18th Aug 2005 07:00
Weir Group PLC18 August 2005 THE WEIR GROUP PLC INTERIM RESULTS 2005 Results for 26 weeks ended 1 July 2005 HIGHLIGHTS Continuing Operations • Order input (2) up 10.1% to £445.0m (2004: £404.3m)• Revenue up 9.7% to £354.1m (2004: £322.7m)• Pre-tax profit (1) up 1.5% to £24.4m (2004: £24.0m)• Dividend increase of 2.9% to 3.55p (2004: 3.45p)• Disposal of Techna water treatment businesses• Agreement to acquire Pompe Gabbioneta SpA• Restructuring on target and within budget ----------------------------- -------------------------- Total Operations Continuing Operations(3) 2005 2004 Change 2005 2004 Change ----------------------------- -------------------------- Order Input(2) £480.7m £456.1m +5.4% £445.0m £404.3m +10.1%Revenue £388.3m £338.0m +14.9% £354.1m £322.7m +9.7%Profit fromOperations(1) £25.1m £23.8m +5.5% £25.9m £25.0m +3.9%Pre-Tax Profit(1) £23.5m £23.1m +2.1% £24.4m £24.0m +1.5%Earnings per Share(1) 9.4p 9.3p +1.1%Dividend 3.55p 3.45p +2.9%Net Debt £26.3m £23.0m +£3.3m (1) Excluding restructuring charges and profit and loss on business disposals(2) Excluding joint ventures and associates; calculated at 1 July average exchange rates(3) Excludes discontinued businesses The Chairman of The Weir Group, Sir Robert Smith, commented: "In the first halfof 2005, the Group's continuing operations delivered increased order input,revenue and pre-tax profit, excluding restructuring charges, when compared tothe same period in 2004. The previously announced restructuring activities in our UK Clear Liquid andValve businesses are proceeding to plan and we remain confident that thesereorganisations will return the respective businesses to profitability in thefirst full year, 2006, with full recoveries of cash outflows expected during thecourse of 2007. In the first half, we concluded the disposal of Weir Flowguard, a small non-corepulsation dampener business, for a total consideration of £2.9m and in July, theGroup announced the disposal of Techna's water treatment businesses for anaggregate value of £27.7m. These disposals further improve our focus, releasingfinancial and management resources to facilitate the ongoing operational andstrategic development of the Group. In August, the Board announced our agreement to purchase Pompe Gabbioneta SpA, aspecialist petrochemical pump producer located in Milan, for a debt freeconsideration of €100m (£69m(1)). This acquisition achieves twin objectives ofadding high quality businesses in our higher growth sectors and building ourposition in the specialist pump market. The Group's recent announcements regarding the restructuring activities in ClearLiquid and Valves, our geographic expansion in China and the Middle East and theacquisition of Gabbioneta, do not affect our ability to pursue new capitalinvestments and acquisitions while delivering increasing returns forshareholders. In particular, the Board continues to target the completion of ashare buy-back of up to £50m in the current year." (1) The exchange rate used for the above £ sterling equivalent is • 1.45 = £1being the rate prevailing at the close of business on 12 August 2005. 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)Peter Ogden (Mobile: 07811 124 197) Note to Editors: Print quality images are available to download at http://www.newscast.co.uk FINANCIAL HIGHLIGHTS 2005 first half input at £445.0m was 10.1% higher than the same period in 2004with Engineering Products and the retained Techna businesses (which followingthe disposal of the water treatment businesses will collectively be reported asthe Defence, Nuclear and Gas Division) all showing improvement. Geographically,the main areas of input growth were Australia, up by 30%, the Middle East andAfrica, up by 50%, and the Indo-Pacific region, up by 17%. Revenue from Group continuing operations grew by 9.7% to £354.1m (2004: £322.7m)due in part to £3.9m of favourable foreign exchange translation effects. Goodgrowth was achieved across the Engineering Products and Defence, Nuclear and Gasbusinesses offsetting in total a £4.0m reduction in Engineering Services. First half profit from operations before restructuring charges and finance costsat £25.9m (2004: £25.0m) was 3.9% above the same period in 2004. The 2005 resultincludes a £0.5m benefit from foreign exchange translation but also includes a£0.3m charge for IFRS related foreign exchange transactions and a £0.3m increasein the charge for share based payments. Attributable profits from our Joint Ventures and Associates companiescontributed £3.4m against £2.7m in the first half of 2004. First half pre-tax profit, pre-restructuring, was up 1.5% on the previous yearat £24.4m (2004: £24.0m). There were two separate items in the first half of 2005 which affected thepre-tax results. The first arose from the disposal of Weir Flowguard, our smallUK pulsation dampener business, in June 2005 which crystallised an exceptionalloss of £2.1m which included a £3.1m write-off of previously capitalisedgoodwill. The second related to the previously announced restructuring of the UKValves and Clear Liquid operations which resulted in costs totalling £18m in theperiod. In early July 2005, we announced the sale of the water treatment businesses ofTechna for an aggregate price of £27.7m. During the first half of 2005, thesebusinesses produced revenue of £33.4m and generated an operating loss of £1.1m.The budgeted second half profits associated with these businesses were £2.5m.The disposal is expected to crystallise an exceptional profit on completion. The balance sheet remains strong with net cash generated from operations at£14.1m (2004: £16.8m). This was before a £9.2m cash outflow on the share buyback and first half costs of £8.2m related to our previously announcedrestructuring activities. Net debt at the half year was £26.3m against the prioryear balance of £23.0m. A tax charge of £5.0m (2004: £4.9m) gives a normalised tax rate of 26% on profitbefore tax and restructuring costs, as adjusted for Joint Ventures, Associatesand discontinued operations. The resulting earnings per share for continuing operations, pre-restructuringcosts, was 9.4p (2004: 9.3p). DIVIDEND An interim dividend of 3.55p (2004: 3.45p) is proposed and will be paid on 11November 2005 to shareholders on the register at the close of business on 14October 2005. REVIEW OF RESULTS To assist in meaningful comparisons, the following review of results restatescomparative 2004 figures at 1 July 2005, average exchange rates and excludesfigures for the Valves pulsation dampener business, Flowguard, which was sold inJune and the Techna water treatment businesses Weir Westgarth, Weir Envig andWeir Entropie, which were contracted for disposal early in July. Engineering Products The Engineering Products Division includes the operations of our Minerals, ClearLiquid and Valves & Controls businesses. Revenue from our continuing businessesincreased 13.0% to £231.2m (2004: £204.7m) while operating profit, excludingrestructuring costs, increased 18.0% to £16.1m (2004: £13.7m). At the operating profit level, the margin was 7.0% compared with 6.7% in 2004,underpinned by a continued strong performance from Minerals, while both Valvesand Clear Liquid's operating performances and previously announced restructuringactivities were in line with expectations. Minerals had an excellent first half growing its order input, revenue and profitthrough a combination of buoyant commodity markets, new product offerings andthe improvements in operational efficiency. The 26% growth in order input wasdriven by a strong investment climate in mining, particularly in Australia,Brazil and North America. The United States continued to benefit from the growthin demand of flue gas desulphurisation for the power generation market, as didthe Chinese market where orders more than doubled. Despite the impact of the test shop fire at Cathcart, Clear Liquid performed inline with expectations in the first half of 2005 with order input 6.2% lower at£77.1m (2004: £82.2m) as a result of planned restructuring activities. The awardof large scale oil order projects in the Middle East and UK offset continuedsoftness in the North American and European power markets. The restructuring programme at our UK Clear Liquid business is on track andproceeding within budget. The realignment of our product portfolio to becomeless reliant on large scale lower margin work and more focused on higher marginniche products made good progress in the first half of 2005. The nichebusinesses collectively grew their input by 6.1% against the same period lastyear. As a consequence of the reorganisation of the Cathcart site, the Group'shead office will move to Glasgow city centre towards the end of this year. Thehead office move will result in deferral of some of the restructuring activitiesinto 2006. Valves & Controls performed well in the first half of 2005, increasing revenueand reducing losses when compared to the same period in 2004. The US Valvesbusiness continued the progress made in building our position in the high growthChinese power market and increased revenue and profits when compared to the sameperiod in 2004. The French operations benefited from nuclear orders from theFormer Soviet Union booked in the second half of 2004 and improved revenue andprofitability when compared to the same period last year. The previouslyannounced restructuring of our UK Valve business remains on track and withinbudget. We are working to complete the fit out of a leased, modern manufacturingfacility three miles from the existing Huddersfield site with a planned transferof work scheduled to start in September. We remain confident that both UK reorganisations will return the respectivebusinesses to profitability in the first full year, 2006, with full recoveriesof cash outflows expected during the course of 2007. Engineering Services First half input from Engineering Services reduced 5.8% to £99.4m (2004:£105.9m) due to delays in expected service work in Iraq and the loss, on rebid,of an asset management contract with Yorkshire Water to a competitor at marginswe considered too low. The Australian, Canadian and US Services businesses allrecorded input growth when compared to the same period in the prior year. As a result, revenue in the first half decreased 4.1% to £91.9m (2004: £95.9m)producing a first half profit of £6.0m against £9.8m in 2004 due, not only tolower business volumes, but also increased operating costs incurred as part ofthe Group's investment of £1.3m into extending our offerings in the US market. During the first half of the year, we committed an additional $5.0m investmentinto laser scanning, rapid prototyping and logistics software support, all ofwhich will enhance the quality and delivery of our global parts strategy for theServices Division. Future plans include building on the US successes byinvesting in similar systems and technology in our European and Middle Eastservice facilities. The expansion of our geographic position into higher growth markets continued toprogress in the first half of 2005. In June, we finalised, subject to regulatoryapproval, a £5.1m investment with Amco in a Joint Venture services business inSaudi Arabia focused on developing Weir's position in the strategicallyimportant Middle East oil market. With local government structures now in place in Iraq, new asset managementcontracts commencing for BP and others in Azerbaijan, and a strong demand foroil and gas services in the Middle East, the second half should produce broadlysimilar results to the same period last year. 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 Following the sale of Techna's water treatment businesses, the remainingoperations of Weir Strachan & Henshaw and Weir LGE now form the Defence, Nuclear& Gas Division. These businesses are involved in design and manufacture ofspecialist engineering equipment for the naval and energy markets. First half revenue from the Defence, Nuclear & Gas Division increased 19.0% to£31.0m (2004: £26.1m) producing a profit of £3.2m against a prior year profit of£1.7m. In the first half of 2005, input increased by 37.5% to £77.9m against£56.6m in the previous year. The defence and nuclear business, Weir Strachan & Henshaw, delivered an increasein revenue and operating profit when compared to the first half of 2004. Orderinput at £14.7m was £8.4m below the same period in 2004. However, the UKsubmarine and carrier programmes and the good level of enquiries outside of theUK continue to offer extensive scope for significant progress in the second halfof 2005. The liquid gas storage business, Weir LGE, achieved a significant increase inrevenue and operating profit when compared to the first half of 2004. New ordersfrom Korean shipbuilders and the award of onshore storage work in the MiddleEast delivered first half input of £63.2m compared with £33.6m in the sameperiod last year. Future market demand and limited shipbuilding capacitycontinue to underpin Weir LGE's revenue and profit growth in 2005 and beyond. Joint Ventures and Associates Weir's share of revenue from Joint Ventures and Associates in the first half of£58.8m was 8.8% above the same period in 2004 (2004: £54.0m). Profit afterinterest and tax at £3.4m (2004: £2.7m) reflects continued strong performancefrom DML which manages the dockyard at Devonport and provides support servicesto the naval base. The contribution from Joint Ventures and Associates was adversely affected by a£0.3m increase in the charge for the Group's previously announced, excitingresearch project to develop commercially viable renewable energy with Scottish &Southern Energy. STRATEGY The Group is currently focused on a transformation programme underpinned by thecore principles of operational excellence and continued expansion in highermargin, higher growth markets. In the first half of the year, our corporateactivities reflected the ongoing development of this strategy. The sale of thelower margin, higher risk water treatment businesses, the acquisition of PompeGabbioneta and the restructuring of underperforming UK operations, are allcatalysts to improving the Group's financial profile. One of the key focuses in the first half has been the restructuring at our twoUK operations in Engineering Products. Progress on both projects has been inline with expectations and we remain confident that these reorganisations willreturn the respective businesses to profitability in the first full year, 2006,with full recovery of cash outflows expected during the course of 2007. In July 2005, the Group announced the disposal of the water treatment businessesof its Techna Division for a total consideration of £27.7m. The disposal, oncefully complete, will provide cash and management resource for more profitableinvestment elsewhere. We also concluded the disposal of Weir Flowguard, a smallnon-core pulsation dampener business, in June 2005 for a total consideration of£2.9m. This sale resulted in an exceptional loss of £2.1m which included thewrite-off of £3.1m of previously capitalised goodwill. On 15 August 2005, the Group announced the acquisition of Gabbioneta, a leadingspecialist pump supplier to the oil industry, for a debt free consideration of€100m. Through this purchase, which is expected to formally close by the end ofSeptember, we are significantly enhancing our portfolio of oil processingcapabilities and expect the breadth of the enlarged client base to provideadditional opportunities for other Weir products. The business will reportthrough Clear Liquid, consolidating the Group's position in the European andMiddle East oil markets while providing a route to market for Gabbioneta'sproducts into South America and Asia. The Group continues to invest in developing a geographic presence in high growthmarkets. Our growing infrastructure in China and plans to expand our 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 strong balance sheet and good level of cash generation support our desire topursue the full range of options for future growth. SHARE BUY-BACK As outlined at the March announcement, the strength of the Group's cashgeneration and strong balance sheet led the Board to the decision to implement ashare buy-back of up to £50m. As at 1 July 2005, a total of 2.9m shares had beenpurchased at a cost of £9.2m. The Board continues to be committed to a sharebuy-back of up to £50m. THE BOARD Due to family considerations Chris Rickard, the Group Finance Director, has indicated his intention to leave the Group following a managed handover of responsibilities towards the end of 2005. His technical skills and personal contribution during his time on the board have been of immense value to the Group. OUTLOOK In the second half of 2005, excluding restructuring costs, the EngineeringProducts division is expected to deliver growth in revenue, margins and profitswhen compared to the same period in 2004. Minerals is expecting another good year against a backdrop of buoyant commoditymarkets, new product offerings and the continuing benefits being delivered fromtheir operational improvement activities. The increased proportion of newequipment revenue against previous years will produce a proportionate decline inmargins although net profits are expected to grow in absolute terms.Despite restructuring activities and the fire at Cathcart earlier in the year,the underlying outlook for Clear Liquid remains encouraging. Growth in secondhalf sales from the higher margin businesses combined with reduced losses fromWeir Pumps are expected to produce improved results on marginally lower saleswhen compared to the same period in 2004. The potential to include Gabbioneta inthe last quarter of the year provides further upside in our Clear results. Valves is expected to deliver improved results from its French and USbusinesses, bolstered by stronger order books secured in 2004. The UKrestructuring remains on plan and before exceptionals the business is expectedto deliver an improved second half result on marginally lower sales, whencompared to last year. In the Engineering Services Division, the investments made in our US and MiddleEast Service Centres are expected to deliver increased revenue in the secondhalf of the year. Reduced start-up costs in the USA, continued strong trading inCanada and recent contract awards in the Middle East are expected to offset thecontract loss in the UK and provide a second half financial performance atsimilar levels to 2004. The Defence, Nuclear & Gas Division is well positioned to deliver furtherprogress in the second half of 2005. LGE's exceptional input during the pasttwelve months has secured their order book for the medium term. Strachan &Henshaw is well positioned to secure significant new build work in the UK,Europe and Australia however precise timing remains subject to the respectivedefence department approvals. Our Joint Ventures and Associates businesses are expected to continue their goodperformance in the second half of 2005. The Group remains in good financial condition with an improving order book andgood level of visibility in our most important markets. Assuming no adversemovements in foreign exchange rates from current levels, overall we expect todeliver improved second half sales and profits when compared to the same periodlast year. * * * * * * * * * CONSOLIDATED INCOME STATEMENT----------------------------- 53 weeks ended 26 weeks ended 26 weeks ended 31 December 1 July 2005 25 June 20042004 (restated) (restated) £'000 Notes £'000 £'000-------------- --------------------------------------------------------------------------- Continuing operations 690,063 Revenue 2 354,098 322,731 (499,221) Cost of sales (254,640) (232,655)-------------- --------------------------------------------------------------------------- 190,842 Gross profit 99,458 90,076 2,049 Other revenue and income 290 72 (92,624) Selling and distribution costs (50,644) (44,712) (48,255) Administrative expenses (26,560) (23,182) 541 Share of results of - joint 115 330 ventures 5,894 - associates 3,282 2,383-------------- --------------------------------------------------------------------------- 58,447 Profit from continuing operations 2 25,941 24,967 before restructuring costs, net finance costs and tax - Restructuring costs (17,950) --------------- --------------------------------------------------------------------------- 58,447 Profit from continuing operations 7,991 24,967 before net finance costs and tax (6,387) Finance costs (2,844) (3,017) 2,379 Revenue - finance income 1,040 1,609 887 Employee benefits interest income 266 472-------------- --------------------------------------------------------------------------- 55,326 Profit from continuing operations 6,453 24,031 before tax 11,338 Income tax expense 3 5,035 4,904-------------- --------------------------------------------------------------------------- 43,988 Profit for the period from 1,418 19,127 continuing operations 68 Profit (loss) for the period from 4 (3,078) (810) discontinued operations -------------- --------------------------------------------------------------------------- 44,056 Profit (loss) for the period (1,660) 18,317-------------- --------------------------------------------------------------------------- Attributable to: 44,015 Equity holders of the parent (1,669) 18,314 41 Minority interests 9 3-------------- --------------------------------------------------------------------------- 44,056 (1,660) 18,317-------------- --------------------------------------------------------------------------- Earnings per share 21.4p Basic - continuing 0.7p 9.3p 21.4p Basic - continuing (pre 9.4p 9.3p restructuring costs) - Basic - discontinued (1.5)p (0.4)p 21.3p Diluted - continuing 0.7p 9.3p 21.3p Diluted - continuing (pre 9.3p 9.3p restructuring costs) - Diluted - discontinued (1.5)p (0.4)p Dividends 12.50p Dividend paid per share 9.35p 9.05p 9.35p Dividend proposed per share 3.55p 3.45p 25,688 Dividend paid 19,308 18,564 19,362 Dividend proposed 7,285 7,111 CONSOLIDATED BALANCE SHEET-------------------------- 31 December 1 July 2005 25 June 20042004(restated) (restated) £'000 £'000 £'000----------- -------------------------------------------------------------------------- ASSETS Non-current assets 106,050 Property, plant & equipment 108,287 98,112 114,707 Intangible assets 113,419 110,260 5,725 Investments in joint ventures & 9,569 13,804 associates 24,704 Deferred tax receivable 25,313 24,344----------- -------------------------------------------------------------------------- 251,186 Total non-current assets 256,588 246,520----------- -------------------------------------------------------------------------- Current assets 93,170 Inventories 106,604 87,353 177,652 Trade & other receivables 175,506 164,470 45,905 Construction contracts 32,473 35,183 - Forward foreign currency contracts 5,348 - 1,589 Income tax receivable 1,562 2,705 213 Investments - 277 97,622 Cash & short term deposits 63,137 60,793 - Assets classified as held for sale 31,556 ------------ -------------------------------------------------------------------------- 416,151 Total current assets 416,186 350,781----------- -------------------------------------------------------------------------- ----------- -------------------------------------------------------------------------- 667,337 Total assets 672,774 597,301----------- -------------------------------------------------------------------------- EQUITY AND LIABILITIES 25,882 Share capital 26,011 25,691 26,451 Share premium 28,662 23,179 - Treasury shares (9,172) - 531 Other reserves 531 531 (4,011) Foreign currency translation reserve 5,191 (9,353) - Hedge accounting reserve (1,855) - 215,881 Retained earnings 194,205 203,954----------- -------------------------------------------------------------------------- 264,734 Shareholders' equity 243,573 244,002 573 Minority interest 339 530----------- -------------------------------------------------------------------------- 265,307 Total equity 243,912 244,532----------- -------------------------------------------------------------------------- Non-current liabilities 81,994 Interest-bearing loans and borrowings 85,455 1,316 95,334 Retirement benefit obligations 93,899 93,204 6,958 Provisions for liabilities & charges 6,404 7,064 675 Deferred tax payable 719 726----------- -------------------------------------------------------------------------- 184,961 Total non-current liabilities 186,477 102,310----------- -------------------------------------------------------------------------- Current liabilities 3,028 Interest-bearing loans and borrowings 17,187 82,456 167,753 Trade and other payables 140,509 131,039 29,836 Construction contracts 31,264 24,753 - Forward foreign currency contracts 6,952 - 5,034 Income tax payable 5,143 4,457 11,418 Provisions for liabilities & charges 18,477 7,754 - Liabilities directly associated with assets 22,853 - classified as held for sale ----------- -------------------------------------------------------------------------- 217,069 Total current liabilities 242,385 250,459----------- -------------------------------------------------------------------------- ----------- -------------------------------------------------------------------------- 402,030 Total liabilities 428,862 352,769----------- -------------------------------------------------------------------------- ----------- -------------------------------------------------------------------------- 667,337 Total equity and liabilities 672,774 597,301----------- -------------------------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT-------------------------------- 53 weeks ended 26 weeks ended 26 weeks ended 31 December 1 July 2005 25 June 20042004 (restated) (restated) £'000 Note £'000 £'000-------------- ------------------------------------------------------------------------ Cash flows from operating 5 activities 67,010 Cash generated by operations 14,053 16,750 (12,096) Exceptional pension contributions (2,000) (12,096) - Restructuring costs paid (8,210) - (8,815) Income tax paid (4,468) (4,461)-------------- ------------------------------------------------------------------------ 46,099 Net cash generated from (absorbed (625) 193 by) operating activities -------------- ------------------------------------------------------------------------ Cash flows from investing activities (897) Acquisitions (1,008) (182) 4,602 Disposals 1,881 40 (24,250) Purchases of property, plant & (10,306) (10,000) equipment & intangible assets 489 Proceeds from sale of property, 31 58 plant & equipment & intangible assets (550) Purchases of other investments - (215) 782 Proceeds from sale of other 129 356 investments 5,298 Dividends received - 1,295 (4,765) Interest paid (2,949) (3,431) 2,675 Interest received 1,073 1,518-------------- ------------------------------------------------------------------------ (16,616) Net cash used in investing (11,149) (10,561) activities -------------- ------------------------------------------------------------------------ Cash flows from financing activities 5,488 Proceeds from issuance of ordinary 2,340 2,025 shares - Purchase of treasury shares (9,172) - 80,842 Proceeds from borrowings 25,922 - (113,140) Repayments of borrowings (10,283) (28,592) 2,478 Foreign exchange hedging - 181 (25,688) Dividends paid to equity holders of (19,308) (18,564) the parent (29) Dividends paid to minority - - interests -------------- ------------------------------------------------------------------------ (50,049) Net cash used in financing (10,501) (44,950) activities -------------- ------------------------------------------------------------------------ (20,566) Net decrease in cash and cash (22,275) (55,318) equivalents 117,725 Cash and cash equivalents at 95,611 117,725 beginning of period (1,548) Foreign currency translation 2,761 (3,924) differences -------------- ------------------------------------------------------------------------ 95,611 Cash and cash equivalents at end of 76,097 58,483 period -------------- ------------------------------------------------------------------------ Cash and cash equivalents at end of period comprised: 97,622 Cash & short term deposits 63,137 60,793 - Cash & short term deposits included 13,257 - in assets classified as held for sale (2,011) Bank overdrafts (297) (2,310)-------------- ------------------------------------------------------------------------ 95,611 76,097 58,483-------------- ------------------------------------------------------------------------ Reconciliation of net decrease in cash and cash equivalents to movement in net (debt) funds (20,566) Decrease in cash and cash (22,275) (55,318) equivalents 32,298 Decrease (increase) in debt (15,639) 28,592-------------- ------------------------------------------------------------------------ 11,732 Change in net funds resulting from (37,914) (26,726) cash flows (216) Lease inception - (6) 580 Foreign currency translation (965) 3,249 differences -------------- ------------------------------------------------------------------------ 12,096 Change in net funds during the (38,879) (23,483) period 504 Net funds at beginning of period 12,600 504-------------- ------------------------------------------------------------------------ 12,600 Net (debt) funds at end of period (26,279) (22,979)-------------- ------------------------------------------------------------------------ CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE------------------------------------------------------- 53 weeks 26 weeks ended 26 weeks ended ended 31 1 July 2005 25 June 2004 December (restated) 2004(restated) £'000 £'000 £'000-------- ---------------------------------------------------------------------------- - Adjustments relating to adoption of IAS32 and 2,439 - IAS39 from 1 January 2005 - Cash flow hedges - gains (losses) taken to (6,109) - equity - - transferred to profit or loss for the (1,624) - period (4,011) Exchange differences on translation of foreign 9,211 (9,354) operations (3,437) Actuarial loss on defined benefit plans - - (4,459) Share of associate's actuarial loss on defined - - benefit plans 972 Tax on items taken directly to equity 2,326 --------- ---------------------------------------------------------------------------- (10,935) Net income (expense) recognised directly in 6,243 (9,354) equity 44,056 Profit (loss) for the period (1,660) 18,317-------- ---------------------------------------------------------------------------- 33,121 Total recognised income and expense for the 4,583 8,963 period -------- ---------------------------------------------------------------------------- Attributable to: 33,080 Equity holders of the parent 4,574 8,960 41 Minority interests 9 3-------- ---------------------------------------------------------------------------- 33,121 4,583 8,963-------- ---------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS--------------------------------- 1. BASIS OF PREPARATION----------------------- European law requires that the Group's financial statements for the 52 weeksending 30 December 2005 are prepared on the basis of IFRS as endorsed for usein the European Union. IFRS are subject to amendment or interpretation by theIASB and there is an ongoing process of review and endorsement by theEuropean Commission. These interim financial statements have been prepared onthe basis of IFRS that the directors expect to apply in the Group's firstIFRS compliant full year financial statements for the 52 weeks ending 30December 2005 using the accounting policies published by the company on 1July 2005 (available in the IFRS press release on the company website at www.weir.co.uk). This includes all existing IFRS and anticipates that the amendment to IAS 19 "Actuarial gains and losses, group plans and disclosure" will be formally endorsed for use in the European Union. The Group has not applied IAS 34 "Interim financial reporting", which is not mandatory for UK groups, in thepreparation of these interim financial statements. For the reasons outlinedabove, it is possible that the information presented in this report and theaccounting policies used, may be subject to change before their inclusion inthe Group's first complete financial statements prepared in accordance withIFRS. As previously announced, as permitted under IFRS1 "First-time adoption ofIFRS", the Group has elected to apply IAS 32 "Financial Instruments:disclosure and presentation" and IAS 39 "Financial Instruments: recognitionand measurement" prospectively from 1 January 2005 without restating thecomparative periods. The principal impact of these standards is in respect ofderivative financial instruments which are used to manage economic exposureto movements in currency exchange rates. Such instruments are now required tobe recognised in the balance sheet as financial assets or financialliabilities measured at their fair value with changes in their fair valuebeing recognised in the income statement, except where hedge accounting isused. Hedge accounting is applied where exchange risk is considered to bematerial, and, to the extent the hedge is effective, changes in the fairvalue of hedge instruments are recognised directly in equity and recycled tothe income statement when the hedged item is recognised. The net effect ofthis at 1 January 2005 is to increase equity by £2.4m. The interim financial statements are unaudited and do not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. Thesefinancial statements were approved by the Board of Directors on 18 August2005. Financial statements for the 53 weeks to 31 December 2004 are abridgedstatements; full accounts with an unqualified audit report have been lodgedwith the Registrar. 2. SEGMENT ANALYSIS - CONTINUING OPERATIONS------------------------------------------- Engineering Engineering Techna * Continuing Products Services operations £'000 £'000 £'000 £'000----------------------------------------------------------------------------------26 weeks ended 1 July 2005-------------------------- RevenueSegment revenue 240,436 93,083 30,978 364,497Inter-segmentsales 9,213 1,186 - 10,399 ---------------------------------------------Sales toexternalcustomers 231,223 91,897 30,978 354,098 --------------------------------------------- ResultSegment result 16,111 6,019 3,163 25,293Share ofresults of -joint ventures - 115 - 115- associates - - 3,282 3,282 --------------------------------------------- 16,111 6,134 6,445 28,690 ---------------------------------Central costs (2,749) ---------Profit beforerestructuringcosts, netfinance costsand tax 25,941 --------- 26 weeks ended 25 June 2004 (restated)-------------------------------------- RevenueSegmentrevenue 211,095 93,962 26,032 331,089Inter-segmentsales 7,860 498 - 8,358 ---------------------------------------------Sales toexternalcustomers 203,235 93,464 26,032 322,731 --------------------------------------------- Sales toexternalcustomers at 1July 2005exchange rates 204,683 95,861 26,071 326,615 --------------------------------------------- ResultSegment result 13,432 9,528 1,653 24,613Share ofresults of -joint ventures - 330 - 330- associates - - 2,383 2,383 --------------------------------------------- 13,432 9,858 4,036 27,326 ----------------------------------Central costs (2,359) ----------Profit beforerestructuringcosts, netfinance costsand tax 24,967 ---------- Segment resultat 1 July 2005exchange rates 13,657 9,759 1,664 25,080 --------------------------------------------- 53 weeks ended 31 December 2004 (restated)------------------------------------------ RevenueSegmentrevenue 457,775 200,664 54,767 713,206Inter-segmentsales 21,201 1,942 - 23,143 ---------------------------------------------Sales toexternalcustomers 436,574 198,722 54,767 690,063 --------------------------------------------- Sales toexternalcustomers at 1July 2005exchange rates 438,924 201,593 54,859 695,376 --------------------------------------------- ResultSegment result 30,723 20,481 3,889 55,093Share ofresults of -joint ventures - 541 - 541- associates - - 5,894 5,894 --------------------------------------------- 30,723 21,022 9,783 61,528 --------------------------------Central costs (3,081) ---------Profit beforerestructuringcosts, netfinance costsand tax 58,447 --------- Segment resultat 1 July 2005exchange rates 31,211 20,717 3,897 55,825 --------------------------------------------- * Techna now comprises the Defence, Nuclear & Gas operations 3. INCOME TAX EXPENSE--------------------- 53 weeks 26 weeks ended 26 weeks ended ended 31 1 July 2005 25 June 2004 December (restated) 2004(restated) £'000 £'000 £'000---------- ------------------------------------------------------------------------ 1,562 Group - United Kingdom 21 594 9,774 Group - overseas 5,110 4,142---------- ------------------------------------------------------------------------ 11,336 5,131 4,736 (2) Less: discontinued operations 96 (168)---------- ------------------------------------------------------------------------ 11,338 Income tax expense 5,035 4,904---------- ------------------------------------------------------------------------ 21 Joint ventures 21 169 2,349 Associates 1,316 911---------- ------------------------------------------------------------------------ 4. DISCONTINUED OPERATIONS-------------------------- On 1 June 2005, the Group disposed of Weir Flowguard Limited and its results areincluded in discontinued operations in the consolidated income statement. On 8 July 2005, the Group disposed of the desalination and water treatment businesses of its Techna division (Weir Westgarth, Weir Entropie and Weir Envig). The results of these companies are included in the consolidated income statement as discontinued operations and the assets and liabilities are shown in the consolidated balance sheet as "assets classified as held for sale" or "liabilities directly associated with assets and liabilities classified as held for sale" respectively. The revenue, results and cash flows relating to discontinued operations were as follows: 53 weeks 26 weeks ended 26 weeks ended ended 31 1 July 2005 25 June 2004 December (restated) 2004(restated) £'000 £'000 £'000---------- ------------------------------------------------------------------------ 48,599 Revenue 34,200 15,227 (48,839) Expenses (34,994) (16,355)---------- ------------------------------------------------------------------------ (240) Loss before net finance costs and tax (794) (1,128) 306 Net finance income (costs) (70) 150---------- ------------------------------------------------------------------------ 66 Profit (loss) from discontinuing (864) (978) operations before tax (2) Income tax 96 (168)---------- ------------------------------------------------------------------------ 68 Profit (loss) from discontinuing (960) (810) operations after tax - Loss on disposal of Flowguard (2,118) ----------- ------------------------------------------------------------------------ 68 Profit (loss) for the period from (3,078) (810) discontinuing operations ---------- ------------------------------------------------------------------------ (438) Cash from operating activities 5,763 (399) (482) Cash from investing activities (283) (142) 513 Cash from financing activities 737 721---------- ------------------------------------------------------------------------ 5. NET CASH GENERATED FROM OPERATIONS------------------------------------- 53 weeks 26 weeks ended 26 weeks ended ended 31 1 July 2005 25 June 2004 December (restated) 2004(restated) £'000 £'000 £'000---------- ----------------------------------------------------------------------- 58,447 Profit from continuing operations before 25,941 24,967 restructuring costs, net finance costs and tax (240) Loss from discontinued operations before (794) (1,128) net finance costs and tax (6,435) Share of results of joint ventures and (3,397) (2,713) associates 15,208 Depreciation & grant credits 8,224 7,451 (173) (Profit) loss on disposal of property, 76 19 plant & equipment & investments (733) Funding of pension & post retirement 88 (153) costs 1,895 Increase in provisions 1,176 550 356 Employee share scheme 405 83 (203) Exchange (gain) loss on intra group 44 331 loans 232 Decrease (increase) in inventories (13,317) 5,174 (43,378) Decrease (increase) in trade & other 1,260 (21,351) receivables & construction contracts 42,034 Increase (decrease) in trade & other (5,653) 3,520 payables & construction contracts ---------- ----------------------------------------------------------------------- 67,010 Cash generated by operations 14,053 16,750 (12,096) Exceptional pension contributions (2,000) (12,096) - Restructuring costs paid (8,210) - (8,815) Income tax paid (4,468) (4,461)---------- ----------------------------------------------------------------------- 46,099 Net cash generated from (absorbed by) (625) 193 operating activities ---------- ----------------------------------------------------------------------- 6. INSURANCE MATTERS-------------------- No account is taken in the consolidated income statement of any potential futureinsurance recoveries in respect of the test shop fire at Cathcart as the directorsconsider that, as at 18 August 2005, it is impractical to reliably assess thefinancial impact with reasonable certainty. 7. IFRS RECONCILIATIONS OF NET ASSETS AND PROFIT------------------------------------------------ The following tables supplement the information contained within the press releaseof 1 July 2005, which described the conversion of the Group's basis of accountingfrom UK GAAP to IFRS, and, contained the Group's consolidated income statement,consolidated cash flow statement, consolidated balance sheet as at 31 December 2004, consolidated statement of recognised income and expense and consolidated summary of changes in shareholders' equity for the 53 weeks ended 31 December 2004, restated in accordance with IFRS. NET ASSETS £'000---------------------------------------------------------------------------Net assets as at 25 June2004 as reported underUK GAAP 235,533Goodwill amortisation 3,258Proposed dividend 7,111Mid to bid pensions valuation (706)Associates (10,642)Share based payments (69)Holiday pay accruals (306)Tax 9,823Minority interest 530--------------------------------------------------------------------------- Net assets asat 25 June 2004 asrestated under IFRS 244,532--------------------------------------------------------------------------- PROFIT FROMCONTINUINGOPERATIONSBEFORERESTRUCTURINGCOSTS, NETFINANCE COSTSAND TAX £'000---------------------------------------------------------------------------Profit for the 26 weeks ended 25 June 2004as reported under UK GAAP 21,830Joint ventures and associates interest (115)Joint ventures and associates tax (1,224)Goodwill amortisation 3,522Exchange on intra group loans (331)Associates (214)Share based payments 343Holiday pay accruals 28Discontinued operations 1,128--------------------------------------------------------------------------- Profit for the 26 weeks ended 25 June 2004as restated under IFRS 24,967--------------------------------------------------------------------------- PROFIT FOR THEPERIOD £'000---------------------------------------------------------------------------Profit for the 26 weeks ended25 June 2004 as reported under UK GAAP 15,088Goodwill amortisation 3,522Exchange on intra group loans (335)Mid to bid pensions valuation (24)Associates (214)Share based payments 274Holiday pay accruals 20Tax (17)Minority 3--------------------------------------------------------------------------- Profit for the 26 weeks ended 25 June 2004as restated under IFRS 18,317--------------------------------------------------------------------------- --------------------------------------------------------------------------- INDEPENDENT REVIEW REPORT TO THE WEIR GROUP PLC IntroductionRelated Shares:
Weir Group