Weir Group Regulatory News (WEIR)

11 Mar 2008 07:01

Weir Group PLC11 March 2008 The Weir Group PLC 11 March 2008 THE WEIR GROUP PLC PRELIMINARY RESULTS 2007 Results for 52 weeks ended 28 December 2007 HIGHLIGHTS Continuing Operations • Revenue up 22% to £1060.6m (2006: £870.4m) • Operating profit(*1) up 57% to £122.1m (2006: £77.7m) • Profit before tax(*1) up 56% to £120.2m (2006: £77.1m) • Earnings per share(*1) up 49% to 41.4p (2006: 27.8p) • Dividend increase of 14% to 16.5p (2006: 14.5p) • Cash generation improved significantly to £151.8m (2006: £111.0m) • SPM acquired, integrated and exceeding year one expectations • Secured acquisition of CH Warman for £113m(*2) 2007 2006 Change ------ ------ ------Continuing OperationsRevenue £1,060.6m £870.4m +22%Operating Profit(*1) £122.1m £77.7m +57%Profit before tax(*1) £120.2m £77.1m +56%Earnings per share(*1) 41.4p 27.8p +49% Total OperationsProfit for the period £175.0m £81.6m +114%Earnings per share 83.8p 39.4p +113%Dividend per share 16.5p 14.5p +14%Net debt £171.3m £7.1m *1 Adjusted to exclude intangibles amortisation and exceptional items.*2 Using a US $ / £ exchange rate of 2.05 as at 3 December 2007. The Chairman of The Weir Group, Sir Robert Smith, commented: "In 2007, Weirenjoyed its best operating year in company history delivering record sales,earnings and cash flow generation. During the year we realigned the portfolio ofbusinesses, significantly improved operational performance and added highquality businesses to the Group. We enter 2008 with an even more robust portfolio of businesses operating inlonger cycle end markets, a healthy balance sheet and cash generation. We havethe necessary flexibility to fund organic growth and pursue aligned acquisitionsand are confident of further progress in 2008." Contact details:The Weir Group PLCMark Selway, Chief Executive Tel. 0141 637 7111 (switchboard);Helen Walker, Public Relations Manager Tel. 0141 308 3739 (Mobile: 07789 032296)Maitland Tel. 020 7379 5151Suzanne Bartch (Mobile: 07769 710 335)Peter Ogden FINANCIAL HIGHLIGHTS 2007 input(*3) for continuing operations at £1095.3m was 10% higher than 2006with good progress from Engineering Products and Engineering Services offsettingthe anticipated decline from the exceptional 2006 bookings in the Defence,Nuclear & Gas businesses. Revenue growth was achieved across all divisions with revenue from Groupcontinuing operations increasing 22% to £1060.6m (2006: £870.4m). More than 75%of the year's output was generated from the power, oil and gas and miningmarkets. Operating profit from continuing operations, before intangiblesamortisation and exceptional items, at £122.1m (2006: £77.7m) was 57% above2006. Pre-tax profit from continuing operations, before intangibles amortisation andexceptional items, was up 56% on the previous year at £120.2m (2006: £77.1m)after net finance costs of £1.9m (2006: £0.6m). Reported profit before taxincreased 26% to £114m (2006: £90.5m) reflecting the impact of additionalintangibles amortisation of £3.9m in the current year and exceptional items inthe prior year. Profit for the period was £175.0m (2006: £81.6m) and included again from the sale of the Weir Pumps Glasgow operations of £26.0m and profit onthe disposal of the Group's interest in DML of £54.9m. Profit of £8.5m wasrecognised for these two businesses for the periods prior to disposal andprofits of £3.3m in respect of prior period disposals. A tax charge of £31.7m (2006: £21.6m) gives a normalised tax rate of 27.8% onprofit before tax for continuing operations. The resulting underlying earnings per share for continuing operations, beforeintangible amortisation and exceptional items, were 49% higher at 41.4p (2006:27.8p). Basic earnings per share for total operations rose to 83.8p from 39.4plast year, reflecting the positive impact of exceptional items and discontinuedoperations. Cash generated from operations of £151.8m was substantially ahead of the prioryear (2006: £111.0m) resulting from increased profitability and furtherimprovement in our working capital management. Net capital expenditure was£40.3m (2006: £23.9m) reflecting continued investment across the business.Proceeds from the sale of the Weir Pumps Glasgow operations and our interest inDML were offset by related net acquisition costs of £317.7m for the acquisitionsof SPM and Multiflo. Net debt at the year end was £171.3m compared to £7.1m forthe prior year. The Group has 16 pension plans around the world of which six are defined benefitplans, the most significant being the UK and Canadian plans. All defined benefitplans were closed to new members in 2002 and the net Group surplus forretirement benefit obligations at 28 December 2007 was £36.9m (2006: £3.9mdeficit). The Group reviews the level of funding on an annual basis and in 2007made a special contribution of £6.5m. This facilitated the purchase of aninsurance policy from Legal & General Assurance Society to secure the currentpensioners liabilities of the main UK plan and a similar process was alsoundertaken in Canada. This will substantially reduce the Group's exposure tofuture investment and mortality risks. DIVIDEND A final dividend of 12.35p (2006: 10.75p) is proposed making a total payment forthe year of 16.5p (2006: 14.5p). Subject to shareholder approval, the finaldividend will be paid on 2 June 2008 to shareholders on the register at theclose of business on 2 May 2008. REVIEW OF RESULTS To assist in meaningful comparison, the following review of results, with theexception of Joint Ventures, restates comparative 2006 figures at constantexchange rates. Engineering Products The Engineering Products Division includes the operations of our Minerals, ClearLiquid and Valves & Controls businesses which supply pumps, valves and ancillaryproducts to the oil and gas, mining and power industries. The division deliveredrecord results with input increasing 30% to £760.7m (2006: £585.2m) with morethan 80% from the mining, oil & gas and power markets. Revenue from continuingbusinesses increased 35% to £711.6m (2006: £525.5m) while operating profit,before intangibles amortisation and exceptional items from continuingoperations, increased 70% to £98.7m (2006: £58.1m). Like for like revenuegrowth, excluding the part year effect of the SPM acquisition, was 20% withoperating profit increasing from £58.1m to £79.6m on the same basis. Workloadwas largely balanced between new project and aftermarket activity. Operating margins increased to 13.9% compared with 11.1% in 2006. Positiveoperating leverage from increased revenues across all operations, the inclusionof SPM's higher margin product sales for a part year and improvements inoperational performance resulting from the focus on lean, each contributed tothis result. The SPM operating margin was in line with our expectations at24.3%. Minerals Our Minerals business posted another year of excellent progress with significantgains in input, revenue and profit when compared with 2006. The principal marketfor the business is global mining which accounted for almost 70% of revenues inthe year. Order input grew 28% to £491.2m and revenue 19% to £424.0m, reflecting theongoing strength of global mining markets, as well as the benefits ofmanagement's emerging market strategy and our entry into specialised areas ofthe power generation and oil sectors. The combination of an ongoing sparesstream from the existing installed base together with the year end order bookprovides a solid platform for further progress in 2008 and beyond. Our Netherlands business secured significant new project work in the miningmarkets of Madagascar and Brazil. Power generation orders from India alsocontributed to this company's highest ever order input of £101m in 2007 against£57m in 2006. The Americas also delivered impressive growth with significant new project workin Chile and Brazil adding to the success of our flue gas desulphurisationproducts in North America. In total, input grew 35% to £230m. Recognising the need to respond to the changing geographic profile of the globalmining market, the Minerals businesses continued to invest in growing theirpresence in the emerging territories of South America, Asia and the FormerSoviet Union. Further to our announcement on 4 December 2007 of the conditional acquisition ofthe CH Warman Pump Group, the Group has now received approval for thetransaction from the South African competition authorities. This acquisition,which is due to complete on 18 March 2008, will further complement ourgeographic expansion agenda and provides a strong foundation for growth in arapidly developing market. Going forward, the Minerals business will benefit from the growing demand forbasic commodities and continue to progress its strategic goals. Clear Liquid Our Clear Liquid businesses contributed significantly to the results ofEngineering Products in 2007. The acquisition of SPM, our disposal of Weir Pumpsand the excellent growth at Gabbioneta were all significant contributors toClear Liquid's improved results. Clear Liquid now comprises a portfolio of businesses with solid positions ingrowing and attractive markets. In 2007, input increased 43% to £191.9m andrevenue 99% to £214.7m. This reflects the addition of SPM and a further 3%increase from the speciality businesses against the record high input achievedin 2006. The oil, power and general industrial markets collectively representmore than 75% of total orders booked in the year. Gabbioneta, our downstream oil business, performed exceptionally well and gainedfrom strong market conditions and the two year investment in the Weir ProductionSystem. Productivity and plant throughput improved dramatically underpinning ayear of substantial growth in revenue and profit. The Clear Liquid specialitybusinesses continued to perform well with excellent progress at our operationsin Missouri, California and Utah as a result of continued buoyant domesticdemand and the increased geographic reach of the Group. The results for Clear Liquid include a partial year contribution from SPM fromJuly of 2007, when the acquisition was completed. SPM contributed £78.7m ofrevenue and £19.1m of operating profit, exceeding our expectations at the timeof the announcement of the acquisition. The business has been successfullyintegrated and the Weir Production System is in the early stages ofimplementation. SPM's market is largely tied to the upstream drilling of gaswells in North America where gas storage levels, gas prices and North Americanweather conditions are key market drivers. While we are likely to see someunwinding of favourable market conditions during 2008, we remain confident thatgrowth from servicing the installed base and the continued success of ourimprovement initiatives will underpin further profit progress in the year. The medium term outlook for Clear Liquid and the oil, power and related generalindustrial markets remain positive and this, when coupled with our plans forambitious operational improvement, will provide a solid platform for furtherprogress in 2008. Valves & Controls The Valves & Controls businesses made solid progress in 2007 and contributed torevenue and profit growth within the Engineering Products Division during theyear. Overall input grew 13% to £77.6m and revenue 17% to £72.9m, with the powerand oil markets representing more than 80% of total orders booked in the year. During 2007, our US operations grew their order input considerably through theaward of new power generation projects in China and plant upgrades in the USA.Valves & Controls also recorded growth in oil related orders as a result ofcontinued buoyant market conditions in the UK, Indo Pacific and FSU, all regionswhich we expect will maintain a positive outlook for 2008. As outlined in our last update, Valves & Controls USA has disposed of theinefficient Salem Massachusetts facility and has completed plans to move tolarger premises in the first quarter of 2008 to capitalise on the growingopportunities in its domestic market. Our Valves & Controls business in China continued to make good progress andcontributed positively to the results of the division. Orders in the Chinese newbuild power sector increased substantially during the year and the outlookremains positive for 2008 and beyond. We remain encouraged by the prospects for the Valves & Controls businesses. TheEuropean and North American power markets are entering a period of lifeextensions and new build projects. In addition, we expect good levels of growthin China, India and South Africa and remain well placed to capitalise on theseopportunities as we enter 2008. Engineering Services Input from Engineering Services increased 8% to £250.6m (2006: £232.9m). Revenuegrew 4% to £231.4m (2006: £221.7m) producing an increase in operating profitbefore intangibles amortisation and exceptional items of 41% to £18.5m (2006:£13.1m). This reflects the benefits of our 2006 restructuring initiatives in theUK, USA and Middle East. The division's operating margin of 8.0% exceeded ourexpectations and is expected to progress further in 2008. In the UK, input grew 5% to £74.2m (2006: £70.9m) with new hydro orderscontributing to solid growth in our power generation activities. Rationalisationof the number of UK Service Centres, which was completed in 2006, underpinnedthe 2007 results and this is expected to provide further improvements in theyear ahead. Our Middle East business grew input by 15% to £28.9m (2006: £25.1m) withsignificant new orders booked in oil services. Our Joint Venture Serviceoperations in Saudi Arabia and Abu Dhabi continued to benefit from strong marketconditions in their regions and contributed £3.4m of operating profit for theGroup compared with £2.4m in 2006. The Canadian operation had another successful year, benefiting in particularfrom continued buoyant market conditions and Weir's growing position in the oilsands sector. In the USA, the 2006 closure of our loss making service centresresulted in the remaining US businesses contributing positively to thedivision's results in 2007. The Australian operations performed well in the year, growing both revenue andprofit when compared with 2006. Our investment in larger facilities in WesternAustralia, which came on-line in the first half, made a solid first timecontribution in the year. We remain optimistic about the prospects for our Services Division which isincreasingly aligned with the higher growth oil and gas, power, mining andindustrial markets. The facility investments made in 2007, together with theexcellent progress from our Joint Ventures in Saudi Arabia and Abu Dhabi providethe foundations for further improvement in 2008. Defence, Nuclear & Gas Revenue from the Defence, Nuclear & Gas Division increased 10% to £117.6m (2006:£107.3m) and produced an operating profit, before intangible amortisation andexceptional items, of £10.4m against a prior year of £10.0m. 2007 inputdecreased 53% to £84.0m against the exceptional level of orders in the previousyear. Our liquid gas operation, Weir LGE, is the market leader in the design, projectmanagement and commissioning of facilities for the shipbuilding and onshorestorage of liquid gas. In 2007, revenue grew 13% to £65.8m compared with £58.1min the previous year. The majority of growth during the year was due to thesuccessful achievement of predetermined milestones on new ship contracts whichhad been booked previously. The defence and nuclear businesses delivered an increase in revenue andoperating profit. Order input at £72.2m was 10% below 2006 due to last year'saward of the £38m Spanish defence contract. Revenue grew 5% to £51.8m comparedwith £49.2m in the prior year. We remain confident of securing a number ofsignificant opportunities in the defence and nuclear activities in 2008. The outlook for the defence markets in the UK, Australia and Canada, which areall key markets for Weir defence products, remains encouraging and thedecommissioning activities in the UK nuclear market provide a positive outlookfor 2008. The shipbuild market is fully committed which will limit LGE's futureorder book. 2008 profitability will be tied to delivery of orders alreadysecured and should provide the gas business with broadly equivalent results inthe year ahead. STRATEGY The successful execution of our programme to transform the Weir Group is evidentin our 2007 results. We have realigned our portfolio of businesses,significantly improved operational performance across all divisions and addedhigh quality businesses to the Group. In the year, we delivered furthersignificant growth in revenue, operating profit and earnings per share andachieved our best operating year ever. In May, the Group announced the sale of the Weir Pumps Glasgow operations for acash consideration of £45.5m. The business represented less than 8% of Grouprevenue and a smaller percentage of profit and its sale was consistent with ourstated intention to exit lower margin activities where the Group had limitedopportunity to lead. In June, the Group announced its largest ever acquisition, - SPM, for a cashconsideration of £328m(*4) ($653m). SPM is a Texas based supplier of pumps andflow equipment for the upstream oil and gas market. The business is now fullyintegrated and plans are well progressed to improve operational performance andto extend its geographic reach using Weir's global footprint. In August, the Group acquired Multiflo, a small dewatering company in Australia,for a cash consideration of £9.3m, with the objective of extending the portfolioof offerings to the Group's mining customers. The business was integratedsuccessfully and plans are in place to extend its reach to the wider Mineralsmarkets. The acquisition of CH Warman provides the Group with a platform in thestrategically important sub-Saharan mining market. Our immediate objectives areto improve the respective performance of both the local Weir and CH Warmanbusinesses to provide a solid foundation for future integration and growth. THE BOARD Christopher Clarke has confirmed his intention to retire from the Board at theend of 2008 following nine years of valued service to the Group. In preparationfor this change, John Mogford has been appointed a Non Executive Director witheffect from 1 June 2008. John is currently a senior Executive with BP and brings30 years experience in the Oil and Gas sector. OUTLOOK In 2008, the Engineering Products Division is expected to deliver growth inrevenue and profits when compared to 2007. The Engineering Services Division is forecast to deliver margin and profitgrowth in 2008. The Defence, Nuclear & Gas Division is positioned to deliver equivalent revenueand profit as achieved last year and Joint Ventures are also expected tocontinue their good contribution. The Group is in good financial condition with a robust order book which supportsour continuing level of confidence in our outlook for the year ahead. Byremaining on course and capitalising on our position in strong end markets weare confident in achieving Reuters current market consensus for 2008.(*5) *3 Calculated at 2007 average exchange rates.*4 Using a US$/£ exchange rate of 1.99 as at 19 June 2007.*5 Reuters Knowledge Consensus at 4 March 2008 for profit before tax for continuing operations was £140.0m. AUDITED RESULTS Consolidated Income Statementfor the 52 weeks ended 28 December 2007 52 weeks ended 28 December 2007 52 weeks ended 29 December 2006 Before Exceptional Before Exceptional exceptional items & exceptional items & items & intangibles items & intangibles intangibles amortisation intangibles amortisation amortisation (note 3) Total amortisation (note 3) Total Notes £m £m £m £m £m £m-----------------------------------------------------------------------------------------------------------------------Continuing operationsRevenue 2 1,060.6 - 1,060.6 870.4 - 870.4======================================================================================================================= Continuing operationsOperating profit 118.7 (6.2) 112.5 75.3 13.4 88.7Share of results of joint ventures 3.4 - 3.4 2.4 - 2.4----------------------------------------------------------------------------------------------------------------------- Operating profit 2 122.1 (6.2) 115.9 77.7 13.4 91.1Finance costs (12.7) - (12.7) (10.8) - (10.8)Finance income 7.6 - 7.6 5.3 - 5.3Other finance income - retirement benefits 3.2 - 3.2 4.9 - 4.9----------------------------------------------------------------------------------------------------------------------- Profit before tax from continuing operations 120.2 (6.2) 114.0 77.1 13.4 90.5Tax expense 4 (33.8) 2.1 (31.7) (19.6) (2.0) (21.6) -----------------------------------------------------------------------------------------------------------------------Profit for the period from continuing operations 86.4 (4.1) 82.3 57.5 11.4 68.9Profit for the period from discontinuedoperations 5 11.8 80.9 92.7 12.8 (0.1) 12.7 -----------------------------------------------------------------------------------------------------------------------Profit for the period 98.2 76.8 175.0 70.3 11.3 81.6======================================================================================================================= Attributable toEquity holders of the Company 98.1 76.8 174.9 70.3 11.3 81.6Minority interests 0.1 - 0.1 - - ------------------------------------------------------------------------------------------------------------------------ 98.2 76.8 175.0 70.3 11.3 81.6======================================================================================================================= Earnings per share 6Basic - total operations 83.8p 39.4pBasic - continuing operations 41.4p 39.4p 27.8p 33.3p Diluted - total operations 82.9p 38.8pDiluted - continuing operations 40.9p 39.0p 27.4p 32.8p Consolidated Balance Sheetat 28 December 2007 28 December 29 December 2007 2006 Note £m £m-----------------------------------------------------------------------------------------------------------------------ASSETSNon-current assetsProperty, plant & equipment 136.3 116.6Investment property 4.8 -Intangible assets 503.2 180.1Investments in joint ventures & associate 7.2 33.5Deferred tax assets 3.1 19.3Retirement benefit plan surpluses 45.5 7.8Derivative financial instruments 1.2 4.9-----------------------------------------------------------------------------------------------------------------------Total non-current assets 701.3 362.2----------------------------------------------------------------------------------------------------------------------- Current assetsInventories 173.5 120.9Trade & other receivables 255.2 203.8Construction contracts 32.8 34.9Derivative financial instruments 10.6 6.5Income tax receivable 1.8 0.1Cash & short term deposits 54.2 146.3-----------------------------------------------------------------------------------------------------------------------Total current assets 528.1 512.5-----------------------------------------------------------------------------------------------------------------------Total assets 1,229.4 874.7======================================================================================================================= LIABILITIESCurrent liabilitiesInterest-bearing loans & borrowings 8.5 7.5Trade & other payables 257.8 212.4Construction contracts 55.9 46.3Derivative financial instruments 11.8 3.0Income tax payable 20.8 19.4Provisions 22.8 27.3-----------------------------------------------------------------------------------------------------------------------Total current liabilities 377.6 315.9----------------------------------------------------------------------------------------------------------------------- Non-current liabilitiesInterest-bearing loans & borrowings 217.0 145.9Derivative financial instruments 5.1 1.8Provisions 22.6 13.6Deferred tax liabilities 53.3 13.9Retirement benefit plan deficits 8.6 11.7-----------------------------------------------------------------------------------------------------------------------Total non-current liabilities 306.6 186.9-----------------------------------------------------------------------------------------------------------------------Total liabilities 684.2 502.8======================================================================================================================= NET ASSETS 545.2 371.9======================================================================================================================= CAPITAL & RESERVESShare capital 9 26.5 26.4Share premium 9 37.7 35.4Treasury shares 9 (9.3) (10.7)Capital redemption reserve 0.5 0.5Foreign currency translation reserve 0.2 (2.9)Hedge accounting reserve 3.5 3.5Retained earnings 485.6 319.3-----------------------------------------------------------------------------------------------------------------------Shareholders equity 9 544.7 371.5Minority interest 9 0.5 0.4-----------------------------------------------------------------------------------------------------------------------TOTAL EQUITY 9 545.2 371.9======================================================================================================================= Consolidated Cash Flow Statementfor the 52 weeks ended 28 December 2007 52 weeks 52 weeks ended 28 ended 29 December December 2007 2006 Note £m £m-----------------------------------------------------------------------------------------------------------------------Continuing operationsCash flows from operating activitiesCash generated from operations 10 151.8 111.0Additional pension contributions paid (6.5) (7.0)Fundamental restructuring costs paid (0.4) (3.3)Income tax paid (33.1) (16.5)-----------------------------------------------------------------------------------------------------------------------Net cash generated from operating activities 111.8 84.2----------------------------------------------------------------------------------------------------------------------- Continuing operationsCash flows from investing activitiesAcquisitions of subsidiaries 10 (317.8) (2.1)Disposals of subsidiaries & associate 127.3 (1.8)Purchases of property, plant & equipment & intangible assets (43.5) (24.7)Exceptional proceeds on sale of property - 8.3Other proceeds from sale of property, plant & equipment & intangible assets 3.2 0.8Interest received 7.5 5.3Dividend received from discontinued associate 2.5 -Other dividends received 3.7 1.5-----------------------------------------------------------------------------------------------------------------------Net cash used in investing activities (217.1) (12.7)----------------------------------------------------------------------------------------------------------------------- Continuing operationsCash flows from financing activitiesProceeds from issue of ordinary shares 2.4 3.1Proceeds from borrowings 124.3 90.7Repayments of borrowings (73.7) (110.2)Interest paid (12.6) (10.2)Dividends paid to equity holders of the Company (31.1) (27.7)-----------------------------------------------------------------------------------------------------------------------Net cash generated from (used in) financing activities 9.3 (54.3)----------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash & cash equivalents from continuing operations (96.0) 17.2Net increase in cash & cash equivalents from discontinued operations - operating activities 1.4 22.9Net decrease in cash & cash equivalents from discontinued operations - investing activities (0.5) (2.7)Cash & cash equivalents at beginning of period 139.1 104.0Foreign currency translation differences 2.1 (2.3)-----------------------------------------------------------------------------------------------------------------------Cash & cash equivalents at end of period 46.1 139.1======================================================================================================================= Cash & cash equivalents comprises the followingCash & short-term deposits 54.2 146.3Bank overdrafts & short-term borrowings (8.1) (7.2)----------------------------------------------------------------------------------------------------------------------- 46.1 139.1======================================================================================================================= Reconciliation of net (decrease) increase in cash & cash equivalents to movement in net debtNet (decrease) increase in cash & cash equivalents from continuing operations (96.0) 17.2Net increase in cash & cash equivalents from discontinued operations 0.9 20.2Net (increase) decrease in debt (50.6) 19.5-----------------------------------------------------------------------------------------------------------------------Change in net debt resulting from cash flows (145.7) 56.9Lease acquired (0.2) -Foreign currency translation differences (18.3) 12.4-----------------------------------------------------------------------------------------------------------------------Change in net debt during the period (164.2) 69.3Net debt at beginning of period (7.1) (76.4)-----------------------------------------------------------------------------------------------------------------------Net debt at end of period (171.3) (7.1)======================================================================================================================= Consolidated Statement of Recognised Income & Expensefor the 52 weeks ended 28 December 2007 52 weeks 52 weeks ended 28 ended 29 December December 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Income & expense recognised directly in equityGains taken to equity on cash flow hedges 6.2 11.5Exchange differences on translation of foreign operations 3.1 (12.8)Actuarial gains on defined benefit plans 29.5 33.0Share of associate's actuarial gain on defined benefit plans - 4.4Transfers to the income statementOn cash flow hedges (1.9) (1.1)On cash flow hedges - discontinued operations (4.3) -Tax on items taken directly to or transferred from equity (7.0) (12.5)-----------------------------------------------------------------------------------------------------------------------Net income recognised directly in equity 25.6 22.5Profit for the period 175.0 81.6-----------------------------------------------------------------------------------------------------------------------Total recognised income & expense for the period 200.6 104.1======================================================================================================================= Attributable toEquity holders of the Company 200.5 104.1Minority interests 0.1 ------------------------------------------------------------------------------------------------------------------------ 200.6 104.1======================================================================================================================= Notes to the Financial Statements 1. Basis of preparation The preliminary results for the 52 weeks ended 28 December 2007 have beenprepared in accordance with International Financial Reporting Standards (IFRS)as adopted by the European Union and applied in accordance with the provisionsof The Companies Act 1985. The accounting policies applied in preparing thesepreliminary results are unchanged from those set out in the Group's 2006 AnnualReport. In preparing this preliminary announcement the Group has also appliedIAS40 "Investment Property". Following the disposal of Weir Pumps, a propertyheld by the company now meets the definition of investment property. Theapplication of IAS40 resulted in a reclassification, amounting to £4.8m, fromproperty, plant & equipment to investment property in the balance sheet. Thedirectors have chosen to apply the cost model within IAS40, therefore there hasbeen no adjustment necessary to the measurement basis of the property and assuch there is no other impact from the adoption of this accounting policy, whichis detailed below, in these preliminary results. The format of the consolidated income statement presented in these preliminaryresults differs from that used in the Group's consolidated financial statementsfor the 52 weeks ended 29 December 2006 and the Group's 2007 Interim Report. Theformat of the consolidated income statement included within these preliminaryresults, which now presents intangibles amortisation in a separate column withexceptional items, has been adopted as it presents information in a format thatis more relevant to users of the financial statements by improving thevisibility of the impact that increased acquisition activity has had onintangible assets. In addition, the analysis of expenses has been transferredfrom the face of the income statement to the notes to the financial statementsin order to present the key performance indicators more clearly to users of thefinancial statements. The comparative information has been reclassifiedaccordingly, resulting in the reclassification of intangibles amortisation of£2.3m. The format of the consolidated cash flow statement presented in thesepreliminary results differs from that used in the Group's consolidated financialstatements for the 52 weeks ended 29 December 2006. The format of theconsolidated cash flow statement included within these preliminary results,which presents cash flows for continuing operations only, has been adopted as itpresents information in a format that is more relevant to users of the financialstatements. The comparative information has been restated accordingly, resultingin £22.9m of cash inflows from operating activities and £2.7m of cash outflowsfrom investing activities being reclassified as relating to discontinuedoperations. These preliminary results for the 52 weeks ended 28 December 2007 do notconstitute statutory accounts as defined in Section 240 of The Companies Act1985. They are extracted from the full statutory accounts, which were approvedby a Committee of the Board of Directors on 11 March 2008. A copy of those fullstatutory accounts will be lodged with the Registrar of Companies in due course.The report of the auditors on those financial statements is unqualified and doesnot contain a statement under Section 237 (2) or Section 237 (3) of TheCompanies Act 1985 concerning accounting records or failure to obtain necessaryinformation and explanations. Investment property The Group has one property which is currently being held to earn rentals and forcapital appreciation rather than for use in the production or supply of goodsand services and as such this property is classified as investment property.Investment property is stated at cost less accumulated depreciation.Depreciation is provided on a straight-line basis over 40 years. 2. Segment information - Continuing Operations The following table presents revenue and profit information on the Group'scontinuing operations for the 52 weeks ended 28 December 2007 and the 52 weeksended 29 December 2006. Total Engineering Engineering Defence, continuing Products Services Nuclear & Gas operations 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m-----------------------------------------------------------------------------------------------------------------------RevenueSales to external customers - existing operations 632.9 538.0 231.4 225.2 117.6 107.2 981.9 870.4 - acquisitions 78.7 - - - - - 78.7 ------------------------------------------------------------------------------------------------------------------------Sales to external customers 711.6 538.0 231.4 225.2 117.6 107.2 1,060.6 870.4Inter-segment sales 22.1 22.4 1.2 1.6 - - 23.3 24.0-----------------------------------------------------------------------------------------------------------------------Segment revenue 733.7 560.4 232.6 226.8 117.6 107.2 1,083.9 894.4======================================================================================================================= Sales to external customers - existing operations - at 2007 average exchange rates 632.9 525.5 231.4 221.7 117.6 107.3 981.9 854.5======================================================================================================================= ResultSegment result before exceptional items & intangibles amortisation - existing operations 79.6 59.9 18.5 12.9 10.4 10.0 108.5 82.8 - acquisitions 19.1 - - - - - 19.1 -Exceptional income (net) - existing operations - 5.0 - - - - - 5.0Intangibles amortisation - existing operations (1.7) (1.5) (0.5) (0.5) (0.2) (0.2) (2.4) (2.2) - acquisitions (3.7) - - - - - (3.7) ------------------------------------------------------------------------------------------------------------------------ 93.3 63.4 18.0 12.4 10.2 9.8 121.5 85.6Share of results of joint ventures - - 3.4 2.4 - - 3.4 2.4----------------------------------------------------------------------------------------------------------------------- 93.3 63.4 21.4 14.8 10.2 9.8 124.9 88.0 =========================================================Unallocated expenses* (9.0) (7.6)Unallocated exceptional income - 10.7 -----------------Operating profit 115.9 91.1 ================= Segment result before exceptional items & intangibles amortisation - existingoperations - at 2007 average exchange rates 79.6 58.1 18.5 13.1 10.4 10.0 108.5 81.2======================================================================================================================= * Unallocated expenses include intangibles amortisation of £0.1m (2006: £0.1m). 3. Exceptional items & intangibles amortisation 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Recognised in arriving at operating profit from continuing operationsProfit on sale of property - 6.8Pension plan gain - 10.7Restructuring costs - (1.8)-----------------------------------------------------------------------------------------------------------------------Exceptional items - 15.7Intangibles amortisation (6.2) (2.3)-----------------------------------------------------------------------------------------------------------------------Exceptional items & intangibles amortisation (6.2) 13.4======================================================================================================================= 4. Income tax expense 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Group - UK (6.8) (1.6)Group - overseas (25.5) (21.0)-----------------------------------------------------------------------------------------------------------------------Total income tax expense in the consolidated income statement (32.3) (22.6)======================================================================================================================= The total income tax expense is disclosed in the consolidated income statement as follows.Tax expense - continuing operations before exceptional items & intangibles amortisation (33.8) (19.6) - exceptional items - (2.7) - intangibles amortisation 2.1 0.7 - within profit from discontinued operations (0.6) (1.0)======================================================================================================================= The total income tax expense included in the Group's share of results of joint ventures & associates is as follows.Joint ventures (0.6) (0.4)Associate (within profit from discontinued operations) (1.3) (3.3)======================================================================================================================= 5. Discontinued operations On 8 May 2007, the Group disposed of its Glasgow-based pump manufacturingoperation Weir Pumps for a total cash consideration of £45.5m resulting in again on disposal of £26.0m after a tax charge of £nil. Of the disposal proceeds,£1.7m has been allocated to the ongoing lease of the Cathcart site by thepurchaser and has been deferred. The net assets disposed of amounted to £13.7mand direct disposal costs and provisions amounted to £8.4m, including estimatedcosts of £2.6m associated with separating the discontinued operations of WeirPumps from the remaining Weir Engineering Services and Materials and Foundryoperations. The net gain suspended in equity on cash flow hedges, amounting to£4.3m, has been recycled to the income statement as part of the gain on sale inaccordance with IAS39. On 28 June 2007, the Group completed the sale of its 24.5% interest in itsassociate, Devonport Management Limited, for a total cash consideration of£85.7m. Approval of the sale was obtained from the Ministry of Defence on 26June 2007, at which time the investment became held for sale. The carrying valueof the investment at the date of sale was £26.8m. Costs and provisionsassociated with the disposal amounted to £4.0m resulting in a gain on disposalof £54.9m after a tax charge of £nil. The results of Weir Pumps, which were previously included within the EngineeringProducts segment, and the Group's share of the results of Devonport ManagementLimited which were previously reported in the Engineering Services segment, havebeen included in the consolidated income statement as discontinued operations.The net gain of £80.9m made on these disposals has been recorded as anexceptional item in the consolidated income statement. Profits recognised inrespect of prior years' disposals relate to the negotiated settlement of claimsconnected to prior period disposals and the release of certain provisions nolonger required. The revenue, results and cash flows relating to discontinued operations are asfollows. 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Sale of goods 9.9 29.9Revenue from construction contracts 12.1 40.6-----------------------------------------------------------------------------------------------------------------------Revenue 22.0 70.5Cost of sales (13.9) (55.9)Other operating income 1.2 2.2Selling & distribution costs (2.7) (8.6)Administrative expenses (1.4) (4.0)Share of results of associate (after tax) 3.3 8.1-----------------------------------------------------------------------------------------------------------------------Operating profit 8.5 12.3Income tax - (1.0)-----------------------------------------------------------------------------------------------------------------------Profit after tax 8.5 11.3Profits recognised in respect of prior years' disposals (after tax) 3.3 1.4-----------------------------------------------------------------------------------------------------------------------Profit for the period from discontinued operations * 11.8 12.7Net gain on current year disposals - exceptional items (on which no tax has been provided) 80.9 ------------------------------------------------------------------------------------------------------------------------Profit for the period from discontinued operations 92.7 12.7======================================================================================================================= *including intangibles amortisation net of tax of £nil (2006: £0.1m) The cash inflow from current year disposals was as follows:Consideration 129.5 -Costs associated with the disposals (4.3) ------------------------------------------------------------------------------------------------------------------------Net cash inflow 125.2 -======================================================================================================================= 6. Earnings per share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the Company by the weightedaverage number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary equity holders of the Company by the weighted averagenumber of ordinary shares outstanding during the year (adjusted for the effectsof dilutive options and LTIP awards). The following reflects the profit and share data used in the calculation ofearnings per share. 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Basic earnings per shareProfit attributable to equity holders of the Company - Total operations* 174.9 81.6 - Continuing* 82.2 68.9 - Continuing (before exceptional items & intangible amortisation)* 86.3 57.5 Weighted average share capital (number of shares, million) 208.6 207.1======================================================================================================================= Diluted earnings per shareProfit attributable to equity holders of the Company - Total operations* 174.9 81.6 - Continuing* 82.2 68.9 - Continuing (before exceptional items & intangible amortisation)* 86.3 57.5 Weighted average share capital (number of shares, million) 210.9 210.1======================================================================================================================= The difference between the weighted average share capital for the purposes ofthe basic and diluted earnings per share calculations is analysed as follows. 2007 2006 Shares Shares Million Million-----------------------------------------------------------------------------------------------------------------------Weighted average number of ordinary shares for basic earnings per share 208.6 207.1Effect of dilution: share options 0.4 1.0 LTIP awards 1.9 2.0-----------------------------------------------------------------------------------------------------------------------Adjusted weighted average number of ordinary shares for diluted earnings per share 210.9 210.1======================================================================================================================= The profit attributable to equity holders of the Company used in the calculationof both basic and diluted earnings per share on continuing operations beforeexceptional items and intangibles amortisation is calculated as follows. 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Net profit attributable to ordinary shareholders from continuing operations* 82.2 68.9Exceptional items & intangibles amortisation net of tax 4.1 (11.4)-----------------------------------------------------------------------------------------------------------------------Net profit attributable to ordinary shareholders from continuing operationsbefore exceptional items & intangibles amortisation* 86.3 57.5======================================================================================================================= *adjusted for £0.1m (2006: £nil) attributable to minority interests. 7. Dividends paid & proposed 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Declared & paid during the period Equity dividends on ordinary sharesFinal dividend for 2006: 10.75p (2005: 9.65p) 22.4 19.9Interim dividend for 2007: 4.15p (2006: 3.75p) 8.7 7.8----------------------------------------------------------------------------------------------------------------------- 31.1 27.7======================================================================================================================= Proposed for approval by shareholders at the AGMFinal dividend for 2007: 12.35p (2006: 10.75p) 25.8 22.3======================================================================================================================= The proposed dividend is based on the number of shares in issue, excludingtreasury shares held, at the date the financial statements were approved andauthorised for issue. The final dividend may differ due to increases ordecreases in the number of shares in issue between the date of approval of thereport and financial statements and the record date for the final dividend. 8. Business combinations On 19 July 2007, the Group acquired 100% of the share capital of SPM FlowControl, Inc., a company based in Fort Worth, Texas, specialising in themanufacture of high-pressure well service pumps and related flow controlequipment which operate in abrasive, high-wear applications in oil and gasdrilling and extraction. The total cash consideration was £321.9m. On 21 August2007, the Group acquired Multiflo, a privately owned specialist mine dewateringpump business based in Caloundra, Australia. The total cash consideration was£9.3m. Both acquisitions have been accounted for on a provisional basis as alimited number of fair values have still to be finalised. The provisional fair values of the identifiable assets and liabilities at therelevant dates of acquisition are as follows. 2007 2007 2007 2007 2007 Recognised Recognised Recognised Carrying on Carrying on on values acquisition values acquisition acquisition Multiflo Multiflo SPM SPM Total £m £m £m £m £m-----------------------------------------------------------------------------------------------------------------------Property, plant & equipment 0.1 0.2 11.5 10.9 11.1Intangible assets - 4.4 - 121.4 125.8Inventories 1.3 0.3 29.6 37.2 37.5Trade & other receivables 1.5 1.5 36.8 35.6 37.1Cash & cash equivalents - - 13.5 13.5 13.5Interest-bearing loans & borrowings - - (0.2) (0.2) (0.2)Trade & other payables (2.1) (1.4) (21.7) (21.9) (23.3)Provisions (0.1) (0.1) (1.0) (2.7) (2.8)Income tax - - (0.2) (4.2) (4.2)Deferred tax - - 0.8 (41.4) (41.4)-----------------------------------------------------------------------------------------------------------------------Fair value of net assets 0.7 4.9 69.1 148.2 153.1 ============ ============ Goodwill arising on acquisition 4.4 173.7 178.1 ------------- ----------------------Total consideration 9.3 321.9 331.2======================================================================================================================= Consideration 9.2 319.3 328.5Costs associated with the acquisition 0.1 2.6 2.7-----------------------------------------------------------------------------------------------------------------------Total consideration 9.3 321.9 331.2======================================================================================================================= The cash outflow on acquisition was as followsCash & cash equivalents acquired - 13.5 13.5Cash paid (9.3) (321.9) (331.2)-----------------------------------------------------------------------------------------------------------------------Net cash outflow (9.3) (308.4) (317.7)======================================================================================================================= From the date of the acquisition SPM Flow Control, Inc. contributed £9.8m to the2007 profit for the period from continuing operations of the Group. The resultsof Multiflo were not significant. The combined revenue and profit of the Group,assuming that SPM Flow Control, Inc. and Multiflo had been acquired at the startof 2007, would have been £1,164.9m and £98.5m respectively. On 16 February 2006, the Group acquired the business and certain trading assetsof Loftyman Engineering Limited, a company registered in Hong Kong. The amountpayable for the goodwill associated with the business was £0.8m and a total of£0.4m was payable for the trading assets. Included in the £178.1m of goodwill recognised above are certain intangibleassets that cannot be individually separated and reliably measured from theacquiree due to their nature. These items include the expected value ofsynergies and an assembled workforce. 9. Reconciliation of movements in equity Minority Total Attributable to equity holders of the Company interest equity----------------------------------------------------------------------------------------------------------------------- Share Share Treasury capital premium shares Reserves Total £m £m £m £m £m £m £m----------------------------------------------------------------------------------------------------------------------- At 30 December 2005 26.2 32.5 (10.7) 242.6 290.6 0.4 291.0Total recognised income & expense for the period - - - 104.1 104.1 - 104.1Cost of share-based payments - - - 1.4 1.4 - 1.4Dividends - - - (27.7) (27.7) - (27.7)Exercise of options 0.2 2.9 - - 3.1 - 3.1----------------------------------------------------------------------------------------------------------------------- At 29 December 2006 26.4 35.4 (10.7) 320.4 371.5 0.4 371.9Total recognised income & expense for the period - - - 200.5 200.5 0.1 200.6Cost of share-based payments - - - 1.4 1.4 - 1.4Dividends - - - (31.1) (31.1) - (31.1)Exercise of options & L-TIP awards 0.1 2.3 1.4 (1.4) 2.4 - 2.4-----------------------------------------------------------------------------------------------------------------------At 28 December 2007 26.5 37.7 (9.3) 489.8 544.7 0.5 545.2======================================================================================================================= 10. Cash generated from operations 2007 2006 £m £m-----------------------------------------------------------------------------------------------------------------------Continuing operationsNet cash generated from operationsOperating profit 115.9 91.1Exceptional items - (15.7)Share of results of joint ventures (3.4) (2.4)Depreciation & amortisation 23.7 17.5(Gains) losses on disposal of property, plant & equipment & investments (0.6) 0.2Funding of pension & post retirement costs (1.2) (0.9)(Gains) losses on derivatives that have been taken to operating profit (1.9) -Employee share schemes 1.4 1.4Increase in provisions 7.3 1.9Increase in inventories (16.1) (6.6)Increase in trade & other receivables & construction contracts & derivative financial instruments (20.7) (20.1)Increase in trade & other payables & construction contracts & derivative financial instruments 47.4 44.6-----------------------------------------------------------------------------------------------------------------------Cash generated from operations 151.8 111.0======================================================================================================================= Acquisitions of subsidiariesCurrent year acquisitions (note 8) (317.7) (0.8)Previous year acquisitions deferred consideration paid (0.1) (1.3)----------------------------------------------------------------------------------------------------------------------- (317.8) (2.1)======================================================================================================================= 11. Exchange ratesThe principal exchange rates applied in the preparation of these financial statements were as follows. 2007 2006--------------------------------------------------------------------------------Average rateUS dollar (per £) 2.01 1.86Australian dollar (per £) 2.39 2.45Euro (per £) 1.46 1.47Canadian dollar (per £) 2.14 2.10--------------------------------------------------------------------------------Closing rateUS dollar (per £) 2.00 1.96Australian dollar (per £) 2.27 2.48Euro (per £) 1.37 1.49Canadian dollar (per £) 1.96 2.28-------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange