Weir warns on profits but is confident on core markets
Chief executive says oil and gas division still being hit by downturn
WEIR Group, the Scottish engineering company, has issued a profit warning after revealing its oil and gas business would make a fullyear loss, but said performance in its core markets was beginning to improve.
In his first interim management statement since becoming chief executive, Jon Stanton said orders in its mineral division were returning to growth and its North American oil and gas customers were planning for higher levels of activity next year but pricing in the Middle East made for “tough trading conditions”.
Share closed last night down 2.35 per cent, or 16p, to 1,660p.
In the three months to October 31, Glasgow-based Weir said revenues were in line with expectations but it continued to be hampered by the downturn in oil and gas.
Weir said total orders reduced by seven per cent year-on-year as a result of declining interest in the Middle East and lower original equipment orders in its minerals division.
The overall 20 per cent reduction in original equipment orders dampened a resilient performance in aftermarket orders, which fell by one per cent overall but returned to growth of four per cent in the minerals division as a result of activity levels normalising after a slow start to the year.
“Assuming commodity prices remain supportive, we anticipate further sequential growth for the oil and gas division in the fourth quarter but little improvement in the pricing environment,” said Mr Stanton, who replaced Keith Cochrane last month.
“Given conditions in the Middle East as well, we now expect the division to be around break-even in the fourth quarter and slightly loss-making for the full year.”
Mr Stanton added that the outlook for minerals and flow control remained unchanged but overall the results reflected “the low point” in the North American oil and gas market and tougher conditions in the Middle East.
“Therefore, including a small further foreign exchange benefit, the group’s full year 2016 profits are expected to be slightly lower than current market expectations,” he said.
Weir saw pre-tax profits halve to £220 million in the year to January 2016 as it contended with “unprecedented” challenges in the oil and gas market.
The company has instigated a huge cost-cutting programme which reduced staff levels by about 1,600. This didn’t prevent this year’s interim pre-tax profits falling 25 per cent to £82m as revenue dropped 12 per cent to £866m.
Weir’s equipment is exported worldwide and its crushers, pumps, valves and wellheads are used by oil and gas, and mining exploration industries.
The company’s asset disposal programme is on track to deliver up to £100m by the end of the year, with £79m already achieved. A further £33m in property disposals has also been agreed.
The group said it also remained on track to deliver cumulative annualised cost reductions of £160m since the fourth quarter of 2014, including £50m in the current year.
“Weir is well placed to benefit as markets recover,” said Mr Stanton. “The strength of the team together with our global leadership positions in mining and oil and gas, deep customer relationships and investment in innovative technology, give the group a robust platform for long-term growth.” WOOD Group’s renewables consultancy SgurrEnergy has opened a base in Hong Kong to drive sales in Asia.
Glasgow-based SgurrEnergy already has an office in Beijing, but said the new office will place it in the heart of Asia’s financial hub, allowing the company to provide on-the-ground support to investors and developers in Hong Kong and across south-east Asia.
After establishing its Beijing office in 2006 and growing staff numbers to 16, regional director Cathryn Chu will head up the office in Hong Kong.
SgurrEnergy operates as a consultant, providing engineering and technical advisory services in onshore and offshore wind, solar, wave and tidal and hydro projects.
In 2015 the consultancy posted a pre-tax profit of £2.4 million on revenue of £16.7m.
It has been involved in a number of projects in the region, including the installation of an offshore risk quantification analysis (ORQA) data monitoring platform near Lamma Island, and assignments supporting Hong Kong financial institutions with renewables investments in mainland China and Asia.
Ms Chu said: “We have been working with investors and banks in Hong Kong for the past 10 years and this presence in Hong Kong will allow us to further explore the renewable energy opportunities in the region, but also provide a base for supporting south-east Asian projects and investments.”
The company operates throughout the world, with offices in North America, Latin America, India, South Africa, and across Europe.
The business was founded 14 years ago by technical director Ian Irvine and implementation director Steve McDonald, before Wood Group took a “significant equity” stake in 2010. It is incorporated into Wood Group Kenny and now employs 300 staff.
‘‘ Weir is well placed to benefit as markets recover. Our positions in mining and oil and gas... give the group a robust platform for long- term growth