Successful integration of Pompe Gabbioneta• Disposal of Techna water treatment businesses• UK Restructuring virtually complete and delivering improved results• Refocused business operating in strong end markets Total Operations Continuing Operations 2005 2004 Change 2005 2004 Change ------- ------- ------ ------- ------- ------- Order Input(*1) £929.6m £895.7m +3.8% £893.7m £826.5m +8.1%Revenue £823.7m £738.7m +11.5% £789.4m £690.1m +14.4%Profit fromOperations(*2) £64.9m £58.2m +11.4% £66.3m £59.0m +12.3%Pre-Tax Profit(*2) £60.7m £55.4m +9.5% £62.2m £55.9m +11.2%Earnings per Share(*2) 23.5p 21.7p +8.3%Dividend (*3) 13.2p 12.8p +3.1% *1 Excludes Joint Ventures & Associates; calculated at constant 2005 exchange rates*2 Before restructuring costs*3 Comprises 2005 interim and proposed final dividend The Chairman of The Weir Group, Sir Robert Smith, commented: "The Group madesignificant progress in 2005. Our restructuring programmes have proceeded toplan and operational improvements are beginning to gain momentum. During the year we refocused the Group, added the specialist pump manufacturer,Gabbioneta, to our portfolio and exited the Techna water treatment businesses. We enter 2006 with a more robust portfolio of businesses. The benefits of ourrestructuring activities, strong end markets and continued operationalimprovement provide the platform for further improvements. Furthermore theGroup's strong balance sheet and cash focus provide ongoing flexibility topursue new capital investments and aligned acquisitions bringing increasingreturns to shareholders." Contact details: The Weir Group PLC Available through UBSMark Selway, Chief Executive Tel. 020 7567 8000 (switchboard);Helen Walker, Public Relations Manager (Mobile: 07789 032296)The Maitland Consultancy Tel. 020 7379 5151Suzanne Bartch (Mobile: 07769 710 335)Michelle Jeffery (Mobile: 07989 977 837) FINANCIAL HIGHLIGHTS 2005 input for continuing operations at £893.7m was 8.1% higher than 2004 withEngineering Products, Engineering Services and the Liquid Gas storage businessall showing improvement. Geographically, the main areas of input growth were theAmericas, up by 15%, Middle East and Africa up by 49% and the Indo-Pacificregion up by 11%. Revenue from Group continuing operations grew by 14.4% to £789.4m (2004:£690.1m) due in part to £17.8m of favourable foreign exchange translationeffects. Growth was achieved across all divisions. Operating profit before restructuring charges and finance costs at £66.3m (2004:£59.0m) was 12.3% above the same period in 2004. The 2005 result includes a£2.1m benefit from foreign exchange translation, the benefit of which waspartially offset by a £0.9m foreign exchange transaction loss and a £0.6mincrease in the charge for share based payments. Attributable profits from our Joint Ventures and Associates companiescontributed £9.2m against £7.0m in 2004. Pre-tax profit before restructuring costs was up 11.2% on the previous year at£62.2m (2004: £55.9m). There were three significant items in 2005 which impacted on the pre-taxresults. The first arose from the disposal of Weir Flowguard, our small UKpulsation dampener business, in June 2005 which crystallised an exceptional lossof £2.1m of which goodwill write-off was £3.1m. The second related to thepreviously announced restructuring of the UK Engineering Products businesseswhich resulted in costs totalling £24.7m in the year. The third arose from thesale of the water treatment businesses of Techna for an aggregate price of£27.7m producing an exceptional second half profit after provision of futureliabilities of £6.0m. The balance sheet remains strong with gross cash generated by operations at£71.3m (2004: £67.0m). This was before a £10.0m exceptional pension contributionand full year cash costs of £16.6m related to our restructuring activities.Principally as a result of the acquisition of Gabbioneta, net debt at the yearend was £76.4m against the prior year in funds balance of £12.6m. The Group has 16 pension schemes around the world of which six are definedbenefit schemes, the most significant being the two UK schemes. All definedbenefit schemes are closed to new members and the gross Group deficit forretirement benefit obligations at 30 December 2005 was £61.6m (2004: £95.3m).The Group reviews the level of the deficit on an annual basis and in 2005contributed £10m to fund the UK pension deficit. A tax charge of £13.8m (2004: £11.3m) gives a normalised tax rate of 26% onprofit before tax and restructuring costs, as adjusted for Joint Ventures andAssociates. The resulting earnings per share for continuing operations, before restructuringcosts, was 23.5p (2004: 21.7p). DIVIDEND A final dividend of 9.65p (2004: 9.35p) is proposed making a total payment forthe year of 13.2p (2004: 12.8p). Subject to shareholder approval, the finaldividend will be paid on 1 June 2006 to shareholders on the register at theclose of business on 5 May 2006. REVIEW OF RESULTS To assist in meaningful comparisons, the following review of results restatescomparative 2004 figures at constant exchange rates and excludes figures theTechna water treatment businesses Weir Westgarth, Weir Envig and Weir Entropie,which were sold in July. Engineering Products The Engineering Products Division includes the operations of our Minerals, ClearLiquid and Valves & Controls businesses which supply pumps and valves to theflow control industry. Revenue from our continuing businesses increased 13.2% to£505.6m (2004: £446.5m) while operating profit, excluding restructuring costs,increased 31.5% to £42.3m (2004: £32.2m). At the operating profit level, the margin was 8.4% compared with 7.2% in 2004,underpinned by a continued strong performance from Minerals, while both theValves and Clear Liquid operating performances were in line with expectations. Minerals had an excellent year growing order input, revenue and profit through acombination of buoyant commodity markets, new product offerings and improvementsin operational efficiency. The 18.1% growth in order input to £324.3m (2004:£274.7m) was driven by a strong investment climate in mining, particularly inNorth and South America and Australia. A 21% increase in orders from the Americas was due to a combination of salesinitiatives, new products and the buoyant investment climate in North and SouthAmerican mining markets. Growth in flue gas desulphurisation also contributed tothe result. A 29% gain was achieved in the Indo Pacific reflecting the award of furtherlarge contracts for high pressure pumping equipment from our Netherlandsoperation and a significant increase in orders for flue gas desulphurisation inthe Chinese power market. Minerals businesses have achieved significant success in expanding theirposition in the higher growth markets of South America, Eastern Europe and Asia.In 2006, we are planning to add foundry capacity in China, South America andSouth Africa with an expected capital spend of approximately £5m in the year. Going forward, while the market will inevitably soften in the medium to longterm, the Minerals businesses are expected to continue to benefit from thefavourable economic climate and make further progress in their alreadyestablished leadership positions. Clear Liquid performed well with order input up 14.5% at £176.1m (2004:£153.7m). The collective speciality pump businesses improved their results andachieved good levels of growth in each of their respective markets while therestructuring at Weir Pumps which incurred a 2005 charge of £11.8m provedsuccessful at stemming the losses from the UK operations. The restructuring programme at our UK Clear Liquid business to realign ourproduct portfolio to become less reliant on large scale lower margin work andmore focused on higher margin niche products made good progress in 2005. Furtherwork is being undertaken to prepare for a move from the existing Cathcartoperations to a more suitable site. The acquisition of Gabbioneta contributed an incremental £10.9m of turnover inthe last quarter of 2005 and increased the Group's offerings to the highergrowth oil refining industry. The integration of Gabbioneta within the ClearLiquid operations has progressed exceptionally well with the business deliveringturnover and profits ahead of expectations. In 2006, we expect further improvements from our Clear Liquid operations largelydriven by the benefits of UK restructuring and inclusion of Gabbioneta for thefull year. The Valves & Controls businesses made good progress in 2005 and contributedsignificantly to the profit progress in the Engineering Products Division. The US business continued to build on its success in the Chinese power marketand will expand its activities into a wholly-owned subsidiary in Suzhou early in2006. The increased activity in China helped offset continued softness in thedomestic power market and delivered growth in turnover and profits of the USoperation. Weir Valves & Controls France benefited from its ongoing success in EasternEuropean nuclear markets where upgrade work is being funded by the EuropeanUnion. Growth in sales and profits from these businesses is expected to continueinto 2006 and for the foreseeable future. The previously announced restructuring of the Weir Valves & Controls UKoperation is now largely complete and incurred a charge of £12.9m, which fundedthe move to a modern, appropriately sized facility and outsourcing of nonessential machining work executed on time and on budget. The second halfperformance of the UK operation provides increased confidence in the delivery ofanticipated improvements and positions us well for further profit progress in2006. We remain encouraged by the prospects for the Valves & Controls businesses. Theanticipated growth from our investments in China and the Middle East, coupled toprogress from our UK and French operations, should deliver further progress in2006. Engineering Services Input from Engineering Services increased 4.7% to £221.9m (2004: £211.9m).Revenue increased 4.3% to £215.3m (2004: £206.4m) producing a profit of £13.1magainst £21.2m in 2004 due, not only to significantly lower business volumes inour higher margin markets, but also increased operating costs of £1.3m incurredas part of the Group's investment into extending our offerings in the US market. The loss of Yorkshire Water Asset management and lower level of sales to Iraqwere key factors in the significant reduction in the UK business turnover andprofits. A number of replacement contracts have subsequently been secured andwill come on stream during 2006 and this, together with some measuredconsolidation, promises improved results in the year ahead. 2005 input in the Americas grew 29% to £113m due to a combination of a largemine refurbishment project in Canada and the growing market position of ourService Centres in the United States of America. In the USA, we continue toinvest in our entry into the service and parts markets with full year inputgrowing 278% to approximately £8m. During the year, we committed an additional£3.0m investment into laser scanning, rapid prototyping and logistics software,all of which will enhance the quality and delivery of our global parts strategyfor the Services Division. The Australian operations performed well in the year, growing revenue andprofits when compared to 2004 and our planned investment into larger facilitiesin Western Australia is expected to provide further growth in 2006. The expansion of our geographic position into higher growth markets continued toprogress. In December, we finalised a £5.2m Joint Venture investment in SaudiArabia with Olayan Group in the strategically important Middle East oil market. We continue to see good prospects for growth within our Services Division. Theinvestments made in the US Service Centres, organic growth in Australia andCanada and our most recent investment in Saudi Arabia, provide a solidfoundation for the future growth of the division. Defence, Nuclear & Gas Revenue from the Defence, Nuclear & Gas Division increased 24.6% to £68.4m(2004: £54.9m) producing a profit of £6.8m against a prior year of £3.9m. 2005input decreased marginally to £112.1m against £112.4m in the previous year. The liquid gas storage business, Weir LGE, achieved a significant increase inrevenue and operating profit when compared to 2004. New orders from Koreanshipbuilders and the award of onshore storage work in the Middle East deliveredinput of £80.2m compared with £62.7m last year. Future market demand and limitedshipbuilding capacity continue to underpin Weir LGE's growth in 2006 and beyond. The defence and nuclear businesses delivered an increase in revenue andoperating profit when compared to 2004. Order input at £31.9m was £17.8m below2004. Our increased presence in the UK, Australia and Canada helped deliverhigher profits from the defence operations while new nuclear decommissioning andstorage work in the UK helped grow this area of activity. 2006 is expected tobring with it a number of significant new opportunities. Joint Ventures and Associates Weir's share of profit after interest and tax from Joint Ventures and Associatesof £9.2m was 31.4% above 2004 (2004: £7.0m). The increased activity and profitsfrom DML reflects the favourable profit taking milestones on a number of keycontracts together with the second half contribution from the Group's 49% shareof its new Joint Venture in Saudi Arabia were significant factors in theimproved result. STRATEGY The Group is well placed to execute the final stages of our five year plan. The2005 corporate and restructuring activities, coupled to the generally improvingoperational performances of our core businesses, is now providing the platformfor stronger results in 2006 and beyond. Our operational plans are welldeveloped and the re-focused business portfolio will deliver improved marginsand further robustness to our future earnings. The Group continues to invest in developing a geographic presence in high growthmarkets. Our growing infrastructure in China and plans to expand the EngineeringProducts operations in the region complement the recent investments made byMinerals and Services in India. Investments in the global parts business, thejoint venture in Saudi Arabia and the acquisition of Gabbioneta are all clearindications of our plans for future top line growth. Our corporate development strategy remains principally focused on sustainableorganic growth and pursuing available value adding acquisitions. 2006 will be animportant year for the Group, in which we intend to further leverage our keystrengths in higher technology, higher margin products while delivering ondecisive plans to grow our positions in the power, oil, minerals and defence andgas markets. Our strong balance sheet and good level of cash generation support our desire topursue the full range of options for future growth. SHARE BUY BACK The strength of the Group's cash generation and strong balance sheet led theBoard to the decision to implement a share buy back of up to £50m. As at 30December 2005, a total of 3.28 million shares had been purchased at a total costof £10.7m. THE BOARD As previously reported, Chris Rickard, the Group Finance Director, is to beleaving the Group due to family considerations and we are pleased to announcethe appointment of Keith Cochrane who will succeed Chris effective 1 July 2006.Currently Group Director of Finance at Scottish Power plc, Keith comes to Weirwith the extensive experience required to support the continued development ofthe Group. In October 2005 Professor Ian Percy stood down from the Audit Committee afterserving for a period of nine years and Stephen King was appointed to the role ofAudit Committee Chairman. OUTLOOK In 2006, the Engineering Products division is expected to deliver growth inrevenue, margins and profits when compared to 2005. Minerals are expecting another good year against a backdrop of buoyant commoditymarkets, new product offerings and the continuing benefits being delivered fromtheir operational improvement activities. The outlook for Clear Liquid businesses remains encouraging. Growth in salesfrom the higher margin businesses, the full year addition of Gabbioneta and thebenefits of the restructuring at Weir Pumps are expected to produce improvedresults when compared to 2005. Valves is expected to deliver improved results from all of its operations in2006. The completion of the UK restructuring, addition of new facilities inChina and continued strengthening of the power generation markets in the IndoPacific and Former Soviet Union are expected to provide a solid foundation forfurther progress when compared to 2005. In the Engineering Services Division, reduced service centre start-up costs inthe United States and improved performance in the UK and Middle East areexpected to grow margins and profits when compared to 2005. The Defence, Nuclear & Gas Division is well positioned to deliver furtherprogress in 2006. Weir LGE's exceptional input during the past twelve months hassecured its order book for the medium term while defence and nuclear businessesare well positioned to secure significant new build work in the UK, Europe andAustralia. Our Associate business, DML, while continuing its good performance in 2006 isnot expected to achieve the favourable profit taking milestones on key contractsthat were achieved in 2005 and therefore our 2006 expectations are more in linewith 2004. The Group remains in good financial condition with an improving order book andhigh level of visibility in our most important markets. Assuming no significantadverse movements in foreign exchange rates from current levels, overall weexpect to deliver an improved performance when compared to last year. * * * * * * * * * * * * * * * AUDITED RESULTS Consolidated Income Statementfor the 52 weeks ended 30 December 2005 52 weeks ended 53 weeks ended 30 December 31 December 2005 2004 Notes £'000 £'000-------------------------------- ------ ------ ------Continuing operationsRevenue 2 789,384 690,063Cost of sales (570,681) (499,221)-------------------------------- ------ ------ ------Gross profit 218,703 190,842 Other operating income 1,474 2,049Selling & distribution costs (106,654) (92,624)Administrative expenses (56,463) (48,255)Share of results of - joint ventures 2 1,699 1,130 - associates 2 7,532 5,894-------------------------------- ------ ------ ------Profit from continuing operations before restructuring costs, net finance costs and tax 66,291 59,036 Restructuring costs 3 (24,696) --------------------------------- ------ ------ ------Profit from continuing operations before net finance costs and tax 2 41,595 59,036 Finance costs (6,612) (6,387)Finance revenue 2,016 2,379Other finance income - retirement benefits 489 887-------------------------------- ------ ------ ------Profit from continuing operations before tax 37,488 55,915 Income tax expense 4 (13,816) (11,338)-------------------------------- ------ ------ ------Profit from continuing operations 23,672 44,577 Profit (loss) from discontinued operations 5 2,278 (521)-------------------------------- ------ ------ ------Profit for the period 25,950 44,056-------------------------------- ------ ------ ------ Attributable to :Equity holders of the Company 25,914 44,015Minority interests 36 41-------------------------------- ------ ------ ------ 25,950 44,056-------------------------------- ------ ------ ------ Earnings per shareBasic 12.6p 21.4pBasic - discontinued 1.1p (0.3p)Basic - continuing 11.5p 21.7pBasic - continuing (pre restructuring costs) 23.5p 21.7p Diluted 12.5p 21.3pDiluted - discontinued 1.1p (0.3p)Diluted - continuing 11.4p 21.6pDiluted - continuing (pre restructuring costs) 23.4p 21.6p Consolidated Balance Sheetat 30 December 2005 30 December 31 December 2005 2004 Note £'000 £'000-------------------------------- ------ ------ ------ASSETSNon-current assetsProperty, plant & equipment 119,170 106,050Intangible assets 187,527 114,707Investments in joint ventures & associates 20,874 5,725Deferred tax assets 17,439 24,704Forward foreign currency contracts 431 --------------------------------- ------ --------- ---------Total non-current assets 345,441 251,186-------------------------------- ------ --------- --------- Current assetsInventories 122,795 93,170Trade & other receivables 207,313 177,652Construction contracts 28,136 45,905Forward foreign currency contracts 2,297 -Income tax receivable 599 1,589Investments - 213Cash & short term deposits 109,628 97,622-------------------------------- ------ --------- ---------Total current assets 470,768 416,151-------------------------------- ------ --------- ---------Total assets 816,209 667,337-------------------------------- ------ --------- --------- LIABILITIESCurrent liabilitiesInterest-bearing loans & borrowings 10,928 3,028Trade & other payables 178,806 167,753Construction contracts 39,233 29,836Forward foreign currency contracts 4,623 -Income tax payable 7,245 5,034Provisions for liabilities & charges 26,117 11,418-------------------------------- ------ --------- ---------Total current liabilities 266,952 217,069-------------------------------- ------ --------- --------- Non-current liabilitiesInterest-bearing loans & borrowings 175,128 81,994Forward foreign currency contracts 3,055 -Retirement benefit obligations 61,604 95,334Provisions for liabilities & charges 14,594 6,958Deferred tax liabilites 3,905 675-------------------------------- ------ --------- ---------Total non-current liabilities 258,286 184,961-------------------------------- ------ --------- ---------Total liabilities 525,238 402,030-------------------------------- ------ --------- ---------NET ASSETS 290,971 265,307-------------------------------- ------ --------- --------- CAPITAL & RESERVESShare capital 8 26,208 25,882Share premium 8 32,464 26,451Treasury shares 8 (10,697) -Capital redemption reserve 8 531 531Foreign currency translation reserve 9,871 (4,011)Hedge accounting reserve (3,678) -Retained earnings 235,888 215,881-------------------------------- ------ --------- ---------Shareholders equity 8 290,587 264,734Minority interest 8 384 573-------------------------------- ------ --------- ---------TOTAL EQUITY 8 290,971 265,307-------------------------------- ------ --------- --------- Consolidated Cash Flow Statementfor the 52 weeks ended 30 December 2005 52 weeks ended 53 weeks ended 30 December 31 December 2005 2004 Note £'000 £'000-------------------------------- ------ --------- ---------Cash flows from operating activities 7Cash generated by operations 71,305 67,010Exceptional pension contributions paid (10,000) (12,096)Fundamental restructuring costs paid (16,550) -Income tax paid (7,946) (8,815)-------------------------------- ------ --------- ---------Net cash generated from operating activities 36,809 46,099-------------------------------- ------ --------- ---------Cash flows from investing activitiesAcquisitions of subsidiaries & joint ventures (75,588) (897)Disposals of subsidiaries & joint ventures 14,240 4,602Purchases of property,plant & equipment & intangible assets (25,739) (24,250)Proceeds from sale of property, plant &equipment & intangible assets 355 489Purchases of other investments - (550)Proceeds from sale of other investments 181 782Interest received 1,888 2,675Dividends received 4,020 5,298-------------------------------- ------ --------- ---------Net cash used in investing activities (80,643) (11,851)-------------------------------- ------ --------- ---------Cash flows from financing activitiesProceeds from issuance of ordinary shares 6,339 5,488Purchase of treasury shares (10,697) -Proceeds from borrowings 169,967 80,842Repayments of borrowings (84,475) (113,140)Interest paid (8,262) (4,765)Foreign exchange hedging - 2,478Dividends paid to equity holders of the Company (26,605) (25,688)Dividends paid to minority interests (7) (29)-------------------------------- ------ --------- ---------Net cash used in financing activities 46,260 (54,814)-------------------------------- ------ --------- ---------Net increase (decrease) in cash and cash equivalents 2,426 (20,566)Cash and cash equivalents at beginning of period 95,611 117,725Foreign currency translation differences 5,962 (1,548)-------------------------------- ------ --------- ---------Cash and cash equivalents at end of period 103,999 95,611-------------------------------- ------ --------- ---------Cash and cash equivalents comprises the following:Cash & short-term deposits 109,628 97,622Bank overdrafts (5,629) (2,011)-------------------------------- ------ --------- --------- 103,999 95,611-------------------------------- ------ --------- --------- Reconciliation of net increase (decrease) in cash and cash equivalents to movement in net (debt) fundsNet increase (decrease) in cash and cash equivalents 2,426 (20,566)Net (increase)decrease in debt (85,492) 32,298-------------------------------- ------ --------- ---------Change in net funds resulting from cash flows (83,066) 11,732Lease acquired (259) -Lease disposed 35 -Lease inception (147) (216)Foreign currency translation differences (5,591) 580-------------------------------- ------ --------- ---------Change in net funds during the period (89,028) 12,096Net funds at beginning of period 12,600 504-------------------------------- ------ --------- ---------Net (debt)funds at end of period (76,428) 12,600-------------------------------- ------ --------- ---------Net (debt) funds comprises the following:Cash & short term deposits 109,628 97,622Current interest-bearing loans & borrowings (10,928) (3,028)Non current interest-bearing loans &borrowings (175,128) (81,994)-------------------------------- ------ --------- --------- (76,428) 12,600-------------------------------- ------ --------- --------- Consolidated Statement of Recognised Income & Expensefor the 52 weeks ended 30 December 2005 52 weeks ended 53 weeks ended 30 December 31 December 2005 2004 £'000 £'000--------------------------------------------------- -------- ------- Income & expense recognised directly in equityGains (losses) taken to equity on cash flow hedges (10,678) -Exchange differences on translation offoreign operations 13,882 (4,011)Actuarial gain (loss) on defined benefit plans 22,148 (3,436)Share of associate's actuarial gain (loss) ondefined benefit plans 4,788 (4,459)Transfers to the income statementOn cash flow hedges 333 -Tax on items taken directly to or transferredfrom equity (2,947) 971--------------------------------------------------- -------- ------- Net income (expense)recognised directly in equity 27,526 (10,935) Profit for the period 25,950 44,056--------------------------------------------------- -------- ------- Total recognised income & expense for the period 53,476 33,121--------------------------------------------------- -------- ------- Attributable to :Equity holders of the Company 53,386 33,080Minority interests 90 41--------------------------------------------------- -------- ------- 53,476 33,121--------------------------------------------------- -------- ------- Effect of changes in accounting policy:Net gain on cash flow hedges on first timeapplication of IAS39 2,439 ---------------------------------------------------- -------- ------- 1. Basis of preparationThe preliminary results for the 52 weeks ended 30 December 2005 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with the provisions of The Companies Act 1985. This is the first year in which the Group has prepared its financial statements under IFRS and the comparatives have been restated from UK Generally Accepted Accounting Practice (UK GAAP) to comply with IFRS. An explanation of the transition to IFRS and the reconciliations from the previously published UK GAAP financial statements to IFRS were contained in a press release issued by the Group on 1 July 2005 (available on the Company'swebsite at www.weir.co.uk). The format of the balance sheet included in this preliminary announcement differs from the initial press release and the Group's unaudited interim report as the directors are of the opinion that the revised format is more appropriate for a UK listed plc. The format of the income statement included in this preliminary announcement has been updated since the initial press release to reflect the impact of discontinued operations. The accounting policies applied in preparing these preliminary results are containedin the press release issued on 1 July 2005. As previously announced, as permitted under IFRS1 "First-time adoption of IFRS", the Group has elected to apply IAS 32 "Financial Instruments: disclosure and presentation" and IAS 39 "Financial Instruments: recognition and measurement"prospectively from 1 January 2005 without restating the comparative periods. The principal impact of these standards is in respect of derivative financial instruments which are used to manage economic exposure to movements in currencyexchange rates. Such instruments are now required to be recognised in the balance sheet as financial assets or financial liabilities measured at theirfair value with changes in their fair value being recognised in the income statement, except where hedge accounting is used. Hedge accounting is applied where exchange risk is considered to be material, and, to the extent the hedge is effective, changes in the fair value of hedge instruments are recognised directly in equity and recycled to the income statement when the hedged item is recognised. The net effect of this at 1 January 2005 is to increase equity by £2.4m. These preliminary results for the 52 weeks ended 30 December 2005 do not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. These financial statements were approved by the Board of Directors on 21March 2006. Full accounts with an unqualified audit report will be lodged with the Registrar in due course. Financial statements for the 53 weeks to 31 December 2004 are abridged statements; full accounts with an unqualified audit report have been lodged with the Registrar. 2. Segment information The following tables present revenue and profit information regarding the Group's business segments for the 52 weeks ended 30 December 2005 and 53 weeksended 31 December 2004. 52 weeks ended 30 December 2005 Engineering Engineering Defence, Eliminations/ Continuing Discontinued Total Products Services Nuclear general head Operations Operations Operations & Gas office Total Techna * £'000 £'000 £'000 £'000 £'000 £'000 £'000--------------- -------- ------ ------ ------ ------ ------ ------RevenueSales toexternal customers 505,628 215,336 68,420 - 789,384 34,302 823,686Inter-segmentsales 19,031 1,345 - (21,856) (1,480) 1,480 ---------------- -------- --------- -------- -------- -------- -------- --------Segmentrevenue 524,659 216,681 68,420 (21,856) 787,904 35,782 823,686--------------- -------- --------- -------- -------- -------- -------- --------ResultSegment result before restructuring costs 42,308 13,110 6,765 - 62,183 (668) 61,515Restructuring costs (24,696) - - - (24,696) - (24,696)--------------- -------- --------- -------- -------- -------- -------- --------Segment result 17,612 13,110 6,765 - 37,487 (668) 36,819Share of results of - joint ventures - 1,715 (16) - 1,699 (765) 934- associates (5) 7,537 - - 7,532 - 7,532--------------- -------- --------- -------- -------- -------- -------- -------- 17,607 22,362 6,749 - 46,718 (1,433) 45,285--------------- -------- --------- -------- -------- -------- -------- --------Unallocated expenses (5,123) - (5,123) -------- -------- --------Profit before net finance costs and tax 41,595 (1,433) 40,162 -------- -------- -------- 53 weeks ended 31 December 2004 Engineering Engineering Defence, Eliminations/ Continuing Discontinued Total Products Services Nuclear & general head Operations Operations Operations & Gas office Total Techna * £'000 £'000 £'000 £'000 £'000 £'000 £'000--------------- -------- --------- -------- -------- -------- -------- --------RevenueSales to externalcustomers 436,574 198,722 54,767 - 690,063 48,599 738,662Inter-segmentsales 21,201 1,942 - (23,718) (575) 575 ---------------- -------- --------- -------- -------- -------- -------- --------Segmentrevenue 457,775 200,664 54,767 (23,718) 689,488 49,174 738,662--------------- -------- --------- -------- -------- -------- -------- --------Sales to externalcustomers at 30December 2005exchange rates 446,491 206,436 54,906 - 707,833 48,841 756,674--------------- -------- --------- -------- -------- -------- -------- --------ResultSegment result 30,723 20,481 3,889 - 55,093 (240) 54,853Share of results of- joint ventures - 1,125 5 - 1,130 (589) 541- associates (5) 5,899 - - 5,894 - 5,894--------------- -------- --------- -------- -------- -------- -------- -------- 30,718 27,505 3,894 - 62,117 (829) 61,288--------------- -------- --------- -------- -------- -------- -------- --------Unallocated expenses (3,081) - (3,081) -------- -------- --------Profit before net financecosts and tax 59,036 (829) 58,207 -------- -------- -------- Segment result at30 December 2005exchange rates 32,165 21,169 3,901 - 57,235 (252) 56,983--------------- -------- --------- -------- -------- -------- --------- -------- * Further details on discontinued operations can be found in Note 5. 3. Restructuring costs 2005 2004 £'000 £'000---------------------------------------------- -------- -------Reorganisation costs 21,417 -Impairment of property, plant & equipment 1,433 -Impairment of inventories 1,846 ----------------------------------------------- -------- ------- 24,696 ----------------------------------------------- -------- ------- During the year, the Group incurred a loss of £24,696,000 in connectionwith the previously announced fundamental restructuring activities in theUK Engineering Products businesses. The impairment loss on property, plant& equipment arose as a result of the relocation of the Huddersfield businessto new premises during the year, at which point some property, plant &equipment was identified as being impaired and written down to its recoverableamount. The recoverable amount comprises fair value less costs to sell basedupon expected market values. The impairment loss recognised in respect ofthe write off of inventories arose as a result of the decision to restructure the product portfolios in each of the businesses concerned and to exit certainproduct lines, the final determination of which occurred in 2005. The remainingreorganisation costs were primarily employee related costs and legal andprofessional fees. These costs arose from activities that are not consideredto be operating in nature and accordingly have been disclosed separately asto include them in operating activities would impair the comparability of thefinancial statements. Other non fundamental restructuring activitiesthroughout the Group are included in operating activities. 4. Income tax expense 2005 2004 £'000 £'000---------------------------------------------------------- -------- --------Group - United Kingdom (864) (2,997)Group - Overseas (13,051) (8,339)---------------------------------------------------------- -------- --------Total income tax expense in theconsolidated income statement (13,915) (11,336)---------------------------------------------------------- -------- -------- The total income tax expense in the consolidated incomestatement is disclosed as follows:Income tax expense on continuing operations (13,816) (11,338)Income tax expense on discontinued operations (99) 2---------------------------------------------------------- -------- -------- The total income tax expense included in the Group's share of results ofjoint ventures and associates is as follows: Joint ventures (173) (21)Associates (2,954) (2,349)---------------------------------------------------------- -------- -------- 5. Discontinued operations On 8 July 2005, the Group disposed of the desalination and water treatmentbusinesses of its Techna division (Weir Westgarth, Weir Entropie and WeirEnvig) for a total cash consideration of £27.7m and on 1 June 2005 theGroup disposed of Weir Flowguard for a total cash consideration of £2.9m.Provisions amounting to £6.1m were made for potential warranty andindemnity claims and allowance has been made for disposal costs amountingto £1.9m. The results of these companies are included in the consolidatedincome statement as discontinued operations. Losses recognised in respectof prior years disposals relate to warranty and indemnity claims where thelikelihood of payment has become probable based on events which occurredduring the year. The revenue and results relating to discontinuedoperations were as follows: 2005 2004 £'000 £'000---------------------------------------------------------- -------- --------Sale of goods 1,658 3,253Rendering of services 500 2,157Revenue from construction contracts 32,144 43,189---------------------------------------------------------- -------- --------Revenue 34,302 48,599Cost of sales (31,358) (42,320)Other operating income 292 173Selling & distribution costs (1,432) (3,226)Administrative expenses (2,472) (3,466)Share of results of joint venture (765) (589)---------------------------------------------------------- -------- --------Loss before net finance costs and tax (1,433) (829)Finance costs (80) (8)Finance revenue 8 314---------------------------------------------------------- -------- --------Loss before tax (1,505) (523)Income tax (99) 2---------------------------------------------------------- -------- --------Loss after tax (1,604) (521)Net gain on current year disposals 9,165 -Losses recognised in respect of prior years disposals (5,283) ----------------------------------------------------------- -------- --------Profit (loss) for the period fromdiscontinued operations 2,278 (521)---------------------------------------------------------- -------- -------- The income tax is analysed as follows: On profit on ordinary activities (99) 2On the gain on discontinuance - ----------------------------------------------------------- -------- -------- 6. Dividends paid and proposed 2005 2004 £'000 £'000---------------------------------------------------------- -------- --------Declared and paid during the period:Equity dividends on ordinary shares:Final dividend for 2004: 9.35p (2003:9.05p) 19,308 18,564Interim dividend for 2005: 3.55p (2004:3.45p) 7,297 7,124---------------------------------------------------------- -------- -------- 26,605 25,688---------------------------------------------------------- -------- -------- Proposed for approval by shareholders at the AGM:Final dividend for 2005: 9.65p (2004:9.35p) 19,947 19,362---------------------------------------------------------- -------- -------- The proposed dividend is based on the number of shares in issue, excludingtreasury shares held, at the date the financial statements were approvedand authorised for issue. The final dividend may differ due to increasesor decreases in the number of shares in issue between the date of approvalof the report and financial statements and the record date for the finaldividend. 7. Additional cash flow information 2005 2004 £'000 £'000---------------------------------------------------------- -------- --------Net cash generated from operationsProfit from continuing operations beforerestructuring costs, net finance costs and tax 66,291 59,036Loss from discontinued Group operationsbefore net finance costs and tax (668) (240)Share of results of joint ventures & associates (9,231) (7,024)Depreciation & amortisation 17,015 15,208Loss (gain) on disposal of property,plant & equipment & investments 315 (173)Funding of pension & post retirement costs (795) (733)Exchange 377 (203)Employee share scheme 991 356Increase in provisions 2,399 1,895(Increase) decrease in inventories (18,892) 232Increase in trade & other receivables &construction contracts (12,317) (43,378)Increase in trade & other payables &construction contracts 25,820 42,034---------------------------------------------------------- -------- --------Cash generated by operations 71,305 67,010Exceptional pension contributions paid (10,000) (12,096)Fundamental restructuring costs paid (16,550) -Income tax paid (7,946) (8,815)---------------------------------------------------------- -------- --------Net cash generated from operating activities 36,809 46,099---------------------------------------------------------- -------- -------- 8. Reconciliation of movements in equity Minority Total Attributable to equity holders of the Company interest equity -------------------------------------------------------------- Share Share Treasury Reserves Total capital premium shares £'000 £'000 £'000 £'000 £'000 £'000 £'000---------------- ------- -------- -------- -------- -------- -------- -------- At 27December 2003 25,587 21,258 - 204,653 251,498 567 252,065 Total recognisedincome and expensefor the period - - - 33,080 33,080 35 33,115Cost of share-basedpayment - - - 356 356 - 356Dividends - - - (25,688) (25,688) (29) (25,717)Exercise of options 295 5,193 - - 5,488 - 5,488---------------- ------- -------- -------- -------- -------- -------- --------At 31 December 2004 25,882 26,451 - 212,401 264,734 573 265,307Adjustments relating to adoption of IAS32and IAS39 from1 January 2005 - - - 2,439 2,439 - 2,439---------------- ------- -------- -------- -------- -------- -------- --------At 1 January2005 25,882 26,451 - 214,840 267,173 573 267,746 Total recognisedincome and expensefor the period - - - 53,386 53,386 90 53,476Cost of share-based payment - - - 991 991 - 991Dividends - - - (26,605) (26,605) (7) (26,612)Exercise ofoptions 326 6,013 - - 6,339 - 6,339Purchase oftreasury shares - - (10,627) - (10,627) - (10,627)Transaction costs - - (70) - (70) - (70)Acquisition ofminority interest - - - - - (272) (272)---------------- ------- -------- -------- -------- -------- -------- --------At 30December 2005 26,208 32,464 (10,697) 242,612 290,587 384 290,971---------------- ------- -------- -------- -------- -------- -------- -------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Weir Group