Weir Group Regulatory News (WEIR)

The Weir Group PLC

3 August 2010

THE WEIR GROUP PLC INTERIM RESULTS 2010

Results for 26 weeks ended 2 July 2010

HIGHLIGHTS

§ Original equipment input up 28%, aftermarket input increased 22%;

§ Strong aftermarket contributed 58% of revenues;

§ Pre-tax profits up 58% and margins up 5.5pts;

§ Strong cashflow resulted in 18% reduction in net debt;

§ 25% increase in interim dividend to 6.0p;

§ Positive original equipment trends benefited Minerals and SPM;

§ Nuclear contract successes in Power & Industrial;

§ Increased revenue expectations at SPM;

§ Continued confidence in full year 2010 outlook.

Keith Cochrane, Chief Executive, commented:

"Against the background of an uncertain global economic recovery, the Weir Group has again delivered an excellent set of results with all divisions recording profit and margin progression.

Our growth plan is well on track across all our divisions and the strong increase in orders demonstrates our robust business model and ability to respond quickly to the changing economic environment.

Strong trading reinforces our confidence for the remainder of 2010 and we continue to expect profit for the second half of 2010 to be significantly ahead of the prior year in constant currency terms."

Note to Editors: Print quality images are available to download at http://www.newscast.co.uk

This release, together with other information on The Weir Group PLC, may be found at www.weir.co.uk.

GENERAL OVERVIEW

The Group has delivered another record set of results with significant growth in shorter cycle aftermarket revenues across Minerals and upstream Oil & Gas. Together with a continued focus on the cost base, this has benefited operating profits and margins. Enquiry levels remain strong with positive emerging original equipment trends across each division and a record performance from the Canadian Minerals business following the award of a C$50 million oil sands contract.

Good progress has been made in delivering on our strategic growth plan. Investment in new product and service initiatives is well underway at each division; third party collaboration agreements have been signed to broaden the product portfolio; and our emerging market presence was extended. In addition, a number of functional initiatives have been launched to extend operational excellence beyond the factory floor. The acquisitions of Linatex and Petroleum Certification Services (PCS) were announced in the period, building on our organic growth plans.

FINANCIAL HIGHLIGHTS

Order input in constant currency was 24% higher at £863m (2009: £694m). Original equipment orders were up 28% (16% excluding the impact of the C$50m oil sands order) with improving confidence across most of our end markets. Aftermarket orders were up 22% resulting from increased activity levels across the Minerals and upstream Oil & Gas markets and represented 58% (2009: 59%) of total orders. Emerging markets input was 29% higher at £338m (2009: £262m) and orders from other Group Companies increased to £17m (2009: £4m) due to several contract wins.

Revenue in constant currency terms was 4% higher than the prior year period reflecting a weaker opening order book, offset by increased aftermarket revenues. Reported revenue grew by 9% to £775m (2009: £710m), with a net currency benefit of £34m, principally due to the weakening of sterling relative to the average Australian and Canadian dollar rates in the prior year period. Aftermarket sales represented 58% (2009: 54%) of revenues and emerging market revenues were broadly in line with the prior year at £310m (2009: £319m). Revenues from other Group companies fell to £14m (2009: £20m) due to a lower opening order book.

Operating Profit from continuing operations before intangibles amortisation increased by 52% to £151.0m (2009: £99.2m) including a net foreign exchange benefit of £3.7m. On a constant currency basis operating profit increased by 47%, principally due to the flow through effects of higher aftermarket volumes at Weir SPM and across the Minerals division. The profit contribution from other Group companies was £1.7m (2009: £2.2m).

Operating margin in constant currency increased from 13.8% to 19.5% reflecting the favourable impact of a higher proportion of aftermarket revenues, pricing discipline and benefits from operating efficiencies and lower raw material costs.

Net finance costs fell to £7.0m (2009: £7.8m) due to lower average net debt partly offset by the higher fixed coupon on private placement debt relative to our floating rate bank facilities.

Profit before tax from continuing operations before intangibles amortisation increased by 58% to £144.0m (2009: £91.4m). Reported profit before tax from continuing operations increased by 64% to £135.6m (2009: £82.9m) reflecting intangibles amortisation of £8.4m (2009: £8.5m).

Tax charge for the period of £41.6m (2009: £25.8m) on profit before tax from continuing operations before intangibles amortisation represents an underlying effective tax rate of 28.9% (2009: 28.2%) reflecting a higher proportion of US profits which are taxed at a higher rate.

Earnings per share from continuing operations before intangibles amortisation increased by 55% to 48.5p (2009: 31.2p). Reported earnings per share including intangibles amortisation were 45.7p (2009: 28.4p).

Cash generated from operations was 3% lower at £120.6m (2009: £123.9m), with higher operating profits offset by working capital outflows of £45.4m (2009: £12.6m inflow) which were principally due to increased activity levels and the unwind of advance payments on major contracts. Overall working capital on a constant currency basis was 12.7% of revenues (2009: 13.0%) Net capital expenditure was slightly higher than the prior year period at £18.1m (2009: £17.0m), with the timing of projects and increased investment plans resulting in 2010 expenditure being weighted to the second half. Settlement of derivative financial instruments resulted in cash inflows of £0.9m (2009: £6.7m outflows). Net free cashflow after all financing costs, tax and dividends was £31.0m (2009: £40.2m). Cash outflows of £4.2m (2009: £0.8m) were attributable to acquisitions and disposals, primarily PCS which, taken together with free cash flow and the adverse impact of the translation of foreign currency borrowings of £5.3m (2009: £0.5m favourable), resulted in a £21.5m reduction in net debt to £97.7m when compared to December 2009 (£119.2m).

Dividend - an interim dividend of 6.0p (2009: 4.8p) is declared, a 25% increase. The dividend will be paid on 5 November 2010 to shareholders on the register on 8 October 2010.

DIVISIONAL HIGHLIGHTS

MINERALS

Weir Minerals is the global leader in the provision of slurry handling equipment and associated aftermarket for abrasive high wear applications used in mining, oil sands and flue gas desulphurisation markets.

Project enquiries and activity across the mining and oil sands markets increased, driven by strong demand for commodities from emerging markets. These trends have benefited the Minerals division which performed strongly in the period. Aftermarket activity exceeded our expectations with a clear restocking effect contributing to revenues and profits. The first signs of a pick up in original equipment orders were also evident towards the end of the period.

The division has continued to make good progress in extending its market presence and product portfolio. The Canadian business was awarded a C$50m order, for delivery in 2011, to supply barges and an integrated package of Weir products to a major oil sands project. In Chile, our operations have successfully extended their presence into the mill circuit spools market with a number of significant contract wins. In April, agreement was reached with KHD to act as their exclusive agent to sell and provide aftermarket support for high pressure grinding roller products to the mining sector. In June, we announced the conditional US$200m acquisition of Linatex, a global leader in wear resistant natural rubber products. The purchase is on track to complete in the third quarter of 2010. Both transactions will further extend the division's mill circuit product portfolio and support future growth initiatives. Customer trials of our entire range of mill circuit products continue to be a focus with our new patented core slurry pump range delivering material performance improvements. The global sales launch will take place in the second half of 2010.

Order input increased by 21% with growth of 29% in original equipment and 16% in aftermarket orders. Excluding the C$50m contract award at our Canadian business, original equipment orders were 9% higher than the prior year period with an improving trend through the second quarter as increased project enquiries started to convert into firm orders. Good progress was also made in growing orders across the broader product portfolio. All regions showed growth in the period with our Netherlands business, which is largely driven by major greenfield mining developments and as such an early indicator of market activity, increasing input by 47%. Aftermarket input benefited from a restocking effect, larger installed base and higher activity levels in the mining and oil sands markets and represented 61% of total order input after excluding the exceptional Canadian contract. Our global footprint continues to drive growth with emerging markets representing 49% of input (2009: 45%), up 32% in the period with particularly good continued progress in South America and Asia.

Revenue decreased by 8% reflecting the lower opening order book offset by strong growth in shorter cycle aftermarket revenues.

Operating profit increased by 16% reflecting the increased aftermarket mix, improved operating efficiencies and raw material pricing benefits.

Operating margins improved to 20.0% reflecting a higher proportion of aftermarket sales, improved operating efficiencies and continuing benefits of cost reduction programmes, including continued development of lean best practices across our facilities worldwide.

Capital expenditure totalled £8.8m (2009: £12.6m) and included the opening of service centres in Indonesia and Russia. New plants for the Brasilian operations and Weir Multiflo were completed in the period.

OIL & GAS

Weir Oil & Gas designs and manufactures high pressure well service pumps and related flow control equipment focused on unconventional oil and gas markets and highly engineered centrifugal pumps for use in the refining industry. Weir Oil & Gas Services provides comprehensive engineering services focused on the upstream oil & gas sector.

Market conditions for our North American focused upstream business significantly improved with a substantial increase in onshore unconventional drilling causing horizontal rig counts to reach record levels for much of the period. Together with increased activity levels in the more aggressive gas shale environments this translated into strong revenue growth and a pick up in original equipment orders in May and June. As expected, the downstream market for original equipment orders continues to be challenging, with significant pricing pressure evident, and we commenced planning for reduced activity levels in 2011.

Good progress has been made delivering the division's strategic growth plan. Upstream operations were expanded through the acquisition of PCS in Australia, the opening of the first SPM service centre in Brasil and we added capacity at Weir Mesa to meet market needs. Field testing of our new pressure pump for the upstream market is underway with early positive results and further product development initiatives have commenced supported by an enlarged engineering team.

Order input was 47% higher. Weir SPM benefited from materially improved trading conditions and market share gains due to our best in class delivery times enabled by the Weir Production System. As a result, order input at SPM was up 165% to £146m (US$224m) (2009: £55m (US$84m)). The UK and Middle East service operations also benefited from improving market conditions in the second quarter with input showing good progress over the prior year period. These increases were offset by our downstream business, Weir Gabbioneta, where input fell to £39m (2009: £64m), primarily as a result of lower original equipment orders. Increased activity levels at SPM resulted in an increase in the proportion of total orders derived from the aftermarket to 64% (2009: 56%).

Revenue increased by 52%. Revenue at SPM followed the input trend with revenues up 108% to £131m (US$200m) (2009: £63m (US$96m)), with good progress in extending product sales at a number of major customers. A strong opening order book and positive aftermarket trends ensured Gabbioneta progressed over the period, with revenues increasing to £60m (2009: £46m).

Operating profit including joint ventures increased by 140%, benefiting from substantially higher activity levels at SPM and higher revenues at Gabbioneta.

Operating margins were 27.2% (2009: 17.3%) reflecting the operating leverage effect of increased volumes at SPM and an increased aftermarket mix at Gabbioneta.

Capital expenditure totalled £6.5m (2009: £3.6m). Investment to support the growth of SPM included the opening of new SPM service centres in Australia and Brasil. In addition the AUS$8m acquisition of PCS, an Australian based specialist inspection and recertification business, was completed in the period and is already creating incremental revenue opportunities across the Asia Pacific region.

POWER & INDUSTRIAL

Weir Power & Industrial designs, manufactures and provides aftermarket support for specialist and critical-service rotating and flow control equipment, focused on the global power markets.

The global nuclear market continued to be active providing a number of opportunities, particularly in China and the US and quotation activity in the hydro and steam turbine markets was encouraging. However, conditions in the Canadian and UK general industrial markets remained challenging.

The division has made further progress in extending its market presence with a clear focus on global power markets and on growing oil and gas opportunities. A number of new contract awards were achieved in the Chinese nuclear market and in July we received a US$15m order from the first US nuclear plants to be built in over 25 years. Work is ongoing to extend our nuclear product approvals and we also reached agreement with Mitsubishi Heavy Industries to jointly market and service nuclear pumps for the UK nuclear market. Recruitment of additional sales and application engineers is well underway.

Order input reduced by 1%, with original equipment orders 9% higher across the valve plants and aftermarket down 6% reflecting reduced power outage support requirements. This resulted in an increase in the proportion of total orders derived from original equipment to 41% (2009: 37%). Input trends are influenced by the timing of nuclear new build orders and hydro outage work and some £11m (2009: £17m) of specialist valve input was achieved from nuclear new build programmes to end the period with a record nuclear order book for delivery in 2011 onwards.

Revenue reduced by 2% due to order book phasing with the power sector now accounting for 59% of divisional revenues (2009: 51%). The proportion of revenues generated from emerging markets increased to 29% (2009: 21%), with strong growth in North Africa and China.

Operating profit increased by 21% reflecting underlying margin improvement as a result of improved plant utilisation and cost reduction activities offset by the impact of ongoing restructuring of our Canadian service operations.

Operating margins increased to 8.5% driven by the developing supply chain in China and India, lower product costs and improved manufacturing efficiencies.

Capital expenditure was £3.0m (2009: £1.7m). Investment included expenditure on a new facility in Southern France to enhance efficiency and support our growing nuclear business and on facilities in the UK to enable Weir to play a growing role in support and service for the rapidly growing renewable energy market.

RISKS & UNCERTAINTIES

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on pages 30 to 32 of the Annual Report 2009, a copy of which is available on the Group website at www.weir.co.uk. The Board considers that these remain a current reflection of the risks and uncertainties facing the business for the remaining 26 weeks of the financial year.

OUTLOOK

MINERALS

Market conditions in the mining and oil sands sectors are expected to remain positive. Planned increases in customer capital spending plans are translating into increased enquiry levels and a positive emerging trend in original equipment orders which we expect to continue over the balance of the year. Aftermarket orders in the second half will benefit from increases in commodity production activity and the ongoing increase in our installed base, although we expect the impact of restocking will be less evident than in the first half. As a result, we expect that second half revenues will be higher compared to the prior year period with a larger proportion of original equipment revenues than in the first half. We continue to expect second half operating profits in constant currency terms to be higher than the prior year.

OIL & GAS

The immediate outlook for our upstream business remains positive. Horizontal rig count numbers are projected to remain around current levels through 2010 with a continued focus on the more aggressive shale environments. This will support aftermarket sales and a further pickup in original equipment orders as customers look to both replace and expand their pressure pumping fleets, with delivery extending into 2011. As a consequence we are targeting full year SPM revenues of around US$400m, ahead of our previous expectation (US$350m). The more challenging downstream market conditions are expected to give rise to lower second half input at Gabbioneta compared to last year, while the phasing of work will result in the second half operating profits of this business being lower than that achieved in the first half.

POWER & INDUSTRIAL

We are seeing continuing high activity levels across the Chinese nuclear market, good opportunities across the US nuclear market and some emerging nuclear opportunities in Eastern Europe, although timing of firm orders remains difficult to predict. We are also seeing more opportunities in other power related work, particularly in Canada and across Africa, although general industrial markets remain weak with recovery uncertain. We continue to expect the division to show revenue and margin progression over the prior year as it realises the benefits from a record order book and from business improvement plans.

GROUP

Strong trading reinforces our confidence for the remainder of 2010 and we continue to expect profit for the second half of 2010 to be significantly ahead of profit for the second half of 2009 in constant currency terms.

This interim report includes 'forward-looking statements'. All statements other than statements of historical fact included in this interim report, including, without limitation, those regarding the Weir Group's financial position, business strategy, plans (including development plans and objectives relating to the Company's products and services) and objectives of management for future operations, are forward-looking statements. These statements contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this document. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Past business and financial performance cannot be relied on as an indication of future performance.