The Weir Group PLC
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB, Scotland
Telephone: +44 (0)141 637 7111
Facsimile: +44 (0)141 221 9789
Email: investor-relations@weir.co.uk
Website: www.weir.co.uk
The Weir Group PLC
Annual Report 2008
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Financial Highlights 2008
Financial Calendar
Group results - continuing operations
Revenue
£1,354m
Up 34%
Operating profit1
£185.0m
Up 58%
Pre-tax profit1
£176.2m
Up 53%
Order input1
£1,439m
Up 30%
Earnings per share1
59.3p
Up 49%
Dividend
18.5p
Up 12%
Net debt
£239.9m
60
45
30
15
20
15
10
5
2007
39.7p
2008
59.3p
2007
16.5p
2008
18.5p
1 Adjusted to exclude intangibles amortisation and exceptional items
Contents:
The Reports
2008 Highlights
1
2
Group Financial Statements
45 Independent Auditors Report
Chairman’s Statement
46 Consolidated Income Statement
4 Our geographic footprint
47 Consolidated Balance Sheet
6
Chief Executive’s Review
48 Consolidated Cash Flow Statement
9 Operational Reviews
16 Financial Review
20 Board of Directors &
Group Operations Executive
49 Consolidated Statement of Recognised
Income & Expense
50 Notes to the Group Financial Statements
22 Directors Report
Company Financial Statements
28 Corporate Governance Statement
99 Independent Auditors Report
31 Audit Committee Report
100 Company Balance Sheet
32 Nomination Committee Report
33 Remuneration Committee Report
101 Notes to the Company
Financial Statements
40 Corporate Social Responsibility Report
112 Principal Companies of the Group
113 Shareholder Information
Inside back cover - Financial Calendar
Ex-dividend date for final dividend
29 April 2009
Record date for final dividend
1 May 2009
Shareholders on the register at this
date will receive the dividend
Annual General Meeting
13 May 2009
Final dividend paid
1 June 2009
Registered office & company number
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB
Scotland
Registered in Scotland
Company Number 2934
Designed by Design Motive
Printed by Royle Print
The Weir Group PLC Annual Report 2008 | Highlights
2008 proved to be the best
operating year in Weir’s history.
Profit before tax2 from continuing operations rose by 53%
to £176.2m and we delivered significant increases in input,
revenue and earnings per share when compared to 2007.
Our achievements during the year include a realigned
portfolio of businesses, improved operational performance
and the addition of several high quality businesses to
the Group.
While we enter 2009 with a significantly stronger forward
order book than at the same point last year, we are not
immune from the broader economic environment and
expect lower activity levels and capital spending deferrals
to feature in many of the Group’s end markets.
We are taking actions to prepare the business for the
short-term but with an eye on the longer-term, while
remaining focused on operational efficiencies, cash
generation and lowering our costs.
2008 Highlights
• Revenue up 34% to £1,354m (2007: £1,009m)
• Operating Profit2 up 58% to £185.0m (2007: £116.9m)
• Earnings per share2 up 49% to 59.3p (2007: 39.7p)
• Dividend increase of 12% to 18.5p (2007: 16.5p)
• Cash generated from operations up £70.9m to £214.4m
(2007: £143.5m)
• £55m exceptional profit on disposal of non-core businesses
2 Adjusted to exclude intangibles amortisation
1
The Weir Group PLC Annual Report 2008
Chairman’s Statement
I am pleased to report a further year of significantly
improved operational and financial performance.
In 2008, we benefited from our alignment to the oil and
gas, mining and power markets and delivered strong
growth in revenue and operating profit.
Financial highlights
The Weir Group enjoyed another successful year delivering a
substantial increase in sales, earnings and cash flow generation.
Our acquisition of Warman within the Minerals Division, improved
operational performance from the Power & Industrial Division
and full year addition of Weir SPM in the Oil & Gas Division, all
contributed to this very strong result.
Group revenue from continuing operations increased 34% to £1.4bn
(2007: £1.0bn) driven by a partial year contribution from our most
recent acquisitions, a full year contribution from Weir SPM, which
was acquired in July 2007 and stronger performances across all
divisions. Operating profit from continuing operations before
intangibles amortisation, at £185.0m was 58% above the 2007 level
of £116.9m. Operating margins, excluding intangibles amortisation
and joint ventures, increased to 13.3% against 11.3% last year.
As a result of this strong performance, Group pre-tax profit from
continuing operations before intangibles amortisation was up
53% to £176.2m (2007: £115.0m).
With an effective tax rate of 29.4% on attributable profit for
continuing operations before intangibles amortisation, earnings
per share on the same basis amounted to 59.3p (2007: 39.7p).
Trading profit, excluding intangibles amortisation, of £2.8m
was realised in respect of our discontinued operations and an
exceptional gain of £55.1m was recognised in relation to the
disposal of Strachan & Henshaw during the year.
Operating cash flow from continuing operations improved
significantly to £214.4m (2007: £143.5m) as a result both of
increased profitability and the success of management focus
on improving working capital. The year ended with net debt
of £239.9m, compared with £171.3m in 2007, reflecting the
combination of continued strong cash generation, the acquisitions
of Warman, Mesa and Standard Oilfield Services (SOS) and a
£63.5m adverse foreign currency translation impact. We reduced
further the Group’s exposure to its pension fund obligations through
the purchase of a second insurance policy in respect of certain
deferred members of the main UK scheme.
The Board is recommending a final dividend of 13.85p per share
making a total distribution for the year of 18.5p (2007: 16.5p),
a 12% increase on 2007.
“The Weir Group enjoyed another successful
year delivering a substantial increase in sales,
earnings and cash flow generation.”
2
Chairman’s Statement
Strategy & structure
It is pleasing to report a further year of significantly improved
operational performance and financial returns by the Group.
The achievements include a realigned portfolio of businesses,
improved operational performance and the addition of several
high quality businesses. Our investments in Lean processes and
most recent acquisitions were also significant contributors to
the Group’s 2008 performance.
During the year, the Group was reorganised into three divisions:
Minerals, Oil & Gas and Power & Industrial with the services
businesses being integrated into each of these divisions. We are
convinced that sales efficiency, end-to-end offerings and geographic
leverage from a sector focused organisation will be significant.
In March, we concluded the acquisition of Warman, a South
African based company, for a cash consideration of US$231m.
This acquisition provides the Minerals Division with a platform
in the strategically important sub-Saharan mining market.
In April, the Group announced the sale of Strachan & Henshaw,
its remaining defence activity, for a cash consideration of £63.7m.
We disposed of the non-core Canadian distribution business for
a cash consideration of CAD$25m and concluded our disposal
activities with the sale of the UK Materials & Foundries operations
for £10m in October.
In June, we acquired Mesa for a cash consideration of US$40m.
This Texas-based business has aligned markets with Weir SPM
and extends our products and service offerings in the upstream oil
sector. The integration programme has gone well and the business
exceeded revenue and profit expectations during the period.
In July, the Group acquired 75% of SOS, a small oilfield services
company in Baku, for a cash consideration of US$16m, with the
objective of extending the geographic reach of the Group’s Oil &
Gas operations. The business is being integrated successfully and
plans are in place to extend its reach to the wider Caspian region.
Management’s key priority in 2009 is to steer the Group through
the unprecedented headwinds which the volatility in equity and
constrained debt markets will inevitably have on the Group’s end
markets. The combination of necessary management actions to
address these issues and the continued progress in the execution
of the Weir Production System across all operations underpins our
plans to further improve working capital, grow our market share
and enhance customer relationships.
The Group continues to invest both in organic development and
extending our presence in higher growth markets. The current
economic environment, however, requires increased diligence in
the Group’s corporate activities and shareholders can be assured
of a continued disciplined approach to future growth.
The Board
At last year’s annual general meeting, Christopher Clarke confirmed
his intention to retire from the Board at the end of the year following
nine years of valued service to the Group. In preparation for this
change, with effect from 1 June 2008, John Mogford was appointed
a non-executive director. John is a senior executive with BP and
brings 30 years experience in the oil and gas sector. We have also
announced the appointment of Richard Menell as a non-executive
director. Richard has spent his life working in the mining industry
in South Africa, Australia and the United States.
Following an extensive period of service with the Group, Professor
Ian Percy has confirmed his intention to retire from the Board ahead
of our annual general meeting in 2010. In preparation for this
change, Michael Dearden, who has been with the Group as a
non-executive director since 2003, will be appointed senior
independent director with effect from November 2009.
Corporate governance
I remain confident that we have the culture and required processes
within the Weir Group to protect effectively the interests of all of
our stakeholders. Ethical conduct remains a vital part of the Weir
Group culture and a non-negotiable expectation of every Weir
employee. It is supported by our code of conduct and clear
statement of company values.
The Board’s governance framework is underpinned by clearly
defined strategies and strong vision and values which combine to
create shareholder value through effective use of our resources.
Internal audit complements our external and peer group audits
and self-certification programmes.
People
On behalf of the Board, I want to thank all our employees for their
commitment, tireless energy and focus during 2008. In 2009, our
continued focus on developing our markets, improving productivity
and forging new and stronger customer relationships will be critical
to the Group’s ongoing success.
Prospects
The long cycle nature of our end markets helped to insulate the
Group from the economic turmoil which occurred in the broader
economy in the second half of 2008.
While we enter 2009 with a significantly stronger forward order
book than at the same point last year, we are not immune from the
broader economic environment and expect lower activity levels and
capital spending deferrals to feature in many of the Group’s end
markets. The Group has developed plans to respond to the impact
of slowing market conditions and remains committed to delivering
sector leading performance.
Despite the Group’s best ever performance in 2008, our share price
has been adversely impacted by the global turmoil. In the face of
these volatile conditions, I remain confident the Group has the right
strategy and depth of expertise to deliver sector leading returns to
our shareholders.
Lord Smith of Kelvin
Chairman
10 March 2009
3
The Weir Group PLC Annual Report 2008
The Weir Group Worldwide
At Weir, we have a strong reputation for design and manufacture
of specialist equipment and the delivery of through-life engineering
solutions. Our best manufacturing facilities deliver industry leading
performance and each of our businesses has well defined plans to
maximise operational performance.
We employ over 9,000 people worldwide, focused on our key markets
of minerals, oil and gas and power generation.
In all these areas, our objective is to provide solutions that meet the
engineering and operational challenges facing our customers.
“Each of our businesses is focused on higher growth, longer cycle markets and
is committed to enhance operational performance and invest in new and
exciting prospects as a strong platform for our future growth.”
4
Map is illustrative of Weir’s geographic footprint and is not definitive of all our locations.
Our Geographic Footprint
Weir Minerals Division is the industry leader in the design,
supply and support of aggressive high wear products for
the global mining, flue gas desulphurisation and oil sands
industries. Products include pumps, hydrocyclones, valves,
de-watering products and wear resistant linings. With
an extensive geographic footprint, the division enjoys
a significant reputation for world class operations in
the most important mining markets.
Facts and figures
No. of people
No. of businesses
2008 order input
Market size
c5,300
19
£805m
£3.4bn
Weir Oil & Gas Division designs and manufactures pumps
and ancillary equipment for the global oil and gas markets.
The division comprises three operating activities -
upstream, downstream and the services operations. Its
principal operations are located in North America, Europe
and the Middle East with recent acquisitions and expansion
extending our position in Baku in the Caspian region and
Colorado, Arizona and Texas in the United States.
Facts and figures
No. of people
No. of businesses
2008 order input
Market size
c1,600
8
£289m
£2.9bn
Weir Power & Industrial Division designs, manufactures
and provides aftermarket support for rotating and flow
control equipment to the global power generation and
industrial sectors. The division includes the Group’s valve
operations, a specialist pump business and substantial
service and aftermarket operations with locations in
Europe, Middle East, North America, China, India and
South Africa.
Facts and figures
No. of people
No. of businesses
2008 order input
Market size
c2,000
9
£271m
£5.9bn
5
The Weir Group PLC Annual Report 2008
Chief Executive’s Review
2008 proved to be the best operating year in Weir’s
history and the results reinforce our belief that we remain
on the right path to sustainable long-term value creation.
The Group’s 2008 input increased 30% to £1.4 billion
with all three divisions enjoying positive market conditions
for the majority of the year and first time contributions
from the Group’s acquisitions.
Annual revenue for 2008 increased by 34% to £1.4bn with
each division achieving improved margin performance and
turning in double digit top line and profit growth.
Excluding intangibles amortisation, the Group posted
operating profit of £185.0m, up 58% on the prior year
and delivering an earnings per share increase of 49%
to 59.3p.
The Group generated £60.7m of free cash flow before
acquisitions and disposals and returned 22.2% on
capital invested.
The Group has three vibrant sector-focused
growth platforms
In 2008, the Group restructured to bring absolute clarity
to its markets and sectors and crystallised our strategies
for each of the divisions.
“2009 is expected to bring with it new
challenges for the world and its economies.
These challenges will include recessions,
rising unemployment and turmoil in
the banking sector which will certainly
impact on how our end markets perform.
We are taking actions to prepare the
business for short-term pain but with
an eye on the longer-term opportunities
created by the impact of the crisis on
less effective competition.”
6
Chief Executive’s Review
Minerals Division
Oil & Gas Division
Our Minerals Division is dedicated to achieving leadership
in the supply and service of equipment for the mining,
flue gas desulphurisation and oil sands markets.
As the world’s leading supplier of equipment for the
processing and transportation of slurries we are harnessing
our technology, expertise and passion to reduce product
life costs and maximise value for customers. To leverage
the Group’s leadership position we continue to develop
our geographic presence and extend service offerings
across the globe. Early indications show that by extending
these offerings on a global business platform we will be
better positioned for future growth.
Order input grew 23% to £805m (2007: £656m), with
good progress across the Group’s mining markets and
particularly strong conditions in the Indo Pacific markets.
Revenue increased 30% to £742m (2007: £570m), with
significant growth in South America, Africa and China
combining with contributions from Warman and Weir
Multiflo. Operating profit before intangibles amortisation
increased 39% to £114.5m (2007: £82.3m), while margins
increased to 15.4% compared with 14.4% in 2007.
Our Minerals Division experienced strong market conditions
throughout 2008 and grew its order book substantially
quarter on quarter. Original equipment accounted for
52% of the year’s input with spares and service making
up the balance.
While all businesses within the Minerals Division performed
strongly in 2008, the Netherlands operation deserves
special mention due to its significant and continued success
in new project work for major pipelines. In 2008, the
Netherlands business grew its revenue to £104m against
£75m in the prior year.
During the year, there were significant orders for new project
capital equipment including the award of a joint bid between
the Australian and Netherlands businesses for BHP Billiton’s
Worsley Alumina project in Western Australia. The expansion
will increase production by 30% and is due to come on line
in the first half of 2011.
In March, Warman was acquired and substantially increased
Minerals position in the high growth African market. In the
period of ownership, Warman contributed £45m of input,
£45m of revenue and £7.4m of operating profit to Minerals
2008 results. The new enlarged business is making
excellent progress.
The Oil & Gas Division includes the Group’s upstream and
downstream businesses along with the substantial Oil & Gas
service operations across the globe. Order input grew 62%
to £289m (2007: £179m), with good progress across all
of the division’s most significant markets and a contribution
of £142m from recent acquisitions. 48% of input related
to original equipment, 23% to spares and 29% to
service activities.
Revenue increased 40% to £280m (2007: £200m),
including a contribution of £157m from Weir SPM, Mesa
and Standard Oilfield Services (SOS). Operating profit
including joint ventures before intangibles amortisation
increased 62% to £61.0m (2007: £37.6m), while margins
reflected the significant contribution from the division’s
higher margin acquisitions and increased to 21.8%
against 18.8% in 2007.
The results for upstream businesses include a full year
contribution from Weir SPM, which was acquired in July
2007. The business has been successfully integrated and the
Weir Production System is fully implemented, including Lean
manufacturing, 5S housekeeping standards and improved
infrastructure at all of its service centres.
Weir Gabbioneta was selected for the supply of pumps for a
renewable diesel production plant in Rotterdam, which is
expected to contribute to a significant reduction in exhaust
emissions and will achieve first production in 2011. In
Singapore, a similar renewable energy plant is due to be
launched at the end of 2010. Using palm oil as its base
material, the plant is expected to place Singapore at the
centre of biofuel production.
Also in the year, we acquired two smaller businesses to
expand the product and geographic positioning of the
Oil & Gas Division. First, Mesa, a privately owned pump and
flow equipment business in Texas which is aligned to the
customers and markets of Weir SPM. The second was the
acquisition of a 75% shareholding in SOS, an oil services
business in Baku.
Power & Industrial Division
The Power & Industrial Division includes the combined
activities of the Group’s valves operations, our speciality
pump business in the United States and the power related
service centres in Canada, Europe, India, the Middle East
and Africa.
The division achieved significant success in the year and put
clarity to its plans to grow the Group’s position in the global
power and related markets.
7
The Weir Group PLC Annual Report 2008
The businesses supply critical safety valves to the power
generation markets while our global network of service
operations specialises in the maintenance, upgrade and
management of power and industrial assets.
Order input grew 29% to £271m (2007: £211m), with 44%
related to original equipment, 10% to spares and 46% to
service activities. The power sector made excellent progress
increasing by more than 75% to £150m against £86m in
2007. Revenue increased 11% to £223m (2007: £201m),
with significant growth in the power markets in China,
North America and the United Kingdom. Operating profit
before intangibles amortisation increased 34% to £18.0m
(2007: £13.4m), while margins increased to 8.1% against
6.7% in 2007.
During the year, the division was awarded new build,
upgrade and maintenance work in all of its core markets.
The French business secured new nuclear programmes in
China while the Services business was awarded an £11m
contract to upgrade a power generation operation in Libya.
Successful corporate activities accelerating focus
and growth
During the year, the Group made one significant and two
smaller acquisitions which, combined with a full year from
Weir SPM, contributed input of £186m, revenue of £203m
and operating profit excluding intangibles amortisation
of £48m in 2008. The integrations have been well executed
and all of the Group’s acquisitions have exceeded
performance targets.
In addition, the Group made three disposals of operations
where end markets were not aligned to the strategic
ambitions of the Group. The sale of each of these businesses
was designed to eliminate the Group’s exposure to non-
core markets and sectors and to open up resources to focus
on the future direction of the Group. These businesses
collectively had 2007 revenues of £100m and contributed
£7m of profits to the respective divisions to which they
reported at that time.
We have clear operational and strategic focus
for 2009
2009 is expected to bring with it new challenges for the
world and its economies. These challenges will include
recessions, rising unemployment and further turmoil in
the banking sector which will certainly impact on how
our end markets perform.
Group-wide processes have been activated to monitor
early warning indicators, develop scenarios and implement
downturn response actions. We are taking actions to
prepare the business for the short-term, but with an eye on
the longer-term, while remaining focused on operational
efficiencies, cash generation and lowering our costs.
8
Tough to call 2009 but great start to the year
The Group enters 2009 with a strong order book and well
developed plans to respond to the effects of slowing activity
in our most important markets.
The outlook for Minerals will be impacted by the general
market slowdown. The year commenced with a much
improved order book but we expect a general reduction
in activity levels as inventories realign to demand.
We expect new capital spend to decrease which will be
reflected in reduced input in the first half of the year. In the
second half, a corresponding decline in original equipment
revenue is anticipated which will continue into 2010.
Divisional profitability will be principally driven by the
volume of spares and service and our ability to offset
reducing overhead recovery from lower volumes of
original equipment manufacture.
In Oil & Gas, we have already responded to a lower level
of activity in our upstream business. Assuming economic
conditions remain consistent with the early part of the year,
we would expect 2009 revenue to be up to 30% below
the second half 2008 run rate.
Our downstream business has sufficient original equipment
order coverage to support its volume needs through a large
part of 2009 and we are yet to experience any slowing of
spares volume.
The outlook for Power & Industrial remains broadly positive
with a global need for infrastructure spend supporting a
strong medium-term outlook. In 2009, funding availability
is expected to delay some new build activities but with a
corresponding increase in upgrade and maintenance work.
The Group’s current order book, combined with good
operational performance and the benefits from positive
foreign currency translation effects, have provided a strong
start to 2009. We are, however, unable to predict with any
certainty the market conditions which will prevail in the
latter part of the year.
Mark Selway
Chief Executive
10 March 2009
Weir Minerals Division - Operational Review
Scot Smith
Divisional Managing Director
Weir Minerals Division
with 2008 revenue of £742m is the
industry leader in the design, supply
and support of aggressive high wear
products for the global mining, flue
gas desulphurisation and oil sands industries
Operating profit
£114.5m
Up 39%
Revenue
£742m
Up 30%
Order Input
£805m
Up 23%
Weir Minerals ambition to be the customer’s supplier
of choice is driven by world class operations, leading
products and technology. Recognising the need to
respond to the changing geographic profile of the
global mining market, Weir Minerals continues to
invest in growing its presence in the emerging regions
of South America, Asia and the Former Soviet Union.
The acquisition of Warman in South Africa further
complements the division’s geographic expansion
initiative and provides a strong foundation for
growth in developing markets.
Minerals posted another year of excellent progress
with significant gains in input, revenue and profit
when compared with 2007. Input increased 23% to
£805m (2007: £656m), with significant growth across
all regions. Revenue at £742m was up 30% (2007:
£570m), while operating profit increased 39% to
£114.5m (£82.3m). The principal market for the
business remains mining, which accounted for
almost 69% of revenue. During the year, spares
and aftermarket services represented almost 51%
of the division’s revenue.
Growth in revenue reflects strong levels of activity in
global mining markets as well as the benefits of the
division’s emerging markets strategy and entry into
specialised areas of the power generation and oil
sectors. The ongoing spares stream from the existing
installed base and addition of Warman provide a
platform for further developments in 2009 and beyond.
Australasia & Indo-Pacific
Regional input increased 22% to £165m while revenue increased 22%
to £154m.
The Australasia region includes five businesses, the largest being the
Australian based operation in Artarmon, Sydney. The region is progressively
developing its portfolio of activities to include operations in China and
India. The addition of Weir Multiflo late in 2007 provided a further
avenue for expansion and extended the division’s product offerings
into dewatering applications.
Australia
During the year, there were significant orders for new project capital
equipment including the award of a joint bid between the Australian
and Netherlands businesses for BHP Billiton’s Worsley Alumina project
in Western Australia. The expansion will increase production by 30%
and is due to come on line in the first half of 2011.
The Australian business was also successful in securing two large orders
for the Ramu Nickel project in Papua New Guinea. The project is a new
mine which is due to commence production in 2010 and is expected
to produce 33,000 tonnes of nickel and 3,200 tonnes of cobalt over a
20 year mine life.
Following the Group’s reorganisation, the expanded service and mill liner
operations were successful in winning a complete mill liner system for the
Pasqua Lama project in Chile. Multiflo, which was acquired in the second
half of 2007, is now fully integrated and adds an important component
to the division’s mining portfolio.
China and India
2008 saw ongoing development in Suzhou, China, with an integrated
foundry, machining, assembly and test facility. Weir Minerals India was
recognised by the award of a commendation for business excellence
and an award for best practice 5S housekeeping standards from the
Confederation of Indian Industry.
9
The Weir Group PLC Annual Report 2008
Operational Review
1. Weir Warman 14AHF horizontal froth
pump used for dense slurries being
inspected before leaving the plant.
2. Weir Minerals Isogate valves ready
for delivery to a mine site.
3. Weir Minerals Netherlands massive
Geho pumps used in Vale's bauxite
mine project in Paragominas,
northern Brasil.
4. A Cavex hydrocyclone cluster.
5. Fitting Weir Minerals equipment at
Antofagasta’s Los Pelambres copper
mine in Chile.
2
4
Europe, Middle East & Africa
In 2008, the region delivered a further year of strong input and revenue
growth from its core mining and minerals processing sectors. Input
increased 32% to £284m while revenue increased 61% to £265m.
The region includes six businesses – the UK, France, Netherlands, Russia
and Africa and now includes Warman which was acquired in March 2008
and brings with it a considerable installed base of product together with
a high level of customer loyalty. The acquisition increases market
presence in sub-Saharan Africa and the integration continues to
proceed ahead of expectations.
The European and South African markets delivered year-on-year growth
and our focused development strategy for the Former Soviet Union and
the Middle East also contributed to strong growth in the region.
The positive displacement pump business in the Netherlands delivered
record orders in 2008 and revenue grew considerably to £104m (2007:
£75m). This business is geared to large capital projects and secured a
major bauxite transportation project in Brasil and a project to transport
hot bauxite slurry at the Wenshan alumina plant in China.
The UK business delivered another year of considerable progress with
growth in input, revenue and profits. During the year, we were proud
to receive the Queen’s Award for Enterprise in recognition of significant
growth in exports.
North America
During 2008, North American input increased 24% to £236m while
revenue grew 20% to £209m.
The North American region comprises six businesses dedicated to
mining and minerals processing, the Canadian oil sands and flue gas
desulphurisation for coal fired power plants. Both the Canadian oil sands
and flue gas desulphurisation markets were strong contributors to revenue
growth. Spare parts and service in these aggressive applications is expected
to increase proportionally in future years as a result of the growth in the
installed base.
During the year, we completed an expansion to our Madison, Wisconsin
facility responding to market successes in mining, flue gas desulphurisation
and the oil sands. The Hazleton business, which produces downhole
pumps, was selected as a finalist for the Industry Week Plant of the Year
Award. Weir Lewis, a market leader in phosphate pumps, recorded
another excellent year, on top of a very strong 2007.
South America
In 2008, South American input increased 4% to £119m while revenue grew
9% to £115m. Mining and minerals processing continue to be the primary
activities with focus on copper, gold, iron, zinc and bauxite. Weir has a
unique position in the region, being the only company with comprehensive
manufacturing plants in Brasil, Chile and Peru.
The largest growth came from new mining project activity, primarily in Brasil
and Peru coupled with further progress from the region’s service activities in
Chile and Venezuela.
The region boasts some of the largest and most sophisticated pipelines in
the world where Weir Minerals remains a leading player, supplying positive
displacement pumps from the Geho range and service support to pipeline
operators, who often move mine slurries hundreds of kilometres.
The Chilean operation continues to develop a commanding position in
mill circuit projects and secured the pump and cyclone contracts for the
Anglo American Los Bronces and Collahuasi copper mines in Chile. A major
contract was also secured to supply upgraded equipment to Antofagasta’s
Los Pelambres phase two expansion.
The Brasilian business was successful in leveraging the Group’s global
product portfolio and its market position will be further enhanced by our
investment in a new purpose built facility scheduled to come on-stream
progressively from 2009.
The service operations continue to grow in capability and geographic
reach. Ongoing investments in Peru and Venezuela position the division
well for future developments in these resource rich regions. Flexibility
and operational excellence, along with the ability to respond quickly
to growing demand, are paramount to continued growth.
10
1
3
5
Weir Minerals Division - Operational Review
Market update
Key achievements – 2008
2008 was a year of significant commercial and operational success for the
division and we expect the strengthening of our market and geographic
positions to provide a solid foundation as we experience changed
market conditions.
• Original equipment sales represented almost 50% of the division’s
revenue in 2008 and are largely tied to the capital spend plans of the
major miners. The combination of the tightening of available funds and
lower commodity prices will result in deferrals in new project spend
which we expect to be visible in Mineral’s order input in the first half
and revenue line in the second half of 2009.
• The aftermarket business is derived principally from our installed base of
equipment, is volume driven and contributes higher operating margins
relative to original equipment sales. While we expect some of the more
marginal mines to close and production volumes to decrease, this will
be offset to some extent by the absolute increase in our installed base
from previous years.
The acquisition of Warman was completed in March 2008 and provides the
division with a high quality operation in the sub-Saharan African market.
The addition of this well-established business with a considerable installed
base will provide a further avenue for growth in the year ahead.
In summary, the global economic downturn has added significant
uncertainty to a wide range of industries which ultimately impact the
markets for our products. We have positioned the organisation to have
a high proportion of its revenue tied to the aftermarket and services and
its geographic diversity and strong competitive position provide a
platform for industry leading performance.
• Acquisition of Warman which provides a platform in the
strategically important sub-Saharan mining market.
• Significant facility expansion at Weir Minerals North
America delivered on time and on budget.
• Largest order in history of Weir Netherlands for GEHO
pumps for the Brasilian MMX pipeline project.
• Significant contracts for Warman, Hazleton and Multiflo
pumps for the Canadian oil sands.
• Australian service business increases mill liner orders by 78%.
• Significant new orders for complete range of mill circuit
equipment for Kazakhstan gold mine.
Sector input breakdown
Water & Wastewater 2.9%
Naval & Marine
0.1%
Oil 6.8%
Power
9.5%
General
Industrial
10.7%
Kevin Spencer, managing director Weir
Minerals Europe receives the Queen’s
Award for Enterprise from Dr Ingrid
Roscoe, the Lord Lieutenant for West
Yorkshire at a ceremony attended
by employees and customers.
Geographic input breakdown
Middle East
& Africa
11.2%
Europe & FSU
13.1%
Indo Pacific
14.0%
Australia
16.3%
Minerals
70.0%
North
America
25.0%
South
America
20.4%
11
The Weir Group PLC Annual Report 2008
Steve Noon
Divisional Managing Director
Weir Oil & Gas Division
with 2008 revenue of £280m,
manufactures pumps and ancillary
equipment for the global oil & gas
markets. The division comprises three
operating activities – upstream, downstream and the services
operations, which are focused on aftermarket activities.
Operating profit
£61m
Up 62%
Revenue
£280m
Up 40%
Order Input
£289m
Up 62%
Oil & Gas posted a year of exceptional progress in 2008
with significant gains in input, revenue and profit due to
the full year inclusion of Weir SPM and excellent progress
at Weir Gabbioneta and the services operations. Input
increased 62% to £289m (2007: £179m), with significant
progress across all operations. Revenue at £280m was up
40% (2007: £200m), while operating profit increased 62%
to £61.0m (2007: £37.6m). Upstream represented 56%
of total sales, while downstream contributed 20% and
services contributed 24% of divisional sales in the year.
The upstream service centres have delivered significant improvements in
safety and operational performance. Building expansions to accommodate
future growth have been undertaken in Odessa, Texas and Alberta, Canada
and all 11 service centres have implemented new safety and facility
improvements.
Weir SPM’s 2008 revenue was positively influenced by a backlog of over
US$100m carried over from the high demand in 2007. In the second half
of 2008 revenue normalised to an annual run rate of US$272m.
The outlook for upstream is largely tied to the drilling of gas wells in North
America where gas storage levels, gas prices and North American weather
conditions are key market drivers. The current forecasts indicate 2009
revenues to be up to 30% below the second half 2008 run rate.
Upstream
Weir’s upstream business is largely focused on the manufacture of
high-pressure well service pumps and related flow control equipment,
including valves, chokes, manifolds, swivel joints and connectors which
operate in abrasive, high-wear applications in oil and gas drilling and
extraction markets.
Aftermarket operations include provision of related mobile recertification,
refurbishment, repair and equipment rental services. Service activities
include service centres in the United States, Canada, the UK and the
Middle East.
The results for upstream businesses include a full year contribution from
Weir SPM which was acquired in the second half of 2007. The business
has been successfully integrated and the Weir Production System is fully
implemented, including Lean manufacturing, 5S housekeeping standards
and improved infrastructure at all of its service centres.
Significant capital expenditure has been invested at Weir SPM in upgrading
the company’s facilities to the high standard set by the Weir Group. In the
Fort Worth principal manufacturing location, the focus has been on
improving operating efficiency while creating a safe and productive
work environment.
The division expanded its upstream activities through the acquisition of
Mesa for a cash consideration of US$40m. Mesa was a privately-owned
Texas based supplier of gas drilling equipment to the unconventional
oil market. The business has excellent alignment with Weir SPM and
has exceeded our expectations during the period of ownership.
Downstream
The division’s downstream activities are focused at designing,
manufacturing and selling made-to-order centrifugal pumps to the
exacting requirements of the API (American Petroleum Institute) 610
standard. Products are used predominantly in the downstream refinery
segment of the oil and gas industry. Future prospects are linked to continued
investment in and utilisation of refining capacity around the world.
Weir Gabbioneta remains the cornerstone of the Group’s downstream
equipment supply and has an established position in the Middle East,
Africa and Europe. Productivity and financial performance increased
significantly on the previous year and we enter 2009 with a strong
forward order book.
Weir Gabbioneta products were selected for the supply of pumps for a
renewable diesel production plant in Rotterdam, which is expected to
contribute to a significant reduction in exhaust emissions and will achieve
first production in 2011. In Singapore, a similar renewable energy plant is
due to be launched at the end of 2010. Using palm oil as its base material,
the plant is expected to place Singapore at the centre of biofuel production.
With a substantially full order book the downstream business remains well
placed to deliver further progress in 2009. The high margin aftermarket
activities are tied to production volumes and ultimately consumer use.
Services
The Oil & Gas Services operations includes a network of service businesses
with capabilities to perform major refurbishment, upgrades and re-rates,
repair, turnkey asset management and field service work in the oil and
gas markets.
12
Weir Oil & Gas Division - Operational Review
Key achievements
•
•
Transformation of Weir SPM’s Fort Worth production
facilities with significant improvements in lead times
and on time delivery.
Three new Weir SPM service centres opened in 2008 with
two further start ups planned for first quarter 2009.
• Weir SPM flow sales up 38% versus 2007.
• Weir Gabbioneta input up 35% on 2007 with a
substantially full order book in 2009.
• Mesa acquired, successfully integrated and
exceeding expectations.
•
Lost time accidents reduced by 16% versus 2007.
Sector input breakdown
Minerals 0.8%
General Industrial 1.7%
Power 1.8%
Water & Wastewater 0.3%
Naval & Marine 0.2%
The extensive geographic footprint provides rapid customer response
close to the major oil and gas markets in the North Sea, the Middle East,
Western Canada and in the Southern United States where key market
drivers are related to volume and the price of oil and gas.
Services results improved significantly when compared to 2007 as the
benefits of restructuring in the UK, United States and Middle East
operations came on-stream.
In the Middle East, significant investment was made in the Dubai
operations to increase capabilities and grow our position in the market.
We received recognition as a “top tier supplier” from BP in Baku where
we manage their workshop and maintain critical rotating equipment
servicing the Caspian region.
In July, the division extended its activities in the Caspian region through the
acquisition of 75% of Standard Oilfield Services for a cash consideration
of US$16m. The business is located in Baku and supplies downhole
equipment and services to the oil majors.
The implementation of the Weir Production System across all service
operations has provided the basis for productivity improvements
and increased manufacturing capacity while broadening the core
business capability.
Market update
The Oil & Gas Division’s outlook is largely tied to the price and volumes
of oil and gas produced in the Middle East, North Sea and North America.
The portfolio of businesses includes extensive aftermarket and service
operations which in 2008 represented more than 56% of the year’s revenue.
Weir SPM’s outlook is largely tied to US gas prices and the level of onshore
unconventional drilling in the North American market. The current
forecasts indicate 2009 revenues to be up to 30% below the second
half 2008 run rate.
Our downstream business has sufficient original equipment order coverage
to support its volume needs through a large part of 2009 and we are yet to
experience any slowing of spares volume.
Oil & Gas
95.2%
Geographic input breakdown
Indo Pacific 6.3%
Australia
0.2%
2
Europe & FSU
22.2%
1. Pump in assembly at Weir Gabbioneta
in Milan, Italy.
2. A safety iron manifold trailer unit at
Weir SPM, Fort Worth.
3. Weir SPM’s main workshop at Fort
Worth, Texas.
Middle East
& Africa
24.1%
South
America
1.1%
1
3
North
America
46.1%
13
The Weir Group PLC Annual Report 2008
Phil Clifton
Divisional Managing Director
Weir Power & Industrial Division
with 2008 revenue of £223m,
designs, manufactures and provides
aftermarket support for rotating and
flow control equipment to the global
power generation and industrial sectors
Operating profit
£18m
Up 34%
Revenue
£223m
Up 11%
Order Input
£271m
Up 29%
The Power & Industrial Division includes the Group’s
valve operations, a specialist pump business and
substantial service and aftermarket operations in
Europe, Middle East, North America, China, India
and South Africa.
The division posted a year of excellent progress with
gains in input, revenue and operating profit when
compared to 2007. Input increased 29% to £271m
(2007: £211m), while revenue at £223m was up 11%
(2007: £201m) and operating profit increased 34%
to £18m (2007: £13.4m).
Growth in orders reflected the strength of the Chinese
power generation market, a significant power upgrade
project in Libya and continued strong conditions in the
UK and Canadian service markets. Original equipment
represented 44% of the year’s input while 10%
was associated with spares and the balance in
aftermarket services.
Weir’s geographic reach provides the Power & Industrial
Division with access to critical markets on a global scale.
North America
The North American region includes the division’s original equipment valve
operations in Washington, North Carolina and Ipswich in Massachusetts,
the specialist pump business in Salt Lake City, Utah and five service
operations strategically located throughout Canada.
Regional input increased 8% to £106m and revenue rose 10% to £96m.
The valves businesses increased input, revenue and profit in the year
and gained orders valued at over £20m for critical safety products to be
supplied to new Chinese power projects over the next three years. The
North American nuclear new build programme remains slow and funding
constraints are expected to hold back new investments in the short to
medium-term.
In the service operations, the lack of spend in new customer facilities has
resulted in higher levels of upgrade and refurbishment of existing power
and industrial assets. Opportunities in hydro electric upgrade projects
also provide an excellent platform to transfer the division’s European
technologies into the North American market place. In Canada, a third
repeat order for hydro refurbishment was secured from BC Hydro and
will be executed in 2009.
Weir Specialty Pumps supplies pumps and associated equipment to the
United States municipal, power generation and oil and gas markets.
The business increased revenue, margins and operating profit when
compared to 2007 and extended its product portfolio through the
launch of new and innovative products in the year.
The prospects for North America include an extension of aftermarket
offerings by capitalising on the existing footprint and the division’s
extensive global product portfolio. The new build product businesses
will continue to develop products and skills to grow their positions in
export markets while remaining prepared for substantial medium-term,
must-have investment in their domestic markets.
Europe
The European region consists of the original equipment valve operations
in France and the UK and the division’s seven service operations across
the UK. Regional input increased 50% to £157m while revenue increased
10% to £116m.
The valve businesses performed well growing input, revenue and profit
when compared to 2007. The UK operation collaborated in divisional bids
and secured critical nuclear valve contracts in China. Domestically, the
UK new build market for power generation remains slow with financing
concerns delaying project approvals. A growing recognition of the need
for substantial short-term power generation investment remains a prime
opportunity for the division.
The French operation continued to benefit from its range of critical safety
valves and secured £26m of new nuclear work in China. These contracts
provide a solid revenue stream for the medium-term. In addition, a five
year specialist valve service agreement was signed with EDF to cover their
fleet of French nuclear reactors.
The UK service operations performed well with new project work
underpinning a substantial growth in input when compared to the prior
year. A six year framework agreement was signed with British Energy for the
servicing of pumps and valves. The 2007 restructuring which rationalised the
number of service operations helped fund a workshop expansion at Barton
and the new European services engineering centre in East Kilbride, Scotland.
14
Work commenced on an £11m refurbishment of a power station for an iron
and steel company in Libya which will provide a solid base load in 2009
and 2010.
The division’s future prospects for Europe remain positive with must-have
investment for new build becoming a critical community issue and in
the interim, the increase in maintenance and life extension spending
is expected to be an offsetting benefit.
Developing markets
The developing markets include Power & Industrial’s original equipment
and aftermarket operations in China, the Middle East and Africa and a
service operation in India.
The division’s emerging market approach includes two distinct elements,
growing our share of the indigenous opportunities and building high
quality, low cost and technically competent suppliers to improve
competitiveness in our traditional markets. These initiatives are
expected to result in significant future benefits.
The largest operation within the region is the original equipment valve
business located at Suzhou, China. It was acquired in the second half of
2006 and has proved to be a significant conduit for new business awards
for products supplied from the French, United States and UK operations.
Going forward, our intention is to increase technical capabilities and
develop more customers in the indigenous market while assessing the
prospects and returns for expanding activities into servicing the existing
installed Chinese power generation market.
The region also includes smaller operations in India, South Africa and the
Middle East which provide local sales, distribution and aftermarket services
to their domestic markets. These businesses were successful in growing
their operational capabilities and market prospects during the year.
Market update
The outlook for Power & Industrial remains broadly positive with a global
need for infrastructure spend supporting a strong medium-term outlook.
In 2009, funding availability is expected to delay some new build
activities but with a corresponding increase in upgrade and
maintenance work.
1. Weir Power & Industrial is supplying
safety critical valves to Ling Ao Phase II
CPR1000 nuclear power plant under
construction in Guangdong Province
and owned by the China Guangdong
Nuclear Power Group.
2. One of Scottish & Southern Energy's
hydro power stations in the Scottish
Highlands upgraded by Weir Power
& Industrial.
3. Weir Specialty Pumps exhibit the
industry leading range of self-priming
pumps at the annual Water
Environment Federation Exhibition.
2
1
3
Weir Power & Industrial Division - Operational Review
Key achievements
• Significant Chinese power plant orders secure base
load revenue.
• Multi-million pound power station refurbishment project
secured in Libya.
• Five year valve service agreement signed with EDF
in France.
• Six year service framework agreement signed with
British Energy (pumps and valves).
• Successful completion of two hydro power overhaul
projects in Canada.
• New state of the art engineering, project management
and support centre opened in Scotland.
• New turbomachinery service workshop to maintain
and refurbish turbine rotors at Barton, England.
Sector input breakdown
Naval & Marine 6.6%
Minerals
2.6%
Water & Wastewater
7.1%
General
Industrial
13.3%
Oil
14.9%
Geographic input breakdown
Australia
0.4%
Middle East & Africa
8.3%
Europe & FSU
38.0%
Power
55.5%
North
America
33.1%
South
America
3.1%
Indo
Pacific
17.1%
15
The Weir Group PLC Annual Report 2008
Financial Review
The Group has delivered an excellent set of results
which demonstrate yet again our underlying cash
generation capability.
Revenue -
continuing operations1
Profit before tax -
continuing operations1
Earnings per share -
continuing operations1
1,353.6
1,060.6
940.9
739.4
789.4
m
£
1500
1200
900
600
300
0
159.5
114.0
87.1
62.2
50.9
200
150
m
£
100
50
0
53.8
39.4
32.4
23.5
17.9
e
c
n
e
p
60
50
40
30
20
10
0
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
1 All figures are based on the published results and are therefore in respect of continuing operations at that time, excluding exceptional items
reflect the disposal of Strachan & Henshaw (April 2008), which
has been classified as a discontinued operation, and the disposal
of the Canadian Distribution and UK based Materials & Foundries
businesses in September and October 2008 respectively.
2008 order input1 in constant currency at £1,439m was 30%
above the prior year period reflecting like for like growth of 22%,
a full year contribution from Weir SPM and first time contributions
from Weir Warman, Weir Mesa and Weir SOS. Each of our core
divisions delivered good growth. Minerals order input grew 23%
to £805m (2007: £656m), including a £45m contribution from
Weir Warman, Oil & Gas input grew 62% to £289m (2007:
£179m), including a £142m contribution from Weir SPM and
other acquisitions (2007: £59m). Power & Industrial input
grew 29% to £271m (2007: £211m).
2008 revenue1 increased 34% from £1,009m to £1,354m with
all three divisions achieving growth over 2007. The Minerals,
Oil & Gas and Power & Industrial businesses reflected good
growth which supported a like for like increase of 18%. This,
combined with the full year inclusion of Weir SPM and first
contributions from Weir Warman, Weir Mesa and Weir SOS,
contributed to the year’s results. Over 92% (2007: 89%) of Group
revenues were generated from these three core businesses with
original equipment representing 50% of revenues (2007: 55%).
Strong growth was evident in North America, in part due to the
full year inclusion of Weir SPM, while major orders contributed
to good growth in the European and Indo-Pacific markets.
Favourable exchange movements from the translation effects
of overseas subsidiaries increased revenue by £79m.
Operating profit2 rose 58% to £185.0m (2007: £116.9m).
Excluding attributable profits from joint ventures, operating
margins2 increased to 13.3% against 11.3% last year. Good
operating leverage and the impact of the higher margin Weir SPM
and Weir Warman acquisitions contributed to the results. Attributable
profits from our joint ventures reported on an after tax basis
grew to £4.4m against £3.4m in 2007. The impact of favourable
exchange movements increased operating profit2 by £12.8m
principally due to the strengthening of the US dollar and Euro
in the second half of the year. Depreciation and impairment of
property, plant and equipment in the year was £25.6m (2007:
£16.9m) giving rise to operating profits before depreciation and
intangibles amortisation (“EBITDA”) of £210.6m (2007: £133.8m).
“As we enter 2009, the Group’s financial position
remains strong.”
Operating structure
The trading activities of The Weir Group PLC comprise the
manufacture of pumps, valves and ancillary equipment for the
mining, oil and gas, power generation and general industrial
markets as well as the provision of equipment maintenance,
process support and asset management services. The Group also
has a number of joint ventures which is reported separately.
With effect from 1 May 2008, the Group was reorganised into
three end market focused divisions; Minerals, Oil & Gas and
Power & Industrial. All segment information reflects this new
divisional structure with prior year comparatives restated.
Results overview
The Group has delivered an excellent set of results which
demonstrate yet again our underlying cash generation capability.
As we enter 2009, the Group’s financial position remains strong
with improved financial headroom over an extended period.
The results include the first contributions from the current year
acquisitions of Warman (March 2008), Mesa (June 2008) and
Standard Oilfield Services (SOS) (July 2008) as well as the full year
inclusion of Weir SPM which was acquired in July 2007. They also
16
Financial Review
Intangibles amortisation increased to £16.7m from £6.0m in 2007
reflecting the full year impact of the Weir SPM acquisition, current
year acquisitions and impairment of previously recognised product
development costs.
Power & Industrial Division
Input1 grew 29% to £271m with in excess of 55% being
attributable to the power generation markets.
Net interest costs increased to £10.6m against £5.1m in 2007
resulting from higher average debt levels due to current year
acquisitions, offset by a £5.4m benefit from the Group’s US dollar
balance sheet hedging programme. Net interest costs were
covered 17 times by operating profit2. During the year, there
was a £1.4m reduction in the net income earned from the Group’s
pension schemes principally reflecting changes to the pension
fund asset portfolio over the year.
Profit before tax2 increased 53% on the previous year to £176.2m
(2007: £115.0m). Reported profit before tax increased 46% to
£159.5m (2007: £109.0m), reflecting the impact of additional
amortisation in the current year.
Details of the trading highlights of each of the Group’s business
segments are set out below, with comparatives stated on a constant
currency basis.
Minerals Division
Input1 grew 23% to £805m with in excess of 86% being attributable
to the mining, flue gas desulphurisation and oil sands markets.
Revenue1 increased 30% to £742m in 2008 (2007: £570m), due
to continued strong demand from our core mining markets and
a first revenue contribution of £45m from Weir Warman in the
post acquisition period. Underlying revenue growth excluding
the partial year impact of the Warman acquisition was 22%.
The impact of favourable foreign currency movements increased
reported revenues by £47m.
Operating margins2 increased to 15.4% against 14.4% in 2007,
reflecting the division’s focus on higher technology, higher margin
activities. Operating leverage from increased revenues and the
inclusion of Weir Warman’s higher margin product sales for a part
year, partially offset by increased product development costs,
contributed to this improved result. The Weir Warman operating
margin2 of 16.6% was in line with our expectations.
Operating profit2 increased 39% to £114.5m (2007: £82.3m),
including a part year contribution of £7.4m from Weir Warman.
Favourable foreign currency translation movements increased
reported operating profit by £8.0m.
Oil & Gas Division
Input1 grew 62% to £289m (2007: £179m), including a £142m
contribution from Weir SPM and other acquisitions (2007: £59m).
Revenue1 increased 40% to £280m in 2008 (2007: £200m), with
like for like revenue growth of 7% reflecting good progress across
the Middle East operations. The first full year from Weir SPM and
the current year acquisitions of Weir Mesa and Weir SOS contributed
£157m (2007: £85m). Favourable foreign currency movements
increased reported revenues by £18m.
Operating margins2 excluding joint ventures increased to 20.2%
against 17.0% in 2007, reflecting a full year impact of the higher
margin Weir SPM business with operating margins of 26.1%
comparing to 24.2% in the prior year post acquisition period as
the benefits of business improvement initiatives were realised.
Including joint ventures, operating profit2 increased 62% to £61.0m
(2007: £37.6m), with £40.4m from Weir SPM and current year
acquisitions (2007: £20.6m). Favourable foreign currency translation
movements increased reported operating profits by £3.8m.
Revenue1 increased 11% to £223m in 2008 (2007: £201m),
reflecting the strength of the Chinese power generation market
and continued positive conditions in the UK and Canadian service
markets. Favourable foreign currency movements increased
reported revenues by £11m.
Operating margins2 increased to 8.1% against 6.7% in 2007,
reflecting the benefits of prior period restructuring and improved
plant utilisation as a consequence of revenue growth achieved
in the year.
Operating profit2 increased 34% to £18.0m (2007: £13.4m).
Favourable foreign currency translation movements increased
reported operating profits by £1.0m.
Group companies
The 2008 results for Group companies comprise Weir LGE, whose
revenue is derived from the marine and onshore gas markets and,
prior to their disposal during the year, the Canadian Distribution and
UK based Materials & Foundries businesses. Revenues were £108.5m
(2007: £116.0m) and operating profits £2.0m (2007: £5.2m), which
includes a net loss of £2.6m on the disposal of these non-core
operations. Weir LGE, the remaining business, increased 2008
revenue by 13% to £74.4m (2007: £65.8m), as project milestones
were achieved on a number of major contracts. Operating profit2
on the same basis was £4.6m against £5.5m in 2007.
Joint ventures
The Group’s share of profit from its joint ventures increased 29%
to £4.4m (2007: £3.4m) with good growth in Saudi Arabia and
Abu Dhabi.
Taxation
The tax charge for the year of £51.8m (2007: £32.1m) on
attributable profits2 of £176.2m (2007: £115.0m), represents
an underlying effective rate of 29.4% (2007: 27.9%). This differs
from an expected rate of 31.2% (2007: 31.3%), principally as a
consequence of the tax efficient use of capital and the recognition
of historic losses in the UK. The underlying rate for 2009 is expected
to be broadly in line with 2008. The reported tax charge on profits
before tax was £46.5m (2007: £30.1m), reflecting the additional
tax credit on intangibles amortisation.
In accordance with IFRS, earnings from joint ventures are reported
on an after tax basis, with a tax charge of £0.8m reflected within
net earnings.
Discontinued operations
During the year, the Group disposed of its remaining defence
operation - Strachan & Henshaw. The post-tax trading results
of this business and the disposal gain arising is classified as a
discontinued operation with prior year comparatives restated.
Trading profits of £1.1m were recognised in the year for the period
prior to disposal. Profits of £1.6m were recognised in relation to
prior period disposals following settlement of outstanding legal
matters and the expiry of warranty periods.
A post tax gain of £55.1m on disposal was recognised as an
exceptional item within discontinued operations.
17
The Weir Group PLC Annual Report 2008
Earnings & dividends
Treasury management
Earnings per share2 was 59.3p, an increase of 49% compared to
2007. Reported earnings per share taking account of exceptional
items and discontinued operations was 81.4p (2007: 83.8p). The
weighted average number of ordinary shares in issue increased to
209.9m as a result of the issue of shares during the year to fulfil
option exercises and LTIP awards.
Subject to shareholder approval, the full year dividend is 18.5p,
an increase of 12% over last year’s total of 16.5p. This represents
dividend cover (being the ratio of earnings per share1 before
intangibles amortisation and exceptional items to dividend
per share) of 3.2 times compared to 2.4 times in 2007.
Acquisition of Warman, Mesa and Standard
Oilfield Services
On 18 March 2008, the Group completed the acquisition of
Warman, on 24 June 2008, the acquisition of Mesa and on
4 July 2008, the acquisition of 75% of SOS for a total net cash
consideration, including expenses, of £140.3m. As required by
IFRS, a review of the fair value of assets and liabilities at the date
of acquisition has been undertaken and accounting policies
aligned with those of the Group. This has given rise to fair value
adjustments of £63.2m, resulting in net assets acquired of £93.2m.
These principally reflect the valuation of separately identifiable
intangible assets, including customer relationships and trade
names, with the former amortised over their expected useful lives
of up to 25 years. Other adjustments were made in relation to
property, plant and equipment, inventory and provisions. Goodwill
of £54.6m has been recorded in respect of these acquisitions.
Goodwill and other intangible assets are tested annually for
impairment as outlined in note 14 to the Group financial
statements.
Cashflows
The Group delivered strong cashflows, with cash generated from
operations1 of £214.4m, substantially ahead of 2007 (£143.5m) due
to increased profitability. A net working capital outflow of £9m was
required to support revenue growth; however a strong focus on cash
resulted in a reduction in the net working capital to revenue ratio
on a like for like and constant currency basis from 13.8% to 12.5%.
A £5m special contribution was made during the year to facilitate
a further buyout of the Group’s UK defined benefit pension plan,
which is outlined in more detail below.
Capital expenditure1 of £53.3m (2007: £42.2m), reflects
continued investment across the business and represented
2.3 times depreciation.
Net free cashflows3 of £60.7m (2007: £38.4m), were generated from
recurring activities after taking account of interest, tax, derivative
settlements, capital expenditure and dividend payments. Cash
proceeds from business disposals were £80.6m. Taken together with
the net funding cost of new acquisitions of £140.9m and operating
cash outflows generated by discontinued operations of £2.5m,
this resulted in an increase in net debt from cashflows of £2.1m.
An adverse movement arose on the translation of net overseas
borrowings of £63.5m and other non-cash movements of £3.0m
giving a year end net debt position of £239.9m (2007: £171.3m),
reflecting a net debt/EBITDA ratio of 1.1 times (2007: 1.3 times).
Our general policy is to finance the Group through a mixture of
debt and equity. The Group’s capital structure is managed centrally
with the objective of optimising returns to shareholders over time,
whilst safeguarding the Group’s ability to continue as a going
concern.
The primary responsibility of the Group’s central treasury function
is the management of the Group’s funding and liquidity, foreign
exchange and interest rate risks. Detailed policies and procedures
with appropriate monitoring and reporting ensure controls exist
where certain day to day treasury responsibilities are delegated
to operating subsidiaries.
Funding & liquidity
Sufficient undrawn committed facilities are maintained to ensure
that the Group has funding available to meet its medium-term
obligations and to provide adequate headroom to meet the
Group’s ongoing requirements.
The principal borrowing facilities available to the Group comprise
£625m of committed bilateral lines arranged in the third quarter
of 2008 and maturing in the third quarter of 2011. As at 26
December 2008, £241.8m was drawn under these facilities in US
dollars, Canadian dollars and sterling with a proportion swapped
into foreign currencies. In addition, Canadian dollar bank facilities
are available totalling CAD$90m which mature in July 2009.
The Canadian dollar facilities were fully drawn at the year end.
All facilities have common standard covenant structures and all
covenants were met at 26 December 2008.
The Group held net cash balances of £53.6m as at 26 December
2008 of which £3.5m was held in the UK and the remainder held
as operating balances by overseas subsidiaries.
The Group has additional committed and uncommitted bank
facilities under which guarantees are issued in order to support
commercial activities.
Foreign exchange
The Group is exposed to movements in exchange rates for
transactions undertaken in foreign currencies and the translation
of foreign currency denominated net assets and profit and
loss items.
All material transactional currency exposure is hedged in the
financial markets, usually by means of forward contracts, to
provide certainty of revenues and costs. Subject to local exchange
controls foreign exchange transactions are executed by the central
treasury function. No speculative transactions are undertaken.
Although hedging is undertaken for all subsidiaries with material
foreign exchange exposure, only two companies apply cashflow
hedge accounting under IFRS.
The Group manages the potential currency translation exposures
from the Group’s US dollar denominated net investments through
a combination of foreign currency borrowings, forward foreign
exchange contracts and cross currency interest rate swaps. The
level of derivative contracts held is determined and maintained
after due consideration of the potential liquidity impact from these
transactions, relative to underlying US dollar cashflows. As such
any cash settlements on these derivatives will be made over an
extended period (currently four years). As at 26 December 2008,
60% (2007: 79%) of the Group’s net investments denominated
in US dollars was hedged through a combination of US dollar
borrowings and derivatives.
The Group does not hedge foreign currency translation exposures
related to profit and loss items.
18
Interest rate risk management
The Group’s committed borrowing facilities are charged at variable
rates of interest. It is the Group’s policy to maintain a proportion of
its debt at fixed rates, subject to the future outlook for the level of
interest rates, by entering into interest rate swaps. In this way
volatility of earnings from the movement of short-term interest
rates is reduced.
As at 26 December 2008, 47% (2007: nil) of the Group’s debt was
at fixed interest rates of up to 2.5 years duration.
Further information on financial risk management objectives and
policies can be found in note 30 to the Group financial statements.
Exchange rates
The Group operates in a number of foreign currencies with the
most material being the US dollar and Euro. The results of overseas
operations are translated into sterling at average exchange rates
for the year with the impact of the strengthening US dollar and the
Euro against sterling partly offset by the marginal weakening of the
Australian dollar. Net assets are translated at year end rates. The
weakening of sterling against most major currencies resulted in a
positive net asset translation effect at year end of £76.9m, after
offsetting the impact of the balance sheet hedging programme.
Details of principal exchange rates used are contained in note 32
to the Group financial statements.
Retirement benefits
The Group has 17 pension schemes of which five are defined
benefit schemes, the most significant being the UK and Canadian
schemes. All defined benefit schemes were closed to new
members in 2002.
The Group’s exposure to its pension obligations was further
reduced in April 2008 by the purchase of a second insurance policy
from Legal & General Assurance Society in respect of deferred
members of the main UK scheme who will retire within 10 years.
A further special contribution of £5m was paid to the scheme to
facilitate this transaction. A charge of £2.4m was recognised to
wind up the Canadian defined benefit plan which commenced
during the year. Reflecting the impact of the insurance policies,
the wind up of the Canadian plan and equity/bond market
performance over the year, the net Group deficit for retirement
benefit obligations at the period end was £14.7m (December
2007: £36.9m surplus). The actions during the year further reduce
future investment and mortality risks borne by the Group. Going
forward, the Group will continue to explore ways of further
reducing risk.
Financial Review
Net assets
Net assets at 26 December 2008 were £707.8m (2007: £545.2m),
reflecting total recognised income for the year of £195.4m offset
by dividends paid of £35.7m. Included in total recognised income
for the year is a net exchange gain of £77.1m arising on the
translation of foreign operations partly offset by exchange
losses on net debt and derivative financial instruments.
Litigation
There are 180 asbestos related actions (2007:112) outstanding
against Group companies. All such actions are robustly defended.
An action for damages arising from the UN Oil for Food Programme
has been raised in the United States against just under 100
companies including the Weir Group. This action will be robustly
defended both as to the merits and jurisdiction.
Critical accounting policies
The accounts have been prepared in accordance with IFRS and the
material accounting policies are set out on pages 50 to 55 of the
Group financial statements. There have been no changes to the
accounting policies adopted in 2007.
Applying accounting policies requires the use of certain judgements,
assumptions and estimates. The most important of these are set out
below. Further judgements, assumptions and estimates are set out
in the Group financial statements.
Intangible assets
On the acquisition of a business it is necessary to attribute fair
values to any intangible assets acquired (provided they meet the
criteria to be recognised). The fair values of these intangible assets
are dependent on estimates of attributable future revenues,
margins and cashflows. In addition, the allocation of useful lives to
acquired intangible assets requires the application of judgement
based on available information and management’s expectations
at the time of recognition.
Impairment
IFRS requires companies to carry out impairment testing on
any assets that show indications of impairment and annually on
goodwill and intangibles that are not subject to amortisation. This
testing involves exercising management judgement about future
cashflows and other events which are, by their nature, uncertain.
Retirement benefits
The assumptions underlying the calculation of retirement benefits,
assets and obligations are important and based on independent
advice. Changes in these assumptions could have a material
impact on the measurement of the Group’s retirement
benefit obligations.
Keith Cochrane
Finance Director
10 March 2009
1 from continuing operations.
2 from continuing operations, before intangibles amortisation
and exceptional items.
3 net cashflow generated from continuing operations excluding
cash impact in relation to acquisitions, disposals and net
repayments of borrowings.
19
The Weir Group PLC Annual Report 2008
Board of Directors & Group Operations Executive
Our operational framework is underpinned by clearly
defined strategies, vision and values which combine to
create shareholder value through the effective use of
our resources.
Mark Selway
Chief Executive
Aged 49, was appointed chief executive in June
2001. Before his appointment, he was a director
of Britax International plc and managing director
of its automotive components division. Following
the purchase of that division by Schefenacker
International AG in 2000, he became a director
of that company and executive director of
Schefenacker Vision Systems. He is also a non-
executive director of Lend Lease Corporation Limited.
The Lord Smith of Kelvin
Chairman
Aged 64, was appointed chairman in July 2002.
He is chairman of Scottish and Southern Energy
plc and Glasgow 2014 Ltd, the organising
committee for the Commonwealth Games and a
non-executive director of 3i Group plc, Standard
Bank Group Limited and Aegon UK plc. He was
formerly chief executive of Morgan Grenfell Asset
Management, a member of the Financial Services
Authority and the Financial Reporting Council
and chairman of Stakis plc.
Alan Mitchelson
Legal and Commercial Director &
Company Secretary
Aged 59, is a solicitor and joined the Group in
March 2000 as group company secretary. He was
appointed a director in December 2001. Before
joining the Company, he was legal and personnel
director of Highland Distillers plc, following a
number of years as a legal advisor with Trafalgar
House plc. He is a non-executive director of
Glasgow 2014 Ltd.
Keith Cochrane
Group Finance Director
Aged 44, is a chartered accountant and was
appointed group finance director in July 2006.
He was formerly group director of finance at
ScottishPower plc. Before that he was with
Stagecoach Group plc where he was group finance
director before becoming group chief executive
in 2000. He is a non-executive director of the
Royal Scottish National Orchestra Society Ltd.
20
Group Operations Executive
Committee
From left to right
Keith Cochrane
Group Finance Director
Mark Selway
Chief Executive
Alan Mitchelson
Legal and Commercial
Director and
Company Secretary
Phil Clifton
Power & Industrial
Divisional MD
Steve Noon
Oil & Gas
Divisional MD
Scot Smith
Minerals
Divisional MD
Board of Directors & Group Operations Executive
Professor Ian Percy CBE
Deputy Chairman & Senior Non-Executive Director
Stephen King
Chairman Audit Committee
Michael Dearden
Chairman Remuneration Committee
Aged 67, was appointed a non-executive director in
1996. He was formerly senior partner of accountants
Grant Thornton, president of the Institute of
Chartered Accountants of Scotland and chairman of
The Accounts Commission for Scotland. He served
as a member of the Treasury and DTI Co-ordinating
Committee on Audit and Accounting in 2003 and
was chairman of Companies House until December
2006. He is senior non-executive director of Cala
Group Ltd and chairman of Queen Margaret
University, Edinburgh.
Aged 48, was appointed a non-executive director in
February 2005. He has been group finance director of
De La Rue plc since January 2003 and is due to step
down at the end of March 2009. He was formerly
group finance director of Midlands Electricity plc
and held senior financial roles with Seeboard plc
and Lucas Industries plc. He is also a non-executive
director of Camelot Group plc.
Aged 66, was appointed a non-executive director
in February 2003. A graduate of Oxford University,
he was formerly with Burmah Castrol plc, where
he was CEO of Castrol International. He was a
non-executive director of Johnson Matthey plc
until March 2008 and Travis Perkins plc until
November 2008. He was formerly chairman of
Minova International Ltd.
John Mogford
Non-Executive Director
Aged 55, was appointed a non-executive director
in June 2008. He is currently an executive vice
president of BP PLC, having been with BP for
30 years, initially in their exploration division
and progressively rising to his current role as
executive vice president (chief operating officer
US Downstream & Head of Refining). He has held
numerous positions in every area of BP Operations
from gas and renewables to upstream and
downstream oil.
Lord Robertson of Port Ellen (George)
KT, GCMG, HonFRSE, PC
Non-Executive Director
Aged 62, was appointed a non-executive director in
February 2004. He was Secretary General of NATO
(1999-2003) and before that Secretary of State
for Defence (1997-99). Lord Robertson is deputy
chairman of TNK-BP. He is a non-executive director
of Western Ferries (Clyde) Ltd. He is also senior
international advisor to Cable and Wireless PLC,
on the Advisory Board of Englefield Capital, senior
counsellor with The Cohen Group (USA) and
President of Chatham House.
Christopher Clarke
Non-Executive Director
Aged 63, was appointed a non-executive
director in 1999 and retired from the Board
on 31 December 2008.
Audit Committee
Remuneration Committee
Nomination Committee
21
Directors Report
The directors are pleased to present their 115th annual report,
together with the audited financial statements, for the 52 weeks
ended 26 December 2008.
Cautionary statement
This annual report and financial statements have been prepared
for the shareholders of the Company, as a body and no other
persons. The various reports contain forward looking statements
that are subject to risk factors because of the nature of the sector
and markets in which the Group operates and reflect the
knowledge and information available at the date of the
preparation of these financial statements.
Statements made in the Chairman’s Statement, Chief Executive’s
Review, Operational Reviews and Financial Review in respect of
divisional performance are made on a continuing business basis
and operating profits are stated before intangibles amortisation.
Operating profit before intangibles amortisation, which is a
non-IFRS measure, is the primary performance measure used
by management as it is felt that the exclusion of these items
provides more relevant information to users of the financial
statements and a more useful indication of the underlying
performance of each of the divisions.
It is also Group practice to discuss divisional performance in terms
of constant exchange rate growth by re-translating the prior year’s
results of overseas subsidiaries at 2008 average exchange rates.
This removes the effect of currency movements and provides
focus on the increases or decreases which are driven by volume,
price and cost levels relative to the prior year. Therefore, in the
Chief Executive’s Review, Operational Reviews and Financial Review,
growth rates and other comparative data in respect of divisional
input, revenue and operating profits before intangibles
amortisation are given on a constant exchange rate basis.
Underlying growth on this basis is a non-IFRS measure because,
unlike actual growth, it cannot be directly derived from the
information in the financial statements.
Results
The Group profit attributable to members for the 52 weeks,
after taxation, amounted to £170.8m.
Dividends
The directors recommend a final ordinary dividend of 13.85p per
share to be paid on 1 June 2009 to ordinary shareholders whose
names are on the Company’s register of members at close of
business on 1 May 2009. Together with the interim ordinary
dividend of 4.65p per share paid on 7 November 2008, this
makes the total dividend for the year 18.5p.
Principal activities & business review
The Group's principal activity is the provision of specialised
mechanical engineering solutions for a diversified range of
industrial and geographic markets. A review of the Group’s
operations and likely future developments, together with key
performance indicators can be found in the Chairman’s Statement
on pages 2 to 3, Chief Executive’s Review on pages 6 to 8,
Operational Reviews on pages 9 to 15, Financial Review
on pages 16 to 19 and Corporate Social Responsibility Report
on pages 40 to 44, which are incorporated into this report
by reference, as well as within this report.
There are no persons with whom the Company has contractual
or other arrangements which are essential to the business of
the Company.
22
The Weir Group PLC Annual Report 2008
Research & development
During the year, the Group spent £9.8m on research and
development. The expenditure reflects the Group’s continued
commitment to investment in research and development,
applied to both the development of new leading edge materials
technologies and existing product innovation. The Group's
worldwide pump technology centres focus on developing
engineering process improvements through the use of a variety
of analytical tools to design products with optimal wear life
and improved safety and efficiency. This maintains the Group's
competitive advantage in the market and controls costs whilst
improving quality.
Other reports
The annual report includes a separate Corporate Governance
Statement, which is on pages 28 to 30, Audit Committee Report
on page 31, Nomination Committee Report on page 32 and
Remuneration Committee Report on pages 33 to 39, which
are incorporated into this report by reference.
Takeovers Directive
The information required for shareholders as a result of the
implementation of the Takeovers Directive into UK law is set
out in Shareholder Information on pages 113 to 115, which
is incorporated into this report by reference and in this report
under substantial shareholders.
Directors
Details of the current directors of the Company are set out on
pages 20 and 21. John Mogford was appointed to the Board
on 1 June 2008. Christopher Clarke retired as a director on
31 December 2008. Subsequently, Richard Menell was appointed
a director on 1 April 2009. The directors who retire this year by
rotation are Michael Dearden and Lord Robertson. In addition,
as he has been a non-executive director for more than nine years,
Professor Ian Percy is subject to annual re-election. In accordance
with article 97 of the articles of association of the Company,
John Mogford and Richard Menell retire at the forthcoming
annual general meeting and, being eligible, offer themselves
for election. Michael Dearden, Lord Robertson and Professor Percy
also offer themselves for re-election.
Directors indemnities
The Company has granted indemnities to each of its directors
in respect of all losses arising out of or in connection with the
execution of their powers, duties and responsibilities as directors to
the extent permitted by the Companies Acts and the Company's
articles of association. In addition, directors and officers of the
Company and its subsidiaries and trustees of its pension schemes
are covered by directors & officers liability insurance.
Share capital
During the year, options were exercised by participants in the
Company’s share option schemes as a consequence of which
178,053 ordinary shares of 12.5p each were allotted and issued.
The savings related share option scheme was closed to new entrants
in 2004 and the last date for exercising options under the scheme
was 1 January 2009. In addition, under the Group Long Term
Incentive Plan (“LTIP”) the awards granted in 2005 vested during
the year. In order to satisfy the awards, 274,861 ordinary shares
of 12.5p each were allotted and issued and 427,393 ordinary shares
of 12.5p each were transferred from treasury to satisfy the awards.
Details of the options and awards outstanding under each of the
Company’s share schemes at the end of the year are set out in
note 28 to the Group financial statements.
The trustees of the Weir Group Employee Trust (the “Trust”) have
agreed to waive any right to all dividend payments on shares held
by the Trust. Details of the shares held by the Trust are set out in
note 25 to the Group financial statements.
Directors statement of responsibilities
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable
law and regulations.
At the 2008 annual general meeting, shareholders renewed the
Company’s authority to make market purchases of up to 20.9m
ordinary shares (representing 10% of the issued share capital
excluding treasury shares). No shares were purchased under this
authority during the 52 weeks to 26 December 2008 and, at the
forthcoming annual general meeting, the Board will again seek
shareholder approval to renew the annual authority for the
Company to make market purchases.
Annual general meeting
The annual general meeting will be held on 13 May 2009.
A separate letter is being sent to all shareholders containing
the Notice of Meeting and the resolutions to be proposed.
Substantial shareholders
At 10 March 2009, the following have disclosed an interest in the
issued ordinary share capital of the Company in accordance with
the requirements of section 5.1.2 of the UK Listing Authority’s
Disclosure and Transparency Rules:
Shareholder
Date of
Number disclosure to
of shares
Percentage
of issued
Company share capital
21,967,255 05/12/08
Prudential plc
12,173,278 18/12/07
Baillie Gifford & Co
10,812,658 13/10/08
AXA
Threadneedle Asset Management Ltd
10,802,934 17/02/09
Legal & General Investment Management 8,264,230 29/01/09
8,014,955 25/03/08
Barclays Global Investors
6,425,000 23/03/07
FMR Corp
10.45%
5.82%
5.14%
5.14%
3.93%
3.83%
3.09%
Since the date of disclosure to the Company, the interest of
any shareholder listed above may have increased or decreased.
No requirement to notify the Company of any increase or decrease
would have arisen unless the holding moved up or down through
a whole number percentage level. The percentage level may increase
(if the Company cancelled shares pursuant to the power to purchase
its own shares) or decrease (on the issue of new shares under the
Company’s LTIP).
Going concern
After making enquiries, the directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future. For this reason, they continue
to adopt the going concern basis in preparing the financial
statements. In forming this view, the directors have reviewed the
Group’s budgets, plans and cash flow forecasts, including market
downturn sensitivities. In addition, the directors have considered
the potential impact of credit risk and liquidity risk detailed below.
Each of these items has been considered in relation to the Group’s
banking facilities described on page 18 of the Financial Review.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and the Company financial statements
in accordance with UK Accounting Standards and applicable law.
In preparing those financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state that the Group financial statements have complied with
IFRSs as adopted by the European Union, subject to any material
departures being disclosed and explained; and
• state for the Company financial statements whether the
applicable UK Accounting Standards have been followed, subject
to any material departures being disclosed and explained.
The directors confirm that they have complied with the above
requirements in preparing the financial statements.
Each of the directors, whose names are listed in the Board of
Directors on pages 20 and 21, confirms to the best of his
knowledge that:
• the financial statements give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group; and
• the Directors Report includes a fair review of the development
and performance of the business and the position of the Group,
together with a description of the principal risks and
uncertainties that it faces.
The directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that
the Group financial statements comply with the Companies Act
1985 and Article 4 of the IAS Regulation. They are also responsible
for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
Audit & auditors
So far as each of the directors is aware, there is no relevant audit
information (as defined by section 234ZA of the Companies Act
1985) of which the Company’s auditors are unaware.
Each of the directors has taken all of the steps that he ought to
have taken as a director to make himself aware of any relevant
audit information (as defined) and to establish that the
Company’s auditors are aware of that information.
Charitable contributions
During the year, Group companies made the following contributions:
A resolution to re-appoint Ernst & Young LLP as the Company’s
auditors will be put to the forthcoming annual general meeting.
• charitable (being specifically health, heritage, educational and
community) purposes £233,826 (2007: £252,227).
The Group made no political contributions during the period.
The Weir Group PLC Annual Report 2008
23
Directors Report (Continued)
Principal risks & uncertainties
Risk is inherent in the Group's business activities and as a
consequence of operating a sound risk management process the
Group has identified the following principal risks and uncertainties
which it believes could have a materially adverse effect on its
business, revenues, profit, assets, liquidity, resources and reputation.
The nature of risk is such that no list can be comprehensive and
it is possible that other risks may arise, or that risks not currently
considered material may become so in the future. Any forward-
looking statements in the annual report or otherwise made by
the Group should be considered in light of these risk factors.
The Group operates controls as described in the Corporate
Governance statement to mitigate against these risks.
Strategic risks
Economic, political and natural catastrophe risks
The Group operates in around 40 countries around the world
including a number in Africa, the Middle East, Asia and South
America. While benefiting from the opportunities and growth in
these regions, the Group is exposed to the economic, political and
business risks associated with such international operations. These
can include sudden changes in regulation, expropriation of assets,
imposition of trade barriers and wage controls, limits on the export
of currency and volatility of prices, taxes and currencies. The Group’s
diversified geographic footprint mitigates against any exposure
within any one country in which it operates. Management monitor
such risks, and amend business procedures accordingly, while
remaining in compliance with local and Group requirements.
The Group’s operations are exposed to varying degrees of natural
catastrophe risk, such as earthquake and flood, as well as security
risk, in the various manufacturing locations in which it operates.
Where cost effective, such risks are mitigated through physical
measures designed to counter the impact of a catastrophe. Where
possible the value of assets and associated profits are also protected
by insurance.
Market cycles
Around 90% of the Group’s new business comes from the mining,
oil and gas, power generation and industrial markets. Any contraction
in capital expenditure and production activity could lead to a
reduction in demand for the Group's products. The Group's
diversified product portfolio and end markets together with a
broad geographic spread, reduce its reliance on any individual
market sector or geographical area.
Legislative & regulatory risks
The Group has contracts and operations in many parts of the
world and operates in a highly regulated environment. Non-
compliance with these laws, regulations and restrictions could
expose the Group to fines, penalties, suspension or debarment,
which could have a material adverse effect on the Group. These
include, without limitation, regulations relating to import-export
controls, money laundering, false accounting, anti-bribery and
anti-boycott provisions. Failure by the Group, or agents acting on
its behalf, to comply with these laws and regulations could result
in administrative, civil or criminal liabilities resulting in significant
fines and penalties and/or debarment of the Group from
government contracts for a period of time. The Group monitors
regulatory developments and has a strong compliance regime.
24
The Weir Group PLC Annual Report 2008
In 2004, an announcement was made to the London Stock
Exchange in connection with the Group’s involvement in the UN
sanctioned Oil for Food programme. The Group continues to
cooperate fully with ongoing investigations by UK authorities
in this connection.
Litigation
Manufacturing companies are, from time to time, exposed to class
actions or other litigation relating to asbestosis or other health
problems associated from working in industries that used asbestos
in the twentieth century. The Group has insurance cover for such
claims but on occasions this will not meet all claims. The number
and size of the claims is dependent on the number of companies
which still exist and can be included in these class actions. Both of
these can change over time and as a result the Group’s exposure
can increase. The Group has internal policies and procedures for
monitoring these risks, managing and mitigating against these
liabilities and to ensure that there is regular reporting to the
Board on changes to this environment.
Industry competition
The markets for many of the Group’s products are fragmented
and highly competitive. The Group competes against large and
well established global companies, as well as local companies
and low cost replicators of spare parts, on the basis of price,
technical expertise, timeliness of delivery, previous installation
history and reputation for quality and reliability. To remain
competitive, the Group invests continuously in its manufacturing,
marketing, customer service support and distribution networks.
The diversity of operations reduces the possible effect of action
by a single competitor and combined with the application of
the Weir Production System ensures the Group’s competitive
advantage is sustained.
Financial risks
Foreign exchange risk
The Group operates globally with the majority of its profit being
earned outside the UK. As a result, the Group is exposed to two
types of currency risk: transactional and translational.
Transactional currency exposure arises when operating subsidiaries
enter into transactions denominated in a currency other than
their functional currency. In line with the Group’s policies and
procedures, foreign exchange exposures are identified by the
subsidiaries that are party to the transactions and then managed
centrally by the Group’s Treasury function. The exposures are
hedged, usually by means of forward foreign exchange transactions.
Translational currency exposure can impact reported earnings
through the translation of the profits of overseas subsidiaries
into sterling for consolidated reporting purposes and can impact
net assets through the translation of the Group's net investments
in overseas subsidiaries. The Group reduces its net assets translational
currency exposures by means of foreign currency borrowings and
derivative financial instruments. The Group does not hedge the
translational exposure arising from profit and loss items.
Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet
its liabilities as they fall due. This is managed by monitoring
forecast and actual cash flows and ensuring sufficient cash and
committed borrowing facilities are in place at all times and, also,
that additional headroom is available to meet possible downside
scenarios. Details of the Group’s cash and committed borrowing
facilities can be found in notes 19, 20 and 30 to the Group financial
statements respectively.
Credit risk
Credit risk is the risk of financial loss if a customer or counterparty
fails to meet an obligation under a contract. In relation to the risk
that customers fail to settle outstanding debts, this is mitigated by
the large number of customers and countries over which this risk
is spread. In addition, credit quality of the Group's customers is
monitored through an assessment of financial position, previous
payment history and with reference to external credit rating
agencies. Credit risk to financial institutions arising through
deposits and derivative transactions is limited by restricting the
range of counterparties to those with high credit ratings. Further
information regarding the Group's credit risk can be found in
notes 17 and 30 to the Group financial statements.
Tax
The effective rate of tax paid by the Group may be influenced by
a number of factors including changes in law and accounting
standards and the Group’s overall approach to such matters, the
results of which could increase or decrease that rate. The Group
seeks to manage its financial structure efficiently to minimise the
overall tax burden on the business where practicable. The continued
ability of the Group to manage its businesses in this way cannot be
guaranteed and so could affect the Group’s financial performance.
Pensions
Estimates of the amount and timing of the future funding
obligations of the Group’s pension plans are based on various
assumptions including, among other things, the actual and
projected market performance of the pension plan assets, future
long-term corporate bond yields, increased longevity of members
and statutory requirements. The Group continually reviews
these risks and takes action to mitigate where possible. In 2008,
the trustees purchased a further insurance policy from Legal &
General Assurance Society to secure a proportion of deferred
members liabilities of the main UK plan and also commenced
the winding up of its Canadian plan. However, while the Group
is consulted by the trustees on the investment strategies of its
pension plans, the Group has no direct control over these
matters as the trustees are directly responsible for the strategy.
Operational risks
Acquisitions
The Group has made a number of acquisitions in recent years as part
of its growth strategy and may make acquisitions in the future. While
the Group identifies expected synergies, cost savings and growth
opportunities prior to completing any acquisition, these benefits
may not always be achieved or within the anticipated timescale.
To mitigate against this, the Group implements a vigorous due
diligence process and ensures clear financial targets are in place
together with ensuring any acquisition is put through a formal
approval process. The Group implements an internal 100 day plan
to ensure that the integration process runs as smoothly as possible.
Delivery performance
The Group’s ability to meet customer delivery schedules is dependent
on a number of factors including sufficient manufacturing capacity,
access to raw materials, inventory control, sufficient trained and
equipped employees, engineering expertise and the appropriate
planning and scheduling of the manufacturing process. Many of
the contracts it enters into require long lead times and therefore
contain clauses in relation to on-time delivery. Failure to deliver in
accordance with customer expectation could subject the Group to
financial penalties, may result in damage to customer relationships
and could impact on the Group’s financial performance. The
continuous improvements achieved through the implementation
of the Weir Production System ensure that all operations are
striving for world-class performance.
Product liability claims
The Group faces an inherent business risk of exposure to product
liability and warranty claims in the event that failure of a product
results in, or is alleged to result in, bodily injury or property
damage. This risk is mitigated through quality control reviews
as part of the Weir Production System and rigorous testing of
new product designs. In addition, the Group maintains insurance
coverage for product liability claims where possible. For warranty
claims not covered by insurance, warranty costs may be incurred
which the Group may not be able to recover.
Intellectual property
The Group operates in a competitive market and constantly
has to take steps to prevent misappropriation of its intellectual
property rights. The Group relies on a combination of patent
rights, licensing arrangements and contractual arrangements to
establish and protect those rights, as well as bringing actions
against infringing third parties, where necessary.
Employee issues
Group performance depends on the skills and efforts of its
employees across all of its businesses. In striving to be an
employer of choice, the Group recognises that failing to attract
new talent and retain existing expertise, knowledge and skills in
operations, products and infrastructure areas such as information
technology could have a negative impact on its business. In
addition, the success of Group acquisitions will depend on the
Group’s ability to retain management personnel of acquired
companies. The Group’s employee development programmes
are explained in more detail on page 41.
Health & safety
The Group operates in a number of demanding environments.
Safe working practices are extremely important to protect
everyone at the Group's locations. The Group has developed
quality and safety processes within each of its businesses which
are regularly audited by professional bodies and customers. The
Group operates long established working practices and controls to
minimise damage and injury. If the Group cannot maintain a safe
place for all its employees to work this could result in a number
of negative outcomes to the Group including:
• fines and penalties;
• loss of key customers;
• exclusion from certain market sectors deemed important for
future development of the business; and
• damage to reputation.
The Weir Group PLC Annual Report 2008
25
Directors Report (Continued)
Group performance
The Group’s strategy is underpinned by focusing on a number of
key performance measures. The following measures are the ones
that the Board feel communicate the performance and strength
of the Group as a whole. However, management use further
performance measures to run and assess the performance of
their divisions and the individual companies within each division.
Input - continuing operations 1, 2
1,439.1
1,151.4
1,183.6
Up 22%
in 2008
)
m
£
(
t
u
p
n
I
1500
1200
900
600
300
0
2006
2007
2008
Order input is a key measure used to evaluate market trends, establish
forward sales and enable the efficient management of production
schedules. Order input is defined as the expected revenues to be
generated from contractually committed orders received.
Operating margin - continuing operations2
)
%
i
(
n
g
r
a
M
13.3
11.2
8.2
Up 19%
in 2008
15
12
9
6
3
0
2006
2007
2008
One of the Group’s key objectives is to continue to improve
business operating margins. Operating margins are defined
as operating profits expressed as a percentage of revenues.
These are calculated before taking account of any intangibles
amortisation and exceptional items to focus on underlying
trading performance.
26
The Weir Group PLC Annual Report 2008
Earnings per share - continuing operations2
59.3
41.4
32.4
Up 43%
in 2008
)
e
c
n
e
p
(
e
r
a
h
s
r
e
p
s
g
n
n
r
a
E
i
60
50
40
30
20
10
0
2006
2007
2008
Underlying earnings per share is represented by profit for the
period from continuing operations before intangibles amortisation
and exceptional items divided by the weighted average number
of shares in issue.
The Group seeks to deliver long-term shareholder value as evidenced
in part through the growth in basic earnings per share. Growth in
basic earnings per share is a key measure in determining the vesting
of shares under the Group's incentive plans.
Dividend & dividend cover - continuing operations2
18.5
16.5
14.5
18
15
12
9
6
3
0
3.5
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
)
e
c
n
e
p
(
d
n
e
d
v
D
i
i
Dividend
up 12%
in 2008
)
s
e
m
i
t
(
r
e
v
o
c
d
n
e
d
v
D
i
i
Dividend
cover up
28% in
2008
2006
2007
2008
Shareholder value is also generated through the payment of
annual dividends to shareholders. The Group's ability to sustain
such payments is measured against the dividend cover ratio with
the current policy being to sustain dividend cover of at least
two times. Dividend cover is defined as basic earnings per share
from continuing operations before intangibles amortisation and
exceptional items divided by the annual dividend per share.
1 Calculated at 2008 average exchange rates.
2 The figures for 2006 and 2007 are based on the published results and are therefore
in respect of continuing operations at that time and do not exclude intangibles
amortisation for 2006.
The Group Lean Score is interpreted as follows:
• 0 – 60 means the site needs significant improvement,
action is required;
• 61-99 means relatively good practice, but regular follow up
and further improvements are required;
• 100-150 is world-class practice where process has taken root
and needs to be maintained and further improved.
The scores awarded to individual businesses are analysed to
identify improvement actions and set future targets, aligned
with the overall business objectives.
As part of the improvement to the Weir Production System
introduced in May 2008, an additional five factors have been
added to the audit process which will result in a new scoring
system being introduced. The new factors are:
• on time delivery
• inventory turns
• lost time accidents
• direct labour utilisation
• policy deployment.
We will begin reporting against these new measures in the
2009 annual report.
Glasgow
10 March 2009
On behalf of the Board
Alan Mitchelson
Director & Secretary
Weir Production System implementation
The Group’s goal is consistently to meet customer demand on
time with the least cost method, through implementation of the
Weir Production System, adapted from the Toyota Production
System. By eliminating waste, quality is improved and production
lead time and costs are reduced. The key objective is to embed
the appropriate practices across all business processes to produce
just what is needed, when it is needed, in the most efficient way.
The Group has adopted the Lean Management philosophy
focusing on reduction of the Seven Wastes to improve overall
customer value. These are:
• overproduction
• rework
• inventory
• waiting time
• over-processing
• motion
• transportation.
Due to the importance of ownership in the process, the
measurement of performance is by an evaluation across all
Group companies comparing their current plant practice
against world-class practice and performance.
The evaluation involves an audit of each manufacturing and
service site which results in the site being awarded a Lean Score.
Audits are performed annually by internal peer groups. The Lean
Score for each site is then totalled and expressed as a Group
Lean Score.
The Lean Scores for 2008 are shown as follows:
123
129
110
Up 5%
in 2008
e
r
o
c
S
n
a
e
L
p
u
o
r
G
150
120
90
60
30
0
2006
2007
2008
The prior year comparatives have been restated to take account
of disposals.
The Weir Group PLC Annual Report 2008
27
Corporate Governance Statement
The Combined Code
The Company remains committed to the highest standards of
corporate governance and manages its affairs in accordance with
the Combined Code on Corporate Governance (the “Combined
Code”) published by the Financial Reporting Council in June 2006
and appended to the Listing Rules. During the 52 weeks ended
26 December 2008, the Company complied with the Combined
Code provisions. This statement describes how the Company has
applied the Combined Code.
The Board
The Board comprises the chairman, chief executive, group finance
director, legal and commercial director and six non-executive
directors, all of whom are independent. The Board meets regularly
throughout the year with ad hoc meetings as necessary. In the year
to 26 December 2008, the Board met seven times. Meetings are
held at the Company’s head office in Glasgow, London at the time
of the Company’s annual and interim announcements and at
operating locations. The following table identifies the number
of board and committee meetings held during the past year
and the attendance record of individual directors.
Board
Meetings
Audit Remuneration
Nomination
Committee Meetings
No. of meetings in year
Lord Smith
Christopher Clarke2
Keith Cochrane
Michael Dearden
Stephen King
Alan Mitchelson
John Mogford1
Professor Ian Percy
Lord Robertson3
Mark Selway
7
7
7
7
7
7
7
4
7
6
7
3
3
3
3
1
5
5
5
5
1
4
4
4
4
4
4
1 John Mogford was appointed to the Board on 1 June 2008
2 Christopher Clarke retired as a director on 31 December 2008
3 Lord Robertson was appointed to the Remuneration Committee on 1 October 2008
Directors appointed to the Board other than at an annual general
meeting of the Company are required to retire at the following
annual general meeting when they may offer themselves for
election. One third of the remaining members of the Board
(or, where that number is not a whole number, the nearest lower
whole number) are required to retire by rotation, subject to all
directors submitting themselves for re-election at least once every
three years. In line with best practice under the Combined Code,
any director who has held office for more than six years is subject
to a particularly rigorous review and any director who has held
office for more than nine years is required to submit himself for
re-election annually.
On joining the Board, directors are provided with documentation
on the Company and its activities. New directors are provided
with an appropriate induction programme and, where appropriate,
site visits are arranged to major business units. Ongoing training
is provided as necessary.
28
The Weir Group PLC Annual Report 2008
A formal process for evaluating the performance of the Board is
undertaken annually. This process is conducted internally based
on a detailed questionnaire completed by each director and
individual and collective discussions.
The evaluation examines the balance of skills of the directors,
the operation of the Board in practice including its corporate
governance and the operation and content of board meetings.
The findings are used to assist the Board in its consideration of
the opportunities for improvement in the performance of the
Board and its directors.
During 2008, the Board also conducted an internal review of
the effectiveness of the Audit, Nomination and Remuneration
Committees incorporating a questionnaire covering such matters
as the role and organisation of each committee, meeting
arrangements, information provision and effectiveness. Following
completion of these questionnaires by the members of each
committee, the chairman met with the respective chairmen of the
Audit and Remuneration Committees to discuss the feedback. The
results of this evaluation were reported to the Board and, where
areas for improvement had been identified, actions were agreed.
Additionally, a one-to-one appraisal of all board members is
undertaken annually, including the chairman, whose appraisal is
carried out by the senior independent director, with input from
other board members.
There is an agreed procedure for directors, where appropriate,
to take independent professional advice on any matter at the
Company’s expense. The company secretary is responsible for
ensuring that board procedures are followed and all directors have
direct access to the advice and services of the company secretary.
The company secretary is also responsible for facilitating the
induction and professional development of the board members
and information flows within the Board, its committees and
between the non-executive directors and senior management.
There is an agreed list of matters which requires to be authorised
by the Board, such as the approval of the Group strategic plan,
Group budget and risk management strategy. Major acquisitions
and disposals, as well as major capital spend, are authorised by
the Board and are subsequently monitored by the Board after
execution. The Board also approves the issue of full year and
interim reports.
All directors bring their own independent judgement to major
matters affecting the Group. Each of the non-executive directors is
considered by the Company to be independent. Notwithstanding
his presence on the Board for a period of more than nine years,
the Board considers Professor Percy, who continues to be a
member of the Board and the Remuneration and Nomination
Committees, to be independent in character and judgement.
He brings a wealth of experience to the Board’s deliberations and
is considered to be free from any business or other relationship
that could materially interfere with his independent judgement.
The views of executive directors are not limited to those
operational or functional areas for which directors have prime
responsibility. Board and committee papers are sent to directors
in sufficient time before meetings and any further back-up papers
and information are readily available to all directors on request to
the company secretary. The chairman ensures that non-executive
directors are properly briefed on any issue arising at board
meetings and non-executive directors have access to the
chairman at any time.
The roles of chairman and chief executive are separate. The
chairman’s primary role is to ensure that the Board is effective
in its task of setting and implementing the Company’s direction.
The chief executive is responsible for management of the business
and developing the appropriate organisational structure for a
global organisation. The chief executive chairs the Group
Operations Executive Committee.
The non-executive directors are independent of management.
None of the non-executive directors has any material business or
other relationship with the Company. Each member of the Board
has considerable experience at senior level in other companies,
which allows for well informed and broadly based debate. The
Board structure ensures that no individual or group dominates
the decision-making process. Professor Ian Percy has been
designated the senior independent director to whom any
concerns can be conveyed.
The executive directors have contracts of service with one year’s
notice, whilst non-executive directors are appointed on a
rotational basis for periods of up to three years.
Directors conflicts of interests
Effective from 1 October 2008, a Director has had a statutory
duty to avoid a situation in which he has, or can have, an interest
that conflicts or possibly may conflict with the interests of the
Company. In accordance with the Company’s articles of association,
amended in 2008, a Director will not be in breach of that duty
if the relevant matter has been authorised by the other directors.
The new provision of the articles of association which include the
relevant authorisation for directors to approve such conflicts was
agreed by a resolution of shareholders at the annual general
meeting held on 7 May 2008. Prior to 1 October 2008, the Board
conducted a review of actual or possible conflicts of interest in
respect of each director. At its meeting in August 2008, the Board
considered the guidance on conflicts generally and agreed on the
process that would be adopted for identifying and authorising
conflicts. They also authorised the conflicts that had been
identified as a result.
Board committees
Where appropriate, matters are delegated to board committees,
all of which have written terms of reference which are available on
the Company’s website. The company secretary acts as secretary
to all these committees.
Group Operations Executive Committee
The Group Operations Executive Committee is responsible for
ensuring that each of the Group’s businesses is managed effectively
and that the operational objectives of the Group, as approved by
the Board, are achieved. Its role includes the preparation of the
Group budget for approval by the Board, management of business
performance to achieve the Group budget, establishing and
maintaining reporting systems providing clear and consistent
information on all aspects of business performance, managing
and minimising corporate risk and ensuring that the necessary
mechanisms are in place to achieve effective inter-divisional
coordination in areas such as purchasing, branding and career
development planning. It also approves major items of capital
expenditure within limits authorised by the Board. The Group
Operations Executive Committee meets each month. Its
membership comprises the chief executive, group finance
director, legal and commercial director and the three divisional
managing directors. In the year to 26 December 2008, the
Group Operations Executive Committee met 12 times.
General Administration Committee
The principal duties of the General Administration Committee are
to allot shares under the various share option schemes and other
matters of a routine nature. This Committee comprises the
executive members of the Board and meets as required.
Other committees
The other board committees are the Audit Committee, the
Nomination Committee and the Remuneration Committee
(details of which are contained on pages 31 to 39).
Principles of business conduct
As an international company, the Group’s approach to
maintaining high ethical standards is critical to its business
success. The Group’s operating policies, which provide guidance
in this area, have been communicated throughout the Group
through its intranet. A copy is available from the company
secretary. These policies are reviewed on a regular basis.
Shareholders
The Company maintains regular dialogue with its institutional
shareholders in the form of an investor relations programme.
This includes regular update meetings and presentations with
major shareholders and industry analysts. Feedback from these
presentations which is reported to the Board gives investors an
opportunity to comment on the quality of the communications
they receive in their contact with the chief executive and group
finance director. Attendees at the results presentations include
the chairman, the executive directors and the senior independent
director. The Company also encourages communication with
private shareholders throughout the year and welcomes their
participation at shareholder meetings. In addition to the chairman’s
statement at the annual general meeting, a trading update to
shareholders is given and details of the Company’s trading activities
are on display. The directors attend the annual general meeting
when the chairmen of the Audit, Remuneration and Nomination
Committees are available to answer questions. The date of the
key publications in 2009 can be found on the Company’s website.
Notice of the annual general meeting is sent to shareholders
at least 20 working days before the meeting. The Company
conducts the vote at the annual general meeting by electronic
poll and the result of the votes (including proxies) is published
on the Company’s website after the annual general meeting.
The Weir Group PLC Annual Report 2008
29
Corporate Governance Statement (Continued)
Communications
The Board considers that the annual report and financial statements
and interim statements present a balanced and understandable
assessment of the Group’s performance and prospects. In addition
to information which any company is under a legal or regulatory
requirement to publish, the Group frequently publicises other
business developments through the national or specialised press
or in its own newspapers and bulletins which have wide circulation.
taking account of the significant risks identified by the individual
units together with other group-wide risks. The Group Risk and
Control Framework is considered and adopted by the Board
which is responsible for the risk management strategy. The system
of internal control is designed to manage rather than eliminate
the risk of failure to achieve business objectives and can only
provide reasonable, but not absolute, assurance against material
misstatement or loss.
The Company’s website at www.weir.co.uk provides additional
company information, is regularly updated and includes the
presentations to shareholders given at the announcements of the
full year and interim results. The website also contains an online
version of the notice of the annual general meeting, the annual
report and financial statements and the interim report.
Internal control
In accordance with the Turnbull Guidance on internal control,
the Board ensures that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by Group
companies. This process has been in place throughout 2008 and
up until the date of this report, except that it did not apply to
the Group’s material joint ventures. As part of the integration
programme, Weir Multiflo, Weir SOS, Weir Mesa and Weir Warman
Africa became fully integrated into the Risk and Control Framework
and the Group system of internal control during 2008. The directors
have overall responsibility for the Group’s system of internal control
and for reviewing its effectiveness. The Board delegates to executive
management the responsibility for designing, operating and
monitoring both the system and the maintenance of effective
internal control in each of the businesses which comprise the
Group. In addition, each operating company is responsible for
the operation of key internal controls and to formally assess the
effectiveness of the internal control environment through the
submission, twice yearly, of the compliance scorecard.
An internal audit function is in place to review and challenge
the effectiveness of key internal controls and to suggest relevant
actions to address potential weaknesses. The internal audit review
programme is based on a ‘risk based approach’ that helps to
prioritise resource upon the areas of perceived greatest risk to
the Group. This process is supplemented by a number of peer
reviews that seek to further monitor and evaluate the process
of internal control and share best practice around the Group.
Internal audit and peer review reports are provided to the
Group Operations Executive Committee as well as to the Audit
Committee which considers and determines relevant action in
respect of any control issues raised.
As part of the control framework, each Group operating company
and business prepares a Risk and Control Framework for their
respective business. As part of this process, the operating
companies prepare a report identifying the relative probability
and severity of the risks identified, the process for managing
and mitigating these risks and the means by which management
might be assured that the processes are effective. These frameworks
are considered and approved by the chief executive, group
finance director and the Group Operations Executive Committee.
In addition, a Group Risk and Control Framework is prepared,
30
The Weir Group PLC Annual Report 2008
The Board has monitored the effectiveness of the Group’s system
of internal control during the year. This is refined as necessary to
meet changes in the Group’s business and associated risks. Regular
performance reports are provided to the Group Operations
Executive Committee and/or the Audit Committee or the Board.
Where weaknesses are identified, plans and timetables for
addressing them are also reported.
In addition to the Group Risk and Control Framework, other
procedures which are fundamental to the Group’s system of
internal control are as follows:
Control environment
There is a clearly defined organisational structure within which
individual responsibilities are identified and monitored. Businesses
follow well understood procedures and are required to comply
with them.
Main control procedures
The Group has identified a number of key areas which are
subject to regular reporting to the Board. These controls include
procedures for seeking and obtaining approval for major
investments and transactions.
Group-wide standards
There are, for application throughout the Group, operating
policies and a standards manual which set out policies and
procedures with which all Group companies are required to
comply. The manual is communicated to all Group operating
companies through the Group intranet.
The managing directors are responsible for ensuring that each
company observes and implements the policies and procedures
set out in the manual which was updated progressively
during 2008.
Information systems
There is a comprehensive budgeting system in place with an
annual budget approved by the Board. Management information
systems provide directors with relevant and timely reports that
identify significant deviations from approved plans and include
regular re-forecasts for the year.
The Group’s internal control procedures described in this section
have not been extended to cover its interests in joint ventures.
The Group has board representation on each of its joint venture
companies where separate systems of internal control have
been adopted.
Audit Committee Report
The Board has delegated to the Audit Committee responsibility for
overseeing the financial reporting and internal risk management
control functions and for making recommendations to the Board
in relation to the appointment of the Group’s external auditors.
b) the Internal Audit Charter and Strategy;
c) the Group Risk and Control Framework;
d) the Group accounting policies;
The Committee is charged with responsibility to the Board for
satisfying itself, on behalf of the Board as a whole, that the
financial affairs of the Group are conducted with openness,
integrity and accountability and in accordance with such existing
statutory and regulatory provisions and codes as are applicable
to the Group and to report on these matters to the Board.
Its duties are to:
e) the scope of the function and the findings of internal audit
reviews undertaken by PricewaterhouseCoopers LLP and the
internal auditor;
f) Corporate Governance Reporting;
g) the fees for Ernst & Young LLP for 2008;
h) the audit strategy for year end 2008 audit;
• consider the appointment, resignation or dismissal of the
i) the fraud and error guidelines contained in ISA240; and
auditors and the level of audit fee;
• discuss with the auditors the nature and scope of the audit;
• review the draft interim and annual financial statements before
submission to the Board for approval;
• discuss any problems and reservations arising from the annual
audit and any matters the auditors may wish to raise;
• discuss with the auditors the Group’s system of internal financial
controls and any auditors recommendations for improvement;
• consider the findings of internal investigations and
management’s response;
• oversee the implementation of systems for financial control and
risk management;
• pre-approve non-audit services provided by the auditor;
• review the internal audit programme and its implementation;
• receive and review internal audit reports; and
• review treasury policy.
The Committee also reviews the guidance issued by bodies
such as the Financial Reporting Council into the work of audit
committees and incorporates any recommendations into
its working practices.
The chairman of the Committee is Stephen King. During the year
the other members of the Committee were Christopher Clarke,
Michael Dearden and John Mogford, who joined the Committee
on 1 August 2008. The secretary to the Committee is Alan
Mitchelson. In addition, the chief executive, group finance
director and the internal and external auditors also attend each
meeting. The Board is satisfied that Stephen King has recent and
relevant financial experience.
The Committee has the ability to call on the Group’s staff to
assist in their work and also has access to independent advice.
The chairman of the Committee receives additional remuneration
for his duties, details of which are set out on page 36. The
Committee meets each January, March and August and at other
times as appropriate. During the March meeting the Committee
undertakes a full review of the audit with the Group’s auditors.
There were three meetings in 2008. In the course of 2008,
the Committee discussed the following matters:
a) operational issues identified by the auditors in both their audit
and interim review;
j) the Group 'whistleblowing' policy.
Both the Group internal auditor and PricewaterhouseCoopers LLP
undertake their activities in conjunction with the Group’s usual
peer group review process.
The Committee maintains a policy on the appointment and role
of the auditors. This includes guidelines on their appointment
which is subject to review at least every five years and on their
ongoing work to ensure that the independence of the Group’s
auditors is not threatened, particularly by the provision of non-
audit services. Prior approval of the Committee is required where
the expected cost of non-audit services provided by the appointed
external auditors is in excess of £75,000.
The day-to-day implementation of the Committee’s policy is
delegated to the group finance director who in turn monitors
the business units to ensure that all engagements fall within the
Committee’s guidelines. Fees payable to Ernst & Young LLP in
respect of audit and assurance services of £1.3m (2007: £1.6m)
and transaction support services of £0.2m (2007: £0.7m) in
respect of 2008 were approved by the Committee.
The Group maintains a ‘whistleblowing’ policy in line with the
Public Interest Disclosure Act 1998 to enable employees, on a
confidential basis, to raise concerns internally in cases where they
believe they have discovered malpractice or impropriety. This is
reviewed on an ongoing basis. Complaints can be made either
to line managers or directly to the company secretary who will
appoint an investigating officer. Action will be taken in cases
where the complaint is shown to be justified and at all times the
complainant is informed of progress and outcomes. In addition,
the auditors Ernst & Young LLP can be brought in to review
procedures if appropriate. The ‘whistleblowing’ policy is
published on the Group intranet.
The Committee’s terms of reference are available from the
company secretary on request and can also be found on the
Company’s website.
Stephen King
Chairman of the Audit Committee
Signed and approved for and on behalf of the Board
10 March 2009
The Weir Group PLC Annual Report 2008
31
Nomination Committee Report
During 2008, the members of the Nomination Committee were
Lord Smith (chairman), Michael Dearden, Professor Ian Percy, Lord
Robertson and Mark Selway. Alan Mitchelson acts as secretary to
the Committee. The Committee meets at least twice a year and
at other times when necessary, and in 2008 met four times. The
Committee uses external search consultants to assist it in its work.
The Committee primarily monitors the composition and balance
of the Board and its committees and identifies and recommends
to the Board the appointment of new directors. The Committee’s
terms of reference establish a framework through which it can
operate to ensure the selection process of board candidates is
conducted in a formal, disciplined and objective manner. When
considering candidates, the Committee evaluates the balance
of skills, knowledge and experience of the Board and prepares a
description of the role and capabilities required for the particular
appointment. The Committee also reviews the succession planning
and leadership needs of the organisation and ensures that, on
appointment, all directors receive a formal contract or letter of
appointment as appropriate. The Committee’s terms of reference
are available from the company secretary and can also be found
on the Company’s website.
Appointments to the Board are approved by the Board as
a whole. However, it is the role of the Committee to make
recommendations to the Board in respect of the appointment
of new executive or non-executive directors. The process by
which the Committee brings candidates to the Board has been
agreed by the Board. In the case of executive directors, the
Committee has recommendations presented to it by the chief
executive and thereafter nominates candidates for consideration
by the Board. The procedure for non-executive directors is
that the Committee identifies and nominates candidates for
consideration by the Board to fill vacancies as and when
they arise.
During the year the Committee considered:
a) the Group’s current committee structure and procedures
including the composition and membership of each of
the board committees;
b) the training for directors;
c) the board evaluation process; and
d) the appointment of John Mogford as a director.
In 2009, the Committee considered the appointment of
Richard Menell as a director.
Lord Smith of Kelvin
Chairman of the Nomination Committee
Signed and approved for and on behalf of the Board
10 March 2009
32
The Weir Group PLC Annual Report 2008
Remuneration Committee Report
Committee membership
The chairman of the Remuneration Committee is Michael Dearden.
The other members of the Committee were Christopher Clarke and
Professor Ian Percy. During the year, Lord Robertson was appointed
to the Committee. The secretary to the Committee is Alan
Mitchelson. The Committee consists exclusively of non-executive
directors who are independent of management and free from any
business or other relationship which could materially interfere with
the exercise of their independent judgement. No member of the
Committee has any personal financial interest, other than as a
shareholder, in the matters decided by the Committee. Hewitt
New Bridge Street (“Hewitt”) continued to provide external advice
in formulating remuneration policy and its implementation during
2008, as well as advice on employee share schemes. Hewitt’s
appointment was renewed by the Committee in 2008. Hewitt
do not undertake any other work for the Group other than
remuneration work. In carrying out its business, the Committee
consults with the chairman and the chief executive as appropriate.
Committee responsibilities
The responsibilities of the Committee are as follows:
• to determine the policy on the remuneration and performance
of executive directors of the Company;
• to determine the conditions of employment, including levels
of salary, pension arrangements, bonuses and share awards of
executive directors of the Company;
• to determine targets for any performance-related pay schemes;
and
• to recommend to the Board the remuneration of the chairman
of the Board.
The Committee met five times in 2008. The Committee is
constituted, and operated throughout the year, in accordance
with the relevant provisions of the Combined Code. This report
complies with the Directors Remuneration Report Regulations
2002. The Committee’s terms of reference are available from
the company secretary on request and can also be found on
the Company’s website.
Executive directors remuneration policy
The Committee has adopted the following policy for the
remuneration of executive directors throughout 2008. It is
intended that this policy will apply in 2009 and future years.
The objective of the Group’s remuneration policy is to attract,
motivate and retain executive directors with the necessary abilities
to manage and develop the Group’s activities successfully for the
benefit of shareholders.
Accordingly, the Committee sets remuneration packages for
the executive directors to reflect both the size and complexity
of the business and individual responsibilities. It also takes into
consideration the remuneration practices adopted by other
companies of similar size and international spread of operations.
For all senior executives, the Group policy is to provide a significant
part of their total potential reward through performance based
incentive plans (annual bonus and long-term incentives) as
described in this report.
To ensure the interests of management remain aligned with those
of shareholders, executive directors are encouraged to build up a
meaningful shareholding in the Company by both the purchase
of shares and/or the retention of a proportion of their share
awards. In addition, executive directors are obliged to convert
part of their bonus into shares under the Long Term Incentive
Plan (“LTIP”).
Executive directors remuneration components
The components of the remuneration package comprise the
following:
a) a basic salary, which is set by the Committee for each executive
director by reference to companies of a similar size and industry
practice and having regard to salary increases throughout the
Group. There will be no change to the salaries of Mark Selway
and Alan Mitchelson in 2009. However, following a review and
advice from Hewitts which identified that Keith Cochrane’s
salary was uncompetitive with industry benchmarks, his salary
is to increase by 7.5%;
b) an annual performance-related bonus. Bonus payments are
intended to reflect the achievement of agreed business objectives
and positive contribution to stretching the performance of the
Group. The Committee reviews the bonuses payable on an
annual basis and sets the targets at the beginning of the
financial year. The targets used are based primarily on
normalised pre-tax profits but can also on occasion include
other performance measures. In 2008, the target was based
solely on normalised pre-tax profits and the maximum
potential bonus receivable by the chief executive was 125%
of salary and for the other executive directors 100% of salary.
The performance criteria and the maximum bonus potential
will be the same for 2009. As a member of the LTIP, the chief
executive is required to contribute 25% of his bonus in
exchange for which he receives a conditional award of
investment shares. The other executive directors are required
to contribute 20% of their bonuses in the same manner.
Investment share awards are subject to forfeiture if the
director leaves the Group within three years. Bonuses are
non-contractual;
c) participation in the LTIP, details of which are set out on the
following pages;
d) participation in a one-off arrangement by Mark Selway, details
of which are set out on the following pages;
e) participation in the Company’s pension plan by Alan
Mitchelson, details of which are set out on the following pages;
and
f) other benefits which are the provision of a car allowance,
participation in a Group health care scheme, travel allowance
and death in service insurance. The Committee believes that
the level and provision of benefits is consistent with that
provided by other comparable companies.
The only component of the executive remuneration which is
pensionable is the basic salary.
The Weir Group PLC Annual Report 2008
33
Remuneration Committee Report (Continued)
Long Term Incentive Plan
During 2008, the Company continued with its annual grant policy
under the LTIP and made awards of performance shares,
matching shares and investment shares:
TSR has been selected as one of the performance conditions by
the Committee. The Committee considers TSR to be a suitable
long-term performance measure. The TSR calculation will be
performed independently for the Committee at the time of vesting.
i) Performance shares – Performance shares are conditional
awards to acquire free shares subject to Group performance
(see below) and continued employment until the third
anniversary of the award. In 2008, conditional awards of
performance shares were made worth 100% of salary to the
chief executive, the group finance director and the legal and
commercial director. It is the Committee's intention to make
grants in 2009 of 100% of salary to the executive directors.
ii) Matching and investment shares – Matching shares are
conditional awards to acquire free shares, subject to Group
performance (see below) and continued employment until the
third anniversary of the award. Matching shares are granted in
connection with an individual’s investment from their annual
bonus. Under the LTIP, executive directors are required to
compulsorily defer an element of any Group bonus earned
(currently 25% for the chief executive and 20% for the other
executive directors) in exchange for which they are awarded
investment shares. In addition, executive directors are also
allowed to voluntarily invest a further portion of their Group
bonus (subject to any cap imposed by the Committee, currently
20%) to be further eligible for an award of matching shares.
In return, the executive directors are eligible to receive a
conditional award of matching shares worth a maximum
of 2.5 times the pre-tax value of the bonus “invested” both
on a compulsory and voluntary basis under the LTIP.
The awards are based on the Group's share price, using the
average published closing price for the three dealing days
immediately preceding the date of award.
The vesting of conditional awards of performance and matching
shares is subject to the satisfaction of a highly demanding
performance condition. For the performance share awards
granted in 2008, the performance condition will be based
on the growth in the Group’s total shareholder return (“TSR”)
over a single three-year performance period (three consecutive
financial years, beginning with the year in which the award is
made) relative to the growth in the TSR of a comparator group
("the Comparator Group"). The Comparator Group comprises
the following 18 companies: AGA Foodservice Group, Bodycote
International, Cookson Group, Enodis, FKI, Halma, IMI, Meggitt,
Mitie Group, Morgan Crucible Company, Rolls-Royce, Rotork,
Senior, Smiths Group, Spirax-Sarco Engineering, Tomkins, Wood
Group and WS Atkins. Only if the Company’s TSR ranks in the
upper quintile of the comparator group will the full awards be
receivable. This reduces on a sliding scale so that for median
performance, 25% of the awards will be receivable. For below
median performance, none of the awards will be receivable.
For awards granted in 2009, the performance conditions and
the Comparator Group will be the same as for the 2008 awards,
except that FKI and Enodis are no longer listed on the London
Stock Exchange.
34
The Weir Group PLC Annual Report 2008
In addition to TSR performance, for any of the performance and
matching shares to vest, the growth in the Company’s earnings
per share over the performance period must be equal to or
greater than the growth in the UK Retail Prices Index over the
same period.
Conditional share award
In 2008, the shareholders approved a one-off conditional award
of 405,953 shares to Mark Selway, which will vest on the third
anniversary of 8 May 2008 subject to specified performance
conditions being achieved. The performance conditions are
based on Earnings Per Share (EPS) subject to adjustment on a
reasonable basis at the discretion of the Committee. 25% of the
award will vest if EPS exceeds the UK Retail Prices Index (RPI) by
7% p.a., increasing on a sliding scale to the full award vesting if
EPS exceeds RPI by 13% p.a. In addition, Mark Selway is required
to retain his current shareholding for the award to vest.
The Committee believes that the EPS targets it has put in place
for this one-off award are extremely challenging in today’s market
place, given the future growth prospects for 2009 and 2010 and,
since the LTIP measures TSR performance, vesting should be
linked to the financial performance of the Group.
Pensions
Alan Mitchelson is a member of the Company’s 1972 pension and
life assurance plan. The plan is a defined benefit contributory plan
with the active members contributing 8% of salary. The balance
of the cost of the plan is met by the Company having taken
account of the trustee’s opinion arrived at by considering the
funding recommendations of the plan’s independent actuary.
The plan targets a pension of two thirds of final salary payable
at normal retirement date, providing a member then has at least
24 years pensionable service. Where a member has less than
24 years pensionable service to normal retirement date their
pension currently accrues at 1/36th of final salary per annum.
For members, salary (both for contributions and for plan benefits)
is subject to a plan specific earnings cap. This is currently
£117,600.
The plan provides for a surviving spouse’s pension of one half
of the member’s pension and, in certain circumstances, for a
dependent child’s pension until the child attains the age of
18 years (or 25 years if in full time further education). Pensions
in payment increase by an amount equal to retail price inflation
up to 5% per annum for service up to April 2006. For service
after April 2006, the increase is up to 2.5% per annum. Deferred
pensions increase by an amount equal to retail price inflation
up to 5% per annum.
Life assurance cover of five times salary is provided separately
for each of the executive directors.
Mark Selway and Keith Cochrane are responsible for their own
pension arrangements.
Performance graph
The graph below compares the Company’s total shareholder
return performance over a five year period against the LTIP
Comparator Group and the FTSE 350 Industrial Engineering
Sector Index. The Board believes that both the FTSE Index and the
Comparator Group represent an appropriate and fair benchmark
upon which to measure the Group’s performance for this purpose.
400
350
300
250
200
150
100
50
0
2003
2004
2005
2006
2007
2008
The Weir Group PLC
FTSE 350 Industrial Engineering Sector Index
LTIP Comparator Group
This chart shows the value, at the end of the 2008 financial year, of £100 invested in The Weir
Group PLC over the last five financial years compared with the value of £100 invested in the
average of the Comparator Group and the FTSE 350 Industrial Engineering Sector Index.
The other points plotted are values at intervening financial year ends.
Directors contracts/terms of appointment
The details of the service contracts in relation to the executive
directors and letters of appointment in relation to the non-
executive directors who served during the year are:
Director
Contract
commencement date
Unexpired
term/next re-election
Notice period
by company
May 2010
6 February 2002
Lord Smith
Christopher Clarke1 14 December 1999 n/a
Michael Dearden
Stephen King
Professor Ian Percy
John Mogford
Lord Robertson
Keith Cochrane
Alan Mitchelson
Mark Selway
13 May 2009
17 February 2003
May 2011
3 February 2006
13 May 2009
11 October 1996
13 May 2009
1 June 2008
13 May 2009
1 February 2004
3 July 2006
12 months
12 December 2001 12 months
12 months
5 June 2001
6 months
n/a
6 months
6 months
6 months
6 months
6 months
12 months
12 months
12 months
Richard Menell
1 April 2009
13 May 2009
6 months
1 Christopher Clarke retired as a director on 31 December 2008
Executive directors service contracts
To recruit the best executives, the Committee has in the past and
may in the future, agree contractual notice periods which initially
exceed 12 months particularly as it is often necessary for executives
to relocate their families. All the directors who served during the
year have service contracts with the Company that provide for
a minimum period of notice of six months by the individual
and 12 months by the Company. In the event that the Company
terminated an executive director’s service contract other than
in accordance with its terms, the Committee, when determining
what compensation, if any, should properly be paid by the
Company to the departing director, will give full consideration
to the obligation of that director to mitigate any loss which
he may suffer as a result of the termination of his contract.
Executive directors external appointments
The executive directors are permitted, with Board agreement,
to take up one non-executive appointment provided that there is
no conflict of interest and that the time spent would not impinge
on their work for the Group. It is the Company's policy that
remuneration earned from such appointments may be kept by
the individual executive director. During 2008, Mark Selway was
appointed to the board of Lend Lease Corporation Limited, an
Australian and New Zealand listed company. His remuneration
in respect of this appointment is A$140,000.
Letters of appointment
The chairman and each of the non-executive directors have letters
of appointment. The letters of appointment do not contain any
contractual entitlement to a termination payment and the
directors can be removed in accordance with the Company’s
articles of association. The chairman and all non-executive
directors are subject to re-election by shareholders at least
every three years, with the exception of any director whose
appointment exceeds nine years, in which case there is a
requirement for annual re-election.
Remuneration of the chairman & non-executive directors
The remuneration of the chairman is agreed by the Board on the
recommendation of the Committee. Fees for the non-executive
directors are determined by the Board. In determining the fee
levels, account is taken of the time commitment, scale of roles,
market norms and comparison with companies of equivalent size
based on information provided by Hewitt. Neither the chairman
nor any of the non-executive directors participate in any of the
Company’s incentive plans or receive pension or other benefits,
except that the chairman is entitled to participate in the Group
health care scheme and an additional allowance is made available
to non-executive directors to reflect the additional time commitment
in attending intercontinental board meetings and operational
visits, where appropriate. The chairman and the non-executive
directors are not involved in any discussions or decisions about
their own remuneration.
The non-executive directors fees and chairman's remuneration are
reviewed annually by the Board. The last increase was in 2007.
There will be no change to the Chairman's remuneration or fees
for the non-executive directors in 2009, with the exception that
on 1 November 2009, Michael Dearden will become senior
independent director and the fees payable to him will increase
by £2,500 to £50,000.
The Weir Group PLC Annual Report 2008
35
Remuneration Committee Report (Continued)
Directors remuneration #
Chairman and non-executive directors:
Lord Smith
Christopher Clarke
Michael Dearden
Stephen King
John Mogford
Professor Ian Percy
Lord Robertson
Executive directors:
Keith Cochrane
Alan Mitchelson
Mark Selway
Previous year comparatives
# Audited
Salary
& Fees
£
Bonus
(Note v)
£
Notes
i
ii
iv
iii
175,000
40,000
47,500
47,500
23,333
50,000
40,000
423,333
-
-
-
-
-
-
-
-
Benefits
(Note vi)
£
5,838
5,238
5,238
-
5,010
4,862
-
26,186
Total
2008
£
Total
2007
£
180,838
45,238
52,738
47,500
28,343
54,862
40,000
449,519
169,221
39,000
45,875
45,875
-
49,000
39,000
387,971
370,521
306,840
567,105
375,000
317,000
717,500
23,946
21,452
21,435
769,467
645,292
728,637
564,717
1,306,040 1,269,019
1,667,799 1,409,500
93,019 3,170,318 2,950,344
1,557,386
1,316,520
76,438
(i) The fees for Michael Dearden include £7,500 for services as chairman of the Remuneration Committee (2007: £6,875).
(ii) The fees for Stephen King include £7,500 for services as chairman of the Audit Committee (2007: £6,875).
(iii) The fees for Professor Ian Percy include £10,000 for services as deputy chairman and for his role as senior independent director
(2007: £10,000).
(iv) John Mogford was appointed on 1 June 2008.
(v) The bonus figures for Keith Cochrane, Alan Mitchelson and Mark Selway include £75,000 (2007: £71,415), £63,400 (2007: £55,269)
and £179,375 (2007: £170,775) respectively, which will be compulsorily deducted from their bonus in exchange for which they will
be awarded investment shares which, subject to remaining employed with the Group, will be receivable on the third anniversary of
the 2009 award.
(vi) Benefits include, as appropriate, car allowance, participation in the Group health care scheme, travel allowance and death in
service insurance.
36
The Weir Group PLC Annual Report 2008
Awards under the Group Long Term Incentive Plan #
Date of Award
Scheme
24 Aug 06
29 Jun 07
29 Jun 07
25 Mar 08
25 Mar 08
8 May 08
1 Apr 05
4 Apr 06
4 Apr 06
29 Jun 07
29 Jun 07
25 Mar 08
25 Mar 08
8 May 08
1 Apr 05
4 Apr 06
4 Apr 06
29 Jun 07
29 Jun 07
25 Mar 08
25 Mar 08
8 May 08
A*
A*
B
A*
B
A*
A*
A*
B
A*
B
A*
B
A*
A*
A*
B
A*
B
A*
B
A*
Number of
awards as at
28 Dec 2007
76,695
38,677
3,611
-
-
-
118,983
32,925
48,123
5,939
56,009
5,590
-
-
-
148,586
105,524
127,430
17,334
92,539
15,659
-
-
-
358,486
Granted
during
year
Vested
during
year
Number of
awards as at
26 Dec 2008
Market price
at date of
award
-
-
-
86,101
9,896
8,699
104,696
-
-
-
-
-
66,611
7,659
7,354
81,624
-
-
-
-
-
-
32,925
-
-
-
-
-
-
-
32,925
-
-
-
-
-
122,790
23,664
13,315
105,524
-
-
-
-
-
-
-
159,769 105,524
76,695
38,677
3,611
86,101
9,896
8,699
223,679
-
48,123
5,939
56,009
5,590
66,611
7,659
7,354
197,285
-
127,430
17,334
92,539
15,659
122,790
23,664
13,315
412,731
445p
730p
730p
730p
730p
900.5p
322p
445p
445p
730p
730p
730p
730p
900.5p
322p
445p
445p
730p
730p
730p
730p
900.5p
Normal exercise period
(Note ii)
24.08.09 - 24.11.09
29.06.10 - 29.09.10
29.06.10 - 29.09.10
25.03.11 - 25.06.11
25.03.11 - 25.06.11
08.05.11 - 08.08.11
01.04.08 - 01.07.08
04.04.09 - 04.07.09
04.04.09 - 04.07.09
29.06.10 - 29.09.10
29.06.10 - 29.09.10
25.03.11 - 25.06.11
25.03.11 - 25.06.11
08.05.11 - 08.08.11
01.04.08 - 01.07.08
04.04.09 - 04.07.09
04.04.09 - 04.07.09
29.06.10 - 29.09.10
29.06.10 - 29.09.10
25.03.11 - 25.06.11
25.03.11 - 25.06.11
08.05.11 - 08.08.11
Keith Cochrane
Alan Mitchelson
Mark Selway
# Audited
* The figures shown are maximum entitlements and the actual number of shares (if any) which vest will depend on the performance conditions being
achieved as set out on page 34.
Scheme A: Performance and Matching Shares
Scheme B: Compulsory Investment Shares
Conditional share award #
Mark Selway
# Audited
Notes
i, ii
Date of
award
Date of
vesting
Number of
shares
awarded
Market price
at date
of award
8 May 2008
8 May 2011
405,953
900.5p
(i)
(ii)
Awards take the form of nil cost options and have no performance retesting facility.
Awards can be exercised after the third anniversary of the award date, subject to the performance conditions.
The Weir Group PLC Annual Report 2008
37
Remuneration Committee Report (Continued)
Awards exercised during 2008 #
Date of
award
Date of
exercise
1 Apr 2005 1 Apr 2008
1 Apr 2005 1 Apr 2008
Number of
shares
exercised
32,925
105,524
138,449
Number of
shares sold
to settle
tax liability
13,398
42,942
56,340
Price shares
sold at
768.6p
768.6p
-
Balance of
shares
retained
19,527
62,582
82,109
Market price
at date
of vesting
Market price
at date
of award
779p
779p
-
322p
322p
-
Alan Mitchelson
Mark Selway
# Audited
On 1 April 2008, the 2005 awards under the Group Long Term Incentive Plan vested in full as the Company’s TSR ranked in the upper
quintile of the Comparator Group. Alan Mitchelson and Mark Selway exercised their awards as set out above, selling sufficient shares
to pay the relevant tax and national insurance and the balance of the shares were retained by them. The aggregate gains made on all
award exercises by directors during the year totalled £1,078,518 (2007: £1,350,665).
The closing market price of the Company’s shares at 26 December 2008 was 315.25p and the range for the year was 271.5p to 969p.
Directors pension benefits #
Alan Mitchelson was a member of a defined benefit scheme provided by the Group during the year 2008. Mark Selway and Keith Cochrane are
responsible for their own pension provision. Pension entitlement and the corresponding transfer values were as follows during the year:
Disclosures under Directors’ Remuneration Report Regulations 2002
Listing Rules
Accrued pension
Transfer value of accrued pension
Notes
At year
start
£
Increase
during
the year
£
At year
end
(note 1)
£
Change during
the year net
of directors
ordinary
contributions
(note 3)
£
At year
start
£
Directors
ordinary
contributions
£
Increase
in accrued
At year pension during
the year (net
of inflation)
£
end
(note 2)
£
Transfer value
of increase
(net of
inflation)
(note 2)
£
Alan Mitchelson
4,5 26,163
4,380
30,543
531,724
148,560
9,120
689,404
3,281
65,320
# Audited
1. The pension entitlement shown is that which would be paid annually on normal retirement, prior to any cash commutation,
based on pensionable service to the end of the year.
2. With effect from 1 October 2008, Government legislation requires the trustees (having taken actuarial advice) to take responsibility
for setting the assumptions underlying the calculation of voluntary transfer values to be paid from the plan. Prior to this date the
scheme actuary had this responsibility. Consequently, the transfer value of the accrued pension at the year end has been calculated
in accordance with this new requirement.
3. The change in the amount of the transfer value over the year is made up of the following elements:
a. transfer value of the increase in accrued pension (net of inflation);
b. transfer value of the increase in accrued pension (due to inflation);
c. increase in the transfer value of accrued pension at year start due to ageing;
d. impact of any change in the economic or mortality assumptions underlying the transfer value basis – as referred to in 2. above; and
e. less the director’s ordinary contributions.
The change in the amount of the transfer value over the year includes the effect of fluctuations in the transfer value due to factors
beyond the control of the Group and directors, such as stockmarket movements; which will be reflected within d. above.
4. The figures allow for the impact of the plan specific earnings cap. Alan Mitchelson does not have an entitlement to an excepted
(formerly known as unapproved) pension from the Group.
5. Payment of actual transfer values (from the defined benefit scheme) are not currently reduced below 100% of their full value.
38
The Weir Group PLC Annual Report 2008
Directors interests
The interests of the directors in the ordinary shares of the Company as at 26 December 2008 and at the end of the preceding financial
year were as follows:
As at 26 December 2008
As at 28 December 2007
Shares
Conditional award
LTIP awards
Shares
Conditional award
LTIP awards
Lord Smith
Christopher Clarke
Keith Cochrane
Michael Dearden
Stephen King
Alan Mitchelson
John Mogford
Prof Ian Percy
Lord Robertson
Mark Selway
138,400
10,000
9,823
10,000
50,050
121,557
4,531
-
2,637
273,978
-
-
-
-
-
-
-
-
-
405,953
-
-
223,679
-
-
197,285
-
-
-
412,731
52,400
10,000
5,185
10,000
1,050
98,441
-
-
2,637
211,398
-
-
-
-
-
-
-
-
-
-
-
-
118,983
-
-
148,586
-
-
-
358,486
(i) At the date of this report the interests of the directors in the shares of the Company remain as stated above, except that Christopher
Clarke retired as a director on 31 December 2008.
(ii) No director had, during or at the end of the year, any material interest in any contract of any significance in relation to the
Company’s business, in any debenture stocks of the Company, or in the share capital or debenture or loan stocks of any subsidiary.
(iii) In the case of John Mogford, the comparative figure is as at his date of appointment to the Board.
Michael Dearden
Chairman of the Remuneration Committee
Signed and approved for and on behalf of the Board
10 March 2009
The Weir Group PLC Annual Report 2008
39
Corporate Social Responsibility Report
Our approach
The Weir Group is a global organisation, working in sectors and
industries that have a significant impact on human and natural
resources. As an organisation, our core values include integrity,
self-determination and valuing people. These values ensure we
remain focused on meeting our responsibilities to our customers,
suppliers, employees and shareholders, as well as to the
communities where we work.
By ensuring that corporate social responsibility is an inherent
part of leadership that crosses all boundaries in our organisation,
we seek to combine business success with support for people,
communities and the environment. We recognise that corporate
social responsibility requires us first and foremost to listen to
our external and internal customers in everything we do and
to respond to their needs through the enduring excellence of
our actions, policies and processes.
We involve and inform our employees as much as possible within
regulatory constraints. Given the diverse nature and geographical
spread of our operations, it would be inappropriate and impractical
to apply uniform procedures group-wide and each company is
therefore responsible for achieving and maintaining appropriate
consultation and communication with its employees. We
communicate generally with employees through the production
and distribution on a regular basis of printed and electronic
newspapers and bulletins for employees to promote awareness
of current progress and developments within the Group. In
addition, policies, procedures and information are also available
on the Group intranet.
The Group gives full and fair consideration to employment
applications from disabled persons. Where an employee becomes
disabled, arrangements are made wherever practicable to continue
employment by identifying an available job suited to that person’s
capabilities and providing any necessary retraining. The Group’s
career development programme encourages disabled employees
to reach their full potential. The Group has a human rights policy
applicable to all employees throughout the Group, details of
which are available on the Group website.
Our people
Safety
Throughout 2008, the Group Operations Executive Committee
reviewed the safety, quality and environmental performance of
individual companies against the objectives set for 2008. The
primary concerns are to reduce accidents in the workplace and
maintain high standards of environmental management in all
of our activities.
In line with this philosophy, we pursue excellence through our
global Environmental, Health and Safety Forums whose goal is
to eliminate work-related injuries, prevent pollution, conserve
resources, comply with regulatory requirements and improve
performance. These forums annually review our performance
in these areas, collect data, share best practice and plan for the
coming year. In turn, these plans are disseminated and included
within individual business plans throughout our operations.
This ensures consistency in performance measurement and
improvement activities. Forum members also perform cross
company safety audits to identify practices that are working
40
The Weir Group PLC Annual Report 2008
well and areas for improvement. Concern reports are used to track
completion of corrective actions. During 2008, the Group held
a Global Environmental, Safety and Health Conference, which
brought together each of the local forums to identify best
practice and plan the priorities for the coming year.
As indicated in last year’s report, all our operations have over
the past year been working toward achieving OHSAS 18001
accreditation. To date all our major sites have achieved this
with the exception that our new acquisitions and some smaller
businesses will not complete the process until 2010. OHSAS
18001 (Occupational Health Safety Assessment Series) was
developed by the British Standards Institute as a health and safety
management framework allowing organisations to ensure that
they are consistently and accurately identifying hazards and risks
within their organisation. Providing a platform for eliminating
and managing these identified risks, the system supports the
organisation to continually improve its products, people and
process by fulfilling the overhanging safety policy that indicates
the Group’s commitment and objectives. OHSAS 18001 offers
a proactive approach to reducing accidents, near misses and
other incidents year on year.
The root cause of 95% of accidents is as a result of behaviours.
Conventional approaches to accident reduction will go some
way to help achieve the business goal of reducing injuries in
the workplace. However, to further reduce accident rates,
a behavioural approach to safety must be adopted.
The Group has adopted a behavioural system known as
SAFESTART which has been rolled out to all operations and all
new employees are given this training as part of their induction.
The success of this programme throughout the Group is the
involvement and understanding at all levels of the organisation.
The Group is committed to an accident free health and safety
environment based on the belief that all accidents are preventable.
The Group Operations Executive Committee drives this commitment
through operations globally. The businesses record all near misses
and injuries within their operations and these are analysed on a
continuous basis to reduce the number of lost time accidents
through improvement of the working environment.
The Group’s policy on health and safety requires that all our
companies take a proactive responsible attitude to the protection of
their employees health and safety. All companies carefully evaluate
risks to personnel wherever they are working and take appropriate
steps to minimise such risks. These include ensuring that project
design engineers consider design factors that minimise or eliminate
the risk of accidents to personnel during site installation and
commissioning. All Group companies are required to comply with
local legislation governing health and safety at work and to conduct
regular formal health and safety reviews at plant and site level.
These reviews are undertaken by nominated managers and
employees to ensure that risks are properly evaluated, events
leading to accidents are examined and appropriate remedial or
avoidance action initiated and subsequently monitored. Formal
reporting procedures have been implemented so that the safety
performance of individual companies is monitored and peer-to-peer
audits are conducted in order to provide a critical assessment of
each company’s performance.
The increased focus in this important issue includes full investigations
of all accidents being carried out and reported at the Group
Operations Executive Committee meetings on a monthly basis.
The courses are aimed at developing existing and future managing
directors and senior managers from across the Group to help
them achieve their maximum potential.
Lost time accidents
The key measure of safety performance is the number of lost time
accidents (“LTAs”). The Group adopts a more stringent lost time
measurement criterion than the industry norm of three days. The
recorded LTAs use the Group definition of “incidents resulting in
lost time of more than four hours”. The results for 2006, 2007
and 2008 are as follows:
)
n
(
i
s
t
n
e
d
c
c
A
e
m
T
i
t
s
o
L
120
100
80
60
40
20
0
101
9
17
69
66
2006
2007
2008
Acquired Businesses
Existing Businesses
The prior year comparatives have been restated to take account
of disposals, and the acquired businesses include Weir Mesa,
Weir SOS and Weir Warman Africa.
The companies which have the highest numbers of accidents are
audited externally by our insurers to ensure that proper systems
and processes are in place. The continuing reduction in existing
businesses can also be attributed to improvements in education
and training and adoption of Weir Production System principles.
Near misses are also monitored to further improve the safety
culture that is being engendered across the Group.
Employee development
We recognise that people are vital to the success of our business.
Training and development play a major part in improving
businesses and retaining employees by developing the skills
required for career advancement and business process
improvements. Training and development is managed either
on a Group or company basis. Group programmes include
induction, high potential leadership and managing director
development. The induction training provides awareness training
on the Group standard procedures and processes and senior
managers attend one of these courses within a short period
of joining the Group. The leadership courses are run for the
Group’s current and future leaders.
The principal aims of these courses are to provide:
• personal development;
• exposure to different disciplines;
• cultural integration; and
• networking across all disciplines and operations.
To ensure the development and advancement of our employees the
Weir Personal Development Profile analyses employee performance
and enables employees to receive the most relevant and tailored
training to match their specific skills and needs.
Our achievements
Weir Minerals Europe was honoured with the Queen’s Award
for Enterprise: International Trade 2008. The award was announced
in April, when managing director Kevin Spencer attended a special
event announcing the year’s winners in London. In July, Kevin
Spencer and Nigel Halstead, an employee with 42 years service,
attended a reception for this year's 78 winners hosted by H.M.
The Queen at Buckingham Palace. During the year Weir Minerals
Europe was also presented with the Most Improved Facility Award
by Mark Selway.
In 2008, Weir Minerals India was commended in the
Confederation of Indian Industry and Export-Import Bank of
India awards for Business Excellence. The awards encourage
organisations to strengthen their management systems, practices
and capabilities to enhance and sustain competitiveness.
The company also received a top award in the manufacturing
category at the 2008 Confederation of Indian Industry 5S
Excellence Awards, for organisations following best practice
in housekeeping.
In November 2008, The Hon. Julia Gilliard MP, the Australian
Deputy Prime Minister, announced the winners of the Australian
Government’s Training Awards 2008. Weir Minerals Australia
won the prestigious Employer of the Year award. The Australian
Training Awards are the national awards for vocational education
and training, recognising innovation and excellence in the training
sector. The awards are the culmination of state and territory
awards with winners from each state and territory competing
in the national finals. The conclusion of the judges was that
Weir Minerals Australia “provides training opportunities to all
employees to improve their skills and enable them to thrive in the
challenging environment of manufacturing.” The company employs
a total of 24 apprentices, eight of whom were recruited in 2008.
The Weir Group PLC Annual Report 2008
41
Corporate Social Responsibility Report (Continued)
Our suppliers
We recognise that our corporate social responsibility also reflects the
way we behave towards our suppliers. The Group does not operate a
standard policy in respect of payments to suppliers and each operating
company is responsible for agreeing the terms and conditions under
which business transactions are conducted, including the terms of
payment. It is Group policy that payments to suppliers are made in
accordance with the agreed terms. At 26 December 2008, the Group
had an average of 74 days purchases outstanding in trade creditors.
Many Weir companies are collaborating closely with suppliers to
address environmental considerations throughout the supply chain
to our mutual benefit, particularly in areas such as raw materials,
packaging and recycling.
Environment
Environmental policy
• The Group is committed to the protection of the environment
in which all its companies operate.
• Each Weir company will comply with the relevant regulatory
requirements applicable to its business.
• Each Weir company will ensure that it is seen to be a good
citizen in the community in which it operates and adopt
practices aimed at minimising the environmental impact
of its operations.
Maintenance of the Group’s environmental policy is the
responsibility of the Group Operations Executive Committee,
while its implementation is the responsibility of divisional
managing directors. Each Weir division is required to report
on environmental performance and maintain environmental
management practices.
The Group policy is that all its operations will be ISO 14001
accredited. ISO 14001 is an internationally recognised specification
for an effective structured environmental management system
which helps organisations achieve environmental and economic
goals as well as assisting in the implementation of environmental
policy. An ISO 14001 accredited environmental management
system provides our customers, employees and shareholders with
the assurance that our environmental performance meets and will
continue to meet our legal and environmental policy requirements.
Through the Group Environmental, Health and Safety Forums,
all new businesses are brought into line with best practice in
the implementation of ISO 14001. In addition, the Forums are
a useful arena to allow local and international environmental
legislative developments to be monitored before they become
law. This proactive approach allows us to conform with future
environmental legislation before laws are passed by voluntarily
taking action on specific issues.
As part of our integrated commitment to ISO 14001 accreditation,
we have a rolling programme as part of our 100 day integration
plan which we put in place in relation to any new business unit.
During 2008, Weir Minerals China and Weir Gabbioneta achieved
ISO 14001 accreditation. It is expected that our only other non-
compliant companies, Weir SPM, Weir Multiflo, Weir Warman Africa,
Weir SOS and Weir Mesa, will achieve full compliance in 2009.
42
The Weir Group PLC Annual Report 2008
Environmental impact
The Group is committed to identifying and assessing the
environmental impact of its operations. We seek to reduce the
impact on the environment to the lowest practical levels and with
each investment in capital expenditure within our facilities ensure
that best practice in environmental terms is followed. At board
level, the chief executive has specific responsibility for the
development of policy and management systems. Responsibility
for environmental matters in each operating division is delegated
to the divisional managing directors who report to the Group
Operations Executive Committee on a monthly basis on
environmental incidents.
The definition of a reportable incident is:
“Any incident which involves the accidental release, emission
or discharge of contaminants to air, water or land and requires
outside resources to control or is required to be reported to a
regulatory agency.”
In 2008, there were no environmental incidents at any of the
Group operations.
Our operations, through their Environmental Management Systems,
which are in place as part of their ISO 14001 compliance, have an
objective of continuous improvement, focussing on minimising
waste generation, preventing pollution and reducing energy
consumption. All acquisitions are subject to appropriate
environmental due diligence and achievement of ISO 14001
is part of the integration plan.
The Group is currently undertaking work to put in place common
measures which allow us to monitor and establish targets for
improvements in our carbon footprint going forward. We
anticipate being in a position to provide accurate data on
existing usage and establish our improvement plans during
the course of 2009.
Significant progress has been made on the minimising and
recycling of waste. As a manufacturing Group, the focus is on
raw materials together with residual waste and any opportunity
to reuse or recycle makes economic sense.
Weir Minerals Europe has invested in a chromite separator,
which once commissioned will allow it to remove chromite
sand from the sand reclamation plant. This will have the effect
of reducing chromite sand purchases by 50% in the long-term
and reducing the quantity of sand sent to landfill. In the past
12 months over 165 tonnes of swarf has been reclaimed and
used in the melting process, reducing the consumption of rare
and expensive alloys. In addition, a further 250 tonnes of metal
has been reclaimed from their foundry by improved work
practices, further improving the sustainability of the process.
Weir Minerals Australia’s Henderson facility has put in place
improvements to ensure that no waste water leaves the facility,
with the exception of waste water from the bathrooms and
kitchens. The perimeter of the facility has a series of storm water
drains built in, which run into a number of large soak wells where
the rainwater that falls on the facility is captured. In addition,
separator units, drain guards and spill kits are used to ensure no
oil or debris goes into the soak wells. The water in the soak wells
slowly seeps back into the surrounding soil, removing the need
for local council storm water connection.
In late 2008, Weir Minerals Australia’s Somersby Service
Centre moved to a new facility in Beresfield. The facility is aiming
to be a world class service centre and as part of this process has
installed a fully enclosed paint booth for painting of refurbished
equipment. The booth ensures that no volatile organic compounds
are emitted to the atmosphere and also contains baffles to
minimise noise pollution.
Environmental improvements
Research and development has a vital role to play in meeting our
corporate social responsibilities. The development of new products
that are more environmentally benign in both manufacture and
operation and the substitution of harmful materials offer competitive
advantage to ourselves and to our customers.
We recognise that many of our products are themselves
contributors to environmental protection in critical areas such
as power generation, nuclear handling and subsea oil and gas
exploration. We are, therefore, investing in research and
development to continuously improve their performance.
2009 will see ongoing investment in design, research and
development in which our corporate social responsibility
and business objectives are closely aligned.
Our community
During the year, Group companies were involved in numerous
community and social initiatives, many of which were nominated
and driven by our employees. We also participate in a range of
educational and training initiatives.
Weir Minerals Brasil is supporting Aquarel, an initiative
founded in 1996 to help disadvantaged children and teenagers in
the community adjacent to the company’s manufacturing facility.
Last year over 100 employees volunteered to repair walls, carry
out roof maintenance and paint internal and external areas.
Weir Minerals Netherlands celebrated a milestone in its history
in 2008 with the supply of the 1,000th Geho piston diaphragm
pump. This pump was installed at the Coral Bay Nickel plant in
Rio Tuba, on the island of Palawan in the Philippines and was
officially inaugurated during a celebration weekend in June. As a
result of the existing relationship between the mineral processing
plant of Rio Tuba and the local community, Weir Minerals
Netherlands is sponsoring on an ongoing basis the Rio Tuba
South Elementary school.
The company also funded improvements to the current school
building and supplied additional class room furniture and
educational materials.
Weir Power & Industrial Alloa made a number of donations
to Seamab House School, a local residential primary school
offering year round education and care in a nurturing, therapeutic
environment for children with severe social, emotional or
behavioural difficulties.
The company also assisted the fund raising efforts of the Fire and
Rescue Services Central Scotland and supported a benefit dinner
in aid of the families of the Alloa Fire Brigade who had suffered
as a result of a serious accident, where an officer lost his life and
several others were seriously injured. Additionally, the employees
donated a sum of money that was matched by the company.
The Weir Group PLC Annual Report 2008
43
Corporate Social Responsibility Report (Continued)
Weir Minerals Africa made donations to the Tembisa Child and
Family Welfare for use in providing for children in their care and
the Tembisa Self Help Association for the Disabled.
According to UNAIDS, the Joint United Nations Programme on
HIV/AIDS, almost one in five adults and 280,000 children are
living with HIV in South Africa. Weir Minerals Africa put together
a team of volunteers who have undergone training in the
counselling and education of fellow employees and various
roadshows have been held for all employees on the dangers of
the HIV/ AIDS virus. In addition, support is given to the Tembisa
Orphanage to help look after a number of HIV/ AIDS babies.
Weir Minerals Africa also offers financial assistance towards
the education of many of the children of employees
For the past 21 years, Weir Minerals Australia has sponsored
the Design and Build competition held by the National Committee
on Engineering Design. The competition is open to first and
second year students in mechanical engineering from Australia,
New Zealand and the Asia Pacific Region. In 2008, the winners
were the University of Adelaide with their mechatronic vehicles
using microprocessor control and electronic sensing.
Community support under two projects, We @ Weir and Weir 4 U,
is given by all the employees of Weir Minerals India. We @ Weir
focuses on workplace initiatives involving employees and their
family members and Weir 4 U focuses on community outreach
programmes in the community. Employees opt to associate with
either one or both of the groups. Two beneficiaries have been
identified in the community, namely disadvantaged youngsters
studying in the Government Industrial Training Institutes and
children attending the Samparka Shale or Transition Schools as part
of the Government National Child Labour Eradication Programme.
Over the last eleven months, there have been many activities
coordinated by different employee volunteers relating to health,
education and skill enhancement. The volunteers have also made
regular school visits as mentors to the children in the Training
Institutes and offer encouragement to carry on their education and
aspire for higher goals. A voluntary employee salary contribution
fund was set up in April 2008 which makes monthly contributions
to the Paraspara Trust to support the salaries of the staff in the two
schools. This fund also supports the various needs of the children.
44
The Weir Group PLC Annual Report 2008
Weir Minerals Chile is supporting Ignacio Carrera Pinto School
in the local neighbourhood. In November 2008, three teams of
employee volunteers painted the interior and exterior walls of
the school, refurbished the communal areas, crushed stone to
cover the areas of access to the playground and classrooms.
In addition, the company provided financial support to the
Engineering Departments of two local universities.
Weir Minerals Latin America has been running a project to
help the children of the Jesus de Nazareth School in Manchay,
Peru. Manchay, which adjoins the city of Lima, is an area of
extreme poverty with no running water or sewage system
and little electricity.
The project involves funding repairs at the school to improve the
classroom lighting, upgrade the kitchen and bathroom facilities
and improve the classrooms. The company has also sponsored
craft workshops for the parents and children.
Independent Auditors Report
Independent auditors report to the members
of The Weir Group PLC
We have audited the Group financial statements of The Weir
Group PLC for the 52 weeks ended 26 December 2008 which
comprise the Consolidated Income Statement, the Consolidated
Balance Sheet, the Consolidated Cash Flow Statement, the
Consolidated Statement of Recognised Income and Expense and
the related notes 1 to 32. These Group financial statements have
been prepared under the accounting policies set out therein.
We have reported separately on the Company financial statements
of The Weir Group PLC for the 52 weeks ended 26 December
2008 and on the information in the Remuneration Committee
Report that is described as having been audited.
We read other information contained in the annual report and
consider whether it is consistent with the audited Group financial
statements. The other information comprises only Financial
Highlights 2008, 2008 Highlights, the Chairman’s Statement,
Our Geographic Footprint, Chief Executive’s Review, Operational
Reviews, Financial Review, Board of Directors & Group Operations
Executive, Directors Report, Corporate Governance Statement,
Audit Committee Report, Nomination Committee Report,
unaudited part of the Remuneration Committee Report and
Corporate Social Responsibility Report. We consider the
implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the Group
financial statements. Our responsibilities do not extend to
any other information.
This report is made solely to the Company's members, as a body,
in accordance with Section 235 of the Companies Act 1985.
Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state
to them in an auditors report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors & auditors
The directors responsibilities for preparing the annual report and
the Group financial statements in accordance with applicable
United Kingdom law and International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union are
set out in the Directors Statement of Responsibilities.
Our responsibility is to audit the Group financial statements in
accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Group financial
statements give a true and fair view and whether the Group
financial statements have been properly prepared in accordance
with the Companies Act 1985 and Article 4 of the IAS Regulation.
We also report to you whether in our opinion the information
given in the Directors Report is consistent with the Group financial
statements. The information given in the Directors Report includes
information that is contained in the Chairman’s Statement, Chief
Executive’s Review, Operational Reviews, Financial Review and
Corporate Social Responsibility Report that is cross referred from
the Directors Report.
In addition we report to you if, in our opinion, we have not
received all the information and explanations we require for
our audit, or if information specified by law regarding directors
remuneration and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects
the Company’s compliance with the nine provisions of the 2006
Combined Code specified for our review by the Listing Rules of
the Financial Services Authority and we report if it does not. We
are not required to consider whether the Board’s statements on
internal control cover all risks and controls, or form an opinion on
the effectiveness of the Group’s corporate governance procedures
or its risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
Group financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the
preparation of the Group financial statements, and of whether the
accounting policies are appropriate to the Group’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable
assurance that the Group financial statements are free from
material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the
Group financial statements.
Opinion
In our opinion
• the Group financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union,
of the state of the Group’s affairs as at 26 December 2008
and of its profit for the 52 week period then ended;
• the Group financial statements have been properly prepared
in accordance with the Companies Act 1985 and Article 4 of
the IAS Regulation; and
• the information given in the Directors Report is consistent
with the Group financial statements.
Ernst & Young LLP
Registered Auditor
Glasgow
10 March 2009
The Weir Group PLC Annual Report 2008
45
Consolidated Income Statement
for the 52 weeks ended 26 December 2008
52 weeks ended 26 December 2008
52 weeks ended 28 December 2007
Before
exceptional
items &
intangibles
amortisation
£m
Exceptional
items &
intangibles
amortisation
(note 5)
£m
Notes
Before
exceptional
items &
intangibles
amortisation
£m
Exceptional
items &
intangibles
amortisation
(note 5)
£m
Total
£m
Total
£m
3
1,353.6
-
1,353.6
1,008.8
-
1,008.8
15
6
6
24
7
8
9
180.6
4.4
185.0
(17.2)
6.6
1.8
176.2
(51.8)
124.4
2.8
127.2
127.2
-
127.2
59.3p
59.0p
(16.7)
-
(16.7)
-
-
-
(16.7)
5.3
(11.4)
55.0
43.6
43.6
-
43.6
163.9
4.4
168.3
(17.2)
6.6
1.8
159.5
(46.5)
113.0
57.8
170.8
170.8
-
170.8
81.4p
53.8p
80.9p
53.6p
113.5
3.4
116.9
(12.7)
7.6
3.2
115.0
(32.1)
82.9
15.3
98.2
98.1
0.1
98.2
39.7p
39.3p
(6.0)
-
(6.0)
-
-
-
(6.0)
2.0
(4.0)
80.8
76.8
76.8
-
76.8
107.5
3.4
110.9
(12.7)
7.6
3.2
109.0
(30.1)
78.9
96.1
175.0
174.9
0.1
175.0
83.8p
37.8p
82.9p
37.4p
Continuing operations
Revenue
Continuing operations
Operating profit
Share of results of joint ventures
Operating profit
Finance costs
Finance income
Other finance income - retirement benefits
Profit before tax from continuing operations
Tax expense
Profit for the period from continuing operations
Profit for the period from discontinued operations
Profit for the period
Attributable to
Equity holders of the Company
Minority interests
Earnings per share
Basic - total operations
Basic - continuing operations
Diluted - total operations
Diluted - continuing operations
46
The Weir Group PLC Annual Report 2008
Consolidated Balance Sheet
at 26 December 2008
ASSETS
Non-current assets
Property, plant & equipment
Investment property
Intangible assets
Investments in joint ventures & associate
Deferred tax assets
Retirement benefit plan surpluses
Derivative financial instruments
Total non-current assets
Current assets
Inventories
Trade & other receivables
Construction contracts
Derivative financial instruments
Income tax receivable
Cash & short-term deposits
Total current assets
Total assets
LIABILITIES
Current liabilities
Interest-bearing loans & borrowings
Trade & other payables
Construction contracts
Derivative financial instruments
Income tax payable
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing loans & borrowings
Derivative financial instruments
Provisions
Deferred tax liabilities
Retirement benefit plan deficits
Total non-current liabilities
Total liabilities
NET ASSETS
CAPITAL & RESERVES
Share capital
Share premium
Treasury shares
Capital redemption reserve
Foreign currency translation reserve
Hedge accounting reserve
Retained earnings
Shareholders equity
Minority interest
TOTAL EQUITY
Approved by the Board of Directors on 10 March 2009
26 December
2008
£m
28 December
2007
£m
Notes
11
11
12
15
23
24
30
16
17
18
30
19
20
21
18
30
22
20
30
22
23
24
25
25
25
25
25
25
25
25
189.6
4.5
791.8
10.3
16.5
3.9
8.1
1,024.7
269.6
309.2
30.6
47.5
1.3
74.1
732.3
1,757.0
71.4
353.6
46.7
90.6
25.7
30.5
618.5
242.6
70.1
36.4
63.0
18.6
430.7
1,049.2
707.8
26.6
38.0
(7.9)
0.5
76.9
(8.3)
581.8
707.6
0.2
707.8
136.3
4.8
503.2
7.2
3.1
45.5
1.2
701.3
173.5
255.2
32.8
10.6
1.8
54.2
528.1
1,229.4
8.5
257.8
55.9
11.8
20.8
22.8
377.6
217.0
5.1
22.6
53.3
8.6
306.6
684.2
545.2
26.5
37.7
(9.3)
0.5
0.2
3.5
485.6
544.7
0.5
545.2
Mark Selway Director
Keith Cochrane Director
The Weir Group PLC Annual Report 2008
47
Consolidated Cash Flow Statement
for the 52 weeks ended 26 December 2008
Notes
26
26
26
Continuing operations
Cash flows from operating activities
Cash generated from operations
Additional pension contributions paid
Fundamental restructuring costs paid
Income tax paid
Net cash generated from operating activities
Continuing operations
Cash flows from investing activities
Acquisitions of subsidiaries
Disposals of subsidiaries & associate
Purchases of property, plant & equipment & intangible assets
Other proceeds from sale of property, plant & equipment & intangible assets
Interest received
Dividend received from discontinued associate
Other dividends received
Net cash used in investing activities
Continuing operations
Cash flows from financing activities
Proceeds from issue of ordinary shares
Proceeds from borrowings
Repayments of borrowings
Settlement of derivative financial instruments
Interest paid
Dividends paid to equity holders of the Company
Net cash (used in) generated from financing activities
Net increase (decrease) in cash & cash equivalents from continuing operations
Net (decrease) increase in cash & cash equivalents from discontinued operations - operating activities
Net decrease in cash & cash equivalents from discontinued operations - investing activities
Cash & cash equivalents at beginning of period
Foreign currency translation differences
Cash & cash equivalents at end of period
19
52 weeks
ended 26
December
2008
£m
52 weeks
ended 28
December
2007
£m
214.4
(6.5)
-
(49.0)
158.9
(140.9)
80.6
(53.3)
1.2
6.2
-
3.5
(102.7)
0.4
244.9
(238.7)
(4.2)
(16.3)
(35.7)
(49.6)
6.6
(2.2)
(0.3)
46.1
3.4
53.6
143.5
(6.5)
(0.4)
(32.3)
104.3
(317.8)
127.3
(42.2)
3.2
7.5
2.5
3.7
(215.8)
2.4
124.3
(73.7)
0.7
(12.6)
(31.1)
10.0
(101.5)
8.2
(1.8)
139.1
2.1
46.1
48
The Weir Group PLC Annual Report 2008
Consolidated Statement of Recognised
Income & Expense
for the 52 weeks ended 26 December 2008
Income & expense recognised directly in equity
(Losses) gains taken to equity on cash flow hedges
Net exchange differences on translation of foreign operations
Actuarial (losses) gains on defined benefit plans
Transfers to the income statement
On cash flow hedges
On cash flow hedges - discontinued operations
Exchange differences on disposal of foreign operations - discontinued operations
Tax on items taken directly to or transferred from equity
Net income recognised directly in equity
Profit for the period
Total recognised income & expense for the period
Attributable to
Equity holders of the Company
Minority interests
Note
7
52 weeks
ended 26
December
2008
£m
52 weeks
ended 28
December
2007
£m
(11.1)
77.1
(54.9)
(5.5)
-
(0.4)
19.4
24.6
170.8
195.4
195.4
-
195.4
6.2
3.1
29.5
(1.9)
(4.3)
-
(7.0)
25.6
175.0
200.6
200.5
0.1
200.6
The Weir Group PLC Annual Report 2008
49
Notes to the Group Financial Statements
1. Authorisation of financial statements & statement of compliance
The consolidated financial statements of The Weir Group PLC for the 52 weeks ended 26 December 2008 were approved and authorised for issue in
accordance with a resolution of the directors on 10 March 2009. The comparative information is presented for the 52 weeks ended 28 December 2007.
For practical reasons, the Group prepares its financial statements to the week ending closest to the Company reference date of 31 December. The results
on this basis are unlikely to be materially different from those that would be presented for a period of one year. The Weir Group PLC is a limited company
incorporated in Scotland and is listed on the London Stock Exchange.
The consolidated financial statements of The Weir Group PLC have been prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and applied in accordance with the provisions of The Companies Act 1985.
The principal activities of the Group are described in note 3.
2. Accounting policies
Basis of preparation
The accounting policies which follow set out those policies which have been applied consistently to all periods presented in these financial statements.
These financial statements are presented in sterling. All values are rounded to the nearest 0.1 million pounds (£m) except when otherwise indicated.
In order to provide the users of the financial statements with a more relevant presentation of the Group’s underlying performance, profit for each financial
year has been analysed between
i) profit before exceptional items and intangibles amortisation; and
ii) the effect of exceptional items and intangible amortisation.
a) Exceptional items are material items of income and expense which, because of the nature and infrequency of the events giving rise to them, merit
separate presentation to allow a better understanding of the elements of the Group’s financial performance for the period and are presented on the
face of the income statement to facilitate comparisons with prior periods and assessment of trends in financial performance.
b) Intangibles amortisation, including impairment, has been shown separately to provide increased visibility over the impact of increased acquisition
activity on intangible assets.
Further analysis of the items included in the column, ‘Exceptional items and intangibles amortisation’, is provided in note 5 to the financial statements.
In addition to the restatements arising from discontinued operations, as disclosed in note 26, certain amounts in the consolidated cashflow statement
have been reclassified. A 2007 net inflow amount of £0.7m in relation to gains on derivatives has been reclassified from cash generated from operating
activities to cash generated from financing activities.
Use of estimates & judgements
The preparation of the consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
Details of the significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on
the amounts recognised in the financial statements are described on page 19.
Basis of consolidation
The consolidated financial statements include the results, cash flows and assets and liabilities of The Weir Group PLC (“the Company”) and its subsidiaries
(together, “the Group”), and the Group’s share of its joint ventures results. The financial statements of subsidiaries and joint ventures are prepared for the
same reporting period as the Company using consistent accounting policies.
A subsidiary is an entity controlled, either directly or indirectly, by the Company, where control is the power to govern the financial and operating policies
of the entity so as to obtain benefit from its activities. The results of a subsidiary acquired during the period are included in the Group’s results from the
effective date on which control is transferred to the Group. The results of a subsidiary sold during the period are included in the Group’s results up to
the effective date on which control is transferred out of the Group. All intragroup transactions, balances, income and expenses are eliminated on consolidation.
Minority interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the Group and is presented within equity in the
consolidated balance sheet, separately from the Company shareholders equity.
Joint ventures & associate
The Group has a number of long-term contractual arrangements with other parties which represent joint ventures. These all take the form of agreements
to share control over other entities (“jointly controlled entities”). The Group’s interests in the results and assets and liabilities of its jointly controlled entities,
are accounted for using the equity method. An associate is an entity over which the Company, either directly or indirectly, is in a position to exercise
significant influence by participating in, but not controlling or jointly controlling, the financial and operating policies of the entity. An associate is accounted
for using the equity method.
50
The Weir Group PLC Annual Report 2008
2. Accounting policies (continued)
These investments are carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets less any impairment in value.
The income statement reflects the share of results of operations of these investments after tax. Where there has been a change recognised directly in the
investee’s equity, the Group recognises its share of any changes and discloses this when applicable in the statement of recognised income and expense.
Any goodwill arising on the acquisition of a joint venture or associate, representing the excess of the cost of the investment compared to the Group’s share
of the net fair value of the joint venture or associate’s identifiable assets, liabilities and contingent liabilities is included in the carrying amount of the joint
venture or associate and is not amortised. To the extent that the net fair value of the joint venture or associate’s identifiable assets, liabilities and contingent
liabilities is greater than the cost of the investment, a gain is recognised and added to the Group’s share of the joint venture or associate’s profit or loss in
the period in which the investment is acquired.
Foreign currency translation
The financial statements for each of the Group’s subsidiaries, joint ventures and associate are prepared using their functional currency. The functional
currency is the currency of the primary economic environment in which an entity operates.
At entity level, transactions denominated in foreign currencies are translated into the entity’s functional currency at the exchange rate ruling on the date
of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate ruling on the balance sheet date.
Currency translation differences are recognised in the income statement except when hedge accounting is applied and for differences on monetary assets
and liabilities that form part of the Group’s net investment in a foreign operation. These are taken directly to equity until the disposal of the net investment,
at which time they are recognised in profit or loss.
On consolidation, the results of foreign operations are translated into sterling at the average exchange rate for the period and their assets and liabilities
are translated into sterling at the exchange rate ruling on the balance sheet date. Currency translation differences, including those on monetary items
that form part of a net investment in a foreign operation, are recognised in the foreign currency translation reserve.
In the event that a foreign operation is sold, the gain or loss on disposal recognised in the income statement is determined after taking into account the
cumulative currency translation differences that are attributable to the operation. As permitted by IFRS1, the Group elected to deem cumulative currency
translation differences to be £nil as at 27 December 2003. Accordingly, the gain or loss on disposal of a foreign operation does not include currency
translation differences arising before 27 December 2003.
In the cash flow statement, the cash flows of foreign operations are translated into sterling at the average exchange rate for the period.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured. Revenue is shown net of sales taxes, discounts and after eliminating sales within
the Group.
Revenue from sales of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch
of the goods and can be reliably measured. Revenue from the sales of services and revenue from construction contracts is recognised by reference to the
stage of completion where the outcome can be estimated reliably, otherwise it is recognised to the extent costs are incurred. The stage of completion of
a contract is determined either by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total contract
costs, or by reference to the completion of a physical proportion of the contract work. The basis used is dependent upon the nature of the underlying
contract and takes into account the degree to which the physical proportion of the work is subject to formal customer acceptance procedures. Losses on
contracts are recognised in the period when such losses become probable.
Property, plant & equipment
The Group elected to use previous UK GAAP revaluations of land and buildings, amounting to £10.5m, prior to 27 December 2003 as deemed cost at the
date of the revaluation.
Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment losses. Freehold land and assets under
construction are not depreciated.
Depreciation of property, plant and equipment, other than freehold land and assets under construction, is provided on a straight-line basis so as to charge
the cost less residual value, based on prices prevailing at the balance sheet date, to the income statement over the expected useful life of the asset
concerned, which is in the following ranges
Freehold buildings, long leasehold land & buildings
Short leasehold land & buildings
Plant & equipment
-
-
-
10 - 40 years
duration of lease
3 - 20 years
Borrowing costs attributable to assets under construction are charged to the income statement in the period in which they are incurred.
Investment property
The Group has one property which is currently being held to earn rentals and for capital appreciation rather than for use in the production or supply of
goods and 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.
The Weir Group PLC Annual Report 2008
51
Notes to the Group Financial Statements (Continued)
2. Accounting policies (continued)
Goodwill
Business combinations on or after 27 December 2003 are accounted for under IFRS3 using the purchase method.
Goodwill arises on the acquisition of subsidiaries and represents any excess of the cost of the acquired entity over the Group’s interest in the fair value of
the entity’s identifiable assets, liabilities and contingent liabilities determined at the date of acquisition. Goodwill in respect of an acquired subsidiary is
recognised as an intangible asset. Goodwill is tested at least annually for impairment and carried at cost less any recognised impairment losses.
Where the fair value of the interest acquired in an entity’s assets, liabilities and contingent liabilities exceeds the consideration paid, the excess is recognised
immediately as a gain in the income statement.
Goodwill recognised as an asset as at 27 December 2003 is recorded at its carrying amount at that date and is not amortised. The carrying amount of goodwill
allocated to a cash-generating unit is taken into account when determining the gain or loss on disposal of the unit. Goodwill that was written off directly to
reserves under UK GAAP is not taken into account in determining the gain or loss on disposal of acquired businesses on or after 27 December 2003.
Other intangible assets
Other intangible assets are stated at cost less accumulated amortisation and any recognised impairment losses.
Intangible assets acquired separately are measured on initial recognition at cost. An intangible resource acquired in a business combination is recognised
as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits
and its fair value can be measured reliably. An intangible asset with a finite life is amortised on a straight-line basis so as to charge its cost which, in respect
of an acquired intangible asset, represents its fair value at the acquisition date, to the income statement over its expected useful life. An intangible asset
with an indefinite life is not amortised but is tested at least annually for impairment and carried at cost less any recognised impairment losses. Computer
software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset. Amortisation is provided on a
straight-line basis so as to charge the cost of the software to the income statement over its expected useful life, not exceeding eight years.
The expected useful lives of the acquired intangible assets are as follows
Brand names
Customer relationships
Purchased software
Intellectual property & trade marks
Other
Research & development costs
-
-
-
-
-
indefinite life
7 - 25 years
4 - 8 years
6 -15 years
up to 6 years
All research expenditure is charged to the income statement in the period in which it is incurred.
Development expenditure is charged to the income statement in the period in which it is incurred unless it relates to the development of a new product
and it is incurred after the technical feasibility and commercial viability of the product has been proven, the development costs can be measured reliably,
future economic benefits are probable and the Group intends to and has sufficient resources to complete the development and to use or sell the asset.
Any such capitalised development expenditure will be amortised on a straight-line basis so that it is charged to the income statement over the expected
life of the resulting product.
Impairment of non-current assets
All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying values might be impaired. Additionally,
goodwill, intangible assets with an indefinite life and any capitalised development expenditure are subject to an annual impairment test.
An impairment loss is recognised to the extent that an asset’s carrying value exceeds its recoverable amount, which represents the higher of the asset’s fair
value less costs to sell and its value in use. An asset’s value in use represents the present value of the future cash flows expected to be derived from the
asset. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is conducted for the cash-generating unit to
which it belongs. Similarly, the recoverable amount of goodwill is determined by reference to the discounted future cash flows of the cash-generating units
to which it is allocated.
Impairment losses are recognised in the income statement. Impairment losses recognised in previous periods for an asset other than goodwill are reversed if
there has been a change in the estimates used to determine the asset’s recoverable amount. The carrying amount of an asset shall not be increased above
the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. Impairment losses
recognised in respect of goodwill are not reversed.
Inventories
Inventories are valued at the lower of cost and net realisable value, with due allowance for any obsolete or slow moving items. Cost represents the
expenditure incurred in bringing inventories to their existing location and condition and comprises the cost of raw materials, direct labour costs, other
direct costs and related production overheads. Raw material cost is generally determined on a first in, first out basis. Net realisable value is the estimated
selling price less costs to complete and sell.
52
The Weir Group PLC Annual Report 2008
2. Accounting policies (continued)
Financial assets & liabilities
The Group's principal financial assets and liabilities, other than derivatives, comprise bank overdrafts, short-term borrowings, loans, cash and short-term
deposits. The Group also has other financial assets and liabilities such as trade receivables and trade payables which arise directly from its operations.
A financial asset is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying
amounts together with any costs or fees incurred are recognised in profit or loss.
Trade & other receivables
Trade receivables, which generally are of a short dated nature, are recognised and carried at original invoice amount less an allowance for estimated
irrecoverable amounts. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written
off when the probability of recovery is assessed as being remote.
Cash & cash equivalents
Cash and cash equivalents comprise cash in hand, deposits available on demand and other short-term highly liquid investments with a maturity on acquisition
of three months or less, bank overdrafts and short-term borrowings with a maturity on acquisition of three months or less. Bank overdrafts are presented
as current liabilities to the extent that there is no right of offset with cash balances.
Trade payables
Trade payables are recognised and carried at original invoice amount.
Interest-bearing loans & borrowings
Obligations for loans and borrowings are recognised when the Group becomes party to the related contracts and are measured initially at fair value less
directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using
the effective interest method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. Borrowings
are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance
sheet date.
Provisions
A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, the obligation can be
estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
Derivative financial instruments
The Group uses derivative financial instruments, principally forward foreign currency contracts and cross currency swaps, to reduce its exposure to exchange
rate movements. Additionally, the Group uses interest rate swaps to manage its exposure to interest rate risk. The Group does not hold or issue derivatives for
speculative or trading purposes.
Derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. The fair value of forward foreign
currency contracts is calculated by reference to current market rates for contracts with similar maturity profiles. The fair value of cross currency swaps and
interest rate swaps is calculated as the present value of the estimated future cash flows. Changes in their fair values have been recognised in the income
statement, except where hedge accounting is used, provided the conditions specified by IAS39 are met. Hedge accounting is applied in respect of hedge
relationships where it is both permissible under IAS39 and practical to do so. When hedge accounting is used, the relevant hedging relationships will be
classified as fair value hedges, cash flow hedges or net investment hedges.
Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability will be adjusted by the increase or
decrease in its fair value attributable to the hedged risk and the resulting gain or loss will be recognised in the income statement where, to the extent that
the hedge is effective, it will be offset by the change in the fair value of the hedging instrument.
Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent the hedge is effective, changes in the fair value
of the hedging instrument will be recognised directly in equity rather than in the income statement. When the hedged item is recognised in the financial
statements, the accumulated gains and losses recognised in equity will be either recycled to the income statement or, if the hedged item results in a non-
financial asset, will be recognised as adjustments to its initial carrying amount.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting.
At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs.
If a hedged transaction is no longer expected to occur the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period.
The Weir Group PLC Annual Report 2008
53
Notes to the Group Financial Statements (Continued)
2. Accounting policies (continued)
Derivatives embedded in non-derivative host contracts are recognised separately as derivative financial instruments when their risks and characteristics are not
closely related to those of the host contract and the host contract is not stated at its fair value with changes in its fair value recognised in the income statement.
Share-based payments
Equity settled share-based incentives are provided to employees under the Group’s share option schemes and the Long Term Incentive Plan (“LTIP”).
The Group recognises a compensation cost in respect of these schemes that is based on the fair value of the awards. For equity settled schemes, the fair
value is determined at the date of grant and is not subsequently re-measured unless the conditions on which the award was granted are modified. The fair
value at the date of the grant is calculated using appropriate option pricing models and the cost is recognised on a straight-line basis over the vesting period.
Adjustments are made to reflect expected and actual forfeitures during the vesting period due to failure to satisfy service conditions or performance conditions.
As permitted by IFRS1, the Group has applied IFRS2 “Share-based Payment” retrospectively only to equity settled awards that were granted on or after
7 November 2002 and had not vested as at 1 January 2005.
Treasury shares
The Weir Group PLC shares held by the Company are classified in shareholders equity as treasury shares and are recognised at cost. Consideration received
for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken directly to
reserves. No gain or loss is recognised in the performance statements on the purchase, sale, issue or cancellation of equity shares.
Post-employment benefits
Post-employment benefits comprise pension benefits provided to employees throughout the world and other benefits, primarily post-retirement healthcare,
provided to certain employees in the United States.
For defined benefit plans, the cost is calculated using the projected unit credit method and is recognised over the average expected remaining service lives
of participating employees, in accordance with the advice of qualified actuaries. Past service costs resulting from enhanced benefits are recognised on a
straight-line basis over the vesting period, or immediately if the benefits have vested. Actuarial gains and losses, which represent differences between the
expected and actual returns on the plan assets and the effect of changes in actuarial assumptions, are recognised in full in the statement of recognised
income and expense in the period in which they occur. The defined benefit liability or asset recognised in the balance sheet comprises the net total for
each plan of the present value of the benefit obligation, using a discount rate based on appropriate high quality corporate bonds, at the balance sheet
date, minus any past service costs not yet recognised, minus the fair value of the plan assets, if any, at the balance sheet date. Where a plan is in surplus,
the asset recognised is limited to the amount of any unrecognised past service costs and the present value of any amount which the Group expects to
recover by way of refunds or a reduction in future contributions.
For defined contribution plans, the cost represents the Group’s contributions to the plans and this is charged to the income statement in the period in
which they fall due.
Leases
Leases which transfer to the Group substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. All other leases are
classified as operating leases.
Assets held under finance leases are included within property, plant and equipment, initially measured at their fair value or, if lower, the present value of the
minimum lease payments and a corresponding liability is recognised within obligations under finance leases. Subsequently, the assets are depreciated on a
basis consistent with similar owned assets or the lease term if shorter. At the inception of the lease, the lease rentals are apportioned between an interest
element and a capital element so as to produce a constant periodic rate of interest on the outstanding liability. Subsequently, the interest element is
recognised as a charge to the income statement while the capital element is applied to reduce the outstanding liability.
Operating lease rentals and any incentives receivable are recognised in the income statement on a straight-line basis over the term of the lease.
Taxation
Current tax is the amount of tax payable or recoverable in respect of the taxable profit or loss for the period.
Deferred tax is recognised on temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base with
the following exceptions.
(a) Deferred tax arising from the initial recognition of goodwill, or of an asset or liability in a transaction that is not a business combination, that,
at the time of the transaction, affects neither accounting nor taxable profit or loss, is not recognised.
54
The Weir Group PLC Annual Report 2008
2. Accounting policies (continued)
(b) Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associate, except where the timing of the
reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
(c) A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.
Deferred tax liabilities represent tax payable in future periods in respect of taxable temporary differences. Deferred tax assets represent tax recoverable in
future periods in respect of deductible temporary differences, the carry forward of unutilised tax losses and the carry forward of unused tax credits.
Deferred tax is measured on an undiscounted basis using the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet
date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.
Current and deferred tax is recognised in the income statement except if it relates to an item recognised directly in equity, in which case it is recognised
directly in equity.
New standards & interpretations
The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements.
International Accounting Standards (IAS/IFRS)
Effective for periods commencing
IFRS2
IFRS3
IFRS8
IAS1
IAS23
IAS27
IAS32
IAS39
Amendment to IFRS2 Share Based Payment: Vesting Conditions and Cancellations
Revised IFRS3 Business Combinations*
Operating Segments
Amendments to IAS1 Presentation of Financial Statements: A Revised Presentation
Amendments to IAS23 Borrowing Costs
Amendments to IAS27 Consolidated and Separate Financial Statements*
Amendments to IAS32 Financial instruments: Presentation
Amendments to IAS39 Financial instruments: Recognition and Measurement
and IFRS7 Financial instruments: Disclosures – Reclassification of Financial Assets*
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC13
IFRIC14
IFRIC15
IFRIC16
IFRIC17
IFRIC18
Customer Loyalty Programmes
The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction#
Agreements for Construction of Real Estates*
Hedges of a Net Investment in a Foreign Operation*
Distribution of Non-cash Assets to Owners*
Transfers of Assets from Customers*
* Not yet adopted for use in the European Union.
# Not yet mandatory for use in the European Union until 1 January 2009.
1 January 2009
1 July 2009
1 January 2009
1 January 2009
1 January 2009
1 July 2009
1 January 2009
1 July 2008
1 July 2008
1 January 2008
1 January 2009
1 October 2008
1 July 2009
1 July 2009
The above standards and interpretations will be adopted in accordance with their effective dates and have not been adopted in these financial statements.
The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements
in the period of initial application.
IAS23 (revised) requires borrowing costs attributable to the acquisition or construction of certain assets to be capitalised. The option currently taken
by the Group of charging such costs to the income statement in the period in which they are incurred will no longer be available prospectively from
1 January 2009.
IFRS3 (revised) will apply to business combinations arising from 1 January 2010. This will require recognition of subsequent changes in the fair value
of contingent consideration in the income statement rather than against goodwill. In addition, transaction costs will be required to be recognised
immediately in the income statement.
The Weir Group PLC Annual Report 2008
55
Notes to the Group Financial Statements (Continued)
3. Segment information
With effect from 1 May 2008, the Group changed its organisation and reporting structure to reflect its increasing focus on the mining, oil and gas, and
power and industrial markets. For management purposes, the Group has been reorganised into three divisions: Oil & Gas, Minerals and Power & Industrial.
These divisions replace the Group’s former divisions of Engineering Products, Engineering Services and Defence, Nuclear & Gas and are the basis on which
the Group reports its segment information. Group companies principally include the results of Liquid Gas Equipment which supplies equipment to the
liquefied petroleum gas marine and onshore markets. Also included within Group companies are the results of the Canadian distribution business and
the Materials and Foundries businesses up to the date of disposal on 29 August, 2 and 3 October 2008 respectively. None of the businesses disposed
of are of sufficient size to meet the definition of a discontinued operation under IFRS5.
The Group’s primary reporting format is business segments, as the Group’s risks and rates of return are affected predominantly by differences in the products and
services provided. The Group’s secondary format is geographical segments. The operating businesses are organised and managed separately according to the
nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets.
The Oil & Gas Division manufactures pumps and ancillary equipment and provides aftermarket support for the global upstream and downstream oil and
gas markets. The Minerals Division designs and manufactures pumps, hydrocyclones, valves and other complementary equipment with primary sales to
the mining, flue gas desulphurisation and oil sands markets. The Power & Industrial Division designs, manufactures and provides aftermarket support for
rotating and flow control equipment to the global power generation and industrial sectors.
Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties. The Group’s geographical
segments are determined by the location of the Group’s assets and operations.
Business segments
The following tables present revenue and profit information on the Group’s continuing operations for the 52 weeks ended 26 December 2008 and the
52 weeks ended 28 December 2007. For comparative purposes, sales to external customers and segment result before exceptional items and intangibles
amortisation, including acquisitions, for the 52 weeks ended 28 December 2007 have been restated to reflect the divisional reorganisation noted above.
Oil & Gas
Minerals
Power & Industrial
Total continuing
operations
2008
£m
2007
£m
2008
£m
2007
£m
2008
£m
2007
£m
2008
£m
2007
£m
Revenue
Sales to external customers
- existing operations
- acquisitions*
Sales to external customers
Inter-segment sales
Segment revenue
Group companies sales to external customers
- ongoing operations
- other current year disposals*
Group companies inter-segment sales
Eliminations
122.5
157.4
279.9
0.7
280.6
103.0
78.7
181.7
0.2
181.9
697.2
45.2
742.4
2.5
744.9
522.8
-
522.8
1.5
524.3
222.8
-
222.8
7.4
230.2
190.7
-
190.7
8.2
198.9
Sales to external customers - at 2008 average exchange rates
- existing operations
- acquisitions*
Sales to external customers
Group companies sales to external customers
- ongoing operations
- other current year disposals*
122.5
157.4
279.9
114.7
85.2
199.9
697.2
45.2
742.4
570.1
-
570.1
222.8
-
222.8
201.4
-
201.4
1,042.5
202.6
1,245.1
10.6
1,255.7
74.4
34.1
2.6
(13.2)
1,353.6
1,042.5
202.6
1,245.1
74.4
34.1
1,353.6
816.5
78.7
895.2
9.9
905.1
65.8
47.8
3.6
(13.5)
1,008.8
886.2
85.2
971.4
65.8
50.2
1,087.4
56
The Weir Group PLC Annual Report 2008
3. Segment information (continued)
Result
Segment result before exceptional items &
intangibles amortisation
- existing operations
- acquisitions*
Intangibles amortisation
- existing operations
- acquisitions*
Share of results of joint ventures
Group companies*
- ongoing operations
- other current year disposals*
Unallocated expenses*
Operating profit
Segment result before exceptional items & intangibles
amortisation - at 2008 average exchange rates
- existing operations
- acquisitions*
Segment result before exceptional items &
intangibles amortisation
Share of results of joint ventures
Group companies
- ongoing operations
- other current year disposals*
Unallocated expenses
Oil & Gas
Minerals
Power & Industrial
Total continuing
operations
2008
£m
2007
£m
2008
£m
2007
£m
2008
£m
2007
£m
2008
£m
2007
£m
16.2
40.4
(1.2)
(9.6)
45.8
4.4
50.2
11.3
19.1
(0.8)
(3.7)
25.9
3.4
29.3
107.1
7.4
(3.1)
(1.9)
109.5
-
109.5
74.3
-
(0.6)
-
73.7
-
73.7
18.0
-
(0.8)
-
17.2
-
17.2
12.5
-
(0.8)
-
11.7
-
11.7
16.2
40.4
56.6
4.4
61.0
13.3
20.6
33.9
3.7
37.6
107.1
7.4
114.5
-
114.5
82.3
-
82.3
-
82.3
18.0
-
18.0
-
18.0
13.4
-
13.4
-
13.4
141.3
47.8
(5.1)
(11.5)
172.5
4.4
176.9
4.6
(2.6)
(10.6)
168.3
141.3
47.8
189.1
4.4
193.5
4.6
(2.6)
(10.5)
185.0
98.1
19.1
(2.2)
(3.7)
111.3
3.4
114.7
5.5
(0.3)
(9.0)
110.9
109.0
20.6
129.6
3.7
133.3
5.5
(0.3)
(8.8)
129.7
* Group companies include intangibles amortisation of £nil (2007: £nil). Unallocated expenses include intangibles amortisation of £0.1m (2007: £0.1m).
Acquisitions for 2008 include Weir SPM, Weir Warman, Weir Mesa and Weir SOS. Acquisitions for 2007 include Weir SPM. The results of Weir Multiflo
are not considered significant for 2007 and 2008. Other current year disposals include the Materials and Foundries businesses and the Canadian
distribution business for 2007 and 2008.
The Weir Group PLC Annual Report 2008
57
Notes to the Group Financial Statements (Continued)
3. Segment information (continued)
Assets & liabilities
Segment assets
Investment in joint ventures & associate
Segment assets now classified as discontinued operations
Group companies assets
Unallocated assets
Total assets
Segment liabilities
Segment liabilities now classified as discontinued operations
Group companies liabilities
Unallocated liabilities
Total liabilities
Other segment information
Segment capital expenditure
Group companies capital expenditure
Unallocated capital expenditure
Total capital expenditure
Segment depreciation & amortisation
Group companies depreciation & amortisation
Unallocated depreciation & amortisation
Total depreciation & amortisation
Segment impairment
Total impairment
Segment warranty (income) / expense (net)
Group companies warranty expense (net)
Total warranty expense (net)
Oil & Gas
Minerals
Power & Industrial
Total operations
2008
£m
2007
£m
2008
£m
2007
£m
2008
£m
2007
£m
2008
£m
2007
£m
731.0
10.3
741.3
524.5
7.2
531.7
617.6
-
617.6
410.8
-
410.8
181.3
-
181.3
81.1
-
81.1
83.1
48.9
221.1
140.6
72.2
60.0
10.1
5.9
32.2
23.8
10.2
11.8
15.9
7.5
15.0
9.7
5.5
5.1
-
-
5.1
-
-
-
(0.1)
1.7
6.4
3.3
0.8
1.0
1,529.9
10.3
1,540.2
-
18.9
197.9
1,757.0
376.4
-
52.4
620.4
1,049.2
1,016.4
7.2
1,023.6
20.2
64.9
120.7
1,229.4
249.5
25.8
42.0
366.9
684.2
52.5
0.7
0.1
53.3
36.4
0.3
0.5
37.2
5.1
5.1
7.1
1.2
8.3
41.5
0.6
0.1
42.2
22.3
0.3
0.3
22.9
-
-
6.0
1.3
7.3
Segment assets and liabilities now classified as discontinued operations were previously included within the former Defence, Nuclear & Gas segment.
Further details of the Group’s discontinued operations can be found in note 8.
58
The Weir Group PLC Annual Report 2008
3. Segment information (continued)
Geographical segments
The following tables present revenue, certain asset and capital expenditure information regarding the Group’s geographical segments for the 52 weeks
ended 26 December 2008 and the 52 weeks ended 28 December 2007.
The Group has also amended its geographical segments to better reflect the revised organisation and reporting structure as well as the acquisition of Weir Warman.
2007 sales to external customers, segment assets and capital expenditure of £9.2m, £0.2m and £0.4m respectively, previously included in the Other
geographical segment, are now included in the Europe segment together with the former UK and Other EU segments. 2007 sales to external customers,
segment assets and capital expenditure of £24.8m, £3.2m and £nil respectively, previously included in the Other geographical segment, are now included
in the Asia segment together with the former Far East & Asia segment. 2007 sales to external customers, segment assets and capital expenditure of
£42.1m, £14.6m and £0.7m respectively, previously included in the Other geographical segment, are now included in the Middle East and Africa
segment together with the former Middle East segment. The North America, Australasia and South America segments are unchanged.
52 weeks ended 26 December 2008
North
America
£m
Europe
£m
Asia Australasia
£m
£m
America
£m
South Middle East
Total
& Africa Operations
£m
£m
Revenue
Sales to external customers
Less sales attributable to discontinued operations
Revenue from continuing operations
Other segment information
Segment assets
Investments in joint ventures
Unallocated assets
Total assets
435.9
(2.2)
433.7
262.1
(13.0)
249.1
201.8
-
201.8
126.5
(1.6)
124.9
155.1
-
155.1
189.0
-
189.0
1,370.4
(16.8)
1,353.6
708.9
-
708.9
433.2
-
433.2
22.1
-
22.1
170.6
-
170.6
76.6
-
76.6
163.6
10.2
173.8
1,575.0
10.2
1,585.2
171.8
1,757.0
Total capital expenditure including discontinued operations
16.8
13.1
1.0
8.6
8.8
5.3
53.6
52 weeks ended 28 December 2007
Revenue
Sales to external customers
Less sales attributable to discontinued operations
Revenue from continuing operations
Other segment information
Segment assets
Investment in joint ventures & associate
Unallocated assets
Total assets
North
America
£m
Europe
£m
Asia
£m
Australasia
£m
South
America
£m
Middle East
& Africa
£m
Total
Operations
£m
323.9
(6.8)
317.1
253.5
(49.0)
204.5
148.4
(8.3)
140.1
114.2
(5.4)
108.8
117.2
(0.2)
117.0
125.4
(4.1)
121.3
1,082.6
(73.8)
1,008.8
506.2
-
506.2
352.9
-
352.9
10.7
-
10.7
144.6
-
144.6
63.4
-
63.4
35.6
7.2
42.8
1,113.4
7.2
1,120.6
108.8
1,229.4
Total capital expenditure including discontinued operations
15.5
15.1
1.6
4.4
4.9
2.5
44.0
Unallocated assets primarily comprise cash and short-term deposits, income tax receivable, deferred tax assets and retirement benefit plan surpluses as
well as those assets which are used for general head office purposes. Unallocated liabilities primarily comprise interest-bearing loans and borrowings,
income tax payable, deferred tax liabilities and retirement benefit deficits as well as liabilities relating to general head office activities. The difference
between unallocated assets in the business and geographical segments arises as a result of different inter-segment eliminations.
The Weir Group PLC Annual Report 2008
59
Notes to the Group Financial Statements (Continued)
4. Revenues & expenses
The following disclosures are given in relation to continuing operations.
An analysis of the Group’s revenue is as follows
Sales of goods
Rendering of services
Revenue from construction contracts
Revenue
Finance income
Total revenue
No revenue was derived from exchanges of goods or services (2007: £nil).
A reconciliation of revenue to operating profit is as follows
Revenue
Cost of sales
Gross profit
Other operating income
Selling & distribution costs
Administrative expenses
Share of results of joint ventures
Operating profit
Operating profit is stated after charging
Costs of inventories recognised as an expense
Depreciation of property, plant & equipment
Amortisation of intangibles
Impairment of intangibles (note 12)
Impairment of plant & equipment (note 11)
Net foreign exchange losses
Net impairment of trade receivables (note 17) (included within administrative expenses)
Net loss on other current year disposals
The following disclosures are given in relation to total operations.
Auditors remuneration
The total fees payable by the Group to Ernst & Young LLP and their associates for work performed in respect of the audit
and other services provided to the Company and its subsidiary companies during the period are disclosed below
Fees payable to the Company’s auditor for the audit of the Company and Group financial statements
Fees payable to the Company’s auditor and its associates for other services
- The audit of the Company’s subsidiaries pursuant to legislation
- Other services pursuant to legislation
- Transaction support services
Fees payable in respect of the Group’s pension schemes
- Audit
60
The Weir Group PLC Annual Report 2008
2008
£m
2007
£m
1,034.2
229.7
89.7
1,353.6
6.6
1,360.2
750.6
176.9
81.3
1,008.8
7.6
1,016.4
2008
£m
2007
£m
1,353.6
(930.1)
423.5
2.5
(136.1)
(126.0)
4.4
168.3
1,008.8
(709.0)
299.8
2.4
(113.6)
(81.1)
3.4
110.9
2008
£m
930.1
22.8
14.4
2.3
2.8
0.3
5.4
2.6
2008
£m
0.3
0.9
-
0.2
0.1
2007
£m
709.0
16.9
6.0
-
-
0.1
1.5
-
2007
£m
0.3
0.8
0.5
0.7
0.1
4. Revenues & expenses (continued)
Research & development costs
Research & development costs consist of £9.8m (2007: £8.9m) charged directly to cost of sales in the income statement.
Operating leases
Minimum lease payments under operating leases recognised as an expense in the year were £13.3m (2007: £10.0m).
Employee benefits expense
Wages & salaries
Social security costs
Pension costs - defined benefit plans
Pension costs - defined benefit plan curtailment
Pension costs - defined contribution plans
Share-based payments - equity settled transactions
The average monthly number of persons employed by the Company and its subsidiaries is as follows
Oil & Gas
Minerals
Power & Industrial
Group companies
Discontinued operations
5. Exceptional items & intangibles amortisation
Recognised in arriving at operating profit from continuing operations
Intangibles amortisation (note 12)
Impairment of intangibles (note 12)
Recognised in arriving at profit for the period from discontinued operations
Exceptional items (note 8)
Intangibles amortisation (note 8)
2008
£m
270.8
31.4
2.5
2.4
8.1
2.8
318.0
2007
£m
234.5
29.4
4.0
-
6.6
1.4
275.9
2008
Number
2007
Number
1,561
5,320
1,973
344
172
9,370
2008
£m
(14.4)
(2.3)
(16.7)
55.1
(0.1)
55.0
952
4,384
1,914
402
707
8,359
2007
£m
(6.0)
-
(6.0)
80.9
(0.1)
80.8
The Weir Group PLC Annual Report 2008
61
Notes to the Group Financial Statements (Continued)
6. Net finance costs
(a) Finance costs
Interest payable on bank loans & overdrafts
Finance charges payable under finance leases
Finance charges related to committed loan facilities
(b) Finance income
Interest receivable on financial assets
7. Tax expense
(a) Income tax expense
Consolidated income statement
Current income tax
UK corporation tax - continuing operations
- discontinued operations
Adjustments in respect of current income tax of previous years
UK corporation tax
Foreign tax
- continuing operations
- discontinued operations
Adjustments in respect of current income tax of previous years
Total current income tax
Deferred income tax
Origination and reversal of temporary differences
- continuing operations
- discontinued operations
Adjustment to estimated recoverable deferred tax assets
Effect of changes in tax rates
Total deferred tax*
2008
£m
(16.2)
(0.1)
(0.9)
(17.2)
2008
£m
6.6
2007
£m
(12.3)
-
(0.4)
(12.7)
2007
£m
7.6
2008
£m
2007
£m
(8.4)
(0.4)
0.2
(8.6)
(47.2)
(0.4)
1.2
(55.0)
3.4
(2.0)
4.3
-
5.7
(8.3)
(0.8)
4.6
(4.5)
(21.5)
(0.4)
(1.0)
(27.4)
(7.9)
(0.4)
2.8
0.6
(4.9)
Total income tax expense in the consolidated income statement
(49.3)
(32.3)
* Includes £10.8m of deferred tax credit relating to foreign tax (2007: £2.6m).
The total income tax expense is disclosed in the consolidated income statement as follows
Tax expense - continuing operations before exceptional items & intangibles amortisation
- intangibles amortisation
- within profit from discontinued operations
Total income tax expense in the consolidated income statement
(51.8)
5.3
(2.8)
(49.3)
(32.1)
2.0
(2.2)
(32.3)
Current tax for 2008 has been reduced by £4.3m (2007: £2.8m) due to the utilisation of deferred tax assets previously not recognised.
The total deferred tax included in the income tax expense is detailed in note 23.
62
The Weir Group PLC Annual Report 2008
7. Tax expense (continued)
(b) Tax relating to items charged or credited to equity
Tax credit (charge) on actuarial loss (gain) on retirement benefits
Current tax on contributions in excess of costs through the income statement
Deferred tax - origination and reversal of temporary differences
Deferred tax on hedge gains / losses
Deferred tax on share-based payments
Current tax on share-based payments
Effect of changes in tax rates
Tax credit (charge) in the statement of recognised income and expense
2008
£m
2.6
13.0
15.6
4.8
(1.2)
0.2
-
19.4
2007
£m
-
(8.0)
(8.0)
-
0.4
0.5
0.1
(7.0)
(c) Reconciliation of the total tax charge
The tax expense in the consolidated income statement for the year is less than the weighted average of standard rates of corporation tax across the Group
of 31.2% (2007: 31.3%). The differences are reconciled below
Profit from continuing operations before tax
Profit from discontinued operations before tax
Accounting profit before tax
At the weighted average of standard rates of corporation tax across the Group of
31.2% (2007: 31.3%)
Adjustments in respect of previous years - current tax
- deferred tax
Effect of changes in tax rates
Joint ventures & associate
Unrecognised deferred tax assets
Overseas tax on unremitted earnings
Industrial buildings allowance
Permanent differences
Gains exempt from tax
At effective tax rate of 22.4% (2007: 15.6%)
2008
£m
159.5
60.6
220.1
68.7
(1.4)
0.3
-
(1.4)
(4.3)
3.2
1.5
(3.8)
(13.5)
49.3
2007
£m
109.0
98.3
207.3
64.8
(3.6)
(0.5)
(0.6)
(2.0)
(2.8)
1.1
-
0.2
(24.3)
32.3
The Weir Group PLC Annual Report 2008
63
Notes to the Group Financial Statements (Continued)
8. Discontinued operations
On 21 April 2008, the Group disposed of Weir Strachan & Henshaw for a net cash consideration of £63.7m resulting in a gain on disposal of £55.1m after
a tax charge of £2.4m. The net liabilities disposed of amounted to £1.9m and direct disposal costs and provisions amounted to £8.5m. Foreign exchange
gains suspended in equity on the retranslation of the overseas operations disposed of, amounting to £0.4m, have been recycled to the income statement
as part of the gain on sale in accordance with IAS21.
On 8 May 2007, the Group disposed of its Glasgow-based pump manufacturing operation Weir Pumps for a total cash consideration of £45.5m resulting
in a gain on disposal of £26.0m after a tax charge of £nil. Of the disposal proceeds, £1.7m was allocated to the ongoing lease of the Cathcart site by the
purchaser and was deferred. The net assets disposed of amounted to £13.7m and direct disposal costs and provisions amounted to £8.4m, including
estimated costs of £2.6m associated with separating the discontinued operations of Weir Pumps from the remaining Weir Engineering Services and
Materials and Foundries operations. 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 in accordance with IAS39.
On 28 June 2007, the Group completed the sale of its 24.5% interest in its associate, Devonport Management Limited (“DML”), for a total cash
consideration of £85.7m. Approval of the sale was obtained from the Ministry of Defence on 26 June 2007, at which time the investment became held
for sale. The carrying value of the investment at the date of sale was £26.8m. Costs and provisions associated with the disposal amounted to £4.0m
resulting in a gain on disposal of £54.9m after a tax charge of £nil.
Profits recognised in respect of prior periods disposals relate to the negotiated settlement of claims connected to prior period disposals.
The results of Weir Strachan & Henshaw, previously included in the former Defence, Nuclear & Gas segment, Weir Pumps, previously included within
the former Engineering Products segment and the Group’s share of the results of Devonport Management Limited, previously included in the former
Engineering Services segment, have been included in the consolidated income statement as discontinued operations for all periods presented. The net
gains of £55.1m (2007: £80.9m) made on these disposals have been recorded as an exceptional item in the consolidated income statement.
The revenue, results and cash flows relating to discontinued operations are as follows
Sale of goods
Rendering of services
Revenue from construction contracts
Revenue
Cost of sales
Other operating income
Selling & distribution costs
Administrative expenses
Share of results of associate (after tax)
Operating profit
Income tax
Profit after tax
Profits recognised in respect of prior years disposals (after tax)
Profit for the period from discontinued operations*
Net gain on current year disposals - exceptional items (before tax)
Taxation
Net gain on current year disposals - exceptional items (after tax)
Profit for the period from discontinued operations
* Including intangibles amortisation net of tax of £0.1m (2007: £0.1m).
Operating profit is stated after charging (crediting)
Costs of inventories recognised as an expense
Depreciation & amortisation
Net foreign exchange (gains) losses
The income tax is analysed as follows
On profit on ordinary activities
In respect of prior year disposals
The cash inflow from current year disposals was as follows
Consideration
Costs associated with the disposals
Net cash inflow
Inter-segment sales
Capital expenditure
Net warranty expense
64
The Weir Group PLC Annual Report 2008
2008
£m
1.4
9.7
5.7
16.8
(12.9)
-
(0.6)
(1.8)
-
1.5
(0.4)
1.1
1.6
2.7
57.5
(2.4)
55.1
57.8
12.9
0.4
(0.4)
(0.4)
(2.4)
63.7
(3.1)
60.6
-
0.3
-
2007
£m
14.0
26.0
33.8
73.8
(51.3)
1.2
(5.0)
(8.5)
3.3
13.5
(1.6)
11.9
3.3
15.2
81.5
(0.6)
80.9
96.1
51.3
1.5
0.1
(1.6)
(0.6)
129.5
(4.3)
125.2
4.2
1.8
0.4
8. Discontinued operations (continued)
Earnings per share from discontinued operations
Basic
Diluted
2008
pence
27.6p
27.3p
2007
pence
46.0p
45.5p
These earnings per share figures were derived by dividing the net profit attributable to equity holders of the Company from discontinued operations of
£57.8m (2007: £96.1m) by the weighted average number of ordinary shares for both basic and diluted amounts shown in note 9.
The major classes of assets and liabilities disposed of were as follows
Property, plant & equipment
Other intangible assets
Investment in associate
Inventories
Trade & other receivables
Construction contracts assets
Derivative financial assets
Trade & other payables
Construction contracts liabilities
Derivative financial liabilities
Provisions
Current tax
Deferred tax
9. Earnings per share
2008
£m
5.1
0.9
-
0.2
13.3
1.8
-
(12.0)
(9.6)
(0.1)
(1.3)
(0.3)
0.1
(1.9)
2007
£m
9.7
0.4
26.8
6.7
13.6
9.7
2.9
(17.7)
(7.5)
(0.1)
(4.0)
-
-
40.5
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the year (adjusted for the effects of dilutive options and other share awards).
The following reflects the profit and share data used in the calculation of earnings per share.
Basic earnings per share
Profit attributable to equity holders of the Company
- Total operations*
- Continuing*
- Continuing (before exceptional items & intangibles amortisation)*
Weighted average share capital (number of shares, million)
Diluted earnings per share
Profit attributable to equity holders of the Company
- Total operations*
- Continuing*
- Continuing (before exceptional items & intangibles amortisation)*
Weighted average share capital (number of shares, million)
2008
£m
170.8
113.0
124.4
209.9
170.8
113.0
124.4
211.0
2007
£m
174.9
78.8
82.8
208.6
174.9
78.8
82.8
210.9
The Weir Group PLC Annual Report 2008
65
Notes to the Group Financial Statements (Continued)
9. Earnings per share (continued)
The difference between the weighted average share capital for the purposes of the basic and diluted earnings per share calculations is analysed as follows
Weighted average number of ordinary shares for basic earnings per share
Effect of dilution: share options
LTIP awards
conditional share award
Adjusted weighted average number of ordinary shares for diluted earnings per share
2008
Shares
Million
209.9
0.1
0.6
0.4
211.0
2007
Shares
Million
208.6
0.4
1.9
-
210.9
The profit attributable to equity holders of the Company used in the calculation of both basic and diluted earnings per share on continuing operations
before exceptional items and intangibles amortisation is calculated as follows
Net profit attributable to ordinary shareholders from continuing operations*
Exceptional items & intangibles amortisation net of tax
Net profit attributable to ordinary shareholders from continuing operations before exceptional items & intangibles amortisation*
2008
£m
113.0
11.4
124.4
There have been no share options (2007: 7,200) exercised between the reporting date and the date of signing of these financial statements.
* Adjusted for £nil (2007: £0.1m) attributable to minority interests.
10. Dividends paid & proposed
Declared & paid during the period
Equity dividends on ordinary shares
Final dividend for 2007: 12.35p (2006: 10.75p)
Interim dividend for 2008: 4.65p (2007: 4.15p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2008: 13.85p (2007: 12.35p)
2008
£m
25.9
9.8
35.7
29.1
2007
£m
78.8
4.0
82.8
2007
£m
22.4
8.7
31.1
25.8
The proposed dividend is based on the number of shares in issue, excluding treasury shares held, at the date the financial statements were approved and
authorised for issue. The final dividend may differ due to increases or decreases in the number of shares in issue between the date of approval of the report
and financial statements and the record date for the final dividend.
66
The Weir Group PLC Annual Report 2008
11. Property, plant & equipment & investment property
Cost
At 29 December 2006
Additions
Acquisitions
Disposals
Discontinued operations
Reclassification
Exchange adjustment
At 28 December 2007
Additions
Acquisitions
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Accumulated depreciation & impairment
At 29 December 2006
Depreciation charge for the period
Disposals
Discontinued operations
Reclassification
Exchange adjustment
At 28 December 2007
Depreciation charge for the period
Impairment
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Net book value at 29 December 2006
Net book value at 28 December 2007
Net book value at 26 December 2008
Land &
buildings
£m
Plant &
equipment
£m
Total property
plant &
equipment
£m
Investment
property
£m
64.6
8.7
2.4
(1.7)
-
(11.8)
3.3
65.5
9.5
3.7
(2.1)
(4.8)
14.6
86.4
23.2
1.8
(1.4)
-
(6.8)
1.0
17.8
3.0
-
(1.1)
(1.5)
4.6
22.8
41.4
47.7
63.6
181.9
31.4
8.7
(9.9)
(35.4)
-
8.5
185.2
42.0
5.7
(16.3)
(9.6)
33.1
240.1
106.7
16.3
(5.3)
(25.7)
-
4.6
96.6
19.8
2.8
(12.5)
(7.8)
15.2
114.1
75.2
88.6
126.0
246.5
40.1
11.1
(11.6)
(35.4)
(11.8)
11.8
250.7
51.5
9.4
(18.4)
(14.4)
47.7
326.5
129.9
18.1
(6.7)
(25.7)
(6.8)
5.6
114.4
22.8
2.8
(13.6)
(9.3)
19.8
136.9
116.6
136.3
189.6
-
-
-
-
-
11.8
-
11.8
-
-
-
-
-
11.8
-
0.2
-
-
6.8
-
7.0
0.3
-
-
-
-
7.3
-
4.8
4.5
The carrying value of buildings held under finance leases is £2.0m (2007: £1.6m). The carrying value of plant and equipment held under finance leases
is £0.1m (2007: £0.1m). Leased assets are pledged as security for the related finance lease liabilities. The carrying amount of assets under construction
included in plant & equipment is £6.9m (2007: £4.3m). The amount of compensation received from third parties for items of property, plant and
equipment that were impaired or lost included in the income statement is £nil (2007: £1.2m).
Following the disposal of Weir Pumps in 2007, a property held by the Company meets the definition of investment property and rental income is
generated from Clyde Union Ltd (formerly Clyde Pumps Ltd). The rental income included in the income statement amounts to £1.0m (2007: £0.6m).
A new three year lease was signed with Clyde Union Ltd on 15 January 2009 effective from 1 April 2009. This lease will provide £2.25m rental income
per annum and includes an option for Clyde Union Ltd to purchase the property for £28.5m.
The impairment charge of £2.8m (2007: £nil) relates to specific assets in a number of locations across the Group where associated product lines have
been changed or updated to reflect changing market conditions.
The Weir Group PLC Annual Report 2008
67
Notes to the Group Financial Statements (Continued)
12. Intangible assets
Cost
At 29 December 2006
Additions
Acquisitions
Disposals
Discontinued operations
Reclassification
Exchange adjustment
At 28 December 2007
Additions
Acquisitions
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Accumulated amortisation & impairment
At 29 December 2006
Amortisation charge for the period
Disposals
Discontinued operations
Reclassification
Exchange adjustment
At 28 December 2007
Amortisation charge for the period
Impairment
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Net book value at 29 December 2006
Net book value at 28 December 2007
Net book value at 26 December 2008
Goodwill Brand names
£m
£m
Customer
relationships
£m
Purchased
software
£m
Intellectual
property &
trade marks
£m
Other
£m
Total
£m
153.9
-
178.1
-
-
-
16.6
348.6
-
54.6
-
-
109.0
512.2
-
-
-
-
-
-
-
-
-
-
-
-
-
153.9
348.6
512.2
4.6
-
25.1
-
-
-
1.1
30.8
-
42.1
-
-
25.4
98.3
-
-
-
-
-
-
-
-
-
-
-
-
-
4.6
30.8
98.3
14.8
-
85.1
-
-
-
3.5
103.4
-
18.3
-
-
41.6
163.3
0.8
2.3
-
-
-
-
3.1
6.0
-
-
-
2.3
11.4
14.0
100.3
151.9
15.5
1.8
0.2
(0.2)
(1.6)
(0.5)
0.2
15.4
2.4
0.5
(0.3)
(3.6)
2.3
16.7
8.4
1.8
(0.1)
(1.2)
(0.5)
0.2
8.6
2.1
-
(0.3)
(2.7)
1.6
9.3
7.1
6.8
7.4
-
2.1
11.0
-
-
0.5
0.7
14.3
0.2
3.1
-
-
5.5
23.1
-
0.4
-
-
0.5
0.2
1.1
1.6
2.3
-
-
0.9
5.9
-
13.2
17.2
0.6
-
4.4
-
-
-
0.2
5.2
-
5.0
-
-
3.0
13.2
0.1
1.6
-
-
-
-
1.7
4.8
-
-
-
1.9
8.4
0.5
3.5
4.8
189.4
3.9
303.9
(0.2)
(1.6)
-
22.3
517.7
2.6
123.6
(0.3)
(3.6)
186.8
826.8
9.3
6.1
(0.1)
(1.2)
-
0.4
14.5
14.5
2.3
(0.3)
(2.7)
6.7
35.0
180.1
503.2
791.8
The impairment charge of £2.3m (2007: £nil) relates to previously recognised development costs and reflects changing market outlook in respect of those
specific products.
Brand names have been assigned an indefinite useful life and as such are not amortised. The brand name value of £98.3m (2007: £30.8m) comprises the
brands of Weir Warman £56.5m (2007: £nil), Weir Mesa £0.9m (2007: £nil), Weir Gabbioneta £6.6m (2007: £5.0m), Weir SPM £31.4m (2007: £23.1m)
and Weir Multiflo £2.9m (2007: £2.7m), all of which were recognised at fair value at their respective dates of acquisition. Weir Warman has a long history
in the minerals and mining markets and is considered to be a market leader. Weir Gabbioneta and Weir SPM brands both have long histories in the oil and
gas markets where they are both considered to be market leaders. The carrying value of brand names is tested annually for impairment.
The allocation of customer relationships and the remaining amortisation period of these assets is as follows
Weir SPM
Weir Gabbioneta
Weir Warman
Weir Mesa
Weir SOS
68
The Weir Group PLC Annual Report 2008
Remaining
amortisation period
Customer
relationships
2008
Years
23
22
9
9
7
2007
Years
24
23
-
-
-
2008
£m
111.6
18.6
10.7
9.4
1.6
151.9
2007
£m
85.4
14.9
-
-
-
100.3
12. Intangible assets (continued)
The amortisation and impairment charge for the period is included in the income statement as follows
Cost of sales
Selling & distribution costs
Administrative expenses
Profit for the period from discontinued operations
Amortisation charge for the period
Impairment of intangibles (included within administrative expenses)
Intangibles amortisation and impairment charge for the period
2008
£m
0.7
0.2
13.5
0.1
14.5
2.3
16.8
2007
£m
0.4
0.1
5.5
0.1
6.1
-
6.1
13. Business combinations
On 18 March 2008, following receipt of regulatory clearance from the South African competition authorities, the Group acquired 100% of the CH Warman
Pump Group (“Weir Warman”), a specialist pump business primarily focused on serving the mining and minerals processing industry throughout Africa. The
total cash consideration was £113.8m. On 24 June 2008, the Group acquired 100% of Mesa Manufacturing Inc. (“Weir Mesa”), a privately owned business
based in Texas specialising in the manufacture of cementing pumps and other products for the oil and gas drilling and well service industries. The total
cash consideration was £23.1m.
On 4 July 2008, the Group acquired 75% of the share capital of Standard Oilfield Services Limited (“Weir SOS”), a privately owned oil equipment services
business registered in the Bahamas, based in Baku, Azerbaijan, with an obligation to acquire the remaining 25% over the next three years. The total cash
consideration payable is £10.9m, including deferred consideration of £2.7m in relation to the remaining 25%. In accordance with IFRS3, the acquisition
has been accounted for on the basis that a 100% interest has been acquired with no minority interest.
The fair values of the identifiable assets and liabilities at the relevant dates of acquisition are as follows
2008
Carrying
2008
Recognised
values on acquisition
2008
Carrying
values
2008
Recognised
on acquisition
2008
Carrying
values
2008
Recognised
on acquisition
2008
Recognised
on acquisition
Weir SOS
£m
Weir SOS
£m
Weir Mesa
£m
Weir Mesa Weir Warman Weir Warman
£m
£m
£m
Property, plant & equipment
Intangible assets
Inventories
Trade & other receivables
Cash & cash equivalents
Interest-bearing loans & borrowings
Trade & other payables
Provisions
Income tax
Deferred tax
Fair value of net assets
Goodwill arising on acquisition
Total consideration
Cash consideration
Costs associated with the acquisitions
Deferred consideration
Total consideration
The cash outflow on acquisition was as follows
Cash & cash equivalents acquired
Cash paid
Net cash outflow
1.3
-
0.8
1.4
0.6
-
(0.5)
-
-
-
3.6
0.9
6.0
0.4
1.4
0.6
-
(0.6)
-
-
(0.6)
8.1
2.8
10.9
8.1
0.1
2.7
10.9
0.6
(8.2)
(7.6)
3.4
-
2.6
1.5
1.9
-
(0.6)
-
(0.3)
-
8.5
2.8
8.2
3.4
1.2
1.9
-
(0.5)
(0.2)
(0.1)
(3.1)
13.6
9.5
23.1
22.9
0.2
-
23.1
1.9
(23.1)
(21.2)
2.0
-
13.2
9.4
2.3
(3.0)
(4.1)
(2.3)
(0.1)
0.5
17.9
5.7
54.8
14.1
8.4
2.3
(3.0)
(5.1)
(3.2)
0.2
(2.7)
71.5
42.3
113.8
113.4
0.4
-
113.8
Total
£m
9.4
69.0
17.9
11.0
4.8
(3.0)
(6.2)
(3.4)
0.1
(6.4)
93.2
54.6
147.8
144.4
0.7
2.7
147.8
2.3
(113.8)
(111.5)
4.8
(145.1)
(140.3)
On 13 February 2008 the Group acquired the remaining 26% of Weir Engineering Services (India) Limited for a cash consideration of £0.6m.
The Weir Group PLC Annual Report 2008
69
Notes to the Group Financial Statements (Continued)
13. Business combinations (continued)
From the date of the acquisition Weir Warman, Weir Mesa and Weir SOS contributed £4.8m, £0.6m and £1.4m respectively to the 2008 profit for the
period from continuing operations of the Group. The combined continuing operations revenue and profit of the Group, assuming that Weir Warman,
Weir Mesa and Weir SOS had been acquired at the start of 2008, would have been £1,371.7m and £116.2m respectively.
Included in the £54.6m (2007: £178.1m) of goodwill recognised are certain intangible assets that cannot be individually separated and reliably measured
from the acquiree due to their nature. These items include the expected value of synergies and an assembled workforce.
On 19 July 2007, the Group acquired 100% of the share capital of SPM Flow Control Inc. (“Weir SPM”), a company based in Fort Worth, Texas, specialising
in the manufacture of high-pressure well service pumps and related flow control equipment which operate in abrasive, high-wear applications in oil and gas
drilling and extraction. The total cash consideration was £321.9m.
On 21 August 2007, the Company acquired Weir Multiflo, a privately owned specialist mine dewatering pump business based in Caloundra, Australia.
The total cash consideration was £9.3m.
The provisional fair values of the identifiable assets and liabilities at the relevant dates of acquisition, which were not changed following their final
determination in 2008, were as follows
Property, plant & equipment
Intangible assets
Inventories
Trade & other receivables
Cash & cash equivalents
Interest-bearing loans & borrowings
Trade & other payables
Provisions
Income tax
Deferred tax
Fair value of net assets
Goodwill arising on acquisition
Total consideration
Consideration
Costs associated with the acquisition
Total consideration
The cash outflow on acquisition was as follows
Cash & cash equivalents acquired
Cash paid
Net cash outflow
2007
Carrying
values
2007
Recognised
on acquisition
Weir Multiflo
£m
Weir Multiflo
£m
2007
Carrying
values
Weir SPM
£m
11.5
-
29.6
36.8
13.5
(0.2)
(21.7)
(1.0)
(0.2)
0.8
69.1
0.1
-
1.3
1.5
-
-
(2.1)
(0.1)
-
-
0.7
0.2
4.4
0.3
1.5
-
-
(1.4)
(0.1)
-
-
4.9
4.4
9.3
9.2
0.1
9.3
-
(9.3)
(9.3)
2007
Recognised
on acquisition
2007
Recognised
on acquisition
Weir SPM
£m
10.9
121.4
37.2
35.6
13.5
(0.2)
(21.9)
(2.7)
(4.2)
(41.4)
148.2
173.7
321.9
319.3
2.6
321.9
Total
£m
11.1
125.8
37.5
37.1
13.5
(0.2)
(23.3)
(2.8)
(4.2)
(41.4)
153.1
178.1
331.2
328.5
2.7
331.2
13.5
(321.9)
(308.4)
13.5
(331.2)
(317.7)
From the date of the acquisition, Weir SPM contributed £9.8m to the 2007 profit for the period from continuing operations of the Group. The results of
Weir Multiflo were not significant. The combined continuing operations revenue and profit of the Group, assuming that Weir SPM and Weir Multiflo had
been acquired at the start of 2007, would have been £1,164.9m and £98.5m respectively.
70
The Weir Group PLC Annual Report 2008
14. Impairment testing of goodwill & intangible assets with indefinite lives
Goodwill acquired through business combinations and intangible assets with indefinite lives have been allocated at acquisition to the cash generating units
(CGUs) that are expected to benefit from that business combination. The carrying amount of goodwill and intangible assets with indefinite lives has been
allocated as per the table below. The amount allocated as “Other” is not considered significant in comparison to the total carrying amount of goodwill.
Weir SPM
Warman companies
Weir Gabbioneta
Weir Warman
Other
* Intangible assets with indefinite lives.
Year acquired
2008
Goodwill
£m
2008
Intangibles*
£m
2007
Goodwill
£m
2007
Intangibles*
£m
2007
1999
2005
2008
various
242.5
102.9
69.1
55.7
42.0
512.2
31.5
-
6.6
56.7
3.5
98.3
178.0
94.7
52.7
-
23.2
348.6
23.1
-
5.0
-
2.7
30.8
The Group tests goodwill and intangible assets with indefinite lives annually for impairment, or more frequently if there are indications that these might
be impaired. The basis of these impairment tests including key assumptions are set out in the table below.
CGU
Weir SPM
Basis of
valuation
Period of
forecast
Discount
rate1
Real
growth2
Key
assumptions
Source
Value in use
5 years
13.4%
(2007: 14.8%)
1.2%
(2007: nil)
Revenue growth3
EBIT margins7
External forecast
Historic experience
Warman companies
Value in use
5 years
14.6%
(2007: 15.5%)
1.2%
(2007: nil)
Revenue growth6
EBIT margins7
External forecast
Historic experience
Weir Gabbioneta
Value in use
5 years
14.6%
(2007: 14.3%)
1.2%
(2007: nil)
Revenue growth5
EBIT margins7
External forecast
Historic experience
Weir Warman
Value in use
5 years
17.8%
(2007: n/a)
4.0%
(2007: n/a)
Revenue growth4
EBIT margins7
External forecast
Historic experience
1 Discount rates
The discount rates presented above reflect the pre-tax nominal weighted average cost of capital (WACC) in the most appropriate geographic region. The
WACC is the weighted average of the pre-tax cost of debt financing and the pre-tax cost of equity finance. On average there has been a moderate decline
in the WACC relative to 2007 largely driven by the reduction in benchmark interest rates. This reduction in benchmark interest rates has been partly offset
by an increase in lending margins that banks are now placing on borrowings.
2 Real growth
Real growth beyond the 5 year forecast period of 1.2% to 4.0% reflects the increasingly global nature of these businesses and the fact that they sell a
significant proportion of their products to emerging markets which have long-term stronger growth prospects than their home markets.
3 Weir SPM
Weir SPM is a supplier of gas well service pumps, associated flow control equipment and services to the oil and gas production industry. A large proportion
of the business’s revenues are generated in North America with demand being closely related to the number of gas well drilling rigs in operation which is in
turn dependent upon natural gas prices and gas storage levels. Independent forecasts of North American gas well drilling activity, which takes into account
forecast natural gas prices and gas storage levels have been used to derive revenue growth assumptions. These independent forecasts were prepared during
the final quarter 2008.
The Weir Group PLC Annual Report 2008
71
Notes to the Group Financial Statements (Continued)
14. Impairment testing of goodwill & intangible assets with indefinite lives (continued)
4 Weir Warman
Weir Warman is a supplier of pumps and associated equipment and services to the African mining industry. The key drivers for revenues are (i) levels of
mining capital expenditure across Africa which drives demand for original equipment and (ii) levels of actual mining activity which drives demand for
spare parts and service. Independent forecasts of mining activity have been used to derive revenue growth assumptions. These independent forecasts
were prepared during the final quarter 2008.
5 Weir Gabbioneta
Weir Gabbioneta is a supplier of heavy duty process applications to oil and gas refinery, petrochemical and power generation industries. The key drivers
for revenues are capital expenditure within oil refinery and petro-chemical industries. Independent forecasts of expenditure in these sectors have been
used to derive revenue growth assumptions. These independent forecasts were prepared during the final quarter 2008.
6 Warman companies
The Warman companies supply pumps and associated equipment and services to all global markets outside Africa. The key drivers for revenues are (i) levels
of mining capital expenditure which drives demand for original equipment and (ii) levels of actual mining activity which drives demand for spare parts and
service. Independent forecasts of mining activity have been used to derive revenue growth assumptions. These independent forecasts were prepared during
the final quarter 2008.
7 EBIT margins
EBIT margins have been forecast based on historic levels taking cognisance of the likely impact of changing economic environments and competitive
landscapes on volumes and revenues and the impact of associated management actions on costs.
Sensitivity analysis
Base case forecasts show significant headroom above carrying value for each of the CGUs. Sensitivity analysis has been undertaken for each CGU to assess
the impact of any reasonably possible change in key assumptions. There is no reasonably possible change that would cause the carrying values to exceed
recoverable amounts.
15. Investments in joint ventures & associate
The significant investments in joint ventures and associate are as follows
Joint
ventures
£m
7.5
3.4
(3.7)
-
7.2
4.4
(3.5)
2.2
10.3
Associate
£m
26.0
3.3
(2.5)
(26.8)
-
-
-
-
-
Total
£m
33.5
6.7
(6.2)
(26.8)
7.2
4.4
(3.5)
2.2
10.3
At 29 December 2006
Share of results
Share of dividends
Discontinued operations
At 28 December 2007
Share of results
Share of dividends
Exchange adjustment
At 26 December 2008
72
The Weir Group PLC Annual Report 2008
15. Investments in joint ventures & associate (continued)
Details of the Group's share of the balance sheets, revenue and profits of its joint ventures and associate are given below.
Share of joint ventures balance sheet
Goodwill
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of joint ventures revenue & profit
Revenue
Cost of sales
Selling & distribution costs
Administrative expenses
Income tax expense
Profit after tax
Carrying value of investments in joint ventures
Share of associate’s revenue & profit
Revenue
Profit after tax
2008
£m
3.6
11.0
2.9
(5.2)
(2.0)
10.3
17.5
(10.5)
(0.4)
(1.4)
(0.8)
4.4
10.3
-
-
2007
£m
2.6
6.8
2.0
(3.7)
(0.5)
7.2
13.7
(8.7)
(0.4)
(0.6)
(0.6)
3.4
7.2
55.0
3.3
The Group's significant investments in joint ventures are listed on page 112. The Group's interest in DML was sold on 28 June 2007 and as such there are
no net assets in respect of associates at 2007 or 2008.
16. Inventories
Raw materials
Work in progress
Finished goods
2008
£m
87.3
69.6
112.7
269.6
2007
£m
46.8
48.3
78.4
173.5
The carrying amount of inventory at fair value less costs to sell is £17.8m (2007: £43.8m). Write downs of inventory occur regularly in the general course
of business. These write downs are considered to be insignificant and are included in cost of sales in the income statement.
17. Trade & other receivables
Trade receivables
Allowance for doubtful debts
Other debtors
Sales tax receivable
Accrued income
Prepayments
The average credit period on sales of goods is 52 days (2007: 61 days).
2008
£m
274.2
(11.7)
262.5
20.4
10.6
6.6
9.1
309.2
2007
£m
220.7
(4.2)
216.5
21.5
6.8
2.8
7.6
255.2
The Weir Group PLC Annual Report 2008
73
Notes to the Group Financial Statements (Continued)
17. Trade & other receivables (continued)
Analysis of trade receivables
Neither impaired nor past due
Past due but not impaired
Impaired
Ageing of past due but not impaired trade receivables
Up to 3 months
Between 3 and 6 months
More than 6 months
Movement in the allowance for doubtful debts
Balance at beginning of period
Impairment losses recognised on receivables
Discontinued operations
Amounts written off as uncollectible
Amounts recovered during the year
Impairment losses reversed
Exchange adjustment
Balance at end of period
Ageing of impaired trade receivables
Up to 3 months
Between 3 and 6 months
More than 6 months
18. Construction contracts
Gross amount due from customers for contract work (included in current assets)
Gross amount due to customers for contract work (included in current liabilities)
2008
£m
217.5
45.0
11.7
274.2
2008
£m
32.1
9.0
3.9
45.0
2008
£m
(4.2)
(5.6)
-
0.1
0.1
0.2
(2.3)
(11.7)
2008
£m
0.4
0.8
10.5
11.7
2008
£m
30.6
46.7
2007
£m
172.5
44.0
4.2
220.7
2007
£m
36.6
5.7
1.7
44.0
2007
£m
(3.2)
(2.0)
0.3
0.3
0.3
0.2
(0.1)
(4.2)
2007
£m
0.1
0.3
3.8
4.2
2007
£m
32.8
55.9
For contracts in progress at the balance sheet date, the amount of contract costs incurred plus recognised profits less recognised losses to date was
£185.8m (2007: £188.2m). The amount of retentions held by customers for contract work amounted to £0.6m (2007: £0.1m) and the amount of
advances received from customers for contract work amounted to £202.5m (2007: £152.5m).
74
The Weir Group PLC Annual Report 2008
19. Cash & short-term deposits
Cash at bank & in hand
Short-term deposits
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprises the following
Cash & short-term deposits
Bank overdrafts & short-term borrowings (note 20)
2008
£m
72.9
1.2
74.1
74.1
(20.5)
53.6
2007
£m
51.6
2.6
54.2
54.2
(8.1)
46.1
Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between
one day and three months depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates.
20. Interest-bearing loans & borrowings
Current
Bank overdrafts
Short-term borrowings
Bank loans
Obligations under finance leases (note 27)
Non-current
Bank loans
Obligations under finance leases (note 27)
Bank loans comprise the following
Bilateral
Canadian dollar variable rate loans
Australian dollar variable rate loans
United States dollar variable rate loans
Canadian dollar variable rate loans
United States dollar variable rate loans
Sterling variable rate loans
Other
Euro fixed rate loans
Less current instalments due on bank loans
Canadian dollar variable rate loans
Euro 5.4% fixed rate loans
Weighted average
interest rate
Maturity
Interest basis
2009
2008
2008
2011
2011
2011
CAD$ LIBOR
A$ LIBOR, BBSW
US$ LIBOR
CAD$ LIBOR
US$ LIBOR
LIBOR
FIXED
2008
%
2.93
-
-
3.13
2.18
2.81
5.40
2007
%
5.46
7.72
5.42
-
-
-
5.40
2008
£m
18.1
2.4
20.5
50.4
0.5
71.4
241.8
0.8
242.6
2008
£m
50.3
-
-
20.7
206.1
15.0
0.1
292.2
(50.3)
(0.1)
241.8
2007
£m
2.7
5.4
8.1
0.1
0.3
8.5
216.5
0.5
217.0
2007
£m
89.5
76.9
50.1
-
-
-
0.1
216.6
-
(0.1)
216.5
CAD$ LIBOR is the Canadian dollar London Inter Bank Offer Rate. US$ LIBOR is the United States dollar London Inter Bank Offer Rate. A$ LIBOR is the
Australian dollar London Inter Bank Offer Rate. BBSW is the Australian Bank Bill Rate. LIBOR is the Sterling London Inter Bank Offer Rate.
The disclosures above represent the interest profile and currency profile of financial liabilities before the impact of derivative financial instruments.
The Weir Group PLC Annual Report 2008
75
Notes to the Group Financial Statements (Continued)
20. Interest-bearing loans & borrowings (continued)
During 2008, the Group entered into a series of bilateral facilities with nine banks totalling £625m. As at 26 December 2008, £241.8m was drawn under
these facilities in Canadian dollars, United States dollars and Sterling.
In addition, the Group has a CAD$90m facility and a £20m multi-currency facility both of which mature in 2009. As at 26 December 2008, the Canadian
dollar facility was fully drawn and the multi-currency facility was unutilised.
In 2008, the Group entered into a series of interest rate swaps to fix the rate of interest that it would pay on US$200m variable rate borrowings.
The interest rate swaps fixed the whole term of interest at a weighted average of 3.43% plus the applicable margin for this element of the Group’s debt.
2008
£m
194.1
30.5
14.0
63.0
2.7
49.3
353.6
Warranties
£m
Employee
related
£m
Discontinued
operations
warranty &
indemnity
£m
Rationalisation
£m
Onerous sales
contracts
£m
17.6
10.0
1.1
-
(5.0)
(1.7)
2.5
24.5
17.2
7.3
24.5
12.7
4.9
17.6
11.1
7.8
1.4
(0.1)
(1.4)
(0.1)
1.2
19.9
4.1
15.8
19.9
2.1
9.0
11.1
8.7
5.4
-
-
(0.6)
(1.6)
-
11.9
1.6
10.3
11.9
2.7
6.0
8.7
2.4
0.5
-
-
(1.8)
-
0.3
1.4
1.4
-
1.4
2.3
0.1
2.4
1.8
3.6
0.2
(1.2)
(0.3)
(0.2)
0.7
4.6
4.6
-
4.6
1.8
-
1.8
Other
£m
3.8
0.7
0.7
-
(0.9)
(0.3)
0.6
4.6
1.6
3.0
4.6
1.2
2.6
3.8
2007
£m
142.1
14.0
14.2
61.4
-
26.1
257.8
Total
£m
45.4
28.0
3.4
(1.3)
(10.0)
(3.9)
5.3
66.9
30.5
36.4
66.9
22.8
22.6
45.4
21. Trade & other payables
Trade payables
Other creditors
Other taxes & social security costs
Accruals
Deferred consideration (note 13)
Deferred income
22. Provisions
At 28 December 2007
Additions
Acquisitions
Discontinued operations
Utilised
Unutilised
Exchange adjustment
At 26 December 2008
Current 2008
Non-current 2008
Current 2007
Non-current 2007
76
The Weir Group PLC Annual Report 2008
22. Provisions (continued)
Warranties
Provision has been made in respect of actual warranty and contract penalty claims on goods sold and services provided and allowance has been made
for potential warranty claims based on past experience for goods and services sold with a warranty guarantee. It is expected that all costs related to such
claims will have been incurred within five years of the balance sheet date.
Employee related
Employee related provisions arise from legal obligations and asbestosis claims and are based on management’s best estimates of the likely costs.
It is expected that the costs will be incurred in the period up to 2021.
Discontinued operations warranty & indemnity
Provisions in respect of discontinued operations include provision for warranty and indemnity exposures under asset and share sale agreements. In addition,
provision is included for costs associated with the Group’s involvement in the UN sanctioned Oil for Food programme, in respect of which, investigations
by UK authorities are ongoing. Provisions amounting to £0.6m were utilised during 2008 and following the expiry of certain warranty periods, an amount
of £1.6m has been released to the income statement as it is no longer required. Provisions have increased by £5.4m during 2008 in respect of the current
year disposals (note 8).
The provision as at 26 December 2008 is based on management’s current best estimate of the remaining liabilities. The actual outcome may differ, and in
some cases, this may be dependent on the outcome of legal proceedings. It is expected that the majority of these costs will be incurred within two years
of the balance sheet date with the remaining costs expected to be incurred within five years of the balance sheet date.
Rationalisation
Rationalisation provisions relate primarily to costs associated with various ongoing restructuring activities across the Group. It is expected that the provision
will be utilised in 2009.
Onerous sales contracts
Provision has been made in respect of sales contracts entered into for the sale of goods in the normal course of business where the unavoidable costs of
meeting the obligations under the contracts exceeds the economic benefits expected to be received from the contracts. Provision is made immediately
when it becomes apparent that expected costs will exceed the expected benefits of the contract. It is expected that the costs will be incurred within one
year of the balance sheet date.
Other
Other provisions relate principally to an environmental clean up programme in the United States, for a company acquired in 1992. The environmental
provision is based on management’s current best estimate of the expected costs under the programme. It is expected that these costs will be incurred
in the period up to 2019.
The Weir Group PLC Annual Report 2008
77
Notes to the Group Financial Statements (Continued)
23. Deferred tax
Consolidated balance sheet
Deferred income tax assets
Post-employment benefits
Decelerated depreciation for tax purposes
US deferred interest deductions
Untaxed reserves
Offset against liabilities
Gross deferred income tax assets
Deferred income tax liabilities
Post-employment benefits
Accelerated depreciation for tax purposes
Overseas tax on unremitted earnings
Intangible assets
Other temporary differences
Offset against assets
Gross deferred income tax liabilities
Net deferred income tax liability
2008
£m
2007
£m
5.0
1.3
-
29.3
(19.1)
16.5
-
(3.8)
(8.6)
(68.5)
(1.2)
19.1
(63.0)
(46.5)
3.2
0.2
0.4
20.1
(20.8)
3.1
(12.8)
(3.0)
(9.1)
(47.8)
(1.4)
20.8
(53.3)
(50.2)
Total
£m
5.4
(4.9)
(7.5)
(41.4)
(1.8)
(50.2)
5.7
16.6
(6.4)
0.1
(12.3)
(46.5)
The movement in deferred income tax asset and liabilities during the year is as follows
Post
employment
benefits
£m
Accelerated
depreciation
for tax
purposes
£m
US deferred
interest
deductions
£m
Overseas tax
on unremitted
earnings
£m
Tax losses
£m
Intangible
assets
£m
Untaxed
reserves
£m
At 29 December 2006
(Charged) credited to the income statement
(Charged) credited to equity
Acquisitions
Exchange adjustment
At 28 December 2007
Credited (charged) to the income statement
Credited to equity
Acquisitions
Disposals
Exchange adjustment
At 26 December 2008
1.8
(3.4)
(7.9)
-
(0.1)
(9.6)
0.3
13.0
-
-
1.3
5.0
(2.4)
(0.4)
-
-
-
(2.8)
0.9
-
(0.2)
0.1
(0.5)
(2.5)
2.6
(2.7)
-
-
0.1
-
-
-
-
-
-
-
3.2
(2.7)
-
-
(0.1)
0.4
(0.4)
-
-
-
-
-
(7.6)
(1.1)
-
-
(0.4)
(9.1)
0.9
-
-
-
(0.4)
(8.6)
(4.8)
2.1
-
(43.7)
(1.4)
(47.8)
3.3
-
(6.2)
-
(17.8)
(68.5)
12.6
3.3
0.4
2.3
0.1
18.7
0.7
3.6
-
-
5.1
28.1
Untaxed reserves primarily relate to temporarily disallowed inventory/debtor provisions and accruals/provisions for liabilities where the tax allowance
is deferred until the cash expense occurs.
Deferred tax asset balances for unused tax losses of £5.1m (2007: £8.2m) and deductible temporary differences of £4.7m (2007: £4.0m)
have not been recognised on the grounds that there is insufficient evidence that these assets will be recoverable. These assets will be recovered
when future tax charges are sufficient to absorb these tax benefits. Deferred tax asset balances for capital losses in the UK amounting to £10.9m
(2007: £16.1m) have not been recognised but would be available in the event of future capital gains being incurred by the Group.
Temporary differences associated with Group investments
The Group extracts dividends from its operations in South America and accordingly, a deferred tax liability of £8.6m (2007: £9.1m) has been recognised in
respect of taxes on the unremitted earnings of the South American subsidiaries. As at 26 December 2008, this is the only recognised deferred tax liability in
respect of taxes on unremitted earnings as the Group does not foresee a distribution of unremitted earnings from other subsidiaries or joint ventures which
would result in a reversal of deferred tax.
The temporary differences associated with investments in subsidiaries and joint ventures, for which a deferred tax liability has not been recognised
aggregate to £758.4m (2007: £465.8m).
There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.
78
The Weir Group PLC Annual Report 2008
24. Pensions & other post-employment benefit plans
The Group has five defined benefit pension plans in the UK and North America, all of which, with the exception of the main UK plan, are final salary pension
plans. Contribution salary in respect of the Group’s main UK plan will increase in line with RPI up to a maximum of 5% per annum. The most significant of the
defined benefit plans are the two UK plans and the Canadian plan. All defined benefit plans are closed to new members. The wind up of the Canadian plan has
commenced and is expected to be completed in 2009. For these closed plans, the current service cost is expected to increase under the projected unit method
as the members of the plan approach retirement. The Group also provides certain additional post-retirement healthcare benefits to senior employees in the
United States. These benefits are unfunded.
The assets and liabilities of the plans are as follows
52 weeks ended 26 December 2008
Plans in surplus at 26 December 2008
Plans in deficit at 26 December 2008
Plan assets at fair value
Equities
Bonds
Insurance policy
Other
Fair value of plan assets
Present value of plan liabilities
Net pension asset (liability)
52 weeks ended 28 December 2007
Plans in surplus at 28 December 2007
Plans in deficit at 28 December 2007
Plan assets at fair value
Equities
Bonds
Insurance policy
Other
Fair value of plan assets
Present value of plan liabilities
Net pension asset (liability)
UK
pensions
£m
3.9
(2.3)
1.6
118.6
91.8
272.9
-
483.3
(481.7)
1.6
UK
pensions
£m
44.0
(1.1)
42.9
208.5
159.2
218.5
-
586.2
(543.3)
42.9
North
American
pensions
£m
Post
retirement
healthcare
£m
-
(9.9)
(9.9)
4.4
23.8
17.9
15.1
61.2
(71.1)
(9.9)
-
(6.4)
(6.4)
-
-
-
-
-
(6.4)
(6.4)
North
American
pensions
£m
Post
retirement
healthcare
£m
1.5
(3.1)
(1.6)
4.6
33.9
18.3
0.7
57.5
(59.1)
(1.6)
-
(4.4)
(4.4)
-
-
-
-
-
(4.4)
(4.4)
Total
£m
3.9
(18.6)
(14.7)
123.0
115.6
290.8
15.1
544.5
(559.2)
(14.7)
Total
£m
45.5
(8.6)
36.9
213.1
193.1
236.8
0.7
643.7
(606.8)
36.9
The pension plans have not invested in any of the Group’s own financial instruments nor in properties or other assets used by the Group.
The Weir Group PLC Annual Report 2008
79
Notes to the Group Financial Statements (Continued)
24. Pensions & other post-employment benefit plans (continued)
The amounts recognised in the Group income statement and in the Group statement of recognised income and expense for the year are analysed as follows
52 weeks ended 26 December 2008
Recognised in the income statement
Current service cost
Expected return on plan assets
Interest cost on plan liabilities
Other finance (income) cost
Curtailment loss (gain) recognised*
Taken to the statement of recognised income & expense
Actual return on plan assets
Less: expected return on plan assets
Other actuarial gains (losses)
Actuarial losses recognised in the statement of recognised income & expense
UK
pensions
£m
North
American
pensions
£m
Post
retirement
healthcare
£m
1.6
(34.5)
31.4
(3.1)
-
(89.1)
(34.5)
(123.6)
72.2
(51.4)
0.9
(2.6)
3.6
1.0
2.5
(1.0)
(2.6)
(3.6)
0.4
(3.2)
Total
£m
2.5
(37.1)
35.3
(1.8)
-
-
0.3
0.3
(0.1)
2.4
-
-
-
(0.3)
(0.3)
(90.1)
(37.1)
(127.2)
72.3
(54.9)
* The curtailment loss of £2.5m in respect of North American pensions relates to the wind up of the Canadian plan.
52 weeks ended 28 December 2007
Recognised in the income statement
Current service cost
Expected return on plan assets
Interest cost on plan liabilities
Other finance (income) cost
Taken to the statement of recognised income & expense
Actual return on plan assets
Less: expected return on plan assets
Other actuarial gains (losses)
Actuarial gains (losses) recognised in the statement of recognised income & expense
UK
pensions
£m
North
American
pensions
£m
Post
retirement
healthcare
£m
2.9
(33.1)
29.8
(3.3)
13.5
(33.1)
(19.6)
50.2
30.6
1.1
(3.0)
2.8
(0.2)
2.9
(3.0)
(0.1)
(1.4)
(1.5)
-
-
0.3
0.3
-
-
-
0.4
0.4
Total
£m
4.0
(36.1)
32.9
(3.2)
16.4
(36.1)
(19.7)
49.2
29.5
80
The Weir Group PLC Annual Report 2008
24. Pensions & other post-employment benefit plans (continued)
Pension contributions are determined with the advice of independent qualified actuaries on the basis of annual valuations using the projected unit method.
The Group made contributions of £6.5m in 2008 (2007: £6.5m) in addition to the employers regular contributions. The total contributions to the defined
benefit plans in 2009 are expected to be £8.4m. Plan assets are stated at their market values at the respective balance sheet dates and overall expected
rates of return are established by applying published brokers forecasts to each category of plan assets and allowing for plan expenses.
Main assumptions
Rate of salary increase
Rate of increase in pensions in payment
Pre 6 April 2006 service
Post 6 April 2006 service
Discount rate
Expected rates of return on plan assets
Equities
Bonds
Insurance policy
Other
Inflation assumption
Rate of increase in healthcare costs
UK pensions
2007
%
3.3
3.3
2.5
5.9
7.7
4.3
5.9
n/a
3.3
n/a
North American pensions
2007
%
2008
%
Post-retirement healthcare
2007
%
2008
%
3.6
n/a
n/a
4.7
6.3
5.0
5.0
1.2
2.1
n/a
3.1
n/a
n/a
5.7
8.0
4.2
5.5
2.5
2.3
n/a
n/a
n/a
n/a
6.3
n/a
n/a
n/a
n/a
2.1
*
n/a
n/a
n/a
6.4
n/a
n/a
n/a
n/a
2.5
*
2008
%
2.7
2.7
2.4
6.2
7.2
4.2
6.2
n/a
2.7
n/a
* 9.65% per annum decreasing to 5% per annum and remaining static at that level from 2013 onwards.
Post-retirement mortality
Current pensioners at 65 - male
Current pensioners at 65 - female
Future pensioners at 65 - male
Future pensioners at 65 - female
UK pensions
2007
Years
18.1
20.9
19.6
22.3
2008
Years
18.1
20.9
19.6
22.3
North American pensions
2007
Years
2008
Years
Post-retirement healthcare
2007
Years
2008
Years
19.2
21.7
22.4
22.5
19.2
21.7
22.4
22.5
18.1
20.5
18.1
20.5
18.1
20.5
18.1
20.5
The post-retirement mortality assumptions allow for expected increases in longevity. The “current” disclosures above relate to assumptions based on
longevity (in years) following retirement at the balance sheet date, with “future” being that relating to an employee retiring in 2038 (in 30 years time).
The assumed investment return and discount rate have a significant effect on the reported retirement benefit obligation and the income statement
expense for 2009. The effect of a one percentage point change in those assumptions is set out in the table below.
Expected investment return
Effect on income statement in 2009
Discount rate
Effect on income statement in 2009
Effect on retirement benefit obligation at 26 December 2008
One percentage point
Increase
£m
Decrease
£m
5.0
(5.0)
0.5
34.3
(0.1)
(42.3)
A one percentage point change in the assumed rate of increase in healthcare costs would have the following effects.
Effect on defined benefit obligation
0.5
(0.4)
0.4
(0.3)
Increase
2008
£m
Decrease
2008
£m
Increase
2007
£m
Decrease
2007
£m
The Weir Group PLC Annual Report 2008
81
Notes to the Group Financial Statements (Continued)
24. Pensions & other post-employment benefit plans (continued)
Changes in the present value of the defined benefit obligations are analysed as follows
As at 29 December 2006
Current service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial gains & losses
Exchange adjustment
As at 28 December 2007
Current service cost
Interest cost
Benefits paid
Contributions by employees
Curtailment loss (gain)
Actuarial gains & losses
Exchange adjustment
As at 26 December 2008
UK
pensions
£m
North
American
pensions
£m
Post
retirement
healthcare
£m
582.2
2.9
29.8
(23.3)
1.9
(50.2)
-
543.3
1.6
31.4
(23.6)
1.2
-
(72.2)
-
481.7
50.0
1.1
2.8
(3.0)
0.5
1.4
6.3
59.1
0.9
3.6
(4.1)
0.5
2.5
(0.4)
9.0
71.1
4.9
-
0.3
(0.3)
-
(0.4)
(0.1)
4.4
-
0.3
(0.3)
-
(0.1)
0.3
1.8
6.4
Total
£m
637.1
4.0
32.9
(26.6)
2.4
(49.2)
6.2
606.8
2.5
35.3
(28.0)
1.7
2.4
(72.3)
10.8
559.2
The defined benefit obligation comprises £7.4m (2007: £5.5m) arising from unfunded plans and £551.8m (2007: £601.3m) from plans that are wholly or
partially funded.
Changes in the fair value of plan assets are analysed as follows
UK
pensions
£m
North
American
pensions
£m
Post
retirement
healthcare
£m
584.7
33.1
9.4
1.9
(23.3)
(19.6)
-
586.2
34.5
8.6
1.2
(23.6)
(123.6)
-
483.3
48.5
3.0
2.0
0.5
(3.0)
(0.1)
6.6
57.5
2.6
1.2
0.5
(4.1)
(3.6)
7.1
61.2
-
-
0.3
-
(0.3)
-
-
-
-
0.3
-
(0.3)
-
-
-
Total
£m
633.2
36.1
11.7
2.4
(26.6)
(19.7)
6.6
643.7
37.1
10.1
1.7
(28.0)
(127.2)
7.1
544.5
As at 29 December 2006
Expected return on plan assets
Employer contributions
Contributions by employees
Benefits paid
Actuarial gains & losses
Exchange adjustment
As at 28 December 2007
Expected return on plan assets
Employer contributions
Contributions by employees
Benefits paid
Actuarial gains & losses
Exchange adjustment
As at 26 December 2008
82
The Weir Group PLC Annual Report 2008
24. Pensions & other post-employment benefit plans (continued)
History of experience gains & losses
UK pensions
Fair value of plan assets
Present value of defined benefit obligations
Surplus (deficit) in the plans
Experience adjustments arising on plan liabilities
Changes in financial assumptions underlying plan liabilities
Experience adjustments arising on plan assets
North American pensions
Fair value of plan assets
Present value of defined benefit obligations
Deficit in the plans
Experience adjustments arising on plan liabilities
Changes in financial assumptions underlying plan liabilities
Experience adjustments arising on plan assets
Post-retirement healthcare
Present value of defined benefit obligations
Experience adjustments arising on plan liabilities
Changes in financial assumptions underlying plan liabilities
2008
£m
2007
£m
2006
£m
2005
£m
2004
£m
483.3
(481.7)
1.6
4.4
67.8
(123.6)
61.2
(71.1)
(9.9)
(0.3)
0.7
(3.6)
(6.4)
0.3
(0.6)
586.2
(543.3)
42.9
1.6
48.6
(19.6)
57.5
(59.1)
(1.6)
(1.9)
0.5
(0.1)
(4.4)
(0.1)
0.5
584.7
(582.2)
2.5
(0.4)
17.3
12.1
48.5
(50.0)
(1.5)
(0.1)
1.9
1.9
(4.9)
-
0.3
548.0
(596.5)
(48.5)
1.1
(37.1)
60.2
50.1
(57.1)
(7.0)
(0.4)
(4.8)
2.9
(6.1)
0.1
0.1
463.5
(548.2)
(84.7)
0.4
(19.9)
14.6
38.5
(43.2)
(4.7)
0.5
(2.1)
2.3
(5.9)
(0.9)
1.7
The cumulative amount of actuarial gains and losses recognised in the Group statement of recognised income and expense since 28 December 2003
is a gain of £26.3m (2007: £81.2m).
The directors are unable to determine how much of the pension plan deficits are attributable to actuarial gains and losses since inception of those pension
plans. Consequently, the directors are unable to determine the amount of actuarial gains and losses that would have been recognised on an IFRS basis in
the Group statements of recognised income and expense before 27 December 2003.
The Weir Group PLC Annual Report 2008
83
Notes to the Group Financial Statements (Continued)
25. Share capital & reserves
Authorised share capital
Ordinary shares of 12.5p each
The Company has one class of ordinary share which carries no rights to fixed income.
Issued & fully paid share capital
At beginning of period
Issued during the year for cash on exercise of share options
Issued during the year in respect of LTIP awards
At end of period
Shares allotted
Aggregate nominal value of share options exercised
Share premium
Consideration received on exercise of share options
Treasury shares
At beginning of period
Issued during the year in respect of LTIP awards
At end of period
2008
Number
Million
2007
Number
Million
288.0
288.0
212.1
0.2
0.3
212.6
2008
£m
0.1
0.3
0.4
211.0
0.9
0.2
212.1
2007
£m
0.1
2.3
2.4
2008
Number
Million
2007
Number
Million
2.9
(0.4)
2.5
3.3
(0.4)
2.9
As at 26 December 2008, 98,600 shares (2007: 37,794 shares) were held in trust with a market value of £0.3m (2007: £0.3m).
Reconciliation of movements in equity
Attributable to equity holders of the Company
Share
capital
£m
Share
premium
£m
Treasury
shares
£m
Reserves
£m
At 29 December 2006
Total recognised income & expense for the period
Cost of share-based payments
Dividends
Exercise of options & LTIP awards
At 28 December 2007
Total recognised income & expense for the period
Acquisition of minority interest
Cost of share-based payments
Dividends
Exercise of options & LTIP awards
At 26 December 2008
26.4
-
-
-
0.1
26.5
-
-
-
-
0.1
26.6
35.4
-
-
-
2.3
37.7
-
-
-
-
0.3
38.0
(10.7)
-
-
-
1.4
(9.3)
-
-
-
-
1.4
(7.9)
320.4
200.5
1.4
(31.1)
(1.4)
489.8
195.4
-
2.8
(35.7)
(1.4)
650.9
Minority
interest
Total
equity
£m
0.4
0.1
-
-
-
0.5
-
(0.3)
-
-
-
0.2
£m
371.9
200.6
1.4
(31.1)
2.4
545.2
195.4
(0.3)
2.8
(35.7)
0.4
707.8
Total
£m
371.5
200.5
1.4
(31.1)
2.4
544.7
195.4
-
2.8
(35.7)
0.4
707.6
84
The Weir Group PLC Annual Report 2008
25. Share capital & reserves (continued)
At 29 December 2006
Total recognised income & expense for the period
Cost of share-based payments
Dividends
LTIP awards
At 28 December 2007
Total recognised income & expense for the period
Exchange differences on disposal of foreign operations - discontinued operations
Cost of share-based payments
Dividends
LTIP awards
At 26 December 2008
Capital
redemption
reserve
£m
Foreign
currency
translation
reserve
£m
Hedge
accounting
reserve
£m
Retained
earnings
£m
Total
reserves
£m
0.5
-
-
-
-
0.5
-
-
-
-
-
0.5
(2.9)
3.1
-
-
-
0.2
77.1
(0.4)
-
-
-
76.9
3.5
-
-
-
-
3.5
(11.8)
-
-
-
-
(8.3)
319.3
197.4
1.4
(31.1)
(1.4)
485.6
130.1
0.4
2.8
(35.7)
(1.4)
581.8
320.4
200.5
1.4
(31.1)
(1.4)
489.8
195.4
-
2.8
(35.7)
(1.4)
650.9
Capital redemption reserve
The capital redemption reserve was created by a repurchase and cancellation of own shares during the 53 weeks ended 1 January 1999.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations
and the Group’s hedge of its net investment in foreign operations. Included within the £77.1m (2007: £3.1m) movement in the year is an exchange gain
on the translation of overseas results and net assets of £204.3m (2007: £11.0m) offset by exchange losses in respect of the Group’s net investment hedges
of £127.2m (2007: £7.9m).
Hedge accounting reserve
This reserve records the portion of the gains or losses on hedging instruments used as cash flow hedges that are determined to be effective. Net gains
(losses) transferred from equity into profit or loss during the period are included in the following line items in the income statement.
Revenue
Cost of sales
Finance costs
Profit for the period from discontinued operations (exceptional items)
2008
£m
0.2
5.8
(0.5)
-
5.5
2007
£m
0.6
1.3
-
4.3
6.2
The Weir Group PLC Annual Report 2008
85
Notes to the Group Financial Statements (Continued)
26. Additional cash flow information
Continuing operations
Net cash generated from operations
Operating profit
Share of results of joint ventures
Depreciation & amortisation of property, plant & equipment & intangibles
Impairment of plant & equipment & intangibles
Gains on disposal of property, plant & equipment & investments
Defined benefit plan curtailment
Funding of pension & post-retirement costs
Employee share schemes
Net foreign exchange including derivatives*
Increase in provisions
Increase in inventories
Increase in trade & other receivables & construction contracts*
Increase in trade & other payables & construction contracts*
Cash generated from operations
Additional pension contributions paid
Fundamental restructuring costs paid
Income tax paid
Net cash generated from operating activities
* A 2007 net inflow amount of £0.7m in relation to gains on derivatives has been reclassified from cash generated from operating activities to cash
generated from financing activities.
Acquisitions of subsidiaries
Current year acquisitions (note 13)
Previous year acquisitions deferred consideration paid
Disposals of subsidiaries & associate
Discontinued operations disposals (note 8)
Other current year disposals
Previous year disposals
Reconciliation of net increase (decrease) in cash & cash equivalents to movement in net debt
Net increase (decrease) in cash & cash equivalents from continuing operations
Net (decrease) increase in cash & cash equivalents from discontinued operations
Net increase in debt
Change in net debt resulting from cash flows
Leases acquired
Loans acquired
Foreign currency translation differences
Change in net debt during the period
Net debt at beginning of period
Net debt at end of period
Net debt comprises the following
Cash & short-term deposits (note 19)
Current interest-bearing loans & borrowings (note 20)
Non-current interest-bearing loans & borrowings (note 20)
Other current year disposals had the following effect on the Group’s assets and liabilities.
Property, plant & equipment
Inventories
Trade & other receivables
Trade & other payables
Net assets disposed
86
The Weir Group PLC Annual Report 2008
(140.9)
-
(140.9)
60.6
20.4
(0.4)
80.6
6.6
(2.5)
(6.2)
(2.1)
(0.6)
(2.4)
(63.5)
(68.6)
(171.3)
(239.9)
74.1
(71.4)
(242.6)
(239.9)
2008
£m
2.8
9.2
9.7
(3.6)
18.1
2008
£m
2007
£m
168.3
(4.4)
37.2
5.1
(0.1)
2.4
(1.1)
2.8
0.3
12.9
(42.8)
(10.1)
43.9
214.4
(6.5)
-
(49.0)
158.9
110.9
(3.4)
22.9
-
(0.6)
-
(1.2)
1.4
0.1
6.7
(16.1)
(8.3)
31.1
143.5
(6.5)
(0.4)
(32.3)
104.3
(317.7)
(0.1)
(317.8)
125.2
-
2.1
127.3
(101.5)
6.4
(50.6)
(145.7)
(0.2)
-
(18.3)
(164.2)
(7.1)
(171.3)
54.2
(8.5)
(217.0)
(171.3)
2007
£m
-
-
-
-
-
27. Commitments & contingencies
Operating lease commitments
The Group has entered into commercial leases for land and buildings, motor vehicles and plant and equipment. Land and building leases have an average
term of between three and ten years, motor vehicles leases have an average term of between three and four years and plant and equipment leases have
an average term of between five and six years. Certain leases have terms of renewal, at the option of the lessee, but there are no purchase options or
escalation clauses. Future minimum rentals payable under non-cancellable operating leases are as follows
Within one year
After one year but not more than five years
More than five years
Finance lease commitments
2008
£m
8.2
22.0
8.5
38.7
2007
£m
8.1
18.3
6.1
32.5
The Group has finance leases for buildings and items of plant and equipment. Future minimum lease payments under finance leases together with the
present value of the net minimum lease payments are as follows
Within one year
After one year but not more than five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
2008
2008
Minimum Present value
of payments
payments
£m
£m
2007
Minimum
payments
£m
2007
Present value
of payments
£m
0.5
0.9
1.4
(0.1)
1.3
0.5
0.8
1.3
0.3
0.6
0.9
(0.1)
0.8
0.3
0.5
0.8
It is the Group’s policy to lease certain of its assets under finance leases. The weighted average outstanding lease term is 2.78 years (2007: 3.48 years).
For the 52 weeks ended 26 December 2008, the weighted average effective borrowing rate was 9.40% (2007: 5.55%). All leases are on a fixed repayment
basis and no arrangements have been entered into for contingent rental payments.
Capital commitments
Outstanding capital commitments contracted but not provided for - property, plant & equipment
The Group’s share of the capital commitments of its joint ventures amounted to £0.2m (2007: £0.3m).
2008
£m
4.0
2007
£m
6.8
Legal claims
The Company and certain subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the normal course of business. This
includes a recent claim relating to an action for damages arising from the UN Oil for Food Programme which has been raised in the US against just under
100 companies, including the Weir Group. This action will be robustly defended. To the extent not already provided for, the directors do not anticipate that
the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect upon the Group’s financial position.
The Weir Group PLC Annual Report 2008
87
Notes to the Group Financial Statements (Continued)
28. Equity settled share-based payments
LTIP
Three types of award may be made under the LTIP to senior executives: performance shares, matching shares and investment shares. All awards vest over
a three year period.
Performance shares
Performance shares are conditional awards to acquire free shares subject to Group performance. In 2008, conditional awards of performance shares
were made worth 100% (2007: 70%) of salary to the chief executive, 100% (2007: 45%) of salary to the Group finance director and 100% (2007: 80%)
to the legal and commercial director. Other conditional awards of performance shares were made in 2008 worth 100% (2007: 40%) of salary to the other
members of the Group Operations Executive Committee and 40% (2007: 40%) of salary to other senior executives who participate in the matching share
awards and 25% (2007: 25%) of salary to other senior executives who do not participate in that plan. The awards were made in two tranches following
the 2008 annual general meeting of the Company, where shareholder approval was obtained to amend the terms of the LTIP to increase the annual limit
on performance shares from 80% of salary to 100% of salary.
Matching & investment shares
Matching shares are conditional awards to acquire free shares, subject to Group performance. The chief executive, other executive directors and senior
executives are required to compulsorily defer an element of any Group bonus earned for the preceding financial year in exchange for which they are
awarded investment shares. They are also allowed to voluntarily invest the balance of the Group bonus (subject to any cap imposed by the Remuneration
Committee, currently 20%) in shares. In return, they receive a conditional award of matching shares worth a maximum of 2.5 times the pre-tax value of
the bonus invested.
The value of shares for this purpose will be the average published closing price of a share for the three dealing days immediately preceding the date of
grant of the award of shares.
The conditional awards of performance shares and matching shares only vest if a highly demanding performance condition is achieved. For awards granted
in 2005, 2006, 2007 and 2008, the performance condition is based on the growth in the Company’s Total Shareholder Return (“TSR”) over a single three
year performance period (three consecutive financial years beginning with the year in which the grant is made) relative to the growth in the TSR of a
comparator group, to comprise the following 20 companies: AGA Foodservice Group, Bodycote International, Cookson Group, Domnick Hunter Group,
Enodis, FKI, Halma, IMI, Kidde, Meggitt, Mitie Group, Morgan Crucible Company, Rolls-Royce, Rotork, Senior, Smiths Group, Spirax-Sarco Engineering,
Tomkins, Wood Group and WS Atkins, except that Domnick Hunter Group and Kidde were not included in the comparator group for the 2006, 2007 and
2008 awards as they were de-listed from the London Stock Exchange in December 2005 and April 2005 respectively. Only if the Company’s TSR ranks in
the upper quintile of this group will the full awards vest. This reduces on a sliding scale so that for median performance, 25% of the awards will vest. For
below median performance, none of the awards will vest.
In addition to TSR performance, for any of the performance and matching shares to vest, the growth in the Company’s earnings per share over the
performance period must be equal to or greater than the growth in the UK Retail Price Index (RPI) over the same period.
The following table illustrates the number and weighted average share prices (WASP) of shares awarded under the LTIP.
Outstanding at the beginning of the period
Awarded during the period
Exercised during the period
Forfeited during the period
Outstanding at the end of the period
2008
Number
Million
1.9
0.8
(0.7)
(0.1)
1.9
2008
WASP
£4.75
£7.47
£7.86
£6.77
£6.41
2007
Number
Million
2.3
0.5
(0.6)
(0.3)
1.9
2007
WASP
£3.55
£7.27
£7.22
£6.01
£4.75
An amount of £2.0m (2007: £1.4m) has been charged to the income statement in respect of the number of awards which are expected to be made at the end of
the vesting period.
This comprises an amount of £1.4m (2007: £0.5m) in respect of parent company employees and £0.6m (2007: £0.9m) in respect of employees of subsidiaries.
Subsidiary companies made a cash contribution to the parent company of £0.9m (2007: £0.9m) in the year in respect of their LTIP awards.
88
The Weir Group PLC Annual Report 2008
28. Equity settled share-based payments (continued)
The remaining contractual lives of the outstanding LTIP awards at the end of the period are as follows.
Year of award
2005
2006
2007
2008
Conditional share award
2008
Number
Million
2008
Remaining
contractual life
2007
Number
Million
2007
Remaining
contractual life
-
0.6
0.5
0.8
-
3 months
18 months
27 months
0.7
0.7
0.5
-
3 months
15 months
30 months
-
In 2008, the shareholders approved a one-off conditional award of 405,953 shares to the chief executive, which will vest on the third anniversary of 8 May
2008 subject to specified performance conditions being achieved. The performance condition is based on earnings per share (“EPS”) subject to adjustment
on a reasonable basis at the discretion of the Remuneration Committee. 25% of the award will vest if EPS exceeds the UK Retail Prices Index (“RPI”) by
7% p.a., increasing on a sliding scale to the full award vesting if EPS exceeds RPI by 13% p.a. In addition, the chief executive is required to retain his
current shareholding for the award to vest.
Date of
award
Date of
vesting
Number
of shares
awarded
Market price
at date
of award
Chief Executive
08 May 2008 08 May 2011
405,953
900.5p
An amount of £0.8m (2007: £nil) has been charged to the income statement in respect of the conditional share award based on the number of shares
expected to be awarded at the end of the vesting period. The number of shares outstanding at 26 December 2008 is 405,953 (2007: nil).
Share option scheme
During 2008, the Company operated a savings related share option scheme in the UK which was not subject to performance criteria. This scheme was
closed to new entrants in 2004 and the last date for exercising options under the scheme was 1 January 2009.
The following table illustrates the number and weighted average exercise prices (WAEP) of share options.
Outstanding at the beginning of the period
Expired during the period
Exercised during the period
Outstanding at the end of the period*
Exercisable at the end of the period
2008
Number
Million
0.2
-
(0.2)
-
-
2008
WAEP
£2.03
-
£2.01
£2.01
£2.01
2007
Number
Million
1.3
(0.2)
(0.9)
0.2
-
2007
WAEP
£2.45
£2.43
£2.54
£2.03
£2.29
* Included within this balance are options over nil (2007: 13,246) shares that have not been recognised in accordance with IFRS2 as the options were granted on
or before 7 November 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS2.
The weighted average share price during the period was 708.4p (2007: 707.3p).
Share options outstanding at the end of the period have the following exercise prices.
Savings Related Share Option Scheme 2001
Price per
share
201.0p
2008
Number
2008
Remaining
Million contractual life
2007
Number
Million
2007
Remaining
contractual life
-
-
0.2
12 months
The Weir Group PLC Annual Report 2008
89
Notes to the Group Financial Statements (Continued)
28. Equity settled share-based payments (continued)
Fair value of equity settled share-based payments
The fair value of the conditional awards under the LTIP and the conditional share award has been estimated using the Monte Carlo simulation model.
The following table gives the assumptions made during the 52 weeks ended 26 December 2008 and the 52 weeks ended 28 December 2007.
Weighted average dividend yield (%)
Weighted average expected volatility (%)
Weighted average expected life (years)
Weighted average risk free rate (%)
Weighted average share price (pence)
Weighted average fair value (pence)
Conditional share award
LTIP
2008
2007
2008
2007
1.83
29.00
3.00
4.25
901p
901p
-
-
-
-
-
-
2.22
29.00
3.00
4.02
747p
378p
1.99
24.00
3.00
5.70
727p
495p
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility
reflects the assumption that the historical volatility is indicative of future trends which may also not necessarily be the actual outcome. Market related
performance conditions have been taken into account in the calculation of fair values.
29. Related party disclosures
The following table provides the total amount of significant transactions which have been entered into with related parties for the relevant financial year
and outstanding balances at the period end.
Related party
Joint ventures
Associate
Group pension schemes
2008
2007
2008
2007
2008
2007
Contributions to the Group pension plans are disclosed in note 24.
Terms & conditions of transactions with related parties
Management
charge to
related parties
£m
Sales to
related parties
- goods
£m
Sales to
related parties
- services
£m
Amounts owed Amounts owed
to related
parties
£m
by related
parties
£m
-
-
-
0.4
-
-
0.2
-
-
0.1
-
-
-
0.1
-
0.7
-
-
-
-
-
-
-
-
-
-
-
-
0.2
0.4
Sales to and from related parties are made at normal market prices. Outstanding balances at the year end are unsecured and settlement occurs in cash.
There have been no guarantees provided or received for any related party balances. For the 52 weeks ended 26 December 2008, the Group has not raised
any provision for doubtful debts relating to amounts owed by related parties as the payment history has been excellent (2007: £nil). This assessment is
undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
Compensation of key management personnel
Short-term employee benefits
Share-based payments
Post-employment benefits
2008
£m
3.2
0.6
0.1
3.9
2007
£m
2.9
0.5
0.1
3.5
Key management comprises the Board of directors. Further details of their remuneration can be found in the Remuneration Committee Report on page 36.
90
The Weir Group PLC Annual Report 2008
30. Financial assets & liabilities
Financial risk management objectives & policies
The principal financial risks to which the Group is exposed are those relating to foreign currency, liquidity and credit risk. Details of these risks are set out
in the Directors Report. In addition, the Group is subject to a degree of interest rate risk on its borrowings. The Group uses financial assets and liabilities,
including derivatives, to hedge certain foreign exchange and interest rate risks as set out below.
Foreign exchange risk policy
In respect of transactional foreign exchange risk the Group maintains a policy that all operating units eliminate exposures on material committed transactions,
usually by undertaking forward foreign currency contracts through the Group’s treasury function. In addition, it is Group policy that those companies where
the most significant concentration of foreign exchange risk has been identified also apply hedge accounting. Therefore, some of the Group’s forward
foreign currency contracts form part of an effective cash flow hedge. Exchange rate fluctuations in respect of the forward foreign currency contracts which
form part of a cash flow hedge will have an impact on shareholders equity. Exchange rate fluctuations in respect of the other forward foreign currency
contracts will have an impact on profit or loss. It is Group policy not to engage in any speculative transaction of any kind.
In respect of translational risk the Group has a policy to partially hedge US dollar net assets exposure. This is achieved through designating an element of
US dollar borrowings, US dollar forward foreign currency contracts and US dollar cross currency swaps as net investment hedges against the Group’s US
dollar investments. The Group does not hedge the translational exposure arising from profit and loss items.
Liquidity risk policy
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank loans. Further
details of the Group’s borrowing facilities are disclosed in note 20.
Credit risk policy
The Group is exposed to credit risk to the extent of non-payment by either its customers or the counterparties of its financial instruments. The Group’s
credit risk is primarily attributable to its trade receivables with risk spread over a large number of countries and customers, with no significant concentration
of risk. Where appropriate, the Group endeavours to minimise risk by the use of trade finance instruments such as letters of credit and insurance. Credit
worthiness checks are also undertaken before entering into contracts with new customers and credit limits are set as appropriate. As shown in note 17, the
trade receivables presented in the balance sheet are net of allowance for doubtful receivables. An allowance for impairment is made where there is an
identifiable loss event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows. The Group’s exposure to the credit
risk of financial institutions is limited by the adherence to counterparty limits restricted to counterparties that have a strong credit standing, based upon
ratings provided by the major agencies.
Interest rate risk policy
The Group’s borrowings are at variable rates of interest. Interest rate risk is regularly monitored to ensure that the mix of variable and fixed rate borrowing
is appropriate for the Group in the short to medium-term. Interest rate swaps are utilised that have the economic effect of converting borrowings from
floating to fixed rates. At the balance sheet date approximately 66% of our US dollar variable rate debt had been converted to fixed rate through the
use of floating-to-fixed interest rate swaps.
Net investment in foreign operations
US dollar variable rate loans included in interest-bearing loans and borrowings, amounting to US$190m (2007: US$100m), cross currency swaps of US$404m
(2007: US$403m) and net forward foreign currency asset contracts of US$6m (2007: liabilities of US$150m) have been designated as a hedge of the Group’s
exposure to translational foreign exchange risk on its net investments in Weir SPM and Weir Warman. Gains or losses on the retranslation of the borrowings
and the fair value of the cross currency swaps and forward foreign currency contracts are transferred to equity to offset any gains or losses on translation of
the net investments in these subsidiaries.
The Weir Group PLC Annual Report 2008
91
Notes to the Group Financial Statements (Continued)
30. Financial assets & liabilities (continued)
Carrying amounts & fair values
Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments that are carried in the financial statements.
Financial assets
Derivative financial instruments recognised at fair value through profit or loss
Derivative financial instruments in designated hedge accounting relationships
Trade and other receivables excluding statutory assets & prepayments
Cash and short term deposits
Financial liabilities
Derivative financial instruments recognised at fair value through profit or loss
Derivative financial instruments in designated hedge accounting relationships
Amortised cost
Bank overdrafts & short term debt borrowings
Trade & other payables excluding statutory liabilities & deferred income
Obligations under finance leases
Floating rate borrowings
Fixed rate borrowings
Carrying
amount
2008
£m
47.1
8.5
289.5
74.1
419.2
(62.9)
(97.8)
(20.5)
(290.3)
(1.3)
(292.1)
(0.1)
(765.0)
Fair value
2008
£m
47.1
8.5
289.5
74.1
419.2
(62.9)
(97.8)
(20.5)
(290.3)
(1.3)
(292.1)
(0.1)
(765.0)
Carrying
amount
2007
£m
5.8
6.0
240.8
54.2
306.8
(10.8)
(6.1)
(8.1)
(217.5)
(0.8)
(216.5)
(0.1)
(459.9)
Fair value
2007
£m
5.8
6.0
240.8
54.2
306.8
(10.8)
(6.1)
(8.1)
(217.5)
(0.8)
(216.5)
(0.1)
(459.9)
The fair value of forward foreign currency contracts is calculated by reference to current market rates for contracts with similar maturity profiles. The fair value
of cross currency swaps and interest rate swaps is calculated as the present value of the estimated future cash flows. The carrying amount of other financial
instruments of the Group, i.e. trade and other receivables and payables that are included in the above table, is a reasonable approximation of fair value.
The fair value of all other items has been calculated by discounting the expected future cash flows at prevailing interest rates.
Derivative financial instruments
Set out in the table below is a summary of types of derivative financial instruments included within each balance sheet category.
Included in non-current assets
Forward foreign currency contracts designated as cash flow hedges
Other forward foreign currency contracts
Included in current assets
Forward foreign currency contracts designated as cash flow hedges
Forward foreign currency contracts designated as net investment hedges
Other forward foreign currency contracts
Included in current liabilities
Forward foreign currency contracts designated as cash flow hedges
Forward foreign currency contracts designated as net investment hedges
Interest rate swaps designated as cash flow hedges
Cross currency swaps designated as net investment hedges
Other forward foreign currency contracts
Included in non-current liabilities
Forward foreign currency contracts designated as cash flow hedges
Interest rate swaps designated as cash flow hedges
Cross currency swaps designated as net investment hedges
Other forward foreign currency contracts
Net derivative financial liabilities
92
The Weir Group PLC Annual Report 2008
2008
£m
2.3
5.8
8.1
5.4
0.8
41.3
47.5
10.9
1.4
2.2
15.5
60.6
90.6
3.0
3.5
61.3
2.3
70.1
105.1
2007
£m
1.0
0.2
1.2
5.0
-
5.6
10.6
0.9
0.2
-
1.0
9.7
11.8
0.1
-
3.9
1.1
5.1
5.1
30. Financial assets and liabilities (continued)
Liquidity & credit risk
The maximum exposure to credit risk at the balance sheet date is represented by the carrying value of each financial asset, including derivative financial
instruments. The liabilities which could impact liquidity risk are best represented by the carrying value and maturity profile of each financial liability,
including derivative financial instruments. The tables below include the undiscounted cash flows of financial assets and liabilities based on the earliest
date on which the Group can be required to receive or pay these financial assets or liabilities and include both interest and principal cash flows. In respect
of derivative financial instruments the net credit/liquidity risk is best represented by the net inflows (outflows) shown below together with the Group’s
headroom under the borrowing facilities as disclosed in note 20.
52 weeks ended 26 December 2008
Trade & other receivables excluding statutory assets and prepayments
Cash & short-term deposits
Non derivative financial assets
Trade and other payables excluding statutory liabilities and deferred income
Obligations under finance leases
Bank overdrafts & short-term borrowings
Bank loans
Non-derivative financial liabilities
Net non-derivative financial liabilities
52 weeks ended 28 December 2007
Trade & other receivables excluding statutory assets and prepayments
Cash & short-term deposits
Non-derivative financial assets
Trade and other payables excluding statutory liabilities and deferred income
Obligations under finance leases
Bank overdrafts
Bank loans
Non-derivative financial liabilities
Net non-derivative financial assets (liabilities)
Less than
1 year
£m
1 to 5 years
£m
Total
£m
289.5
74.1
363.6
(290.3)
(0.5)
(20.5)
(57.0)
(368.3)
(4.7)
-
-
-
-
(0.9)
-
(248.1)
(249.0)
(249.0)
289.5
74.1
363.6
(290.3)
(1.4)
(20.5)
(305.1)
(617.3)
(253.7)
Less than
1 year
£m
1 to 5 years
£m
240.8
54.2
295.0
(217.5)
(0.3)
(8.1)
(12.9)
(238.8)
56.2
-
-
-
-
(0.6)
-
(222.1)
(222.7)
(222.7)
Total
£m
240.8
54.2
295.0
(217.5)
(0.9)
(8.1)
(235.0)
(461.5)
(166.5)
The Weir Group PLC Annual Report 2008
93
Notes to the Group Financial Statements (Continued)
Less than
1 year
£m
1 to 5 years
£m
(5.3)
3.1
(2.2)
(60.5)
45.0
(15.5)
(779.9)
752.7
(27.2)
(845.7)
800.8
(44.9)
(5.5)
2.2
(3.3)
(228.4)
169.4
(59.0)
(46.1)
49.1
3.0
(280.0)
220.7
(59.3)
Less than
1 year
£m
1 to 5 years
£m
(48.4)
49.9
1.5
(491.7)
488.9
(2.8)
(540.1)
538.8
(1.3)
(175.5)
174.2
(1.3)
(34.2)
35.6
1.4
(209.7)
209.8
0.1
Total
£m
(10.8)
5.3
(5.5)
(288.9)
214.4
(74.5)
(826.0)
801.8
(24.2)
(1,125.7)
1,021.5
(104.2)
(0.9)
(105.1)
Total
£m
(223.9)
224.1
0.2
(525.9)
524.5
(1.4)
(749.8)
748.6
(1.2)
(3.9)
(5.1)
30. Financial assets and liabilities (continued)
52 weeks ended 26 December 2008
Interest rate swaps - outflow
Interest rate swaps - inflow
Interest rate swaps - net outflow
Cross currency swaps - outflow
Cross currency swaps - inflow
Cross currency swaps - net outflow
Forward foreign currency contracts - outflow
Forward foreign currency contracts - inflow
Forward foreign currency contracts - net (outflow) inflow
Derivative financial instruments net outflow
Derivative financial instruments net inflow
Derivative financial instruments net outflow
Effect of discounting
Net derivative financial liabilities
52 weeks ended 28 December 2007
Cross currency swaps - outflow
Cross currency swaps - inflow
Cross currency swaps - net inflow (outflow)
Forward foreign currency contracts - outflow
Forward foreign currency contracts - inflow
Forward foreign currency contracts - net (outflow) inflow
Derivative financial instruments net outflow
Derivative financial instruments net inflow
Derivative financial instruments net (outflow) inflow
Effect of discounting
Net derivative financial liabilities
94
The Weir Group PLC Annual Report 2008
30. Financial assets and liabilities (continued)
Interest rate risk and maturity profile
The following tables set out the carrying amount, by maturity, of the Group’s financial instruments that are exposed to interest rate risk and the Group’s
notional value of derivatives, by maturity, exposed to interest rate risk.
52 weeks ended 26 December 2008
Fixed rate net debt
Obligations under finance leases
Bank loans
Notional interest rate swaps
Net fixed rate financial instruments
Floating rate net debt
Cash & short-term deposits
Bank overdrafts & short-term borrowings
Bank loans
Notional interest rate swaps
Floating rate derivatives
Notional cross currency swaps US dollar leg
Notional cross currency swaps sterling leg
Net floating rate financial instruments
52 weeks ended 28 December 2007
Fixed rate net debt
Obligations under finance leases
Bank loans
Net fixed rate financial instruments
Floating rate net debt
Cash & short-term deposits
Bank overdrafts & short-term borrowings
Bank loans
Floating rate derivatives
Notional cross currency swaps US dollar leg
Notional cross currency swaps sterling leg
Net floating rate financial instruments
Within 1 year
£m
1-2 years
£m
2-3 years
£m
3-4 years
£m
4-5 years
£m
Total
£m
(0.5)
(0.1)
-
(0.6)
74.1
(20.5)
(50.3)
-
3.3
(54.6)
39.1
(15.5)
(12.2)
(0.2)
-
(68.3)
(68.5)
-
-
-
68.3
68.3
(54.6)
39.1
(15.5)
52.8
(0.2)
-
(68.3)
(68.5)
-
-
(241.8)
68.3
(173.5)
(54.6)
39.1
(15.5)
(189.0)
(0.2)
-
-
(0.2)
-
-
-
-
-
(0.2)
-
-
(0.2)
-
-
-
-
-
(56.7)
40.6
(16.1)
(16.1)
(55.2)
41.0
(14.2)
(14.2)
Within 1 year
£m
1-2 years
£m
2-3 years
£m
3-4 years
£m
4-5 years
£m
(0.3)
(0.1)
(0.4)
54.2
(8.1)
-
46.1
(40.1)
39.1
(1.0)
45.1
(0.2)
-
(0.2)
-
-
(216.5)
(216.5)
(40.1)
39.1
(1.0)
(217.5)
(0.1)
-
(0.1)
-
-
-
-
(40.1)
39.1
(1.0)
(1.0)
(0.1)
-
(0.1)
-
-
-
-
(40.1)
39.1
(1.0)
(1.0)
(0.1)
-
(0.1)
-
-
-
-
(41.6)
40.6
(1.0)
(1.0)
(1.3)
(0.1)
(136.6)
(138.0)
74.1
(20.5)
(292.1)
136.6
(101.9)
(275.7)
198.9
(76.8)
(178.7)
Total
£m
(0.8)
(0.1)
(0.9)
54.2
(8.1)
(216.5)
(170.4)
(202.0)
197.0
(5.0)
(175.4)
Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. Interest on financial instruments classified as floating
rate is repriced at intervals of less than one year. The other financial instruments of the Group that are not included in the above tables are non-interest
bearing and are therefore not subject to interest rate risk.
The Weir Group PLC Annual Report 2008
95
Notes to the Group Financial Statements (Continued)
30. Financial assets and liabilities (continued)
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s profit
before tax and equity through the impact on floating rate borrowings, cross currency swaps and interest rate swaps. There is no impact on the Group’s
equity, with the exception of the Group’s interest rate swaps.
2008
Australian dollar
Canadian dollar
US dollar
UK sterling
2007
Australian dollar
Canadian dollar
US dollar
UK sterling
Effect on
profit
before tax
gain (loss)
£m
Effect on
equity
gain (loss)
£m
-
(0.7)
(3.4)
2.0
(0.7)
(0.8)
(2.3)
2.1
-
-
2.8
-
-
-
-
-
Increase
in basis
points
+ 100
+ 100
+ 100
+ 100
+ 100
+ 100
+ 100
+ 100
A decrease of 100 basis points would have an equal and opposite effect.
Effect of hedging and derivative instruments included in the income statement and equity
The Group uses forward foreign currency contracts to hedge currency risk associated with expected future sales or purchases for which the Group has firm
commitments. The terms of the forward foreign currency contracts are negotiated to match the terms of the commitments. Within the Group, two subsidiaries
apply cash flow hedge accounting to these transactions. Any gains and losses on ineffective hedges were taken to the income statement in the year.
In addition, as noted above, the Group utilises interest rate swaps to convert borrowings from floating to fixed rates of interest. These interest rate swaps
are subject to cash flow hedge accounting.
All other forward foreign currency contracts, while representing commercial hedges, are not subject to cash flow hedge accounting with all fair value
movements being recognised in the income statement. The net carrying amount, maturity dates and the amounts recognised for the period in profit
or loss and equity for each derivative financial instrument are set out below.
52 weeks ended 26 December 2008
Forward foreign currency contracts designated as cash flow hedges
Interest rate swaps designated as cash flow hedges
Forward foreign currency contracts designated as net investment hedges
Cross currency swaps designated as net investment hedges
Other forward foreign currency contracts at fair value through profit or loss
Net
carrying
amount
£m
(6.2)
(5.7)
(0.6)
(76.8)
(15.8)
(105.1)
Maturity
dates
2009 to 2011
2010 to 2011
2009
2009 to 2013
2009 to 2012
Recognised
in profit
or loss
gain (loss)
£m
Recognised
in equity
gain (loss)
£m
6.0
(0.5)
-
5.4
(8.4)
2.5
(5.0)
(6.1)
(28.0)
(73.8)
-
(112.9)
The £5.4m gain (2007: £0.7m) recognised in profit or loss in respect of cross currency swaps designated as net investment hedges reflects the benefit of
US dollar/Sterling interest rate differential. Certain of the Group’s forward foreign currency contracts subject to cash flow hedge accounting were deemed
to be ineffective during the year resulting in a net charge to the income statement of £1.2m (2007: credit of £4.6m).
96
The Weir Group PLC Annual Report 2008
30. Financial assets and liabilities (continued)
52 weeks ended 28 December 2007
Forward foreign currency contracts designated as cash flow hedges
Forward foreign currency contracts designated as net investment hedges
Cross currency swaps designated as net investment hedges
Other forward foreign currency contracts at fair value through profit or loss
Net
carrying
amount
£m
5.0
(0.2)
(4.9)
(5.0)
(5.1)
Maturity
dates
2008 to 2009
2008
2008 to 2013
2008 to 2012
Recognised
in profit
or loss
gain (loss)
£m
Recognised
in equity
gain (loss)
£m
6.2
-
0.7
1.1
8.0
6.2
(1.8)
(4.9)
-
(0.5)
Included in the 2007 net gain of £6.2m was £4.3m in respect of Weir Pumps which was recycled to the income statement in accordance with IAS39 on
disposal of the business and this is included within profit from the period from discontinued operations.
Foreign exchange risk
The Group considers the most significant foreign exchange risk relates to the Australian dollar, Canadian dollar, Euro and US dollar. The following table
demonstrates the sensitivity to a reasonably possible change in these foreign currency exchange rates with all other variables held constant. The sensitivity
analysis shows the effect on profit or loss in respect of financial assets and liabilities denominated in foreign currency, including payables, receivables,
borrowings and forward foreign currency contracts but excluding all financial assets and liabilities qualified as either cash flow or net investment hedges.
The sensitivity analysis also shows the effect on equity in respect of financial assets and liabilities denominated in foreign currency qualified as either cash
flow or net investment hedges including forward foreign currency contracts, borrowings and cross currency swaps. The sensitivity analysis adjusts the
translation of each respective financial asset or liability at the year end for a 25% strengthening of sterling against the relevant exchange rates.
2008
Australian dollar
Canadian dollar
Euro
US dollar
2007
Australian dollar
Canadian dollar
Euro
US dollar
Increase in
currency rate
Effect on
profit
gain (loss)
£m
Effect on
equity
gain (loss)
£m
+25%
+25%
+25%
+25%
+25%
+25%
+25%
+25%
0.1
0.1
1.3
5.2
0.2
1.6
0.7
4.9
-
-
(0.5)
91.5
-
-
(3.1)
78.9
As noted above, the Group does not hedge translational exposure arising from profit and loss items. The Group’s operating profit from continuing
operations before exceptional items and intangible amortisation was denominated in the following currencies: United States dollar £90.9m (2007: £47.4m),
Australian dollar £22.3m (2007: £15.8m), Euro £38.0m (2007: £27.5m), Canadian dollar £14.7m (2007: £7.6m), other £19.1m (2007: £18.6m).
The Weir Group PLC Annual Report 2008
97
Notes to the Group Financial Statements (Continued)
31. Capital management
The primary objective of the Group’s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximise
shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust
the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors
capital using the following indicators.
Gearing ratio
Gearing comprises net debt divided by total equity. Net debt comprises cash and short-term deposits and interest-bearing loans and borrowings (see note 26).
Net debt (£m)
Total equity (£m)
Gearing ratio (%)
Net debt to EBITDA cover
2008
2007
239.9
707.8
34
171.3
545.2
31
Net debt to EBITDA comprises net debt divided by operating profit from continuing operations before exceptional items, depreciation, intangibles
amortisation and impairment.
Net debt (£m)
Operating profit (£m)
Depreciation, amortisation & impairment of assets (£m)
EBITDA (£m)
Net debt to EBITDA cover (ratio)
2008
2007
239.9
168.3
42.3
210.6
1.1
171.3
110.9
22.9
133.8
1.3
Interest cover
Interest cover comprises operating profit from continuing operations before exceptional items and intangibles amortisation divided by net finance costs
(excluding other finance income).
Operating profit before exceptional items & intangibles amortisation (£m)
Net finance costs (£m)
Interest cover (ratio)
32. Exchange rates
The principal exchange rates applied in the preparation of these financial statements were as follows
Average rate (per £)
US dollar
Australian dollar
Euro
Canadian dollar
Closing rate (per £)
US dollar
Australian dollar
Euro
Canadian dollar
98
The Weir Group PLC Annual Report 2008
2008
2007
185.0
10.6
17.5
116.9
5.1
22.9
2008
2007
1.85
2.17
1.25
1.96
1.46
2.14
1.04
1.79
2.01
2.39
1.46
2.14
2.00
2.27
1.37
1.96
Independent Auditors Report
Independent auditors report to the members of
The Weir Group PLC
We have audited the Company financial statements of The Weir
Group PLC for the 52 weeks ended 26 December 2008 which
comprise the Company Balance Sheet and the related notes 1
to 16. These Company financial statements have been prepared
under the accounting policies set out therein. We have also
audited the information in the Remuneration Committee
Report that is described as having been audited.
We have reported separately on the Group financial statements of
The Weir Group PLC for the 52 weeks ended 26 December 2008.
This report is made solely to the Company's members, as a body,
in accordance with Section 235 of the Companies Act 1985. Our
audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to
them in an auditors report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members
as a body, for our audit work, for this report, or for the opinions
we have formed.
Respective responsibilities of directors & auditors
The directors responsibilities for preparing the annual report,
the Remuneration Committee Report and the Company financial
statements in accordance with applicable United Kingdom law
and Accounting Standards (United Kingdom Generally Accepted
Accounting Practice) are set out in the Directors Statement of
Responsibilities.
Our responsibility is to audit the Company financial statements
and the part of the Remuneration Committee Report to be audited
in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Company financial
statements give a true and fair view and whether the Company
financial statements and the part of the Remuneration Committee
Report to be audited have been properly prepared in accordance
with the Companies Act 1985. We also report to you whether
in our opinion the information given in the Directors Report is
consistent with the Company financial statements. The information
given in the Directors Report includes that information that
is contained in the Chairman’s Statement, Chief Executive’s
Review, Operational Reviews, Financial Review and Corporate
Social Responsibility Report that is cross referred from the
Directors Report.
In addition we report to you if, in our opinion, the Company has
not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if
information specified by law regarding directors remuneration
and other transactions is not disclosed.
We read other information contained in the annual report and
consider whether it is consistent with the audited Company
financial statements. The other information comprises only
Financial Highlights 2008, 2008 Highlights, the Chairman’s
Statement, Our Geographic Footprint, Chief Executive’s Review,
Operational Reviews, Financial Review, Board of Directors & Group
Operations Executive, Directors Report, Corporate Governance
Statement, Audit Committee Report, Nomination Committee
Report, unaudited part of Remuneration Committee Report
and Corporate Social Responsibility Report. We consider the
implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the Company
financial statements. Our responsibilities do not extend to any
other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the Company financial
statements and the part of the Remuneration Committee Report
to be audited. It also includes an assessment of the significant
estimates and judgments made by the directors in the preparation
of the Company financial statements and of whether the accounting
policies are appropriate to the Company’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable
assurance that the Company financial statements and the part
of the Remuneration Committee Report to be audited are free
from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated
the overall adequacy of the presentation of information in the
Company financial statements and the part of the Remuneration
Committee Report to be audited.
Opinion
In our opinion
• the Company financial statements give a true and fair view,
in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the Company's affairs
as at 26 December 2008;
• the Company financial statements and the part of the
Remuneration Committee Report to be audited have been properly
prepared in accordance with the Companies Act 1985; and
• the information given in the Directors Report is consistent
with the Company financial statements.
Ernst & Young LLP
Registered Auditor
Glasgow
10 March 2009
The Weir Group PLC Annual Report 2008
99
Company Balance Sheet
at 26 December 2008
Fixed assets
Tangible assets
Investments
Total fixed assets
Current assets
Debtors
Derivative financial instruments
Cash at bank & in hand
Total current assets
Creditors falling due within one year
Bank overdrafts & short-term borrowings
Creditors
Derivative financial instruments
Total current liabilities
Net current liabilities
Total assets less current liabilities
Creditors falling due after more than one year
Loans
Derivative financial instruments
Provisions
Net assets excluding retirement benefits
Retirement benefits
Net assets including retirement benefits
Capital & reserves
Share capital
Share premium
Treasury shares
Capital redemption reserve
Hedge accounting reserve
Special reserve
Profit & loss account
Total equity
Approved by the Board of Directors on 10 March 2009
Mark Selway Director
Keith Cochrane Director
100
The Weir Group PLC Annual Report 2008
26 December
2008
£m
28 December
2007
£m
Notes
3
4
5
10
6
10
7
10
8
9
11
12
12
12
12
12
12
0.4
899.0
899.4
27.8
39.1
1.9
68.8
38.7
39.7
52.0
130.4
61.6
837.8
384.4
64.7
6.1
382.6
0.8
381.8
26.6
38.0
(7.9)
0.5
(1.4)
1.8
324.2
381.8
0.5
731.2
731.7
17.2
4.9
1.5
23.6
50.5
19.4
6.2
76.1
52.5
679.2
273.6
3.9
8.3
393.4
0.8
392.6
26.5
37.7
(9.3)
0.5
-
1.8
335.4
392.6
Notes to the Company Financial Statements
1. Accounting policies
The accounting policies which follow have been applied consistently to all periods presented in these financial statements.
Basis of preparation
The Company financial statements have been prepared in accordance with UK GAAP and applicable accounting standards.
Foreign currency translation
The presentation and functional currency of the Company is sterling. Transactions denominated in foreign currencies are translated into the Company’s
functional currency at the exchange rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the exchange rate ruling on the balance sheet date. Currency translation differences are recognised in the profit and loss account,
except when hedge accounting is applied.
Tangible assets
Tangible assets are stated at cost and the cost is depreciated over the estimated useful life by equal annual instalments at rates of 7.5% for office
equipment and 25% for computer equipment.
Investments
Investments in subsidiaries and associate are held at historical cost less a provision for impairment.
Deferred tax
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or
events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax, with the exception that
deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits
from which the future reversal of the underlying timing differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse,
based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Post-employment benefits
The Company and other major UK subsidiaries of the Group participate in multi-employer defined benefit pension plans which are set up under separate
trusts. These plans are operated on a basis that does not enable individual companies to identify their share of the underlying assets and liabilities and
in accordance with FRS17 the Company accounts for its contributions to the plans as if they are defined contribution plans.
In addition, the Company has unfunded unapproved pension promises. Contributions are made to the plan on the advice of an independent qualified
actuary. Pension plan liabilities are measured using the projected unit method and discounted at the current rate of return on a high quality corporate
bond of equivalent term and currency to the liability. Any increase in the present value of the liabilities of the Company’s unfunded unapproved pension
promises expected to arise from employee service in the period is charged against operating profit. The increase in the period in the present value of the
plan’s liabilities, arising from the passage of time, is included in other finance income. Actuarial gains and losses are recognised in the statement of total
recognised gains and losses.
Contributions to defined contribution pension plans are charged to the profit and loss account when they become payable.
Leases
Rentals paid under operating leases are charged to income on a straight-line basis over the term of the lease.
The Weir Group PLC Annual Report 2008
101
Notes to the Company Financial Statements (Continued)
1. Accounting policies (continued)
Share-based payments
Equity settled share-based incentives are provided to employees under the Company’s share option schemes and the Long Term Incentive Plan (“LTIP”).
The Company recognises a compensation cost in respect of these schemes that is based on the fair value of the awards. For equity-settled schemes, the fair
value is determined at the date of grant and is not subsequently re-measured unless the conditions on which the award was granted are modified. The fair
value at the date of the grant is calculated using appropriate option pricing models and the cost is recognised on a straight-line basis over the vesting
period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to failure to satisfy service conditions or performance
conditions.
As permitted by FRS20, the Company has applied FRS20 “Share-based Payment” retrospectively only to equity-settled awards that had not vested as at
1 January 2005 and were granted on or after 7 November 2002.
Financial assets and liabilities
The Company's principal financial assets and liabilities, other than derivatives, comprise bank overdrafts, short term borrowings, loans, cash and short term deposits.
A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying
amounts together with any costs or fees incurred are recognised in profit or loss.
Derivative financial instruments
The Company uses derivative financial instruments, principally forward foreign currency contracts, to reduce its exposure to exchange rate movements.
Additionally, the Company uses interest rate swaps to manage its exposure to interest rate risk. The Company does not hold or issue derivatives for
speculative or trading purposes. Derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet
date. The fair value of forward foreign currency contracts is calculated by reference to current market rates for contracts with similar maturity profiles. The
fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. Changes in their fair values have been recognised in
the profit and loss account, except where hedge accounting is used, provided the conditions specified by FRS26 are met. Hedge accounting is applied in
respect of hedge relationships where it is both permissible under FRS26 and practical to do so. When hedge accounting is used, the relevant hedging
relationships are classified as a cash flow hedge.
To the extent the hedge is effective, changes in the fair value of the hedging instrument will be recognised directly in equity rather than in the profit and
loss account. When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in equity will be either recycled
to the profit and loss account or, if the hedged item results in a non-financial asset, will be recognised as adjustments to its initial carrying amount.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting.
At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecasted transaction occurs.
If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period.
The Company has taken advantage of the exemption in FRS29 and has not disclosed information required by that standard in relation to derivative
financial instruments as the Group’s consolidated financial statements, in which the Company is included, provide equivalent disclosures for the Group
under IFRS7.
Treasury shares
The Weir Group PLC shares held by the Company are classified in shareholders equity as treasury shares and are recognised at cost. Consideration received
for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken directly to
revenue reserves. No gain or loss is recognised in the performance statements on the purchase, sale, issue or cancellation of equity shares.
102
The Weir Group PLC Annual Report 2008
2. Profit attributable to the Company
The profit dealt with in the accounts of the Company was £24.4m (2007: £109.1m). In accordance with the concession granted under section 230 of
the Companies Act 1985, the profit and loss account and the statement of total recognised gains and losses of the Company have not been separately
presented in these financial statements.
Dividends paid & proposed
Declared & paid during the period
Equity dividends on ordinary shares
Final dividend for 2007: 12.35p (2006: 10.75p)
Interim dividend for 2008: 4.65p (2007: 4.15p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2008: 13.85p (2007: 12.35p)
2008
£m
25.9
9.8
35.7
29.1
2007
£m
22.4
8.7
31.1
25.8
The proposed dividend is based on the number of shares in issue, excluding treasury shares, at the date the financial statements were approved and
authorised for issue. The final dividend may differ due to increases or decreases in the number of shares in issue between the date of approval of the report
and financial statements and the record date for the final dividend.
Directors
Details of directors remuneration, benefits and LTIP awards are included in the Remuneration Committee Report on pages 33 to 39.
Auditors remuneration
The total fees payable by the Company to Ernst & Young LLP for work performed in respect of the audit of the Company were £13,000 (2007: £12,000).
Fees paid to Ernst & Young LLP for non-audit services to the Company itself are not disclosed in these accounts as the Company’s consolidated accounts
are required to disclose such fees on a consolidated basis.
3. Tangible assets
Cost
At 28 December 2007
Additions
At 26 December 2008
Aggregate depreciation
At 28 December 2007
Charge for year
At 26 December 2008
Net book value at 26 December 2008
Net book value at 28 December 2007
4. Fixed asset investments
Cost
At 28 December 2007
Additions
Disposals / repayments
At 26 December 2008
Impairment
At 28 December 2007 and 26 December 2008
Net book value at 26 December 2008
Net book value at 28 December 2007
The principal subsidiaries and joint ventures of the Company are listed on page 112.
Office & computer
equipment
£m
1.0
0.1
1.1
0.5
0.2
0.7
0.4
0.5
Subsidiaries
Shares
£m
Loans
£m
Total
£m
459.0
9.4
-
468.4
99.4
369.0
359.6
392.7
170.4
(12.0)
551.1
21.1
530.0
371.6
851.7
179.8
(12.0)
1,019.5
120.5
899.0
731.2
The Weir Group PLC Annual Report 2008
103
Notes to the Company Financial Statements (Continued)
5. Debtors
Amounts recoverable within one year
Amounts owed by subsidiaries
Tax recoverable
Deferred tax recoverable
Other debtors
Prepayments & accrued income
6. Creditors
Amounts owed to subsidiaries
Other taxes & social security costs
Tax payable
Other creditors
Accruals & deferred income
7. Loans
Amounts due are repayable as follows
in less than one year
- loans from subsidiaries
in more than one year but not more than two years
- bank loan
- loans from subsidiaries
in more than two years but not more than five years
- loans from subsidiaries
8. Provisions
At 28 December 2007
Unutilised
Utilised
At 26 December 2008
Subsidiaries
2008
£m
21.9
0.2
1.6
2.8
1.3
27.8
2008
£m
23.2
1.0
4.1
5.2
6.2
39.7
2007
£m
9.7
0.3
2.1
3.8
1.3
17.2
2007
£m
9.6
1.4
-
1.2
7.2
19.4
2008
£m
2007
£m
52.0
144.0
13.1
175.3
384.4
Discontinued
operations
warranty &
indemnity
£m
6.3
(1.6)
(0.6)
4.1
-
50.1
-
223.5
273.6
Total
£m
8.3
(1.6)
(0.6)
6.1
Subsidiaries
£m
2.0
-
-
2.0
As at 26 December 2008, a provision of £2.0m (2007: £2.0m) has been made against the deficiency of underlying net assets in certain subsidiaries.
It is anticipated that this amount will be settled within one year of the balance sheet date.
Discontinued operations warranty & indemnity
Provisions in respect of discontinued operations include provision for warranty and indemnity exposures under asset and share agreements. Provisions
amounting to £0.6m were utilised during 2008 and, following the expiry of certain warranty periods, an amount of £1.6m has been released to the income
statement as it is no longer required.
The provision as at 26 December 2008 is based on management’s current best estimate of the remaining liabilities. The actual outcome may differ and in
some cases, this will be dependent on the outcome of legal proceedings. It is expected that all or the majority of these costs will be incurred within two
years of the balance sheet date with the remaining costs expected to be incurred within five years of the balance sheet date.
104
The Weir Group PLC Annual Report 2008
9. Retirement benefits
The net pension liability in respect of the Company unapproved plan is reflected on the Company’s balance sheet. Further details of this plan are set out
on pages 107 and 108.
In addition, the Company also participates in the defined benefit plan arrangements within The Weir Group Pension & Retirement Savings Scheme and
The Weir Group 1972 Pensions and Life Assurance Plan for Senior Executives. These defined benefits plans are funded multi-employer plans which are
operated by The Weir Group PLC and which are run on a basis that does not enable individual companies to identify their share of the underlying assets
and liabilities. In accordance with FRS17, the Company accounts for its contributions to these plans as if they were defined contribution plans. While plan
assets and liabilities in respect of these schemes are not reflected on the Company’s balance sheet, details of these plans are set out below.
Pension contributions are determined with the advice of independent qualified actuaries on the basis of annual valuations using the projected unit method.
The total contributions to the defined benefit plans in 2009 are expected to be £2.9m.
Plan assets are stated at their market values at the respective balance sheet dates and overall expected rates of return are established by applying published
brokers forecasts to each category of plan assets and allowing for plan expenses. The actual return on scheme assets in the year was a loss of £89.7m
(2007: gain of £12.2m).
The assets and liabilities of the plans and the long-term expected rates of return are as follows
Equities
Insurance Policy
Bonds
Fair value of plan assets
Present value of plan liabilities
Net surplus in the plans
2008
%
7.2
6.2
4.2
2008
£m
118.6
272.9
91.8
483.3
(480.6)
2.7
2007
%
7.7
5.9
4.3
2007
£m
209.1
218.5
159.2
586.8
(542.2)
44.6
The equity investments and bonds which are held in plan assets are quoted and are valued at the current bid price following the adoption of the
amendment to FRS17. Previously these were valued at mid price. The effect of this change in the value of assets at 31 December 2007 is a reduction of
£0.6m. The prior year figures have not been restated as the effect is immaterial.
Recognised in the profit & loss account
Current service cost
Expected return on plan assets
Interest cost on plan liabilities
Other finance (income) cost
Taken to the statement of total recognised gains & losses
Actual return on plan assets
Less: expected return on plan assets
Other actuarial gains
Actuarial (losses) gains recognised in the statement of total recognised gains & losses
2008
£m
2007
£m
1.6
2.9
(34.6)
31.3
(3.3)
(89.7)
(34.6)
(124.3)
72.2
(52.1)
(33.2)
29.7
(3.5)
12.2
(33.2)
(21.0)
50.1
29.1
The Weir Group PLC Annual Report 2008
105
Notes to the Company Financial Statements (Continued)
9. Retirement benefits (continued)
The major assumptions used by the actuary are as follows
Rate of increase in salaries
Rate of increase in pensions in payment
Pre 6 April 2006 service
Post 6 April 2006 service
Discount rate
Inflation assumption
The mortality assumptions used are as follows
Post-retirement mortality
Current pensioners at 65 - male
Current pensioners at 65 - female
Future pensioners at 65 - male
Future pensioners at 65 - female
2008
%
2.7
2.7
2.4
6.2
2.7
2008
Years
18.1
20.9
19.6
22.3
2007
%
3.3
3.3
2.5
5.9
3.3
2007
Years
18.1
20.9
19.6
22.3
The post-retirement mortality assumptions allow for expected increases in longevity. The “current” disclosures above relate to assumptions based on
longevity (in years) following retirement at the balance sheet date, with “future” being that relating to an employee retiring in 2038 (in 30 years time).
Changes in the present value of the defined benefit obligations are analysed as follows
£m
581.1
2.9
29.7
(23.2)
1.8
(50.1)
542.2
1.6
31.3
(23.5)
1.2
(72.2)
480.6
As at 29 December 2006
Current service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial gains & losses
As at 28 December 2007
Current service cost
Interest cost
Benefits paid
Contributions by employees
Actuarial gains & losses
As at 26 December 2008
106
The Weir Group PLC Annual Report 2008
9. Retirement benefits (continued)
Changes in the fair value of plan assets are analysed as follows
As at 29 December 2006
Expected return on plan assets
Employer contributions
Contributions by employees
Benefits paid
Actuarial gains & losses
As at 28 December 2007
Expected return on plan assets
Employer contributions
Contributions by employees
Benefits paid
Actuarial gains & losses
As at 26 December 2008
History of experience gains & losses
£m
586.4
33.2
9.6
1.8
(23.2)
(21.0)
586.8
34.6
8.5
1.2
(23.5)
(124.3)
483.3
Fair value of plan assets
Present value of defined benefit obligation
Surplus (deficit) in the plans
Experience adjustments arising on plan liabilities
Changes in financial assumptions underlying plan liabilities
Experience adjustments arising on plan assets
2008
£m
483.3
(480.6)
2.7
4.5
67.7
(124.3)
2007
£m
586.8
(542.2)
44.6
1.8
48.3
(21.0)
2006
£m
586.4
(581.1)
5.3
(0.4)
17.3
12.5
2005
£m
2004
£m
549.3
(595.4)
(46.1)
(0.8)
(35.0)
60.2
464.7
(547.2)
(82.5)
(0.3)
(19.1)
14.8
The cumulative amount of actuarial losses recognised in the statement of recognised gains and losses is £136.7m (2007: £84.6m).
Company unapproved plan
The liabilities of the Company unapproved plan are as follows
Present value of plan liabilities
Related deferred tax asset
Net pension liability
Recognised in the profit and loss account
Interest cost on plan liabilities
Other finance cost
The major assumptions used by the actuary for the Company unapproved plan were as follows
Rate of increase in pensions in payment
Discount rate
Inflation assumption
2008
£m
(1.1)
0.3
(0.8)
2008
£m
0.1
0.1
2008
%
2.7
6.2
2.7
2007
£m
(1.1)
0.3
(0.8)
2007
£m
0.1
0.1
2007
%
3.3
5.9
3.3
The Weir Group PLC Annual Report 2008
107
Notes to the Company Financial Statements (Continued)
9. Retirement benefits (continued)
The mortality assumptions used are as follows
Post-retirement mortality
Current pensioners at 65 - male
Current pensioners at 65 - female
Future pensioners at 65 - male
Future pensioners at 65 - female
2008
Years
18.1
20.9
19.6
22.3
2007
Years
18.1
20.9
19.6
22.3
The post-retirement mortality assumptions allow for expected increases in longevity. The “current” disclosures above relate to assumptions based on
longevity (in years) following retirement at the balance sheet date, with “future” being that relating to an employee retiring in 2038 (in 30 years time).
Changes in the present value of the defined benefit obligations are analysed as follows
As at 29 December 2006
Interest cost
Benefits paid
As at 28 December 2007
Interest cost
Benefits paid
As at 26 December 2008
Changes in the fair value of plan assets are analysed as follows
As at 29 December 2006
Employer contributions
Benefits paid
As at 28 December 2007
Employer contributions
Benefits paid
As at 26 December 2008
History of experience gains & losses
Present value of defined benefit obligation
Deficit in the plans
Experience adjustments arising on plan liabilities
Changes in financial assumptions underlying plan liabilities
2008
£m
(1.1)
(1.1)
-
(0.1)
2007
£m
(1.1)
(1.1)
(0.1)
0.1
2006
£m
(1.1)
(1.1)
-
-
2005
£m
(1.1)
(1.1)
-
(0.1)
108
The Weir Group PLC Annual Report 2008
£m
1.1
0.1
(0.1)
1.1
0.1
(0.1)
1.1
£m
-
0.1
(0.1)
-
0.1
(0.1)
-
2004
£m
(1.0)
(1.0)
-
(0.1)
10. Derivative financial instruments
Derivative financial instruments due within one year
Forward foreign currency contracts
Derivative financial instruments due after more than one year
Forward foreign currency contracts
Creditors falling due within one year
Interest rate swaps
Cross currency swaps
Forward foreign currency contracts
Creditors falling due after more than one year
Interest rate swaps
Cross currency swaps
Forward foreign currency contracts
11. Share capital
Authorised share capital
Ordinary shares of 12.5p each
Allotted, called up & fully paid
Ordinary shares of 12.5p each
Shares allotted
Issued during the year for cash on exercise of share options
Issued during the year in respect of LTIP awards
Aggregate nominal value of share options exercised
Share premium
Consideration received on exercise of share options
2008
£m
33.4
33.4
5.7
39.1
1.0
15.5
35.5
52.0
1.1
61.3
2.3
64.7
2007
£m
4.9
4.9
-
4.9
-
1.0
5.2
6.2
-
3.9
-
3.9
2008
£m
2007
£m
36.0
36.0
26.6
26.5
2008
Number
Million
2007
Number
Million
0.2
0.3
0.5
2008
£m
0.1
0.3
0.4
0.9
0.2
1.1
2007
£m
0.1
2.3
2.4
The Weir Group PLC Annual Report 2008
109
Notes to the Company Financial Statements (Continued)
11. Share capital (continued)
Treasury shares
At beginning of period
Issued during the year in respect of LTIP awards
At end of period
Equity settled share-based payments
Conditional share award outstanding at the end of the period
Share options outstanding at the end of the period
LTIP awards outstanding at the end of the period
2008
Number
Million
2.9
(0.4)
2.5
2008
Number
Million
0.4
-
1.9
Further details of the equity settled share-based payments and the associated cost for the year can be found in note 28 to the Group financial statements.
12. Reserves
Share
premium
£m
Treasury
shares
£m
Capital
redemption
reserve
£m
Hedge
accounting
reserve
£m
Special
reserve
£m
Profit & loss
account
£m
At 29 December 2006
Profit for year
Dividends
Cost of share based payment net of deferred tax
Exercise of options & LTIP awards
At 28 December 2007
Profit for year
Dividends
Cost of share based payment net of deferred tax
Exercise of options & LTIP awards
At 26 December 2008
35.4
-
-
-
2.3
37.7
-
-
-
0.3
38.0
(10.7)
-
-
-
1.4
(9.3)
-
-
-
1.4
(7.9)
0.5
-
-
-
-
0.5
-
-
-
-
0.5
-
-
-
-
-
-
(1.4)
-
-
-
(1.4)
1.8
-
-
-
-
1.8
-
-
-
-
1.8
257.2
109.1
(31.1)
1.6
(1.4)
335.4
24.4
(35.7)
1.5
(1.4)
324.2
The profit and loss account above is stated after deducting an accumulated loss in respect of retirement benefits of £0.8m (2007: £0.8m).
2007
Number
Million
3.3
(0.4)
2.9
2007
Number
Million
-
0.2
1.9
Total
£m
284.2
109.1
(31.1)
1.6
2.3
366.1
23.0
(35.7)
1.5
0.3
355.2
110
The Weir Group PLC Annual Report 2008
13. Balance sheet - deferred tax
At 28 December 2007
Included in profit for the year
Credit for the year included in equity
At 26 December 2008
Included in debtors (note 5)
Included in retirement benefits (note 9)
Other timing differences
Retirement benefits
14. Operating lease commitments
As at 26 December 2008, annual commitments under non-cancellable operating leases amounted to
- office equipment
of which payable in respect of operating leases ending in the second to fifth years inclusive
Deferred tax asset
£m
2.4
0.2
(0.7)
1.9
2007
£m
2.1
0.3
2.4
2.1
0.3
2.4
2007
£000
10
10
2008
£m
1.6
0.3
1.9
1.6
0.3
1.9
2008
£000
14
14
15. Contingent liabilities & guarantees
Guarantees
The Company has given guarantees in relation to the bank and other borrowings of certain subsidiary companies. The net debt of the companies party to these
facilities as at 26 December 2008 amounted to £108.4m (2007: £30.2m).
Legal claims
The Company is, from time to time, party to legal proceedings and claims which arise in the normal course of business. The directors do not anticipate that
the outcome of these proceedings and claims, either individually or in aggregate, will have a material adverse effect upon the Company’s financial position.
16. Financial risk management objectives & policies
A description of the Group’s financial risk management objectives and policies is provided in note 30 to the Group financial statements. These financial
risk management objectives and policies also apply to the Company.
The Weir Group PLC Annual Report 2008
111
Principal companies of the Group
The principal subsidiaries and joint ventures of the Group are as follows
Name
Subsidiaries
EnviroTech Pumpsystems Inc
Liquid Gas Equipment Ltd*
Mesa Manufacturing Inc
Multiflo Pumps Pty Limited
PT Weir Minerals Multiflo
Specialised Petroleum Manufacturing Ltd
SPM Flow Control Inc
Vulco Peru SA
Vulco SA
Warman Africa (Pty) Limited
Weir Canada Inc
Weir do Brasil Ltda
Weir Engineering Services (India) Ltd
Weir Engineering Services Ltd
Weir Floway Inc
Weir Gabbioneta SrL
Weir Group Trading (Shanghai) Co Ltd
Weir Hazleton Inc
Weir Minerals Africa (Pty) Ltd
Weir Minerals Australia Ltd
Weir Minerals China Co Ltd
Weir Minerals Europe Ltd
Weir Minerals France SAS
Weir Minerals (India) Private Ltd
Weir Minerals Netherlands BV
Weir Minerals RFW
Weir Minerals Services (Africa) (Pty) Ltd
Weir Power & Industrial France SAS (formerly Weir Valves & Controls France SAS)
Weir Services Australia Pty Ltd
Weir Services USA Inc
Weir Slurry Group Inc
Weir SOS Limited
Weir Valves & Controls (Suzhou) Co, Ltd
Weir Valves & Controls UK Ltd*
Weir Valves & Controls USA Inc
Weir Vulco Venezuela SA
Joint ventures
Weir Arabian Metals Company
Wesco Abu Dhabi LLC
* Companies whose shares are owned directly by The Weir Group PLC.
Country of registration
or incorporation
% equity interest
2008
USA
Scotland
USA
Australia
Indonesia
Scotland
USA
Peru
Chile
South Africa
Canada
Brazil
India
Scotland
USA
Italy
China
USA
South Africa
Australia
China
England
France
India
Netherlands
Russia
South Africa
France
Australia
USA
USA
The Bahamas
China
England
USA
Venezuela
Saudi Arabia
UAE
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
97
100
100
100
100
100
100
100
75
100
100
100
100
49
49
112
The Weir Group PLC Annual Report 2008
Shareholder Information
Takeovers Directive
Following the implementation of the EU Takeovers Directive
into UK law, the following description provides the required
information for shareholders where not already provided
elsewhere in this report.
Share capital
As at 26 December 2008, the Company’s issued share capital
comprised a single class of shares referred to as ordinary shares.
Details of the ordinary share capital can be found in note 25
to the Group financial statements.
Voting rights
The Company's articles of association provide that on a show
of hands at a general meeting of the Company, every holder of
ordinary shares present in person and entitled to vote shall have
one vote and on a poll, every member present in person or by
proxy and entitled to vote shall have one vote for every ordinary
share held. The notice of the annual general meeting specifies
deadlines for exercising voting rights and appointing a proxy or
proxies to vote in relation to resolutions to be passed at the annual
general meeting. All proxy votes are counted and the numbers
for, against or withheld in relation to each resolution are announced
at the annual general meeting and published on the Company’s
website after the meeting.
Transfer of shares
There are no restrictions on the transfer of ordinary shares in the
Company, other than as contained in the articles of association:
• The Board may, in its absolute discretion and without giving
any reason for it, refuse to register any transfer of any
certificated share which is not fully paid up (but not so as
to prevent dealings in listed shares from taking place) and on
which the Company has a lien as a result of such share not
being fully paid up. The Board may also refuse to register any
instrument of transfer of a certificated share unless it is lodged
at the registered office, or such other place as the Board may
decide, for registration, accompanied by a certificate for the
shares to be transferred and such other evidence as the Board
may reasonably require to prove title of the intending transferor;
• Certain restrictions may from time to time be imposed by
laws and regulations (for example, insider trading laws);
• Pursuant to the Listing Rules of the Financial Services Authority
whereby certain employees of the Company require the approval
of the Company to deal in the Company’s ordinary shares.
Appointment and replacement of directors
The articles of association require that at the annual general
meeting one third of the directors shall retire from office but
shall be eligible for re-appointment. Any director who has been
appointed by the Board since the previous annual general meeting
or has held office for three years or more since he was appointed
or last re-appointed by the Company in general meeting shall
retire at the next following annual general meeting and be
eligible for re-appointment.
The articles of association authorise the Board to appoint directors
and remove a director from office.
Shares held by the Employee Benefit Trust
Kleinwort Benson (Guernsey) Trustees Limited, as trustee of The
Weir Group Employee Trust, holds through their designated ESOP
account nominee, K.B (CI) Nominees Limited 0.047% of the issued
share capital of the Company, as at 26 December 2008, in trust
for the benefit of certain executive directors and senior executives
of the Group. The voting rights in relation to these shares are
exercised by the trustee. The trustee may vote or abstain from
voting the shares or accept or reject any offer relating to shares,
in any way it sees fit, without incurring any liability and without
being required to give reasons for its decision.
Amendment of the Company's articles of association
The articles of association may only be amended by a Special
Resolution passed at a general meeting of shareholders.
Repurchase of shares
The Company obtained shareholder authority at the last annual
general meeting held on 7 May 2008 to buy back up to 20.9m
ordinary shares which remains outstanding until the conclusion
of the next annual general meeting on 13 May 2009. The directors
will only use this power after careful consideration, taking into
account market considerations prevailing at the time, other
investment opportunities, appropriate gearing levels and the
overall position of the Company. The directors will only purchase
such shares after taking into account the effects on earnings per
share and the benefits for shareholders.
Significant agreements
The Company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities and/or
voting rights.
There are no agreements between the Company and its directors
or employees providing for compensation for loss of office or
employment (whether through resignation, purported redundancy
or otherwise) that occurs because of a takeover bid. The Company’s
banking arrangements are terminable upon a change of control
of the Company. Certain other indebtedness becomes repayable
if a change of control leads to an adverse change to the Company’s
credit standing.
The Weir Group PLC Annual Report 2008
113
Shareholder Information (Continued)
Powers of the directors
The business of the Company will be managed by the Board
who may exercise all the powers of the Company, subject to the
provisions of the Company's memorandum of association, the
articles of association and any ordinary resolution of the Company.
Registrars
The Company’s registrars are Computershare Investor Services
PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ.
Shareholder enquiries relating to shareholding, dividend payments,
change of address, loss of share certificate, etc. should be addressed
to Computershare Investor Services PLC at the above address.
The registrars provide an on-line service that enables shareholders
to access details of their Weir Group shareholdings. A shareholder
wishing to view the information, together with additional
information such as indicative share prices and details of
recent dividends, should visit www-uk.computershare.com.
Dividends – payment direct to banks
Dividends can be paid direct to your bank or building society
account using the Bankers Automated Clearing Service (BACS).
This means that your dividend will be in your account on the
same day the Company makes the payment. Your tax voucher will
be posted directly to your own address. Shareholders who have
not yet arranged to use this method of payment can telephone
the registrars on 0870 702 0010. The Company encourages you
to have your dividends paid direct to a bank or building society.
Annual general meeting
The annual general meeting will be held in the Lecture Room,
The Burrell Collection, Pollok Park, Glasgow on 13 May 2009 at
11am. Details of the resolutions to be proposed at the annual
general meeting are contained in the shareholders circular.
Taxation
For the purpose of capital gains tax, the market value of an
ordinary share of The Weir Group PLC as at 31 March 1982 was
29.75p. This market value has been adjusted to take account of
the sub-division of the share capital whereby each ordinary share
of 25p was sub-divided into two ordinary shares of 12.5p each
on 28 June 1993.
Rights issues of ordinary shares took place in April 1987 at 157p
per share on the basis of one new ordinary share for every seven
ordinary shares held, in July 1990 at 250p per share on the basis
of one new ordinary share for every five ordinary shares held and
in September 1994 at 252p per share on the basis of one new
ordinary share for every four ordinary shares held.
114
The Weir Group PLC Annual Report 2008
Shareholder communications
You can now register to receive shareholder communications
(annual reports, interim reports and other company communications)
electronically (and also appoint a proxy and vote electronically)
provided you have internet access and a valid e-mail address. To
register, you will need your Shareholder Reference Number (SRN),
which is given on your share certificate or tax dividend voucher.
This service is provided in conjunction with our registrars,
Computershare Investor Services PLC. To obtain more
information and register for this service, please visit
www-uk.computershare.com.
Website
The Company’s website, www.weir.co.uk, provides
information including:
• news, updates, press releases and regulatory announcements;
• investor information, including the full annual report, investor
presentations and share price information;
• biographies of the members of the Board and the divisional
executive team;
• details of the Company’s governance framework; and
• corporate responsibility reporting.
Share dealing services
Share dealing services have been established with the Company’s
registrars, Computershare Investor Services PLC, which provide
shareholders with an easy way to buy or sell Weir Group shares
on the London Stock Exchange.
Internet share dealing commission is just 0.5%, subject to a
minimum charge of £15. In addition, stamp duty, currently
0.5%, is payable on purchases. There is no need to open an
account in order to deal. Real time dealing is available during
market hours. In addition, there is a convenient facility to place
your order outside of market hours. Up to 90 day limit orders
are available for sales. To access the service, log on to
www.computershare.com/dealing/uk. Shareholders should
have their SRN available. The SRN appears on share certificates
and tax dividend vouchers. A bank debit card will be required
for purchases. Please note that, at present, this service is only
available to shareholders in certain European jurisdictions. Please
refer to the website for an up-to-date list of these countries.
Telephone share dealing commission is 1%, subject to a
minimum charge of £15. In addition, stamp duty, currently
0.5%, is payable on purchases. The service is available from
8am to 4.30pm Monday to Friday, excluding bank holidays,
on telephone number 0870 703 0084. Shareholders should
have their SRN ready when making the call. The SRN appears
on share certificates and tax dividend vouchers. A bank debit
card will be required for purchases. Detailed terms and conditions
are available on request by telephoning 0870 703 0119. Please
note this service is, at present, only available to shareholders resident
in the UK and Ireland.
These services are offered on an execution only basis and
subject to the applicable terms and conditions. This is not
a recommendation to buy, sell or hold Weir Group shares.
Shareholders who are unsure of what action to take should
obtain independent financial advice. Share values may go
down as well as up which may result in a shareholder receiving
less than he/she originally invested.
To the extent that this statement is a financial promotion for the
share dealing service provided by Computershare Investor Services
PLC, it has been approved by Computershare Investor Services
PLC for the purpose of Section 21 (2) (b) of the Financial Services
and Markets Act 2000 only. Computershare Investor Services PLC
is authorised and regulated by the Financial Services Authority.
Where this has been received in a country where the provision
of such a service would be contrary to local laws or regulations,
this should be treated as information only.
Voting
Information on how you can vote electronically can be obtained
through our registrars by visiting www.eproxyappointment.com
Online share management
As part of our commitment to improve shareholder communications
our registrars now offer you a free, secure share management
website. Managing your shares online means you can access
information quickly, securely and minimise postal communications.
This service will allow you to:
• view your share portfolio and see the latest market price of
your shares;
• elect to receive your shareholder communications online;
• calculate the total market price of each shareholding;
• view price histories and trading graphs;
• update bank mandates and change address details; and
• use online dealing services.
To take advantage of this service, please log in at
www-uk.computershare.com/investor and enter your Shareholder
Reference Number and Company Code (this information can be
found on the last tax dividend voucher or your share certificate).
The Weir Group PLC Annual Report 2008
115
116
The Weir Group PLC Annual Report 2008
Financial Highlights 2008
Financial Calendar
Group results - continuing operations
Revenue
£1,354m
Up 34%
Operating profit1
£185.0m
Up 58%
Pre-tax profit1
£176.2m
Up 53%
Order input1
£1,439m
Up 30%
Earnings per share1
59.3p
Up 49%
Dividend
18.5p
Up 12%
Net debt
£239.9m
60
45
30
15
20
15
10
5
2007
39.7p
2008
59.3p
2007
16.5p
2008
18.5p
1 Adjusted to exclude intangibles amortisation and exceptional items
Contents:
The Reports
2008 Highlights
1
2
Group Financial Statements
45 Independent Auditors Report
Chairman’s Statement
46 Consolidated Income Statement
4 Our geographic footprint
47 Consolidated Balance Sheet
6
Chief Executive’s Review
48 Consolidated Cash Flow Statement
9 Operational Reviews
16 Financial Review
20 Board of Directors &
Group Operations Executive
49 Consolidated Statement of Recognised
Income & Expense
50 Notes to the Group Financial Statements
22 Directors Report
Company Financial Statements
28 Corporate Governance Statement
99 Independent Auditors Report
31 Audit Committee Report
100 Company Balance Sheet
32 Nomination Committee Report
33 Remuneration Committee Report
101 Notes to the Company
Financial Statements
40 Corporate Social Responsibility Report
112 Principal Companies of the Group
113 Shareholder Information
Inside back cover - Financial Calendar
Ex-dividend date for final dividend
29 April 2009
Record date for final dividend
1 May 2009
Shareholders on the register at this
date will receive the dividend
Annual General Meeting
13 May 2009
Final dividend paid
1 June 2009
Registered office & company number
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB
Scotland
Registered in Scotland
Company Number 2934
Designed by Design Motive
Printed by Royle Print
The Weir Group PLC
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB, Scotland
Telephone: +44 (0)141 637 7111
Facsimile: +44 (0)141 221 9789
Email: investor-relations@weir.co.uk
Website: www.weir.co.uk
The Weir Group PLC
Annual Report 2008
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