The Weir Group PLC
Annual report and financial statements 2009
The Weir Group PLC
Annual report and financial statements 2009 Directors report
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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
Excellent
Engineering
Solutions
Contents
Directors report
Inside front cover
Financial highlights
Chairman’s statement
Chief Executive’s review
Driving growth The Weir Way
Key Performance Indicators
Operational review
Financial review
Board of directors
Principal risks & uncertainties
Corporate governance report
Remuneration report
Corporate responsibility report
Other statutory information
Financial statements and
other information
Independent auditors report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated cash
flow statement
Consolidated statement
of changes in equity
Notes to the Group
financial statements
Independent auditors report
Company balance sheet
Notes to the Company
financial statements
Principal companies of
the Group
Shareholder information
1
2
4
8
14
15
24
28
30
33
40
47
54
57
58
59
60
61
62
63
110
111
112
123
124
Inside back cover – Financial calendar
and Cautionary statement
Front cover: Representing the Weir team:
George H. Finn and Robert Close (both
USA), Basli Sathi (Australia), Antonella
Campolo (Italy), Anton Amperman
(Australia) and Valentina Bortoluzzi (Italy)
The Weir Way
The drivers of growth
The Weir Group has a clearly defined strategy to
build market presence and deliver outstanding
products and services from a platform of operational
excellence and customer focus. This is supported by
our continuing commitment to operating disciplines
throughout the business and to the development
of our people.
1 InnovatIve
actIon
Our strategy prioritises customer-driven product and service
innovation through investment in engineering skills and people
development to accelerate the adoption of new approaches
and business solutions. This creative focus on portfolio
development delivers enhanced and extended product
capability to give existing and new customers a competitive
advantage.
2 collaboratIve
MIndset
We will drive co-operative alliances and cross-divisional
working to promote our total capability to customers in all
markets. We achieve more when we empower our people
to collaborate with our customers and with each other across
divisions, markets and geographical regions in a shared
approach to solving problems.
3 Global
caPabIlItY
Our strategy is to continue to build global capability, to expand
in emerging markets and serve customers globally. This
means working alongside our customers in the territories that
drive demand in minerals, oil and gas and power generation,
channelling more products and services through our existing
and expanding organisation to strengthen local relationships.
The Weir Group PLC
Annual report and financial statements 2009
The Weir Group PLC
Annual report and financial statements 2009 Directors report
T
h
e
W
e
i
r
G
r
o
u
p
P
L
C
A
n
n
u
a
l
r
e
p
o
r
t
a
n
d
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
2
0
0
9
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
Excellent
Engineering
Solutions
Contents
Directors report
Inside front cover
Financial highlights
Chairman’s statement
Chief Executive’s review
Driving growth The Weir Way
Key Performance Indicators
Operational review
Financial review
Board of directors
Principal risks & uncertainties
Corporate governance report
Remuneration report
Corporate responsibility report
Other statutory information
Financial statements and
other information
Independent auditors report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated cash
flow statement
Consolidated statement
of changes in equity
Notes to the Group
financial statements
Independent auditors report
Company balance sheet
Notes to the Company
financial statements
Principal companies of
the Group
Shareholder information
1
2
4
8
14
15
24
28
30
33
40
47
54
57
58
59
60
61
62
63
110
111
112
123
124
Inside back cover – Financial calendar
and Cautionary statement
Front cover: Representing the Weir team:
George H. Finn and Robert Close (both
USA), Basli Sathi (Australia), Antonella
Campolo (Italy), Anton Amperman
(Australia) and Valentina Bortoluzzi (Italy)
The Weir Way
The drivers of growth
The Weir Group has a clearly defined strategy to
build market presence and deliver outstanding
products and services from a platform of operational
excellence and customer focus. This is supported by
our continuing commitment to operating disciplines
throughout the business and to the development
of our people.
1 InnovatIve
actIon
Our strategy prioritises customer-driven product and service
innovation through investment in engineering skills and people
development to accelerate the adoption of new approaches
and business solutions. This creative focus on portfolio
development delivers enhanced and extended product
capability to give existing and new customers a competitive
advantage.
2 collaboratIve
MIndset
We will drive co-operative alliances and cross-divisional
working to promote our total capability to customers in all
markets. We achieve more when we empower our people
to collaborate with our customers and with each other across
divisions, markets and geographical regions in a shared
approach to solving problems.
3 Global
caPabIlItY
Our strategy is to continue to build global capability, to expand
in emerging markets and serve customers globally. This
means working alongside our customers in the territories that
drive demand in minerals, oil and gas and power generation,
channelling more products and services through our existing
and expanding organisation to strengthen local relationships.
The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
01
Financial highlights
2009
• Resilient aftermarket contributed 54% of revenues.
• Record operating profit benefiting from positive
currency effect.
• Margin benefit from stronger aftermarket and cost
management.
• Exceptional free cash flow generation.
• Net debt halved in the year.
• Stabilisation of Minerals order input.
• Stronger current trading driving a more positive
outlook for Weir SPM.
• Power & Industrial to benefit from record nuclear
59.3p
64.1p
order book.
• 2010 expectations upgraded.
Group results
Continuing operations
Revenue
£1,390m Up 3%
Operating profit2
£204.7m Up 11%
Profit before tax2
£187.0m Up 6%
Order input1
£1,302m Down 18%
Earnings per share2
64.1p Up 8%
80
70
60
50
40
30
20
10
39.7p
2007
2008
2009
Dividend per share
21.0p Up 14%
16.5p
18.5p
21.0p
25
20
15
10
5
2007
2008
2009
Net debt
£119.2m Down 50%
1 2008 restated at 2009 average exchange rates
2 Adjusted to exclude intangibles amortisation
Annual report and financial statements 2009 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
Market overview
The global economic downturn and
associated decline in commodity prices
resulted in difficult market conditions
in 2009. While commodity production
volumes were lower early in the year
there was notable improvement in the
second half supported by investment in
Asian infrastructure.
Market overview
The North American upstream market
experienced reduced activity with lower
demand for natural gas. At the mid-year,
rig count had reduced by around 50%
before starting to recover in the second
half. Significant downstream project
opportunities were driven principally by
Middle East refining expansion.
Market overview
The original equipment power market
continued to be buoyant in Asia, but
depressed elsewhere. The strong Asian
market has been driven by China’s
nuclear new build. New coal and nuclear
plant delays in Europe and North America
have resulted in increased potential for
service and life extension projects.
2009 revenue by division
Minerals
59%
Oil & Gas
22%
Power & Industrial
17%
Other
2%
The Weir Group is well established in all three of our
chosen markets: Minerals, Oil & Gas and Power. Throughout
2009, the Group has been focused on worldwide operational
excellence, which has enabled us to manage through the
downturn and to help our customers do likewise. Operational
excellence will continue to underpin our strategy for growth
going forward.
Customer focus is a precondition for sustainable growth. Going forward, we
will be prioritising customer focus and customer relationships through our three
principal drivers of growth. Innovative action to develop our product portfolio
will be targeted at meeting specific customer needs. A collaborative mindset
will allow us to work together across the Group and in partnership with our
customers. Through our global capability, we will use our geographic footprint
to best advantage to ensure we get closer to existing and new customers.
Weir Minerals is the global leader in the
provision of slurry handling equipment
and associated spare parts for abrasive
high wear applications used in mining
as well as in the niche oil sands and flue
gas desulphurisation markets. Products
include pumps, hydro cyclones, valves,
de-watering equipment and wear
resistant linings. Investment in materials,
technology and engineered hydraulics
ensure world class performance. The
division is present in key mining markets,
including South and North America,
Australia and Africa.
Weir Oil & Gas designs and manufactures
pumps and ancillary equipment for
global upstream and downstream oil and
gas markets and provides substantial
aftermarket service and support activities.
Upstream operations specialise in high-
pressure well service pumps and related
flow control equipment along with repairs,
parts and service of pressure control and
rotating equipment. Downstream focuses
on design and manufacture of centrifugal
pumps, mainly for the refining industry.
Principal operations are in North America,
Europe and the Middle East.
Weir Power & Industrial designs,
manufactures and provides aftermarket
support for specialist and critical-service
rotating and flow control equipment, in
the main, to the global power sector.
The division includes valve operations, a
specialist pump business and substantial
service and aftermarket operations and
is one of only a few businesses globally
capable of providing specialist valves into
the nuclear islands of third generation
nuclear power stations. Facilities are
located in Europe, North America, China,
Middle East, India and South Africa.
Facts and figures
No. of people
No. of businesses
2009 order input
Addressable market
c5,200
19
£718m
£2.7bn
Facts and figures
No. of people
No. of businesses
2009 order input
Addressable market
c1,600
11
£305m
£1.6bn
Facts and figures
c1,900
No. of people
9
No. of businesses
2009 order input
£266m
Addressable power market £2.3bn
Major customers
Anglo American
BHP Billiton
Newmont
Rio Tinto
Shell
Siemens Corporation
Syncrude Canada
Vale Inco
Vendanta Group
Xstrata
Major customers
BJ Services
BP
Cal Frac
Halliburton
Linde Impianti Italia
Neste Oil
Schlumberger
Superior Well Services
Trican Oilwell Services
Weatherford
Major customers
British Columbia Hydro & Power Authority
CNPEC & CNEIC, China
Department of National Defence, Canada
EADS / Eurocopter France
EDF
Iberdrola
LISCO Iron & Steel Company
Loftyman Engineering
Scottish & Southern Energy
Tennessee Valley Authority
Valves and slurry pumps
feature in Goldcorp’s Mexican
Penasquito project which will be
the world’s largest gold and silver
mill in the northern hemisphere.
Weir Gabbioneta process pumps
destined for Russia’s Tartarstan
region which is expected to refine
up to seven million metric tons of
crude oil per year.
Weir’s excellent technical service
helped Peak Gold’s New South
Wales mine increase throughput
and reduce costs with a mill liner
re-design.
With an extensive, successful
track record of hydro work in the
UK, our power business is seeing
similar ongoing demand for
refurbishment projects in Canada.
On site at Weir Minerals Chile,
who were recently awarded a
new maintenance contract with
Minera Escondida, the world’s
largest copper mine.
Reducing component travel
distance by 94% and set up
times by 42% gave Weir SPM
the operational edge to win
the Group’s manufacturing
excellence award.
Part of Minerals de-watering range,
the patented GEHO APEXS®
power saving pump moves large
volumes of abrasive, corrosive
slurries at high pressures.
Power & Industrial’s service
skills have seen them extend
their geographic reach with
a multi-million dollar contract
on a natural gas platform in
the South China Sea.
Financial
Calendar
Ex-dividend date for final dividend
5 May 2010
Record date for final dividend
7 May 2010
Shareholders on the register at this
date will receive the dividend
Annual general meeting
12 May 2010
Final dividend paid
3 June 2010
cautionary statement
This annual report contains forward-looking
statements with respect to the financial
condition, operations and performance of
the Group. By their nature, these statements
involve uncertainty since future events and
circumstances can cause results and
developments to differ materially from
those anticipated. The forward-looking
statements reflect knowledge and information
available at the date of preparation of this
annual report and the Company undertakes
no obligation to update these forward-looking
statements. Nothing in this annual report
should be construed as a profit forecast.
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
It is important that our annual report is produced in an environmentally
responsible manner, including the sourcing of materials. The annual report
is printed in the UK by Royle Print Ltd, a Carbon Neutral printing company,
using vegetable-based inks.
The material is Revive Pure Uncoated which is certified as 100% recycled by
the Forest Stewardship Council. The printer and paper manufacturing mill both
have ISO 14001 accreditation for environmental management.
Annual report and financial statements 2009 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
Market overview
The global economic downturn and
associated decline in commodity prices
resulted in difficult market conditions
in 2009. While commodity production
volumes were lower early in the year
there was notable improvement in the
second half supported by investment in
Asian infrastructure.
Market overview
The North American upstream market
experienced reduced activity with lower
demand for natural gas. At the mid-year,
rig count had reduced by around 50%
before starting to recover in the second
half. Significant downstream project
opportunities were driven principally by
Middle East refining expansion.
Market overview
The original equipment power market
continued to be buoyant in Asia, but
depressed elsewhere. The strong Asian
market has been driven by China’s
nuclear new build. New coal and nuclear
plant delays in Europe and North America
have resulted in increased potential for
service and life extension projects.
2009 revenue by division
Minerals
59%
Oil & Gas
22%
Power & Industrial
17%
Other
2%
The Weir Group is well established in all three of our
chosen markets: Minerals, Oil & Gas and Power. Throughout
2009, the Group has been focused on worldwide operational
excellence, which has enabled us to manage through the
downturn and to help our customers do likewise. Operational
excellence will continue to underpin our strategy for growth
going forward.
Customer focus is a precondition for sustainable growth. Going forward, we
will be prioritising customer focus and customer relationships through our three
principal drivers of growth. Innovative action to develop our product portfolio
will be targeted at meeting specific customer needs. A collaborative mindset
will allow us to work together across the Group and in partnership with our
customers. Through our global capability, we will use our geographic footprint
to best advantage to ensure we get closer to existing and new customers.
Weir Minerals is the global leader in the
provision of slurry handling equipment
and associated spare parts for abrasive
high wear applications used in mining
as well as in the niche oil sands and flue
gas desulphurisation markets. Products
include pumps, hydro cyclones, valves,
de-watering equipment and wear
resistant linings. Investment in materials,
technology and engineered hydraulics
ensure world class performance. The
division is present in key mining markets,
including South and North America,
Australia and Africa.
Weir Oil & Gas designs and manufactures
pumps and ancillary equipment for
global upstream and downstream oil and
gas markets and provides substantial
aftermarket service and support activities.
Upstream operations specialise in high-
pressure well service pumps and related
flow control equipment along with repairs,
parts and service of pressure control and
rotating equipment. Downstream focuses
on design and manufacture of centrifugal
pumps, mainly for the refining industry.
Principal operations are in North America,
Europe and the Middle East.
Weir Power & Industrial designs,
manufactures and provides aftermarket
support for specialist and critical-service
rotating and flow control equipment, in
the main, to the global power sector.
The division includes valve operations, a
specialist pump business and substantial
service and aftermarket operations and
is one of only a few businesses globally
capable of providing specialist valves into
the nuclear islands of third generation
nuclear power stations. Facilities are
located in Europe, North America, China,
Middle East, India and South Africa.
Facts and figures
No. of people
No. of businesses
2009 order input
Addressable market
c5,200
19
£718m
£2.7bn
Facts and figures
No. of people
No. of businesses
2009 order input
Addressable market
c1,600
11
£305m
£1.6bn
Facts and figures
c1,900
No. of people
9
No. of businesses
2009 order input
£266m
Addressable power market £2.3bn
Major customers
Anglo American
BHP Billiton
Newmont
Rio Tinto
Shell
Siemens Corporation
Syncrude Canada
Vale Inco
Vendanta Group
Xstrata
Major customers
BJ Services
BP
Cal Frac
Halliburton
Linde Impianti Italia
Neste Oil
Schlumberger
Superior Well Services
Trican Oilwell Services
Weatherford
Major customers
British Columbia Hydro & Power Authority
CNPEC & CNEIC, China
Department of National Defence, Canada
EADS / Eurocopter France
EDF
Iberdrola
LISCO Iron & Steel Company
Loftyman Engineering
Scottish & Southern Energy
Tennessee Valley Authority
Valves and slurry pumps
feature in Goldcorp’s Mexican
Penasquito project which will be
the world’s largest gold and silver
mill in the northern hemisphere.
Weir Gabbioneta process pumps
destined for Russia’s Tartarstan
region which is expected to refine
up to seven million metric tons of
crude oil per year.
Weir’s excellent technical service
helped Peak Gold’s New South
Wales mine increase throughput
and reduce costs with a mill liner
re-design.
With an extensive, successful
track record of hydro work in the
UK, our power business is seeing
similar ongoing demand for
refurbishment projects in Canada.
On site at Weir Minerals Chile,
who were recently awarded a
new maintenance contract with
Minera Escondida, the world’s
largest copper mine.
Reducing component travel
distance by 94% and set up
times by 42% gave Weir SPM
the operational edge to win
the Group’s manufacturing
excellence award.
Part of Minerals de-watering range,
the patented GEHO APEXS®
power saving pump moves large
volumes of abrasive, corrosive
slurries at high pressures.
Power & Industrial’s service
skills have seen them extend
their geographic reach with
a multi-million dollar contract
on a natural gas platform in
the South China Sea.
Financial
Calendar
Ex-dividend date for final dividend
5 May 2010
Record date for final dividend
7 May 2010
Shareholders on the register at this
date will receive the dividend
Annual general meeting
12 May 2010
Final dividend paid
3 June 2010
cautionary statement
This annual report contains forward-looking
statements with respect to the financial
condition, operations and performance of
the Group. By their nature, these statements
involve uncertainty since future events and
circumstances can cause results and
developments to differ materially from
those anticipated. The forward-looking
statements reflect knowledge and information
available at the date of preparation of this
annual report and the Company undertakes
no obligation to update these forward-looking
statements. Nothing in this annual report
should be construed as a profit forecast.
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
It is important that our annual report is produced in an environmentally
responsible manner, including the sourcing of materials. The annual report
is printed in the UK by Royle Print Ltd, a Carbon Neutral printing company,
using vegetable-based inks.
The material is Revive Pure Uncoated which is certified as 100% recycled by
the Forest Stewardship Council. The printer and paper manufacturing mill both
have ISO 14001 accreditation for environmental management.
02 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Structured for growth
Chairman’s statement by
Lord Smith of Kelvin
I am delighted to report, that in a difficult global
economic environment, the Weir Group has
performed strongly in 2009 with the resilience
of our business model evident in these results.
We delivered a record underlying profit and
an exceptional cash performance and enter
2010 in robust financial health.
With revenues up 3%, we were able to report an increase in
Group pre-tax profit from continuing operations, before intangibles
amortisation, of 6%, to a record £187.0m and generated free cash
flow after dividend payments of £141.1m, despite seeing order
input in constant currency fall by some 18% on 2008.
We are proposing a final dividend payment to shareholders of
16.2p per share, making 21.0p for the full year, an increase of 14%,
reflecting the Board’s continuing confidence in the Group’s business.
These results reflect the successful transformation of the Group
under Mark Selway’s leadership, encompassing operating
improvements and a strategic re-alignment into the three higher
growth, higher margin, long cycle sectors of mining, oil and gas,
and power. Over the last eight years, earnings have increased
more than four times, the share price has trebled and dividends
to shareholders increased by 81%. On behalf of the Board,
our employees and all shareholders, I would like to thank Mark
personally for his outstanding contribution to the success of the
Group and wish him well in his new role back home in Australia.
As we move forward, the Group has a strong operating platform to
drive growth both through organic development and value enhancing
acquisitions. It also has a number of significant advantages. We
have a clear and focused strategy targeted at three end markets
with positive fundamentals, driven principally by emerging market
growth. The Group’s extensive installed base of original equipment
products continues to grow and provides an increasing platform
for more profitable and resilient aftermarket sales. It also provides
exposure to both end market capital investment trends and
underlying market activity levels.
03
We have a strong balance sheet, are highly cash generative
and took early action to manage our way through the economic
downturn. Over the past few years, we have also put our pension
plans on a sustainable footing.
Mark Selway
Appointed chief executive in 2001, stepped
down from the role in November 2009 to take
up a similar position in Australia.
The Board is determined to achieve and maintain best practice
in all areas of corporate responsibility and sustainability, including
all aspects of health and safety. It was pleasing therefore to see
the progress made in these areas during the year and they remain
a key focus for the management team with further initiatives
already underway.
There have been a number of changes to the Board during
the year. I was pleased to announce the appointment of Keith
Cochrane as chief executive and the subsequent seamless
transition following Mark Selway’s decision to leave in September
2009. The appointment of Jon Stanton to replace Keith as finance
director was announced in January 2010 and Jon is expected to
join us in April. We welcomed as a new non-executive director
Richard Menell who brings valuable experience to the Board
particularly from a mining perspective. Ian Percy will retire from
the Board in April 2010 after more than 13 years of service and I
would like to thank him for his valuable contribution to the Group
over that period. The Board has benefited from his wisdom,
guidance and perspective.
I would also like to thank all our employees for their dedication,
hard work and commitment to the success of the Group over
what has been a very demanding year. Skilled and dedicated
people are the cornerstone of the Group’s success and we are
continuing to develop ways to create an environment in which
we excel at all that we do.
The pace of global economic recovery during 2010 remains
uncertain, but I strongly believe that our business is particularly
well placed to respond to the challenges and to take advantage
of the opportunities that will undoubtedly arise.
Lord Smith of Kelvin
Chairman
9 March 2010
Dividend per share
16.5p
18.5p
21.0p
25
20
15
10
5
2007
2008
2009
04 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Driving growth The Weir Way
Overview by Chief Executive
Keith Cochrane
As I take on the role of chief executive, I am
excited at the range of growth opportunities
open to the Group. Each of our divisions has
a clearly defined strategy to build our market
presence and deliver outstanding customer
service, while sustaining the fundamentals
that have delivered success thus far.
05
Group Executive (pictured)
From left to right: Scot Smith (Minerals Divisional
Managing Director), Steve Noon (Oil & Gas
Divisional Managing Director), Keith Cochrane
(Chief Executive), Phil Clifton (Power & Industrial
Divisional Managing Director), Alan Mitchelson
(Legal & Commercial Director).
During 2009 we continued to make good
progress against our key priorities:
• Strong management focus on health and
safety resulted in a 52% reduction in lost
time accidents.
• Overall operating efficiency (the Weir
Production System Lean score) improved
by over 9%.
• On time delivery improved by 10%.
• Working capital reduced by £66.2m,
converting into cash.
• The Customer Key Account programme and
the Weir Commercial System were rolled out
across the Group, along with a pilot project to
obtain direct customer feedback using
Net Promoter Score methodology.
• Continued investment in product research
and development.
• In Minerals, design work was completed
on Warman® pump enhancements.
• Weir SPM launched the Safety Iron
Manifold Trailer®.
• Completed customer acceptance testing
of a nuclear grade butterfly valve.
• Over £40m was spent on capital to improve
operating efficiency and extend the Group’s
global presence.
• A new foundry and rubber facility was
opened in Brasil.
• New service centres were opened in North
and South America and Africa.
Continuing operations
Revenue
£1,390m
Up 3%
Operating profit1
£204.7m
Up 11%
1 Adjusted to exclude intangibles amortisation
The Group’s 2009 performance demonstrates the resilience of
our business model and the benefits of a strong opening order
book, diversified portfolio and strong cash generating capability.
We benefit from exposure to positive end markets, geographic
strength in emerging markets and a presence at the heart of the
processing cycle. All these characteristics give us confidence for
the future. The success of any business is down to its people and
as I visit our operations, I continue to be most impressed at the
very evident commitment, pride and passion of our employees.
Our installed base of original equipment delivers an aftermarket
channel that enables us to stay close to customers and this
business model provides access to both capital and operating
expenditure. Our service, spares and support activities ensure
that we build ongoing relationships with customers and can be
responsive to their needs.
2009 performance
Overall order input, in constant currency, was down 18% while
aftermarket input was down 2%, reflecting production activity
levels in our main markets offset by our growing installed base
and the greater importance of maintenance and refurbishment
of existing equipment.
The proportion of revenues from aftermarket sales increased to
54%, which, together with the early actions taken to reduce the
cost base during the year, largely mitigated the impact of lower
volumes of original equipment on operating profits.
Revenue also benefited from a positive foreign currency effect
with over 90% of the Group’s revenues generated internationally.
Our South American Minerals operations delivered a record
operating performance and we won a number of notable contracts
in the Chinese nuclear new build and Middle East downstream oil
and gas refining markets. We also retained the Canadian Naval
Engineering contract for a further 15 years. Positive emerging
trends at Weir SPM were also evident towards the end of the year.
06 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
3-fold strategy
1
2
3
INNOvATIvE
ACTION
COLLABORATIvE
MINDSET
GLOBAL
CAPABILITy
Earnings per share1
59.3p
64.1p
80
70
60
50
40
30
20
10
39.7p
2007
2008
2009
1 From continuing operations before intangibles amortisation
Early and effective action was taken across the Group to manage
the downturn. Detailed planning resulted in a global headcount
reduction of around 600 in response to local input reductions.
Such decisions in relation to employees are not taken lightly and have
been restricted to those companies most affected by the downturn.
We delivered an excellent cash performance and substantially
increased free cashflow to £141.1m. Our balance sheet has been
strengthened by the issue of US$250m of long term debt and we
took further positive steps to reduce our pension liabilities through
an enhanced transfer offer to certain members of the main UK
defined benefit plan. The Group has substantial financial headroom
to support organic development and expand its presence across
target markets.
Group strategy
The Weir Group, with its strong positions in very attractive end
markets, extensive global presence and dedication to operational
disciplines, has an excellent platform for growth. We will continue
to extend the Group’s position in the Minerals, Oil & Gas and Power
sectors, all of which are high growth, long cycle markets with
positive fundamentals.
Our strategy will be delivered through sustainable self-made growth
supplemented by skilfully integrated, targeted acquisitions. We will
invest in the technology, infrastructure and people to grow market
share and our installed base of original equipment. This will include
broadening our competitive portfolio of products and added-value
services, with the emphasis on those products that will provide a
strong stream of aftermarket opportunities.
Driving growth
The immediate priority for 2010 is to extend operational
excellence beyond the factory floor into functional areas that
have a direct impact on our ability to grow and that support our
continued drive for greater customer focus.
The Weir Commercial System will be extended during 2010 and
complements the Weir Production System that has delivered such
good results in manufacturing. Both these tools contribute by
sharpening customer focus and ensuring operational efficiency.
With operational excellence prioritised throughout the business,
we will generate growth through three key drivers.
First, we will drive product sales through innovation and
creativity. We will continue to take an innovative approach to the
research, testing and development of new materials and products.
Besides taking new products to existing markets and customers,
we will proactively take our existing and developing portfolio to new
markets and customers as we seek to build market presence.
07
Around the world
Top – Chief executive Keith Cochrane (centre)
with Minerals regional managing director Rob
Brown (right) and Stone Lu (left) managing
director at Power & Industrial’s Suzhou facility.
Bottom – Keith Cochrane opens the new
foundry facility in Brasil with Alan Mitchelson,
Legal & Commercial Director (right) and Minerals
Brasil managing director Lino Figurelli (left).
Second, we will support collaboration in the form of co-operative
alliances and cross-divisional initiatives to promote our total
capability for customers in all markets and to leverage off best
practice across the Group. We will continue to build customer
partnerships and add value by delivering innovative engineering
solutions with an integrated service offering and enhanced
organisational capability.
Third, we will exploit and strengthen our emerging markets
footprint. Over 40% of Group revenue already comes from
developing markets in Asia, South America, Middle East and
Africa. There are significant opportunities for us to internationalise
more products through both our existing and expanding
geographical network.
Outlook
The Weir Group today has a superb manufacturing platform,
resilient business model and enviable market position. This is
based on our reputation for excellent engineering capability and
the quality of our people, whose performance under pressure
has been outstanding in the past year.
Despite the impact of the current downturn, we continue to be
positive as to the medium term growth prospects of each of our
principal end markets and anticipate growing demand from:
• Global demographic trends causing increased demand for
resources and energy.
• Continuing infrastructure investment in developing economies
with fast-growing populations, such as India, China and Brasil.
• Necessary replacement or life extension of ageing power
generation and hydrocarbon processing plant in the
developed world.
• Increasing trend towards the unconventional supply of minerals
and hydrocarbons which requires greater engineering input in
both their extraction and processing.
As we enter 2010, the Group is in robust financial health and well
placed to capitalise on market opportunities. Although the pace
and timing of global economic recovery remains uncertain and
forward visibility limited, we are now targeting a broadly similar
level of profitability to that achieved in 2009.
Keith Cochrane
Chief Executive
9 March 2010
08 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
1
Driving growth The Weir Way
innOvaTivE
aCTiOn
The Weir Group’s reputation is built on the superiority of our materials
and products, which deliver longer plant life, extend maintenance
cycles, reduce downtime and lower whole-life operating costs. We
are committed to protecting this superiority, by investing in materials
research and design, securing our intellectual property portfolio and
focusing on bringing breakthrough developments to market ahead of
the competition.
Innovation is not restricted to the development of our product
portfolio through technological R&D. It is about taking the initiative
in introducing new products to existing customers and existing
products to new markets; about being proactive and creative in
delivering operational improvement and increasing customer focus.
Our strategy for growth includes an invitation to all our people to
challenge received wisdom and established processes and to utilise
the talent across Weir to provide innovative solutions for the real
world challenges our customers are tackling.
Our people are encouraged to pursue more innovative service solutions
for our installed equipment base to develop complementary products
to maximise the offering to customers.
An innovative solution from Weir’s Australian field service experts
created significant savings for a New Zealand paper company
after a blade failure on the plant’s geothermal steam turbine.
A six-month wait for replacement initially seemed the only option.
But design and manufacture of new blades using the latest
computerised technologies and materials combined with Weir’s
project management skills and on-site installation expertise meant
the turbine was back in action within a number of weeks.
Waterspider
The Weir Multiflo ‘waterspider’ is a
floating pump platform for use in mine
de-watering, enabling the ongoing
cleaning of settling ponds which
previously had to be drained and
mechanically de-silted – a costly
and time-consuming process.
Flow Line Safety Restraint System
Developed by Weir SPM, this best-
in-class safety product is mandated
on Shell offshore and onshore sites
worldwide. The Safety Restraint System
is designed to help provide damage
control for line failures during high-
pressure pumping – and to prevent the
costly and potentially life-threatening
effects of this.
Subsea innovation
In ultra-deep subsea gas projects,
water vapour in the hydrocarbon gas
can freeze and requires Mono Ethylene
Glycol (MEG) injection – a type of
antifreeze – to prevent costly hydrate
formation. Weir Power & Industrial’s
rotary gate valve controls the level
of MEG injection without blockage
or erosion.
09
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“ Our innovative actions are informed by
customer focus and we will direct resources
into targeted projects and specific challenges
where we see both growing demand and the
opportunity for leadership.”
10 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
2
Driving growth The Weir Way
COLLaBORaTivE
MinDSET
The Weir Group has much to gain from maximising collaboration
with our customers and between our divisions. By co-operating on
securing contracts, product development and territorial expansion,
we create a collaborative mindset that is a key driver of growth.
Our aim is to work together as a group to present a more complete
offering to customers.
To collaborate effectively requires a culture that is open and flexible,
with working links between our businesses and territories. Weir
people are willing and able to work in partnership with each other,
as well as with our customers and partners. In 2010, we will look to
further optimise our ability to operate to best effect across divisions
and regions.
We are committed to building confidence in our own ever-expanding
internal knowledge base. The Weir Group supports and resources
joint projects and cross-divisional initiatives in areas of operational
excellence, such as product development, market research,
low-cost sourcing and global supply chain.
We are investing in a Carbon Capture Initiative for this new segment
of the power sector. A cross-divisional working group is mapping
the requirements and potential of the developing carbon capture
and storage industry against our existing product portfolio, linked
to our services capability and core competencies to create the
best outcome for our customers and the Weir Group.
Canadian Oil Sands
The challenges of the Canadian Oil
Sands present opportunities for the
combined expertise of our businesses.
Barge and pump package solutions
are becoming increasingly important
to our customers who operate in this
aggressive terrain. Working closely
with customers, a number of Group
companies led by Weir Minerals Canada
have developed a range of barges
able to be customised to suit individual
specifications and are seeing
early success.
Improving process, reducing costs
All our companies work continuously
with customers to improve process
and reduce costs. One example is
the collaborative partnership between
Weir Minerals Australia and Worsley
Alumina, one of the world’s largest
alumina refineries, to develop a
purpose-designed cast metal Cavex®
hydrocyclone specifically for harsh
caustic conditions, providing a long
term solution to productivity and
cost efficiencies.
Nuclear opportunities
Businesses across the Power & Industrial
Division are collaborating to focus on
opportunities in the rapidly expanding
nuclear market, ensuring that Weir
products have the relevant type approvals
and certification to meet customer needs
globally. Specific market-focused teams,
such as the nuclear technology forum,
comprise representatives from different
businesses with relevant engineering,
technological or geographical market
experience. From this base, we are
working closely with customers including
reactor builders such as Westinghouse
and AREvA to develop an integrated
product and service offering.
Chief Executive’s review
Chief Executive’s review
11
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“ Collaboration within divisions is already
driving growth and strengthening
customer relationships; further inter-
divisional co-operation offers still greater
opportunities.”
12 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
3
Driving growth The Weir Way
GLOBaL
CaPaBiLiTY
Over 40% of the Group’s revenue already comes from emerging
markets in Asia, South America, Middle East and Africa. There are
clear and existing opportunities for us to further internationalise our
products and services through our existing geographical network and
to expand beyond this established base.
We have always been committed to going where our customers
are, from the most challenging offshore oil production environment
to the emerging power and energy markets of Asia and Africa.
Today, we have an unrivalled opportunity to leverage our presence
in the fastest growing emerging markets, supported by our
continuing commitment to operating discipline that will deliver
quality products and services on time.
The broad geographical reach of the Group provides a global
pipeline through which we can achieve more sales, in more
territories, more effectively. It gives us the local know-how that
enables us to service our customers operations in the field and
provides a platform for further expansion.
Our Total Care best practice service offering, developed in the
South American mining market, is being expanded into new
territories including North America and Africa; our Oil & Gas
businesses are successfully extending their Middle East operations
into the Caspian region while our Power & Industrial companies
are putting in place a global supply chain using the Group’s
manufacturing capabilities.
Service Centre roll-out
Weir SPM provides industry leading
after-sales support for equipment, with
facilities located in many of the oil and
gas industry’s fastest growing markets.
In 2009, we expanded our global
network of Service Centres into Mexico
and the emerging Australian market,
meeting strong demand for repair and
recertification services where capital
expenditure has been limited by
the downturn.
Minerals extends presence in China
Weir Minerals Netherlands stayed ahead
of the competition to secure a contract
for axial flow pumps for a major new salt
plant in Jintan City, north of Shanghai,
due to open in 2010. Already successful
in China, Weir Minerals Netherlands
is planning to extend its footprint
more permanently by establishing a
manufacturing unit in the country.
Nuclear capability
Weir Power & Industrial is one of
only a few businesses with the global
capability to provide specialist valves
into the nuclear islands of the new third
generation of nuclear power stations.
With our business model closely aligned
to that of the multi-national reactor
builders, three of the division’s facilities
hold nuclear certification for a number
of safety critical valve products.
Chief Executive’s review
13
“ We have created an exceptional opportunity for growth,
as we meet the needs of multi-national customers by
leveraging our global footprint.”
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14 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Key Performance indicators
Delivering global performance
The Board uses a range of financial and non-financial metrics, reported on a periodic basis,
to monitor the Group’s performance over time. The key performance indicators and their linkage
to operating priorities are set out below.
Input1, 3 (£m)
Operating margin2, 3 (%)
Profit before tax2, 3 (£m)
1,595
1,227
1,302
2000
1500
1000
500
15
12
9
6
3
13.7
14.7
11.6
176.2
187.0
200
150
100
50
115.0
2007
2008
2009
2007
2008
2009
2007
2008
2009
• Drive installed base growth through
• Delivering efficiencies by leveraging off
• Drive revenue growth, margins and
innovation and creativity including research
and development and capital expenditure.
• Deliver aftermarket opportunities from the
installed base.
• Increase sales through greater collaboration
in the form of co-operative alliances and cross
divisional initiatives.
our global network.
operating efficiency.
• Maximise aftermarket opportunities.
• Maintain optimal financing costs.
• Maintaining a proactive approach
to capacity planning and associated
management of our cost base.
Free cash flow3 (£m)
Weir Production System (Lean score)
Lost time accidents
141.1
150
120
90
60
30
60.7
38.4
200
150
100
50
119
125
137
78
83
40
100
80
60
40
20
2007
2008
2009
2007
2008
2009
2007
2008
2009
• Optimising the capital structure and
long-term financing of the Group.
• Continue with our focus on working capital
management including application of
Lean methodologies to inventory and
debtor management.
1 Calculated at 2009 average exchange rates
2 Adjusted to exclude intangibles amortisation
3 Continuing operations
• WPS Lean score is determined by
• Maintaining zero tolerance toward accidents.
• Encouraging a culture of near miss reporting.
comparing our current processes against
world-class practice and performance.
• Maintaining our world-class platform
developed in recent years.
• Elimination of waste and reducing lead
times in business processes.
• Continued focus on on-time delivery.
Annual Report & Financial Statements 2009 Directors report
15
Weir Minerals Division
Operational review
Divisional results1
Order Input
£718m
Down 20%
Revenue
£813m
Down 1%
Operating profit
£133.6m
Up 2%
Sector input breakdown
Geographic input breakdown
Minerals
70%
Power Generation
9%
Oil & Gas
9%
General Industry
9%
Other
3%
North America
22%
South America
22%
Australia
17%
Middle East/Africa
16%
Europe/FSU
12%
Asia Pacific
11%
Weir Minerals Division is the global leader in the provision of slurry
handling equipment and associated spare parts for abrasive high
wear applications. Mining and minerals is the division’s largest sector
but it also has aligned product sales into the niche markets of oil
sands and flue gas desulphurisation (FGD). Products include pumps,
hydro cyclones, valves, de-watering equipment and wear resistant
linings. Specialised engineering resource and ongoing investment
in wear resistant materials technology and engineered hydraulics
ensure delivery of world-class performance in customer critical
mining and minerals applications. The division is fully operational in
the key mining markets, including South America, Australia, Africa
and North America.
Market review
The global economic downturn and associated decline in
commodity prices resulted in difficult market conditions in 2009.
A number of existing mine sites were mothballed, principally in
North America and Australia and many major new projects were
deferred as customers sought to conserve cash and strengthen
their balance sheets although enquiry levels and preliminary
scoping work did increase towards the end of the year. While
commodity production volumes were lower in the early part of
the year, there was a notable improvement in the second half
supported by investment in Asian infrastructure. This, together with
increased enquiry levels for new capital projects in the latter part
of 2009, indicates that we have seen a bottoming of the market.
The FGD and oil sands markets were also adversely impacted by
a more cautious approach to new projects, although we did see a
number of follow-on orders in respect of existing oil sands projects.
Achievements & contract wins
• Completed design work on a number of pump enhancements which will be launched
in 2010.
• Commenced development of new larger facilities for Weir Multiflo in Australia reflecting
the doubling in size of that business since it was acquired in 2007.
• Weir Minerals Netherlands won a substantial order in excess of m10m to supply a
number of Geho® pumps to the Chinese-owned Toromocho copper mine in Peru.
• Weir Minerals Chile won an extensive multi-million dollar Service Maintenance Contract
with Minera Escondida, the world’s largest copper mine, in Antofagasta, Chile.
• Weir Minerals Europe won the Dense Slurry System project for the Romania - Craiova 1
power plant, as a result of the Warman® pumps ability to withstand high abrasion and
transport slurry distances of up to seven kilometres.
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
• Weir Minerals Australia was awarded a contract worth nearly AUS$5m with MCC
Mining Australia for their Sino Iron Project in Cape Preston, Western Australia.
16 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Weir Minerals Division
Operational review (continued)
“ We continue to invest in
product technology, including a
redesign of all our major pump
lines by 2011. The focus on
customer relations and global
service underpins our goal to
remain at the forefront of our
target industries and benefit
from the ongoing growth in
emerging markets.”
Aftermarket input (£m)
430.9
420.1
335.3
500
400
300
200
100
2007
2008
2009
Operational performance
Despite difficult market conditions, the division has continued to
perform strongly benefiting from improved operating efficiencies, a
higher proportion of aftermarket revenues, pro-active management
of the cost base and the continued development of the product
portfolio. This performance demonstrates the resilience of the
division’s business model.
Order input decreased 20% to £718m (2008: £897m) reflecting
a 36% decline in original equipment and a 3% reduction in
aftermarket orders, resulting in a higher proportion of aftermarket
orders (58%) compared to the prior year (2008:48%). Order
input trends reflect the division’s broad geographic spread and
commodity exposure. Input in our Netherlands business, which is
largely driven by major greenfield mining development, was down
44% while our Andean business with a focus on copper mining
achieved input growth of 10%. The success of integrating the
2007 acquisition Multiflo was evident with input for that business
increasing by 51%. We experienced a significant reduction in
orders for FGD equipment, particularly in North America, pending
clarification of proposed environmental legislation. Demand for
products for the Canadian oil sands market remained strong with
follow-on orders booked in the year. The relative resilience of
aftermarket orders reflected the decline in commodity production
volumes offset to some extent by an absolute increase in the
installed base.
Revenue decreased 1% to £813m (2008: £825m) reflecting
the strong opening order book, a full year contribution from the
CH Warman acquisition and more robust shorter cycle aftermarket
input trends. Our global footprint continues to drive increasing
exposure to emerging markets which represented 52% of
revenues in 2009 compared to 46% in 2008, with further
good progress in both South America and Africa.
Operating profit increased by 2% to £133.6m (2008: £130.4m)
reflecting a full year benefit from CH Warman, now successfully
integrated, and the impact of stronger operating margins offset
by restructuring and one-off costs of £5.5m.
Operating margins improved to 16.4% (2008: 15.8%) primarily
reflecting a higher proportion of aftermarket sales and the success
of our pro-active approach to downturn planning which resulted in
tangible cost savings in operations, procurement and manufacturing.
The division also benefited from further development of Lean best
practices in all of our facilities worldwide.
17
Investment
The division’s success is underpinned by ongoing investment in materials and product
technology as well as in operating facilities to ensure that we maintain our market
leading position in terms of quality and delivery. Recognising the need to respond
to the changing geographic profile of the global mining market, we continue to
invest in growing our presence in the emerging markets of South America and Asia.
Capital expenditure in 2009 totalled £29.7m (2008: £32.2m) and included a new
state-of-the-art foundry in Brasil which features the latest concepts in manufacturing,
quality and safety procedures.
Weir in action
Customer
Newmont Mining owns and operates two gold
mines at Waihi on New Zealand’s North Island
and gold has been mined in the area for over
100 years. These mines share a processing
mill, which consists of primary crushing with SAG
and ball mill circuits employing multiple Warman®
AH® pumps and Cavex® hydrocyclones.
Investment in technology included the implementation of our Wear Fundamentals
Programme which has enabled us to derive significant performance improvements
from the core Warman Slurry Pump product. Design work was completed on several
new products in 2009 and 2010 will see these launched to the market. In addition,
the culmination of two years of product development work by the Netherlands business
has resulted in the launch of the Apexs pump, which expands the GEHO® positive
displacement product range. The initial application of this technology is in mine
dewatering applications.
People
Our employees remain at the heart of the business and it is their engineering and
operational skills which provide the competitive advantage. We continued to invest
in our people through the economic downturn with a number of representatives from
the division attending the Weir Group Leadership Development programme.
Outlook
While project enquiry levels are up and major miners have announced planned increases
in their 2010 capital expenditure levels, we remain cautious as to the timing of conversion
into original equipment orders. Furthermore product lead times dictate that any resultant
flow through to revenues will not be evident until later in 2010. These factors together
with our lower opening order book mean that original equipment revenues are likely to be
lower through the first part of 2010. Aftermarket sales have now stabilised and we would
expect these to grow in line with underlying commodity production trends determined by
commodity prices and global economic growth. They will also benefit from our growing
installed base of original equipment. The medium term outlook for the division remains
positive, reflecting growing emerging market demand for resources.
Cavex® hydrocyclones - part of the mill circuit at Waihi
Aerial view of the Newmont Mining’s New Zealand
gold mines
Brief
The two mines produce ore with differing
degrees of abrasiveness. Waihi’s “Favona’
underground mine’s ore is almost four times
more abrasive than the ore from the ‘Martha’
open pit. These differences create irregular
wear rates and cause other maintenance
requirements at the mill. Pump rebuilds were
costly in terms of repair time, replacement
parts and labour and Newmont Mining needed
a longer-lasting solution to meet the varying
demands of the different ores.
Solution
Weir Minerals provided its newly designed
WRTTM ‘wear reduction technology’ streamlined
impellers and throatbush for the customer’s
existing Warman® pumps, enabling the use of
longer-lasting rubber pump liners. The results
were remarkable – a 180% increase in wear life
on ‘Favona’s’ more abrasive ore and an 80%
increase on ‘Martha’s’.
Result
The efforts of Weir Minerals have allowed the
Newmont operation at Waihi to significantly
reduce their costs for labour and parts and
maintain a more consistent and profitable mill
circuit operation. The innovative enhancements
to the Warman® impellers at Waihi are
being expanded for use in Warman® pumps
worldwide aimed at helping customers enjoy
similar performance and fiscal results.
18 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Weir Oil & Gas Division
Operational review
Divisional results1
Order Input
£305m
Down 8%
Revenue
£299m
Down 7%
Operating profit
£52.0m
Down 29%
Sector input breakdown
Weir Oil & Gas Division designs and manufactures pumps and
ancillary equipment for the global upstream and downstream oil
and gas markets and provides substantial aftermarket service
and support activities. The upstream operation which is focused
in North America specialises in the manufacture of high-pressure
well service pumps and related flow control equipment along with
repairs, parts and service of pressure control and upstream rotating
equipment. The downstream business is focused on the design
and manufacture to order of centrifugal pumps, mainly used in the
refining industry. The division’s principal operations are located in
North America, Europe and the Middle East.
Oil & Gas
97%
Power Generation
1%
Minerals
1%
General Industry
1%
Market review
During 2009, the North American upstream market experienced
a substantial reduction in activity with lower demand for natural
gas resulting in higher gas storage levels and reduced prices. At
the mid-year point, rig count had reduced by around 50% before
starting to slowly recover in the second half, with a notable increase
in the drilling of harsher shale formations.
There was a significant number of project opportunities in the
downstream market, principally driven by an expansion of
refining capacity in the Middle East, although Middle East service
operations were impacted by reduced production volumes.
Geographic input breakdown
Achievements & contract wins
North America
47%
Middle East/Africa
25%
Europe/FSU
22%
Asia Pacific
5%
South America
1%
Weir Gabbioneta was one of a few suppliers globally with the capability to design a
solution that ensured they could supply API pumps to Total’s Floating Production &
Storage vessel.
Weir SPM released the Safety Iron Manifold Trailer, a product which has quickly gained
market acceptance from the majority of North America’s service companies and gained
considerable market share.
Weir Gabbioneta was awarded several major multi-million euro contracts in 2009,
totalling nearly e40m and including -
• API process pumps to OJSC Taneco for a refinery in Russia.
• Process pumps for Qafco 5 project in Qatar.
• Neste Oil for biodiesel projects in Rotterdam and Singapore.
• Total’s Floating Production and Storage vessel.
Oil & Gas Services won major contract awards in Aberdeen and the Caspian region
extending existing contracts.
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
19
“ The results in 2009 highlight
the resilience of our business
model. With improving upstream
market conditions in the last
quarter, we are well placed to
make further progress in 2010.”
2009 US rig count
1,800
1,400
1,000
600
200
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Operational performance
The division has performed well, taking swift and decisive action
to manage costs in response to market conditions while also
driving greater operating efficiencies.
Order input reduced by 8% to £305m (2008: £332m). Weir SPM
was impacted by the difficult market through much of the year.
This was mitigated by market share gains and improving demand
in the final quarter such that input was only 9% lower at £145m
(US$226m) compared to £160m (US$250m) in 2008. Our Middle
East service operation input was lower principally due to the
reduced activity levels in that region. These reductions were
partly offset by our downstream business, Weir Gabbioneta,
which performed well achieving good organic growth, with input
increasing from £89m in 2008 to £101m in 2009.
Revenue decreased 7% to £299m (2008: £323m) broadly following
the input trend. Weir SPM finished the year with revenues of
£131m (US$206m) against the previous year’s £176m (US$275m),
a reduction of 26% which compared favourably with market trends
and exceeded our prior expectations of around US$175m. Revenue
performance benefited from Lean improvements giving rise to
competitive lead times and the introduction of new products
quickly gaining traction. Weir Gabbioneta played a significant
part in mitigating the effect of reduced volumes at Weir SPM
with revenues increasing by 56% to £98m (2008: £63m).
Operating profit including joint ventures decreased by 29% to
£52.0m (2008: £72.8m) due to the combination of Weir SPM’s
backlog clearance in the first half of 2008 and lower volumes at
that business through much of 2009.
Operating margins were 17.4% in 2009 compared to 22.6% in
2008, reflecting the operating leverage effect of lower volumes
at Weir SPM, partly offset by our actions to reduce costs at the
beginning of 2009 in response to the severity of the downturn.
20 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Weir Oil & Gas Division
Operational review (continued)
Investment
Weir Oil & Gas continued to invest in support of future growth ambitions. Major investment
in Weir SPM included the start up of six new service centres and high pressure pump
test facilities at Fort Worth. Weir Oil & Gas Edmonton invested in a new vertical boring
mill to expand its machining capabilities and service offering. On 5 March 2010, we
further extended our geographic reach and service offering with the AUS$7m acquisition
of Petroleum Certification Services, an Australian based specialist certification and
testing business.
People
We have continued to develop and promote our strong talent base within the division.
During 2009, management training and development activities were carried out in each
area of the business and representatives from the division attended the Weir Group
Leadership Development Programme.
Outlook
Although forward visibility is still limited, the immediate outlook for our upstream business
is more positive than at the start of 2009. This is based on increases in rig counts since
they bottomed in mid-2009 and higher demand for aftermarket products and services as
the industry moves to harsher shale formations. We expect any recovery in our Middle East
service operations to be slow. Our downstream order book provides a solid underpinning
for 2010, although we anticipate a more challenging environment for new orders.
The medium term outlook for upstream remains strong, with rig counts forecast to continue
to rise, an increasing bias towards unconventional drilling and emerging interest in shale
fracturing beyond North America.
Weir in action
Customer
A “voice of customer” exercise by Weir SPM
uncovered market demand for a more durable
and reliable frac manifold trailer to replace
existing competitor equipment which was failing
prematurely in the harsh pumping environment
of unconventional gas shale formations during
multistage hydraulic fracturing processes.
Weir SPM Fort Worth
Brief
A leading oil field service company reported a
competitor’s piping and integrals components
failing within 20 - 200 hours of installation due
to vibration. Other customers had concerns
over high wear rates during high pressure
pumping and sought an alternative to reduce
replacement costs.
Solution
Weir SPM analysed existing designs and
created a solution utilising its patented Safety
Iron®, high-pressure flow line product. The
offering included both retrofit kits for existing
trailers and complete new manifold trailers.
Result
To date, Safety Iron® manifold trailers and
retrofit kits have been utilised by many of the
oil field service pressure pumping companies.
Weir SPM engineered special “hybrid” Safety
Iron® components that can be installed into
key stress areas in the existing flow lines of the
customer’s trailer. The new integrals achieved
over 1,000 hour life with no issues saving the
customer thousands of dollars in replacement
cost and increasing the utilisation rate of the
manifold trailer.
Weir SPM Safety Iron® manifold trailer
Annual Report & Financial Statements 2009 Directors report
21
Weir Power & industrial Division
Operational review
Weir Power & Industrial Division designs, manufactures and provides
aftermarket support for specialist and critical-service rotating and
flow control equipment to the global power generation, industrial
and oil & gas 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. Three of our facilities have
nuclear certification and we are one of only a few companies globally
with the capability to provide specialist safety critical valves into the
nuclear islands of the third generation of nuclear power stations.
Market review
The original equipment power market continued to be generally
buoyant in Asia but was depressed in Europe and North America,
due to new coal power station development being delayed or
cancelled as a result of funding issues, environmental concerns
and planning constraints. The strong Asian market has been
driven by an acceleration in the placement of nuclear new build
contracts in China, now the largest nuclear new build market in the
world, as a consequence of the economic stimulus programme
introduced by the Chinese Government.
New coal and nuclear plant delays in Europe and North America
have resulted in increased potential for service and life extension
projects and demand for hydro refurbishment in Canada has
been robust.
The global downturn impacted the North American industrial markets
which had a direct impact on our Canadian service centres.
Achievements & contract wins
• Type approval certification for a new nuclear butterfly valve.
• Awarded £33m of orders from the nuclear new build programme in China with supply
of critical valves from all three of our nuclear facilities in the UK, France and USA.
• Additional contract wins in Libya to supply submersible pump sets for the Sarir Wellfield
extension project, which will supply and transport water to towns and industries.
• Early completion of a multi-million dollar mechanical overhaul contract at BC Hydro
Peace Canyon, British Columbia’s fourth largest hydro power station.
• CAD$600m15-year contract awarded for the maintenance and operation of the
Canadian Naval Engineering Test Establishment.
Divisional results1
Order Input
£266m
Down 8%
Revenue
£242m
Up 1%
Operating profit
£23.0m
Up 16%
Sector input breakdown
Geographic input breakdown
Power
56%
General Industry
18%
Oil & Gas
11%
Water &
Wastewater
11%
Other
4%
North America
41%
Europe/FSU
33%
Asia Pacific
18%
Middle East/Africa
8%
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
22 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Weir Power & industrial Division
Operational review (continued)
“ Strong power sector growth
has offset industrial sector
decline giving our resilient
business a record order book
into 2010.”
Nuclear order input
£83m
£71m
100
80
60
40
20
£34m
2007
2008
2009
Operational performance
The division has continued to make good progress in developing its
presence in global power markets with a key focus on the nuclear
and hydro markets. Sales to emerging markets, especially China
are making a growing contribution. Improving operating margins
reflect increased plant utilisation and further operational efficiencies.
Order input declined by 8% to £266m (2008: £289m), with
original equipment 18% lower and aftermarket in line with the
prior year. This reflects the timing of large contract awards in the
power markets with the weaker industrial markets being partly
offset by increased power station life extension and service work.
Overall, the proportion of orders from the power sector continued
to grow with some £33m of specialist valve input achieved from
the Chinese nuclear new build programme scheduled for delivery
in 2011 onwards. The strong power performance was offset by
a decline in industrial and oil and gas orders from Canada and
Europe reflecting weaker market conditions.
Our Canadian service business secured a CAD$600m 15 year
contract to operate the Naval Engineering Test Establishment
in Montreal providing a solid base load for that business
going forward.
Revenue increased by 1% to £242m (2008: £240m). Revenue
from the power sector increased 19% and now accounts for 56%
of divisional revenues (2008: 48%). This reflects a strong opening
order book and increased refurbishment and life extension support
to power stations in Europe and North America. Oil and gas
revenues declined 22% as a consequence of a general market
downturn in new project activity. The proportion of the division’s
revenue generated from emerging markets increased to 21%
compared to 20% in 2008.
Operating profit increased 16% to £23.0m (2008: £19.9m)
reflecting the flow through of the underlying margin improvement
and early returns on the investment in people, technology and
plant made in recent years.
Operating margins rose to 9.5% from 8.3% in 2008. This
increase has been driven by increased operational efficiencies,
lower product costs and developing supply chain in China.
23
Weir in action
Customer
Qinshan Nuclear Power Station Phase II
extension project is a joint venture between
China Nuclear Energy Industries Company and
China Nuclear Power Engineering and has two
650 MW reactors under construction.
The five-metre Hopkinsons® Main Steam Isolation Valve
Brief
Before a nuclear station can operate a safety
case has to be accepted and the correct
functioning of the Main Steam Isolation valve is
critical. The purpose of this quick closing valve
is to protect the steam generator in the unlikely
event of a pipe break, down stream of the valve.
Solution
Hopkinsons 750mm diameter MSIv parallel slide
gate valves, at five metres tall, are the largest
valves designed and built at Power & Industrial’s
UK valve facility. The valve is required to close
within five seconds of a pipe break being
detected. Weir undertook a combination of
analysis and testing, based on the 700mm MSIv
supplied to Sizewell ‘B’ nuclear power station in
the UK, which had been subjected to simulated
pipe break testing.
Result
Weir carried out a detailed ‘Design for
Manufacture’ exercise with key castings and
machinist suppliers. A purpose-built specialist
test rig was developed and testing and
analytical results all proved the valve’s quick-
closure performance in the highly critical safety
related function before the valves were shipped
to China during 2009 for the commissioning of
the unit in May 2010.
Investment
Investment in our products and facilities continues to be critical to the future success
of the division. Total capital expenditure in the year was £3.7m (2008: £10.2m).
Further investment has been made in Suzhou, China to expand the range of products
manufactured there and to establish a customer training centre to consolidate our
presence in this growing market. In the UK, we extended the capability and portfolio of
services of the Alloa Service Centre in Scotland with investment in the valve workshop;
a new training centre to improve our service offering on pumping equipment and a
unique profiling machine for on-site valve maintenance.
People
Investment in people is central to our divisional strategy. During 2009, we created a
dedicated nuclear technology forum and sales team to focus on global opportunities
and ensure that we continue to have the capabilities to deliver the design, development,
testing and qualification of nuclear valves that will meet customer and regulatory
qualification standards.
Outlook
We enter 2010 with a record order book and the division’s financial performance in 2010
will benefit from a strong nuclear workload.
Whilst we are cautious at the speed of recovery in industrial markets, the outlook for
the global nuclear power market is increasingly positive driven by environmental concerns
combined with a growing demand for power particularly in Asia. A significant large-scale
and sustained nuclear new build market is projected worldwide. At the same time, the
need for life extension and refurbishment of existing power plants in the UK, Europe and
North America will continue to grow given lead times for new build in these markets.
Our global footprint, track record and nuclear expertise means we are well placed to
benefit from these opportunities over the medium term.
Weir’s TRICENTRIC® triple offset butterfly valve qualified to ASME QME-1 nuclear standards.
ASME = American Society of Mechanical Engineers
24 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Financial Review
a strong set of results
Continuing operations
Operating margins1
13.7%
14.7%
11.6%
15
12
9
6
3
2007
2008
2009
Profit before tax1 (£m)
176.2
187.0
200
150
100
50
115.0
2007
2008
2009
Free cashflow (£m)
141.1
150
120
90
60
30
60.7
38.4
2007
2008
2009
1 Adjusted to exclude intangibles amortisation
We have delivered a strong set of results that clearly demonstrate
the quality and resilience of our business model. A higher proportion
of aftermarket revenues, a growing contribution from emerging
markets and effective cost-base management largely mitigated
the impact of reduced demand for original equipment products.
An outstanding level of cash generation in the year coupled
with our committed bank facilities and long dated fixed rate notes
issued in January 2010 means that we start the year in a strong
financial position.
Order input in constant currency at £1,302m was 18% lower than
the prior year both in total and, on a like for like basis, after adjusting
for prior year acquisitions and disposals. Original equipment orders
were down 34%, reflecting lower capital spending across most of
our end markets while aftermarket orders held up well ending the
year only 2% lower than 2008, representing 58% (2008: 48%)
of total input. Each of the divisions reported lower input levels in
2009. Minerals order input fell 20% to £718m (2008: £897m) and
23% on a like for like basis, while Oil & Gas input fell 8% to £305m
(2008: £332m) with the like for like decline also at 8%. Power &
Industrial input fell 8% to £266m (2008: £289m).
Revenue grew by 3% from £1,354m in 2008 to £1,390m, with a
net currency benefit of £145m principally due to the weakening
of sterling relative to the average US dollar, euro and Australian
dollar rates in the prior year. In constant currency terms, this
represents a 7% decline in revenue, reflecting a strong opening
order book, offset by lower input levels over the year. Like for like
revenues, in constant currency, were similarly down 7% reflecting
the impact of prior year acquisitions and disposals. Aftermarket
sales represented 54% (2008: 50%) of revenue and our exposure
to emerging markets grew to 43% (2008: 40%) of revenues with
stronger contributions from both South America and Africa. On
a constant currency basis, Minerals revenues were down 1% to
£813m (2008: £825m) with a like for like revenue decline of 5%
and a full year’s contribution from CH Warman. Oil & Gas revenue
fell 7% to £299m (2008: £323m) with a like for like revenue decline
of 8% and a full year contribution from prior year acquisitions.
Power & Industrial revenues grew 1% to £242m (2008: £240m).
Revenues from other Group companies fell from £110m to £36m
in part due to disposals in the prior year.
25
Operating profit from continuing operations before intangibles
amortisation increased by 11% to £204.7m (2008: £185.0m)
including a net foreign currency benefit of £29.4m. On a constant
currency basis, operating profits reduced by 5% to £204.7m
(2008: £214.4m), in part due to lower volumes at Weir SPM
and one-off restructuring costs of £6.2m partly offset by a net
contribution from prior year acquisitions and disposals of £10.7m.
Operating margins in constant currency increased from 14.3%
to 14.7%, reflecting the favourable impact of a higher proportion
of aftermarket revenues and proactive management of the cost
base. On a constant currency basis, Minerals operating profits
grew 2% to £133.6m (2008: £130.4m) with a £5.6m incremental
contribution from CH Warman giving a divisional operating margin
of 16.4% (2008: 15.8%). Oil & Gas operating profits, including joint
ventures, declined to £52.0m (2008: £72.8m). Operating margins
were 17.4% compared to 22.6% for the prior year. Power &
Industrial operating profits increased by 16% to £23.0m (2008:
£19.9m) with operating margins of 9.5% (2008: 8.3%). The profit
contribution from other Group companies was £6.8m (2008:
£2.0m). Depreciation and impairment of property, plant and
equipment and investment property in the year was £29.2m
(2008: £25.6m) giving rise to operating profits from continuing
operations before depreciation and intangibles amortisation
(“EBITDA”) of £233.9m (2008: £210.6m).
Interest
Net finance costs increased to £17.7m
(2008: £8.8m) due to an increase in
pension scheme finance costs of £3.3m,
one-off costs of £3.7m on cancellation
of floating to fixed rate interest rate swaps
in advance of the issue of a series of
fixed rate notes in January 2010 and
reduced interest rate differential benefits
from our US dollar balance sheet hedging
programme. Net finance costs (excluding
other finance costs / income) were
covered 12.6 times by operating profits
(2008: 17.5 times).
Profit before tax
Profit before tax from continuing operations
before intangibles amortisation increased
by 6% to £187.0m (2008: £176.2m).
Reported profit before tax from continuing
operations increased by 7% to £170.4m
(2008: £159.5m) reflecting intangibles
amortisation of £16.6m (2008: £16.7m).
Taxation
The tax charge for the year of £52.2m
(2008: £51.8m) on profits before tax from
continuing operations before intangibles
amortisation of £187.0m (2008: £176.2m)
represents an underlying effective tax rate
of 27.9% (2008: 29.4%) reflecting a lower
proportion of US profits which are taxed
at a higher rate. This differs from an
expected rate of 29.3% (2008: 31.2%)
principally as a consequence of an
efficient capital structure. The reported
tax charge in respect of continuing
operations was £46.8m (2008: £46.5m),
reflecting the additional tax credit on
intangibles amortisation.
Discontinued operations
Profit from discontinued operations of
£5.2m (2008: £57.8m) relates to the
release of certain warranty provisions
in relation to prior year disposals.
Earnings & dividends
Earnings per share from continuing
operations before intangibles amortisation
increased by 8% to 64.1p (2008: 59.3p).
Reported earnings per share including
intangibles amortisation, exceptional items
and discontinued operations was 61.2p
(2008: 81.4p) reflecting the gain of £55.1m
realised on the sale of Strachan & Henshaw
in the prior year. The weighted average
number of shares in issue increased to
210.3 million (2008: 209.9 million).
Subject to shareholder approval, the full
year dividend will be 21.0p, an increase
of 14% over last year’s total of 18.5p.
This results in dividend cover (being the
ratio of earnings per share from continuing
operations before intangibles amortisation
and exceptional items to dividend per
share) of 3.1 times compared to 3.2
times in 2008.
26 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Financial review
(continued)
Cashflows
The Group delivered an outstanding cash
result. Cash generated from operations
increased 41% to £302.3m (2008:
£214.4m) representing an EBITDA to
cash conversion ratio of 129% (2008:
102%), principally driven by a net working
capital inflow of £66.2m (2008: £9.0m
outflow). Overall working capital on a
constant currency basis is now 10%
of revenues (2008: 13%) with strong
management attention in the year yielding
an improvement in debtor days from 52 to
47 and an improvement in inventory turns
from 3.2 times to 3.6 times. Our working
capital performance did benefit from an
unusually high level of advance payments
on major contracts and we expect to see
an associated unwind of around £30m
during 2010.
Additional pension contributions of £11.1m
(2008: £6.5m) were paid in the period,
principally in respect of the enhanced
transfer offer to certain deferred members
of the main UK plan and agreed special
contributions to the UK plans. We expect
such payments to reduce to around £9m
in 2010.
Capital expenditure reduced from £53.3m
in 2008 to £40.6m, representing 1.4
times depreciation (2008: 2.3 times),
reflecting continued attractive investment
opportunities available across the Group.
Settlement of derivative financial instruments
resulted in cash outflows of £16.5m (2008:
£4.2m). This principally represented the
scheduled settlement of cross currency
swaps which formed part of the hedge of
our US dollar investment in Weir SPM with
the remainder of these derivatives rolling-off
over the next four years.
Net free cashflow (being net cashflow
generated from continuing operations,
excluding the cash impact in relation to
acquisitions, disposals and net repayment
of borrowings) after all financing costs,
tax and dividends was £141.1m (2008:
£60.7m). Taken together with the adverse
impact of the translation of foreign
currency borrowings of £18.9m (2008:
£63.5m), net debt reduced by £120.7m
to £119.2m (2008: £239.9m) reflecting
a net debt/EBITDA ratio of just 0.5 times
(2008: 1.1 times).
Treasury management
The Group is financed through a
combination of bank debt, fixed rate
notes and equity. The capital structure
is managed centrally with the objective
of optimising capital efficiency while
maintaining a good degree of
financial headroom.
The principal financial risks faced by the
Group are those relating to liquidity, foreign
currency and credit risk. The Group’s
treasury policies and procedures, which
are reviewed and updated on a regular
basis, seek to reduce these financial risks.
Within this framework, the Group uses
financial assets and liabilities including
derivatives to hedge certain foreign
exchange and interest rate risks.
Funding & liquidity
The Group’s objective is to maintain a
balance between continuity of funding
and flexibility through the use of bank
overdrafts, bank loans and long term
fixed rate notes.
The Group has committed bank borrowing
facilities of £625m which mature in the
third quarter of 2011. At 1 January 2010,
£173.1m (2008: £241.8m) was drawn
under these facilities and all covenants
were met at 1 January 2010. During the
year Canadian dollar facilities of CAD$90m
matured and were repaid using drawings
under the committed bank borrowing
facilities. The Group also held net cash
balances of £55.7m at 1 January 2010
(2008: £53.6m) representing operating
balances held by the Group’s subsidiaries
of which £1.9m was held in the UK.
The Group has additional committed and
uncommitted bank facilities under which
guarantees are issued in order to support
commercial activities.
On 11 January 2010, the Group issued
through a Private Placement to UK and
US investors, the equivalent of US$250m
of five year (2015) and eight year (2018)
fixed rate notes in a combination of US
dollar and sterling. Including the effect of
swapping the sterling notes into US dollars
the all-in average US dollar equivalent
interest rate across these notes is 4.8%.
This bond issue further improves the
Group’s financial flexibility by diversifying
our sources of finance and lengthening
the maturity profile of borrowings. The
proceeds from this placement have been
used to repay borrowings under our
bilateral facilities.
Credit management
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. Credit worthiness
checks are undertaken before entering
into contracts with new customers and
credit limits are set as appropriate. Where
appropriate, we will use trade finance
instruments such as letters of credit and
insurance to mitigate any identified risk.
The Group’s exposure to the credit risk
of financial institutions is limited by the
adherence to counterparty limits and by
only trading with counterparties that have
a strong credit standing based upon
ratings provided by the major agencies.
Interest rate risk management
The Group’s bilateral facilities are charged
at variable rates of interest. It is our policy
to maintain a proportion of debt at fixed
rates of interest subject to the future
outlook for the level of interest rates. At
1 January 2010, 18% (2008: 47%) of the
Group’s debt was at fixed rates of interest
through the use of floating to fixed interest
rate swaps. Following the issuance of the
equivalent of US$250m fixed rate notes on
11 January 2010, almost all of the Group’s
borrowings will be at fixed interest rates.
Foreign exchange
The Group is exposed to movements in
exchange rates for transactions undertaken
in non-functional currencies of the operating
companies concerned and the translation
of foreign currency denominated net assets
and profit and loss items.
All material transactional currency exposures
are hedged, usually by means of forward
contracts thereby ensuring certainty
over revenue 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 material
exposures, only two companies apply
cash flow hedge accounting under IFRS.
27
available information and management’s
expectations at the time of recognition.
Impairment
IFRS require 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 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.
The Group manages a proportion of the
potential currency translation exposures
from US dollar denominated net
investments through a combination of US
dollar borrowing, forward foreign currency
contracts and cross currency swaps.
The strengthening of sterling relative to
a number of major currencies in the year
resulted in a negative net asset translation
effect of £12.9m, including the benefit of
the balance sheet hedging programme.
The fair value of derivatives designated as
net investment hedges at 1 January 2010
was a liability of £40.7m (2008: £77.4m)
reflecting the weakening of the US dollar
relative to sterling during the year. These
derivatives are due to cash settle on a
broadly even annual basis through to 2013.
The Group does not hedge foreign
currency translation exposures related
to profit and loss items.
Further information on financial risk
management objectives and policies
can be found in note 30 to the Group
financial statements.
Retirement benefits
The Group has five defined benefit plans
in the UK and North America, the most
significant being in the UK. All defined
benefit plans were closed to new
members in 2002.
The Group has continued to manage
pro-actively manage its exposure to
its pension plans. The wind-up of the
Canadian defined benefit plan was
completed and an enhanced transfer
offer made to certain deferred members
of the main UK plan which has further
reduced our defined benefit pension
obligations by around 5%. The net Group
deficit for retirement benefit obligations
at the period end was £71.0m (2008:
£29.9m), reflecting a reduction in bond
yields and the impact of updating mortality
assumptions, partly offset by better than
expected equity returns.
Net assets
Net assets increased by £45.5m
in the year to £742.4m (2008:
£696.9m), principally reflecting total net
comprehensive income for the year of
£83.3m less dividends paid of £39.2m.
Litigation
The Company and certain subsidiaries
are from time to time, parties to legal
proceedings and claims which arise in
the normal course of business.
There were 308 asbestos related actions
(2008: 180) outstanding against Group
companies. All such actions are
robustly defended.
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 co-operate fully
with the on-going investigations by UK
authorities in this connection. In addition,
the Company is subject to a claim relating
to an action for damages arising from the
UN Oil for Food Programme which has
been raised in the United States against
just under 100 companies. 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 on the Group’s
financial position.
Critical accounting policies
The accounts have been prepared in
accordance with IFRS and the material
accounting policies are set out on pages
63 to 69 of this financial report. There
have been no significant changes to the
accounting policies adopted in 2008.
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 accounts.
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,
as well as appropriate discount rates.
In addition, the allocation of useful lives
to acquired intangible assets requires
the application of judgement based on
28 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Board of Directors
Lord Smith of Kelvin
Chairman (65)
Keith Cochrane
Chief Executive (45)
Keith Cochrane joined the Group as finance
director in July 2006 and was appointed chief
executive in November 2009. Following a
number of years with Arthur Andersen, Keith
joined Stagecoach Group plc in 1993. He was
appointed finance director in 1996 and group
chief executive in 2000. He joined Scottish
Power plc in 2003 where he became director
of group finance.
He is a chartered accountant and a member
of the Institute of Chartered Accountants
of Scotland.
Alan Mitchelson
Legal and Commercial Director
& Company Secretary (60)
Alan Mitchelson joined the Group as company
secretary in March 2000 and was appointed a
director in December 2001.
Following a period in legal private practice, a
number of years were spent in the oil industry
before joining Trafalgar House as a legal advisor.
He joined Highland Distillers plc in 1988 where
he was company secretary before being
appointed legal and personnel director in 1991.
He is currently a non-executive director of
Glasgow 2014 Ltd.
Keith is currently a non-executive director of the
Royal Scottish National Orchestra Society Ltd.
He is a solicitor and member of the Law Society
of Scotland.
Professor Ian Percy CBE
Non-Executive Director (68)
Stephen King
Non-Executive Director (49)
Professor Percy was appointed a non-executive
director in October 1996. He joined Cala Group
Ltd as a non-executive director in 2000 and is
the interim non-executive chairman. He was a
partner in the accountancy firm Grant Thornton
where he worked for 25 years, becoming a
senior partner before he left in 1995. He joined
Kiln plc as a director in 1998 and became
chairman in 2002. He was chairman of the
Accounts Commission for Scotland (1992-
2001), chairman of Companies House (2000-
2006) and a former president of the Institute of
Chartered Accountants of Scotland. He was
also deputy chairman of Ricardo plc for eight
years until 2008.
He is currently chairman of Queen Margaret
University, Edinburgh, and a fellow of the
Royal Society for the encouragement of Arts,
Manufactures and Commerce (RSA). He is a
chartered accountant and a member of the
Institute of Chartered Accountants of Scotland
He is deputy chairman.
Stephen King was appointed a non-executive
director in February 2005. In December 2009,
Stephen was appointed group finance director
of Caledonia Investments plc. Between 2003
and 2009 he was the group finance director of
De La Rue plc and prior to that, finance director
of Aquila Networks plc (formerly Midlands
Electricity plc). Stephen has held senior financial
positions in several companies including Lucas
Industries plc and Seeboard plc, having qualified
as a chartered accountant with Coopers
& Lybrand.
He was a non-executive director of Camelot
Group plc from 2008 until 2009. He is a fellow
of the Institute of Chartered Accountants in
England & Wales and an associate member
of the Association of Corporate Treasurers.
He is chairman of the Audit Committee.
Lord Smith joined the Board in February 2002
and was appointed chairman in July of the same
year. He is chairman of Scottish & Southern
Energy plc and a non-executive director of
Standard Bank Group Ltd. He is also chairman
of Glasgow 2014 Ltd, the organising committee
for the Commonwealth Games.
He is currently a member of the Council of
Economic Advisors to the First Minister of
Scotland, chancellor of the University of the
West of Scotland and patron of the Scottish
Community Foundation.
He was formerly chairman and chief executive
of Morgan Grenfell Private Equity and was
chief executive of Morgan Grenfell Asset
Management from 1996 until 2000 before
becoming vice chairman of Deutsche Asset
Management between 2000 and 2002.
He has also held a number of other positions
in the financial services industry and was a
member of the Judicial Appointments Board for
Scotland and former chairman of the trustees
of the National Museums of Scotland.
He is a chartered accountant and a former
president of the Institute of Chartered
Accountants of Scotland.
From left to right:
Lord Smith of Kelvin
Keith Cochrane
Richard Menell
Stephen King
Alan Mitchelson
John Mogford
Michael Dearden
Professor Ian Percy
Lord Robertson of Port Ellen
29
Michael Dearden
Non-Executive Director (67)
Richard Menell
Non-Executive Director (54)
Michael Dearden was appointed a non-
executive director in February 2003. Michael
worked for Burmah Castrol plc for a period
of 20 years where he held a number of senior
roles including director and chief executive of
Castrol Worldwide from 1998 to 2000. He was
a non-executive director of Johnson Matthey plc
(1999-2008) and Travis Perkins plc (2000-2009),
and chairman of Galileo Brick Ltd (2003-2004)
and Minova International Ltd (2003-2007).
He is currently chairman of Mondo Minerals Bv.
He is chairman of the Remuneration Committee
and the senior independent director.
John Mogford
Non-Executive Director (56)
John Mogford was appointed a non-executive
director in June 2008. He is currently
advising private equity on the energy sector
since retiring from BP. He was formerly an
executive vice president of BP plc having
been with BP for over 30 years, initially in their
exploration division and progressively rising
to Executive vice President (Chief Operating
Officer US Downstream & Head of Refining).
He held numerous positions in every area of
BP Operations from gas and renewables to
upstream and downstream oil. Throughout
his career with BP, John had a strong focus
on health and safety and for a number of
years was responsible for their global safety
in operations.
He is a fellow of the Institution of
Mechanical Engineers.
Richard Menell was appointed a non-executive
director in April 2009. Richard was previously an
investment banker with JP Morgan in New york
and Australia and an executive director of gold
producer Delta Gold in Australia. He returned to
South Africa in 1992 to join the Anglovaal Group
and was appointed chief executive of Anglovaal
Mining in 1996 and executive chairman in 2002.
He was president and chief executive of TEAL
Exploration & Mining Inc in 2005 until 2008.
He was also formerly chairman of Avgold Ltd
(1996-2004) and Bateman Engineering Bv
(2005-2009).
Richard is currently a director of Mutual &
Federal Insurance Company Ltd, Standard Bank
Group Ltd and Gold Fields Ltd in South Africa.
He is a fellow of the Geological Society (London),
and both the Australasian and South African
Institute of Mining and Metallurgy.
Lord Robertson of Port Ellen (George)
KT, GCMG, HonFRSE, PC
Non-Executive Director (63)
Lord Robertson was appointed a non-executive
director in February 2004. He is deputy
chairman of TNK-BP and a non-executive
director of Western Ferries (Clyde) Ltd. He is
senior international advisor to CWI (formerly
Cable and Wireless International) and a senior
counsellor with The Cohen Group (USA). He
was the Secretary of State for Defence from
1997 until 1999 before becoming Secretary
General of NATO from 1999 until 2003. He was
formerly a director of Smiths Group plc (2004-
2006) and deputy chairman of Cable & Wireless
plc (2004-2006). Between 2004 and 2009
he was an advisor to the private equity
group Englefield Capital.
He is joint president of Chatham House (Royal
Institute of International Affairs), president of the
Atlantic Council of the United Kingdom and a
member of Her Majesty’s Privy Council. He is an
honorary fellow of the Royal Society of Edinburgh
and an Elder Brother of the Corporation of
Trinity House.
Jon Stanton
Finance Director (43)
Jon Stanton is expected to join the Board
in April 2010. He joins from Ernst & young
where he has worked since 1988 after joining
as a graduate trainee in their Birmingham
office. He has been a partner in the London
office since 2001 with lead responsibility
for the audit of a number of FTSE 100
multi-national clients.
With Ernst & young he has led the Japanese
Business Services practice for Europe and
headed up the Industrial Products audit
business unit. He has significant corporate
finance experience, including mergers and
acquisitions and has been involved in a
number of restructuring and business process
improvement projects. Jon has extensive
international experience including two years
based at Ernst & young’s Detroit office.
He is a chartered accountant and a member
of the Institute of Chartered Accountants in
England and Wales.
Audit Committee
Remuneration Committee
Nomination Committee
30 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Principal risks
& uncertainties
Risk is inherent in the Group’s business activities and as a consequence of operating a comprehensive
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 report to mitigate against these risks.
RISK
POTENTIAL IMPACT
MITIGATION
Global political and economic conditions
The Group operates in a number of regions
where it may be exposed to economic, political,
regulatory or business risks.
Human resources
The future success of the Group depends on
the skills and efforts of its employees across all
of its businesses and the ability to retain and
develop these individuals.
In addition, the success of Group acquisitions
will depend on the ability to retain management
personnel of acquired companies.
Health and safety
While benefiting from the opportunities and
growth in these regions, changes such as the
introduction of new regulations, expropriation
of assets or the imposition of trade barriers
could disrupt the Group’s business activities
or impact on the Group’s customers, suppliers
or other parties with which it does business.
In some instances, this could have a material
adverse effect on the Group’s financial position
and prospects.
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
international requirements.
In addition, strategic reviews are carried out
by the Group prior to entry into a new country.
If it is unable to attract and retain excellent
talent, the Group may not be able to effectively
implement its business strategies.
The Group constantly reviews its remuneration
packages to ensure they remain competitive
and also maintains development and
succession planning programmes.
The Group’s employee development
programmes are explained in more detail
on page 50.
The Group is committed to maintaining a safe
working environment and a culture of zero
tolerance to accidents. To support this, all
operations are encouraged to achieve OHSAS
18001. More details of this are contained on
page 49.
The Group has in place quality and safety
processes within each of its businesses which
are regularly audited by professional bodies
and customers.
Certain aspects of the Group’s manufacturing
and service activities mean that employees are
exposed to hazardous environments.
If the Group cannot maintain a safe place of
work for all its employees, a number of negative
outcomes to the Group could result including:
• fines and penalties;
• loss of key customers;
• exclusion from market sectors deemed
important for future growth; and
• damage to reputation.
31
RISK
POTENTIAL IMPACT
MITIGATION
Environmental and regulatory
The Group has contracts and operations in
many parts of the world and is subject to local
laws and regulations. Non-compliance with any
of these laws or regulations could expose the
Group to financial or reputational damage.
In addition, manufacturing facilities are, at times,
subject to permits that control the discharge
of hazardous substances into the air or water;
and the storage and disposal of such materials
which could result in contamination of the site.
It is expected that controls over environmental
issues will increase in the future.
Legal
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 or affect the Group’s future operational
performance or financial condition.
The Group has formal systems and policies
in place which are mandated under the Group
compliance scorecard to ensure adherence
to regulatory requirements and to identify any
restrictions that could adversely impact on the
Group’s activities. More detail on this can be
found on pages 38 and 39.
Each of the Group’s operational sites have
managers who monitor regulatory developments.
All sites have to be ISO 14001 compliant in
order that they not only meet with current
requirements but also have the appropriate
management systems in place to ensure
continuous improvement in environmental
performance. More detail on this is
contained on page 51.
Manufacturing companies are, from time to
time, exposed to personal injury claims and
class actions or other litigation resulting from
injuries sustained at work, including asbestosis
or other health problems associated from
working in industries that used asbestos in
the twentieth century.
The Group has insurance cover for certain
claims but not for all the claims. The number
and size of the claims is dependent on the
number of third parties that are still in existence
and can be included in such 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 any changes
or developments.
Competition and innovation
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.
The Group’s continued success depends
not only on the continuous improvement of
its existing product portfolio but its ability to
continue to develop and produce new and
enhanced products in a cost effective and timely
manner in accordance with customer demands.
Failure to maintain a competitive advantage
or manufacture at the lowest cost could
have a significant adverse impact on the
Group’s business.
All new or improved technologies and products
involve risk, including the potential for abortive
expenditure, reputational risk and potential
customer claims.
In addition, the Group’s processes to bring a
new product to market may not be fast enough
to gain market share or the new product
may not achieve market acceptance, thereby
harming the Group’s reputation.
To remain competitive, the Group invests
continuously in its manufacturing, marketing,
customer service support and distribution
networks. The Group also maintains
the highest manufacturing and quality
standards which include regular dialogue
with customers to ensure that individual
customer requirements are met. It also takes
appropriate action to ensure that its cost base
remains competitive and margins protected.
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.
32 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Principal risks
& uncertainties (continued)
RISK
Financial
The Group is exposed to foreign currency,
liquidity and credit risk.
Foreign currency transactional risk arises when
operating subsidiaries enter into transactions
denominated in currencies other than their
functional currencies.
Translational exposure arises on the translation
of overseas earnings and investments into
sterling for consolidated reporting purposes.
Credit risk is the risk that a customer or
counterparty fails to meet an obligation under
a contract and liquidity risk is the risk that the
Group will be unable to meet its liabilities as
they fall due.
Acquisitions
The anticipated benefits of acquisitions may
not be realised.
POTENTIAL IMPACT
MITIGATION
Foreign currency transactional and translational
risk could result in volatility in reported
consolidated earnings and net assets.
Foreign currency transactional risk is managed
by hedging significant exposures, usually by
means of forward foreign exchange contracts.
Credit risk could have a negative impact on
reported earnings and cash and consequently
the liquidity of the Group.
Liquidity risk could impact negatively on
the Group’s reputation, borrowing costs
or ultimately its ability to continue as a
going concern.
Net assets translational risk is partly hedged
using foreign currency borrowings and
derivative financial instruments. The Group
does not hedge translational exposure arising
from profit and loss items.
Credit risk is managed by undertaking credit
reviews of key customers with reference
to external credit rating agencies and then
adhering to the resultant credit limits. Credit
risk to financial institutions is limited by
restricting the range of counterparties to
those with high credit ratings.
Liquidity risk is managed by monitoring
forecast and actual cashflows and ensuring
that sufficient committed facilities are in place
to meet possible downside scenarios.
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.
The Group implements a rigorous due
diligence process and ensures clear financial
targets are in place as well as putting any
acquisition through a formal approval process.
The Group implements an internal 100 day
plan to ensure that the integration process
is actioned with the minimum of disruption.
Delivery performance and production
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, damage customer relationships and,
as a result, impact on the Group’s financial
performance.
Manufacturing scheduling and planning
is subject to stringent internal assurance
processes to optimise each business unit’s
order book. The effect of this is to maximise
capacity and minimise reworking costs and
delays in delivery times. This is complemented
by the use of the Group’s Manufacturing
Resource Planning systems, together with the
slotting and scheduling achieved through the
Weir Production System.
33
The following table identifies the attendance record of individual
directors at the eight board meetings held during 2009.
Name
Lord Smith
Keith Cochrane
Michael Dearden
Stephen King
Richard Menell1
Alan Mitchelson
John Mogford
Professor Ian Percy
Lord Robertson
Mark Selway2
Attendance
8 of 8
8 of 8
8 of 8
8 of 8
5 of 6
8 of 8
7 of 8
8 of 8
7 of 8
8 of 8
1 Richard Menell was appointed to the Board on 1 April 2009.
2 Mark Selway resigned as a director on 8 December 2009.
Re-election of directors
The Company’s articles of association require that all 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.
In addition, 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. Any non-executive director who has served on the
Board 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.
Board information and development
On joining the Board, directors are provided with documentation
on the Group 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.
All directors are provided with updates on corporate governance
developments, legislative and regulatory changes and relevant
industry and technical information.
Corporate governance
report
Introduction
The Board remains committed to the principles of good
governance. Good corporate governance, using the Combined
Code as a guide to the components of good practice, is
an integral part of the Board’s stewardship obligations. The
interpretation of good governance changes over time but the
Group constantly aims for best practice in all matters and, by
doing so, promotes the success of the business to the benefit
of the shareholders.
As part of the Board’s review into its effectiveness conducted
during the year, the Board considered its composition and skills
and concluded that it has the right experience to address and
respond to the challenges it faces.
The Combined Code
This report explains how the Company applies the principles of
the Financial Reporting Council Combined Code on Corporate
Governance (the Combined Code) published in June 2008 and
appended to the Listing Rules. The Combined Code is available
on the Financial Reporting Council website. During the 53 weeks
ended 1 January 2010, the Company complied with all provisions
set out in the Combined Code.
Board of directors
The Board has a schedule of matters reserved to it for its
decision. This schedule is reviewed regularly and includes
approval of:
• environmental, health and safety policies;
• annual and half-year financial results, interim management
statements and trading updates;
• dividend policy;
• Board appointments;
• Group strategy and the annual operating budget;
• changes to the Group’s management and control structure;
• major capital expenditure, acquisitions and disposals;
• treasury policies; and
• risk management strategy and the system of internal controls.
Board meetings
In the 53 weeks to 1 January 2010, the Board met eight times,
with one meeting at Weir SPM in Texas, USA. The majority of
meetings were held at the Company’s head office in Glasgow
with two meetings held in London at the time of the Company’s
annual and interim announcements. There is regular contact
outside formal meetings between the chairman, chief executive
and the other directors.
34 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Corporate governance
report (continued)
The Board is supplied in a timely manner with the appropriate
information to enable it to discharge its duties, 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 issues arising at board meetings and non-executive directors
have access to the chairman at any time.
Board evaluation
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
as well as 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.
The Board also conducts 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 meets with each of them to discuss the feedback.
The results of the evaluation for 2009 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 by the chairman. An appraisal of the
chairman is carried out by the senior independent director,
with input from other board members.
Board balance and independence
The Board currently comprises the chairman, chief executive,
legal and commercial director and six non-executive directors,
all of whom are independent. Michael Dearden was appointed
senior independent director in November 2009. Jon Stanton
is expected to join the Group as finance director in April 2010.
There is an agreed procedure for directors to take independent
professional advice, where appropriate, 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.
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, with the
exception of Professor Percy, who, as set out in the Chairman’s
statement, will be retiring from the Board prior to the forthcoming
annual general meeting after over thirteen years with the Group.
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.
There is a division of responsibilities between the chairman,
who is responsible for leading and running the Board and related
matters and the chief executive, who has executive responsibility
for running the Group’s business and developing the appropriate
organisational structure for a global organisation. The chief
executive chairs the Group Executive Committee.
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. The letters of
appointment of the chairman and the non-executive directors,
which are available for inspection at the Company’s registered
office, set out the required commitment to the Company.
Directors conflicts of interests
The statutory duties for directors relating to conflicts of interest,
set out in the Companies Act 2006 (the ‘2006 Act’), came into
force on 1 October 2008. Under the 2006 Act, a director must
avoid a situation where he has, or can have, a direct or indirect
interest that conflicts, or possibly may conflict, with the company’s
interests. The Company has adopted a formal procedure for the
disclosure, review, authorisation and management of directors
conflicts of interest and potential conflicts of interest in accordance
with these provisions. The procedure requires directors formally
to notify the Board, via the company secretary, as soon as they
become aware of any actual or potential conflict of interest with
their duties to the Company or of any material change in existing
or potential conflicts that may have been authorised by the Board.
The Board continues to monitor and review potential conflicts of
interest on a regular basis. A register is maintained of all such
disclosures and the terms of any such authorisation.
35
Shareholders
The Company is committed to a process of continual dialogue
with its shareholders, including making appropriate contact
with institutional investors and their representative bodies when
there are specific matters to discuss. This dialogue with its
institutional shareholders is in the form of the Group’s 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 finance director. Attendees at the results
presentations include the chairman, the executive directors, the
senior independent director and a number of the non-executive
directors. 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 and the chairmen of the Audit, Remuneration
and Nomination Committees are available to answer questions.
The date of the key publications in 2010 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.
Electronic proxy voting, details of which are included in the
notice of the 2010 annual general meeting, is available. Voting
participation at the annual general meetings in 2007, 2008 and
2009 was 61%, 56% and 64% respectively.
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 specialised
trade press and its own internal bulletins, which have wide
circulation and through the news section on both the divisional
and Company websites.
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.
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 Executive Committee
The Group Executive Committee comprises the chief executive,
finance director, legal and commercial director (whose
biographies are on pages 28 and 29) and the three divisional
managing directors whose details are set out below:
Phil Clifton (50) is the Weir Power & Industrial Divisional Managing
Director based in East Kilbride, UK. Phil joined the Group from
AWG PLC, the parent company of Anglian Water, where he
was responsible for government services and group business
development. Prior to AWG, he was managing director of Reyrolle
Ltd, an international business in the industrial power group of
Rolls-Royce PLC.
Steve Noon (45) is the Weir Oil & Gas Divisional Managing
Director based in Fort Worth, USA. Steve has worked with several
multi-nationals including Schefenacker Vision Systems, James
Hardie Industries and The Toro Company. Before joining the
Group in 2007, he held the position of president of Schefenacker
Vision Systems, North America.
Scot Smith (46) is the Weir Minerals Divisional Managing Director
based in Madison, USA. Prior to joining the Group, Scot spent
18 years in the automotive industry with companies such as Van
Dresser Corporation, General Motors and Britax. Within Britax,
Scot held a number of positions including marketing director,
managing director of Britax Geco and latterly regional managing
director for the Americas.
In the 53 weeks to 1 January 2010, the Group Executive
Committee met 12 times.
The Group Executive Committee is responsible for ensuring that
each of the Group’s businesses is managed effectively and that
the key performance indicators of the Group, as approved by the
Board, are achieved.
The Committee’s 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 which provide 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.
36 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Corporate governance
report (continued)
General Administration Committee
The principal duties of the General Administration Committee are
to allot shares under the Group Long Term Incentive Plan and
other matters of a routine nature. This Committee comprises the
executive members of the Board and meets as required.
Remuneration Committee
The chairman of the Committee is Michael Dearden. The other
members of the Committee are Lord Robertson and Professor
Ian Percy. John Mogford joined the Committee in 2010.
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.
The minutes of each meeting are circulated to the Board.
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
the members of the Group Executive Committee;
• 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 is constituted and operated throughout the year
in accordance with the relevant provisions of the Combined
Code. The Committee’s terms of reference can be found on
the Company’s website.
The Committee met four times in 2009. The following table
identifies the attendance record of individual directors at the
Committee meetings held during 2009.
Name
Michael Dearden (chairman)
Professor Ian Percy
Lord Robertson
Attendance
4 of 4
4 of 4
4 of 4
Nomination Committee
The members of the Committee during the year were Lord Smith
(chairman), Keith Cochrane, Michael Dearden, Professor Ian
Percy, Mark Selway and Lord Robertson. Alan Mitchelson acts
as secretary to the Committee. The Committee meets at least
twice a year and at other times when necessary, and in 2009 met
four times. The following table identifies the attendance record of
individual directors at the Committee meetings held during 2009.
Name
Lord Smith (chairman)
Keith Cochrane1
Michael Dearden
Professor Ian Percy
Lord Robertson
Mark Selway2
Attendance
4 of 4
1 of 1
4 of 4
4 of 4
4 of 4
2 of 2
1 Keith Cochrane was appointed to the Committee on 2 November 2009.
2 Mark Selway ceased to be a member of the Committee on 16 September 2009.
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 on the Company’s website.
During the year, the Committee undertook the search for a new
chief executive to succeed Mark Selway. Having considered the
Group’s succession plans and reviewed the external candidates
identified by search consultants, the Committee recommended
to the Board the appointment of Keith Cochrane as chief
executive. The Committee then undertook the search for a
new finance director, with both internal and external candidates
being considered, and identified Jon Stanton as Keith Cochrane’s
replacement. Both recommendations were approved by the Board.
37
Audit Committee
The chairman of the Committee is Stephen King. During the year,
the other members of the Committee were Professor Ian Percy,
Richard Menell (who was appointed to the Committee on 1 April
2009) and John Mogford. The secretary to the Committee is
Alan Mitchelson. In addition, the chief executive, finance director,
the head of internal audit and the external auditors attend each
meeting. The head of internal audit and the external auditors also
have access to the chairman of the Committee outside formal
Committee meetings.
The Board is satisfied that Stephen King has recent and relevant
financial experience.
The Committee has the ability to call on Group’s employees to
assist in its work and also has access to independent advice.
The Board has delegated to the 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.
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.
There were three meetings in 2009, in January, March and July.
The following table identifies the attendance record of individual
directors at the Committee meetings held during 2009.
Name
Stephen King (chairman)
Richard Menell1
John Mogford
Professor Ian Percy
Attendance
3 of 3
1 of 1
3 of 3
3 of 3
1 Richard Menell was appointed to the Committee on 1 April 2009.
The Committee maintains a formal calendar of items for
consideration at its meetings and within the annual audit cycle
to ensure that its work is in line with the requirements of the
Combined Code. During the March meeting, the Committee
undertook a full review of the audit with the Group’s auditors.
In the course of 2009, the Committee discussed the following
matters:
• the annual report and financial statements, the half year report
and interim management statements, any significant audit
issues, accounting policies and financial reporting issues and
judgements identified by the finance director and the auditors;
Its duties are to:
• consider the appointment, resignation or dismissal of the
auditors and the level of audit fee;
• the annual report disclosures relevant to the Committee,
including the going concern statement and the reports on
risk management and internal control;
• discuss with the auditors the nature and scope of the audit;
• the terms of reference for the Committee;
• review the draft interim and annual financial statements before
• the internal audit scope and approach for 2009;
submission to the Board for approval;
• the results of the Group compliance scorecard;
• discuss any problems and reservations arising from the annual
audit and any matters the auditors may wish to raise;
• the Group accounting policies;
• discuss with the auditors the Group’s system of internal financial
controls and any recommendations for improvement;
• consider the findings of internal investigations and management’s
response;
• the findings of internal audit reviews undertaken by
PricewaterhouseCoopers LLP and the head of internal audit;
• the fees for Ernst & Young LLP for 2009;
• the audit strategy for year end 2009 audit;
• oversee the implementation of systems for financial control and
• the fraud and error guidelines contained in ISA240; and
risk management;
• the Group ‘whistleblowing’ policy.
• 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.
38 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Corporate governance
report (continued)
The minutes of each meeting are circulated to the Board.
The Committee’s terms of reference can be found on the
Company’s website.
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.
During the year, the Committee reviewed the auditors’ process for
ensuring their independence and effectiveness and commented
on their internal quality control procedures. The Committee are
satisfied as to their continued independence.
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 policies are
delegated to the finance director who in turn monitors each of the
Group’s subsidiaries 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 £1.2m (2008: £1.3m)
and transaction support services of £nil (2008: £0.2m) in respect
of 2009 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 can be brought in to review procedures if appropriate.
The ‘whistleblowing’ policy is available to all staff within the Group
through the Group intranet.
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.
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 2009 and
up until the date of this report, except that it did not apply to the
Group’s joint ventures. 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
Group 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 reviewed by 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 Group
Executive Committee.
In addition, a Group Risk and Control Framework is prepared,
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.
39
The principal risks and uncertainties identified by the Group Risk
and Control Framework and how they are managed or mitigated
are summarised on pages 30 to 32.
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 executive
directors, the Audit Committee and the Board, as appropriate.
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:
• A clearly defined organisational structure within which individual
responsibilities are identified and monitored.
• A Group compliance scorecard which records compliance with
the policies and procedures.
• Policies and procedures manuals are in place and communicated
to all Group operating companies through the Group intranet.
The managing directors are responsible for ensuring that
each company observes and implements these policies and
procedures which are continuously reviewed and updated.
• A comprehensive annual planning and financial reporting
system incorporating consolidated management accounts,
which compares results with forecast and the previous year
on a monthly and cumulative basis. Management information
systems provide directors with relevant and timely reports
that identify significant variations from approved forecasts and
revised forecasts for the year are produced four times a 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.
Alan Mitchelson
Secretary
Signed and approved for and on behalf of the Board
9 March 2010
40 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Remuneration
report
Introduction
The Remuneration Committee’s main aim is to support the Group
in its ability to attract, motivate and retain high calibre individuals
to deliver the highest possible performance to our shareholders.
During 2009, the Committee reviewed the Group’s Long Term
Incentive Plan, the performance conditions attached to the awards
and the levels at which they are made to ensure they remain
competitive and are appropriate in the current environment.
Remuneration strategy and policy for executive directors
The Committee adopted the following policy for the remuneration
of executive directors throughout 2009. It is intended that this
policy will apply in 2010 and future years.
• 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.
The Committee believes that the salary levels and the mix
between fixed and variable compensation continues to be
appropriate and shall continue to review the remuneration
package on a regular basis to ensure it remains so.
Membership of the Remuneration Committee
The chairman of the Committee is Michael Dearden. The other
members of the Committee who served during the year are
Lord Robertson and Professor Ian Percy. The secretary to the
Committee is Alan Mitchelson.
Hewitt New Bridge Street (“Hewitt”) continued to provide external
advice in formulating remuneration policy and its implementation
during 2009, as well as advice on long-term incentive schemes.
Hewitt’s appointment was renewed by the Committee for the year
2010. 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.
No individual plays a part in the determination of their own
remuneration.
• 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 Group’s Long
Term Incentive Plan (“LTIP”).
Elements of remuneration
The following table provides a summary of the key elements of the executive directors’ remuneration package:
Element
Objective
Performance
period
Policy
Salary
To provide a competitive base
salary to attract and retain
talented leaders.
—
Reviewed annually by reference to companies of a similar size and
industry and having regard to salary increases throughout the Group.
The only component of executive remuneration which is
pensionable is the basic salary.
Annual bonus
Bonus payments are intended to
reflect the achievement of agreed
business objectives and positive
contribution to stretching the
performance of the Group.
One year
The Committee reviews the bonuses payable on an annual basis
and sets the targets at the beginning of the financial year. The
target used is normalised pre-tax profits. The maximum potential
bonus receivable by the chief executive is 125% of salary and for
the other executive directors is 100% of salary.
As part of the LTIP, 25% of the chief executive’s bonus is deferred
in the form of shares and in respect of the other executive directors
20% of their bonuses are deferred. In 2011, it is proposed that the
deferral will increase to 30% for all executive directors.*
Long term share
incentives
To incentivise executives to
achieve superior long-term
performance to align shareholder
interests with the executives and
the retention of key individuals.
Three years
Vesting is based on an earnings per share growth target and
the relative Group total shareholder return over the three year
performance period.
41
Analysis of remuneration package
The following chart illustrates the proportions of the 2009
remuneration package for the executive directors comprising
fixed and variable elements of pay. For 2009, it shows that
60% of executive directors total remuneration package was
performance related.
Fixed pay elements
Salary and benefits
40%
Variable pay elements
Bonus (including the compulsory
deferred element identified)
33%
LTIP
27%
Salary and benefits
Following his appointment as chief executive, Keith Cochrane’s
basic salary increased with effect from 2 November 2009 to
£550,000. There will be no change to his salary in 2010. Reflecting
the fact that there was no adjustment to his salary in 2009, Alan
Mitchelson’s salary will increase by 3% in April 2010. Jon Stanton’s
salary will be £370,000 and the other elements of his remuneration
package will be in line with the other executive directors.
directors are also allowed to voluntarily convert a further
portion of their Group bonus (subject to any cap imposed by
the Remuneration Committee, currently 20%) into Weir Group
shares. In 2011, it is proposed that the compulsory deferral of
the Group bonus for the 2010 financial year be increased to
30%.* In addition, it is proposed that the amount that the chief
executive will be able to invest voluntarily be increased to 25%.*
The cap in relation to the other executive directors will remain at
20%. These changes, which do not require formal shareholder
approval, should permit a greater proportion of bonus to be
converted into shares, which should further align management
with shareholders.
• 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. In 2009,
matching shares were awarded 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. In 2011, it is proposed that
this be reduced to 2 times.* As a result, the overall maximum
opportunity represented by the deferral and matching arrangement
will not increase.
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.
Executive directors also receive 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 vesting of conditional awards of performance and matching
shares is subject to the satisfaction of a highly demanding
performance condition.
Bonus
Under the Group annual performance–related bonus, the payout
for 2009 was based 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. Although pre-tax profits increased in 2009, the stretch
target for the executive directors was not fully achieved and as
a result they earned 83.7% of their maximum bonus entitlement
for the period. The performance criteria and the maximum bonus
potential will be the same for 2010.
Long Term Incentive Plan
During 2009, the Company continued with its annual grant
policy under the LTIP and made awards of performance shares,
compulsory investment shares and matching shares.
Details of each award are as follows:
• 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 2009, awards were made up to a maximum of 100% of
salary. It is the Remuneration Committee’s intention to make
awards in 2010 of up to 100% of salary.
• 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
For the performance and matching share awards granted in
2009, the performance condition was 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 currently comprises:
AGA Rangemaster Group
Bodycote
Cookson Group
Halma
IMI
Meggitt
Mitie Group
Morgan Crucible Company
Rolls-Royce
Rotork
Senior
Smiths Group
Spirax-Sarco Engineering
Tomkins
Wood Group
WS Atkins
The Remuneration Committee may, in its absolute discretion,
vary, add, remove or alter the companies making up the
Comparator Group where events happen which cause the
Remuneration Committee to consider that such change is
appropriate to ensure that the performance condition continues
to represent a fair measure of performance.
* This is subject to the approval of the various changes to the LTIP being put to
shareholders as outlined in the notice of the 2010 annual general meeting.
42 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Remuneration
report (continued)
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.
• The provisions relating to compulsory investment share awards
made from 2011 will be changed to make them forfeitable only
in the case of gross misconduct or a material misstatement
of the Group’s financial results in respect of which the bonus
was generated.
In addition to TSR performance, for any of the performance and
matching share awards 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.
The performance condition for the performance and matching
share awards to be made in 2010 has been amended to one
which is 50% based on TSR, using the same Comparator Group,
and 50% based on earnings per share growth (adjusted to
exclude intangibles amortisation and exceptional items) as
set out in the following table:
Earnings per share growth
11% per annum
4% per annum
Less than 4% per annum
% of the earnings per share portion
of the award which vests
100%
25%
0%
There is straight line vesting between each point.
The earnings per share performance condition used up until 2009
will no longer apply to awards from 2010 onward.
• To increase the annual limit on the grant of performance share
awards under the LTIP from 100% to 150% of salary and to
increase the limit on grants in exceptional circumstances from
150% to 200% of salary. This will allow the flexibility to increase
award levels in future years should the commercial need arise
but, as mentioned above, normal awards will not exceed 100%
of salary in 2010.
Full details of these changes are contained in the notice to the 2010
annual general meeting.
The Committee has ensured that, in accordance with its policy,
there continues to be a suitable degree of stretch within the LTIP.
Conditional share award
In 2008, a one-off conditional award of 405,953 shares was
made to Mark Selway, which has now lapsed.
Pensions
Alan Mitchelson is an active member of the Company’s 1972
pension and life assurance plan. The plan is a contributory defined
benefit 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 Committee considers that the earnings per share targets
introduced for 2010 are very demanding. The Committee will set
appropriate earnings per share targets for future awards, which
will be at least as challenging in the circumstances as the 2010
award targets were when they were set.
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.
The Committee believes that a balance between earnings per
share and TSR is appropriate and aligned to the Company’s
long-term strategic goals of driving sustained earnings
performance and shareholder value creation.
The TSR calculation is performed by Hewitt for the Remuneration
Committee at the time of vesting.
In 2009, the awards made in 2006 vested and due to the
performance condition only 69% of the awards were exercisable
with the remainder lapsing.
Proposed changes to the Long Term Incentive Plan
During 2009, the Remuneration Committee reviewed the LTIP
and identified the need to revise several aspects of the incentive
arrangements to maintain their effectiveness.
At the annual general meeting in 2010, the Company proposes to
put a number of changes to the LTIP to shareholders in relation
to the following:
• The introduction, for awards made from 2011, of dividend
equivalents in respect of vested compulsory investment share,
matching share and performance share awards to provide
better alignment with shareholders, reflecting ABI guidelines.
For members, salary (both for contributions and for plan benefits) is
subject to a plan specific earnings cap. This is currently £123,600.
The plan provides for a surviving spouse’s pension of one half
of the member’s pension (before any exchange for cash) and,
in certain circumstances, for a dependent child’s pension until
the child attains the age of 23 years.
Pension built up prior to April 2006 increases in payment by the
annual increase in the retail prices index up to a maximum of 5%.
For pension built up after April 2006, the annual increase is limited
to a maximum of 2.5%. Deferred pensions are revalued between
the date of exit and normal retirement date in line with statute.
The plan provides a lump sum death benefit of five times salary
for Alan Mitchelson.
Keith Cochrane is responsible for his own pension arrangement and
Jon Stanton will be responsible for his own pension arrangement.
43
Chairman and non-executive directors
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.
The details of the letters of appointment in relation to the non-
executive directors who served during the year are:
Director
Contract
commencement date
Next
re-election
Notice period
by Company
Lord Smith
Michael Dearden
Stephen King
Richard Menell
John Mogford
Lord Robertson
Professor Ian Percy
6 February 2002
17 February 2003
3 February 2006
1 April 2009
1 June 2008
1 February 2004
11 October 1996
May 2010
May 2011
May 2011
May 2012
May 2012
May 2012
—
6 months
6 months
6 months
6 months
6 months
6 months
6 months
Executive directors service contracts
All the executive 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 twelve 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 Remuneration 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.
To recruit the best executives, the Remuneration Committee
may in the future agree contractual notice periods which initially
exceed twelve months, particularly as it is often necessary for
executives to relocate their families.
The details of the service contracts in relation to the executive
directors who served during the year are:
Director
Keith Cochrane
Alan Mitchelson
Mark Selway
Contract
commencement date
Unexpired
term
Notice period
by Company
3 July 2006
12 December 2001
5 June 2001
12 months
12 months
—
12 months
12 months
—
remuneration earned from such appointments may be kept by
the individual executive director. During 2009, Mark Selway acted
as a non-executive director of Lend Lease Corporation Limited,
an Australian and New Zealand listed company. His remuneration
in respect of this appointment was AUS$140,000.
Remuneration of the chairman and non-executive directors
The remuneration of the chairman is agreed by the Board on
the recommendation of the Remuneration 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,
where appropriate, to reflect the additional time commitment in
attending intercontinental board meetings and operational visits.
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 but have not been increased since
2007. With effect from 1 April 2010, the chairman’s remuneration
will be increased from £175,000 to £182,500 and the basic fee for
each of the non-executive directors will be increased from £40,000
to £45,000. The additional fees paid to the deputy chairman and
the chairmen of the Audit and Remuneration Committees remain
unchanged. Michael Dearden, who became the senior non-
executive director on 1 November 2009, is receiving an additional
fee of £2,500 for that role.
Total shareholder return
The graph below illustrates the performance of the Company
against the FTSE 350 Industrial Engineering Sector Index and
the Comparator Group used in the LTIP. 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.
The Weir Group PLC
FTSE 350 Industrial Engineering Sector Index
LTIP Comparator Group
300
250
200
150
100
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
2005
2006
2007
2008
2009
This chart shows the value, as at 31 December 2009, of £100 invested in The Weir
Group PLC over the last five financial years compared with the value of £100 invested
in the FTSE 350 Industrial Engineering Sector Index and the average of the LTIP
Comparator Group. The other points are the values at the intervening financial year ends.
44 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Remuneration
report (continued)
Directors interests
The interests of the directors in the ordinary shares of the Company as at 1 January 2010 and at the end of the preceding financial
period were as follows:
Lord Smith
Keith Cochrane
Michael Dearden
Stephen King
Richard Menell
Alan Mitchelson
John Mogford
Professor Ian Percy
Lord Robertson
As at 1 January 2010
As at 26 December 2008
Notes
Shares LTIP awards
Shares LTIP awards
2
145,900
41,666
10,000
50,050
-
144,092
7,981
-
10,000
-
321,956
-
-
-
284,884
-
-
-
138,400
9,823
10,000
50,050
-
121,557
4,531
-
2,637
-
223,679
-
-
197,285
-
-
-
Notes
1. 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.
2. In the case of Richard Menell, the comparative figure is as at his date of appointment to the Board.
3. There have been no changes to the directors interests between 1 January 2010 and 9 March 2010.
Directors remuneration#
Chairman and non-executive directors:
Lord Smith
Michael Dearden
Stephen King
Richard Menell
John Mogford
Professor Ian Percy
Lord Robertson
2008 retiree
Executive directors:
Keith Cochrane
Alan Mitchelson
Mark Selway
Previous year comparatives
# Audited
Salary
& Fees
£
Bonus
(note 8)
£
Benefits
(note 9)
£
Notes
Total 2009
£
Total 2008
£
1
2
3
4
5
6
7
175,000
47,917
47,500
30,000
40,000
50,000
40,000
-
430,417
-
-
-
-
-
-
-
-
-
4,195
3,963
-
4,198
4,561
3,241
-
-
179,195
51,880
47,500
34,198
44,561
53,241
40,000
-
180,838
52,738
47,500
-
28,343
54,862
40,000
45,238
20,158
450,575
449,519
422,918
317,000
538,507
377,182
265,391
600,688
22,303
19,307
123,570
822,403
601,698
1,262,765
769,467
645,292
1,306,040
1,708,842
1,243,261
185,338
3,137,441
3,170,318
1,667,799
1,409,500
93,019
Notes
1. The fees for Michael Dearden include £7,500 for services as chairman of the Remuneration Committee (2008: £7,500) and £417 for his role as senior independent director since
1 November 2009 (£2,500 pro-rated).
2. The fees for Stephen King include £7,500 for services as chairman of the Audit Committee (2008: £7,500).
3. Richard Menell was appointed on 1 April 2009.
4. John Mogford was appointed on 1 June 2008.
5. The fees for Professor Ian Percy include £10,000 for services as deputy chairman and for his role as senior independent director (2008: £10,000).
6. Keith Cochrane’s salary was increased to £550,000 on 2nd November 2009 from £403,125.
7. Mark Selway’s salary figure has been adjusted to cover only the period he was a director of the Company.
8. The bonus figures for Keith Cochrane and Alan Mitchelson include £94,295 (2008: £75,000) and £53,078 (2008: £63,400) respectively, which will be compulsorily deducted from
their bonus in exchange for which they will be awarded investment shares which, subject to certain conditions, will be receivable on the third anniversary of the 2010 award.
9. Benefits include, as appropriate, car allowance, participation in the Group health care scheme, travel allowance, death in service insurance and, in the case of Mark Selway,
property related costs.
Long term incentive awards#
Number of
shares under
Date of
award as at
award 26 Dec 2008
Notes
Shares
granted
during
period
Shares
lapsed/ did
not vest
during the
period
Number of
Shares
vested
during shares under Market price Market price
at date of
vesting
the award as at
1 Jan 2010
at date of
award
period
45
Normal exercise period
(note 4)
Keith Cochrane
LTIP - Performance &
matching shares
LTIP - Compulsory
investment shares
Alan Mitchelson
LTIP - Performance
& matching shares
LTIP - Compulsory
investment shares
Mark Selway
LTIP - Performance
& matching shares
LTIP - Compulsory
investment shares
Conditional share award
# Audited
1
24 Aug 06
29 Jun 07
25 Mar 08
08 May 08
16 Mar 09
29 Jun 07
25 Mar 08
16 Mar 09
1
04 Apr 06
29 Jun 07
25 Mar 08
08 May 08
16 Mar 09
04 Apr 06
29 Jun 07
25 Mar 08
16 Mar 09
2
1
04 Apr 06
29 Jun 07
25 Mar 08
08 May 08
16 Mar 09
04 Apr 06
29 Jun 07
25 Mar 08
16 Mar 09
08 May 08
76,695
38,677
86,101
8,699
-
3,611
9,896
-
223,679
48,123
56,009
66,611
7,354
-
5,939
5,590
7,659
-
197,285
127,430
92,539
122,790
13,315
-
17,334
15,659
23,664
-
405,953
-
-
-
-
155,257
-
-
19,715
174,972
-
-
-
-
124,995
-
-
-
16,666
141,661
-
-
-
-
268,768
-
-
-
47,152
-
23,684
-
-
-
-
-
-
-
23,684
14,844
-
-
-
-
-
-
-
-
14,844
39,316
-
122,790
13,315
268,768
-
-
-
-
405,953
53,011
-
-
-
-
-
-
-
53,011
33,279
-
-
-
-
5,939
-
-
-
39,218
88,114
-
-
-
-
17,334
-
23,664
47,152
-
-
38,677
86,101
8,699
155,257
3,611
9,896
19,715
321,956
-
56,009
66,611
7,354
124,995
-
5,590
7,659
16,666
284,884
-
92,539
-
-
-
-
15,659
-
-
-
818,684
315,920
850,142
176,264
108,198
445p
730p
730p
900.5p
400p
730p
730p
400p
445p
730p
730p
900.5p
400p
445p
730p
730p
400p
445p
730p
730p
900.5p
400p
445p
730p
730p
400p
900.5p
658.5p
-
-
-
-
29.06.10 - 29.09.10
25.03.11 - 25.06.11
08.05.11 - 08.08.11
16.03.12 - 16.06.12
-
-
-
29.06.10 - 29.09.10
25.03.11 - 25.06.11
16.03.12 - 16.06.12
29.06.10 - 29.09.10
25.03.11 - 25.06.11
08.05.11 - 08.08.11
16.03.12 - 16.06.12
29.06.10 - 29.09.10
25.03.11 - 25.06.11
16.03.12 - 16.06.12
29.06.10 - 29.09.10
29.06.10 - 29.09.10
464.75p
-
-
-
-
464.75p
-
-
-
464.75p
-
-
-
-
464.75p
-
-
-
-
Notes
1. 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 pages 41 and 42.
2. At the discretion of the Remuneration Committee, Mark Selway’s 2007 compulsory investment share awards, performance share awards and matching share awards under the LTIP will be eligible
for exercise during their normal exercise period subject to the performance condition having been met. All other awards held by him have lapsed including the conditional share award.
3. Awards under the LTIP take the form of nil cost options and have no performance retesting facility.
4. Awards under the LTIP can be exercised up to three months after the third anniversary of the award date, subject to the performance conditions. No expiry date is shown if the award was exercised
or lapsed in the 53 weeks to 1 January 2010.
5. On 4 April 2009 and 24 August 2009, the 2006 awards under the LTIP vested in part. As a result Keith Cochrane, Alan Mitchelson and Mark Selway exercised their awards as set out above, selling
21,168, 16,683 and 44,856 shares respectively to pay the relevant tax and national insurance and retaining the balance. The aggregate gains made on all award exercises by directors during the year
totalled £1,506,154 (2008: £1,078,518).
6. The closing market price of the Company’s shares at 1 January 2010 was 717.5p and the range for the year was 310p to 761p.
46 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Remuneration
report (continued)
Directors pension benefits#
Alan Mitchelson was a member of a defined benefit scheme provided by the Group during the year 2009. Keith Cochrane and Mark
Selway were responsible for their own pension provisions. Pension entitlement and the corresponding transfer values were as follows
during the year:
Increase
in accrued
pension
during the
period (net
of inflation)
(note 6)
£
Increase
in accrued
pension
during the
period
£
Accrued
pension as at
26 December
2008
£
Accrued
pension as
at 1 January
2010
(note 1)
£
Transfer value of
accrued pension
as at 26
December 2008
£
Change in
transfer value
of accrued
pension during
the period net
of directors
ordinary
contributions
(note 3)
£
Transfer
value of
accrued
pension as
at 1 January
2010
(note 2)
£
Transfer value
of increase
in accrued
pension (net
of inflation)
(notes 2 & 6)
£
Directors
ordinary
contributions
£
30,543
4,561
4,561
35,104
689,404
89,539
9,528
788,471
92,917
Alan Mitchelson
# Audited
Notes
4,5
Notes
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 revised 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;
b. increase in the transfer value of accrued pension at year start due to ageing;
c. impact of any change in the economic or mortality assumptions underlying the transfer value basis – as referred to in 2. above;
d. 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 c. above. The inflation measure for leavers during 2009 with at least one year to their normal retirement date was 0%, despite actual inflation being negative.
Consequently, the rate of inflation assumed in the above figures is 0%.
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 of which Alan Mitchelson is a member) are not currently reduced below 100% of their full value.
6. The figures allow for the impact of inflation in accordance with the Listing Rules of the Financial Services Authority.
Michael Dearden
Chairman of the Remuneration Committee
Signed and approved for and on behalf of the Board
9 March 2010
Corporate responsibility
report
47
The Weir Group’s sustainability approach involves applying our core values – integrity, valuing people,
innovation and collaboration – to the way we run our business. This means continuous progress in
achieving the highest standards of safety; treating our employees, suppliers and the communities in
which we work as long-term partners and considering the environmental impact of every aspect of
what we do.
The areas highlighted in this report namely policy, the community in which we operate, our people,
the environment and our supply chain reflect the priorities of the Group in 2009. In 2010, the Group
is undertaking a review of our corporate responsibility and sustainability activities, the results of which
will be reported through our website and in the 2010 annual report.
Group policies
The Group maintains
a number of corporate
responsibility policies
which are reviewed
regularly by the Board
and are published on the
Company’s website.
Corporate ethics policy
The aim of this policy is to communicate to our
customers, suppliers, investors, employees and the
communities in which we operate, the ethical and
social values we respect and our commitment to
uphold human rights. By promoting sound ethical
values and human rights principles, we aim to be
an aspiring business for people to join.
Human rights principles
The Group is dedicated to the adoption of
internationally recognised human rights standards
in its global operations. The international sources
of law upon which our human rights standards
are based aim to ensure a consistent world-
wide adoption of the principles throughout the
Group. Each operating entity may retain its own
human rights policy or statement, provided such
a document incorporates the principles of the
Group’s policy and has received the prior approval
of the chief executive.
Anti discriminative attitudes and
respect for ethical values
All Weir employees should conduct themselves
in accordance with the highest ethical standards.
Our aim is to ensure that no discrimination is
practiced within the Weir Group. We have adopted
an “equality for all” policy to prevent discrimination
in hiring, compensation, promotion, training,
termination or retirement based on race, caste,
colour, national origin, sex, age, religion, disability,
veterans status (United States), marital status,
actual or perceived sexual orientation, employment
status or political affiliation. In some countries
this policy may be modified by national legal
requirements on affirmative action. Our aim is to
ensure that Weir employees are able to work in an
environment free of physical, psychological or verbal
abuse, the threat of abuse and sexual or other
harassment and, accordingly, these are prohibited.
Weir Oil & Gas UK helped
raise money for charity
through various activities
including sponsoring a climb
of Mount Kilimanjaro.
48 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Corporate responsibility
report (continued)
Community
Community initiatives
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. Examples of
these are shown in this report.
Charitable contributions
The total charitable contributions of Group
companies made during the year was £252,000
(2008: £234,000), as shown below:
Community
34%
Health
29%
Education
19%
Heritage
18%
The Group’s code of conduct prohibits political
contributions and therefore no political donations
were made during the period.
In 2009, Weir Minerals
Floway sponsored six
students on a week long
engineering camp run by the
Lyles College of Engineering
at California State University,
Fresno, USA. The programme
aims to educate girls aged
15 to 18 on the benefits and
varied aspects of a profession
in engineering. A presentation
was also given to students at
the Floway facility.
Weir Minerals Peru, through
its corporate responsibility
programme, helped build a
dining hall for local children
aged between three and
five years at Manchay. The
company also donated office
furniture and helped organise
a Christmas party in Granja
Villa where the children
received donated toys.
In response to the devastating
floods that hit North Karnataka
in October 2009, Weir
Minerals India, under its
community support project,
contributed towards the
construction of pre-fabricated
houses in Bagalkote, one of
the worst hit districts. This
was facilitated through the
Government’s partnership
programme with local
companies and helped in
the rehabilitation of around
975 families.
49
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 on this important issue
includes full investigations of all accidents being
carried out and reported at the Group Executive
Committee meetings on a monthly basis.
Projects and activities
The driving force behind our performance continues
to be our emphasis on behaviour, networking and
sharing best practice and the active involvement
of senior management to promote and audit
safety programmes.
Our network safety committees
focused on a number of activities this
year, including:
— Group-wide training and behavioural
auditing
— continued development of policies
and procedures
— recognising and rewarding
outstanding safety performance
through award schemes
People
Managing safety
Maintaining a consistently safe and healthy workplace
for our people requires effective, proactive
management. We operate a global network of
Environmental, Health and Safety Forums that share
knowledge and experience between plants with
the aim of ensuring consistently high standards of
safety across the Group and eliminating work-related
injuries, preventing pollution, conserving resources,
complying with regulatory requirements and
improving performance.
The core elements of our approach to safety are:
— emphasis on the importance of behaviour by encouraging
a culture of safety at all locations
— improving communications and sharing best practice
throughout the Group
— the active involvement of senior executives in
promoting safety
— the auditing of safety and loss control programmes
All our operations have over the past year
been working toward achieving OHSAS 18001
(Occupational Health Safety Assessment Series)
accreditation. To date, all our major sites have
achieved this with the exception that our most recent
acquisitions and some smaller businesses will not
complete the process until 2010. OHSAS 18001
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 processes. OHSAS 18001 offers a
proactive approach to reducing accidents, near
misses and other incidents year on year.
The Group is committed to an accident free health
and safety environment based on the belief that all
accidents are preventable. The Group 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.
50 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Corporate responsibility
report (continued)
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
— networking across all disciplines
and operations
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.
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.
People
(continued)
Weir Minerals India,
partnered with healthcare
and micro-health insurance
providers, conducted health
camps for children rescued
from child labour and their
families. In October and
November 2009, around
500 families benefited
from such camps.
Weir Minerals Brasil is
involved with a project which
supports 190 children and
teenagers who live in the
local community. The focus
of the project’s activities in
2009 was recycling and reuse.
Throughout the year, talks
were given to the children
with the focus being on the
importance of protecting
the environment and
recycling products.
51
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
2009, Weir SPM, Weir Warman Africa and Weir
Multiflo achieved ISO 14001 accreditation. It is
expected that Weir SOS and Weir Mesa will achieve
full compliance in 2010.
Environmental improvements
As part of the Group’s commitment to continual
improvement, during 2009 the Minerals Division
established an Environmental Improvement
Team whose objective is to share best practice
in environmental management. The global team
aims to implement and maintain three active
environmental improvement projects at each
participating site, adding new projects as each
is completed. The regions represented by the
team are Europe, North America, South America,
Australia, Africa and China.
Initiatives to improve the environmental performance
of our operations include energy and water
efficiency, raw material efficiency, waste
minimisation and resource recovery projects.
In addition, many Weir companies collaborate with
suppliers to address environmental considerations
throughout the supply chain to our mutual benefit,
particularly in areas such as raw materials,
packaging and recycling.
We focus our improvement efforts on the areas that
have the most environmental and financial impact.
Environment
Overview
All our locations fully integrate environmental
management into their operational systems and
procedures. The Group’s proactive approach
ensures that these processes reduce our
environmental impact year on year. Our three most
significant environmental impacts are, in order of
magnitude, energy use, water use and hazardous
and non-hazardous solid waste production.
Each company in the Group is required to
continuously improve its environmental performance
and management practices. During 2009, the
Group has been making improvements to its
data collection and has been working towards
establishing targets for improvements in all areas
of our environmental impact with a view to having
these published in 2011.
The Group is committed to the protection of the environment
in all the countries in which its companies operate.
Each Weir company will comply with the relevant regulatory
requirements applicable to its business.
Each Weir company will ensure that it acts as a good citizen
in the community in which it operates and adopt practices
aimed at minimising the environmental impact
of its operations.
Environmental policy
Maintenance of the Group’s environmental
policy is the responsibility of the Group Executive
Committee, while its implementation is the
responsibility of the divisional managing directors.
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 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.
52 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Corporate responsibility
report (continued)
Environment
(continued)
In the area of recycling, examples of improvements that our operations have been working on in 2009 include:
Peru
Chile
Weir Minerals extended its existing wood recycling programme to include used plastics, which are
donated to a charity (Fundades), who in turn sell it to pay for scholarships for local children.
The foundry at Weir Minerals uses only scrap metal recovered from local manufacturers and
metal shops and metal from scrap components bought back from local mines after their usage
is complete.
US
Weir Lewis introduced a Single Stream Recycling programme throughout the facility.
Weir Minerals North America installed a 10,000 gallon reserve tank in the test lab to recycle
water instead of having to use fresh water.
UK
Improvements at Power & Industrial UK have focused on:
• The installation of a mechanical reclamation unit introduced to recycle blast grit.
• The general improvement on segregation of waste for recycling across the division.
• The recycling of aluminium drinks cans, paper and plastic at several sites.
• Encouraging all centres to use second hand pallets.
At Oil & Gas UK, packaging within their facility is monitored on a monthly basis and recorded
as part of their environmental improvement plan. The business is targeting a 5% reduction in
waste going to landfill by the end of 2010. They have also introduced initiatives including use of
a third party recycling company and installing metal scrap collecting hoppers and waste bins
to maximise metal scrap coming out of the machine shop for onward recycling. In addition, a
waste oil recycling system was built within the facility, equipment wash-down and hydro test
water is recycled and colour coded bins and skips are used for recycling.
Australia
In 2009, Weir Minerals has more than doubled the percentage of waste recycled on site.
Improvements include recycling of timber waste for landscape mulch, capture of swarf from
the machine shop and recovery of metal waste for re-use in the foundry. A major project is
underway to improve the recycling of used foundry sand in construction products.
Weir Minerals Australia
worked together with the
local Community Environment
Network in 2009 to gain a
grant from the National Parks
and Wildlife Service for the
regeneration of the creek
area surrounding its facility in
Somersby. The grant was to
preserve the creek's wildlife
corridor which contains both
endangered flora and fauna.
In addition, educational
programmes were provided
for employees and the
local community.
53
The sulphur pumps produced by Weir Minerals Lewis
Pumps in Missouri, USA, are used in various industrial
and manufacturing processes to reduce pollution. For
instance, Lewis molten sulphur and sulphuric acid pumps
are part of two types of acid production. Both of these
reduce pollution: sulphur burning specifically to make acid,
which does not involve burning carbon and therefore no
carbon dioxide is produced and acid made from sulphur
dioxide produced as a byproduct of smelting sulfide ores.
Sulphur pumps are also used in removing sulphur from
petroleum in refineries, which helps reduce atmospheric
sulphur dioxide.
Weir Minerals Hazleton in Pennsylvania, USA,
participates in the Voluntary Protection Program (VPP)
run by the Occupational Safety and Health Administration
(OSHA) of the United States Department of Labor. VPP
sites are audited on a regular basis on specific safety and
health criteria above and beyond standard regulation.
Employees from Weir Minerals Hazleton are certified to
this standard.
The OSHA also runs a mentoring programme in which
current VPP sites can mentor potential VPP sites to
improve their safety and health management systems.
Weir Minerals Hazleton is involved in this process and is
currently mentoring a local supplier to prepare them for
their first audit. This has involved site visits and sharing
best practice.
Environment
(continued)
Supply chain
Research and development has a vital role to
play in meeting our corporate 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
continue to invest in research and development
to improve their performance.
2010 will see ongoing investment in design,
research and development in which our corporate
responsibility and business objectives are
closely aligned.
The Weir Group sources components, materials and
services on a world-wide basis. Our suppliers are an
integral part of the Group’s business. Relationships
with all suppliers are built on total quality practices
and principles to achieve best performance,
product, delivery, service and total cost.
We recognise that our supply chain activities have
a broad impact and that our responsibilities extend
beyond our own operations and into those of our
suppliers. The Group has, therefore, adopted a
Supply Chain Policy to ensure that suppliers to the
Group comply with or exceed certain standards in
connection with their workforce, legal compliance,
health and safety, business ethics and environmental
standards. Our key supplier partners are expected to
either have accreditation to OHSAS 18001 and ISO
14001 or be able to demonstrate a plan to achieve
it within a reasonable amount of time.
We recognise that our corporate 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
1 January 2010, the Group had an average of 71
days purchases outstanding in trade creditors.
54 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Other statutory
information
Results and dividend
A review of the results for the 53 weeks to 1 January 2010 is set
out on pages 24 to 27.
The directors recommend a final ordinary dividend of 16.2p per
share to be paid on 3 June 2010 to ordinary shareholders whose
names are on the Company’s register of members at close of
business on 7 May 2010. Together with the interim ordinary
dividend of 4.8p per share paid on 6 November 2009, this makes
the total dividend for the year 21.0p.
Business review
A review of the Group’s business, its activities and performance,
use of financial instruments, post balance sheet events and likely
future developments is on pages 2 to 56 inclusive. The information
on these pages fulfills the current business review requirements.
Principal activities
The Group’s principal activity is the provision of specialised
mechanical engineering solutions for a diversified range of
industrial and geographic markets.
Directors
Details of the current directors of the Company are set out
on pages 28 and 29.
Jon Stanton is expected to be appointed a director in April 2010.
The directors who retire this year by rotation are Lord Smith,
Keith Cochrane and Alan Mitchelson. Professor Ian Percy has
announced he is to retire from the Board prior to the 2010
annual general meeting.
In accordance with article 97 of the existing articles of association
of the Company, Jon Stanton will retire at the forthcoming annual
general meeting and, being eligible, offers himself for election.
Lord Smith, Keith Cochrane and Alan Mitchelson also offer
themselves for re-election.
Details of the directors service agreements, remuneration and
interests in share awards are set out in the Remuneration report
on pages 40 to 46.
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 Act 2006 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.
2010 annual general meeting
The annual general meeting will be held at 11am on Wednesday
12 May 2010 at the Burrell Collection, Glasgow. The notice of
meeting along with an explanation of the proposed resolutions,
including the proposed amendments to the articles of association
and the LTIP, are set out in a separate circular to shareholders
which accompanies this annual report or can be downloaded
from the Company’s website.
Substantial shareholders
At 9 March 2010, the Company had been notified in accordance
with the UK Listing Authority’s Disclosure Rules and Transparency
Rules that the following held, or were beneficially interested in, 3%
or more of the Company’s issued share capital:
Shareholder
Number of
shares
Date of
disclosure to
Company
Percentage of
issued share
capital
Prudential plc
Baillie Gifford & Co.
Aberdeen Asset Management plc
AXA S.A.
Ameriprise Financial, Inc.
Legal & General Assurance
(Pensions Management) Ltd
Barclays Global Investors
FMR Corp
16,938,987
12,173,278
11,486,034
10,812,658
10,802,934
8,421,246
8,014,955
6,425,000
10/11/09
17/12/07
11/06/09
13/10/08
17/02/09
14/04/09
25/03/08
23/03/07
8.05%
5.82%
5.46%
5.14%
5.14%
4.00%
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 LTIP).
Material contracts
There are no persons with whom the Company has contractual
or other arrangements which are essential to the business of the
Company.
Research and development
During the year, the Group spent £9.7m (2008: £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.
Employment policy and involvement
The average number of employees in the Group during the year
is given in note 4 to the Group financial statements on page 73.
Group companies operate within a framework of HR policies,
practices and regulations appropriate to their market sector and
country of operation. Policies and procedures for recruitment,
training and career development promote equality of opportunity
regardless of gender, sexual orientation, age, marital status,
disability, race, religion or other beliefs and ethnic or national origin.
55
The aim is to encourage a culture in which all employees have the
opportunity to develop fully according to their individual abilities
and the needs of the Group. The Group remains committed to
the fair treatment of people with disabilities regarding applications,
training, promotion and career development.
Employee involvement and feedback is actively encouraged.
A variety of ways are used to consult and inform employees
including a Group-wide bulletin, e-mail, intranet and local
briefings. These are designed to facilitate dialogue while enabling
the development of a common awareness among employees of
what affects business performance.
Financial instruments
The information required in respect of financial instruments
as required by Schedule 7 of the Large and Medium Sized
Companies and Groups (Accounts and Reports) Regulations
2008 is given in note 2 to the Group financial statements
on page 67.
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 in the review of the principal risks and uncertainties
on pages 30 to 32 and in note 30 to the Group financial
statements on pages 100 to 108. Each of these items has been
considered in relation to the Group’s banking facilities described
on page 26 of the Financial review.
Audit and auditors
So far as each of the directors is aware, there is no relevant audit
information (as defined by section 481 of the Companies Act
2006) 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.
A resolution to re-appoint Ernst & Young LLP as the Company’s
auditors will be put to the forthcoming annual general meeting.
Share capital and rights attaching to the Company’s shares
Details of the issued share capital of the Company, which
comprises a single class of shares, ordinary shares of 12.5p each,
are set out in note 25 to the Group financial statements on page
95. The rights attaching to the shares are set out in the articles
of association. There are no special control rights in relation to
the Company’s shares and the Company is not aware of any
agreements between shareholders that may result in restrictions
on the transfer of securities and/or voting rights.
During the year, the 2006 LTIP award vested and the trustees
of the Company’s employees benefit trust (EBT), Kleinwort
Benson (Guernsey) Trustees Limited, transferred 347,828
ordinary shares to employees to satisfy the LTIP awards using
ordinary shares purchased by the EBT in the market. A further
2,047 ordinary shares were transferred out of treasury to satisfy
an award under the LTIP. In addition, a total of 126,902 ordinary
shares, with an aggregate value of £18,204 were allotted during
the period in connection with the Company’s sharesave scheme
and the LTIP. The sharesave scheme is now closed.
The EBT has agreed to waive any right to all dividend payments
on shares held by it. Details of the shares held by Kleinwort
Benson are set out in note 25 to the Group financial statements
on page 95. The EBT holds, through its designated ESOP
account nominee K.B (CI) Nominees Limited, 0.07% of the issued
share capital of the Company, as at 1 January 2010, 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 EBT 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.
Repurchase of shares
At the 2009 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 53 weeks to 1 January 2010 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.
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. The Company conducts the vote at the
annual general meeting by electronic poll. 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.
The articles of association may only be amended by a Special
Resolution passed at a general meeting of shareholders.
56 The Weir Group PLC
Annual Report & Financial Statements 2009 Directors report
Other statutory
information (continued)
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, in relation to
the transfer of shares.
Appointment and replacement of directors
The provisions about the appointment and re-election of directors
of the Company are contained in the articles of association.
Powers of directors
The business of the Company is managed by the Board who may
exercise all the powers of the Company, subject to the provisions
of the Company’s articles of association, any ordinary resolution
of the Company and any relevant legislation.
Change of control – significant agreements
The following significant agreements contain provisions entitling
the counterparties to require prior approval, exercise termination,
alteration or similar rights in the event of a change of control of
the Company.
The Company is party to nine bilateral credit agreements for a
total of £625m with various financial institutions expiring between
30 July 2011 and 1 September 2011. Under the terms of these
agreements, if there is a change of control of the Company
any lender may request, by not less than 30 days’ notice to the
Company, that its commitment be cancelled and all outstanding
amounts be repaid to that lender at the expiry of such notice period.
On 11 January 2010, the Company entered into various note
purchase agreements to issue an equivalent of US$250m five
year and eight year fixed rate notes in a combination of US
dollar and sterling at an average US dollar equivalent interest
rate of 4.8% due 11 January 2015 and 11 January 2018. Under
the terms of the agreements, if there is a change of control of
the Company, the notes must be offered for prepayment by
the Company within seven days of the change of control. The
prepayment date would be no later than 60 days after the offer
of prepayment by the Company.
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.
Directors statement of responsibilities
The directors are responsible for preparing the annual report and
the financial statements in accordance with applicable law and
regulations.
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 (IFRS) 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 IFRS 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, as at the date of this report, 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 2006
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.
Alan Mitchelson
Secretary
Signed and approved for and on behalf of the Board
9 March 2010
Independent Auditors
Report
57
Independent auditors report to the members of The Weir Group PLC
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors report for the financial year for
which the Group financial statements are prepared is consistent with the Group
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• certain disclosures of directors remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review:
• the directors statement, set out on page 55, in relation to going concern; and
• the part of the Corporate governance report relating to the Company’s
compliance with the nine provisions of the June 2008 Combined Code specified
for our review.
Other matter
We have reported separately on the Company financial statements of The Weir
Group PLC for the 53 weeks ended 1 January 2010 and on the information in the
Remuneration report that is described as having been audited.
Hywel Ball (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
9 March 2010
We have audited the Group financial statements of The Weir Group PLC for the 53
weeks ended 1 January 2010 which comprise the Consolidated Income Statement,
the Consolidated Statement of Comprehensive Income, the Consolidated Balance
Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of
Changes in Equity and the related notes 1 to 32. The financial reporting framework
that has been applied in their preparation is applicable law and International Financial
Reporting Standards (IFRS) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. 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
As explained more fully in the Directors statement of responsibilities set out
on page 56, the directors are responsible for the preparation of the Group
financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit the Group financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate
to the Group’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the Group financial statements:
• give a true and fair view of the state of the Group’s affairs as at 1 January 2010
and of its profit for the 53 weeks then ended;
• have been properly prepared in accordance with IFRS as adopted by the
European Union; and
• have been prepared in accordance with the requirements of the Companies Act
2006 and Article 4 of the IAS Regulation.
58 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Consolidated
Income Statement
for the 53 weeks ended 1 January 2010
53 weeks ended 1 January 2010
52 weeks ended 26 December 2008
exceptional
items &
Before Exceptional
items &
intangibles
intangibles amortisation
(note 5)
£m
amortisation
£m
Notes
Before
exceptional
items &
Exceptional
items &
intangibles
intangibles amortisation
(note 5)
£m
Total amortisation
£m
£m
Total
£m
Continuing operations
Revenue
Continuing operations
Operating profit
Share of results of joint ventures
Operating profit
Finance costs
Finance income
Other finance (costs) 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
Earnings per share
Basic - total operations
Basic - continuing operations
Diluted - total operations
Diluted - continuing operations
3
1,390.2
-
1,390.2
1,353.6
-
1,353.6
15
6
6
24
7
8
9
200.1
4.6
204.7
(18.7)
2.5
(1.5)
187.0
(52.2)
134.8
5.2
140.0
(16.6)
-
(16.6)
-
-
-
(16.6)
5.4
(11.2)
-
(11.2)
183.5
4.6
188.1
(18.7)
2.5
(1.5)
170.4
(46.8)
123.6
5.2
128.8
180.6
4.4
185.0
(17.2)
6.6
1.8
176.2
(51.8)
124.4
2.8
127.2
(16.7)
-
(16.7)
-
-
-
(16.7)
5.3
(11.4)
55.0
43.6
163.9
4.4
168.3
(17.2)
6.6
1.8
159.5
(46.5)
113.0
57.8
170.8
140.0
(11.2)
128.8
127.2
43.6
170.8
64.1p
63.6p
61.2p
58.8p
60.8p
58.3p
59.3p
59.0p
81.4p
53.8p
80.9p
53.6p
Consolidated
Statement of Comprehensive Income
for the 53 weeks ended 1 January 2010
Profit for the period
Other comprehensive income
Losses taken to equity on cash flow hedges
Exchange (losses) gains on translation of foreign operations
Exchange gains (losses) on net investment hedges
Actuarial losses on defined benefit plans
Reclassification adjustments taken to the income statement
- on cash flow hedges
- exchange differences on disposal of foreign operations - discontinued operations
Tax relating to other comprehensive income
Net other comprehensive income
Total net comprehensive income for the period
Attributable to
Equity holders of the Company
59
52 weeks
ended
53 weeks 26 December
2008
(as restated
- note 2)
£m
ended
1 January
2010
£m
128.8
170.8
Note
(0.5)
(51.2)
38.3
(57.7)
12.9
-
12.7
(45.5)
83.3
(11.1)
204.3
(127.2)
(62.0)
(5.5)
(0.4)
22.4
20.5
191.3
83.3
191.3
7
60 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Consolidated
Balance Sheet
at 1 January 2010
ASSETS
Non-current assets
Property, plant & equipment
Investment property
Intangible assets
Investments in joint ventures
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
Non-controlling interest
TOTAL EQUITY
Notes
11
11
12
15
23
24
30
16
17
18
30
19
20
21
18
30
22
20
30
22
23
24
26 December 28 December
2007
(as restated
- note 2)
£m
2008
(as restated
- note 2)
£m
1 January
2010
£m
199.4
4.2
739.9
9.7
28.7
-
0.3
982.2
235.3
240.5
25.9
7.2
3.4
57.0
569.3
1,551.5
2.0
336.3
23.2
16.8
23.7
33.8
435.8
174.2
31.0
36.7
60.4
71.0
373.3
809.1
742.4
26.6
38.0
(7.9)
0.5
64.0
0.6
620.4
742.2
0.2
742.4
189.6
4.5
791.8
10.3
20.8
-
8.1
1,025.1
269.6
309.2
30.6
47.5
1.3
74.1
732.3
1,757.4
71.4
353.6
46.7
90.6
25.7
30.5
618.5
242.6
70.1
36.4
63.0
29.9
442.0
1,060.5
696.9
26.6
38.0
(7.9)
0.5
76.9
(8.3)
570.9
696.7
0.2
696.9
136.3
4.8
503.2
7.2
3.1
37.4
1.2
693.2
173.5
255.2
32.8
10.6
1.8
54.2
528.1
1,221.3
8.5
257.8
55.9
11.8
20.8
22.8
377.6
217.0
5.1
22.6
51.0
8.6
304.3
681.9
539.4
26.5
37.7
(9.3)
0.5
0.2
3.5
479.8
538.9
0.5
539.4
Approved by the Board of Directors on 9 March 2010
Keith Cochrane, Director
Alan Mitchelson, Director
Consolidated
Cash Flow Statement
for the 53 weeks ended 1 January 2010
Continuing operations
Cash flows from operating activities
Cash generated from operations
Additional pension contributions paid
Income tax paid
Net cash generated from operating activities
Continuing operations
Cash flows from investing activities
Acquisitions of subsidiaries
Disposals of subsidiaries
Purchases of property, plant & equipment & intangible assets
Other proceeds from sale of property, plant & equipment & intangible assets
Interest received
Dividends received from joint ventures
Net cash used in investing activities
Continuing operations
Cash flows from financing activities
Proceeds from issue of ordinary shares
Purchase of shares for LTIP awards
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 financing activities
Net increase in cash & cash equivalents from continuing operations
Net decrease in cash & cash equivalents from discontinued operations - operating activities
Net decrease in cash & cash equivalents from discontinued operations - investing activities
Cash & cash equivalents at the beginning of the period
Foreign currency translation differences
Cash & cash equivalents at the end of the period
Notes
26
26
26
19
61
53 weeks
ended
52 weeks
ended
1 January 26 December
2008
£m
2010
£m
302.3
(11.1)
(43.6)
247.6
214.4
(6.5)
(49.0)
158.9
(0.1)
(1.4)
(40.6)
1.5
2.5
5.9
(32.2)
-
(1.4) -
50.5
(187.3)
(16.5)
(18.7)
(39.2)
(212.6)
2.8
-
-
53.6
(0.7)
55.7
(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
62 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Consolidated
Statement of Changes in Equity
for the 53 weeks ended 1 January 2010
Share
capital
£m
Share
premium
£m
Treasury
shares
£m
Capital
redemption
reserve
£m
Foreign
currency
translation
reserve
£m
Hedge
accounting
reserve
£m
Attributable
to equity
Retained holders of the
Company
earnings
£m
£m
Non-
controlling
interest
£m
At 28 December 2007 (as previously
reported - note 2)
Impact of restatement (note 2)
At 28 December 2007 (as restated - note 2)
26.5
-
26.5
37.7
-
37.7
(9.3)
-
(9.3)
0.5
-
0.5
Profit for the period
Losses taken to equity on cash flow hedges
Exchange gains on translation of
foreign operations
Exchange losses on net investment hedges
Actuarial losses on defined benefit plans
Reclassification adjustments taken to the
income statement
- on cash flow hedges
- exchange differences on disposal of foreign
operations - discontinued operations
Tax relating to other comprehensive income
Total net comprehensive income
for the period
Acquisition of non-controlling interest
Cost of share-based payments net of tax
Dividends
Exercise of options & LTIP awards
At 26 December 2008 (as restated - note 2)
At 26 December 2008 (as previously
reported - note 2)
Impact of restatement (note 2)
At 26 December 2008 (as restated - note 2)
Profit for the period
Losses taken to equity on cash flow hedges
Exchange losses on translation of
foreign operations
Exchange gains on net investment hedges
Actuarial losses on defined benefit plans
Reclassification adjustments taken to the
income statement on cash flow hedges
Tax relating to other comprehensive income
Total net comprehensive income
for the period
-
-
-
-
-
-
-
-
-
-
-
-
0.1
26.6
26.6
-
26.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.3
38.0
38.0
-
38.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.4
(7.9)
(7.9)
-
(7.9)
-
-
-
-
-
-
-
-
Cost of share-based payments net of tax
Dividends
Exercise of LTIP awards
At 1 January 2010
-
-
-
26.6
-
-
-
38.0
-
-
-
(7.9)
-
-
-
-
-
-
-
-
-
-
-
-
-
0.5
0.5
-
0.5
-
-
-
-
-
-
-
-
-
-
-
0.5
0.2
-
0.2
-
-
204.3
(127.2)
-
3.5
-
3.5
-
(11.1)
-
-
-
485.6
(5.8)
479.8
170.8
-
-
-
(62.0)
544.7
(5.8)
538.9
170.8
(11.1)
204.3
(127.2)
(62.0)
-
(5.5)
-
(5.5)
(0.4)
-
-
4.8
-
17.6
(0.4)
22.4
76.7
(11.8)
126.4
191.3
-
-
-
-
76.9
76.9
-
76.9
-
-
(51.2)
38.3
-
-
-
-
-
(8.3)
(8.3)
-
(8.3)
-
(0.5)
-
-
-
-
-
12.9
(3.5)
(12.9)
-
-
-
64.0
8.9
-
-
-
0.6
-
1.8
(35.7)
(1.4)
570.9
581.8
(10.9)
570.9
128.8
-
-
-
(57.7)
-
16.2
87.3
2.8
(39.2)
(1.4)
620.4
-
1.8
(35.7)
0.4
696.7
707.6
(10.9)
696.7
128.8
(0.5)
(51.2)
38.3
(57.7)
12.9
12.7
83.3
2.8
(39.2)
(1.4)
742.2
0.5
-
0.5
-
-
-
-
-
-
-
-
-
(0.3)
-
-
-
0.2
0.2
-
0.2
-
-
-
-
-
-
-
-
-
-
-
0.2
Total
equity
£m
545.2
(5.8)
539.4
170.8
(11.1)
204.3
(127.2)
(62.0)
(5.5)
(0.4)
22.4
191.3
(0.3)
1.8
(35.7)
0.4
696.9
707.8
(10.9)
696.9
128.8
(0.5)
(51.2)
38.3
(57.7)
12.9
12.7
83.3
2.8
(39.2)
(1.4)
742.4
Notes to the
Group Financial Statements
63
1. Authorisation of financial statements & statement of compliance
The consolidated financial statements of The Weir Group PLC (the “Company”) and its subsidiaries (together, the “Group”) for the 53 weeks ended 1 January 2010 (“2009”)
were approved and authorised for issue in accordance with a resolution of the directors on 9 March 2010. The comparative information is presented for the 52 weeks ended
26 December 2008 (“2008”). In addition, certain comparative information is presented for the 52 weeks ended 28 December 2007 (“2007”) as detailed below. 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 2006.
The principal activities of the Group are described in note 3.
2. Accounting policies
Basis of preparation
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 intangibles 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 & intangibles amortisation” is provided in note 5 to the financial statements.
While updating the valuation of the Group’s retirement benefit plans for the purposes of the Group’s 2009 interim condensed financial statements, the qualified actuary who
advises the Company identified an error in their model used to calculate the actuarial valuation of the Group’s UK retirement benefit plans for the periods ended 28 December
2007 and 26 December 2008.
The impact of this was to understate the retirement benefit plan deficits on a cumulative basis by £8.1m at 28 December 2007 and £15.2m at 26 December 2008. There was
also a corresponding overstatement of net deferred tax liabilities of £2.3m and £4.3m at those respective period ends.
The impact on the Consolidated Statement of Comprehensive Income was to increase actuarial losses on defined benefit plans by £7.1m and to decrease tax on items taken
directly to equity by £2.0m in the 52 weeks ended 26 December 2008.
There was no material impact on the Consolidated Income Statement. The net impact was to overstate Group net assets by £5.8m and £10.9m at 28 December 2007
and 26 December 2008 respectively. All affected balances and amounts have been restated in these financial statements. To this effect, the Consolidated Statement of
Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity and affected notes present restated comparative information for the 52
weeks ended 26 December 2008. In addition, as required by IAS1, the Consolidated Balance Sheet and affected notes also present restated comparative information for the
52 weeks ended 28 December 2007.
The accounting policies which follow are consistent with those of the previous periods except as described below.
IFRS7 (Amendment) Financial Instruments: Disclosures: Improving Disclosure about Financial Instruments: The amended standard requires additional disclosures about fair
value measurement in the form of a three level fair value hierarchy, by class, for all financial instruments recognised at fair value. The amendments also clarify the requirements
for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. As permitted by the amended standard, comparative information
for the disclosures required by the amendments has not been provided in this first year of implementation. The amended disclosures are presented in note 30.
IFRS8 Operating Segments: In adopting IFRS8 the Group concluded that the operating segments were the same as the business segments determined under IAS14
“Segment Reporting”. Details of these operating segments are disclosed in note 3, including the new disclosure requirements of IFRS8 and the related revised
comparative information.
IAS1 (revised) Presentation of Financial Statements: The adoption of IAS1 (revised) has required the reconciliation of movements in equity, previously disclosed in note 25 to
the Group’s 2008 annual report, to be presented as a primary statement entitled, “Consolidated Statement of Changes in Equity”. In addition the Consolidated Statement
of Recognised Income & Expense has been replaced with the Consolidated Statement of Comprehensive Income. In addition to some presentational changes this
has resulted in a tax charge of £1.0m in relation to the cost of share-based payments for the 52 weeks ended 26 December 2008 being reclassified from the former
Consolidated Statement of Recognised Income & Expense to the Consolidated Statement of Changes in Equity.
IAS23 (revised) Borrowing Costs: In adopting IAS23 (revised) the Group has amended its accounting policy and, from 1 January 2009, now capitalises borrowing costs
on qualifying assets. The implementation of this policy has had no material impact on the Group’s financial statements.
64 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
2. Accounting policies (continued)
In addition to the above, the following standards and interpretations have been adopted in these financial statements and have not had a material impact on the Group’s
financial statements in the period of initial application.
IFRS2 (Amendment) Share-based Payment: Vesting Conditions and Cancellations
IAS32 (Amendment) Financial Instruments: Presentation: Puttable Financial Instruments and Obligations Arising on Liquidation
IFRIC13 Customer Loyalty Programmes
IFRIC14 IAS19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
Improvements to IFRS
In May 2008, the International Accounting Standards Board issued an omnibus of amendments to its standards, primarily with a view to removing inconsistencies and
to clarify wording. There are separate transitional provisions for each standard. The adoption of the amendments did not have any impact on the financial position or
performance of the Group. Some of the key amendments and their impact are detailed below.
IFRS8 Operating Segments: clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the
chief operating decision maker. On the basis that the chief operating decision maker reviews segment assets and liabilities the Group discloses this information in note 3.
IAS7 Statement of Cash Flows: explicitly states that only expenditure that results in recognising an asset can be classified as a cash flow from investing activities.
This amendment will impact the presentation in the cash flow statement of the contingent consideration upon cash settlement in relation to the acquisition of Weir SOS
which was completed in 2008 (note 13).
IAS36 Impairment of Assets: when discounted cash flows are used to estimate “fair value less costs to sell” additional disclosure is required about the discount rate,
consistent with disclosures required when the discounted cash flows are used to estimate “value in use”. This amendment has no impact on the Group because the
recoverable amount of its cash generating units is estimated using “value in use”. The amendment also clarified that the largest unit permitted for allocating goodwill
acquired in a business combination is the operating segment as defined in IFRS8 before aggregation for reporting purposes. This amendment has no impact on the Group
as the annual impairment test is performed before aggregation.
The Group has also adopted the following standards which have been issued with an effective date after the date of these financial statements.
IAS27 (Amendment) Consolidated and Separate Financial Statements: The adoption of this standard has resulted in the separate disclosure of each item of other
comprehensive income in the Consolidated Statement of Changes in Equity. In addition, minority interests are now referred to as “non-controlling interests”.
IFRS3 (revised) Business Combinations: IFRS3 (revised) is applied to business combinations arising from 27 December 2008. This requires recognition of subsequent
changes in the fair value of contingent consideration in the income statement rather than against goodwill. In addition, transaction costs are required to be recognised
immediately in the income statement. As there have been no business combinations in the 53 weeks ended 1 January 2010 the adoption of this standard has had no
impact on the Group’s financial statements in the period of initial application.
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 in the Financial review on page 27.
Basis of consolidation
The consolidated financial statements include the results, cash flows and assets and liabilities of The Weir Group PLC and its subsidiaries, 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.
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries that are not held by the Group and are presented within equity in the
Consolidated Balance Sheet, separately from the Company shareholders equity.
65
2. Accounting policies (continued)
Joint ventures
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.
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 Consolidated Statement of Comprehensive Income.
Any goodwill arising on the acquisition of a joint venture, representing the excess of the cost of the investment compared to the Group’s share of the net fair value of the joint
venture’s identifiable assets, liabilities and contingent liabilities, is included in the carrying amount of the joint venture and is not amortised. To the extent that the net fair value
of the joint venture’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’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 and joint ventures 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 recognised in other comprehensive income 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 Consolidated 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 Consolidated 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. Cost includes borrowing costs for qualifying assets
for which the commencement date for capitalisation is on or after 1 January 2009. Prior to this date, the Group recognised all borrowing costs as an expense immediately.
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
66 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
2. Accounting policies (continued)
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.
Goodwill
Business combinations are accounted for using the acquisition 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. Acquisition costs are expensed in the period in which they are incurred.
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.
67
2. Accounting policies (continued)
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.
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 and 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 & hedge accounting
The Group uses derivative financial instruments, principally forward foreign currency contracts and cross currency swaps, to reduce its exposure to exchange rate
movements. The Group also uses foreign currency borrowings as a hedge of its exposure to foreign exchange risk on its investments in foreign subsidiaries. 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 as the present value of the estimated future cash flows based on spot and forward foreign exchange rates. The fair value of interest rate swaps and
cross currency swaps is calculated as the present value of the estimated future cash flows based on interest rate curves and spot foreign exchange rates. 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 that the hedge is effective, changes in the fair value of the
hedging instrument will be recognised directly in other comprehensive income rather than in the income statement. When the hedged item is recognised in the financial
statements, the accumulated gains and losses recognised in other comprehensive income 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.
68 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
2. Accounting policies (continued)
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 other comprehensive income is kept in other comprehensive income until the forecasted transaction occurs. If a
hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is transferred to net profit or loss for the period.
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 Long Term Incentive Plan (“LTIP”). The Group recognises a compensation cost in respect
of this plan that is based on the fair value of the awards. 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 and the Group 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 total comprehensive income 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 comprehensive income 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 costs represent the Group’s contributions to the plans and these are charged to the income statement in the period in which they fall due.
Leases
Leases which transfer to the Group substantially all of 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:
i) 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;
ii) Deferred tax is provided on temporary differences arising on investments in subsidiaries and joint ventures, 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;
iii) 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.
69
2. Accounting policies (continued)
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 International Accounting Standards Board and International Financial Reporting Interpretations Committee have issued the following standards and interpretations,
which are considered relevant to the Group, with an effective date after the date of these financial statements.
International Accounting Standards (IAS/IFRS)
IAS24
IAS32
IAS39
IFRS2
IFRS9
Improvements to IFRS (issued 16 April 2009)*
Related Party Disclosures (Revised)*
Classification of Rights Issues (Amendment to IAS32 Financial Instruments: Presentation)
Eligible Hedged Items (Amendment to IAS39 Financial Instruments: Recognition and Measurement)
Group Cash-settled Share-based Payment Transactions (Amendments to IFRS2 Share-based Payment)*
Financial Instruments*
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC14
IFRIC16
IFRIC18
IFRIC19
Amendment to IFRIC14 Prepayments of a Minimum Funding Requirement*
Hedges of a Net Investment in a Foreign Operation
Transfers of Assets from Customers*
Extinguishing Financial Liabilities with Equity Instruments*
*not yet adopted for use in the European Union
Effective date for
periods commencing
1 July 2009
1 January 2011
1 February 2010
1 July 2009
1 January 2010
1 January 2013
1 January 2011
30 June 2009
1 July 2009
1 July 2010
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.
3. Segment information
For management purposes the Group is organised into three operating divisions: Minerals, Oil & Gas and Power & Industrial. These three divisions are organised and
managed separately based on the key markets served and each is treated as an operating segment and a reportable segment in accordance with IFRS8. The operating
and reportable segments were determined based on the reports reviewed by the Group Executive which are used to make operational decisions.
The Minerals segment designs and manufactures pumps, hydrocyclones, valves and other complementary equipment for the mining, flue gas desulphurisation and oil
sands markets. The Oil & Gas segment manufactures pumps and ancillary equipment and provides aftermarket support for the global upstream and downstream oil and
gas markets. The Power & Industrial segment designs, manufactures and provides aftermarket support for rotating and flow control equipment to the global power
generation and industrial sectors.
All other segments, which are disclosed as Group companies, include the results of Liquid Gas Equipment which supplies equipment to the liquefied petroleum gas marine
and onshore markets. In 2008, it also included the results of the Canadian distribution business and the Materials and Foundries businesses up to the dates of disposal on
29 August, 2 and 3 October 2008 respectively. None of the businesses disposed of were of a sufficient size to meet the definition of a discontinued operation under IFRS5.
The Group Executive assesses the performance of the operating segments based on operating profit from continuing operations before exceptional items and intangibles
amortisation, including impairment (“segment result”). Finance income and expenditure and associated interest-bearing liabilities and derivative financial instruments are
not allocated to segments as all treasury activity is managed centrally by the Group treasury function. The amounts provided to the Group Executive with respect to assets
and liabilities are measured in a manner consistent with that of the financial statements. The assets are allocated based on the operations of the segment and the physical
location of the asset. The liabilities are allocated based on the operations of the segment.
Transfer prices between business segments are set on an arm’s length basis in a manner similar to transactions with third parties.
70 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
3. Segment information (continued)
The segment information provided to the Group Executive for the reportable segments for the 53 weeks ended 1 January 2010 and the 52 weeks ended 26 December 2008
is disclosed below.
Minerals
Oil & Gas
Power & Industrial
Total continuing
operations
2009
£m
2008
£m
2009
£m
2008
£m
2009
£m
2008
£m
2009
£m
2008
£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 disposals*
Group companies inter-segment sales
Eliminations
Sales to external customers - at 2009 average exchange rates
- existing operations
- acquisitions*
Sales to external customers
Group companies sales to external customers
- ongoing operations
- other disposals*
Result
Segment result
- existing operations
- acquisitions*
Share of results of joint ventures
Segment result
Group companies
- ongoing operations
- other disposals*
Unallocated expenses
Operating profit before exceptional items & intangibles amortisation
Exceptional items & intangibles amortisation
Net finance costs
Other finance (costs) income - retirement benefits
Profit before tax from continuing operations
Segment result - at 2009 average exchange rates
- existing operations
- acquisitions*
Share of results of joint ventures
Segment result
Group companies
- ongoing operations
- other disposals*
Unallocated expenses
734.5
78.8
813.3
2.3
815.6
697.2
45.2
742.4
2.5
744.9
287.1
11.9
299.0
5.6
304.6
271.7
8.2
279.9
0.7
280.6
242.0
-
242.0
2.8
244.8
222.8
-
222.8
7.4
230.2
734.5
78.8
813.3
772.8
52.6
825.4
287.1
11.9
299.0
313.1
9.7
322.8
242.0
-
242.0
240.1
-
240.1
118.6
15.0
133.6
-
133.6
107.1
7.4
114.5
-
114.5
44.8
2.6
47.4
4.6
52.0
55.1
1.5
56.6
4.4
61.0
23.0
-
23.0
-
23.0
18.0
-
18.0
-
18.0
118.6
15.0
133.6
-
133.6
121.0
9.4
130.4
-
130.4
44.8
2.6
47.4
4.6
52.0
65.6
2.0
67.6
5.2
72.8
23.0
-
23.0
-
23.0
19.9
-
19.9
-
19.9
1,263.6
90.7
1,354.3
10.7
1,365.0
35.9
-
-
(10.7)
1,390.2
1,263.6
90.7
1,354.3
35.9
-
1,390.2
186.4
17.6
204.0
4.6
208.6
4.9
1.9
(10.7)
204.7
(16.6)
(16.2)
(1.5)
170.4
186.4
17.6
204.0
4.6
208.6
4.9
1.9
(10.7)
204.7
1,191.7
53.4
1,245.1
10.6
1,255.7
74.4
34.1
2.6
(13.2)
1,353.6
1,326.0
62.3
1,388.3
74.4
36.0
1,498.7
180.2
8.9
189.1
4.4
193.5
4.6
(2.6)
(10.5)
185.0
(16.7)
(10.6)
1.8
159.5
206.5
11.4
217.9
5.2
223.1
4.6
(2.6)
(10.7)
214.4
* Acquisitions include Weir Warman, Weir Mesa and Weir SOS. The results of Weir SPM are no longer included within “acquisitions” as Weir SPM was part of the Group
for the whole of 2008. Other disposals include the Materials and Foundries businesses and the Canadian distribution business for 2008.
There are no material revenues derived from a single external customer.
71
3. Segment information (continued)
Assets & liabilities
Property, plant & equipment
Working capital assets
Investments in joint ventures
Segment assets
Group companies assets
Unallocated assets
Total assets
Working capital liabilities
Group companies liabilities
Unallocated liabilities
Total liabilities
Other segment information
Segment additions to non-current assets
Group companies additions to non-current assets
Unallocated additions to non-current assets
Total additions to non-current assets
Segment depreciation & amortisation
Group companies depreciation & amortisation
Unallocated depreciation & amortisation
Total depreciation & amortisation
Segment impairment
Total impairment
Segment warranty expense (income) (net)
Group companies warranty expense (net)
Total warranty expense (net)
Minerals
Oil & Gas
Power & Industrial
Total continuing
operations
2009
£m
2008
£m
2009
£m
2008
£m
2009
£m
2008
£m
2009
£m
2008
£m
129.5
276.6
406.1
-
406.1
111.9
313.9
425.8
-
425.8
33.9
146.7
180.6
9.7
190.3
37.3
170.1
207.4
10.3
217.7
35.7
74.1
109.8
-
109.8
40.0
117.3
157.3
-
157.3
174.1
192.5
80.4
79.9
53.1
62.4
29.7
32.2
7.1
10.1
3.7
10.2
19.2
15.0
18.8
15.9
6.3
5.5
1.0
5.1
-
-
- -
5.8
6.4
0.7
(0.1)
1.5
0.8
199.1
497.4
696.5
9.7
706.2
4.3
841.0
1,551.5
307.6
22.5
479.0
809.1
189.2
601.3
790.5
10.3
800.8
11.2
945.4
1,757.4
334.8
38.4
687.3
1,060.5
40.5
-
0.1
40.6
44.3
-
0.5
44.8
1.0
1.0
8.0
1.0
9.0
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
Unallocated assets primarily comprise intangible assets, cash and short-term deposits, derivative financial instruments, income tax receivable and deferred tax assets as
well as those assets which are used for general head office purposes. Unallocated liabilities primarily comprise interest-bearing loans and borrowings, derivative financial
instruments, income tax payable, provisions, deferred tax liabilities and retirement benefit deficits as well as liabilities relating to general head office activities. Segment
additions to non-current assets do not include those additions which have arisen from business combinations (note 13).
72 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
3. Segment information (continued)
Geographical information
The geographical information in respect of revenue and non-current assets for the 53 weeks ended 1 January 2010 and the 52 weeks ended 26 December 2008 is disclosed
below. Revenues are allocated based on the location to which the product is shipped. Assets are allocated based on the location of the assets and operations. Non-current
assets consist of property, plant and equipment, investment property, intangible assets and investments in joint ventures. There are no material revenues from external
customers or non-current assets attributable to an individual foreign country included within the categories shown below.
53 weeks ended 1 January 2010
Revenue
Sales to external customers
Revenue from continuing operations
UK
£m
North
America
£m
Canada
£m
Europe
& FSU
£m
Asia Australasia
£m
£m
South Middle East
& Africa
£m
America
£m
Total
£m
98.3
98.3
283.7
283.7
119.8
119.8
163.4
163.4
206.7
206.7
126.2
126.2
172.3
172.3
219.8
219.8
1,390.2
1,390.2
Non-current assets
99.3
433.8
13.9
133.0
6.0
132.4
37.3
97.5
953.2
52 weeks ended 26 December 2008
UK
£m
North
America
£m
Canada
£m
Europe
& FSU
£m
Asia
£m
Australasia
£m
South Middle East
& Africa
£m
America
£m
Total
£m
Revenue
Sales to external customers
Less sales attributable to discontinued operations
Revenue from continuing operations
120.8
(10.5)
110.3
299.8
(2.2)
297.6
136.1
-
136.1
141.3
(2.5)
138.8
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
Non-current assets
100.9
490.1
13.5
145.6
6.6
113.4
27.6
98.5
996.2
4. Revenues & expenses
The following disclosures are given in relation to continuing operations.
An analysis of the Group’s revenue is as follows
Original equipment
Aftermarket parts
Sales of goods
Aftermarket services
Revenue from construction contracts
Revenue
Finance income
Total revenue
No revenue was derived from exchanges of goods or services (2008: £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
2009
£m
2008
£m
588.3
489.5
1,077.8
256.1
56.3
1,390.2
2.5
1,392.7
583.7
450.5
1,034.2
229.7
89.7
1,353.6
6.6
1,360.2
2009
£m
2008
£m
1,390.2
(935.0)
455.2
3.4
(145.8)
(129.3)
4.6
188.1
1,353.6
(930.1)
423.5
2.5
(136.1)
(126.0)
4.4
168.3
4. Revenues & expenses (continued)
Operating profit is stated after charging
Cost of inventories recognised as an expense
Depreciation of property, plant & equipment & investment property
Amortisation of intangible assets
Impairment of intangible assets (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 period 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 & 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
Transaction support services
Fees payable in respect of the Group’s pension schemes
Audit
Research & development costs
Research & development costs consist of £9.7m (2008: £9.8m) charged directly to cost of sales in the income statement.
Operating leases
Minimum lease payments under operating leases recognised as an expense in the period were £16.8m (2008: £13.3m).
Employee benefits expense
Wages & salaries
Social security costs
Pension costs
Defined benefit plans
Defined benefit plans curtailment (gain) loss
Defined benefit plans settlement gains
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
Minerals
Oil & Gas
Power & Industrial
Group companies
Discontinued operations
73
2009
£m
2008
£m
935.0
28.2
16.6
-
1.0
1.8
4.6
2.6
930.1
22.8
14.4
2.3
2.8
0.3
5.4
2.6
2009
£m
2008
£m
0.3
0.8
-
0.1
0.3
0.9
0.2
0.1
2009
£m
2008
£m
285.3
32.3
270.8
31.4
1.3
(1.5)
(2.2) -
10.3
1.6
327.1
2.5
2.4
8.1
2.8
318.0
2009
Number
2008
Number
5,230
1,601
1,870
104
-
8,805
5,320
1,561
1,973
344
172
9,370
74 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
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)
6. Finance (costs) income
Finance costs
Interest payable on bank loans & overdrafts
Losses transferred from equity in respect of interest rate swaps
Ineffective portion of interest rate swaps transferred from equity
Losses on financial assets & liabilities at fair value through profit & loss
Finance charges payable under finance leases
Finance charges related to committed loan facilities
Finance income
Interest receivable on financial assets
Gains on financial assets & liabilities at fair value through profit & loss
2009
£m
2008
£m
(16.6)
-
(16.6)
-
-
-
2009
£m
(4.2)
(4.3)
(3.7) -
(5.1)
(0.1)
(1.3)
(18.7)
2009
£m
0.9
1.6
2.5
(14.4)
(2.3)
(16.7)
55.1
(0.1)
55.0
2008
£m
(14.6)
(0.5)
(1.1)
(0.1)
(0.9)
(17.2)
2008
£m
1.4
5.2
6.6
7. Tax expense
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 & reversal of temporary differences
- continuing operations
- discontinued operations
Adjustment to estimated recoverable deferred tax assets
Effect of changes in tax rates
Total deferred tax*
75
2009
£m
2008
£m
2007
£m
(10.3)
-
0.7
(9.6)
(38.1)
-
5.0
(42.7)
(6.9)
-
2.8
-
(4.1)
(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
(46.8)
(49.3)
(32.3)
* Includes £4.2m of deferred tax charge relating to foreign tax (2008: a credit of £10.0m; 2007: a charge of £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
2009
£m
(52.2)
5.4
-
(46.8)
2008
£m
(51.8)
5.3
(2.8)
(49.3)
2007
£m
(32.1)
2.0
(2.2)
(32.3)
Current tax for 2009 has been reduced by £2.8m (2008: £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.
76 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
7. Tax expense (continued)
Tax relating to items charged or credited to equity
Consolidated Statement of Comprehensive Income
Current tax on contributions in excess of costs through the income statement
Deferred tax - origination & reversal of temporary differences
Tax credit (charge) on actuarial losses / gains on retirement benefits
Deferred tax (charge) credit on hedge gains / losses
Effect of changes in tax rates
Tax credit (charge) in the Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Deferred tax on share-based payments
Current tax on share-based payments
Tax credit (charge) in the Consolidated Statement of Changes in Equity
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
2.6
15.0
17.6
4.8
-
22.4
-
(5.7)
(5.7)
-
0.1
(5.6)
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
(1.2)
0.2
(1.0)
0.4
0.5
0.9
2009
£m
3.8
12.4
16.2
(3.5)
-
12.7
2009
£m
0.7
0.5
1.2
Reconciliation of the total tax charge
The tax expense in the Consolidated Income Statement for the period is less than the weighted average of standard rates of corporation tax across the Group of 29.3%
(2008: 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 29.3% (2008: 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 26.7% (2008: 22.4%; 2007: 15.6%)
2009
£m
170.4
5.2
175.6
51.5
(5.7)
7.8
-
(0.7)
(2.8)
4.2
-
(6.0)
(1.5)
46.8
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
77
8. Discontinued operations
During the 53 weeks ended 1 January 2010 there were no disposals of businesses which were of a sufficient size to meet the definition of a discontinued operation
under IFRS5.
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, were recycled to the income statement as part of the gain on sale in accordance with IAS21.
In 2009, following the expiry of certain warranty periods, an unutilised amount of £5.2m has been released to the income statement.
In 2008, profits recognised in respect of prior periods disposals related to the negotiated settlement of claims.
The revenue, results and cash flows relating to discontinued operations are shown below.
Sale of goods
Aftermarket services
Revenue from construction contracts
Revenue
Cost of sales
Selling & distribution costs
Administrative expenses
Operating profit
Income tax
Profit after tax
Profits recognised in respect of prior periods disposals (after tax)
Profit for the period from discontinued operations*
Net gain on current period disposals - exceptional items (before tax)
Taxation
Net gain on current period disposals - exceptional items (after tax)
Profit for the period from discontinued operations
* Including intangibles amortisation net of tax of £nil (2008: £0.1m)
Operating profit is stated after charging (crediting)
Cost of inventories recognised as an expense
Depreciation & amortisation
Net foreign exchange gains
The income tax is analysed as follows
On profit on ordinary activities
In respect of prior periods disposals
The cash inflow from current period disposals was as follows
Consideration
Costs associated with the disposals
Net cash inflow
Capital expenditure
2009
£m
-
-
-
-
-
-
-
-
-
-
5.2
5.2
-
-
-
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
5.2
57.8
-
-
-
-
-
-
-
-
-
12.9
0.4
(0.4)
(0.4)
(2.4)
63.7
(3.1)
60.6
0.3
78 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
8. Discontinued operations (continued)
Earnings per share from discontinued operations were as follows.
Basic
Diluted
2009
pence
2.5p
2.5p
2008
pence
27.6p
27.3p
These earnings per share figures were derived by dividing the net profit attributable to equity holders of the Company from discontinued operations of £5.2m (2008: £57.8m)
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
Intangible assets
Inventories
Trade & other receivables
Construction contracts assets
Trade & other payables
Construction contracts liabilities
Derivative financial instruments
Provisions
Current tax
Deferred tax
9. Earnings per share
2009
£m
-
-
-
-
-
-
-
-
-
-
-
-
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)
Basic earnings per share amounts are calculated by dividing net profit for the period attributable to equity holders of the Company by the weighted average number of
ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by dividing the net profit attributable to equity holders of the Company
by the weighted average number of ordinary shares outstanding during the period (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 (£m)
Continuing operations (£m)
Continuing operations before exceptional items & intangibles amortisation (£m)
Weighted average share capital (number of shares, million)
Diluted earnings per share
Profit attributable to equity holders of the Company
Total operations (£m)
Continuing operations (£m)
Continuing operations before exceptional items & intangibles amortisation (£m)
Weighted average share capital (number of shares, million)
2009
2008
128.8
123.6
134.8
170.8
113.0
124.4
210.3
209.9
128.8
123.6
134.8
170.8
113.0
124.4
212.0
211.0
79
9. Earnings per share (continued)
The difference between the weighted average share capital for the purposes of the basic and the 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
2009
Shares
Million
210.3
-
1.7
-
212.0
2008
Shares
Million
209.9
0.1
0.6
0.4
211.0
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 equity holders from continuing operations
Exceptional items & intangibles amortisation net of tax
Net profit attributable to equity holders from continuing operations before exceptional items & intangibles amortisation
There have been no share options (2008: nil) exercised between the reporting date and the date of signing of these financial statements.
10. Dividends paid & proposed
Declared & paid during the period
Equity dividends on ordinary shares
Final dividend for 2008: 13.85p (2007: 12.35p)
Interim dividend for 2009: 4.80p (2008: 4.65p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2009: 16.20p (2008: 13.85p)
2009
£m
123.6
11.2
134.8
2008
£m
113.0
11.4
124.4
2009
£m
2008
£m
29.1
10.1
39.2
25.9
9.8
35.7
34.1
29.1
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.
80 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
11. Property, plant & equipment & investment property
Cost
At 28 December 2007
Additions
Acquisitions
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Additions
Disposals
Reclassifications to intangible assets
Exchange adjustment
At 1 January 2010
Accumulated depreciation & impairment
At 28 December 2007
Depreciation charge for the period
Impairment
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Depreciation charge for the period
Impairment
Disposals
Reclassifications to intangible assets
Exchange adjustment
At 1 January 2010
Net book value at 28 December 2007
Net book value at 26 December 2008
Net book value at 1 January 2010
Land &
buildings
£m
Plant &
equipment
£m
Total
property,
plant &
equipment
£m
Investment
property
£m
65.5
9.5
3.7
(2.1)
(4.8)
14.6
86.4
2.8
(0.7)
(1.1)
(0.2)
87.2
17.8
3.0
-
(1.1)
(1.5)
4.6
22.8
2.5
-
(0.1)
(0.1)
(0.6)
24.5
185.2
42.0
5.7
(16.3)
(9.6)
33.1
240.1
35.2
(9.7)
(2.2)
4.9
268.3
96.6
19.8
2.8
(12.5)
(7.8)
15.2
114.1
25.4
1.0
(8.2)
(2.2)
1.5
131.6
250.7
51.5
9.4
(18.4)
(14.4)
47.7
326.5
38.0
(10.4)
(3.3)
4.7
355.5
114.4
22.8
2.8
(13.6)
(9.3)
19.8
136.9
27.9
1.0
(8.3)
(2.3)
0.9
156.1
47.7
88.6
136.3
63.6
126.0
189.6
62.7
136.7
199.4
11.8
-
-
-
-
-
11.8
-
-
-
-
11.8
7.0
0.3
-
-
-
-
7.3
0.3
-
-
-
-
7.6
4.8
4.5
4.2
The carrying value of buildings held under finance leases is £1.7m (2008: £2.0m). The carrying value of plant and equipment held under finance leases is £0.3m
(2008: £0.4m). Leased assets are pledged as security for the related finance lease liabilities.
The carrying amount of assets under construction included in plant and equipment is £6.3m (2008: £6.9m).
Following the disposal of the Glasgow-based pump manufacturing operation 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. The rental income included in the income statement amounts to £1.8m (2008: £1.0m). A three year lease
was entered with Clyde Union Ltd effective from 1 April 2009. This lease provides £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 £1.0m (2008: £2.8m) 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.
12. Intangible assets
Cost
At 28 December 2007
Additions
Acquisitions
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Additions
Disposals
Reclassifications from property, plant & equipment
Exchange adjustment
At 1 January 2010
Accumulated amortisation & impairment
At 28 December 2007
Amortisation charge for the period
Impairment
Disposals
Discontinued operations
Exchange adjustment
At 26 December 2008
Amortisation charge for the period
Disposals
Reclassifications from property, plant & equipment
Exchange adjustment
At 1 January 2010
81
Goodwill
£m
Customer
Brand
names relationships
£m
£m
Purchased
software
£m
Intellectual
property &
trade marks
£m
Other
£m
Total
£m
348.6
-
54.6
-
-
109.0
512.2
-
(2.9)
-
(15.2)
494.1
-
-
-
-
-
-
-
-
-
-
-
-
30.8
-
42.1
-
-
25.4
98.3
-
-
-
(8.1)
90.2
-
-
-
-
-
-
-
-
-
-
-
-
103.4
-
18.3
-
-
41.6
163.3
-
-
-
(12.8)
150.5
3.1
6.0
-
-
-
2.3
11.4
9.9
-
-
(0.8)
20.5
15.4
2.4
0.5
(0.3)
(3.6)
2.3
16.7
2.0
(0.9)
3.3
1.2
22.3
8.6
2.1
-
(0.3)
(2.7)
1.6
9.3
2.8
(0.6)
2.3
1.0
14.8
6.8
7.4
7.5
14.3
0.2
3.1
-
-
5.5
23.1
1.1
-
-
(1.7)
22.5
1.1
1.6
2.3
-
-
0.9
5.9
2.2
-
-
(0.4)
7.7
5.2
-
5.0
-
-
3.0
13.2
-
-
-
(0.5)
12.7
1.7
4.8
-
-
-
1.9
8.4
1.7
-
-
(0.7)
9.4
517.7
2.6
123.6
(0.3)
(3.6)
186.8
826.8
3.1
(3.8)
3.3
(37.1)
792.3
14.5
14.5
2.3
(0.3)
(2.7)
6.7
35.0
16.6
(0.6)
2.3
(0.9)
52.4
13.2
3.5
503.2
17.2
4.8
791.8
14.8
3.3
739.9
Net book value at 28 December 2007
348.6
30.8
100.3
Net book value at 26 December 2008
512.2
98.3
151.9
Net book value at 1 January 2010
494.1
90.2
130.0
The impairment charge in 2008 of £2.3m 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 carrying value of £90.2m is tested annually for impairment (note 14). The brand
name value comprises the brands of Weir Warman, Weir SPM, Weir Gabbioneta, Weir Mesa and Weir Multiflo, 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 market and is considered to be a market leader. Weir SPM and Weir Gabbioneta brands
both have long histories in the oil and gas markets where they are both considered to be market leaders.
82 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
12. Intangible assets (continued)
The allocation of customer relationships and the remaining amortisation period of these assets is as follows.
Weir SPM
Weir Gabbioneta
Weir Warman
Other
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 & impairment charge for the period
Remaining amortisation
period
Customer
relationships
2009
Years
2008
Years
22
21
8
Up to 6
23
22
9
Up to 9
2009
£m
96.4
16.4
10.3
6.9
130.0
2009
£m
1.9
0.3
14.4
-
16.6
-
16.6
2008
£m
111.6
18.6
10.7
11.0
151.9
2008
£m
0.7
0.2
13.5
0.1
14.5
2.3
16.8
83
13. Business combinations
There were no business combinations during the 53 weeks ended 1 January 2010.
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 family 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% within the next three years. The total cash consideration payable was £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
non-controlling interest.
The fair values of the identifiable assets and liabilities at the relevant dates of acquisition are as follows.
2008
2008
Carrying Recognised
values on acquisition
2008
2008
2008
Carrying Recognised Recognised
values on acquisition on acquisition
Total
£m
£m
Weir Mesa Weir Warman Weir Warman
£m
£m
2008
2008
Carrying Recognised
values on acquisition
Weir SOS
£m
Weir SOS
£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)
Weir Mesa
£m
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
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.
From the date of 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 of goodwill recognised above 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.
84 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
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 amounts allocated as “Other” are not considered significant in comparison to their respective total carrying amounts.
Weir SPM
Warman companies
Weir Gabbioneta
Weir Warman
Other
Year
acquired
2009
Goodwill
£m
2009
Intangibles*
£m
2008
Goodwill
£m
2008
Intangibles*
£m
2007
1999
2005
2008
various
220.0
116.5
63.9
55.8
37.9
494.1
28.5
-
6.0
51.4
4.3
90.2
242.5
102.9
69.1
55.7
42.0
512.2
31.5
-
6.6
56.7
3.5
98.3
* Intangible assets with indefinite lives (brand names)
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
14.2% (2008: 13.4%)
1.2% (2008: 1.2%)
Warman companies
Value in use
5 Years
15.2% (2008: 14.6%)
1.2% (2008: 1.2%)
Weir Gabbioneta
Value in use
5 Years
12.9% (2008: 14.6%)
1.2% (2008: 1.2%)
Weir Warman
Value in use
5 years
19.3% (2008: 17.8%)
4.0% (2008: 4.0%)
Revenue growth4
EBIT margins3
External forecast
Historic experience
Revenue growth5
EBIT margins3
External forecast
Historic experience
Revenue growth6
EBIT margins3
External forecast
Historic experience
Revenue growth7
EBIT margins3
External forecast
Historic experience
1 Discount rate
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. In the main there has been an increase in the WACC relative to 2008 largely due
to an increase in government bond yields partially offset by a reduction in lending margins that banks place on borrowing costs. The WACC in relation to Weir Gabbioneta
has decreased relative to 2008 as Italian government bond yields have remained broadly in line with 2008 while bank lending margins have reduced.
2 Real growth
Real growth beyond the five 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 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.
4 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 take 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 of 2009.
5 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 of 2009.
85
14. Impairment testing of goodwill & intangible assets with indefinite lives (continued)
6 Weir Gabbioneta
Weir Gabbioneta is a supplier of heavy duty process applications to oil and gas refinery, petro-chemical 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 of 2009.
7 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 of 2009.
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
The significant investments in joint ventures are as follows.
At 28 December 2007
Share of results
Share of dividends
Exchange adjustment
At 26 December 2008
Share of results
Share of dividends
Exchange adjustment
At 1 January 2010
Details of the Group’s share of the balance sheets, revenue and profits of its joint ventures are given below.
Share of joint ventures balance sheets
Goodwill
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of joint ventures revenue & profits
Revenue
Cost of sales
Selling & distribution costs
Administrative expenses
Income tax expense
Profit after tax
Total
£m
7.2
4.4
(3.5)
2.2
10.3
4.6
(5.9)
0.7
9.7
2009
£m
2008
£m
3.3
8.0
3.1
(3.8)
(0.9)
9.7
17.0
(9.5)
(0.5)
(1.6)
(0.8)
4.6
3.6
11.0
2.9
(5.2)
(2.0)
10.3
17.5
(10.5)
(0.4)
(1.4)
(0.8)
4.4
Carrying value of investments in joint ventures
9.7
10.3
The Group’s significant investments in joint ventures are listed on page 123.
86 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
16. Inventories
Raw materials
Work in progress
Finished goods
2009
£m
57.4
76.4
101.5
235.3
2008
£m
87.3
69.6
112.7
269.6
The carrying amount of inventory at fair value less costs to sell is £18.8m (2008: £17.8m). During the period, £5.2m (2008: £8.6m) was recognised as an expense within cost
of sales resulting from the write down of inventory.
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 47 days (2008: 52 days).
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 & 6 months
More than 6 months
Movement in the allowance for doubtful debts
Balance at the beginning of the period
Impairment losses recognised on receivables
Amounts written off as uncollectable
Amounts recovered during the period
Impairment losses reversed
Exchange adjustment
Balance at the end of the period
2009
£m
221.5
(13.1)
208.4
14.1
7.9
2.2
7.9
240.5
2009
£m
166.7
41.7
13.1
221.5
2009
£m
32.7
4.9
4.1
41.7
2009
£m
(11.7)
(6.3)
2.0
0.9
1.7
0.3
(13.1)
2008
£m
274.2
(11.7)
262.5
20.4
10.6
6.6
9.1
309.2
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)
17. Trade & other receivables (continued)
Ageing of impaired trade receivables
Up to 3 months
Between 3 & 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)
Contract costs incurred plus recognised profits less recognised losses to date
Less: progress billings
87
2009
£m
1.3
1.8
10.0
13.1
2009
£m
25.9
(23.2)
2.7
2008
£m
0.4
0.8
10.5
11.7
2008
£m
30.6
(46.7)
(16.1)
183.3
(180.6)
2.7
185.8
(201.9)
(16.1)
The amount of retentions held by customers for contract work amounted to £0.2m (2008: £0.6m) and the amount of advances received from customers for contract work
amounted to £nil (2008: £nil).
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 comprise the following
Cash & short-term deposits
Bank overdrafts & short-term borrowings (note 20)
2009
£m
54.5
2.5
57.0
57.0
(1.3)
55.7
2008
£m
72.9
1.2
74.1
74.1
(20.5)
53.6
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.
88 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
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
Canadian dollar variable rate loans
United States dollar variable rate loans
Sterling variable rate loans
Other
Euro fixed rate loans
Indian rupee term loan
Less current instalments due on bank loans
Canadian dollar variable rate loans
Euro fixed rate loans
Indian rupee term loan
Non-current bank loans
2009
£m
2008
£m
1.3
-
1.3
0.3
0.4
2.0
18.1
2.4
20.5
50.4
0.5
71.4
173.7
0.5
174.2
241.8
0.8
242.6
Weighted average
interest rate
Maturity
Interest
basis
2009
%
2008
%
2009
£m
2008
£m
2009
2011
2011
2011
CAD$ LIBOR
CAD$ LIBOR
US$ LIBOR
LIBOR
-
0.90
0.89
-
2009
2013
FIXED
FIXED
-
13.75
2.93
3.13
2.18
2.81
5.40
-
-
65.0
108.1
-
-
0.9 -
174.0
-
-
(0.3) -
50.3
20.7
206.1
15.0
0.1
292.2
(50.3)
(0.1)
173.7
241.8
CAD$ LIBOR is the Canadian dollar London Inter Bank Offer Rate. US$ LIBOR is the United States dollar London Inter Bank Offer Rate. LIBOR is the sterling London Inter
Bank Offer Rate. The weighted average interest rates include an applicable margin over and above the interest basis.
The disclosures above represent the interest profile and currency profile of financial liabilities before the impact of derivative financial instruments.
During 2008, the Group entered into a series of bilateral facilities with nine banks totalling £625.0m. As at 1 January 2010, £173.1m (2008: £241.8m) was drawn under
these bilateral facilities. In 2008, the Group also had a CAD$90.0m facility and a £20.0m multi-currency facility both of which matured in 2009. In 2009, the Group entered
into a new Indian rupee 79.0m (£1.0m) term loan. As at 1 January 2010, £0.9m was outstanding on the term loan.
In 2008, the Group entered into a series of interest rate swaps to fix the rate of interest that it would pay on US$200.0m variable rate borrowings. During 2009, this was
reduced to US$50.0m. The interest rate swaps fixed the whole term of interest at a weighted average of 3.26% (2008: 3.43%) plus the applicable margin for this element
of the Group’s debt.
Events after the balance sheet date
On 11 January 2010, the Group issued the equivalent of US$250.0m of five year (US$110.0m) and eight year (US$140.0m) fixed rate notes. Resulting from this, the Group
repaid US$145.0m and CAD$110.0m of its variable rate borrowings.
89
2008
£m
194.1
30.5
14.0
63.0
2.7
49.3
353.6
Total
£m
66.9
24.1
(11.4)
(9.0)
(0.1)
70.5
33.8
36.7
70.5
30.5
36.4
66.9
2009
£m
171.8
18.3
12.1
60.1
2.7
71.3
336.3
Other
£m
6.0
4.0
(1.8)
(0.1)
0.3
8.4
5.3
3.1
8.4
3.0
3.0
6.0
Discontinued
operations
Employee warranty &
indemnity
£m
related
£m
Onerous
sales
contracts
£m
Warranties
£m
24.5
12.5
(5.3)
(3.5)
(0.8)
27.4
18.9
8.5
27.4
17.2
7.3
24.5
19.9
7.3
(3.7)
(0.1)
0.6
24.0
4.2
19.8
24.0
4.1
15.8
19.9
11.9
-
-
(5.2)
-
6.7
1.5
5.2
6.7
1.6
10.3
11.9
4.6
0.3
(0.6)
(0.1)
(0.2)
4.0
3.9
0.1
4.0
4.6
-
4.6
21. Trade & other payables
Trade payables
Other creditors
Other taxes & social security costs
Accruals
Deferred consideration (note 13)
Deferred income
22. Provisions
At 26 December 2008
Additions
Utilised
Unutilised
Exchange adjustment
At 1 January 2010
Current 2009
Non-current 2009
Current 2008
Non-current 2008
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 estimate 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. Following the expiry of
certain warranty periods, an unutilised amount of £5.2m has been released to the income statement. The provision as at 1 January 2010 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.
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 exceed 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 to an environmental clean up programme in the United States for a company acquired in 1992 and various other legal claims and exposures across
the Group. 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.
90 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
23. Deferred tax
Deferred income tax assets
Post-employment benefits
Decelerated depreciation for tax purposes
United States 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
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
2009
£m
21.1
2.8
-
37.8
(33.0)
28.7
-
(10.0)
(18.9)
(60.9)
(3.6)
33.0
(60.4)
9.3
1.3
-
29.3
(19.1)
20.8
-
(3.8)
(8.6)
(68.5)
(1.2)
19.1
(63.0)
3.2
0.2
0.4
20.1
(20.8)
3.1
(10.5)
(3.0)
(9.1)
(47.8)
(1.4)
20.8
(51.0)
(31.7)
(42.2)
(47.9)
The movement in deferred income tax assets and liabilities during the period was as follows.
At 28 December 2007 (as restated - note 2)
Credited (charged) to the income statement
Credited to equity
Acquisitions
Disposals
Exchange adjustment
At 26 December 2008 (as restated - note 2)
(Charged) credited to the income statement
Credited (charged) to equity
Exchange adjustment
At 1 January 2010
Accelerated
Post depreciation
for tax
purposes
£m
employment
benefits
£m
United
States
deferred
interest
deductions
£m
Overseas
tax on
unremitted
earnings
£m
Intangible
assets
£m
Untaxed
reserves
£m
(7.3)
0.3
15.0
-
-
1.3
9.3
-
12.4
(0.6)
21.1
(2.8)
0.9
-
(0.2)
0.1
(0.5)
(2.5)
(5.4)
-
0.7
(7.2)
0.4
(0.4)
-
-
-
-
-
-
-
-
-
(9.1)
0.9
-
-
-
(0.4)
(8.6)
(10.4)
-
0.1
(18.9)
(47.8)
3.3
-
(6.2)
-
(17.8)
(68.5)
1.6
-
6.0
(60.9)
18.7
0.7
3.6
-
-
5.1
28.1
10.1
(2.8)
(1.2)
34.2
Total
£m
(47.9)
5.7
18.6
(6.4)
0.1
(12.3)
(42.2)
(4.1)
9.6
5.0
(31.7)
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 £4.8m (2008: £5.1m; 2007: £8.2m) and deductible temporary differences of £3.6m (2008: £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 £12.0m (2008: £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
A deferred tax liability of £18.9m (2008: £8.6m; 2007: £9.1m) has been recognised in respect of taxes on the unremitted earnings of the South American and Canadian
subsidiaries. As at 1 January 2010, 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 £762.1m (2008: £758.4m; 2007: £465.8m).
There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.
91
24. Pensions & other post-employment benefit plans
The Group has five defined benefit pension plans in the UK and North America. All defined benefit plans are closed to new members. The most significant of the defined
benefit plans are the two UK plans. Contribution salary in respect of the Group’s main UK plan is capped and will increase in line with RPI up to a maximum of 5% per
annum. The wind up of the Canadian plan was completed in 2009 and the United States plans are frozen. 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.
Plans in surplus
Plans in deficit
Plan assets at fair value
Equities
Bonds
Insurance policy
Other
Fair value of plan assets
Present value of plan liabilities
Net pension (liability) asset
UK pensions
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
-
(13.6)
(13.6)
118.6
91.8
277.3
-
487.7
(501.3)
(13.6)
35.9
(1.1)
34.8
208.5
159.2
218.5
-
586.2
(551.4)
34.8
2009
£m
-
(60.5)
(60.5)
137.2
101.0
301.6
-
539.8
(600.3)
(60.5)
North American
pensions & post-retirement
healthcare
2009
£m
-
(10.5)
(10.5)
5.5
5.3
-
1.6
12.4
(22.9)
(10.5)
2008
£m
-
(16.3)
(16.3)
4.4
23.8
17.9
15.1
61.2
(77.5)
(16.3)
2007
£m
1.5
(7.5)
(6.0)
4.6
33.9
18.3
0.7
57.5
(63.5)
(6.0)
Total
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
-
(29.9)
(29.9)
123.0
115.6
295.2
15.1
548.9
(578.8)
(29.9)
37.4
(8.6)
28.8
213.1
193.1
236.8
0.7
643.7
(614.9)
28.8
2009
£m
-
(71.0)
(71.0)
142.7
106.3
301.6
1.6
552.2
(623.2)
(71.0)
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 amounts recognised in the Consolidated Income Statement and in the Consolidated Statement of Comprehensive Income for the period are analysed as follows.
UK pensions
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
2009
£m
North American
pensions & post-retirement
healthcare
2009
£m
2008
£m
2007
£m
2009
£m
Total
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
Recognised in the income statement
Current service cost
Expected return on plan assets
Interest cost on plan liabilities
Other finance costs (income)
Curtailment (gain) loss recognised*
Settlement gain recognised*
Taken to the statement of comprehensive income
Actual return on plan assets
Less: expected return on plan assets
Other actuarial (losses) gains
Actuarial (losses) gains recognised in the statement
of comprehensive income
1.0
1.6
2.9
(29.0)
29.5
0.5
-
(1.5)
(34.5)
31.4
(3.1)
-
-
93.4
(29.0)
64.4
(122.2)
(84.7)
(34.5)
(119.2)
60.7
(33.1)
29.8
(3.3)
-
-
13.5
(33.1)
(19.6)
42.1
(57.8)
(58.5)
22.5
0.3
(1.6)
2.6
1.0
(1.5)
(0.7)
1.4
(1.6)
(0.2)
0.3
0.1
0.9
(2.6)
3.9
1.3
2.4
-
(1.0)
(2.6)
(3.6)
0.1
(3.5)
1.1
(3.0)
3.1
0.1
-
-
2.9
(3.0)
(0.1)
(1.0)
1.3
2.5
4.0
(30.6)
32.1
1.5
(1.5)
(2.2)
(37.1)
35.3
(1.8)
2.4
-
94.8
(30.6)
64.2
(121.9)
(85.7)
(37.1)
(122.8)
60.8
(36.1)
32.9
(3.2)
-
-
16.4
(36.1)
(19.7)
41.1
(1.1)
(57.7)
(62.0)
21.4
*The curtailment gain of £1.5m in respect of the North American pensions & post-retirement healthcare relates to the freezing of benefits in the Atwood & Morrill Salaried
Employee plan. The settlement gain of £0.7m relates to the wind up of the Canadian plan (2008: £2.5m curtailment loss was recognised in relation to the wind up of the
Canadian plan and £0.1m curtailment gain was recognised in relation to post-retirement healthcare). The £1.5m settlement gain in respect of UK pensions relates to an
enhanced transfer exercise completed in 2009 for deferred members of the main UK plan.
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 £11.1m in 2009 (2008: £6.5m; 2007: £6.5m) in addition to the employers regular contributions, of which £1.8m related to the wind up of the Canadian plan.
The total contributions to the defined benefit plans in 2010 are expected to be £12.1m. 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.
92 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
24. Pensions & other post-employment benefit plans (continued)
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
North American pensions
Post-retirement healthcare
2009
%
2008
%
2007
%
2009
%
2008
%
2007
%
2009
%
2008
%
2007
%
3.6
3.3
2.1
5.7
8.0
4.7
5.7
n/a
3.6
n/a
2.7
2.7
2.4
6.2
7.2
4.2
6.2
n/a
2.7
n/a
3.3
3.3
2.5
5.9
7.7
4.3
5.9
n/a
3.3
n/a
3.8
n/a
n/a
5.9
6.8
5.3
n/a
3.8
2.5
n/a
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
5.9
n/a
n/a
n/a
n/a
2.1
**
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
*
* 9.65% per annum decreasing to 5% per annum and remaining static at that level from 2013 onwards
** 9.67% per annum decreasing to 5% per annum and remaining static at that level from 2014 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
North American pensions
Post-retirement healthcare
2009
Years
2008
Years
2007
Years
2009
Years
2008
Years
2007
Years
2009
Years
2008
Years
2007
Years
20.9
23.7
23.8
26.6
18.1
20.9
19.6
22.3
18.1
20.9
19.6
22.3
18.5
20.7
18.7
20.8
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
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 2039 (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 2010.
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 2010
Discount rate
Effect on income statement in 2010
Effect on retirement benefit obligation at 1 January 2010
A one percentage point change in the assumed rate of increase in healthcare costs would have the following effects.
Effect on defined benefit obligation
One percentage point
Increase
£m
Decrease
£m
5.4
(5.4)
1.9
56.1
(1.4)
(68.9)
Increase
2009
£m
Decrease
2009
£m
Increase
2008
£m
Decrease
2008
£m
0.6
(0.4)
0.5
(0.4)
93
24. Pensions & other post-employment benefit plans (continued)
Changes in the present value of the defined benefit obligations are analysed as follows.
Opening defined benefit obligations
Current service cost
Interest cost
Benefits paid
Contributions by employees
Curtailment (gain) loss
Settlements
Actuarial losses (gains)
Exchange adjustment
Closing defined benefit obligations
UK pensions
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
551.4
1.6
31.4
(23.6)
1.2
-
-
(60.7)
-
501.3
582.2
2.9
29.8
(23.3)
1.9
-
-
(42.1)
-
551.4
2009
£m
501.3
1.0
29.5
(26.8)
0.9
-
(27.8)
122.2
-
600.3
North American
pensions & post-retirement
healthcare
2009
£m
77.5
0.3
2.6
(1.3)
-
(1.5)
(52.7)
(0.3)
(1.7)
22.9
2008
£m
63.5
0.9
3.9
(4.4)
0.5
2.4
-
(0.1)
10.8
77.5
2007
£m
54.9
1.1
3.1
(3.3)
0.5
-
-
1.0
6.2
63.5
Total
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
614.9
2.5
35.3
(28.0)
1.7
2.4
-
(60.8)
10.8
578.8
637.1
4.0
32.9
(26.6)
2.4
-
-
(41.1)
6.2
614.9
2009
£m
578.8
1.3
32.1
(28.1)
0.9
(1.5)
(80.5)
121.9
(1.7)
623.2
The defined benefit obligations comprise £7.2m (2008: £7.4m; 2007: £5.5m) arising from unfunded plans and £616.0m (2008: £571.4m; 2007: £609.4m) from plans that are
wholly or partially funded.
Changes in the fair value of plan assets are analysed as follows.
Opening plan assets
Expected return on plan assets
Employer contributions
Contributions by employees
Benefits paid
Settlements
Actuarial gains (losses)
Exchange adjustment
Closing plan assets
UK pensions
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
586.2
34.5
8.6
1.2
(23.6)
-
(119.2)
-
487.7
584.7
33.1
9.4
1.9
(23.3)
-
(19.6)
-
586.2
2009
£m
487.7
29.0
10.9
0.9
(26.8)
(26.3)
64.4
-
539.8
North American
pensions & post-retirement
healthcare
2009
£m
61.2
1.6
3.6
-
(1.3)
(52.0)
(0.2)
(0.5)
12.4
2008
£m
57.5
2.6
1.5
0.5
(4.4)
-
(3.6)
7.1
61.2
2007
£m
48.5
3.0
2.3
0.5
(3.3)
-
(0.1)
6.6
57.5
Total
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
643.7
37.1
10.1
1.7
(28.0)
-
(122.8)
7.1
548.9
633.2
36.1
11.7
2.4
(26.6)
-
(19.7)
6.6
643.7
2009
£m
548.9
30.6
14.5
0.9
(28.1)
(78.3)
64.2
(0.5)
552.2
94 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
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
(Deficit) surplus in the plans
Experience adjustments arising on plan liabilities
Changes in assumptions underlying plan liabilities
Experience adjustments arising on plan assets
North American pensions & post-retirement healthcare
Fair value of plan assets
Present value of defined benefit obligations
Deficit in the plans
Experience adjustments arising on plan liabilities
Changes in assumptions underlying plan liabilities
Experience adjustments arising on plan assets
2008
(as restated
- note 2)
£m
2007
(as restated
- note 2)
£m
2009
£m
2006
£m
2005
£m
539.8
(600.3)
(60.5)
(10.6)
(111.6)
64.4
12.4
(22.9)
(10.5)
1.5
(1.2)
(0.2)
487.7
(501.3)
(13.6)
(10.0)
70.7
(119.2)
61.2
(77.5)
(16.3)
-
0.1
(3.6)
586.2
(551.4)
34.8
(7.2)
49.3
(19.6)
57.5
(63.5)
(6.0)
(2.0)
1.0
(0.1)
584.7
(582.2)
2.5
(0.4)
17.3
12.1
48.5
(54.9)
(6.4)
(0.1)
2.2
1.9
548.0
(596.5)
(48.5)
1.1
(37.1)
60.2
50.1
(63.2)
(13.1)
(0.3)
(4.7)
2.9
The cumulative amount of actuarial gains and losses recognised in other comprehensive income since 28 December 2003 is a loss of £46.6m (2008: a gain of £11.1m; 2007:
a gain of £73.1m).
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 other comprehensive
income before 27 December 2003.
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 the beginning of the period
Issued during the period for cash on exercise of share options
Issued during the period in respect of LTIP awards
At the end of the period
Shares allotted
Aggregate nominal value of share options exercised
Share premium
Consideration received on exercise of share options
Treasury shares
At the beginning of the period
Issued during the period in respect of LTIP awards
At the end of the period
95
2009
Number
Million
2008
Number
Million
288.0
288.0
212.6
-
0.1
212.7
212.1
0.2
0.3
212.6
2009
£m
2008
£m
-
-
-
0.1
0.3
0.4
2009
Number
Million
2008
Number
Million
2.5
-
2.5
2.9
(0.4)
2.5
As at 1 January 2010, 148,075 shares (2008: 98,600 shares) were held in trust with a market value of £1.1m (2008: £0.3m).
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.
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 (losses) gains transferred
from equity into profit or loss during the period are included in the following line items in the Consolidated Income Statement.
Revenue
Cost of sales
Finance costs
2009
£m
(0.4)
(4.5)
(8.0)
(12.9)
2008
£m
0.2
5.8
(0.5)
5.5
96 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
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 & intangible assets
Impairment of plant & equipment & intangible assets
Gains on disposal of property, plant & equipment
Defined benefit plans curtailments & settlements
Funding of pension & post-retirement costs
Employee share schemes
Net foreign exchange including derivative financial instruments
Increase in provisions
Decrease (increase) in inventories
Decrease (increase) in trade & other receivables & construction contracts
(Decrease) increase in trade & other payables & construction contracts
Cash generated from operations
Additional pension contributions paid
Income tax paid
Net cash generated from operating activities
Acquisitions of subsidiaries
Current period acquisitions (note 13)
Previous periods acquisitions deferred consideration paid
Disposals of subsidiaries
Discontinued operations disposals (note 8)
Other current period disposals
Previous periods disposals
Reconciliation of net increase in cash & cash equivalents to movement in net debt
Net increase in cash & cash equivalents from continuing operations
Net decrease in cash & cash equivalents from discontinued operations
Net decrease (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 the beginning of the period
Net debt at the end of the 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)
2009
£m
2008
£m
188.1
(4.6)
44.8
1.0
(0.1)
(3.7)
(2.1)
1.6
1.8
9.3
30.8
68.2
(32.8)
302.3
(11.1)
(43.6)
247.6
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
-
(0.1) -
(0.1)
(140.9)
(140.9)
-
1.2
(2.6)
(1.4)
2.8
-
136.8
139.6
-
-
(18.9)
120.7
(239.9)
(119.2)
57.0
(2.0)
(174.2)
(119.2)
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)
97
2009
£m
2008
£m
2.9 -
0.6
-
-
0.3
3.8
2.8
9.2
9.7
(3.6)
18.1
26. Additional cash flow information (continued)
Other current period disposals had the following effect on the Group’s assets and liabilities.
Goodwill
Property, plant & equipment
Inventories
Trade & other receivables
Trade & other payables
Net assets disposed
27. Commitments & legal claims
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
two and ten years, motor vehicles leases have an average term of between two and four years and plant and equipment leases have an average term of between three and
five 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 shown in the table below.
Less than one year
After one year but not more than five years
More than five years
Finance lease commitments
2009
£m
12.5
32.3
8.7
53.5
2008
£m
8.2
22.0
8.5
38.7
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 shown in the table below.
Less than 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
2009
Minimum
payments
£m
2009
Present
value of
payments
£m
2008
Minimum
payments
£m
2008
Present
value of
payments
£m
0.4
0.6
1.0
(0.1)
0.9
0.4
0.5
0.9
0.5
0.9
1.4
(0.1)
1.3
0.5
0.8
1.3
The weighted average outstanding lease term is 1.92 years (2008: 2.78 years). For the 53 weeks ended 1 January 2010, the weighted average effective borrowing rate was
9.70% (2008: 9.40%). 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 £0.1m (2008: £0.2m).
2009
£m
3.0
2008
£m
4.0
98 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
27. Commitments & legal claims (continued)
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.
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 co-operate fully with the on-going investigations by UK authorities in this connection. In addition, the Company is subject to a claim relating to an action for
damages arising from the UN Oil for Food Programme which has been raised in the United States against just under 100 companies. 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.
28. Equity settled share-based payments
LTIP
There are three types of award which may be made under the LTIP to senior executives: performance shares, matching shares and investment shares. Details of each award
are outlined in the Remuneration report on pages 40 to 46.
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
2009
Number
Million
1.9
1.6
(0.4)
(0.7)
2.4
2009
WASP
£6.41
£4.00
£4.46
£5.55
£5.54
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
An amount of £2.4m (2008: £2.0m) has been charged to the Consolidated 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 (2008: £1.4m) in respect of parent company employees and £1.0m (2008: £0.6m) in respect of employees
of subsidiaries. Subsidiary companies made a cash contribution to the parent company of £1.1m (2008: £0.9m) in the period in respect of their LTIP awards.
The remaining contractual lives of the outstanding LTIP awards at the end of the period are as follows.
Year of award
2006
2007
2008
2009
Conditional share award
2009
Number
Million
2009
Remaining
contractual
life
2008
Number
Million
2008
Remaining
contractual
life
-
-
6 months
0.5
0.6 16 months
1.3 27 months
3 months
0.6
0.5 18 months
0.8 27 months
-
-
In 2008, the shareholders approved a one-off conditional award of 405,953 shares at a market price of 900.5p to Mark Selway, the previous chief executive, which would
have vested on 8 May 2011 subject to specified performance conditions being achieved. In 2009, the conditional share award was forfeited as the vesting conditions of
the award were not satisfied. As a result, a credit of £0.8m (2008: a charge of £0.8m) has been recorded in the Consolidated Income Statement in respect of the forfeited
conditional share award. The number of shares outstanding at 1 January 2010 is nil (2008: 405,953).
99
28. Equity settled share-based payments (continued)
Share option scheme
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
Lapsed during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2009
Number
Million
-
-
-
-
-
2009
WAEP
£2.01
£2.01
-
-
2008
Number
Million
0.2
-
(0.2)
-
2008
WAEP
£2.03
-
£2.01
£2.01
-
-
£2.01
The weighted average share price during the period was 543.2p (2008: 708.4p). There were no share options outstanding at 1 January 2010.
Fair value of equity settled share-based payments
The fair value of the conditional awards under the LTIP and the conditional share award have been estimated using the Monte Carlo simulation model. The following table
gives the assumptions made during the 53 weeks ended 1 January 2010 and the 52 weeks ended 26 December 2008.
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
2009
2008
2009
2008
-
-
-
-
-
-
1.83
29.00
3.00
4.25
901p
901p
4.62
30.00
3.00
1.90
400p
244p
2.22
29.00
3.00
4.02
747p
378p
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
Group pension plans
2009
2008
2009
2008
Contributions to the Group pension plans are disclosed in note 24.
Sales to
related
parties
- goods
£m
Purchases
from related
parties
- goods
£m
Amounts
owed to
related
parties
£m
1.3
0.2
-
-
0.4
0.2
-
-
-
-
0.2
0.2
100 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
29. Related party disclosures (continued)
Terms & conditions of transactions with related parties
Sales to and from related parties are made at normal market prices. Outstanding balances at the period end are unsecured and settlement occurs in cash. There have
been no guarantees provided or received for any related party balances. For the 53 weeks ended 1 January 2010, the Group has not raised any provision for doubtful debts
relating to amounts owed by related parties as the payment history has been excellent (2008: £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
2009
£m
5.0
0.8
0.1
5.9
2008
£m
5.0
2.2
0.1
7.3
Key management comprises the Board and the Group Executive. Further details of the Board remuneration can be found in the Remuneration report on pages 40 to 46.
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 derivative financial
instruments, 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 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 United States dollar (“US$”) net assets exposure. This is achieved through designating an element
of US dollar borrowings, forward foreign currency contracts and 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, bank loans and fixed rate notes. 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 debts. 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 and by only trading with
counterparties that have a strong credit standing based upon ratings provided by the major agencies.
Interest rate risk policy
The Group’s borrowings are in a combination of fixed and 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 1 January 2010, 18% (2008: 47%) of the Group’s debt was at fixed rates of interest through the use of floating to fixed interest rate swaps. On 11 January
2010, the Group issued the equivalent of US$250.0m of five year (US$110.0m) and eight year (US$140.0m) fixed rate notes. This will increase the proportion of fixed rate
borrowings from the level as at 1 January 2010.
101
30. Financial assets & liabilities (continued)
Net investment in foreign operations
As at 1 January 2010, US dollar variable rate loans included in interest-bearing loans and borrowings, amounting to US$175.0m (2008: US$190.0m), cross currency swaps
of US$324.0m (2008: US$404.0m) and net forward foreign currency liability contracts of US$90.0m (2008: assets of US$6.0m) 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.
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 & other receivables excluding statutory assets & prepayments
Cash & 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 borrowings
Trade & other payables excluding statutory liabilities & deferred income
Obligations under finance leases
Floating rate borrowings
Fixed rate borrowings
Carrying
amount
2009
£m
Fair
value
2009
£m
Carrying
amount
2008
£m
4.7
2.8
224.7
57.0
289.2
4.7
2.8
224.7
57.0
289.2
47.1
8.5
289.5
74.1
419.2
Fair
value
2008
£m
47.1
8.5
289.5
74.1
419.2
(4.4)
(43.4)
(4.4)
(44.2)
(62.9)
(97.8)
(62.9)
(97.8)
(1.3)
(252.9)
(0.9)
(173.1)
(0.9)
(476.9)
(1.3)
(252.9)
(0.9)
(173.1)
(0.9)
(477.7)
(20.5)
(290.3)
(1.3)
(292.1)
(0.1)
(765.0)
(20.5)
(290.3)
(1.3)
(292.1)
(0.1)
(765.0)
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. The derivative financial
instruments are valued using valuation techniques with market observable inputs including spot and forward foreign exchange rates and interest rate curves. The fair value
of interest rate swaps and cross currency swaps is calculated as the present value of the estimated future cash flows based on interest rate curves and spot foreign
exchange rates. The fair value of forward foreign currency contracts is calculated as the present value of the estimated future cash flows based on spot and forward
foreign exchange rates.
Effective 1 January 2009, the Group adopted the amendment to IFRS7 for financial instruments that are measured in the balance sheet at fair value. This requires disclosure
of fair value measurements in the form of a three level fair value hierarchy, by class, for all financial instruments recognised at fair value. The Group uses the following
hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
At 1 January 2010, the Group held all financial instruments at level 2 fair value measurement. During the 53 weeks ended 1 January 2010, there were no transfers between
level 1 and level 2 fair value measurements and no transfers into and out of level 3 fair value measurements.
The fair value of cash and short-term deposits, trade and other receivables and trade and other payables approximate their carrying amount due to the short-term maturities
of these instruments. The fair value of borrowings and obligations under finance leases is estimated by discounting future cash flows using rates currently available for debt
on similar terms, credit risk and remaining maturities.
102 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
30. Financial assets & liabilities (continued)
Derivative financial instruments
Set out in the table below is a summary of the 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
Liquidity & credit risk
2009
£m
2008
£m
0.1
0.2
0.3
2.3
0.4
4.5
7.2
1.6
-
0.6
10.4
4.2
16.8
0.1
-
30.7
0.2
31.0
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
40.3
105.1
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
following tables 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. On 11 January 2010, the Group issued
US$250.0m fixed rate notes with maturities of five and eight years significantly increasing the maturity profile of borrowings.
103
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
224.7
57.0
281.7
(252.9)
(0.4)
(1.3)
(1.9)
(256.5)
-
-
-
-
(0.3)
-
(175.9)
(176.2)
-
-
-
-
(0.3)
-
(0.7)
(1.0)
Total
£m
224.7
57.0
281.7
(252.9)
(1.0)
(1.3)
(178.5)
(433.7)
30. Financial assets & liabilities (continued)
53 weeks ended 1 January 2010
Trade & other receivables excluding statutory assets & prepayments
Cash & short-term deposits
Non-derivative financial assets
Trade & other payables excluding statutory liabilities & deferred income
Obligations under finance leases
Bank overdrafts & short-term borrowings
Bank loans
Non-derivative financial liabilities
Net non-derivative financial assets (liabilities)
25.2
(176.2)
(1.0)
(152.0)
52 weeks ended 26 December 2008
Trade & other receivables excluding statutory assets & prepayments
Cash & short-term deposits
Non-derivative financial assets
Trade & other payables excluding statutory liabilities & deferred income
Obligations under finance leases
Bank overdrafts & short-term borrowings
Bank loans
Non-derivative financial liabilities
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
289.5
74.1
363.6
(290.3)
(0.5)
(20.5)
(57.0)
(368.3)
-
-
-
-
(0.2)
-
(2.5)
(2.7)
-
-
-
-
(0.7)
-
(245.6)
(246.3)
Total
£m
289.5
74.1
363.6
(290.3)
(1.4)
(20.5)
(305.1)
(617.3)
Net non-derivative financial liabilities
(4.7)
(2.7)
(246.3)
(253.7)
104 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
30. Financial assets & liabilities (continued)
53 weeks ended 1 January 2010
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 inflow
Derivative financial instruments - outflow
Derivative financial instruments - inflow
Derivative financial instruments - net outflow
Effect of discounting
Net derivative financial liabilities
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 - outflow
Derivative financial instruments - inflow
Derivative financial instruments - net outflow
Effect of discounting
Net derivative financial liabilities
Less than
1 year
£m
1 to 2
years
£m
2 to 5 Greater than
5 years
years
£m
£m
(0.7)
0.1
(0.6)
(108.3)
98.9
(9.4)
(558.3)
559.6
1.3
(667.3)
658.6
(8.7)
Less than
1 year
£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)
-
-
-
(55.1)
44.8
(10.3)
(15.4)
15.4
-
(70.5)
60.2
(10.3)
1 to 2
years
£m
(4.0)
1.2
(2.8)
(56.1)
42.4
(13.7)
(44.0)
47.1
3.1
(104.1)
90.7
(13.4)
-
-
-
(113.3)
93.0
(20.3)
(14.8)
15.1
0.3
(128.1)
108.1
(20.0)
-
-
-
(62.7)
62.1
(0.6)
-
-
-
(62.7)
62.1
(0.6)
2 to 5 Greater than
5 years
years
£m
£m
(1.5)
1.0
(0.5)
(172.3)
127.0
(45.3)
(2.1)
2.0
(0.1)
(175.9)
130.0
(45.9)
-
-
-
-
-
-
-
-
-
-
-
-
Total
£m
(0.7)
0.1
(0.6)
(339.4)
298.8
(40.6)
(588.5)
590.1
1.6
(928.6)
889.0
(39.6)
(0.7)
(40.3)
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)
105
30. Financial assets & liabilities (continued)
Interest rate risk & 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
derivative financial instruments, by maturity, exposed to interest rate risk.
53 weeks ended 1 January 2010
Fixed rate net debt
Bank loans
Obligations under finance leases
Notional interest rate swaps
Fixed rate derivative financial instruments
Notional cross currency swaps US dollar leg
Notional cross currency swaps sterling leg
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 derivative financial instruments
Notional cross currency swaps US dollar leg
Notional cross currency swaps sterling leg
Net floating rate financial instruments
52 weeks ended 26 December 2008
Fixed rate net debt
Bank loans
Obligations under finance leases
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 derivative financial instruments
Notional cross currency swaps US dollar leg
Notional cross currency swaps sterling leg
Less than
1 year
£m
1 to 2
years
£m
2 to 5 More than
5 years
years
£m
£m
-
(0.4)
(31.0)
(31.4)
55.4
(55.0)
0.4
-
(0.3)
-
(0.3)
-
-
-
(0.9)
(0.2)
-
(1.1)
-
-
-
-
-
-
-
(55.4)
55.0
(0.4)
Total
£m
(0.9)
(0.9)
(31.0)
(32.8)
-
-
-
(31.0)
(0.3)
(1.1)
(0.4)
(32.8)
57.0
(1.3)
-
31.0
86.7
(49.5)
39.1
(10.4)
-
-
(173.1)
-
(173.1)
-
-
-
-
-
(49.5)
39.1
(10.4)
(101.9)
81.6
(20.3)
76.3
(183.5)
(20.3)
-
-
-
-
-
-
-
-
-
2 to 5
years
£m
More than
5 years
£m
Less than
1 year
£m
(0.1)
(0.5)
-
(0.6)
74.1
(20.5)
(50.3)
-
3.3
(54.6)
39.1
(15.5)
1 to 2
years
£m
-
(0.2)
(68.3)
(68.5)
-
-
-
68.3
68.3
-
(0.6)
(68.3)
(68.9)
-
-
(241.8)
68.3
(173.5)
(54.6)
39.1
(15.5)
(166.5)
120.7
(45.8)
-
-
-
-
-
-
-
-
-
-
-
-
-
57.0
(1.3)
(173.1)
31.0
(86.4)
(200.9)
159.8
(41.1)
(127.5)
Total
£m
(0.1)
(1.3)
(136.6)
(138.0)
74.1
(20.5)
(292.1)
136.6
(101.9)
(275.7)
198.9
(76.8)
(178.7)
Net floating rate financial instruments
(12.2)
52.8
(219.3)
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.
106 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
30. Financial assets & 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.
2009
Australian dollar
Canadian dollar
US dollar
UK sterling
2008
Australian dollar
Canadian dollar
US dollar
UK sterling
Effect
on profit
before tax
gain (loss)
£m
Effect
on equity
gain (loss)
£m
Increase in
basis points
+ 100
-
+ 100
(0.6)
-
-
+ 100
(2.1)
0.2
+ 100
1.1
+ 100
-
+ 100
(0.7)
-
-
-
+ 100
(3.4)
2.8
+ 100
2.0
-
A decrease of 100 basis points would have an equal and opposite effect.
Effect of hedging & derivative financial instruments included in the income statement & 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 period. 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.
107
30. Financial assets & liabilities (continued)
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.
53 weeks ended 1 January 2010
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
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
0.7
(0.6)
0.4
(41.1)
0.3
(40.3)
Net carrying
amount
£m
(6.2)
(5.7)
(0.6)
(76.8)
(15.8)
(105.1)
Recognised
in profit Recognised
in equity
or loss
gain (loss)
gain (loss)
£m
£m
Maturity
dates
2010 to 2013
2010
2010
2010 to 2018
2010 to 2015
(4.9)
(8.0)
-
0.9
6.0
(6.0)
2.6
(2.8)
2.9
25.9
-
28.6
Recognised
in profit Recognised
in equity
or loss
gain (loss)
gain (loss)
£m
£m
Maturity
dates
2009 to 2011
2010 to 2011
2009
2009 to 2013
2009 to 2012
6.0
(0.5)
-
5.4
(8.4)
2.5
(5.0)
(6.1)
(28.0)
(73.8)
-
(112.9)
The £0.9m gain (2008: £5.4m) 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. The Group’s forward foreign currency contracts subject to cash flow hedge accounting which were deemed to be ineffective during the period
resulted in a net charge to the income statement of £nil (2008: £1.2m). A portion of the Group’s interest rate swaps subject to cash flow hedge accounting were deemed
to be ineffective during the period as a result of a forecast repayment of variable rate debt. This resulted in a net charge to the income statement of £3.7m (2008: £nil).
108 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Group Financial Statements
(continued)
30. Financial assets & liabilities (continued)
Foreign exchange risk
The Group considers the most significant foreign exchange risks relate to the Australian dollar, Canadian dollar, Euro and United States 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.
Increase in
currency rate
Effect
on profit
gain (loss)
£m
Effect
on equity
gain (loss)
£m
2009
Australian dollar
Canadian dollar
Euro
US dollar
2008
Australian dollar
Canadian dollar
Euro
US dollar
+25%
(0.1)
+25%
+25%
+25%
+25%
+25%
+25%
+25%
0.2
3.4
0.8
0.1
0.1
1.3
5.2
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 intangibles amortisation was denominated in the following currencies.
US dollar
Australian dollar
Euro
Canadian dollar
Other
Operating profit from continuing operations before exceptional items & intangibles amortisation
2009
£m
88.7
20.5
51.7
8.6
35.2
204.7
-
-
1.0
76.1
-
-
(0.5)
91.5
2008
£m
90.9
22.3
38.0
14.7
19.1
185.0
109
31. Capital management
The primary objective of the Group’s capital management is to ensure that it maintains robust 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 (note 26).
Net debt (£m)
Total equity (£m)
Gearing ratio (%)
Net debt to EBITDA cover
2008
(as restated
- note 2)
239.9
696.9
34
2009
119.2
742.4
16
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, intangibles amortisation & impairment (£m)
EBITDA (£m)
Net debt to EBITDA cover (ratio)
Interest cover
2009
2008
119.2
188.1
45.8
233.9
0.5
239.9
168.3
42.3
210.6
1.1
Interest cover comprises operating profit from continuing operations before exceptional items and intangibles amortisation divided by net finance costs (excluding other
finance costs / income).
Operating profit before exceptional items & intangibles amortisation (£m)
Net finance costs (excluding other finance costs / income) (£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
2009
2008
204.7
16.2
12.6
185.0
10.6
17.5
2009
2008
1.57
1.99
1.12
1.78
1.61
1.80
1.13
1.69
1.85
2.17
1.25
1.96
1.46
2.14
1.04
1.79
110 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
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
53 weeks ended 1 January 2010 which comprise the Company Balance Sheet and
the related notes 1 to 17. The financial reporting framework that has been applied
in their preparation is applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. 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
As explained more fully in the Directors statement of responsibilities set out
on page 56, the directors are responsible for the preparation of the Company
financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit the Company financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to
the Company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the Company financial statements:
• give a true and fair view of the state of the Company’s affairs as at 1 January
2010;
• have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies
Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Remuneration report to be audited has been properly prepared
in accordance with the Companies Act 2006; and
• the information given in the Directors report for the financial year for which
the financial statements are prepared is consistent with the Company
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies
Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the Company financial statements and the part of the Remuneration report to be
audited are not in agreement with the accounting records and returns; or
• certain disclosures of directors remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the Group financial statements of The Weir Group
PLC for the 53 weeks ended 1 January 2010.
Hywel Ball (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
9 March 2010
Company
Balance Sheet
at 1 January 2010
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
111
1 January 26 December
2008
£m
2010
£m
Notes
3
4
5
10
6
10
7
10
8
0.3
1,038.9
1,039.2
0.4
899.0
899.4
31.2
10.2
3.1
44.5
76.6
28.0
21.1
125.7
81.2
27.8
39.1
1.9
68.8
38.7
39.7
52.0
130.4
61.6
958.0
837.8
549.6
31.2
384.4
64.7
10.3
6.1
366.9
382.6
9
0.8
0.8
366.1
381.8
11
12
12
12
12
12
12
26.6
38.0
(7.9)
0.5
-
1.8
307.1
26.6
38.0
(7.9)
0.5
(1.4)
1.8
324.2
366.1
381.8
Approved by the Board of Directors on 9 March 2010
Keith Cochrane, Director
Alan Mitchelson, Director
112 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
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 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 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 plans 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 costs.
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.
Share-based payments
Equity settled share-based incentives are provided to employees under the Company’s Long Term Incentive Plan (“LTIP”). The Company recognises a compensation cost in
respect of this plan that is based on the fair value of the awards. 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 & 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 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.
113
1. Accounting policies (continued)
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 as the present value of the estimated future cash flows based on spot and forward foreign exchange rates. The fair value of interest rate swaps
and cross currency swaps is calculated as the present value of the estimated future cash flows based on interest rate curves and spot foreign exchange rates. 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 will be classified as a cash flow hedge.
To the extent that 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.
2. Profit attributable to the Company
The profit dealt with in the accounts of the Company was £20.7m (2008: £24.4m). In accordance with the concession granted under section 408 of the Companies Act
2006, the profit and loss account of the Company has not been separately presented in these financial statements.
Dividends paid & proposed
Declared & paid during the period
Equity dividends on ordinary shares
Final dividend for 2008: 13.85p (2007: 12.35p)
Interim dividend for 2009: 4.80p (2008: 4.65p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2009: 16.20p (2008: 13.85p)
2009
£m
2008
£m
29.1
10.1
39.2
25.9
9.8
35.7
34.1
29.1
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 report on pages 40 to 46.
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 (2008: £13,000). Fees paid to Ernst
& Young LLP for non-audit services to the Company itself are not disclosed in these accounts as the Group’s consolidated financial statements, in which the Company is
included, disclose such fees on a consolidated basis.
114 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Company Financial Statements
(continued)
3. Tangible assets
Cost
At 26 December 2008
Additions
At 1 January 2010
Aggregate depreciation
At 26 December 2008
Charge for period
At 1 January 2010
Net book value at 26 December 2008
Net book value at 1 January 2010
4. Fixed asset investments
Cost
At 26 December 2008
Additions
Repayments
At 1 January 2010
Impairment
At 26 December 2008
Charge for period
At 1 January 2010
Net book value at 26 December 2008
Net book value at 1 January 2010
The principal subsidiaries and joint ventures of the Company are listed on page 123.
5. Debtors
Amounts recoverable within one year
Amounts owed by subsidiaries
Tax recoverable
Deferred tax recoverable
Other debtors
Prepayments & accrued income
Office &
computer
equipment
£m
1.1
0.1
1.2
0.7
0.2
0.9
0.4
0.3
Subsidiaries
Shares
£m
Loans
£m
Total
£m
468.4
78.2
-
546.6
99.4
0.1
99.5
551.1
94.5
(32.7)
612.9
1,019.5
172.7
(32.7)
1,159.5
21.1
-
21.1
120.5
0.1
120.6
369.0
530.0
899.0
447.1
591.8
1,038.9
2009
£m
2008
£m
26.2
0.3
2.1
1.3
1.3
31.2
21.9
0.2
1.6
2.8
1.3
27.8
115
2009
£m
13.0
0.9
4.4
2.3
7.4
28.0
2008
£m
23.2
1.0
4.1
5.2
6.2
39.7
2009
£m
2008
£m
200.4
52.0
107.9
-
241.3
549.6
144.0
13.1
175.3
384.4
Discontinued
operations
warranty &
indemnity
£m
Subsidiaries
£m
2.0
4.2
6.2
4.1
-
4.1
Total
£m
6.1
4.2
10.3
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
Less than one year
- loans from subsidiaries
More than one year but not more than two years
- bank loan
- loans from subsidiaries
More than two years but not more than five years
- loans from subsidiaries
8. Provisions
At 26 December 2008
Additions
At 1 January 2010
Subsidiaries
As at 1 January 2010, a provision of £6.2m (2008: £2.0m) has been made against the deficiency of underlying net assets in certain subsidiaries. It is expected 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. The provision as at 1 January
2010 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 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.
116 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Company Financial Statements
(continued)
9. Retirement benefits
The net pension liability in respect of the Company unapproved plan is reflected on the Company’s balance sheet. The liabilities of the Company unapproved plan are
shown below.
Present value of plan liabilities
Related deferred tax asset
Net pension liability
Recognised in the profit & loss account
Interest cost on plan liabilities
Other finance costs
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
The mortality assumptions used were 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
2009
£m
(1.1)
0.3
(0.8)
2009
£m
0.1
0.1
2008
£m
(1.1)
0.3
(0.8)
2008
£m
0.1
0.1
2009
% %
2008
3.3
5.7
3.6
2.7
6.2
2.7
2009
Years
2008
Years
20.9
23.7
23.8
26.6
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 2039 (in 30 years time).
Changes in the present value of the defined benefit obligations are analysed as follows.
Opening defined benefit obligations
Interest cost
Benefits paid
Closing defined benefit obligations
Changes in the fair value of plan assets are analysed as follows.
Opening plan assets
Employer contributions
Benefits paid
Closing plan assets
2009
£m
1.1
0.1
(0.1)
1.1
2009
£m
-
0.1
(0.1)
-
2008
£m
1.1
0.1
(0.1)
1.1
2008
£m
-
0.1
(0.1)
-
117
9. Retirement benefits (continued)
History of experience gains & losses
Present value of defined benefit obligations
Deficit in the plans
Experience adjustments arising on plan liabilities
Changes in assumptions underlying plan liabilities
2009
£m
(1.1)
(1.1)
-
-
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)
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 assets and liabilities in respect of these plans are not
reflected on the Company’s balance sheet, details of these are set out below.
While updating the valuation of the Group’s retirement benefit plans for the purposes of the Group’s 2009 interim condensed financial statements, the qualified actuary who
advises the Company identified an error in their model used to calculate the actuarial valuation of the above plans for the periods ended 28 December 2007 and 26 December
2008. The impact of this was to understate the retirement benefit plan deficits on a cumulative basis by £8.1m at 28 December 2007 and £15.2m at 26 December 2008.
The impact on the Consolidated Statement of Comprehensive Income was to increase actuarial losses on defined benefit plans by £7.1m in the 52 weeks ended 26 December
2008. There was no material impact on the Consolidated Income Statement. All affected balances and amounts have been restated in the disclosures set out below.
Pension contributions are determined with the advice of an independent qualified actuary on the basis of annual valuations using the projected unit method.
The total contributions to the defined benefit plans in 2010 are expected to be £11.6m.
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 plan assets in the year was a gain of £93.4m (2008: a loss of £85.3m).
The assets and liabilities of the plans and the long-term expected rates of return are as follows.
Equities
Bonds
Insurance policy
Fair value of plan assets
Present value of plan liabilities
Net deficit in the plans
Recognised in the profit & loss account
Current service cost
Expected return on plan assets
Interest cost on plan liabilities
Other finance costs (income)
Settlement gain recognised
Taken to the statement of total recognised gains & losses
Actual return on plan assets
Less: expected return on plan assets
Other actuarial (losses) gains
Actuarial losses recognised in the statement of total recognised gains & losses
2009
%
8.0
4.7
5.7
2009
£m
137.2
101.0
301.6
539.8
(599.2)
(59.4)
2008
%
2008
(as restated)
£m
7.2
4.2
6.2
118.6
91.8
277.3
487.7
(500.2)
(12.5)
2009
£m
2008
(as restated)
£m
1.0
1.6
(34.5)
31.3
(3.2)
(29.0)
29.4
0.4
(1.5) -
93.4
(29.0)
64.4
(122.2)
(57.8)
(85.3)
(34.5)
(119.8)
60.7
(59.1)
118 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Company Financial Statements
(continued)
9. Retirement benefits (continued)
The major assumptions used by the actuary were 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 were 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
2009
% %
2008
3.6
3.3
2.1
5.7
3.6
2.7
2.7
2.4
6.2
2.7
2009
Years
2008
Years
20.9
23.7
23.8
26.6
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 2039 (in 30 years time).
Changes in the present value of the defined benefit obligations are analysed as follows.
Opening defined benefit obligations
Current service cost
Interest cost
Benefits paid
Contributions by employees
Settlements
Actuarial losses (gains)
Closing defined benefit obligations
Changes in the fair value of plan assets are analysed as follows.
Opening plan assets
Expected return on plan assets
Employer contributions
Contributions by employees
Benefits paid
Settlements
Actuarial gains (losses)
Closing plan assets
2009
£m
2008
(as restated)
£m
500.2
1.0
29.4
(26.7)
0.9
(27.8) -
122.2
599.2
550.3
1.6
31.3
(23.5)
1.2
(60.7)
500.2
2009
£m
2008
(as restated)
£m
487.7
29.0
10.8
0.9
(26.7)
(26.3) -
64.4
539.8
586.8
34.5
8.5
1.2
(23.5)
(119.8)
487.7
In 2008, following the adoption of the amendment to FRS17, the equity investments and bonds which are held in plan assets, previously valued at mid price, were valued
based on the bid price. The effect of this change at 29 December 2007 was a reduction in the fair value of plan assets of £0.6m. The fair value of plan assets prior to 29
December 2007 have not been restated as the effect is immaterial.
119
2009
£m
2008
(as restated)
£m
2007
(as restated)
£m
539.8
(599.2)
(59.4)
(10.6)
(111.6)
64.4
487.7
(500.2)
(12.5)
(10.0)
70.7
(119.8)
586.8
(550.3)
36.5
(7.0)
49.0
(21.0)
2006
£m
586.4
(581.1)
5.3
(0.4)
17.3
12.5
2005
£m
549.3
(595.4)
(46.1)
(0.8)
(35.0)
60.2
9. Retirement benefits (continued)
History of experience gains & losses
Fair value of plan assets
Present value of defined benefit obligations
(Deficit) surplus in the plans
Experience adjustments arising on plan liabilities
Changes in assumptions underlying plan liabilities
Experience adjustments arising on plan assets
The cumulative amount of actuarial gains and losses recognised in the statement of recognised gains and losses is £209.7m (2008: £151.9m).
10. Derivative financial instruments
Current assets
Derivative financial instruments due within one year
Interest rate swaps
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
2009
£m
2008
£m
0.6
9.0
9.6
0.6
10.2
0.6
10.4
10.1
21.1
-
30.7
0.5
31.2
-
33.4
33.4
5.7
39.1
1.0
15.5
35.5
52.0
1.1
61.3
2.3
64.7
120 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Company Financial Statements
(continued)
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 period for cash on exercise of share options
Issued during the period in respect of LTIP awards
Aggregate nominal value of share options exercised
Share premium
Consideration received on exercise of share options
Treasury shares
At the beginning of the period
Issued during the period in respect of LTIP awards
At the end of the period
Equity settled share-based payments
Conditional share award outstanding at the end of the period
LTIP awards outstanding at the end of the period
2009
£m
2008
£m
36.0
36.0
26.6
26.6
2009
Number
Million
2008
Number
Million
-
0.1
0.1
2009
£m
-
-
-
0.2
0.3
0.5
2008
£m
0.1
0.3
0.4
2009
Number
Million
2008
Number
Million
2.5
-
2.5
2.9
(0.4)
2.5
2009
Number
Million
2008
Number
Million
-
2.4
0.4
1.9
Further details of the equity settled share-based payments and the associated cost for the period can be found in note 28 to the Group financial statements.
12. Reserves
At 28 December 2007
Profit for the period
Losses taken to equity on cash flow hedges
Dividends
Cost of share-based payment net of deferred tax
Exercise of options & LTIP awards
At 26 December 2008
Profit for the period
Reclassification adjustments taken to the profit & loss account on cash flow hedges
Dividends
Cost of share-based payment net of deferred tax
Exercise of LTIP awards
At 1 January 2010
Share
premium
£m
Treasury
shares
£m
Capital
redemption
reserve
£m
Hedge
accounting
reserve
£m
Special Profit & loss
account
reserve
£m
£m
37.7
-
-
-
-
0.3
38.0
-
-
-
-
-
38.0
(9.3)
-
-
-
-
1.4
(7.9)
-
-
-
-
-
(7.9)
0.5
-
-
-
-
-
0.5
-
-
-
-
-
0.5
-
-
(1.4)
-
-
-
(1.4)
-
1.4
-
-
-
-
1.8
-
-
-
-
-
1.8
-
-
-
-
-
1.8
335.4
24.4
-
(35.7)
1.5
(1.4)
324.2
20.7
-
(39.2)
2.8
(1.4)
307.1
The profit and loss account above is stated after deducting an accumulated loss in respect of retirement benefits of £0.8m (2008: £0.8m).
121
Total
£m
366.1
24.4
(1.4)
(35.7)
1.5
0.3
355.2
20.7
1.4
(39.2)
2.8
(1.4)
339.5
13. Balance sheet - deferred tax
At 26 December 2008
Included in profit for the period
Credit for the period included in equity
At 1 January 2010
Included in debtors (note 5)
Included in retirement benefits (note 9)
Other timing differences
Retirement benefits
14. Operating lease commitments
As at 1 January 2010, 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
1.9
(0.1)
0.6
2.4
2009
£m
2008
£m
2.1
0.3
2.4
2.1
0.3
2.4
1.6
0.3
1.9
1.6
0.3
1.9
2009
£000
2008
£000
13
13
14
14
122 The Weir Group PLC
Annual Report & Financial Statements 2009 Financial statements
Notes to the
Company Financial Statements
(continued)
15. Contingent liabilities & legal claims
Guarantees
The Company has given guarantees in relation to the bank and other borrowings of certain subsidiary companies. The net funds of the companies party to these
facilities as at 1 January 2010 amounted to £10.2m (2008: net debt of £108.4m).
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.
The Company is subject to a claim relating to an action for damages arising from the UN Oil for Food Programme which has been raised in the United States against just
under 100 companies. 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 Company’s financial position.
16. Related party disclosures
The Company has taken advantage of the exemption in FRS8 from disclosing transactions with related parties that are wholly owned by a subsidiary of The Weir Group
PLC. The following table provides the total amount of transactions which have been entered into with non wholly owned related parties for the relevant financial year and
outstanding balances at the period end.
Related party
Weir Minerals (India) Private Ltd
2009
2008
Management
charge
£m
Amounts
due by
£m
-
0.2
0.3
0.6
17. 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.
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 Ltd
PT Weir Minerals Multiflo
Specialised Petroleum Manufacturing Ltd
SPM Flow Control Inc
Vulco Peru SA
Vulco SA
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 (formerly Warman 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 Minerals South Africa (Pty) Ltd (formerly Weir Minerals Africa (Pty) Ltd)
Weir Power & Industrial France SAS
Weir Services Australia Pty Ltd
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 LLC
* Companies whose shares are owned directly by The Weir Group PLC
123
Country of
registration
or incorporation
% equity
interest 2009
USA
Scotland
USA
Australia
Indonesia
Scotland
USA
Peru
Chile
Canada
Brazil
India
Scotland
USA
Italy
China
USA
South Africa
Australia
China
England
France
India
Netherlands
Russia
South Africa
South Africa
France
Australia
USA
The Bahamas
China
England
USA
Venezuela
Saudi Arabia
UAE
100
100
100
100
100
100
100
100
100
100
100
100
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124 The Weir Group PLC
Annual Report & Financial Statements 2009 Other information
Shareholder
information
Shareholder enquiries
The Company’s registrars are:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol, BS99 6ZZ
Website: www.investorcentre.co.uk/contactus
Telephone: 0870 707 1402
Shareholder enquiries relating to shareholding, dividend payments, change of
address, loss of share certificate, etc. should be addressed to Computershare.
Investor Centre
Investor Centre is a free, secure share management website provided by our
registrars. This service allows you to view your share portfolio and see the latest
market price of your shares, check your dividend payment and tax information,
change your address, update payment instructions and receive your shareholder
communications online. To take advantage of this service, please log in at
www.investorcentre.co.uk and enter your Shareholder Reference Number (SRN)
and Company Code. This information can be found on your share certificate
or tax dividend voucher.
Dividends – payment direct to banks
Dividends can be paid direct to your bank or building society account using
the Bankers Automated Clearing Service (BACSTEL-IP). 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 or, if you
have elected to receive e-mail notifications, you will be sent an e-mail advising you
that your tax voucher is available at www.investorcentre.co.uk. If you wish your
dividends to be paid directly into your bank account, you should apply online at
www.investorcentre.co.uk or contact our registrars for a Dividend Mandate Form.
The Company encourages you to have your dividends paid direct to a bank
or building society.
Capital gains tax
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.
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;
• details of the 2010 annual general meeting, including the notice of the annual
general meeting;
• biographies of the members of the Board and the Group Executive; and
• further information on the Company’s corporate governance policies and
corporate responsibility.
Share dealing services
Computershare provide Weir Group shareholders with a quick and easy way to
buy or sell Weir Group shares on the London Stock Exchange.
Internet share dealing commission is 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-uk.computershare.com/Investor/ShareDealing.
asp. 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
£25. In addition, stamp duty, currently 0.5%, is payable on purchases. You can
contact Computershare on 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 707 1402.
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. Computershare Investor Services PLC is
authorised and regulated by the Financial Services Authority.
This is not a recommendation to buy, sell or hold shares in The Weir Group PLC.
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.
Shareholder communications
Voting
Information on how you can vote electronically can be obtained through our
registrars by visiting www.eproxyappointment.com.
Following a change to company law, and subsequent shareholder approval at
the 2007 annual general meeting, shareholder documents are only sent in paper
format to shareholders who have elected to receive documents in this way.
This approach enables the Company to reduce printing and distribution costs
and its impact on the environment. Shareholders who have not elected to
receive paper copies are sent a notification whenever shareholder documents
are published to advise them how to access the documents via the Group
website at www.weir.co.uk. Shareholders may also choose to receive this
notification via email with a link to the relevant page on the website.
Shareholders who wish to receive email notification should register online at
www.investorcentre.co.uk using your Shareholder Reference Number, which is
given on your share certificate or tax dividend voucher. This service is provided
in conjunction with our registrars, Computershare.
Annual report and financial statements 2009 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
Market overview
The global economic downturn and
associated decline in commodity prices
resulted in difficult market conditions
in 2009. While commodity production
volumes were lower early in the year
there was notable improvement in the
second half supported by investment in
Asian infrastructure.
Market overview
The North American upstream market
experienced reduced activity with lower
demand for natural gas. At the mid-year,
rig count had reduced by around 50%
before starting to recover in the second
half. Significant downstream project
opportunities were driven principally by
Middle East refining expansion.
Market overview
The original equipment power market
continued to be buoyant in Asia, but
depressed elsewhere. The strong Asian
market has been driven by China’s
nuclear new build. New coal and nuclear
plant delays in Europe and North America
have resulted in increased potential for
service and life extension projects.
2009 revenue by division
Minerals
59%
Oil & Gas
22%
Power & Industrial
17%
Other
2%
The Weir Group is well established in all three of our
chosen markets: Minerals, Oil & Gas and Power. Throughout
2009, the Group has been focused on worldwide operational
excellence, which has enabled us to manage through the
downturn and to help our customers do likewise. Operational
excellence will continue to underpin our strategy for growth
going forward.
Customer focus is a precondition for sustainable growth. Going forward, we
will be prioritising customer focus and customer relationships through our three
principal drivers of growth. Innovative action to develop our product portfolio
will be targeted at meeting specific customer needs. A collaborative mindset
will allow us to work together across the Group and in partnership with our
customers. Through our global capability, we will use our geographic footprint
to best advantage to ensure we get closer to existing and new customers.
Weir Minerals is the global leader in the
provision of slurry handling equipment
and associated spare parts for abrasive
high wear applications used in mining
as well as in the niche oil sands and flue
gas desulphurisation markets. Products
include pumps, hydro cyclones, valves,
de-watering equipment and wear
resistant linings. Investment in materials,
technology and engineered hydraulics
ensure world class performance. The
division is present in key mining markets,
including South and North America,
Australia and Africa.
Weir Oil & Gas designs and manufactures
pumps and ancillary equipment for
global upstream and downstream oil and
gas markets and provides substantial
aftermarket service and support activities.
Upstream operations specialise in high-
pressure well service pumps and related
flow control equipment along with repairs,
parts and service of pressure control and
rotating equipment. Downstream focuses
on design and manufacture of centrifugal
pumps, mainly for the refining industry.
Principal operations are in North America,
Europe and the Middle East.
Weir Power & Industrial designs,
manufactures and provides aftermarket
support for specialist and critical-service
rotating and flow control equipment, in
the main, to the global power sector.
The division includes valve operations, a
specialist pump business and substantial
service and aftermarket operations and
is one of only a few businesses globally
capable of providing specialist valves into
the nuclear islands of third generation
nuclear power stations. Facilities are
located in Europe, North America, China,
Middle East, India and South Africa.
Facts and figures
No. of people
No. of businesses
2009 order input
Addressable market
c5,200
19
£718m
£2.7bn
Facts and figures
No. of people
No. of businesses
2009 order input
Addressable market
c1,600
11
£305m
£1.6bn
Facts and figures
c1,900
No. of people
9
No. of businesses
2009 order input
£266m
Addressable power market £2.3bn
Major customers
Anglo American
BHP Billiton
Newmont
Rio Tinto
Shell
Siemens Corporation
Syncrude Canada
Vale Inco
Vendanta Group
Xstrata
Major customers
BJ Services
BP
Cal Frac
Halliburton
Linde Impianti Italia
Neste Oil
Schlumberger
Superior Well Services
Trican Oilwell Services
Weatherford
Major customers
British Columbia Hydro & Power Authority
CNPEC & CNEIC, China
Department of National Defence, Canada
EADS / Eurocopter France
EDF
Iberdrola
LISCO Iron & Steel Company
Loftyman Engineering
Scottish & Southern Energy
Tennessee Valley Authority
Valves and slurry pumps
feature in Goldcorp’s Mexican
Penasquito project which will be
the world’s largest gold and silver
mill in the northern hemisphere.
Weir Gabbioneta process pumps
destined for Russia’s Tartarstan
region which is expected to refine
up to seven million metric tons of
crude oil per year.
Weir’s excellent technical service
helped Peak Gold’s New South
Wales mine increase throughput
and reduce costs with a mill liner
re-design.
With an extensive, successful
track record of hydro work in the
UK, our power business is seeing
similar ongoing demand for
refurbishment projects in Canada.
On site at Weir Minerals Chile,
who were recently awarded a
new maintenance contract with
Minera Escondida, the world’s
largest copper mine.
Reducing component travel
distance by 94% and set up
times by 42% gave Weir SPM
the operational edge to win
the Group’s manufacturing
excellence award.
Part of Minerals de-watering range,
the patented GEHO APEXS®
power saving pump moves large
volumes of abrasive, corrosive
slurries at high pressures.
Power & Industrial’s service
skills have seen them extend
their geographic reach with
a multi-million dollar contract
on a natural gas platform in
the South China Sea.
Financial
Calendar
Ex-dividend date for final dividend
5 May 2010
Record date for final dividend
7 May 2010
Shareholders on the register at this
date will receive the dividend
Annual general meeting
12 May 2010
Final dividend paid
3 June 2010
cautionary statement
This annual report contains forward-looking
statements with respect to the financial
condition, operations and performance of
the Group. By their nature, these statements
involve uncertainty since future events and
circumstances can cause results and
developments to differ materially from
those anticipated. The forward-looking
statements reflect knowledge and information
available at the date of preparation of this
annual report and the Company undertakes
no obligation to update these forward-looking
statements. Nothing in this annual report
should be construed as a profit forecast.
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
It is important that our annual report is produced in an environmentally
responsible manner, including the sourcing of materials. The annual report
is printed in the UK by Royle Print Ltd, a Carbon Neutral printing company,
using vegetable-based inks.
The material is Revive Pure Uncoated which is certified as 100% recycled by
the Forest Stewardship Council. The printer and paper manufacturing mill both
have ISO 14001 accreditation for environmental management.
The Weir Group PLC
Annual report and financial statements 2009
The Weir Group PLC
Annual report and financial statements 2009 Directors report
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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
Excellent
Engineering
Solutions
Contents
Directors report
Inside front cover
Financial highlights
Chairman’s statement
Chief Executive’s review
Driving growth The Weir Way
Key Performance Indicators
Operational review
Financial review
Board of directors
Principal risks & uncertainties
Corporate governance report
Remuneration report
Corporate responsibility report
Other statutory information
Financial statements and
other information
Independent auditors report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated cash
flow statement
Consolidated statement
of changes in equity
Notes to the Group
financial statements
Independent auditors report
Company balance sheet
Notes to the Company
financial statements
Principal companies of
the Group
Shareholder information
1
2
4
8
14
15
24
28
30
33
40
47
54
57
58
59
60
61
62
63
110
111
112
123
124
Inside back cover – Financial calendar
and Cautionary statement
Front cover: Representing the Weir team:
George H. Finn and Robert Close (both
USA), Basli Sathi (Australia), Antonella
Campolo (Italy), Anton Amperman
(Australia) and Valentina Bortoluzzi (Italy)
The Weir Way
The drivers of growth
The Weir Group has a clearly defined strategy to
build market presence and deliver outstanding
products and services from a platform of operational
excellence and customer focus. This is supported by
our continuing commitment to operating disciplines
throughout the business and to the development
of our people.
1 InnovatIve
actIon
Our strategy prioritises customer-driven product and service
innovation through investment in engineering skills and people
development to accelerate the adoption of new approaches
and business solutions. This creative focus on portfolio
development delivers enhanced and extended product
capability to give existing and new customers a competitive
advantage.
2 collaboratIve
MIndset
We will drive co-operative alliances and cross-divisional
working to promote our total capability to customers in all
markets. We achieve more when we empower our people
to collaborate with our customers and with each other across
divisions, markets and geographical regions in a shared
approach to solving problems.
3 Global
caPabIlItY
Our strategy is to continue to build global capability, to expand
in emerging markets and serve customers globally. This
means working alongside our customers in the territories that
drive demand in minerals, oil and gas and power generation,
channelling more products and services through our existing
and expanding organisation to strengthen local relationships.