The Weir Group PLC
Annual report and financial statements 2010
The Weir Group PLC
Annual report and financial statements 2010 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
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
Sustainability 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
Glossary
1
2
4
8
14
16
28
32
34
37
44
52
67
69
70
71
72
73
74
75
122
123
124
134
135
136
Inside back cover – Financial calendar
and Cautionary statement
Excellent
Engineering
Solutions
The Weir Way
The drivers of growth
The Group has a strong operating platform to drive growth
both through organic development and value enhancing
acquisitions. We also have a clear and focused strategy
to build our functional capabilities and prioritise product
innovation, collaboration and global capabilities as key
enablers of growth in our chosen end markets, along with
an increased commitment to research and development
and investment in sales and engineering resources.
1 InnovatIve
solutIons
Innovation is at the heart of our processes. Our global engineering
teams work to ensure that products continually deliver longer plant
life, extend maintenance cycles, reduce downtime and lower whole-life
operating costs. As well as increasing our research and development
spend, we strongly believe that innovation goes beyond technological
aspects. Innovation is also about being proactive and creative in
delivering operational improvement and increasing customer focus.
2 CollaboratIve
MIndset
We believe we can achieve much more when we work together
across businesses, divisions, markets and regions to solve problems
and exploit market opportunities. Weir people are willing and able to
work in partnership with each other, as well as with our customers and
partners and during 2010 we further optimised our ability to operate
to best effect across divisions and regions.
3 Global
CaPabIlItY
We remain committed to going where our customers are, from the
most challenging oil production environment, to the emerging
power and energy markets and this commitment brings extensive
opportunities for us to further internationalise our products and
services. In 2010 we made considerable progress in leveraging our
presence in some of the fastest growing emerging markets.
The Weir Group PLC
Annual report and financial statements 2010
The Weir Group PLC
Annual report and financial statements 2010 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
1
0
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
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
Sustainability 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
Glossary
1
2
4
8
14
16
28
32
34
37
44
52
67
69
70
71
72
73
74
75
122
123
124
134
135
136
Inside back cover – Financial calendar
and Cautionary statement
Excellent
Engineering
Solutions
The Weir Way
The drivers of growth
The Group has a strong operating platform to drive growth
both through organic development and value enhancing
acquisitions. We also have a clear and focused strategy
to build our functional capabilities and prioritise product
innovation, collaboration and global capabilities as key
enablers of growth in our chosen end markets, along with
an increased commitment to research and development
and investment in sales and engineering resources.
1 InnovatIve
solutIons
Innovation is at the heart of our processes. Our global engineering
teams work to ensure that products continually deliver longer plant
life, extend maintenance cycles, reduce downtime and lower whole-life
operating costs. As well as increasing our research and development
spend, we strongly believe that innovation goes beyond technological
aspects. Innovation is also about being proactive and creative in
delivering operational improvement and increasing customer focus.
2 CollaboratIve
MIndset
We believe we can achieve much more when we work together
across businesses, divisions, markets and regions to solve problems
and exploit market opportunities. Weir people are willing and able to
work in partnership with each other, as well as with our customers and
partners and during 2010 we further optimised our ability to operate
to best effect across divisions and regions.
3 Global
CaPabIlItY
We remain committed to going where our customers are, from the
most challenging oil production environment, to the emerging
power and energy markets and this commitment brings extensive
opportunities for us to further internationalise our products and
services. In 2010 we made considerable progress in leveraging our
presence in some of the fastest growing emerging markets.
The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
01
Financial highlights
2010
Group results
Continuing operations
Revenue
£1,635m Up 18%
Operating profit2
£309.7m Up 51%
Profit before tax2
£294.7m Up 58%
Order input1
£1,904m Up 39%
Earnings per share2
100.4p Up 57%
• Original equipment input up 54% on a like-for-like
basis;
• Strong aftermarket contributed 58% of revenues;
• Operating profit up 51%;
• Record margins benefiting from aftermarket mix
and operating leverage;
• Good progress made on strategic initiatives
including five value enhancing acquisitions;
• Full year dividend increased 29% reflecting
confidence in outlook;
• US$40m investment plan to expand upstream
100.4p
Oil & Gas capacity.
59.3p
64.1p
110
100
90
80
70
60
50
40
30
20
10
2008
2009
2010
Dividend per share
27.0p Up 29%
27.0p
18.5p
21.0p
30
25
20
15
10
5
2008
2009
2010
Net debt
£283.6m Up 138%
1 2009 restated at 2010 average exchange rates
2 Continuing operations adjusted to exclude
intangibles amortisation
Annual report and financial statements 2010 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
2010 revenue by market
Minerals
42%
Oil & Gas
33%
Power
13%
Industrial
7%
Other
5%
The Weir Group is well established in all three of our
chosen markets: Minerals, Oil & Gas and Power & Industrial.
Throughout 2010, we have used our superb manufacturing
platform and resilient business model to deliver a perform-
ance that demonstrates our agility to respond quickly and
benefit from changing market conditions.
Customer focus is a precondition for sustainable growth. Recognising this we will
continue to extend our position in the minerals, oil and gas and power sectors,
all of which are high growth, long cycle markets with positive fundamentals. This
strategy is underpinned by our three principal drivers of growth - Innovation,
Collaboration and Global Capability - and will be delivered through organic
growth supplemented by skillfully integrated, targeted acquisitions with continued
investment in technology, infrastructure and people to grow our market share
and our installed base of original equipment.
Expanding our geographic footprint
2010 saw five value enhancing acquisitions join the Weir family. These five businesses will contribute positively to 2011, expand our
emerging market presence and further the strategy of each division.
March 2010
Petroleum Certification
Services, (PCS), in
Adelaide, Australia is
expanding our Oil & Gas
presence in the newer oil
and gas producing area
of Australia and South
East Asia.
September 2010
Linatex, based in
Malaysia is the global
leader in natural rubber
products for use in high-
wear mine applications
which are highly comple-
mentary to our existing
Minerals portfolio.
October 2010
BDK, an Indian valve
manufacturer, extends
our emerging market
footprint and product
portfolio and provides
a substantial low cost
manufacturing capability
for Power & Industrial.
November 2010
American Hydro, in
Pennsylvania USA,
manufactures turbine
components and with
our existing service
skills, will accelerate
our development in
established and new
hydro power markets.
December 2010
Ynfiniti Engineering
Services (YES), operating
principally in Spain and
Portugal, strengthens
our position in the fast-
growing wind and solar
markets.
improved
Market overview
Market conditions
in 2010
underpinned by strong demand for com-
modities, particularly from emerging mar-
kets and a growing sector confidence.
Most mothballed mines were re-started
and increased activity was evident in the
Canadian oil sands. Increases in capital
expenditure were announced by some
customers with a number of “mega-
projects” likely to get underway in 2011/12
principally across South America and the
Asia-Pacific region.
fields, requiring more
Market overview
The North American upstream mar-
ket experienced a substantial rebound
in on-shore horizontal drilling with sig-
nificant investment in existing and new
shale
intensive
fracturing techniques. Average horizon-
tal rig counts increased 81% on 2009.
International shale opportunities started
to gain momentum in China, Europe and
Australia. Downstream customer activity
remained low while Middle East services
market rebounded off 2009 lows in the
second half.
Market overview
Demand for original equipment for the con-
ventional power market was strong in Asia
but weak in Europe and North America.
The Chinese nuclear market represented
the majority of global nuclear new build,
although procurement began for the first two
new US nuclear plants in 25 years. Hydro
and wind markets grew as demand for
renewable power increased. Existing fossil
and nuclear plants postponed non-essential
maintenance, although new build delays will
increase potential for life extension projects.
Industrial markets remained weak.
Weir Minerals is the global leader in the
provision of slurry handling equipment
and associated spare parts for abrasive
high wear applications. Mining and min-
erals is the division’s largest sector but
it has aligned product sales into niche
markets, including oil sands and flue gas
desulphurisation equipment. Products
include pumps, hydrocyclones, valves,
dewatering equipment and wear resistant
linings and following the Linatex acqui-
sition – rubber products and screen-
ing machines. The partnership with KHD
Humboldt extends the reach into high
pressure grinding rollers, a new break-
through in milling technology.
Weir Oil & Gas designs and manufac-
tures pumps and ancillary equipment for
the global upstream and downstream
oil and gas markets and provides sub-
stantial aftermarket service and support.
The upstream operation specialises in
high-pressure well service pumps and
related flow control equipment along
with repairs, parts and service of pres-
sure control and upstream rotating equip-
ment. 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, with an expanding
geographic footprint in Asia Pacific and
South America.
Weir Power & Industrial designs, manufac-
tures and provides aftermarket support for
specialist and critical-service rotating and
flow control equipment mainly to the global
power sector. The division includes valve
operations; specialist pump, hydro and
steam turbine businesses and aftermar-
ket operations in Europe, North America,
Asia Pacific, Middle East, and South Africa.
Three facilities hold nuclear certification
making the business one of a few globally,
capable of providing safety critical valves
into the nuclear islands of the 3rd and 4th
generation nuclear power stations. The
BDK acquisition expanded the valve port-
folio, while American Hydro and Ynfiniti
Engineering Services added to the renewa-
bles market position.
Facts and figures
No. of people
No. of businesses
2010 order input
2010 revenue
Addressable market
c6,750
20
£984m
£901m
£3.2bn
Facts and figures
No. of people
No. of businesses
2010 order input
2010 revenue
Addressable market
c2,100
13
£626m
£462m
£2.9bn
Facts and figures
c2,900
No. of people
13
No. of businesses
£268m
2010 order input
2010 revenue
£246m
Addressable power market £3.9bn
Major customers
Alcoa
AMEC
Anglo American
Barrick Gold Corporation
BHP Billiton
Chinalco
Freeport McMoran Copper & Gold
Rio Tinto
Vale Inco
Xstrata
Major customers
Baker Hughes
Cal Frac
Enerflow Industries
Frac Tech Services
Schlumberger
Shazand Arak Oil Refining Co
Stewart & Stevenson LLC
Superior Well Services
Trican Well Services
Weatherford International Ltd
Major customers
Canadian Government Public Works
CNPEC & CNEIC
EADS
EDF
Eskom
Hyundai Heavy Industries Co Ltd
Loftyman Engineering
RCM Technologies Inc
Toshiba Corporate
United States Government
Financial
Calendar
Ex-dividend date for final dividend
4 May 2011
Record date for final dividend
6 May 2011
Shareholders on the register at this
date will receive the dividend
Annual general meeting
4 May 2011
Final dividend paid
2 June 2011
Cautionary statement
This annual report contains forward-looking
statements with respect to the financial con-
dition, operations and performance of the
Group. By their nature, these statements
involve uncertainty since future events and
circumstances can cause results and devel-
opments to differ materially from those antici-
pated. 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 up-
date these forward-looking statements. Noth-
ing 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 2010 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
2010 revenue by market
Minerals
42%
Oil & Gas
33%
Power
13%
Industrial
7%
Other
5%
The Weir Group is well established in all three of our
chosen markets: Minerals, Oil & Gas and Power & Industrial.
Throughout 2010, we have used our superb manufacturing
platform and resilient business model to deliver a perform-
ance that demonstrates our agility to respond quickly and
benefit from changing market conditions.
Customer focus is a precondition for sustainable growth. Recognising this we will
continue to extend our position in the minerals, oil and gas and power sectors,
all of which are high growth, long cycle markets with positive fundamentals. This
strategy is underpinned by our three principal drivers of growth - Innovation,
Collaboration and Global Capability - and will be delivered through organic
growth supplemented by skillfully integrated, targeted acquisitions with continued
investment in technology, infrastructure and people to grow our market share
and our installed base of original equipment.
Expanding our geographic footprint
2010 saw five value enhancing acquisitions join the Weir family. These five businesses will contribute positively to 2011, expand our
emerging market presence and further the strategy of each division.
March 2010
Petroleum Certification
Services, (PCS), in
Adelaide, Australia is
expanding our Oil & Gas
presence in the newer oil
and gas producing area
of Australia and South
East Asia.
September 2010
Linatex, based in
Malaysia is the global
leader in natural rubber
products for use in high-
wear mine applications
which are highly comple-
mentary to our existing
Minerals portfolio.
October 2010
BDK, an Indian valve
manufacturer, extends
our emerging market
footprint and product
portfolio and provides
a substantial low cost
manufacturing capability
for Power & Industrial.
November 2010
American Hydro, in
Pennsylvania USA,
manufactures turbine
components and with
our existing service
skills, will accelerate
our development in
established and new
hydro power markets.
December 2010
Ynfiniti Engineering
Services (YES), operating
principally in Spain and
Portugal, strengthens
our position in the fast-
growing wind and solar
markets.
improved
Market overview
Market conditions
in 2010
underpinned by strong demand for com-
modities, particularly from emerging mar-
kets and a growing sector confidence.
Most mothballed mines were re-started
and increased activity was evident in the
Canadian oil sands. Increases in capital
expenditure were announced by some
customers with a number of “mega-
projects” likely to get underway in 2011/12
principally across South America and the
Asia-Pacific region.
fields, requiring more
Market overview
The North American upstream mar-
ket experienced a substantial rebound
in on-shore horizontal drilling with sig-
nificant investment in existing and new
shale
intensive
fracturing techniques. Average horizon-
tal rig counts increased 81% on 2009.
International shale opportunities started
to gain momentum in China, Europe and
Australia. Downstream customer activity
remained low while Middle East services
market rebounded off 2009 lows in the
second half.
Market overview
Demand for original equipment for the con-
ventional power market was strong in Asia
but weak in Europe and North America.
The Chinese nuclear market represented
the majority of global nuclear new build,
although procurement began for the first two
new US nuclear plants in 25 years. Hydro
and wind markets grew as demand for
renewable power increased. Existing fossil
and nuclear plants postponed non-essential
maintenance, although new build delays will
increase potential for life extension projects.
Industrial markets remained weak.
Weir Minerals is the global leader in the
provision of slurry handling equipment
and associated spare parts for abrasive
high wear applications. Mining and min-
erals is the division’s largest sector but
it has aligned product sales into niche
markets, including oil sands and flue gas
desulphurisation equipment. Products
include pumps, hydrocyclones, valves,
dewatering equipment and wear resistant
linings and following the Linatex acqui-
sition – rubber products and screen-
ing machines. The partnership with KHD
Humboldt extends the reach into high
pressure grinding rollers, a new break-
through in milling technology.
Weir Oil & Gas designs and manufac-
tures pumps and ancillary equipment for
the global upstream and downstream
oil and gas markets and provides sub-
stantial aftermarket service and support.
The upstream operation specialises in
high-pressure well service pumps and
related flow control equipment along
with repairs, parts and service of pres-
sure control and upstream rotating equip-
ment. 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, with an expanding
geographic footprint in Asia Pacific and
South America.
Weir Power & Industrial designs, manufac-
tures and provides aftermarket support for
specialist and critical-service rotating and
flow control equipment mainly to the global
power sector. The division includes valve
operations; specialist pump, hydro and
steam turbine businesses and aftermar-
ket operations in Europe, North America,
Asia Pacific, Middle East, and South Africa.
Three facilities hold nuclear certification
making the business one of a few globally,
capable of providing safety critical valves
into the nuclear islands of the 3rd and 4th
generation nuclear power stations. The
BDK acquisition expanded the valve port-
folio, while American Hydro and Ynfiniti
Engineering Services added to the renewa-
bles market position.
Facts and figures
No. of people
No. of businesses
2010 order input
2010 revenue
Addressable market
c6,750
20
£984m
£901m
£3.2bn
Facts and figures
No. of people
No. of businesses
2010 order input
2010 revenue
Addressable market
c2,100
13
£626m
£462m
£2.9bn
Facts and figures
c2,900
No. of people
13
No. of businesses
£268m
2010 order input
2010 revenue
£246m
Addressable power market £3.9bn
Major customers
Alcoa
AMEC
Anglo American
Barrick Gold Corporation
BHP Billiton
Chinalco
Freeport McMoran Copper & Gold
Rio Tinto
Vale Inco
Xstrata
Major customers
Baker Hughes
Cal Frac
Enerflow Industries
Frac Tech Services
Schlumberger
Shazand Arak Oil Refining Co
Stewart & Stevenson LLC
Superior Well Services
Trican Well Services
Weatherford International Ltd
Major customers
Canadian Government Public Works
CNPEC & CNEIC
EADS
EDF
Eskom
Hyundai Heavy Industries Co Ltd
Loftyman Engineering
RCM Technologies Inc
Toshiba Corporate
United States Government
Financial
Calendar
Ex-dividend date for final dividend
4 May 2011
Record date for final dividend
6 May 2011
Shareholders on the register at this
date will receive the dividend
Annual general meeting
4 May 2011
Final dividend paid
2 June 2011
Cautionary statement
This annual report contains forward-looking
statements with respect to the financial con-
dition, operations and performance of the
Group. By their nature, these statements
involve uncertainty since future events and
circumstances can cause results and devel-
opments to differ materially from those antici-
pated. 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 up-
date these forward-looking statements. Noth-
ing 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 2010 Directors report
Structured for growth
Chairman’s statement by
Lord Smith of Kelvin
I am delighted to report that 2010 was a
highly successful and busy year for the Group
against the background of a still uncertain
global economic environment. We delivered
another record financial performance and
enter 2011 with our largest ever order book,
a clear strategy and ambitious plans to drive
future growth.
The results reflect the benefit of our exposure to three growing sectors
with positive medium term fundamentals and an emerging markets bias,
as well as a business model that focuses on the sale of original equipment
products to provide a growing installed base for more profitable and
resilient aftermarket sales.
Revenues were up 18% and we are able to report an increase in Group
pre-tax profit from continuing operations before intangibles amortisation
of 58% to a record £294.7m with free cashflow generation of £79.9m.
We are proposing a final payment to shareholders of 21p per share,
making 27p for the full year, an increase of 29%, reflecting the Board’s
continuing confidence in the Group’s prospects.
Our financial performance translated into a rising share price and our entry
into the FTSE 100 index of leading UK listed companies in September,
as investors recognised the strength of our business model and positive
outlook for each of our end markets.
The Group has a strong operating platform to drive growth both through
organic development and value enhancing acquisitions. We also have a
clear and focused strategy to build our functional capabilities and prioritise
product innovation, collaboration and global capabilities as key enablers
of growth in our chosen end markets. I have been pleased at the progress
made by Keith and his team in driving these initiatives across the Group,
most notably with an increased commitment to research and development
and investment in sales and engineering resources.
03
Dividend per share
27.0p
18.5p
21.0p
30
25
20
15
10
5
2008
2009
2010
James and George Weir
On a less positive note, in December 2010, the Group was charged
with, and pleaded guilty to, two charges of breaching UN sanctions in
connection with a number of Iraq Oil for Food programme contracts
awarded between 2000 and 2002. What happened at that time was
wrong and as I said in 2004, when the Board first became aware of this
matter, I am bitterly disappointed that this went on within the Weir Group.
The Board is determined to achieve and maintain best practice in all
areas of corporate responsibility and is committed to doing business at
all times in an ethical manner.
Building on this commitment we have established our corporate sustaina-
bility priorities and report for the first time our carbon emissions footprint
and revenues from low carbon sectors. During 2011 we will extend this
and set carbon reduction targets for each business.
I would like to acknowledge the contribution made by all employees
to the success of the Group over what has been a very busy year. The
heart of any business is its people and I am constantly impressed by the
calibre of the men and women I encounter at every level of the Group. We
are committed to providing them with a safe working environment and to
developing their skills through a range of training programmes as well as
attracting and retaining the best talent. I would also like to thank my fellow
directors for their continued hard work and support. After 11 years serv-
ice, Alan Mitchelson has indicated his intention to retire from the Board
prior to the 2012 annual general meeting.
The Group celebrates its 140th anniversary in 2011 and we are proud
to recognise and celebrate our rich engineering heritage. From its founda-
tion in Glasgow during the Industrial Revolution, the Group is represented
in over 70 countries and will continue to provide innovative engineering
solutions to its chosen end markets in the years ahead.
I am confident that the Group is well positioned to make further good
progress in the year ahead.
Lord Smith of Kelvin
Chairman
8 March 2011
04 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Driving growth The Weir Way
Overview by Chief Executive
Keith Cochrane
Last year I said that the Weir Group had a
superb manufacturing platform, resilient busi-
ness model and enviable market position.
This remains as true today as it was then and
our performance in 2010 demonstrates our
ability to respond quickly and benefit from
changing market conditions.
05
Group Executive (pictured)
From left to right: Alan Mitchelson (Legal &
Commercial Director), Steve Noon (Oil & Gas
Divisional Managing Director), Keith Cochrane
(Chief Executive), Jon Stanton (Finance
Director), Dean Jenkins (Power & Industrial
Divisional Managing Director), Scot Smith
(Minerals Divisional Managing Director)
During 2010 we continued to make good
progress against our key priorities:
• Strong management focus on health and
safety resulted in a 35% reduction in lost
time accidents.
• Overall operating efficiency (the Weir
Production System Lean score) continued
to improve, this year by over five points.
• Five value enhancing acquisitions were made
through the year accelerating growth and
extending our global presence.
• Continued investment in product research
and development:
• Minerals launched the next generation of
Warman WBH® pump and developed
molten salt pumps for the solar market.
• Weir SPM launched the new Destiny™
frac pump.
• Power & Industrial developed safety valves
for the 4th generation nuclear reactor
technology and extended its renewable
energy offering.
• Over £50m in capital expenditure to improve
operating efficiency and extend the Group’s
global presence including:
• A new manufacturing facility in Queensland,
Australia.
• New service centres in North and South
America, Russia, Indonesia and Africa,
including Weir SPM’s first centre in
Brasil.
Continuing operations
Revenue
£1,635m
Up 18%
Operating profit1
£309.7m
Up 51%
1 Continuing operations adjusted to exclude
intangibles amortisation
The Weir Group has been repositioned as a leading global engineering
solutions provider focused on the mining, oil and gas and power markets.
This focus together with a growing emerging market presence and
continued commitment to operational excellence has contributed to these
record results. We made good progress against the strategic priorities set
last year, positioning Weir to continue to deliver above market growth.
This success is underpinned by our people and I want to recognise the
excellent work being done across the Group.
I ended last year’s report pointing to an uncertain year ahead. Visibility of
the pace and timing of a potential recovery was limited and I highlighted
the proactive action taken in 2009 to manage the impact of the economic
downturn, ensuring the Group had the flexibility to respond, no matter the
demands of the economic climate. In fact, two of our three end markets
saw a strong recovery in 2010, ahead of our expectations. The oil and gas
shale markets in North America bounced back, benefiting from the
increasing use of hydraulic fracturing, supplemented by a move to oil and
liquids rich shale formations. Global mineral markets largely recovered,
driven principally by China’s growing demand for commodities which
in turn led to increased production volumes. In contrast, power and
industrial markets remained subdued, with conventional generation new
build activity in North America and Europe at low levels pending
clarification of environmental legislation.
2010 performance
Overall order input, in constant currency, was up 39% while aftermarket
input was up 27%. This reflected re-stocking in the first half of the year
and increased activity levels in our main markets through the year.
We experienced a significant pick up in original equipment orders in the
second half as equipment utilisation levels improved and customers
became more confident in the outlook for their end markets.
Group revenues were up 12% on a constant currency basis and the
proportion of revenues from aftermarket sales increased to 58% (2009: 54%),
as a result of the lower opening original equipment order book and the shorter
cycle nature of aftermarket sales. This mix effect and a more than doubling
of upstream Oil & Gas revenues had a positive impact on both operating
margins and profits giving rise to a record financial performance.
We achieved some notable successes across all three divisions. In Minerals
we saw strong progress across Asia-Pacific, Africa and South America with
a number of significant contract awards and in Canada, we achieved
our largest ever single contract award to supply equipment into the oil sands
market. In upstream Oil & Gas, we gained market share in a rising North
American market, driven by our responsiveness and the operational flexibil-
ity of the Weir Production System. Power & Industrial achieved good input
from the nuclear market including a contract for the provision of specialist
valves on the first US nuclear new build reactors to be built in 25 years.
06 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
3-fold strategy
1
2
3
INNOVATIVE
SOLUTIONS
COLLABORATIVE
MINDSET
GLOBAL
CAPABILITY
Earnings per share1
100.4p
59.3p
64.1p
110
100
90
80
70
60
50
40
30
20
10
2008
2009
2010
1 Continuing operations adjusted to exclude
intangibles amortisation
We delivered another strong cash performance and generated free cashflow
of £79.9m after investment to support the growth of the business. Our
balance sheet has also been strengthened by the issue of long term debt
and by the extension of our core banking facilities out to 2014. The Group
has substantial financial headroom to support organic development and
expand its presence across target markets.
These increased activity levels required us to invest across the Group:
we added over 1100 employees through organic growth, research and
development spend was increased 53% to £14.8m and we invested
£50.9m in capital expenditure, including construction of the new Multiflo
manufacturing facility in Queensland, Australia.
Group strategy
We will continue to extend the Group’s position in the minerals, oil and
gas and power sectors, all of which are high growth, long cycle markets
with positive fundamentals. This strategy is underpinned by our three
pillars of Innovation, Collaboration and Global Capability and will be
delivered through sustainable organic growth supplemented by skillfully
integrated, targeted acquisitions. We will continue to invest in technology,
infrastructure and people to grow market share and our installed base of
original equipment. This in turn provides recurring aftermarket opportunities
and exposure to both customers capital and operating expenditure.
We will broaden 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
Good progress has been made in developing our three strategic pillars,
new product initiatives are underway in each division and the benefits of
greater cross divisional collaboration are already evident. Over the past
two years around 40% of our revenue has been generated from emerging
markets and we expect to see this continue to grow in 2011.
These actions are underpinned by our ongoing focus on operational
excellence and the development of functional initiatives. Examples include
the full roll out of the Net Promoter Score customer survey methodology,
increased engineering resources and the development of Group-wide IT
and procurement strategies. We have also renewed our focus on talent
management establishing a broad based 300-strong Senior Management
Group, a consolidated and refreshed graduate recruitment programme
and a new learning and development framework.
Our growth plans have also been supported by a number of complemen-
tary acquisitions and alliances which broaden our product portfolio and
strengthen our global footprint and growth prospects, particularly in
emerging markets. During the year, PCS (Australia), Linatex (Malaysia),
BDK (India), American Hydro (US) and YES (Spain) joined the Group
adding annualised revenues of £151m and operating profits of £15.5m
and the integration of each is progressing well. We also established joint
ventures and alliances with partners including KHD (Germany), MHI
(Japan) and Shengli Highland (China).
07
Around the world
Top – Keith Cochrane (standing right) at
the opening of Weir Multiflo’s new facility
in Queensland, Australia with, from left,
local Federal Member of Parliament, Alex
Somlyay, Rob Brown, regional managing
director Minerals Asia Pacific with Paul Avey,
managing director, Weir Minerals Multiflo
standing on the pump skid
Bottom – Keith Cochrane arrives for the
agreement signing with Loftyman Engineering
aimed at growing Weir control valves market
position in China
Our priorities for 2011 are to continue to drive operational excellence
and focus on our three strategic pillars for growth alongside key functional
initiatives. We will strengthen our competitive position and grow faster
than our markets by:
• Continuing to drive growth through innovation and creativity with further
investment in extending our product development capabilities. At the
same time, we will look to take our product portfolio to new markets and
customers as we seek to build market presence.
• Building on growing cross divisional collaboration to extend best practice
and sell our full portfolio of products in all markets as well as extend our
service footprint to achieve closer customer relationships. Our recently
established joint ventures and third party alliances extend our capabilities
and geographic presence and provide a platform for further growth.
• Capitalising and extending the Group’s global reach and capabilities to
support customer needs, reinforce our global competitiveness and open
new markets for existing products and services.
We will complete the integration of our recent acquisitions and add
resources where necessary to secure growth. Specifically, we will signifi-
cantly increase manufacturing and service capacity at Weir SPM’s Fort
Worth plant with a planned investment of US$40m over 18 months and
develop Weir BDK’s manufacturing capabilities in India. This will enable
each business to further benefit from opportunities in their fast growing
markets.
Outlook
The Group is well placed to benefit from the medium term growth pros-
pects of each of our principal end markets:
• Growing demand for minerals, oil and gas and power is being driven by
population growth and the industrialisation of developing economies
such as India, China and Brasil.
• In North America, as conventional resources are exhausted, the propor-
tion of oil and gas sourced from unconventional sources continues to
grow with a number of other international markets now also emerging.
• Ageing power plants and growing environmental concerns will accelerate
the demand for new plant or alternative forms of energy, in both the
developed and developing world.
The Group enters 2011 in excellent financial health, with a record order
book, a clear strategy and plans to drive future growth. We are confident
we will deliver further good progress.
Over the medium term, the Group is well placed. It has strong positions in
three growing sectors with positive medium term fundamentals and an
emerging markets bias. It also has a resilient business model that focuses
on the sale of original equipment products to provide a growing installed
base for more profitable and resilient aftermarket sales. The Group is well
on track to deliver on its ambition to double 2009 profits by 2014.
Keith Cochrane
Chief Executive
8 March 2011
08 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
1
Pump Technology Centre, Sydney, Australia
Weir Oil & Gas Services, Dubai
Weir SPM - developing world class products
Driving growth The Weir Way
innOvaTivE
SOLUTiOnS
Innovation is at the heart of our processes at Weir. A major
differentiator for Weir is the superiority of our materials and products
with our Pump Technology Centre in Sydney, Australia focused
solely on the research and development of improved materials
and designs. Key objectives for our engineering teams globally is
to ensure that products continually deliver longer plant life, extend
maintenance cycles, reduce downtime and lower whole-life operat-
ing costs. During 2010, our Engineering Excellence Committee was
re-energised with cross divisional working at its core to drive
engineering best practice throughout the Group.
While we have increased our spend in research and development, we
strongly believe that innovation is not restricted to the technological aspects.
Innovation is also about being proactive and creative in delivering operational
improvement and increasing customer focus, introducing new products to
existing customers and taking existing products to new markets.
During 2010, Minerals Multiflo and Hazleton companies found just such
markets with their respective specialist pumps forming part of barge pack-
ages developed by Weir Minerals Canada for the Canadian Oil Sands.
Meanwhile, Weir Minerals Lewis Pumps, already a world leader in vertical
pumps for the sulphur chemicals industry, is now applying its expertise toward
solar power. A historical drawback of solar power generation is the inability
to generate electricity when the sun is not shining. One solution is to use
molten salt which operates at up to 550°C, as a means of storing heat.
Lewis Pumps™ vertical centrifugal pump technology is uniquely suited for the
challenging application of pumping high temperature, high specific gravity
molten salt, making them one of only a small handful of companies in the
world capable of satisfying the high flow, high head requirements of a full
scale solar power plant.
Along with continued capital investment in its facilities and service centres,
Weir SPM has targeted technical differentiation as a strategic driver of growth.
As a result, Weir SPM effectively doubled its engineering resources in 2010,
and aligned itself strategically with the University of Strathclyde, a leading
engineering faculty, with the intent of developing technically superior prod-
ucts to support its strong operational position in meeting the increasing
demands of the market place. The relationship has given access to world class
engineering talent and, combined with our increased internal resources, led to
a number of new product initiatives currently being developed.
The Weir Production System’s Lean methodology continues at the heart of
our operational excellence. A new ‘pull’ system at Weir Valves & Controls UK
saw lead time reduced by 78%, work in progress cut by 90% and an imme-
diate capacity increase of 50%. Power & Industrial Services Europe’s finance
team has adopted Lean as operational excellence expands into support
functions. Through a continuous improvement programme involving a series
of small process changes, they identified annual savings of £600,000 and a
working capital improvement of £7m.
09
“ Innovation is not restricted to the
technological aspects. It is also
about being proactive and creative in
delivering operational improvement
and increasing customer focus.”
W
e
i
r
i
l
M
n
e
r
a
s
M
u
l
t
i
f
l
o
,
C
o
o
u
m
l
,
A
u
s
t
r
a
l
i
a
10 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
2
Weir Minerals Multiflo, Coolum, Australia
Weir Oil & Gas Services, Abu Dhabi
Weir Valves & Controls, Elland, UK
Driving growth The Weir Way
COLLaBORaTivE
MinDSET
At Weir we believe in developing a collaborative mindset and that we
can achieve much more when we work together across businesses,
divisions, markets and regions to solve problems and exploit market
opportunities. Weir people are willing and able to work in partnership
with each other, as well as with our customers and partners and
during 2010 one of our aims was to further optimise our ability to
operate to best effect across divisions and regions.
Towards the end of 2010, the Oil & Gas Forum was created with the aim
of identifying opportunities to take products from all divisions to a wider
customer and market base within the oil and gas sector, providing major
potential for further organic growth within the business.
Within this framework, Weir Floway, our Minerals speciality pumps business,
has been working with the Oil & Gas Houston facility to bring their products
and services to identified markets and together they are already delivering
real benefits to maximise revenues in the upstream oil & gas sector.
Minerals has continued to develop its proven Total Care Centre offering to
customers adding new on-site service facilities for customers in Russia and
Africa to its already extensive global Total Care Centre footprint where
the objective is to minimise the customer’s downtime while maximising the
division’s share of aftermarket revenues.
In the growing wind energy market, Power & Industrial has developed a unique
collaborative approach to windfarm support. As well as providing field and
engineering services, Weir works closely with both windfarm owner/operators
and turbine manufacturers to create a model that ensures the most compre-
hensive use of resources. The first contract under this model was from Alstom
at ScottishPower Renewables’ Clachan Flats windfarm in western Scotland.
Power & Industrial strengthened its nuclear offering with a cooperation
agreement with Mitsubishi Heavy Industries (MHI). The agreement combines
MHI’s considerable technical expertise in nuclear pumps with Weir’s
engineered nuclear valves and aftermarket services. The initial and primary
focus of the agreement is on the UK.
The agreement with KHD Humboldt Wedag International Ltd to make Minerals
the exclusive worldwide agent for KHD and recommended service provider
for their high pressure grinding rollers in minerals processing applications
is already providing an excellent extension to our substantial offering in the
mining mill circuit with orders received in Australia and South America.
11
W
e
i
r
O
i
l
&
G
a
s
,
D
u
b
a
i
“ We believe in developing a collaborative
mindset and that we can achieve much
more when we work together across
businesses.”
12 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
3
Weir SOS, Baku, Azerbaijan
Weir Minerals, Sydney, Australia
New acquisition American Hydro
Driving growth The Weir Way
GLOBaL
CaPaBiLiTY
Around 40% of the Group’s revenue comes from emerging markets
in Asia-Pacific, South America, Middle East and Africa as the demand
for resources continues. We have always been committed to going
where our customers are, from the most challenging oil production
environment, to the emerging power and energy markets of Asia
and Africa and this commitment brings extensive opportunities for
us to further internationalise our products and services.
During 2010 we made considerable progress in leveraging our presence in
some of the fastest growing emerging markets.
To capitalise on the growing investments in the rapidly expanding China shale
gas industry, a 60% joint venture was signed with Shengli Oilfield Highland
Petroleum Equipment Company Limited to produce Weir SPM frac and
cement pumps. An agreement with Loftyman Engineering (HK) Ltd signed
at the end of the year will strengthen our control valve offering with the
introduction of eight sales offices throughout China with manufacturing and
aftermarket support from our existing Suzhou plant. At the start of 2011 an
assembly centre with test stand was opened in Taicang to build the GEHO®
brand of pumps. This facility will also be a key element in supporting the
already considerable installed base of GEHO pumps in China. Along with the
Wuxi manufacturing facility from the Linatex acquisition, these developments
add to Weir’s well established presence in China, substantially increasing our
growth prospects in the region.
Our existing Indian businesses saw good growth during the year and the
opportunities in India have been extended with the acquisition of the BDK
valves business. BDK’s range of industrial valves will also enhance our global
customer offering of specialist valves including the nuclear products manu-
factured in the US and Europe. At the same time, BDK’s own extensive sales
network in India and elsewhere will provide an additional route to market
for many of our existing products.
Weir Oil & Gas also accelerated its regional expansion in the newer oil and
gas producing areas of Australia and South East Asia during the year with the
acquisition of PCS and in South America with the opening of its first service
facility in Brasil, positioning the business for the expected rapid expansion of
the oil and gas industry there.
Towards the end of 2010, the acquisition of American Hydro in Pennsylvania
strengthened Weir’s global reach in hydro power, the largest source of
renewable energy worldwide. American Hydro specialises in high-efficiency
hydro-turbines and components. Combined with Weir’s existing engineering
hydro service and rehabilitation know-how developed over many years in the
UK and more recently in Canada, Weir American Hydro will look to develop its
geographical presence beyond its traditional markets. The already consider-
able skills in the growing area of renewable power was further extended with
the addition of Ynfiniti Engineering Services, based in Madrid, Spain.
13
“ Our commitment to going
where our customers
are brings extensive
opportunities to further
internationalise our
products and services.”
14 The Weir Group PLC
Annual Report & Financial Statements 2010 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)
1,904
1,666
1,366
2000
1500
1000
500
20
16
12
8
4
18.9
13.7
14.7
294.7
176.2
187.0
350
250
150
50
2008
2009
2010
2008
2009
2010
2008
2009
2010
• Drive installed base growth through innova-
tion 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.
• Delivering efficiencies by leveraging our glo-
• Drive revenue growth, margins and operat-
bal network.
ing efficiency.
• Maximise aftermarket opportunities.
• Maintain optimal financing costs.
• Maintaining a proactive approach to capacity
planning and associated management of our
cost base.
Weir Chief Executive Keith Cochrane, with Mr. Xianping, Highland Chairman & President at the signing of the joint agreement with Shengli Oilfield Highland Petroleum
Equipment in Dongying, China
15
Free cashflow3 (£m)
Group Lean Score (%)
Lost time accidents
141.1
60.7
79.9
150
120
90
60
30
70
60
50
40
65
62
70
100
83
80
60
40
20
40
26
2008
2009
2010
2008
2009
2010
2008
2009
2010
• Optimising the capital structure and long-term
financing of the Group.
• Continuing with our focus on working capital
management including application of Lean
methodologies
inventory and debtor
management.
to
• Weir Production System Lean score is deter-
mined by comparing our current processes
against world-class practice and performance.
• Maintaining zero tolerance toward accidents.
• Encouraging a culture of near miss reporting.
• Maintaining our world-class platform devel-
oped in recent years.
• Eliminating waste and reducing lead times in
business processes.
• Continuing focus on on-time delivery.
1 Calculated at 2010 average exchange rates 2 Adjusted to exclude intangibles amortisation 3 Continuing operations
Checking the Lean Kanban system at Weir Minerals Australia
16 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Weir Minerals Division
Operational review
Divisional results1
Order Input
£984m
Up 26%
Revenue
£901m
Up 3%
Operating profit
£174.5m
Up 24%
Sector input breakdown
Geographic input breakdown
Minerals
74%
General Industry
9%
Oil & Gas
8%
Power Generation
7%
Other
2%
North America
21%
South America
21%
Australia
19%
Middle East/Africa
15%
Asia Pacific
15%
Europe/FSU
9%
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
Weir Minerals 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 several niche markets, including
oil sands and flue gas equipment (FGD). Products include pumps,
hydrocyclones, valves, dewatering equipment and wear resistant
linings and, following the acquisition of Linatex in September 2010,
rubber products and screening machines. The division’s partnership
with KHD Humboldt signed in May 2010 extends its reach into
high pressure grinding rollers, an exciting new breakthrough in
milling technology.
The division’s strong competitive position is underpinned by core
competencies in materials technology and engineered hydraulics,
which are naturally aligned with aggressive wear applications
ensuring a sustainable business model with a large proportion of
business coming from the aftermarket. This ongoing relationship
brings the division closer to its customers, as trusted suppliers
with the expertise to resolve issues in a number of critical applica-
tions central to determining operational success. Through these
competencies the division’s market presence will continue to be
extended into new applications, where a source of competitive
advantage can be offered to customers. The division operates
in all key mining markets with an extensive service and support foot-
print, including South America, Australia, Asia-Pacific, Africa and
North America.
Market review
Market conditions improved in 2010 underpinned by strong demand
for commodities, particularly from emerging markets, with rising
commodity prices through the year. Most mothballed mines were
re-started to meet global ore production growth of around 10% - a
key driver for the aftermarket business. Increased activity was also
evident in the Canadian oil sands market where capital spend
is mainly targeted at addressing environmental issues or improving
production efficiencies. Increases in capital expenditure were
announced by a number of customers driving increased project
enquiries and engineering studies. As the year progressed and
sector confidence grew, most previously deferred projects were
re-activated and a number of brownfield expansions actioned trans-
lated into increased original equipment orders. The FGD market
continued to be generally flat given a lack of new coal plant starts in
the US and China.
17
Achievements & contract wins
• Acquired and successfully integrating Linatex® products into the Weir Minerals portfolio
and Weir Production System.
• Opened a fully integrated, state-of-the-art foundry and manufacturing facility outside Sao
Paulo in Jundiai, Brasil.
• Initiated 20 year agreement with KHD to market High Pressure Grinding Rollers (HPGRs)
in the mining and minerals processing market, with Weir Minerals Australia selling the
first HPGR unit.
• The next generation Warman WBH centrifugal slurry pump has been launched and is
gathering recognition with orders from customers for its reduced energy usage, ease of
maintenance and enhanced performance.
• Weir Minerals Canada provided Suncor Energy with three large dewatering barge
systems for use in extremely harsh and remote environments. The barges, weighing in
excess of 400 tonnes, are designed to meet rigorous naval architecture requirements.
• Weir Minerals Peru and Weir Minerals Netherlands received orders exceeding US$20m
to supply a copper mine expansion project with a range of GEHO and Warman pumps.
The next generation Warman WBH centrifugal slurry
pump - set to be Warman’s next ‘gold standard’ pump
• Orders totalling US$7.7m received from an iron ore concentration plant project in Brasil
for supply of a range of Warman slurry and rubber lined pumps and Cavex® cyclones.
• Good growth in the Minerals Total Care centres realised 19% increase year on year with
significant increases in Africa (37%), Brasil (46%), Europe (55%), and Canada (88%).
• Continued building long-term relationships with the major mining houses including
receiving in principle commitments for five new major projects.
Operational performance
The division delivered another record financial performance benefit-
ing from improving markets and a higher proportion of aftermarket
revenues from a business model that provides exposure to both
capital expenditure trends and commodity production volumes.
Good progress was made in delivering on the division’s strategic
growth initiatives of extending its market presence and product
portfolio. The integration of Linatex is progressing well with synergy
savings estimates increased by US$5m to US$10-US$15m by the
end of 2012. This broad based performance continues to demon-
strate the resilience of the division’s business model.
Order input increased 26% to £984m (2009: £782m) reflecting a
32% and 21% increase in original equipment and aftermarket orders
respectively. Original equipment orders represented 43% of total
order input (2009:41%). On a like-for-like basis, ignoring the impact
of the Linatex acquisition which contributed £28m, order input was
up 22%. All regions showed growth benefiting from a broader
product portfolio and exposure to a wide range of commodities.
Emerging markets accounted for 51% of input, up from 49% in
2009. Notable slurry pump wins were achieved in the Philippines
(nickel), Brasil (iron-ore) and Mongolia (copper) while ancillary
State-of-the-art foundry at Weir Minerals new facility
near Sao Paulo, Brasil
18 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Weir Minerals Division
Operational review (continued)
“ The growing installed base
provides future aftermarket
opportunities while long term
market fundamentals remain
strong driven by urbanisation
in emerging markets and their
high demand for raw materials.”
Aftermarket input (£m)
564.1
470.3
464.8
600
500
400
300
200
100
2008
2009
2010
product orders were up 38% in the year. These included a CAD$50m
award, for delivery in 2011, to supply barges and an integrated
package of Weir products to a major oil sands project in Canada
while in Chile the business was successful in extending its presence
into the mill circuit spools market with a number of significant
contract wins totalling US$18m. Aftermarket input benefited from a
restocking effect in the early part of the year, higher activity levels in
the mining and oil sands markets and growing service support
revenues as the division extended its service footprint.
Revenue increased by 3% to £901m (2009: £879m) including a
£27m first contribution from Linatex. Like-for-like revenues remained
flat reflecting a lower opening orderbook offset by strong growth in
shorter cycle aftermarket revenues in Australia, Canada, South
America and Africa and a pickup in the last quarter in original
equipment sales which accounted for 39% (2009: 47%) of annual
divisional revenue.
Operating profit increased by 24% to £174.5m (2009: £140.5m)
and included £1.9m from Linatex offset by £8.3m of restructuring
and acquisition costs. This strong underlying improvement reflects
the increased aftermarket mix, improved operating efficiencies and
raw material pricing benefits in the early part of the year.
Operating margin improved to 19.4% (2009: 16.0%) reflecting a
higher proportion of aftermarket sales and, in the second half, the
impact of the Linatex acquisition and associated restructuring
costs.
Investment
The division has continued to invest in materials and product technology as well as
its operating facilities to meet the needs of a growing business. Capital expenditure was
£30.2m (2009: £29.7m) with significant investment in South America and Asia while
research and development spend rose 42% to £8.2m.
During the year, Multiflo moved to a AUD$9m purpose-built facility in Queensland, Australia,
consolidating four sites into one. In addition to doubling capacity and the increased
operational synergies of being in one location, the new complex was designed around
state-of-the-art energy efficiency principles. In early 2011, an assembly centre and test
stand for GEHO pump products was opened in Taicang, China. GEHO pumps are world
market and technological leaders, handling a wide range of applications including long-
distance slurry pipeline transport and high density tailings disposal. The Taicang facility will
be a key element in executing GEHO’s strategy to support the aftermarket of the already
large installed base in China. A number of new service centres were also opened in the
year including in Africa, Indonesia and Russia, extending the division’s emerging markets
presence. Additional efforts are underway to expand the capabilities of our service centres
to include servicing of KHD and Linatex products.
19
Weir in action
Customer
When a new plant starts up, the last thing the
operations team wants is equipment failure early
on, which unfortunately happened at PanAust’s
Phu Kham Copper-Gold Operation in Laos
when one of the original valves became a big
headache. After four to six months the complete
valve needed replacing with a new one.
Phu Kham copper-gold operation in Laos
Brief
The site operations team at Southeast Asia’s
leading copper and gold producer’s key asset
had done a magnificent job working through
the challenges of the new plant, achieving
record production. They were determined to
overcome the obstacle arising from the valve
operations and carried out an in-house survey.
They turned to Weir Minerals, trusting their long
term experience and expertise in slurry lines.
The PanAust team knew they would get an
informed option.
Solution
By taking a big picture perspective of the
slurry line, Weir Minerals identified the problem,
which embraced not only the original valves but
the piping too. A trial of two different kinds of
Weir Minerals Isogate® valves seemed certain
to lead to a far better solution, along with a
cost-effective piping alternative. And it did.
Result
The Isogate valves ran up 8 to 10 months without
a hitch and maintenance only involved changing
valve sleeves and re-installing the valve. Nick
Opiti, PanAust’s Plant Reliability Engineer for
Fixed Plant Maintenance said: “Expertise and
experience is built over time and since Weir
Minerals provided a practical solution for a real
time issue we have maximised performance
of the plant.”
Weir Minerals continue to develop the Warman brand in the drive for a superior pump
for heavy duty applications. By examining industry issues, leveraging the features that
made the Warman AH pump the gold standard for a generation and modifying its design,
the engineering team has created the Warman WBH slurry pump range with a range of
improved features. A number of customer trials were launched in the year with positive
feedback, confirming a material reduction in total life cycle costs through improvements in
wear life, energy usage and flow rates.
The acquisition of Linatex, a global provider of wear-resistant products to the mining
and sand & aggregates industries based in Kuala Lumpur, Malaysia was completed
in September 2010, for a total consideration of £124.4m after taking account of net
indebtedness acquired of £12.7m (at the exchange rate ruling at date of transaction). This
acquisition represents an excellent opportunity for the division to grow its global capability,
emerging market footprint and further strengthen its aftermarket presence. Linatex has a
geographic footprint well-aligned to the division, together with an established emerging
market base served from core manufacturing facilities in Malaysia and China. Its market
leading rubber products are highly complementary to the existing portfolio with significant
potential for expansion in the Canadian oil sands through newly developed Linatex product.
This will enable the business to leverage off the division’s existing global sales network to
grow product sales.
Integration is progressing well with realised annualised synergy savings achieved to date
of US$8.8m and total savings now expected to be around US$10-US$15m by the end of
2012 against our earlier expectations of US$5-US$10m.
The division’s partnership with KHD Humboldt also brings further exciting opportunities
to leverage the existing customer base and service infrastructure by offering customers
innovative new technology in high pressure grinding. This break through in grinding
technology creates the potential to significantly enhance customers’ productivity, as a
highly efficient alternative to traditional mill set ups, whilst positioning the division for growth
in this high potential market.
Employees remain at the heart of the business and it is their engineering and operatio-
nal skills which provide the basis of the division’s competitive advantage. The division
recognises the importance of continuing to invest not only in technology, but also in
strengthening the customers’ experience and the capability of employees to deliver
this. In 2010, the Mill Circuit University was introduced for employees to learn about the
entire minerals processing circuit. This training expands the breadth of expertise that the
attendees possess, while also enhancing the professionalism with which the division can
package products as solutions for customers’ process critical applications.
Outlook
Weir Minerals is well positioned for future growth, with positive market conditions across
the mining and oil sands markets expected to continue through 2011. Increases in capital
expenditure have been announced by some customers which have resulted in increased
project enquiries and engineering studies with a number of “mega-projects” likely to get
underway in 2011/12 principally across South America and the Asia-Pacific regions. It
is anticipated that this will translate into further original equipment order growth. A more
modest growth in aftermarket orders is expected given the 2010 restocking effect and
forecast commodity production volume trends. Together with a strong opening order book
and a full year Linatex contribution, it is expected that 2011 revenue and operating profit
will be higher than 2010 with operating margins reflecting a higher proportion of original
equipment revenue compared to the prior year. The growing installed base provides future
aftermarket opportunities while long term market fundamentals remain strong driven by
urbanisation in emerging markets and high demand for raw materials.
20 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Weir Oil & Gas Division
Operational review
Divisional results1
Order Input
£626m
Up 97%
Revenue
£462m
Up 50%
Operating profit
£117.4m
Up 122%
Sector input breakdown
Geographic input breakdown
Oil & Gas
99%
Power Generation
1%
North America
74%
Middle East/Africa
12%
Europe/FSU
12%
Asia Pacific
1%
South America
1%
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
Weir Oil & Gas 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 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, while its
expanding geographic footprint now includes Asia-Pacific and
South America.
Market review
During 2010, the North American upstream market experienced a
significant rebound in activity. A substantial increase in on-shore
horizontal drilling was supported by a move to oil and liquid rich
shale formations and significant additional investment into the
development of existing and new shale fields utilising more intensive
fracturing techniques. The average horizontal rig count, a key driver
for the upstream pressure pumping market, increased over 80% on
2009 with a growing proportion of onshore oil and gas production
sourced from shale formations. A notable feature has been a 113%
increase in oil and liquids rich shale drilling – now representing
around 34% of the horizontal rig count - a 15 year high - reflecting
the market’s adaptation of fracturing to enable cost effective oil and
natural gas liquids production from shale formations across North
America. In contrast, rigs targeted at gas production increased by
only 18% reflecting generally weak gas prices with a flattening off in
growth in the second half.
The globalisation of shale opportunities started to gain momentum
in 2010 with China, Europe and Australia all signalling interest in
developing shale opportunities in the next five years.
As expected, customer activity in downstream markets remained
at low levels while key Middle East services markets showed
a rebound off 2009 lows in the second half of the year, with Iraq
in particular presenting a number of good opportunities as significant
investment is made in refurbishing existing oilfields to improve
overall production levels.
21
Achievements & contract wins
• Weir SPM significantly increased its already leading market share position through
its operational leverage, extensive service footprint and continued investment in
its facilities.
• Market share gains with a major well service operator saw input increase almost four-
fold in 2010 over 2009.
• Several multi million dollar contracts awarded to Wesco Dubai in Iraq, through Worley
Parsons, BP, and ENI. Contracts include the refurbishment of gas turbines, oil field
pumps and water injection plants in Iraq’s southern oilfields.
“ The medium term outlook for
upstream remains positive as
growth in the North American
onshore oil and gas sector
continues, as operating intensity
increases and as interest in
shale fracturing beyond North
America develops.”
• Aberdeen services business expanded its customer base with several multi-million
pound contract wins with Chevron and TAQA.
US horizontal rig count
• Joint venture formed to target China’s accelerating unconventional shale gas market.
1,000
• Destiny triplex frac pump developed and launched for new harsher shale applications.
• Regional expansion continues in newer oil and gas producing areas of Australia and
South East Asia with the acquisition of Petroleum Certification Services (PCS).
• First service centre opened by Weir SPM in Brasil positioning the business for the
expected rapid expansion of the oil and gas industry.
800
600
400
200
Series 1
Operational performance
On the back of an excellent performance in the upstream business
units, the division has been able to achieve a record financial
performance. Further manufacturing and service capacity is being
added to support current and future needs of upstream operations,
while the restructuring of the downstream operations to reflect
current market conditions is now underway.
Order input increased by 97% to £626m (2009: £318m). Upstream
business units, Weir SPM and Weir Mesa, achieved input growth
of 215% to a record £476m (US$736m), benefiting from improved
market conditions, a move to harsher shale environments and
market share gains. Growth accelerated in the second half driven
by a surge in demand for original equipment as utilisation levels
increased and customers expanded fleet capacity, placing forward
orders for 2011 and 2012. The replacement cycle has also been
shortened by the increasing operational intensity of longer cycle,
higher pressure applications. Good progress was also made by the
Middle East service operations with higher input principally due to
opportunities arising in Iraq. These increases were partly offset by
the downstream business, Weir Gabbioneta, which experienced a
soft market and increased competition, causing input to fall 15% to
£82m in 2010 (2009: £97m).
D ec 08
M ar 09
June 09
Sept 09
D ec 09
M ar 10
June 10
Sept 10
D ec 10
Weir Oil & Gas Services in Dubai
22 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Weir Oil & Gas Division
Operational review (continued)
Revenue increased 50% to £462m (2009: £308m). Upstream
businesses achieved revenues of £303m (US$469m), up 116% on
2009. In particular, they benefited from an ability to respond quickly
to changing market conditions, investments in increased capacity
and an expansion of their service centre footprint.
Operating profit including joint ventures increased by 122%
to £117.4m (2009: £53.0m). The positive market environment in
upstream, along with strong operational leverage were the primary
drivers of this record performance.
Operating margin was 25.4% in 2010 compared to 17.2% in
2009, reflecting the operating leverage effect of higher volumes
at the upstream business units and continued strong aftermarket
revenues across the division.
Pump assembly at Weir SPM, Fort Worth, Texas
23
Investment
Weir Oil & Gas continued to invest in support of future growth ambitions with capital
expenditure of £17.2m (2009: £7.1m). During the year, Weir SPM added to its machining
capacity at the Fort Worth facility and expanded its service network, including a new
service centre in Macae, Brasil. Further investment was also made in the Houston and
Mesa operations. In March 2010, the Australian business PCS was acquired for £3.9m
providing a platform for growth in that market. Commitment has also been made to
significantly increase manufacturing and service capacity at Weir SPM’s Fort Worth plant
with a planned investment of US$40m (£26m) over 18 months.
In November 2010, a joint venture was formed with Shengli Oilfield Highland Petroleum
Equipment Co. Ltd. to provide high-pressure well service pumps and related flow control
equipment to the developing shale gas industry in China.
The joint venture is expected to commence operations in the first half of 2011. Owned
60% by Weir and 40% by Highland and based in Dongying, Shandong Province, the joint
venture will build on the success achieved by Weir SPM in providing specialised products
for use in the development of shale oil and gas production in North America.
Weir in action
Customer
In late 2008 Weir SPM conducted a strate-
gic “voice of customer” frac pump survey and
received feedback with a strong demand for a
more durable and reliable frac pump for use in
the harsh unconventional gas shale formations
during multistage hydraulic fracturing processes.
With Weir SPM’s expertise in well service pumps and flow control equipment and Highland’s
extensive customer relationships and market knowledge, the joint venture is seen as a key
enabler to securing business from China’s accelerating unconventional shale gas market.
Destiny triplex frac pump
A substantial investment has been also been made in product research and development.
Engineering resources were doubled and overall spending on research and development
increased by 65% to £4.8m. Towards the end of the year the Destiny triplex frac pump
was launched providing a product with improved reliability, higher output and pressure
loads to provide a longer uninterrupted service operation as required by these new shale
applications. Further new product launches are planned for 2011. This pump has gained
immediate acceptance, especially in Canada and will be a core product for Weir SPM in
2011. Work also commenced in reviewing the downstream product portfolio to improve
its cost competitiveness in the challenging market conditions.
Reflecting the growth of the business, over 500 employees joined the division with effective
integration a key priority over the year. Management training and development initiatives
continue to be developed across each operation in support of Group-wide plans.
Outlook
The upstream businesses enter 2011 with a record order book providing much greater
forward visibility than in previous years. Current forecasts indicate that the average North
American horizontal rig count will continue to grow in 2011 with a further shift towards
oil drilling. As a result it is anticipated that 2011 upstream revenues and operating profits
will grow ahead of previous expectations. However, given the surge in original equipment
orders achieved in the last five months of 2010 for delivery in 2011 and 2012, a more
normalised level of input is anticipated in 2011. Moderate growth is forecast in the
Middle East in 2011 underpinned by improved operating conditions in Iraq. The division’s
downstream operations will be impacted by a weaker opening order book, restructuring
actions and an anticipated continued challenging environment for new orders. The medium
term outlook for upstream remains positive as growth in the North American onshore oil
and gas sector continues, operating intensity increases and interest in shale fracturing
beyond North America develops.
Brief
Original frac pump technologies were developed
decades ago for applications vastly less intensive
than those of today. Pumps were modified in
the mid-2000’s to support the Barnett shale
gas development in North Texas, but these
only met the market needs for a short time.
Multistage fracturing technologies continued to
evolve through late 2008 into 2009 with higher
horsepowers and pressures and caused frac
pumps and related components to wear at rates
faster than ever.
Solution
Weir SPM developed a new functional frac pump
specification and after verification by customers
embarked on the Destiny product research and
development project to design and deliver a new
state-of-the-art frac pump range using the most
modern analytical tools and materials to meet
market demands.
Result
In 2010, the first of the new range, the Destiny
triplex frac pump, completed both shop and
field testing to verify the original “voice of the
customer” requirements outlined in late 2008.
As customers began field testing, the Weir SPM
Destiny frac pump demonstrated its superior
performance. Customer response to date has
been tremendous. Deliveries started in the last
quarter of 2010 and a significant order book
already exists. Research and trials continue to be
conducted for improved life pump expendables
with
technologies
launches of new
further
planned for 2011.
24 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Weir Power & industrial Division
Operational review
Divisional results1
Order Input
£268m
Up 6%
Revenue
£246m
Up 6%
Operating profit
£26.3m
Up 11%
Sector input breakdown
Geographic input breakdown
Weir Power & Industrial designs, manufactures and provides after-
market support for specialist and critical-service rotating and
flow control equipment for the global power generation, industrial
and oil and gas sectors. The division includes the Group’s critical
service valve operations, a specialist pump business, hydro and
steam turbine businesses and substantial service and aftermarket
operations with locations in Europe, Middle East, North America,
India, China, Asia Pacific and South Africa.
The valve portfolio was expanded during 2010 with the acquisition
of BDK in India, while the acquisitions of American Hydro and Ynfiniti
Engineering Services (YES) strengthen the division’s position in the
renewables market. Three facilities have nuclear certification and the
business is one of only a few companies globally with the capability
to provide specialist safety critical valves into the nuclear islands
of the 3rd and 4th generation of nuclear power stations.
Market review
Demand for original equipment for the conventional power market
remained strong in Asia but was weak in Europe and North America,
with most new coal power station projects postponed or cancelled
due to funding issues and environmental legislation uncertainties.
The nuclear market remained active with China continuing to repre-
sent the majority of nuclear new build activity worldwide, although,
in the US, procurement started for the first two new nuclear plants
in 25 years with emerging opportunities elsewhere. The hydro and
wind markets also continued to grow as the demand for power
from renewable energy sources continued to increase worldwide.
Customers postponed most non-essential maintenance of existing
fossil and nuclear plants, although continuing new build delays
will result in increased potential for refurbishment and life exten-
sion projects.
Weak market conditions continued across the industrial and
downstream oil and gas markets, with reduced activity in the UK
and Canada.
Power
61%
General Industry
11%
Oil & Gas
11%
Water &
Wastewater
8%
Other
9%
North America
42%
Europe/FSU
32%
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
25
First safety valves from new production line
in Hubli, India
Weir Specialty Pumps launch enhanced range for
municipal and industrial markets
Achievements & contract wins
• Achieved a record year for nuclear valves orders, with an input of £37m, including:
• significant orders from Westinghouse for the supply of TRICENTRIC® butterfly valves
for the first nuclear stations to be built in the US in 25 years
• a major order for the supply of Blakeborough® control valves for Taishan, the first
nuclear power plant project in China to construct the Areva EPR reactor design
• the supply of Hopkinsons® gate valves as part of the rehabilitation programme at Bruce
Power nuclear power plant in Canada
• an order for nuclear safety valves with Chinergy in China for the prototype of the
world’s first 4th generation nuclear reactor.
• Signed an agreement with MHI to collaborate on projects in the UK nuclear new build
market.
• Awarded multi-million pound contracts for the supply of two industrial steam turbines
with a total capacity of 40MW by Royal Swaziland Sugar Company and Dutch waste-to-
energy provider A.R.N. BV.
• First order for windfarm maintenance secured from Alstom, covering nine 1.7MW
turbines at Clachan Flats windfarm in Scotland.
• Multi-million pound contract for innovative subsea rotary gate valves for the Greater
Gorgon gas field, off the coast of Western Australia.
• Weir American Hydro secured US$18m of orders from major North American power
companies including Ameren, Kentucky Utilities, Nova Scotia Power and PPL Generation
for rehabilitation and turbine runner replacement at four hydro power plants.
• Enhanced range of specialist pumps launched for the municipal and industrial markets
with improved efficiency.
Operational performance
The division has continued to focus on product innovation and
development, expanding the supply chain and extending its product
offering and sales route to market with a clear focus on the global
power market and on growing oil and gas opportunities. A positive
first contribution was made by the recent acquisitions of BDK and
American Hydro and restructuring of the Canadian service operations
was completed to improve market position and profitability.
Order input grew by 6% to £268m (2009: £254m), but fell 1%
before the impact of current year acquisitions which contributed
£18m of input in their part-year of ownership. Nuclear input at £83m
(2009: £83m), benefited from new orders weighted to the second
half from China, the US and Europe. However, this has been more
than offset by the postponement of outages at a number of power
stations in Europe and North America. In addition, poor market con-
ditions in the industrial sector have particularly affected product and
26 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Weir Power & industrial Division
Operational review (continued)
“ The global push for low carbon
power generation will drive
growth in renewable energy
markets and this sector will
become increasingly important
for the division.”
Nuclear order input
100
80
60
40
20
£83m
£83m
£70m
2008
2009
2010
service businesses in Canada and the UK. Positive input trends
were evident at both Weir BDK and Weir American Hydro. Overall,
the proportion of orders from the power sector increased to 61%
(2009: 55%).
Revenue increased by 6% to £246m (2009: £231m), growing 3% on
a like-for-like basis. This reflects a strong opening order book, weak
aftermarket and increased deliveries of original equipment products
to the Chinese nuclear market. Weir American Hydro and Weir BDK
contributed revenues of £8m in the part-year of ownership.
Operating profit increased by £2.6m to £26.3m including a £1.0m
contribution from the current year acquisitions and costs of £2.6m
relating to the restructuring of the Canadian service operations and
other integration and acquisition related costs.
Operating margin rose to 10.7% from 10.3% in 2009. This increase
reflects positive manufacturing efficiencies, benefits from the low
cost supply chain and the positive impact of higher margin acquisi-
tions offset by one-off costs.
Weir strengthened its presence in the growing renewables market
Weir strengthened its presence in the growing renewables market
Investment
Capital investment of £3.4m (2009: £3.7m) was made in the division’s facilities to further
improve operating efficiency and capability. During 2011, further investment is planned
in Canada and China. A new Montreal service centre will complement the American
Hydro acquisition and enhances its offering to the Canadian hydro power market
while an extended Suzhou facility will enable control valves to be manufactured for the
Chinese market.
In October 2010, the acquisition of BDK, an Indian valve manufacturer, was completed
extending the emerging market footprint and product portfolio and providing a substantial
low cost manufacturing capability. The division’s exposure to the fast growing renewables
market was also increased with the acquisitions of American Hydro in the US and YES
in Spain. Weir American Hydro manufactures turbine components which improve the
efficiency of existing hydro-electric power generation plants and together with the existing
service skills will accelerate development in established hydro markets. Weir YES provides
operating and maintenance services to the growing installed base of wind turbines
operating principally in Spain and Portugal. Further investment through the YES acquisition
will strengthen the division’s presence in the fast-growing wind and solar markets by
broadening its renewables offering and creating a global capability.
Overall spending on research and development increased by 79% to £1.8m due to new
product development initiatives aligned to target growth markets of nuclear power and
renewable energy. The specialist pumps business in the US also invested in the develop-
ment of a range of pumps to improve its position in the municipal and industrial markets.
A number of other projects are also underway to expand routes to market and product
offering across both the power and oil and gas markets. Sales and application engineering
resources were increased to extend market coverage for control and safety valves
while a new Singapore trading hub has been opened to access the wider South East
Asia market.
Outlook
An improved financial performance is expected in 2011 as the division benefits from a
substantial nuclear workload, the now completed Canadian restructuring and a full year
contribution from the 2010 acquisitions. Input trends will be impacted by the timing of
new nuclear orders, with fewer prospects expected to come to market in 2011 before
a pickup in 2012. Whilst the outlook for the global power markets remains positive, the
division remains cautious as to recovery of general industrial markets. An active new build
nuclear programme continues in China with a growing number of opportunities emerg-
ing elsewhere in the world. In addition, the lack of new build coal plants in Europe and
North America will add impetus to other power sources, such as biomass conversions
and new gas-fired plant. As the global push for low carbon power generation drives
growth in renewable energy markets, this sector will become increasingly important for
the division.
27
Weir in action
Customer
Much of the global nuclear new build activity is
focused on the so-called 3rd generation reac-
tor technology. Although no commercial 3rd
generation reactors are currently operational,
the development of 4th generation reactors
is already underway. One project is the High
Temperature Gas-Cooled Reactor Pebble-Bed
Module (HTR-PM) in China, being led by a con-
sortium of Chinese organisations to build the
first HTR plant in Shidaowan, Rongcheng City in
Shandong Province.
Latest safety valve for 4th generation nuclear
reactors
Brief
Weir’s facility in Châteauneuf-Les-Martigues,
France, specialises in the design and manufacture
of safety valves for nuclear applications. The
facility was tasked with developing specifications
for overpressure protection for the primary and
secondary circuits of the Chinese HTR-PM
reactor and was commissioned by main nuclear
island contractor Chinergy to supply both primary
safety valves and main steam safety valves.
Solution
A team of eight from Weir have been working
closely with engineers at Chinergy for over two
years and designed a solution to ensure no leak-
age given the complexities of the smaller size of
helium gas molecules and also material stress
due to the higher temperatures and pressures of
supercritical steam.
Result
An initial order for ten safety valves was received.
A further 19 HTR-PM reactors - based on this
initial design - have been approved in China,
putting Weir in a favourable position for addi-
tional contracts.
28 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
a record performance
Finance Director’s review by
Jon Stanton
A record performance in 2010 reflects our position in highly attractive
end markets and ability to take advantage of the growth opportunities
that they present. Positive trends in original equipment orders in the
second half of the year built on continuing strength in aftermarket
revenues. Our organic growth was complemented with five acqu-
isitions and our financial position remains strong following another
year of good cash generation and the $800m re-financing of our
committed bank facilities in September.
Order input at £1,904m was 39% higher than the prior year in
constant currency and 36% higher on a like-for-like basis after
adjusting for current year acquisitions. Original equipment orders
were up 58% (54% like-for-like) reflecting significantly increased
capital expenditure driven by demand in upstream oil and gas and
mining markets. Aftermarket orders were up 27% (24% like-for-
like) as oil and gas and commodity production levels increased and
represented 54% (2009: 59%) of total input. Each of the divisions
reported higher input levels in 2010. Minerals order input increased
26% to £984m (2009: £782m) and 22% on a like-for-like basis after
excluding Linatex, while Oil & Gas input increased 97% to £626m
(2009: £318m) with the like-for-like increase, excluding PCS, at 96%.
Power & Industrial input increased 6% to £268m (2009: £254m),
falling 1% on a like-for-like basis excluding the impact of BDK,
American Hydro and YES.
Revenue grew by 18% from £1,390m in 2009 to £1,635m with a
net currency benefit of £63.8m principally due to the weakening
of sterling relative to the average Australian dollar, Canadian dollar
and South African rand rates in the prior year. In constant currency
terms, this represents a 12% increase in revenue, reflecting strong
order input during the year, offset by the lower opening order
book. Excluding the impact of current year acquisitions, like-for-
like revenues in constant currency were up 10%. Aftermarket sales
represented 58% (2009: 54%) of revenue and due to the strength of
our North American businesses, our exposure to emerging markets
was 39% (2009: 43%) of revenues with stronger contributions from
South America, Middle East and Africa offset by a decline in Asia
Pacific mainly in non-core Weir LGE. Minerals revenues were up 3%
to £901m (2009: £879m) with like-for-like revenue flat. Oil & Gas
revenues increased 50% to £462m (2009: £308m) with like-for-
like revenues increasing by 49%. Power & Industrial revenues grew
6% to £246m (2009: £231m) with like-for-like revenues increasing
by 3%. Revenues from other Group companies fell from £36m
to £26m.
Continuing operations
Operating margins1 (%)
18.9
13.7
14.7
20
16
12
8
4
2008
2009
2010
Profit before tax1 (£m)
294.7
176.2
187.0
350
250
150
50
2008
2009
2010
Free cashflow (£m)
141.1
60.7
79.9
150
120
90
60
30
2008
2009
2010
1 Adjusted to exclude intangibles amortisation
29
Operating profit from continuing operations before intangibles amortisation increased by 51% to
£309.7m (2009: £204.7m) including a net foreign currency benefit of £8.6m. On a constant currency
basis, operating profits increased by 45% to £309.7m (2009: £213.3m), driven by the growth in
upstream Oil & Gas and Minerals aftermarket revenues offset by one-off restructuring and acquisition
transaction costs of £11.0m (2009: £6.2m).
Operating margin on the same basis increased from 14.7% to 18.9% reflecting the favourable impact
of significant growth in aftermarket revenues and the benefit of operating leverage. On a constant
currency basis, Minerals operating profits grew 24% to £174.5m (2009: £140.5m) giving a divisional
operating margin of 19.4% (2009: 16.0%). Oil & Gas operating profits including joint ventures increased
to £117.4m (2009: £53.0m) and operating margins were 25.4% compared to 17.2% for the prior
year. Power & Industrial operating profits increased by 11% to £26.3m (2009: £23.7m), with operating
margins of 10.7% (2009: 10.3%). The profit contribution from other Group companies was £3.5m
(2009: £6.8m).
Depreciation and impairment of property, plant and equipment and investment property in the year was
£34.3m (2009: £29.2m), giving rise to operating profits from continuing operations before depreciation
and intangibles amortisation (“EBITDA”) of £344.0m (2009: £233.9m).
Net finance costs
Net finance costs reduced to £15.0m (2009:
£17.7m) due to prior year one-off costs of
£3.7m on cancellation of floating-to-fixed
rate interest rate swaps and reduced inter-
est rate differential benefits from our US
dollar balance sheet hedging programme.
Underlying interest has remained flat on
increased levels of net debt due to the
higher cost of fixed private placement bor-
rowings offset by reduced losses from inter-
est rate swap hedges and lower volume
of forward currency contracts. Net inter-
est costs (excluding other finance costs /
income) were covered 23.1 times by oper-
ating profits (2009: 12.6 times).
Profit before tax
Profit before tax from continuing operations
before intangibles amortisation increased
by 58% to £294.7m (2009: £187.0m).
Reported profit before tax from continuing
operations increased by 62% to £276.5m
(2009: £170.4m) after intangibles amortisa-
tion of £18.2m (2009: £16.6m).
Taxation
The tax charge for the year of £82.8m
(2009: £52.2m) on profits before tax from
continuing operations before intangibles
amortisation of £294.7m (2009: £187.0m)
represents an underlying effective tax rate
of 28.1% (2009: 27.9%) reflecting a higher
proportion of US profits which are taxed at
a higher rate. This differs from an expected
rate of 31.0% (2009: 29.3%) as a conse-
quence of our efficient capital structure
and the recognition of recoverable deferred
tax assets in the year. The reported tax
charge in respect of continuing operations
was £77.4m (2009: £46.8m), reflecting
the additional tax credit on intangibles
amortisation.
Discontinued operations
In December 2010, the Group pleaded
guilty to two charges of breaching UN sanc-
tions in connection with a number of Oil for
Food contracts awarded between 2000
and 2002. This resulted in a confiscation
order of £13.9m and a fine of £3.0m. Since
the business involved was sold in 2007,
these costs, along with £1.7m of related
legal and professional fees, offset by the
release of £5.0m of provisions and accru-
als, are shown as a loss from discontinued
operations. In 2009, a profit of £5.2m was
recognised in respect of prior periods dis-
posals, which related to the release of an
unutilised provision following the expiry of
certain warranty periods.
Earnings and dividends
Earnings per share from continuing opera-
tions before intangibles amortisation incre-
ased by 57% to 100.4p (2009: 64.1p).
Reported earnings per share including
intangibles amortisation, exceptional items
and discontinued operations was 87.9p
(2009: 61.2p) reflecting the intangibles
amortisation of £12.8m net of tax and the
exceptional loss on discontinued operations
of £13.6m. The weighted average number
of shares in issue increased to 210.6 million
(2009: 210.3 million).
The Board is recommending a final divi-
dend of 21.0p per share, which together
with the interim dividend of 6.0p per share
paid on 5 November 2010, makes the total
dividend for the year 27.0p, an increase of
29% over last year’s total of 21.0p. This
results in dividend cover (being the ratio of
earnings per share from continuing oper-
ations before intangibles amortisation to
dividend per share) of 3.7 times compared
to 3.1 times in 2009.
Once approved, the final dividend will
be payable on 2 June 2011 to ordinary
shareholders whose names are on the
Company’s register of members at close of
business on 6 May 2011.
30 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Financial review
(continued)
Cashflows
Cash generated from operations before
working capital movements increased by
45% to £342.3m (2009: £236.1m). Working
capital performance was adversely affected
by the unwind of the unusually high level
of advance payments received on major
contracts in 2009 which, together with
underlying growth, resulted in a net work-
ing capital outflow of £67.4m compared to
a net inflow of £66.2m in 2009. Net cash
generated from operations reduced by 9%
from £302.3m to £274.9m. This represents
an EBITDA to cash conversion ratio of 80%
(2009: 129%). Overall working capital on a
constant currency basis and excluding cur-
rent year acquisitions is now 12.6% of rev-
enues (2009: 10.3%), debtor days have
increased slightly from 47 to 51 and inven-
tory turns have improved from 3.6 times to
3.7 times.
Additional pension contributions of £9.3m
(2009: £11.1m) were paid in the period in
respect of agreed special contributions to
the UK schemes.
Capital expenditure increased from £40.6m
in 2009 to £50.9m, representing 1.5 times
depreciation (2009: 1.4 times), reflecting an
increase in attractive investment opportuni-
ties available across the Group. We expect
capital expenditure to be significantly higher
in 2011 reflecting further expansion of our
upstream Oil & Gas facilities and invest-
ment in emerging markets.
Settlement of derivative financial instruments
resulted in cash outflows of £13.4m (2009:
£16.5m). This principally represented the
scheduled settlement of floating rate cross
currency swaps which formed part of the
hedge of our US dollar investment in SPM
with the remainder of these derivatives roll-
ing-off over the next three years.
Free cashflow from continuing operations
was £79.9m (2009: £141.1m). Combined
with the net funding cost of acquisitions
and disposals of £204.1m and the £18.6m
exceptional payment made in respect of
the Oil for Food settlement attributable to
discontinued operations, this resulted in an
increase in net debt from cashflows of
£142.8m. These cashflows, taken together
with debt acquired of £15.8m, the adverse
impact of the translation of net overseas
borrowings of £5.6m (2009: £18.9m) and
other non-cash movements of £0.2m
resulted in a year end net debt position of
£283.6m (2009: £119.2m) reflecting a net
debt/EBITDA ratio of 0.8 times (2009: 0.5
times) demonstrating substantial financial
headroom.
Acquisitions
During 2010, the Group acquired five
businesses for a total consideration of
£217.5m. Total assets acquired amounted
to £130.9m,
recognition of
including
£107.2m of intangible assets, resulting in
goodwill of £86.6m. Further information on
these business combinations can be found
in note 13 to the financial statements.
Treasury Management
The Group is financed through a combi-
nation of bank debt, fixed rate notes and
equity. The capital structure is managed
centrally with the objectives of optimising
capital efficiency, diversifying the inves-
tor base, achieving an orderly maturity of
funding while maintaining a good degree of
financial headroom.
The principal financial risks faced by the
Group are those relating to liquidity, for-
eign 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 inter-
est 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.
On 11 January 2010, the Group issued
through a Private Placement to UK and US
investors, the equivalent of US$250m of five
year (US$110m) and eight year (US$140m)
fixed rate notes in a combination of US
dollars and sterling. Including the effect of
swapping the sterling notes into US dol-
lars, the all-in average US dollar equivalent
interest rate across these notes is 4.8%.
The fixed rate notes further improved the
Group’s financial flexibility by diversify-
ing our sources of finance and lengthen-
ing the maturity profile of borrowings. The
proceeds from this placement were used
to repay borrowings under our £625m
bilateral facilities which were subsequently
replaced with a new US$800m multi-cur-
rency revolving credit facility maturing in
2014. As at 31 December 2010, £203.1m
was drawn under the revolving credit facility
and all covenants were met at 31 December
2010.
The Group also held net cash balances
of £79.5m at 31 December 2010 (2009:
£55.7m) representing operating balances
held by the Group’s subsidiaries of which
£5.4m (2009: £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.
Credit management
The Group’s credit risk is primarily attribut-
able to its trade receivables with risk spread
over a large number of countries and cus-
tomers, with no significant concentration of
risk. Credit worthiness checks are under-
taken 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 identi-
fied 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 debt is denominated in a com-
bination of fixed and variable rates of inter-
est. 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. Following the issuance of the equiv-
alent of US$250m fixed rate notes on 11
January 2010, the proportion of fixed rate
debt significantly increased to 44% as at 31
December 2010 (2009: 18%). All interest
rate swaps which had the economic effect
of converting borrowings from floating to
fixed rates matured in 2010.
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.
31
All material transactional currency expo-
sures are hedged, usually by means of
forward contracts thereby ensuring cer-
tainty over revenue and costs. Subject to
local exchange controls, foreign exchange
transactions are executed by the central
treasury function. No speculative transac-
tions are undertaken. Although hedging is
undertaken for all material exposures, only
two subsidiary companies apply cashflow
hedge accounting under IFRS.
The Group manages a proportion of the
potential currency translation exposures
from US dollar denominated net invest-
ments through a combination of US dol-
lar borrowing, forward foreign currency
contracts and cross currency swaps. The
weakening of sterling relative to a number
of major currencies in the year, predomi-
nantly the US dollar and Australian dollar,
resulted in a positive net asset translation
effect of £39.6m, including the impact of
the balance sheet hedging programme.
The fair value of derivatives designated as
net investment hedges at 31 December
2010 was a liability of £38.8m (2009:
£40.7m), reflecting the part settlement of
floating rate cross currency swaps offset by
the weakening of sterling relative to the US
dollar 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 cur-
rency translation exposures related to profit
and loss items.
Further information on financial risk man-
agement 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 sig-
nificant being in the UK.
The Group has continued to pro-actively
manage its exposure to its pension plans.
Reflecting equity/bond market performance
and yield movements, the net Group deficit
for retirement benefit obligations at the year
end was £65.0m (2009: £71.0m deficit).
Net assets
Net assets increased by £179.3m in the year
to £921.7m (2009: £742.4m), principally
reflecting total net comprehensive income
for the year of £222.9m less dividends paid
of £46.9m.
This year we have reported return on capital
employed (“ROCE”) for the first time, which
at 32.4% represents an increase of eight
percentage points over 2009.
Litigation
The Company and certain subsidiaries are
from time to time, parties to legal proceed-
ings and claims which arise in the normal
course of business.
There are 411 asbestos related claims in
the US (2009: 308) outstanding against
Group companies. There are 22 claims
in the UK (2009: 21). All such actions are
robustly defended.
The Company is subject to a claim relating
to a civil action for damages arising from
the UN Oil for Food programme which has
been raised in the United States against
just under 100 companies, including the
Weir Group. This action will be robustly
defended.
To the extent not already provided for, the
Directors do not anticipate that the out-
come 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
75 to 81 of this report. There have been
no significant changes to the accounting
policies adopted in 2009.
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 neces-
sary to attribute fair values to any intangi-
ble 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 appro-
priate discount rates. In addition, the allo-
cation of useful lives to acquired intangible
assets requires the application of judge-
ment based on available information and
management expectations at the time of
recognition.
Impairment
IFRS requires companies to carry out
impairment testing on any assets that show
indications of impairment and annually
on goodwill and intangibles that are not
subject to amortisation. This testing involves
exercising management judgement about
future cashflows and other events which
are, by their nature, uncertain.
Retirement benefits
The assumptions underlying the calculation
of retirement benefits 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.
Taxation
Uncertainties exist with respect to the inter-
pretation of complex tax regulations and
the amount and timing of future taxable
income. Given the wide range of interna-
tional business relationships and the long-
term nature and complexity of existing
contractual agreements, differences arising
between the actual results and the assump-
tions made or future changes to such
assumptions could result in future adjust-
ments to tax income and expense already
recorded. Provisions are established based
on reasonable estimates for possible con-
sequences of audits by the tax authorities
of the respective countries in which the
Group operates. Management judgement
is used to determine the amount of such
provisions taking into account that differ-
ences of interpretation may arise on a wide
variety of issues depending on the condi-
tions prevailing in the respective Group
company’s domicile.
Jon Stanton
Finance Director
8 March 2011
32 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Board of Directors
Lord Smith of Kelvin
Chairman (66)
Keith Cochrane
Chief Executive (46)
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 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 chair-
man 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 past presi-
dent of the Institute of Chartered Accountants
of Scotland.
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 execu-
tive in 2000. He joined ScottishPower 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.
Keith is currently a non-executive director of the
Royal Scottish National Orchestra Society Ltd.
Jon Stanton
Finance Director (44)
Jon Stanton joined the Group as finance director
in April 2010. He was formerly a partner with
Ernst & Young having joined as a graduate trainee
in their Birmingham office in 1988. He was
appointed as a partner in their London office in
2001 with lead responsibility for the audit of a
number of FTSE 100 multi-national clients.
He is a chartered accountant and a member of
the Institute of Chartered Accountants in England
and Wales.
Alan Mitchelson
Legal and Commercial Director
& Company Secretary (61)
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 cur-
rently a non-executive director of Glasgow
2014 Ltd.
He is a solicitor and member of the Law Society
of Scotland.
John Mogford
Non-Executive Director (57)
John Mogford was appointed a non-executive
director in June 2008. He is currently advising
private equity on the energy sector and sits on
several private company boards. 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 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.
From left to right:
Lord Smith of Kelvin
Keith Cochrane
Jon Stanton
Alan Mitchelson
John Mogford
Stephen King
Lord Robertson of Port Ellen
Michael Dearden
Richard Menell
33
Audit Committee
Remuneration Committee
Nomination Committee
Stephen King
Non-Executive Director (50)
Michael Dearden
Non-Executive Director (68)
Michael Dearden was appointed a non-executive
director in February 2003. Michael worked for
Burmah Castrol plc in a number of senior roles,
including director and chief executive of Castrol
Worldwide over a 20 year period. 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.
Richard Menell
Non-Executive Director (55)
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)
and director of Mutual & Federal Insurance
Company Ltd (1996 -2010) and Standard Bank
Group Ltd (1997-2011).
Richard is currently a director of Gold Fields Ltd
in South Africa and senior advisor to Credit
Suisse. He is a fellow of the Geological Society
(London), and both the Australasian and South
African Institute of Mining and Metallurgy.
Stephen King was appointed a non-executive
director in February 2005. Stephen is group
finance director of Caledonia Investments plc.
In February 2011 Stephen was appointed to
the board of Bristow Group Inc. 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 Robertson of Port Ellen (George)
KT, GCMG, HonFRSE, PC
Non-Executive Director (64)
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 Cable and Wireless
Communications plc 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). From 2004 he
has been 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, chairman
of the Ditchley Foundation 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.
34 The Weir Group PLC
Annual Report & Financial Statements 2010 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 the risk and control framework as
described in the Corporate Governance report to identify these risks and has adopted a Sustainability
Strategy as described in the Sustainability report to mitigate against these risks.
RISK
POTENTIAL IMPACT
MITIGATION
Global and economic conditions
The Group operates in a number of regions where
it may be exposed to economic, political, regula-
tory or business risks.
The Group is also exposed to global growth
trends and specific commodity price movements.
Changes such as the introduction of new regu-
lations, expropriation of assets or the imposition
of trade barriers could disrupt the Group’s busi-
ness activities or impact on the Group’s cus-
tomers, suppliers or other parties with which it
does business.
Any contraction in capital expenditure and
production activity could lead to a reduction
in demand for the Group’s products.
Commodity prices for all products, and partic-
ularly for exchange-traded commodities, may
fluctuate widely.
In some instances, this could have a material
adverse effect on the Group’s financial position
and prospects.
Employees
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 per-
sonnel of acquired companies.
Legal
If it is unable to attract and retain excellent talent,
the Group may not be able to effectively imple-
ment its business strategies.
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 remain-
ing in compliance with local and international
requirements.
In addition, strategic reviews are carried out by
the Group prior to entry into a new country.
Commodity price fluctuations are monitored
closely and action taken to mitigate against the
risk as appropriate.
The Group’s growing installed base plus the
drive for operational excellence will enable
the business to react to market changes as
they arise.
The Group constantly reviews its remuneration
packages to ensure they remain competitive
and also maintains development and succes-
sion planning programmes.
The Group’s employee development pro-
grammes are explained in more detail on pages
58 to 60.
Manufacturing companies are, from time to time,
exposed to personal injury claims and class
actions or other litigation resulting from inju-
ries sustained at work, including asbestosis or
other health problems associated from working
in industries that used asbestos.
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 proce-
dures 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.
35
RISK
POTENTIAL IMPACT
MITIGATION
Regulatory, compliance and internal controls
Many countries where the Group’s operations
are located have increased their emphasis
on enforcement of laws to which the Group is
subject including safety, environmental, antitrust,
fraud, anti-bribery and anti-corruption.
A new UK Bribery Act is due to be introduced in
the first half of 2011, with application across the
entire Weir Group.
The Act applies not just in the UK but also to
all subsidiaries and branches of a UK-listed
company.
Non-compliance with any of these laws or reg-
ulations could expose the Group to financial or
reputational damage.
Failure by the Group’s employees, or agents
acting on its behalf, to maintain the highest
standards of ethics and integrity in dealing with
customers or failure to comply with any 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, financial condition or reputation.
Companies must show that they have ade-
quate procedures in place to combat bribery.
The Group has clearly set out the way it expects
employees and stakeholders to behave in its
Code of Conduct, which is available on the
Group’s intranet and website. In addition,
training is provided to all at-risk employees.
Concerns regarding breaches in compliance
matters or internal controls can be reported in
confidence through the dedicated phoneline.
Further details of the Code of Conduct are pro-
vided on pages 65 to 66.
Environmental, safety and health
The Group’s activities require the continuous
monitoring of environmental, safety and health
(ESH) risks.
Failure to manage these risks could result in
a serious deterioration of the Group’s safety
performance or could result in an environmental
regulatory breach which could lead to:
• fines and penalties;
• loss of key customers;
• exclusion from market sectors deemed impor-
tant for future growth; and
• damage to reputation.
All new or improved technologies and products
involve risk, including the potential for abortive
expenditure, reputational risk and potential cus-
tomer 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.
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 developing competitive threat from low cost
markets using total cost innovation in product
design, supply chain and low labour costs is a
challenge to the Group.
The Group’s growth and success depends
not only on its ability to innovate and ensure
the continuous improvement of its existing
product portfolio but its ability to develop and
produce new and enhanced products in a cost
effective and timely manner in accordance with
customer demands.
The Group is committed to maintaining a safe
working environment and a culture of zero
tolerance to accidents. To support this, all our
operations have to be ISO 14001 and OHSAS
18001 compliant. This ensures that they not
only meet with current requirements but also
have the appropriate management systems
in place to ensure continuous improvement
in ESH performance. More detail on this and
other environmental improvement initiatives
and activities are set out in the Sustainability
report on pages 52 to 66.
To remain competitive, the Group invests con-
tinuously in its research and development,
manufacturing, marketing, customer service
support and distribution networks. The Group
also maintains the highest manufacturing and
quality standards which include regular dia-
logue with customers to ensure that individ-
ual customer requirements are met through
the Group’s key account management proc-
ess. It also takes appropriate action to ensure
that its cost base remains competitive and
margins protected through its global procure-
ment activities.
The diversity of operations reduces the pos-
sible effect of action by a single competitor
and combined with the application of the Weir
Production System ensures the Group’s com-
petitive advantage is sustained.
36 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Principal risks
& uncertainties (continued)
RISK
POTENTIAL IMPACT
MITIGATION
Business interruption
The loss of a significant manufacturing / oper-
ational site through fire, natural catastrophe
or critical plant failure could potentially have a
material impact on the Group.
There are a number of key locations where a
significant loss or sustained business interrup-
tion could give rise to a reduction in revenue
and profit.
Whilst all of these operations are vulnerable to
damage or interruption the Group maintains
broad form insurance protection and business
continuity plans to promote resilience in the
business and mitigate the potential downtime.
Acquisitions
The Group has undertaken a number of acqui-
sitions in the recent past. With any acquisition
there is the risk that any benefits or synergies
may not be realised as a result of changing or
incorrect assumptions or materially different
market conditions.
Key suppliers and delivery
The Group’s ability to meet customer delivery
schedules is dependent on a number of fac-
tors including sufficient manufacturing capacity,
access to raw materials, inventory control, suffi-
cient trained and equipped employees, engineer-
ing 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.
In addition, the Group is dependent on the con-
tinued availability and effective management of
subcontractors and other service providers.
While the Group identifies expected synergies,
cost savings and growth opportunities prior to
completing any acquisition, these benefits may
not always be achieved or be achieved within the
anticipated timescale. Furthermore, the Group
could find itself liable for past acts or omissions
of the acquired business without any adequate
right of redress.
The Group operates a strategic planning proc-
ess to review its corporate strategy with market
and competitive position assessments driving
the acquisition agenda. In addition, the Group
implements a rigorous due diligence process
and ensures clear financial targets are in place.
The Group implements an internal 100 day
plan to ensure that the integration process is
actioned with the minimum of disruption.
Failure to deliver in accordance with customer
expectation could subject the Group to finan-
cial penalties, damage customer relationships
and, as a result,
impact on the Group’s
financial performance.
In addition, failure of a supplier or availabil-
ity of scarce raw materials could result in the
Group incurring additional costs in sourcing
an alternative.
Manufacturing scheduling and planning is sub-
ject 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 deliv-
ery times. This is complemented by the use of
the Group’s Manufacturing Resource Planning
systems, together with the slotting and sched-
uling achieved through the Weir Production
System.
to develop
The Group seeks
long-term
relationships with its subcontractors and the
Group’s procurement function is responsible
for establishing robust supplier relationships.
In addition, the procurement function conduct
a regular review of strategically important
suppliers.
Corporate governance
report
37
Introduction
The Board remains committed to the principles of good govern-
ance. Using the Combined Code as a guide to the components
of good practice, good corporate governance 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.
Board meetings
In the 52 weeks ended 31 December 2010, the Board met nine
times, with one meeting at Weir Minerals Netherlands in Venlo.
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.
As part of the Board’s review into its effectiveness conducted
during the period, 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 52 weeks
ended 31 December 2010, the Company complied with all
provisions set out in the Combined Code.
In May 2010, the Financial Reporting Council issued a new edition
of the Combined Code, renamed the UK Corporate Governance
Code (the “New Code”), effective from the Company’s next financial
year, which outlines a number of changes that are designed to
reinforce Board quality, focus on risk and improve accountability
to shareholders.
The 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, safety and health and sustainability policies
• annual and half-year financial results, interim management
statements and trading updates
• dividend policy
• Board appointments
• Group strategy and the annual operating budget
• Group corporate governance policy
• 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.
The following table identifies the attendance record of individual
directors at the nine board meetings held during 2010.
Name
Lord Smith
Keith Cochrane
Michael Dearden
Stephen King
Richard Menell
Alan Mitchelson
John Mogford
Professor Ian Percy1
Lord Robertson
Jon Stanton2
Attendance
9 of 9
9 of 9
9 of 9
9 of 9
8 of 9
9 of 9
9 of 9
2 of 2
9 of 9
7 of 7
1 Professor Ian Percy retired from the Board on 30 April 2010.
2 Jon Stanton was appointed to the Board on 19 April 2010.
Changes to the Board
Details of the current directors of the Company are set out on
pages 32 to 33. Jon Stanton joined the Board on 19 April 2010
and Professor Ian Percy retired as a director on 30 April 2010.
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 accordance with the provisions of the New Code, the Board
has resolved that all directors will stand for re-election by the
shareholders each year at the annual general meeting.
Details of the directors service agreements, remuneration and
interests in share awards are set out in the Remuneration report
on pages 44 to 51.
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.
38 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Corporate governance
report (continued)
All directors are provided with updates on corporate governance
developments, legislative and regulatory changes and relevant
industry and technical information.
All directors bring their own independent judgement to major mat-
ters affecting the Group. Each of the non-executive directors is
considered by the Company to be independent.
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
In line with the proposals in the New Code which provide that an
external evaluation of the Board should be carried out at least
once every three years, the Board instructed an external facilitator
to conduct the evaluation in 2010. This facilitator had no other
connection with the Company.
The evaluation focused on the following key areas:
• board structure, dynamics and relationships
• board committees
• executive and non-executive director succession
• identification, management and reporting of risk including non
financial risk
• internal audit and
• strategy.
The review concluded that there was an effective Board led by a
strong chairman. A number of detailed recommendations will be
followed up by the chairman.
Any non-executive director who has served on the Board for more
than six years is subject to a particularly rigorous review.
Board balance and independence
The Board currently comprises the chairman, chief executive,
finance director, legal and commercial director and five non-exec-
utive directors, all of whom are independent. Michael Dearden is
the senior independent director.
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.
None of the non-executive directors has any material business
or other relationship with the Company or its management. 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.
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 exe-
cution of their powers, duties and responsibilities as directors
to the extent permitted by the 2006 Act 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.
39
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 pro-
gramme. This includes regular update meetings and presenta-
tions 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 commu-
nications 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 meet-
ings. In addition to the chairman’s statement at the annual gen-
eral meeting, a trading update to shareholders is given and details
of the Company’s trading activities are on display. The direc-
tors 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 2011 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 con-
ducts 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
2011 annual general meeting, is available. Voting participation at
the annual general meetings in 2008, 2009 and 2010 was 56%,
64% and 63% 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 32 to 33) and the three divisional managing directors
whose details are set out below:
Dean Jenkins (39) was appointed the Power & Industrial Divisional
Managing Director on 1 January 2011 and is based in East Kilbride,
UK. Dean, an Australian citizen, is a graduate aerospace engineer
with extensive experience of engineering materials and logistics
best practice, asset management, product development and
business restructuring. He previously worked for Qantas Airlines
and the Australian listed infrastructure services company UGL Ltd,
most recently as Chief Executive of the latter’s Rail Division.
Steve Noon (46) is the 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 (47) is the Minerals Divisional Managing Director based
in Madison, USA. Prior to joining the Group in 2001, 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 52 weeks ended 31 December 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.
40 The Weir Group PLC
Annual Report & Financial Statements 2010 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 John
Mogford. Professor Ian Percy served on the Committee until his
retirement on 30 April 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 2010
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 2010. The following table
identifies the attendance record of individual directors at the
Committee meetings held during 2010.
Name
Michael Dearden (chairman)
John Mogford²
Lord Robertson
Professor Ian Percy¹
Attendance
4 of 4
3 of 3
4 of 4
2 of 2
1 Professor Ian Percy retired on 30 April 2010.
2 John Mogford was appointed to the Committee on 26 January 2010.
Nomination Committee
The members of the Committee during 2010 were Lord
Smith (chairman), Keith Cochrane, Michael Dearden and Lord
Robertson. Professor Ian Percy served on the Committee until his
retirement on 30 April 2010. Alan Mitchelson acts as secretary
to the Committee. The Committee meets at least twice a year
and at other times when necessary and in 2010 met two times.
The following table identifies the attendance record of individual
directors at the Committee meetings held during 2010.
Name
Lord Smith (chairman)
Keith Cochrane
Michael Dearden
Professor Ian Percy1
Lord Robertson
Attendance
2 of 2
2 of 2
2 of 2
1 of 1
2 of 2
1 Professor Ian Percy retired on 30 April 2010.
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 plan-
ning 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.
Audit Committee
The chairman of the Committee is Stephen King. During 2010,
the other members of the Committee were Richard Menell and
John Mogford. Professor Ian Percy served on the Committee until
his retirement on 30 April 2010. The secretary to the Committee
is Alan Mitchelson. In addition, the chairman, chief executive,
finance director, head of internal audit and external auditors attend
each meeting. The head of internal audit and external auditors
also have access to the chairman of the Committee outside formal
Committee meetings.
41
The Board is satisfied that Stephen King has recent and relevant
financial experience.
The Committee has the ability to call on Group 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.
Its duties are to:
• consider the appointment, resignation or dismissal of the audi-
tors and the level of audit fee
• discuss with the auditors the nature and scope of the audit
• review the draft interim and annual financial statements before
submission to the Board for approval
• discuss any problems and reservations arising from the annual
audit and any matters the auditors may wish to raise
• discuss with the auditors the Group’s system of internal finan-
cial controls and any recommendations for improvement
• consider the findings of internal investigations and manage-
ment’s response
There were three meetings in 2010, in January, March and July.
The following table identifies the attendance record of individual
directors at the Committee meetings held during 2010.
Name
Stephen King (chairman)
Richard Menell
John Mogford
Professor Ian Percy1
Attendance
3 of 3
3 of 3
3 of 3
2 of 2
1 Professor Ian Percy retired on 30 April 2010.
The Committee maintains a formal calendar of items for consid-
eration 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 2010, 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
• the annual report disclosures relevant to the Committee,
including the going concern statement and the reports on risk
management and internal control
• the terms of reference for the Committee
• the internal audit scope and approach for 2010
• oversee the implementation of systems for financial control and
• the Group accounting policies
risk management
• the findings of internal audit reviews undertaken by
• pre-approve non-audit services provided by the auditor
PricewaterhouseCoopers LLP and the head of internal audit
• review the internal audit programme and its implementation
• the Group’s risk process and the results of the compliance
• 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.
scorecard
• the fees for Ernst & Young LLP for 2010
• the audit strategy for year end 2010 audit and
• the fraud and error guidelines contained in ISA240.
The minutes of each meeting are circulated to the Board. The
Committee’s terms of reference can be found on the Company’s
website.
42 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Corporate governance
report (continued)
The Committee maintains a policy on the appointment and role of
the auditors. This includes guidelines on their appointment which
is subject to regular review 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
financial year, the Committee reviewed the auditors’ process for
ensuring their independence and effectiveness and commented
on their internal quality control procedures. The Committee is
satisfied as to their continued independence.
ity 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 oper-
ating company is responsible for the operation of key internal con-
trols and to formally assess the effectiveness of the internal control
environment through the submission, twice yearly, of the Group
compliance scorecard.
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 is
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 £1.6m (2009: £1.2m)
in respect of 2010 were approved by the Committee.
Code of Conduct
The Weir Code of Conduct (“the Code”) was launched on the
Global Intranet and Weir Group website at the end of December
2010. The Code codified the Group’s commitment to doing
business at all times in an ethical and transparent manner. It
sets out in a practical way the behaviours and values expected
from all Group employees and how they can raise concerns or
ask questions.
The Code is supported by:
• A hotline which will be available to all employees to report
any concerns or apparent breaches of the Code. This is a
confidential service run by an independent provider
• An on-line training module which will provide an introduction
to the Code and practical scenarios that may be faced by
employees in their day to day work. Further on-line training will
be introduced on a regular basis
• A mandatory training module which is required for all high risk
employees on Anti Bribery and Corruption
• Further training in the form of local ‘Town Hall’ meetings for
individual business units.
The Board and Group Executive Committee will regularly review
performance against the Code. More information on the Code can
be found in the Sustainability report on pages 65 to 66.
Internal control
In accordance with the Turnbull Guidance on internal control,
the Board ensures that there is an ongoing process for identify-
ing, evaluating and managing the significant risks faced by Group
companies. This process has been in place throughout 2010 and
up until the date of this report, except that it did not apply to the
Group’s joint ventures. The directors have overall responsibil-
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.
The principal risks and uncertainties identified by the Group Risk
and Control Framework and how they are managed or mitigated
are summarised on pages 34 to 36.
The Board has monitored the effectiveness of the Group’s
system of internal control during the financial 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.
43
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
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,
• A Group compliance scorecard which records compliance with
liabilities, financial position and profit of the Group and
the policies and procedures
• Policies and procedures manuals which are in place and com-
municated to all Group operating companies through the Global
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 com-
pares results with forecast and the previous year on a monthly
and cumulative basis. Management information systems pro-
vide directors with relevant and timely reports that identify signif-
icant variations from approved forecasts, and revised forecasts
for the financial 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.
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 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 2006 Act 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.
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 note
30 to the Group financial statements on pages 111 to 120. Each
of these items has been considered in relation to the Group’s
banking facilities described on page 30 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 2006 Act) 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.
Alan Mitchelson
Secretary
Signed and approved for and on behalf of the Board
8 March 2011
44 The Weir Group PLC
Annual Report & Financial Statements 2010 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 2010, the Committee comprehensively reviewed the
remuneration packages of the executive directors to ensure
they continue to be appropriate and competitive. As a result of
the review (details of which are set out below) and following
consultation with the Company’s major shareholders, the ABI and
RREV, certain changes were made to the salaries of the executive
directors, the bonus potential of the chief executive and to the
performance conditions for the 2011 awards to be made under
the Group Long Term Incentive Plan (“LTIP”).
Membership of the Remuneration Committee
The chairman of the Committee is Michael Dearden. The other
members of the Committee who served during 2010 are Professor
Ian Percy, up until his retirement on 30 April 2010, Lord Robertson
and John Mogford, from 26 January 2010. The secretary to the
Committee is Alan Mitchelson.
Hewitt New Bridge Street (a trading name of Aon Corporation)
(“HNBS”) continued to provide independent external advice in
formulating remuneration policy and its implementation during
2010. HNBS’s appointment was renewed by the Committee for
the year 2011. HNBS 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.
Remuneration strategy and policy for executive directors
The Committee adopted the following policy for the remuneration
of executive directors throughout 2010. It is intended that this
policy will apply in 2011 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
• 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 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 sal-
ary to attract and retain talented
leaders.
—
Annual bonus
Bonus payments are intended to
reflect the achievement of agreed
business objectives and positive
contribution to stretching the per-
formance of the Group.
One year
Reviewed annually by reference to companies of a broadly similar
size and having regard to pay and employment conditions through-
out the Group.
With the exception of Alan Mitchelson, executive directors are
responsible for their own pension arrangements.
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. In 2011, the chief executive’s
maximum potential bonus will be increased to 150%.
As part of the LTIP, 30% of all executive directors’ bonuses are
deferred in the form of shares.
Long term share
incentives
To incentivise executives to ach-
ieve superior long-term perform-
ance to align shareholder interests
with the executives and the reten-
tion 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 perform-
ance period.
45
Analysis of remuneration package
The following chart illustrates the proportions of the 2010 remu-
neration package for the executive directors comprising fixed and
variable elements of pay. For 2010, it shows that 62% of executive
directors total remuneration package was performance related.
subject to individual and company performance including, in par-
ticular, the Company’s financial success and the maintenance of its
ranking in the FTSE 100. In any event, further significant increases
above £650,000 will only be made after prior consultation with the
Company’s major investors, the ABI and RREV.
Fixed pay elements
Salary and Benefits
38%
Variable pay elements
Bonus (including deferred element identified)
32%
LTIP
30%
Salary and benefits
Over the past few years, the Group’s revenue and profits have
grown very significantly and the Group continues to grow. In addi-
tion, the Company’s share price has significantly out-performed
the market and the Company entered the FTSE 100 in September
2010. The Group has also become more complex and geographi-
cally diverse.
While the Committee is very conscious of the need to pay no more
than is necessary, it considers that it is essential that remuneration
packages are broadly competitive. It is also conscious that the
chief executive’s salary was conservatively set on appointment on
2 November 2009 (and not increased since) with the expectation
that it would increase with experience.
Recognising all of the above factors, the Committee undertook
a comprehensive review of the executive directors remunera-
tion packages, benchmarking against 20 UK-based international
companies whose financial dimensions are broadly similar to the
Company’s and separately, companies ranked between 76th and
100th in the FTSE.
This exercise revealed that the chief executive’s base salary of
£550,000 is significantly below the median of both groups and his
fixed pay is significantly below the lower quartile (he provides his
own pension). His total target remuneration is significantly below
the lower quartile.
It also showed that the finance director’s salary is below the median
of both groups and his fixed pay is below the lower quartile (he
provides his own pension), with total target remuneration being
below lower quartile. The legal & commercial director’s salary
and fixed pay is at or below the lower quartile and total target
remuneration is below the lower quartile.
As a result, the Committee has decided to increase the chief exec-
utive’s salary to £650,000 from April 2011, recognising that after
this increase in salary (and the increased bonus potential referred
to below) his fixed pay would be below lower quartile and total tar-
get remuneration would still remain significantly below median. The
Committee also intends to increase his salary over two further years
(in broadly equal steps) to the current target salary of £725,000,
It is worth noting that if his salary were to rise to £725,000, then
based on the current benchmarking, his fixed pay would remain
below median with his total target remuneration being at or below
median.
The Group finance director’s salary will be increased by 8.1%
to £400,000 and the legal & commercial director’s salary will be
increased by 7.2% to £350,000. Both of these increases will take
effect from 1 April 2011. After these changes, their total target
remuneration will remain at or below lower quartile.
Executive directors also receive other benefits which are the
provision of a car allowance, participation in a Group health
care scheme, travel allowance, death in service insurance and
relocation allowance, as appropriate.
the Group annual performance–related bonus,
Bonus
Under
the
payout for 2010 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. In the light of the very substantial increase in profits in
2010 and the Group’s profits exceeding all bonus targets, this
was paid out in full. To provide a more market competitive bonus,
the maximum bonus potential in respect of the chief executive
will be increased to 150%. The performance criteria will remain
unchanged for 2011.
Demanding bonus targets are set by the Committee. For 2011,
the entire vesting range will be above the result for 2010, with
significantly more stretch above target than leeway below it.
60% of maximum will be payable for achieving a demanding on-
target performance.
Long Term Incentive Plan
During 2010, 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 2010,
awards were made up to a maximum of 100% of salary. It is the
Committee’s intention to make awards in 2011 of up to 100%
of salary.
• Executive directors are required to compulsorily defer an
element of any Group bonus earned in exchange for which they
are awarded investment shares. Up until 2011 the compulsory
deferral was 25% for the chief executive and 20% for all the
other executive directors. Following shareholder approval at the
annual general meeting in 2010, the compulsory deferral was
46 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Remuneration
report (continued)
increased to 30% from 2011 for all executive directors. In addition,
executive directors are also allowed to voluntarily convert a
further portion of their Group bonus (subject to any cap imposed
by the Committee, until 2011 20%) into Weir Group shares.
From 2011, the amount that the chief executive will be able to
invest voluntarily will be increased to 25%. The cap in relation to
the other executive directors will remain at 20%.
• 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 2010,
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, this will 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 aver-
age published closing price for the three dealing days immediately
preceding the date of award.
The vesting of conditional awards of performance and matching
shares is subject to the satisfaction of a highly demanding per-
formance condition.
The earnings per share target for 2010 was as follows:
Earnings per share growth
% of the earnings per share portion
of the award which vests
11% per annum
4% per annum
Less than 4% per annum
100%
25%
0%
There is straight line vesting between each point.
Following a review of the performance condition, the Committee
has decided to adopt a new group of peers for TSR comparison
and to revise the earnings per share target for the awards in 2011.
The Committee considers it would be more appropriate if a
new, more international, group of peers was used (the “New
Comparator Group”). Within the New Comparator Group, 40%
are based in the UK, just over 40% are based in the US with the
remainder being based in Europe. The market capitalisations
of these companies range from approximately £2bn below the
Group’s market capitalisation to approximately £3bn above.
The New Comparator Group is set out below.
During 2010, the 2007 LTIP Award vested in full as the Company’s
TSR ranked in the upper quintile of the Comparator Group appli-
cable for the 2007 Award.
Company
Performance criteria
For awards made in 2010, the performance condition was 50%
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 2010 Comparator Group”) and 50% based on earnings
per share growth (adjusted to exclude intangibles amortisation
and exceptional items). 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 2010 Comparator Group comprised:
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
Lufkin
Outotec
Halma
Charter
Sprirax-Sarco Engineering
Melrose
Crane
Rotork
Cookson Group
Gardner Denver
Dresser Rand
SPX
Wood Group
Meggitt
FL Smidth
Sulzer
IMI
Flowserve
Metso
Joy Global
Smiths Group
FMC
Cameron
Dover
Country of
Main listing
US
Finland
UK
UK
UK
UK
US
UK
UK
US
US
US
UK
UK
Denmark
Switzerland
UK
US
Finland
US
UK
US
US
US
Rationale
O&G peer
Mining peer
UK engineer
UK engineer
UK engineer
UK engineer
Gen Ind
UK engineer
UK engineer
O&G peer
O&G peer
Gen Ind
UK engineer
UK engineer
Mining peer
P&I peer
UK engineer
P&I peer
Mining peer
Mining peer
UK engineer
O&G peer
O&G peer
Ind Eng
Only if the Company’s TSR ranks in the upper quintile of the 2010
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.
Only if the Company’s TSR ranks in the upper quintile of the New
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.
47
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 details of the letters of appointment in relation to the non-ex-
ecutive directors who served during the year are:
Director
Contract
commencement date
Expiry of
current term
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 2011
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 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 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 earnings per share target for 2011 will be as set out below:
Earnings per share growth
% of the earnings per share portion
of the award which vests
15% per annum
7% per annum
Less than 7% per annum
100%
25%
0%
There is straight line vesting between each point.
The Committee considers that this is a demanding range of
targets.
The TSR calculation is performed by HNBS for the Committee at
the time of vesting.
The Committee may, in its absolute discretion, vary, add, remove
or alter the companies making up the New Comparator Group
where events happen which cause the Committee to consider
that such change is appropriate to ensure that the performance
condition continues to represent a fair measure of performance.
Pensions
Keith Cochrane and Jon Stanton are responsible for their own
pension arrangements.
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 plan targets a pension of two thirds of final salary payable
at normal retirement date, providing a member then has at least
24 years pensionable service. Where a member has less than 24
years pensionable service to normal retirement date their pension
currently accrues at 1/36th of final salary per annum.
For members, salary (both for contributions and for plan benefits)
is subject to a plan specific earnings cap. This is currently
£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.
48 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Remuneration
report (continued)
Total shareholder return
The graph below illustrates the performance of the Company
against the FTSE 350 Industrial Engineering Sector Index, the
FTSE 100 Index and the 2010 Comparator Group used in the
LTIP. The Board has reported against three measures this year
but in future years will measure the Group’s performance against
the FTSE 100 Share Index and the New Comparator Group for
the LTIP only, as they represent a more 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
FTSE 100 Index
LTIP Comparator Group
600
500
400
300
200
100
2006
2007
2008
2009
2010
This chart shows the value, as at 31 December 2010, of £100 invested in Weir Group
shares over the last five financial years compared with the value of £100 invested in the
FTSE 100 Share Index, FTSE 350 Industrial Engineering Sector Index and the average
of the 2010 Comparator Group under the LTIP. The other points are the values at the
intervening financial year ends.
The details of the service contracts in relation to the executive
directors who served during the year are:
Director
Keith Cochrane
Alan Mitchelson
Jon Stanton
Contract
commencement date
Unexpired
term
Notice period
by Company
3 July 2006
12 December 2001
19 April 2010
12 months
12 months
12 months
12 months
12 months
12 months
Executive directors external appointments
The executive directors are permitted, with board agreement,
to take up one non-executive appointment provided there is no
conflict of interest and that the time spent would not impinge
on their work for the Group. It is the Company’s policy that
remuneration earned from such appointments may be kept by the
individual executive director.
Remuneration of the chairman and non-executive directors
The remuneration of the chairman is agreed by the Board on the
recommendation of the Committee. Fees for the non-executive
directors are determined by the Board. In determining the fee levels,
account is taken of the time commitment, scale of roles, market
norms and comparison with companies of equivalent size based
on information provided by HNBS. 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. With effect from 1 April 2011,
the chairman’s remuneration will be increased from £182,500 to
a market rate of £250,000 and the basic fee for each of the non-
executive directors will be increased from £45,000 to £50,000.
The additional fees paid to the deputy chairman and the chairmen
of the Audit and Remuneration Committees will be increased from
£7,500 to £10,000. The fee paid to Michael Dearden in respect of his
role as senior non-executive director will be increased from £2,500
to £5,000.
49
Directors interests
The interests of the directors in the ordinary shares of the Company as at 31 December 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
Jon Stanton
Lord Robertson
As at 31 December 2010
As at 1 January 2010
Notes
Shares LTIP awards
Shares LTIP awards
155,900
66,522
10,000
50,050
1,000
180,299
7,981
3,000
10,000
-
374,687
-
-
-
278,597
-
30,204
-
145,900
41,666
10,000
50,050
-
144,092
7,981
-
10,000
-
321,959
-
-
-
284,884
-
-
-
2
Notes
1. No director had, during or at the end of the financial period, 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 Jon Stanton, the comparative figure is as at his date of appointment to the Board.
3. There have been no changes to the directors interests between 31 December 2010 and 8 March 2011.
Directors remuneration#
Chairman and non-executive directors:
Lord Smith
Michael Dearden
Stephen King
Richard Menell
John Mogford
Lord Robertson
Professor Ian Percy
Executive directors:
Keith Cochrane
Alan Mitchelson
Jon Stanton
Former director
Previous year comparatives
# Audited
Salary
& Fees
£
Bonus
note 5
£
Benefits
note 6
£
Notes
Total 2010
£
Total 2009
£
1
2
3
4
182,500
53,750
51,250
43,750
43,750
43,750
17,083
435,833
-
-
-
-
-
-
-
-
480
-
-
-
-
-
-
480
182,980
53,750
51,250
43,750
43,750
43,750
17,083
179,195
51,880
47,500
34,198
44,561
40,000
53,241
436,313
450,575
550,000
324,927
260,897
-
687,500
326,510
263,269
-
22,146
14,450
208,407
-
1,259,646
665,887
732,573
-
822,403
601,698
-
1,262,765
1,571,657
1,277,279
245,483
3,094,419
3,137,441
1,708,842
1,243,261
185,338
Notes
1. The fees for Michael Dearden include £7,500 for services as chairman of the Remuneration Committee (2009: £7,500) and £2,500 for his role as senior independent director (2009: £2,500).
2. The fees for Stephen King include £7,500 for services as chairman of the Audit Committee (2009: £7,500).
3. The fees for Professor Ian Percy, who retired on 30 April 2010, include £3,333 for services as deputy chairman and for his role as senior independent director (2009: £10,000).
4. The benefit for Jon Stanton principally relates to relocation costs.
5. The bonus figures for Keith Cochrane, Jon Stanton and Alan Mitchelson include £206,250 (2009: £94,296), £78,980 (2009: £nil) and £97,953 (2009: £53,078) respectively, which will be compulsorily
deducted from their bonus in exchange for which they will be awarded investments shares which, subject to remaining employed with the Group, will be receivable on the third anniversary of the 2011
award.
6. Benefits include, car allowance, participation in the Group health care scheme, travel allowance, death in service insurance and relocation allowance, as appropriate.
50 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Remuneration
report (continued)
Long term incentive awards#
Number of
shares under
award as at
1 Jan 2010
Date of
award
Shares
granted
during
the period
Notes
Shares
lapsed/ did
not vest
during
the period
Shares
Number of
exercised shares under Market price Market price
at date of
vesting
during award as at
the period 31 Dec 2010
at date of
award
Keith Cochrane
LTIP - Performance &
matching shares
LTIP - Compulsory
investment shares
Alan Mitchelson
LTIP - Performance
& matching shares
LTIP - Compulsory
investment shares
1
29 Jun 07
25 Mar 08
08 May 08
16 Mar 09
15 Mar 10
29 Jun 07
25 Mar 08
16 Mar 09
15 Mar 10
1
29 Jun 07
25 Mar 08
08 May 08
16 Mar 09
15 Mar 10
29 Jun 07
25 Mar 08
16 Mar 09
15 Mar 10
Jon Stanton
LTIP - Performance shares
1
09 Aug 10
# Audited
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
-
-
-
-
84,838
-
-
-
10,181
95,019
-
-
-
-
49,581
-
-
-
5,731
55,312
-
-
30,204
30,204
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38,677
-
-
-
-
3,611
-
-
-
42,288
56,009
-
-
-
-
5,590
-
-
-
61,599
-
-
Normal exercise period
(note 3)
25.03.11 - 25.06.11
08.05.11 - 08.08.11
16.03.12 - 16.06.12
15.03.13 - 15.06.13
29.06.10 - 29.09.10
25.03.11 - 25.06.11
16.03.12 - 16.06.12
15.03.13 - 15.06.13
25.03.11 - 25.06.11
08.05.11 - 08.08.11
16.03.12 - 16.06.12
15.03.13 - 15.06.13
29.06.10 - 29.09.10
25.03.11 - 25.06.11
16.03.12 - 16.06.12
15.03.13 - 15.06.13
-
86,101
8,699
155,257
84,838
-
9,896
19,715
10,181
374,687
-
66,611
7,354
124,995
49,581
-
7,659
16,666
5,731
278,597
730p
730p
900.5p
400p
923p
730p
730p
400p
923p
730p
730p
900.5p
400p
923p
730p
730p
400p
923p
925.5p
-
-
-
-
925.5p
-
-
-
925.5p
-
-
-
-
925.5p
-
-
-
30,204
1240p
-
09.08.13 - 09.11.13
30,204
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 46 to 47.
2. Awards under the LTIP take the form of nil cost options and have no performance retesting facility.
3. Awards under the LTIP can be exercised 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
52 weeks ended 31 December 2010.
4. On 12 March 2010, the 2007 awards under the LTIP vested in full. As a result Keith Cochrane and Alan Mitchelson exercised their awards as set out above, selling 25,392 and 17,432 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 financial year totalled £961,474 (2009: £1,506,154).
5. The closing market price of the Company’s shares at 31 December 2010 was 1780p and the range for the year was 717.5p to 1861p.
6. For awards made prior to 2010, 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”). For the outstanding awards in 2008, 2009 and 2010 the
Comparator Group 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 and WS Atkins. 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.
51
Directors pension benefits#
Alan Mitchelson was a member of a defined benefit scheme provided by the Group during the year 2010. Keith Cochrane and Jon
Stanton are responsible for their own pension provision. Pension entitlement and the corresponding transfer values were as follows dur-
ing the year:
Increase
in accrued
pension
during the
period (net
of inflation)
(note 8)
£
Increase
in accrued
pension
during the
period
£
Accrued
pension
as at 31
December
2010
(note 1)
£
Transfer value
of accrued
pension as
at 1 January
2010
£
Change in transfer
value of accrued
pension during
the year net of
directors ordinary
contributions
(note 3)
£
Accrued
pension as at
1 January
2010
£
Transfer value
of accrued
pension as at
31 December
2010
(note 2)
£
Transfer value
of increase
(net of
inflation) (note
2 & 8)
£
Directors
ordinary
contributions
£
35,104
2,448
1,360
37,552
788,471
46,547
5,809
840,827
30,452
Notes
4,5
Alan Mitchelson
# Audited
Notes
1. The pension entitlement shown is that which would be paid annually on retirement, prior to any cash commutation, based on pensionable service to the end of the financial period.
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 period end has been calculated in
accordance with this revised requirement.
3. The change in the amount of the transfer value over the period 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 period start due to ageing
c. impact of any change in the economic or mortality assumptions underlying the transfer value basis – as referred to in note 2 above
d. less the director’s ordinary contributions
4. The change in the amount of the transfer value over the period includes the effect of fluctuations in the transfer value due to factors beyond the control of the Group and directors, such as stockmarket
movements. The inflation measure for leavers during 2010 with at least one year to their normal retirement date was 3.1%. Consequently, the rate of inflation assumed in the above figures is 3.1%.
5. Directors have the option to pay voluntary contributions. Neither the contributions nor the resulting benefits are included in the above table.
6. The figures allow for the impact of the plan specific earnings cap and Alan Mitchelson's restricted salary for pension accrued from April 2010. Alan Mitchelson does not have an entitlement to an excepted
(formerly known as unapproved) pension from the Group.
7. 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.
8. 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
8 March 2011
52 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability
report
Sustainability
is a key part
of the Group’s
strategy and is
embedded in
our approach
to business
through six
key areas.
1: Environment
To reduce our energy use and
carbon footprint
2: Health & Safety
To maintain a safe and
healthy workplace
3: Employees
To attract and retain the
best employees
4: Communities
To invest in the communities in
which we operate
5: Products and technology
To optimise the energy efficiency of
our products and supply of products
to low carbon industries
6: Ethics
To conduct our business responsibly
and ethically
53
What does
this mean?
The strategy for each of
these areas is set by the
Board and responsibility
for implementation rests
with the Group Executive
Committee. Co-ordination
and monitoring of
performance is managed
through the newly
created Corporate
Sustainability Steering
Committee which is led
by the Group Legal and
Commercial Director
with specialist
representation from
across the Group in
each of the six
key areas.
Environment
Reducing our impact on the environment has been a
focus in each of our operating companies for some
time – our facilities are ISO 14001 compliant and
have individually made significant progress. For the
first time in 2010, we report our greenhouse gas
emissions in accordance with the Greenhouse Gas
Protocol scope 1 and 2 and the progress we are
making is evident from those results. Our objective is
now to set improvement targets on a company basis
to drive further sustained improvement.
Health & safety
The health and safety of our employees continues to
be a priority for the Group with strong processes in
place to ensure the zero tolerance culture is enforced.
This is evident from our lost time accident statistics
which have again improved year on year. We are
now looking to further improve communication of
health issues and to focus more on health and well-
being activities in order to improve our employee
engagement and performance. In addition, the
development of health and safety processes in our
supply chain which are less well developed and
consistently applied will be enhanced.
Employees
Our employees are critical to the continued success
of the Group. Increased investment in employee
development programmes within the Group, in
particular the Weir Graduate Development Framework
and improved communication through the creation
of the Senior Management Group, will support the
Group in its goal of driving innovation, collaboration
and global capability whilst also
improving
employee retention.
Communities
Weir is a global company doing business in more
than 70 countries and the impact we have on the
local communities and economies is therefore of par-
amount importance to the Group. We respect the
communities we operate in and we strive to make a
positive impact by the responsible running of our
operations and by investing in the communities in
a way that benefits both the local community
and Weir.
Products and technology
Many of the Group’s products and services are used
in low carbon applications such as nuclear power
generation, hydro power generation, wind power
generation and flue gas desulphurisation. We aim to
expand the range of products supplied to such
applications over time. In addition, through our
Engineering Excellence Committee we are continually
looking to enhance the energy efficiency of our
products both through their manufacturing process
and operation.
Ethics
Investors, customers and employees are increasingly
focusing on environmental, social and governance
matters in their decision-making. The Weir Group’s
sustainability strategy will enable it to demonstrate
good performance in these areas which will enhance
the Group’s reputation amongst key stakeholders.
The Group Code of Conduct, anti-bribery and corru-
ption training and ethics hotline ensure that the
Group’s zero tolerance to any contravention of policy
is upheld.
54 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability report
1: Environment
We aim to continually improve our environmental
performance in all our operations and through time
enhance the energy efficiency of our products.
Whilst the Board is responsible for setting the
Group’s environmental policy, its implementation is
the responsibility of the Group Executive Committee.
Monitoring of performance is managed through the
Corporate Sustainability Steering Committee.
Our environmental impacts including greenhouse
gas (GHG) emissions; material and solvent usage;
waste products and emissions to atmosphere are
identified and managed through our Environmental
Management System (EMS) which are certified to ISO
14001 standard. We monitor upcoming legislation
and share best practice across our operations.
ISO 14001
The Group’s policy is that all its operations will be
ISO 14001 accredited or, in the case of new acquisi-
tions, a plan is put in place to achieve accreditation.
ISO 14001 is an internationally recognised specifica-
tion for an effective structured environmental man-
agement system which helps organisations achieve
environmental and economic goals as well as assist-
ing in the implementation of environmental policy.
An ISO 14001 accredited environmental manage-
ment system provides our customers, employees
and shareholders with the assurance that our envi-
ronmental performance meets and will continue to
meet legal and environmental policy requirements.
Through the Group Environmental, Safety and Health
Forums, all new businesses are brought into line with
best practice in the implementation of ISO 14001. In
addition, the Forums are a useful arena to allow local
and international environmental legislative develop-
ments 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.
Environmental improvements
As part of the Group’s commitment to continual
improvement, during 2010 the Minerals Division
established an Environmental Improvement Team
whose objective is to share best practice in environ-
mental management. The team aims to implement
and maintain three active environmental improve-
ment projects at each participating site, adding new
projects as each is completed. The regions repre-
sented by the team are Europe, North America,
South America, Australia, Africa and China.
Initiatives to improve the environmental perform-
ance of our operations include energy and water effi-
ciency, raw material efficiency, waste minimisation
and resource recovery projects.
Improvement is focused on the areas that have the
most environmental and financial impact.
Carbon footprint
During 2010 the Group decided to establish a cor-
porate greenhouse gas (GHG) inventory to facilitate
consistent Group-wide reporting on the GHG impli-
cations of its global business activities. The GHG
inventory was developed to cover all material GHG
emissions under the Group’s direct control during
the years 2009 and 2010. The primary focus of the
GHG inventory was the collection of data in respect
of our global energy use and emissions to atmos-
phere in accordance with scope 1 and 2 of the
Greenhouse Gas Protocol.
LPG
Natural Gas
Petrol
Process emissions
Flights
Electricity
Contractors
Raw materials
Waste disposal
Scope 1
Fuel you burn
Scope 2
Fuel burnt for you
Scope 3
Emissions from
services you use
and products
you produce
The Group has engaged an independent consultant
to assist in the calculation of our 2009 and 2010
global carbon footprint and help standardise and
improve our data collection methods. The results are
set out below:
Total CO2 emissions (CO2 tonnes ‘000)
120
133
150
100
50
2009
2010
Total CO2 emissions by turnover (KtCO2e/£m)
100
85
82
80
60
40
20
2009
2010
2010
c20,000
tonnes of metal recycled at
our foundries
1,244
tonnes of wood recycled
at our foundries
10,000
gallons of water now saved
at Weir Floway
95%
of coolant water now reused
by Weir Minerals Europe
25%
less sand sent to landfill per
tonne cast by Weir Minerals
Australia
43%
energy saving by changing
lighting at Weir Power &
Industrial, Canada
15
13
11
9
7
5
3
1
55
Recycling/reuse initiatives
Weir Minerals Peru, Lima
Our business in Lima, Peru has several initiatives
involving local charities:
• In the last fours years the paper recycled from
the site paid for two scholarships for disabled
children.
• The company donates its wood to a local char-
ity which builds children’s furniture and in this way
recycled 8.5 tonnes of wood in 2010.
Our total greenhouse gas (GHG) emissions associ-
ated with our foundry, manufacturing and assem-
bly operations show an upward trend in absolute
terms but when normalised by turnover the Group’s
GHG emissions are marginally down between 2009
and 2010.
We will look to implement formal improvement
targets across all our companies in 2011.
Foundry recycling
Through the Group’s Environmental Improvement
Team the five foundries have been working on a
number of environmental initiatives to improve the
reuse and recycling at their sites. Just under 20,000
tonnes of metal have been recycled in our foundry
operations in 2010. To put it in context this means
that on average 75% of the metal poured at our
foundries is recycled metal. The results of the foundry
recycling can be seen in the following graph.
Foundry recycling (‘000 tonnes)
2009
2010
Helping children in Peru
Metal
recycled
internally
Scrap
metal
purchased
from
customers
Metal
recycled
to third
party
Timber
recycled
Carbon reduction commitment (CRC) energy
efficiency scheme (the “CRC”)
The CRC is a UK emissions trading scheme (ETS)
with the aim of cost-effectively reducing emissions
in the service, public and other less energy-intensive
sectors by 1.2m tonnes by 2020. The CRC will be
a mandatory emissions trading scheme, targeting
large organisations whose emissions are currently
in the ETS or Climate Change
not
Agreements of the European Union. Registration of
the qualifying sites within the Group’s UK operations
was completed, as scheduled, during 2010. The
UK businesses affected by the CRC will be required
to monitor their energy use and buy allowances
accordingly in forthcoming years as the scheme
rolls out.
included
Weir Floway, Fresno, USA
Weir Floway decided in 2010 that it could improve its
environmental impact by installing a new self-circulat-
ing hydro station at its on-site machine shop instead
of using the test laboratory several miles away from
the site. The result is that the company now saves
c.10,000 gallons of water per annum by re-using the
test water coupled with a saving on the cost and envi-
ronmental impact of transporting parts to and from the
test laboratory.
Weir Minerals Europe, Todmorden, UK
Our Todmorden facility has developed a new system
whereby 95% of coolant water is re-used. This
enables the site to re-use 20,000 litres of water
per annum, with only 1,000 litres of oil now being
disposed of as special waste.
Weir Minerals Australia, Sydney
During 2010, Weir Minerals Australia has had several
waste reduction projects including:
• Within its foundry, it has reduced the tonnage of
used foundry sand per tonne cast sent to landfill
by 25%.
• In 2010 the recycling of timber at the site diverted
430 tonnes from landfill to chipping into landscape
mulch.
Weir Power & Industrial, Fort St. John, Canada
During 2010, the site changed its shop lighting from
metal halide lights to T5 florescent lighting balancing
the safety needs of the shop floor with the energy
saving. This equates to a 43% energy use saving
per annum.
56 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability report
2: Health & Safety
Managing safety
Maintaining a consistently safe and healthy work-
place for our people requires effective, proac-
tive management. We operate a global network of
Environmental, Safety and Health 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 inju-
ries, preventing pollution, conserving resources,
complying with regulatory requirements and improv-
ing 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
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 opera-
tions globally.
The Group’s policy is that all its operations will be
OHSAS 18001 (Occupational Health and Safety
Assessment Series) accredited. 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 operations. Providing a platform for eliminat-
ing 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 reduc-
ing accidents, near misses and other incidents year
on year.
Our existing businesses have achieved accredita-
tion and all new acquisitions have detailed plans to
achieve OHSAS 18001 within an agreed timescale.
Each business records all near misses and inju-
ries within their operations and these are analysed
on a continuous basis to reduce the number of lost
time accidents through improvement of the working
environment.
The Group’s policy on health and safety requires
that all companies take a proactive attitude to the
protection of their employees health and safety.
All companies carefully evaluate risks to personnel
wherever they are working and take appropriate
include
to minimise such risks. These
steps
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 requ-
ired 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 with follow up
reports to the Group Executive Committee on a
monthly basis.
Safestart
The Group has adopted a behavioural system
known as SAFESTART which has been rolled out
to all operations and all new employees are given
this training as part of their induction. The Group is
committed to maintain the profile of this programme
across all companies as the key to its success is
the involvement and understanding at all levels of
the organisation.
57
Weir Minerals Africa
Weir Minerals Africa organises an annual Wellness
Day which involves various health screening activities
combined with general health promotion. 180
employees were given blood pressure and prostate
fitness
screening, cholesterol tests, advice on
routines and eye tests. In addition, the company also
organises an annual medical survey of all employees
who are in hazardous areas of the site such as the
foundry or rubber shop and in December 2010 149
employees were provided with an onsite Aids/HIV
testing and counselling clinic.
Eye tests at Weir Minerals Africa
An example of
SAFESTART posters
used by Weir Minerals
Africa.
180
employees were given blood
pressure or prostate screening
at Weir Minerals Africa
149
employees were provided
with onsite Aids/HIV testing
at Weir Minerals Africa
Weir Minerals Africa
Weir Minerals Africa found that their initial attempts
at SAFESTART implementation had been slow to
embed. The company introduced a visual and per-
sonal format with a character and style that was
more in line with situations and environments that
employees can relate to. The programme was re-
named Umfowethu, meaning ‘my brother’s keeper.’
Lost Time Accidents
The Group’s key measure of safety performance
is the number of lost time accidents (“LTAs”).
The Group adopts a more stringent lost time
measurement criterion than the industry norm of 3
days. The recorded LTAs use the Group definition of
“incidents resulting in lost time of more than 4 hours”.
The results for 2008, 2009 and 2010 are as follows:
83
100
80
60
40
20
40
26
2008
2009
2010
Initiatives
Our 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 out-
standing safety performance
through award schemes
58 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability report
3: Employees
We want to develop our people to their full potential.
We are committed to developing the best possible
technical specialists and leaders and encouraging all
employees to achieve their potential.
We aim to employ the best people for the roles we
have and help those people to develop further, by
giving them training, development opportunities and
management support.
The principles we apply are to:
• Never deny development or promotion on the basis
of any form of discrimination
• Encourage and support our employees to achieve
their potential
• Identify the training and development needs of
ourselves and our teams and find ways to satisfy
those needs
• Use the Weir Group personal development plan
(PDP) to identify and develop high potential
individuals
• Employ and retain people who share our values
and behaviours
• Work to maintain a business environment where
individuals feel valued and respected
• Support individuals in developing roles.
Introducing the Senior Management Group
The Senior Management Group (SMG) was formed
in January 2010 to enhance communication across
the leadership team of the Weir Group and to provide
a platform to help leverage our strategic agenda.
The SMG is made up of around 300 senior employees
from across the Weir Group who are key to the
development and delivery of the Group’s strategy.
The SMG includes the key decision makers from
each business and function who have a direct hand
in shaping the direction of each business within Weir
and are responsible for its success.
For the first of the SMG meetings, senior leaders from
across Europe, Africa and the Middle East gathered
in Glasgow in late August, with the Americas and
Asia-Pacific regional meetings following soon after in
Fort Worth and Sydney respectively.
The SMG has four key objectives:
• Enable the Chief Executive to communicate with
the most senior employees
• Enhance communication from the SMG across the
wider Weir community
• Build upon the core strategic pillars and leverage
capability across the Group and
• Create a standard Weir leadership journey for
development and succession, including a tailored
leadership programme for all members.
Senior management group
regional meeting for The
Americas at Fort Worth, Texas
59
300
senior employees brought
together from across the Weir
Group to form the Senior
Management Group
75
graduate trainees to be
recruited in 2011
43
graduate trainees to be
recruited from emerging
markets of South America,
South Africa and Asia in 2011
16
children of employees in
higher education supported
by Weir India
Global conferences
Engineering
During the year the Engineering Excellence Comm-
ittee met in India attended by 36 participants,
representing 25 locations from 14 different countries
to share best practice and to identify priorities and
focus activities to enable the development of a
Group-wide, world class engineering organisation.
The objectives agreed were to:
— take replication of best practice to a
new level
— develop and implement Group-wide
standards
— leverage the Group-wide technical
resources for the benefit of all the
Weir businesses
— foster the development of engineer-
ing talent and identify strategic tech-
nical capabilities that will support
Weir Group strategic growth plans.
Procurement
During the year, the Procurement Committee met in
Shanghai attended by over 40 participants from the
procurement teams around the world to focus on
the Group’s global capability and collaboration and
implementing a standard “Weir Way of Working” for
the procurement function.
Weir Graduate Development Framework
During 2010, the Group has developed its graduate
development framework aligning the Group’s three
strategic pillars of Innovation, Collaboration and
Global Capability. There are currently 40 graduate
trainees working across the Group in various
locations and we plan to recruit 75 graduates in 2011,
of which 43 will be from emerging markets. During
the two year programme, graduates will benefit
from rotational placements to ensure maximum
exposure to relevant development opportunities.
A variety of mechanisms will be put in place to
support the graduate as they move from an academic
environment to an industrial environment and this
will be provided through induction, professional
mentoring and a coaching relationship with a leader
from the SMG.
Here are some thoughts on the Weir Group from
our recent graduate intake:
“The culture within Weir Group
is one of a kind. There’s an
open atmosphere, with plenty
of skills and knowledge shar-
ing. It incubates leadership
qualities, encourages innova-
tion and engenders trust and
respect among colleagues.
These are the foundations of
the Weir Group”.
Vinay Sharma, Weir India
“It is a solid culture, with
clear goals and objectives.
The implementation of Lean
manufacturing and 5S serves
as the basis for the structure
of the Group in order to meet
market demands”.
Fernando Tirollo, Weir Minerals South America
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.
induction and
The Group employee development programmes
include
leadership 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.
60 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability report
3. Employees (continued)
The principal aims of these courses are
to provide:
— personal development
— exposure to different disciplines
— cultural integration
— networking across all disciplines and
operations
— a good understanding of what is
expected of a Weir Leader
— an improved awareness of self,
others in the business and the
enterprise as a whole and
— accountability and commitment to
developing themselves and others in
the business.
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.
In addition, the global personal development plan
analyses employee performance and enables
employees to receive the most relevant and tailored
training to match their specific skills and needs.
Case studies
Weir India scholarships
In 2010, the chairman Lord Smith launched Weir
India’s higher education scholarship scheme. In order
to support the children of Weir India employees in
their higher education and specifically to encourage
engineering talent, Weir India is supporting 10
children of employees in higher education through
a two year scholarship and supporting 6 children
of employees through an engineering degree for
four years.
Launching the Group's education programme in India
Weir Power & Industrial Alloa, UK
In November 2010, Scotland’s First Minister Alex
Salmond MSP joined with the wind energy sector to
formally launch the UK’s first Modern Apprenticeship
for the renewables industry. Weir Power & Industrial,
Alloa is one of three companies in the UK pioneering
the recruitment of apprentices for this training route
accredited by National Skills Academy for Power -
City & Guilds.
Allan Wilson (centre) Weir's renewables technician apprentice
meets Scotland's First Minister Alex Salmond MSP at the launch
of the apprentice programme, along with a fellow student
Sustainability report
4: Communities
61
238
scientific calculators donated
to local mathematics and
science students in 2010
£ 333,900
donated to charity by the
Group in 2010
We believe that any investment in a community should
create a meaningful and sustainable impact on that
community. It should be relevant to the local needs
but at the same time aligned with our business and
carried out in partnership with local organisations.
We aim to identify the possibilities for investment
through contact with local people and organisations
and in particular we work very closely with local non
Government authorities and community groups.
Education is a priority for communities worldwide. We
are therefore committed to focusing on community
projects with an educational theme whether it is
mentoring at a local school, helping young engineers
with their school projects, setting up scholarship
schemes, arranging site visits to local colleges and
universities to sponsoring the education of children.
These are all ways we wish to make a difference in
the communities in which we operate.
Charitable donations
The total charitable donations of Group companies
made during the financial year was £333,900 (2009:
£252,000), as shown below:
Community
65%
Education
21%
Health
13%
The Group’s Code of Conduct prohibits political
contributions and therefore no political donations
were made during the period.
The Code of Conduct states that Weir Group
companies will be ‘good citizens’ in the communities
they are in by:
Community focus areas
Education
Weir Minerals Africa, Rustenburg
In 2010, Weir Minerals Rustenburg partnered with
the Joint Education Trust (JET), a non-governmental
organisation, to donate 238 scientific calculators to
local mathematics and science students. JET operates
a number of partnerships between schools that lack
even the most basic facilities and local industry.
Through a monitoring programme the calculators are
returned to ensure that the following year’s students
continue to derive benefit from the scheme. Over the
targeted three year period the aim is that all students
in the area have access to one of these calculators.
• Respecting the local environment
• Setting an example by behaving in a manner
consistent with the Code at all times
• Supporting local communities who need help
through charitable contributions and employees
giving of their free time
• Informing and updating communities about ongoing
projects in their areas
• Respecting the traditions, cultures and laws of
the countries and the local communities where
we operate
• Trying to employ local people in our businesses
wherever possible
• Listening to the concerns of the local communities
and where possible, acting in a way that deals with
their concerns.
Rustenberg students with their calculators
62 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability report
4. Communities (continued)
Emergencies
Community
Weir Minerals Netherlands, Venlo
As part of the popular Venloop running event
involving a half marathon and 10k run which attracts
around 9,000 participants and 30,000 spectators,
Weir Minerals Netherlands sponsored the children’s
competition.
Weir Minerals South America, Chile
On 27 February 2010, Chile was hit by a massive
earthquake measuring 8.8 on the Richter scale and
the consequential tsunami.
Weir Minerals South America helped by:
• Sending several trucks of food and water to those
needing help, and
• Assisted any employee locate missing relatives.
As members of a local organisation that repre-
sents the largest mining suppliers the company
has helped fundraising to build the new polytech-
nic in Constitucion, a city close to the epicentre of
the earthquake.
Children's race at Venloop, Netherlands
Weir Minerals Africa, South Africa
Weir Minerals Africa has supported the Tembisa
Child and Family Welfare centre since it opened 24
years ago to promote the interests, well being, safety
and development of the children in their care. The
centre, which is local to the business in Isando on
the outskirts of Johannesburg, clothes, feeds and
educates 80 children from new born to age 18.
Chilean earthquake 2010
Weir Minerals Africa HR director Neil Voller visits Tembisa
http://www.tembisachildwelfare.co.za/
63
2011 will see further investment in design, research
and development in which our corporate responsibil-
ity and business objectives are closely aligned.
Case studies
Weir Minerals South America - Energy recovery
Starting in September 2009, a joint engineering
project between Codelco and Weir Minerals South
America developed a micro-power station involving
the generation of electricity from the tailings being
transported from Codelco’s mine. This is the first
stage in the construction of a network of micro-
power generators. The electricity generated takes
advantage of the force generated from the flow
of the tailings in the same way as hydro power. The
turbine has a potential to generate 10 to 12 MW
when fully operative.
Tailings are the liquid waste by-products from the
mining process and must be transported to the tail-
ing tanks or ponds for treatment.
Sustainability report
5: Products and technology
40%
of Power & Industrial Division
input in 2010 came from within
the low carbon sector
Research and development has a vital role to play
in meeting our corporate responsibilities. The devel-
opment of new products that are more environmen-
tally friendly in both manufacture and operation
offers competitive advantage to ourselves and to
our customers.
£14.8m
spent on research and
development during 2010
We recognise that many of our products and serv-
ices are themselves contributors to environmental
protection in critical areas such as power generation
and service.
Within the Power & Industrial Division 40% of input
in 2010 came from products and services sup-
plied to low carbon industries in nuclear, hydro
and biomass.
The acquisition of American Hydro in November
2010 and YES in December 2010 will significantly
strengthen the Group’s product and service offering
in the areas of hydro and wind respectively.
Research and development
During the financial year, the Group spent £14.8m
(2009: £9.7m) on research and development.
The expenditure reflects the Group’s continued
commitment to investment in research and deve-
lopment, 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.
Pumping station at Codelco's
El Teniente copper mine in
Chile
64 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability report
5. Products and technology (continued)
Acquisition of American Hydro
Hydro-power is the world’s largest source of renew-
able energy. American Hydro, which the Group
acquired in November 2010 has a particular strength
in improving the efficiency of existing stations.
This combined with the Group’s existing service
capabilities means that we are now able to offer to
customers an attractive proposition to improve
renewable energy output from existing hydro gener-
ation stations in an economically attractive manner.
Product efficiency
The GEHO positive displacement pump is 15 to 30%
more efficient in terms of carbon emission than con-
ventional pumping systems. This technology allows
mine water to be pumped at higher densities sav-
ing on power and capital costs. GEHO pumps are
designed to a 30 year life span and use fewer natural
resources in their installation and running costs.
Hydro runner, American Hydro
GEHO pump operating fly ash disposal at an Australian
power plant
Acquisition of Ynfiniti Engineering Services (YES)
During December 2010, the Group acquired a
majority shareholding in YES which is a Madrid
based company providing maintenance and other
services to windfarms throughout Europe. Wind
power generation is a fast growing market in many
of the countries in which Weir already operates
and YES provides a strong platform from which
to extend our position in this market.
Windfarms, a growing part of the renewable energy opportunity
Sustainability report
6: Ethics
65
The Board is ultimately responsible for setting the
governance and anti-corruption culture of the Group
and ensuring that this is understood and communi-
cated to all employees with the necessary reporting
channels provided together with appropriate training
and auditing. Regular reports and feedback are pro-
vided to the Board by the legal & commercial director
who has been appointed to oversee this.
Driving Growth the Weir Way is a critical feature of
the Group’s commitment to doing business at all
times in an ethical and transparent manner – “doing
it right”. The chief executive in his communication to
employees at the launch of the Code of of Conduct
in December 2010 set out his expectation that all
employees maintain the highest standards of integrity
consistent with the Code which was launched ahead
of the proposed implementation of the new UK
Bribery Act during 2011.
Code of Conduct
The Code of Conduct provides a clear framework on
which to base decision-making and provides details
of what is expected from each employee to maintain
the Group’s high standards of ethical behaviour.
The main purposes of the Code of Conduct are to:
• Set out clearly the behaviour expected from
employees and stakeholders
• Provide guidelines to help with applying Weir’s
values at all times
• Enable employees to raise a concern or ask a
question if they are in doubt.
The Code of Conduct is not restricted to bribery and
corruption but is much broader in nature and covers
other areas such as respecting our place in the world
and integrity in the work place.
The Code of Conduct is written in easy to understand
language with practical examples in each section.
Ethics Hotline
As part of the roll out of the Code of Conduct, the
Group established a dedicated independent and
confidential phone line that employees can ring
to raise any concerns that they have concerning
unethical behaviour. Calls to the helpline are free and
lines are open 24 hours a day, 7 days a week.
The communication of the Code of Conduct and the
details of the ethics reporting line has been carried
out through use of the following media: the Global
Intranet and posters at every Group location.
Anti-bribery & corruption training
Following the launch of the Code of Conduct the
Group introduced a mandatory e-learning training
programme for all ‘at risk’ employees, including:
• The Senior Management Group (300)
• All sales and marketing employees (around 1000)
• All purchasing employees (270+)
Initially there will be two modules – one covering the
UK Bribery Act, including the prevention of bribery
and corruption and the second addressing the Code
of Conduct.
The Code of Conduct was
rolled-out on-line
66 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Sustainability report
6. Ethics (continued)
Each training module is run through a learning
management system hosted by a third party. This
allows the Group to monitor the effective roll out of
the training. Each participant is expected to complete
the modules within the specified timelines. The first
module relating to the UK Bribery Act has a set pass
rate and participants are awarded a certificate on
successful completion of the module. Participants are
then expected to take the second module relating to
the Code of Conduct and again they are awarded a
certificate for successful completion. The Group will
refresh these modules on a regular basis. In addition
to the training aimed at the ‘at risk’ employees, the
Group is also developing training modules that will
be rolled out as part of ‘Town Hall’ meetings. These
will be carried out by local trainers and the aim will be
to introduce the Code of Conduct and what it means
to all employees.
The Group will also be introducing an online certifi-
cation process to enable all employees to certify on
a quarterly basis that they are in compliance with the
Code of Conduct.
Communications
The Group’s Code of Conduct will be reinforced
through an ongoing series of communications via:
• The Group conference and all regional and func-
tional conferences
• Induction days for new executives
• Training courses for the SMG
• As part of the 100 day integration plan for new
acquisitions.
Supply chain
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.
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, packag-
ing and recycling.
It is Group policy that payments to suppliers are
made in accordance with the agreed terms. At 31
December 2010, the Group had an average of 72
days purchases outstanding in trade creditors.
Other statutory
information
2011 annual general meeting
The annual general meeting will be held at 11am on Wednesday
4 May 2011 at the Radisson Hotel, Argyle Street, Glasgow. The
notice of meeting along with an explanation of the proposed
resolutions are set out in a separate circular to shareholders which
accompanies this annual report and can be downloaded from the
Company’s website.
Substantial shareholders
At 8 March 2011, 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
M&G Prudential
AXA
BlackRock
Legal & General
Aberdeen Asset Management
Number of
shares
Percentage of
issued share
capital
13,171,856
10,812,658
10,748,289
10,612,532
10,443,509
6.24%
5.14%
5.10%
5.03%
4.96%
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.
Employment policy and involvement
The average number of employees in the Group during the period
is given in note 4 to the Group financial statements on page 85.
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, dis-
ability, race, religion or other beliefs and ethnic or national origin.
67
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 30 to the Group financial statements on
page 110.
Auditors
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
106. 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 period, the 2007 LTIP award vested and the trustees of
the Company’s employees benefit trust (EBT), Kleinwort Benson
(Guernsey) Trustees Limited, transferred 37,794 ordinary shares
to employees to satisfy the LTIP awards using ordinary shares
purchased by the EBT in the market. A further 343,078 ordinary
shares were transferred out of treasury to satisfy awards under
the LTIP. In addition, a total of 123,596 ordinary shares, with an
aggregate value of £15,449.50 were allotted during the period
in connection with the Company’s LTIP and executive share
option scheme.
The EBT has agreed to waive any right to all dividend payments
on shares held by it. Details of the shares held by the EBT are set
out in note 25 to the Group financial statements on page 106.
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 31 December 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.
68 The Weir Group PLC
Annual Report & Financial Statements 2010 Directors report
Other statutory
information (continued)
Repurchase of shares
At the 2010 annual general meeting, shareholders renewed the
Company’s authority to make market purchases of up to 21.05m
ordinary shares (representing 10% of the issued share capital
excluding treasury shares). No shares were purchased under this
authority during the 52 weeks ended 31 December 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 by proxy 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.
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 directors may refuse to register any transfer of any certificated
share which is not fully paid up, provided that this power will
not be exercised so as to disturb the market in the Company’s
shares.
• The directors may also refuse to register the transfer of a cer-
tificated share unless it is delivered to the registrar’s office, or
such other place as the directors have specified, accompanied
by a certificate for the shares to be transferred and such other
evidence as the directors 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 directors
who may exercise all the powers of the Company, subject to the
provisions of the Company’s articles of association, any special
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.
During 2010, the Group secured a new four year US$800m multi
currency revolving credit facility with a syndicate of 12 banks.
This facility replaced the £625m bilateral facilities which were due
to mature in the third quarter of 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.
The Company is party to 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.
Alan Mitchelson
Secretary
Signed and approved for and on behalf of the Board
8 March 2011
69
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 43, in relation to going
concern;
• 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; and
• certain elements of the report to shareholders by the Board on
directors’ remuneration.
Other matter
We have reported separately on the Company financial statements
of The Weir Group PLC for the 52 weeks to 31 December 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
8 March 2011
Independent Auditors
Report
Independent auditors report to the members of
The Weir Group PLC
We have audited the Group financial statements of The Weir
Group PLC for the 52 weeks ended 31 December 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 responsi-
bilities set out on page 43, 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 and express an opinion on 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 reason-
able assurance that the financial statements are free from mate-
rial misstatement, whether caused by fraud or error. This includes
an assessment of: whether the accounting policies are appro-
priate to the Group’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of signifi-
cant 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 31 December 2010 and of its profit for the 52 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.
70 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Consolidated
Income Statement
for the 52 weeks ended 31 December 2010
52 weeks ended 31 December 2010
53 weeks ended 1 January 2010
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 before share of results of joint ventures
Share of results of joint ventures
Operating profit
Finance costs
Finance income
Other finance costs - retirement benefits
Profit before tax from continuing operations
Tax expense
Profit for the period from continuing operations
(Loss) profit for the period from discontinued operations
Profit for the period
Attributable to
Equity holders of the Company
Non-controlling interests
Earnings per share
Basic - total operations
Basic - continuing operations
Diluted - total operations
Diluted - continuing operations
3
1,635.0
-
1,635.0
1,390.2
-
1,390.2
15
6
6
24
7
8
9
305.1
4.6
309.7
(14.9)
1.5
(1.6)
294.7
(82.8)
211.9
-
211.9
211.5
0.4
211.9
100.4p
99.2p
(18.2)
-
(18.2)
-
-
-
(18.2)
5.4
(12.8)
(13.6)
(26.4)
(26.4)
-
(26.4)
286.9
4.6
291.5
(14.9)
1.5
(1.6)
276.5
(77.4)
199.1
(13.6)
185.5
185.1
0.4
185.5
87.9p
94.3p
86.9p
93.2p
200.1
4.6
204.7
(18.7)
2.5
(1.5)
187.0
(52.2)
134.8
5.2
140.0
140.0
-
140.0
64.1p
63.6p
(16.6)
-
(16.6)
-
-
-
(16.6)
5.4
(11.2)
-
(11.2)
(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
128.8
-
128.8
61.2p
58.8p
60.8p
58.3p
Consolidated
Statement of Comprehensive Income
for the 52 weeks ended 31 December 2010
Profit for the period
Other comprehensive income
Losses taken to equity on cash flow hedges
Exchange gains (losses) on translation of foreign operations
Exchange (losses) 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
Net other comprehensive income
Total net comprehensive income for the period
Attributable to
Equity holders of the Company
Non-controlling interests
71
52 weeks
ended
31 December
2010
£m
Note
53 weeks
ended
1 January
2010
£m
185.5
128.8
7
(0.2)
56.9
(17.3)
(3.4)
(0.1)
1.5
37.4
222.9
222.5
0.4 -
222.9
(0.5)
(51.2)
38.3
(57.7)
12.9
12.7
(45.5)
83.3
83.3
83.3
72 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Consolidated
Balance Sheet
at 31 December 2010
ASSETS
Non-current assets
Property, plant & equipment
Investment property
Intangible assets
Investments in joint ventures
Deferred tax assets
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
Other payables
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 interests
TOTAL EQUITY
31 December
2010
£m
Notes
1 January
2010
£m
11
11
12
15
23
30
16
17
18
30
19
20
21
18
30
22
20
21
30
22
23
24
259.7
3.9
957.8
10.3
27.1
0.6
1,259.4
310.2
353.3
16.2
9.2
0.4
84.0
773.3
2,032.7
6.3
409.9
21.8
20.9
30.1
41.5
530.5
361.3
12.0 -
27.5
38.5
76.2
65.0
580.5
1,111.0
921.7
26.6
38.0
(6.8)
0.5
103.8
0.4
758.8
921.3
0.4
921.7
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
Approved by the Board of Directors on 8 March 2011
Keith Cochrane, Director
Jon Stanton, Director
Consolidated
Cash Flow Statement
for the 52 weeks ended 31 December 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
Interest received
Dividends received from joint ventures
Net cash used in investing activities
Continuing operations
Cash flows from financing activities
Purchase of shares for LTIP awards
Proceeds from borrowings
Repayments of borrowings
Settlement of derivative financial instruments
Interest paid
Dividends paid to non-controlling interests
Dividends paid to equity holders of the Company
Net cash generated from (used in) financing activities
Net increase in cash & cash equivalents from continuing operations
Net decrease in cash & cash equivalents from discontinued operations - operating activities
Cash & cash equivalents at the beginning of the period
Foreign currency translation differences
Cash & cash equivalents at the end of the period
73
52 weeks
ended
31 December
2010
£m
Notes
53 weeks
ended
1 January
2010
£m
26
26
26
19
274.9
(9.3)
(72.4)
193.2
302.3
(11.1)
(43.6)
247.6
(203.4)
(0.7)
(50.9)
2.9
1.6
4.2
(246.3)
-
356.3
(190.8)
(13.4)
(10.8)
(0.2) -
(46.7)
94.4
41.3
(18.6) -
55.7
1.1
79.5
(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
74 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Consolidated
Statement of Changes in Equity
for the 52 weeks ended 31 December 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
interests
£m
Total
equity
£m
At 26 December 2008
26.6
38.0
(7.9)
0.5
76.9
(8.3)
570.9
696.7
0.2
696.9
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
Cost of share-based payments net of tax
Dividends
Exercise of LTIP awards
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(51.2)
38.3
-
-
(0.5)
-
-
-
-
-
12.9
(3.5)
(12.9)
8.9
-
-
-
-
-
-
128.8
-
-
-
(57.7)
-
16.2
87.3
2.8
(39.2)
(1.4)
128.8
(0.5)
(51.2)
38.3
(57.7)
12.9
12.7
83.3
2.8
(39.2)
(1.4)
At 1 January 2010
26.6
38.0
(7.9)
0.5
64.0
0.6
620.4
742.2
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
Tax relating to other comprehensive income
Total net comprehensive income
for the period
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.2)
185.1
-
56.9
(17.3)
-
-
0.2
-
-
-
(0.1)
0.1
-
-
(3.4)
-
1.2
185.1
(0.2)
56.9
(17.3)
(3.4)
(0.1)
1.5
-
-
-
-
-
-
-
-
-
-
-
0.2
0.4
-
-
-
-
-
-
128.8
(0.5)
(51.2)
38.3
(57.7)
12.9
12.7
83.3
2.8
(39.2)
(1.4)
742.4
185.5
(0.2)
56.9
(17.3)
(3.4)
(0.1)
1.5
Cost of share-based payments net of tax
Dividends
Exercise of LTIP awards
At 31 December 2010
-
-
-
26.6
-
-
-
38.0
-
-
1.1
(6.8)
-
-
-
0.5
-
-
-
103.8
-
-
-
0.4
3.3
(46.7)
(1.1)
758.8
3.3
(46.7)
-
921.3
-
(0.2)
-
0.4
3.3
(46.9)
-
921.7
39.8
(0.2)
182.9
222.5
0.4
222.9
Notes to the
Group Financial Statements
75
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 52 weeks ended 31 December 2010 (“2010”)
were approved and authorised for issue in accordance with a resolution of the directors on 8 March 2011. The comparative information is presented for the 53 weeks ended
1 January 2010 (“2009”). 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.
The accounting policies which follow are consistent with those of the previous periods except as described below.
Improvements to IFRS
In April 2009, 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. One of the key amendments and its impact is detailed below.
IAS38 Intangible assets: states that if an intangible asset acquired in a business combination is identifiable only with another intangible asset, the acquirer may recognise the
group of intangibles as a single asset provided the individual assets have similar useful lives. This has had no impact on the recognition of intangible assets in relation to the
current year acquisitions as each of the intangible assets recognised on acquisition were separately identifiable.
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.
IAS39 Eligible Hedged Items (amendment to IAS39 Financial Instruments: Recognition and measurement)
IFRS2 Group Cash-settled Share-based Payment Transactions (amendments to IFRS2 Share-based Payments)
IFRIC16 Hedges of a Net Investment in a Foreign Operation
IFRIC18 Transfers of Assets from Customers
76 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
2. Accounting policies (continued)
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 31.
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.
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.
77
2. Accounting policies (continued)
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
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 which 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.
Any contingent consideration to be transferred is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration, which
is deemed to be an asset or liability, will be recognised in accordance with IAS39 in profit or loss or as a change to other comprehensive income. In respect of business
combinations prior to 1 January 2010, subsequent adjustments to contingent consideration will be recognised as part of goodwill.
78 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
2. Accounting policies (continued)
Other intangible assets
Other intangible assets are stated at cost less accumulated amortisation and any recognised impairment losses.
Intangible assets acquired separately are measured at cost on initial recognition. An intangible resource acquired in a business combination is recognised as an intangible asset
if it is separable from the acquired business or arises from contractual or legal rights, is expected to generate future economic benefits and its fair value can be measured reliably.
An intangible asset with a finite life is amortised on a straight-line basis so as to charge its cost, which in respect of an acquired intangible asset represents its fair value at the
acquisition date, to the income statement over its expected useful life. An intangible asset with an indefinite life is not amortised but is tested at least annually for impairment
and carried at cost less any recognised impairment losses.
Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset. Amortisation is provided on a straight-line
basis so as to charge the cost of the software to the income statement over its expected useful life, not exceeding eight years.
The expected useful lives of the acquired intangible assets are as follows:
Brand names
Customer relationships
Purchased software
Intellectual property & trade marks
Other
Research & development costs
-
-
-
-
-
indefinite life
7 - 25 years
4 - 8 years
6 -15 years
up to 6 years
All research expenditure is charged to the income statement in the period in which it is incurred.
Development expenditure is charged to the income statement in the period in which it is incurred unless it relates to the development of a new product and it is incurred after
the technical feasibility and commercial viability of the product has been proven, the development costs can be measured reliably, future economic benefits are probable and
the Group intends to and has sufficient resources to complete the development and to use or sell the asset. Any such capitalised development expenditure will be amortised
on a straight-line basis so that it is charged to the income statement over the expected life of the resulting product.
Impairment of non-current assets
All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying values might be impaired. Additionally, goodwill, intangible assets
with an indefinite life and any capitalised development expenditure are subject to an annual impairment test.
An impairment loss is recognised to the extent that an asset’s carrying value exceeds its recoverable amount, which represents the higher of the asset’s fair value less costs to
sell and its value in use. An asset’s value in use represents the present value of the future cash flows expected to be derived from the asset. Where it is not possible to estimate
the recoverable amount of an individual asset, the impairment test is conducted for the cash-generating unit to which it belongs. Similarly, the recoverable amount of goodwill
is determined by reference to the discounted future cash flows of the cash-generating units to which it is allocated.
Impairment losses are recognised in the income statement. Impairment losses recognised in previous periods for an asset other than goodwill are reversed if there has been a
change in the estimates used to determine the asset’s recoverable amount. The carrying amount of an asset shall not be increased above the carrying amount that would have
been determined had no impairment loss been recognised for the asset in prior periods. Impairment losses recognised in respect of goodwill are not reversed.
Inventories
Inventories are valued at the lower of cost and net realisable value, with due allowance for any obsolete or slow moving items. Cost represents the expenditure incurred in
bringing inventories to their existing location and condition and comprises the cost of raw materials, direct labour costs, other direct costs and related production overheads.
Raw material cost is generally determined on a first in, first out basis. Net realisable value is the estimated selling price less costs to complete and sell.
Financial assets & liabilities
The Group’s principal financial assets and liabilities, other than derivatives, comprise bank overdrafts, short-term borrowings, loans and fixed rate notes, 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.
79
2. Accounting policies (continued)
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.
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.
80 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
2. Accounting policies (continued)
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.
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.
81
2. Accounting policies (continued)
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)
IAS12
IAS24
IAS32
IFRS9
Deferred Tax: Recovery of Underlying Assets (amendment to IAS12 Income Taxes)
Related Party Disclosures (revised)
Classification of Rights Issues (amendment to IAS32 Financial Instruments: Presentation)
Financial Instruments*
Improvements to IFRS (issued 2010)*
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC14
IFRIC19
Amendment to IFRIC14 Prepayments of a Minimum Funding Requirement
Extinguishing Financial Liabilities with Equity Instruments
*not yet adopted for use in the European Union
Effective date for
periods commencing
1 January 2012
1 January 2011
1 February 2010
1 January 2013
1 January 2011
1 January 2011
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.
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.
In 2010, in conjunction with the acquisition of American Hydro, the decision was taken to restructure our Canadian operations in order to better align the business activities of
existing operations with the new acquisition as well as to meet developments in the Canadian marketplace. Accordingly, the segment information in respect of the 53 weeks
ended 1 January 2010 has been restated. The impact of this restatement was to reduce Power & Industrial sales to external customers by £13.5m and to increase Oil & Gas
and Minerals sales to external customers by £8.2m and £5.3m respectively. Segment result increased in Power & Industrial and Oil & Gas by £0.4m and £0.7m respectively
and reduced by £1.1m in Minerals. Working capital assets in Minerals increased by £0.6m and liabilities increased by £0.2m. In Oil & Gas, working capital assets increased by
£2.0m. In Power & Industrial working capital assets reduced by £2.6m and liabilities by £0.2m. Depreciation increased in Minerals by £0.1m and reduced in Power & Industrial
by the same amount.
82 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
3. Segment information (continued)
The segment information for the reportable segments for the 52 weeks ended 31 December 2010 and the 53 weeks ended 1 January 2010 is disclosed below.
Revenue
Sales to external customers
Inter-segment sales
Segment revenue
Group companies sales to external customers
Eliminations
Sales to external customers - at 2010 average exchange rates
Sales to external customers
Group companies sales to external customers
Result
Segment result before share of results of joint ventures
Share of results of joint ventures
Segment result
Group companies
Unallocated expenses
Operating profit before exceptional items & intangibles amortisation
Exceptional items & intangibles amortisation
Net finance costs (excluding other finance costs)
Other finance costs - retirement benefits
Profit before tax from continuing operations
Segment result - at 2010 average exchange rates
Segment result before share of results of joint ventures
Share of results of joint ventures
Segment result
Group companies
Unallocated expenses
Operating profit before exceptional items & intangibles amortisation
There are no material revenues derived from a single external customer.
Minerals
Oil & Gas
Power & Industrial
2010
£m
2009
Restated
£m
2010
£m
2009
Restated
£m
2010
£m
2009
Restated
£m
901.4
1.8
903.2
818.6
1.9
820.5
461.7
7.5
469.2
307.2
5.6
312.8
246.0
3.5
249.5
228.5
2.8
231.3
901.4
878.5
461.7
308.4
246.0
231.2
174.5
-
174.5
132.5
-
132.5
112.8
4.6
117.4
48.1
4.6
52.7
26.3
-
26.3
23.4
-
23.4
174.5
-
174.5
140.5
-
140.5
112.8
4.6
117.4
47.9
5.1
53.0
26.3
-
26.3
23.7
-
23.7
Total continuing
operations
2010
£m
2009
Restated
£m
1,609.1
12.8
1,621.9
25.9
(12.8)
1,635.0
1,354.3
10.3
1,364.6
35.9
(10.3)
1,390.2
1,609.1
25.9
1,635.0
1,418.1
35.9
1,454.0
313.6
4.6
318.2
3.5
(12.0)
309.7
(18.2)
(13.4)
(1.6)
276.5
313.6
4.6
318.2
3.5
(12.0)
309.7
204.0
4.6
208.6
6.8
(10.7)
204.7
(16.6)
(16.2)
(1.5)
170.4
212.1
5.1
217.2
6.8
(10.7)
213.3
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
Unallocated additions to non-current assets
Total additions to non-current assets
Segment depreciation & amortisation
Unallocated depreciation & amortisation
Total depreciation & amortisation
Segment impairment
Total impairment
Segment warranty expense (net)
Group companies warranty expense (net)
Total warranty expense (net)
Minerals
Oil & Gas
Power & Industrial
2010
£m
2009
Restated
£m
2010
£m
2009
Restated
£m
2010
£m
2009
Restated
£m
163.8
353.9
517.7
-
517.7
129.5
277.2
406.7
-
406.7
43.1
188.0
231.1
10.3
241.4
33.9
148.7
182.6
9.7
192.3
40.0
122.3
162.3
-
162.3
35.7
71.5
107.2
-
107.2
207.4
174.3
96.4
80.4
75.2
52.9
30.2
29.7
17.2
7.1
3.4
3.7
23.6
19.3
20.6
18.8
7.7
6.2
0.1
1.0
-
-
0.1
-
4.4
5.8
4.3
0.7
2.7
1.5
83
Total continuing
operations
2010
£m
2009
Restated
£m
246.9
664.2
911.1
10.3
921.4
1.2
1,110.1
2,032.7
379.0
14.3
717.7
1,111.0
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
50.8
0.1
50.9
51.9
0.4
52.3
0.2
0.2
11.4
0.2
11.6
40.5
0.1
40.6
44.3
0.5
44.8
1.0
1.0
8.0
1.0
9.0
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).
84 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
3. Segment information (continued)
Geographical information
Geographical information in respect of revenue and non-current assets for the 52 weeks ended 31 December 2010 and the 53 weeks ended 1 January 2010 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.
52 weeks ended 31 December 2010
UK
£m
USA
£m
Canada
£m
Europe
& FSU
£m
Asia
Pacific Australasia
£m
£m
South Middle East
& Africa
£m
America
£m
Total
£m
Revenue from continuing operations
Sales to external customers
92.1
391.5
158.8
171.0
190.7
183.9
203.4
243.6
1,635.0
Non-current assets
100.3
493.9
11.0
153.0
152.6
168.3
46.3
106.3
1,231.7
53 weeks ended 1 January 2010
Revenue from continuing operations
Sales to external customers
UK
£m
USA
£m
Canada
£m
Europe
& FSU
£m
Asia
Pacific
£m
Australasia
£m
South Middle East
& Africa
£m
America
£m
Total
£m
98.3
283.7
119.8
163.4
206.7
126.2
172.3
219.8
1,390.2
Non-current assets
99.3
433.8
13.9
133.0
6.0
132.4
37.3
97.5
953.2
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 (2009: £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
2010
£m
2009
£m
637.7
680.3
1,318.0
271.9
45.1
1,635.0
1.5
1,636.5
588.3
489.5
1,077.8
256.1
56.3
1,390.2
2.5
1,392.7
2010
£m
2009
£m
1,635.0
(1,017.7)
617.3
0.5
(169.8)
(161.1)
4.6
291.5
1,390.2
(935.0)
455.2
3.4
(145.8)
(129.3)
4.6
188.1
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 plant & equipment (note 11)
Acquisition transaction costs (note 13)
Net foreign exchange (gains) 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
Fees payable in respect of the Group’s pension schemes
Audit
85
2010
£m
2009
£m
1,017.7
34.1
18.2
0.2
2.6 -
(0.5)
2.0
-
935.0
28.2
16.6
1.0
1.8
4.6
2.6
2010
£m
2009
£m
0.3
1.2
0.1
0.3
0.8
0.1
Research & development costs
Research & development costs amount to £14.8m (2009: £9.7m) of which £13.9m were charged directly to cost of sales in the income statement and £0.9m were capitalised
(note 12).
Operating leases
Minimum lease payments under operating leases recognised as an expense in the period were £20.9m (2009: £16.8m).
Employee benefits expense
Wages & salaries
Social security costs
Pension costs
Defined benefit plans
Defined benefit plans curtailment gain
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
2010
£m
2009
£m
339.4
36.8
1.3
-
-
11.7
3.0
392.2
285.3
32.3
1.3
(1.5)
(2.2)
10.3
1.6
327.1
2010
Number
2009
Restated
Number
5,786
1,784
1,962
95
9,627
5,263
1,638
1,800
104
8,805
At 31 December 2010, the number of persons employed by the Group was 11,789 (2009: 8,537).
The 2009 average monthly number of persons employed has been restated to reflect the impact of the restructuring of our Canadian operations as detailed in note 3.
The impact of this restatement was to increase the average monthly numbers employed in the Minerals and Oil & Gas divisions by 33 and 37 respectively and to reduce the
average monthly number employed in the Power & Industrial division by 70.
86 The Weir Group PLC
Annual Report & Financial Statements 2010 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)
Recognised in arriving at loss for the period from discontinued operations
Exceptional items (note 8)
6. Finance (costs) income
Finance costs
Interest payable on bank loans, fixed rate notes & 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
2010
£m
2009
£m
(18.2)
(16.6)
(13.6) -
2010
£m
(9.2)
(0.7)
-
(2.7)
-
(2.3)
(14.9)
2010
£m
0.6
0.9
1.5
2009
£m
(4.2)
(4.3)
(3.7)
(5.1)
(0.1)
(1.3)
(18.7)
2009
£m
0.9
1.6
2.5
87
2010
£m
2009
£m
(6.3)
(1.3)
(7.6)
(78.9)
5.0
(81.5)
0.4
4.2
(0.5) -
4.1
(77.4)
2010
£m
(82.8)
5.4
(77.4)
(10.3)
0.7
(9.6)
(38.1)
5.0
(42.7)
(6.9)
2.8
(4.1)
(46.8)
2009
£m
(52.2)
5.4
(46.8)
7. Tax expense
Income tax expense
Consolidated Income Statement
Current income tax
UK corporation tax - continuing operations
Adjustments in respect of current income tax of previous years
UK corporation tax
Foreign tax - continuing 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
Adjustment to estimated recoverable deferred tax assets
Effect of changes in tax rates
Total deferred tax*
Total income tax expense in the Consolidated Income Statement
* Includes £5.9m of deferred tax credit relating to foreign tax (2009: a charge of £4.2m)
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
Total income tax expense in the Consolidated Income Statement
Current tax for 2010 has been reduced by £4.2m (2009: £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.
88 The Weir Group PLC
Annual Report & Financial Statements 2010 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 pension contributions in excess of costs borne through the income statement
Deferred tax - origination & reversal of temporary differences
Tax credit on actuarial losses on retirement benefits
Deferred tax credit (charge) on hedge gains / losses
Deferred tax credit on exchange losses
Tax credit 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 in the Consolidated Statement of Changes in Equity
Reconciliation of the total tax charge
2010
£m
2009
£m
3.3
(2.1)
1.2
0.1
0.2 -
1.5
3.8
12.4
16.2
(3.5)
12.7
2010
£m
2009
£m
(0.2)
0.5
0.3
0.7
0.5
1.2
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 31.0% (2009:
29.3%). The differences are reconciled below.
Profit from continuing operations before tax
(Loss) profit from discontinued operations before tax
Accounting profit before tax
At the weighted average of standard rates of corporation tax across the Group of 31.0% (2009: 29.3%)
Adjustments in respect of previous years - current tax
- deferred tax
Joint ventures
Unrecognised deferred tax assets
Overseas tax on unremitted earnings
Permanent differences
Effect of changes in tax rates
Exceptional loss from discontinued operations disallowed for tax
Gains exempt from tax
At effective tax rate of 29.4% (2009: 26.7%)
2010
£m
276.5
(13.6)
262.9
81.6
(3.7)
1.0
(0.8)
(4.2)
5.5
(6.3)
0.5 -
3.8 -
-
77.4
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
89
8. Discontinued operations
There were no disposals of businesses during the 52 weeks ended 31 December 2010. 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.
In December 2010, the Group pleaded guilty to two charges of breaching UN sanctions in connection with a number of Oil for Food programme contracts awarded between
2000 and 2002. This resulted in a confiscation order of £13.9m and a fine of £3.0m. Since the business involved was sold in 2007, these costs, along with £1.7m of related
legal and professional fees, offset by the release of £5.0m of provisions and accruals, are shown as a loss from discontinued operations.
In 2009, a profit of £5.2m (net of tax of £nil) was recognised in respect of prior periods disposals. This related to the release of an unutilised provision following the expiry of
certain warranty periods.
(Losses) earnings per share from discontinued operations were as follows.
Basic
Diluted
2010
pence
(6.5p)
(6.4p)
2009
pence
2.5p
2.5p
These (losses) earnings per share figures were derived by dividing the net loss attributable to equity holders of the Company from discontinued operations of £13.6m
(2009: profit of £5.2m) by the weighted average number of ordinary shares for both basic and diluted amounts shown in note 9.
9. Earnings per share
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 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)
2010
2009
185.1
198.7
211.5
128.8
123.6
134.8
210.6
210.3
185.1
198.7
211.5
128.8
123.6
134.8
213.1
212.0
90 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
9. Earnings per share (continued)
The difference between the weighted average share capital for the purposes of the basic and the diluted earnings per share calculations is analysed as follows.
Weighted average number of ordinary shares for basic earnings per share
Effect of dilution: LTIP awards
Adjusted weighted average number of ordinary shares for diluted earnings per share
2010
Shares
Million
210.6
2.5
213.1
2009
Shares
Million
210.3
1.7
212.0
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*
* Adjusted for £0.4m (2009: £nil) in respect of non-controlling interests.
There have been no LTIP awards (2009: 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 2009: 16.20p (2008: 13.85p)
Interim dividend for 2010: 6.00p (2009: 4.80p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2010: 21.00p (2009: 16.20p)
2010
£m
198.7
12.8
211.5
2009
£m
123.6
11.2
134.8
2010
£m
2009
£m
34.1
12.6
46.7
29.1
10.1
39.2
44.3
34.1
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.
91
Land &
buildings
£m
Plant &
equipment
£m
Total
property,
plant &
equipment
£m
Investment
property
£m
86.4
2.8
(0.7)
(1.1)
(0.2)
87.2
3.4
20.2
(5.9)
-
0.9
6.1
111.9
22.8
2.5
-
(0.1)
(0.1)
(0.6)
24.5
5.8
-
(4.0)
-
-
1.3
27.6
240.1
35.2
(9.7)
(2.2)
4.9
268.3
43.0
16.8
(15.0)
(1.5)
(1.3)
20.4
330.7
114.1
25.4
1.0
(8.2)
(2.2)
1.5
131.6
28.0
0.2
(14.2)
(0.3)
(0.4)
10.4
155.3
326.5
38.0
(10.4)
(3.3)
4.7
355.5
46.4
37.0
(20.9)
(1.5)
(0.4)
26.5
442.6
136.9
27.9
1.0
(8.3)
(2.3)
0.9
156.1
33.8
0.2
(18.2)
(0.3)
(0.4)
11.7
182.9
63.6
126.0
189.6
62.7
136.7
199.4
84.3
175.4
259.7
11.8
-
-
-
-
11.8
-
-
-
-
-
-
11.8
7.3
0.3
-
-
-
-
7.6
0.3
-
-
-
-
-
7.9
4.5
4.2
3.9
11. Property, plant & equipment & investment property
Cost
At 26 December 2008
Additions
Disposals
Reclassifications to intangible assets
Exchange adjustment
At 1 January 2010
Additions
Acquisitions
Disposals
Reclassifications to intangible assets
Reclassifications
Exchange adjustment
At 31 December 2010
Accumulated depreciation & impairment
At 26 December 2008
Depreciation charge for the period
Impairment
Disposals
Reclassifications to intangible assets
Exchange adjustment
At 1 January 2010
Depreciation charge for the period
Impairment
Disposals
Reclassifications to intangible assets
Reclassifications
Exchange adjustment
At 31 December 2010
Net book value at 26 December 2008
Net book value at 1 January 2010
Net book value at 31 December 2010
The carrying value of buildings held under finance leases is £1.8m (2009: £1.7m). The carrying value of plant and equipment held under finance leases is £0.6m (2009: £0.3m).
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 £12.2m
(2009: £6.3m).
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 £2.3m (2009: £1.8m). A three year lease was entered into
with Clyde Union Ltd effective from 1 April 2009. This lease provides £2.25m rental income per annum and includes an option for Clyde Blowers Ltd to purchase the property
for £28.5m.
The impairment charge of £0.2m (2009: £1.0m) 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.
92 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
12. Intangible assets
Cost
At 26 December 2008
Additions
Disposals
Reclassifications from property, plant & equipment
Exchange adjustment
At 1 January 2010
Additions
Acquisitions
Disposals
Reclassifications from property, plant & equipment
Reclassifications
Exchange adjustment
At 31 December 2010
Accumulated amortisation & impairment
At 26 December 2008
Amortisation charge for the period
Disposals
Reclassifications from property, plant & equipment
Exchange adjustment
At 1 January 2010
Amortisation charge for the period
Disposals
Reclassifications from property, plant & equipment
Reclassifications
Exchange adjustment
At 31 December 2010
Goodwill
£m
Customer
Brand
names relationships
£m
£m
Purchased
software
£m
Intellectual
property & Development
costs
£m
trade marks
£m
Other
£m
Total
£m
512.2
-
(2.9)
-
(15.2)
494.1
-
86.6
-
-
-
25.4
606.1
-
-
-
-
-
-
-
-
-
-
-
-
98.3
-
-
-
(8.1)
90.2
-
40.1
-
-
-
3.5
133.8
-
-
-
-
-
-
-
-
-
-
-
-
163.3
-
-
-
(12.8)
150.5
-
22.6
-
-
-
5.8
178.9
11.4
9.9
-
-
(0.8)
20.5
11.3
-
-
-
0.7
32.5
16.7
2.0
(0.9)
3.3
1.2
22.3
3.8
0.1
(2.4)
1.3
-
1.2
26.3
9.3
2.8
(0.6)
2.3
1.0
14.8
2.7
(2.1)
0.3
-
0.7
16.4
7.4
7.5
9.9
23.1
1.1
-
-
(1.7)
22.5
0.2
40.7
-
-
(1.9)
1.8
63.3
5.9
2.2
-
-
(0.4)
7.7
3.2
-
-
(0.8)
0.1
10.2
17.2
14.8
-
-
-
-
-
-
0.7
-
(0.7)
0.2
1.9
0.2
2.3
-
-
-
-
-
-
-
(0.7)
-
0.7
0.1
0.1
-
-
13.2
-
-
-
(0.5)
12.7
-
3.7
-
-
-
0.9
17.3
8.4
1.7
-
-
(0.7)
9.4
1.0
-
-
0.1
0.5
11.0
826.8
3.1
(3.8)
3.3
(37.1)
792.3
4.7
193.8
(3.1)
1.5
-
38.8
1,028.0
35.0
16.6
(0.6)
2.3
(0.9)
52.4
18.2
(2.8)
0.3
-
2.1
70.2
4.8
791.8
3.3
739.9
53.1
2.2
6.3
957.8
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
Net book value at 31 December 2010
606.1
133.8
146.4
Brand names have been assigned an indefinite useful life and as such are not amortised. The carrying value of £133.8m is tested annually for impairment (note 14). The brand
name value comprises the brands of Weir Linatex, Weir BDK, Weir American Hydro, 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. The Weir Linatex brand enjoys
strong recognition within the mining and sand and aggregates markets globally.
93
12. Intangible assets (continued)
The allocation of customer relationships and the remaining amortisation period of these assets is as follows.
Weir SPM
Weir Gabbioneta
Warman companies
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
Amortisation charge for the period
Remaining amortisation
period
Customer
relationships
2010
Years
2009
Years
2010
£m
21
20
Up to 10
-
Up to 20
22
21
-
8
Up to 6
95.0
15.0
18.1 -
-
18.3
146.4
2010
£m
1.3
0.4
16.5
18.2
2009
£m
96.4
16.4
10.3
6.9
130.0
2009
£m
1.9
0.3
14.4
16.6
94 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
13. Business combinations
There were no business combinations during the 53 weeks ended 1 January 2010. During the 52 weeks ended 31 December 2010, the Group acquired five businesses of
which Linatex was the most significant. The disclosures in this note present Linatex separately from the other business combinations on the basis that Linatex is considered to
be individually material.
On 17 September 2010, following receipt of regulatory approvals, the Group finalised the acquisition of 100% of the voting shares of the Linatex group of companies (“Linatex”),
a global provider of wear-resistant products to the mining and sand and aggregate industries, based in Kuala Lumpur, Malaysia, for a total cash consideration of £111.7m.
Costs associated with the acquisition amounting to £0.8m have been charged to the income statement in the 52 weeks ended 31 December 2010.
On 5 March 2010, the Group acquired 100% of the voting shares of Petroleum Certification Services (“PCS”), an Australian based specialist certification and testing business.
On 11 October 2010, the Group acquired the valves business of BDK Engineering Industries Limited (“BDK”), a family owned business based in Hubli, Karnataka, India,
which manufactures valves for the oil and gas, petro-chemical and power markets. On 18 November 2010, the Group acquired 100% of the voting shares of American Hydro
Corporation (“American Hydro”), a manufacturer of high-efficiency turbine components for hydro-electric power generation based in York, Pennsylvania. On 21 December 2010,
the Group acquired 76% of the voting shares of wind power maintenance specialist, Ynfiniti Engineering Services SL (“YES”) based in Madrid, Spain. YES provides operating
and maintenance services to the growing installed base of wind turbines. Costs associated with these acquisitions amounting to £1.8m have been charged to the income
statement in the 52 weeks ended 31 December 2010.
The YES acquisition was structured as an initial 76% purchase with the remaining 24% being subject to a put and call option exercisable between 2014 and 2016 and based
upon an EBITDA multiple of profits in the two years preceding the exercise of the option. The most likely range of possible outcomes is between €6m and €22m. The contingent
consideration recognised at the acquisition date has been estimated at £12.0m (€14m). This is based on an assessment of the probability of the possible outcomes discounted
to net present value. Any difference from this estimate will ultimately be taken to the Consolidated Income Statement. The maximum amount of the contingent consideration
is unlimited.
The fair values of the identifiable assets and liabilities at the relevant dates of acquisition are as follows.
Property, plant & equipment
Intangible assets
Inventories
Trade & other receivables
Construction contract assets
Cash & cash equivalents
Interest-bearing loans & borrowings
Trade & other payables
Construction contract liabilities
Provisions
Income tax
Deferred tax
Fair value of net assets
Goodwill arising on acquisition
Total consideration
Cash consideration
Settlement of pre-existing relationship balances
Contingent consideration
Net amount recoverable on business combinations
Total consideration
The cash outflow on acquisition was as follows
Cash & cash equivalents acquired
Cash paid
Settlement of pre-existing relationship balances
Net cash outflow
Linatex
2010
£m
28.4
71.7
15.5
12.0
-
3.1
(15.8)
(13.3)
-
(2.4)
(1.7)
(16.9)
80.6
31.1
111.7
111.7
-
-
-
111.7
3.1
(111.7)
-
(108.6)
Other
2010
£m
8.6
35.5
6.1
12.4
3.0
-
-
(6.4)
(3.9)
(4.7)
(0.4)
0.1
50.3
55.5
105.8
95.5
(0.8)
12.0
(0.9)
105.8
-
(95.5)
0.8
(94.7)
Total
2010
£m
37.0
107.2
21.6
24.4
3.0
3.1
(15.8)
(19.7)
(3.9)
(7.1)
(2.1)
(16.8)
130.9
86.6
217.5
207.2
(0.8)
12.0
(0.9)
217.5
3.1
(207.2)
0.8
(203.3)
The fair values on acquisition of the above business combinations are provisional, with the exception of PCS, due to the timing of the transactions and will be finalised during the
following financial year. The fair value of the trade receivables amounts to £21.8m and the gross amount of trade receivables is £23.4m. None of the trade receivables has been
impaired. From the date of acquisition Linatex contributed £27.2m to the 2010 revenue and £1.5m to the 2010 profit for the period from continuing operations of the Group.
The combined continuing operations revenue and profit for the period from continuing operations of the Group, assuming that Linatex, BDK, American Hydro, YES and PCS
had been acquired at the start of 2010, would have been £1,745.7m and £206.1m respectively.
Included in the £86.6m 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 anticipated business growth, synergies and an assembled workforce. The amount of goodwill which is expected to be deductible for tax purposes
is £55.5m.
95
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. In 2010, following an internal restructuring, goodwill and intangibles relating to the “Weir Warman” CGU was reallocated to
the “Warman companies” CGU as this was determined to be the revised CGU at which the Group monitors the goodwill and intangibles for indicators of impairment.
The current year acquisitions have been allocated to “Other” with the exception of Linatex which has been allocated to the “Warman companies” CGU. The amounts allocated
as “Other” are not considered significant in comparison to their respective total carrying amounts.
The carrying amount of goodwill and intangible assets with indefinite lives has been allocated as per the table below.
Weir SPM
Warman companies
Weir Gabbioneta
Weir Warman
Other
Year
acquired
Goodwill
2010
£m
Intangibles*
2010
£m
Goodwill
2009
£m
Intangibles*
2009
£m
2007
various
2005
2008
various
227.8
220.1
61.7
-
96.5
606.1
29.5
89.8
5.8
-
8.7
133.8
220.0
116.5
63.9
55.8
37.9
494.1
28.5
-
6.0
51.4
4.3
90.2
* 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
13.7% (2009: 14.2%)
1.2% (2009: 1.2%)
Warman companies
Value in use
5 Years
15.4% (2009: 15.2%)
1.7% (2009: 1.2%)
Weir Gabbioneta
Value in use
5 Years
13.7% (2009: 12.9%)
1.2% (2009: 1.2%)
Weir Warman
Value in use
5 years
n/a (2009: 19.3%)
n/a (2009: 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 a decrease in the WACC relative to 2009 largely due to a decrease
in government bond yields and a reduction in lending margins that banks place on borrowing costs. The WACC in relation to Weir Gabbioneta has increased relative to 2009
as Italian government bond yields have increased over the period while bank lending margins have remained static.
2 Real growth
Real growth beyond the five year forecast period of 1.2% 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 oil and gas well service pumps, associated flow control equipment and services to the oil and gas production industry. A large proportion of its
revenues are generated in North America with demand being closely related to the number of conventional oil drilling rigs and gas well drilling rigs in operation which is in
turn dependent upon oil and natural gas prices and storage levels. Independent forecasts of North American oil and gas well drilling activity, which take into account forecast
oil and natural gas prices and storage levels, have been used to derive revenue growth assumptions. These independent forecasts were prepared during the final quarter
of 2010.
96 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
14. Impairment testing of goodwill & intangible assets with indefinite lives (continued)
5 Warman companies
The Warman companies supply pumps and associated equipment and services to all global markets. 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 2010.
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 2010.
7 Weir Warman
Weir Warman is a supplier of pumps and associated equipment and services to the African mining industry. In 2010, Weir Warman was re-allocated to the Warman
companies CGU. In respect of the 2009 disclosures, the key drivers for revenues are (i) levels of mining capital expenditure across Africa which drive demand for original
equipment and (ii) levels of actual mining activity which drive 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 26 December 2008
Share of results
Share of dividends
Exchange adjustment
At 1 January 2010
Share of results
Share of dividends
Exchange adjustment
At 31 December 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
10.3
4.6
(5.9)
0.7
9.7
4.6
(4.2)
0.2
10.3
2010
£m
2009
£m
3.4
8.7
3.0
(3.8)
(1.0)
10.3
18.5
(10.9)
(1.0)
(1.2)
(0.8)
4.6
3.3
8.0
3.1
(3.8)
(0.9)
9.7
17.0
(9.5)
(0.5)
(1.6)
(0.8)
4.6
Carrying value of investments in joint ventures
10.3
9.7
The Group’s significant investments in joint ventures are listed on page 134.
16. Inventories
Raw materials
Work in progress
Finished goods
During the period, £0.4m (2009: £5.2m) 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 51 days (2009: 47 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
97
2009
£m
57.4
76.4
101.5
235.3
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)
2010
£m
96.7
80.5
133.0
310.2
2010
£m
313.0
(13.8)
299.2
30.0
7.8
0.3
16.0
353.3
2010
£m
242.1
57.1
13.8
313.0
2010
£m
42.8
6.5
7.8
57.1
2010
£m
(13.1)
(5.1)
1.1
0.8
3.1
(0.6)
(13.8)
98 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
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
2010
£m
1.7
2.4
9.7
13.8
2010
£m
16.2
(21.8)
(5.6)
116.4
(122.0)
(5.6)
2009
£m
1.3
1.8
10.0
13.1
2009
£m
25.9
(23.2)
2.7
183.3
(180.6)
2.7
The amount of retentions held by customers for contract work amounted to £0.1m (2009: £0.2m) and the amount of advances received from customers for contract work
amounted to £7.2m (2009: £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)
2010
£m
82.3
1.7
84.0
84.0
(4.5)
79.5
2009
£m
54.5
2.5
57.0
57.0
(1.3)
55.7
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.
99
2010
£m
2009
£m
3.4
1.1 -
4.5
1.3
0.5
6.3
1.3
1.3
0.3
0.4
2.0
203.5
157.4 -
0.4
361.3
173.7
0.5
174.2
Weighted average
interest rate
Maturity
Interest
basis
2010
%
2009
%
2010
£m
2009
£m
2014
US$ LIBOR
1.26
-
203.1 -
2011
2011
CAD$ LIBOR
US$ LIBOR
-
-
0.90
0.89
-
-
65.0
108.1
2011
2013
BoE base rate
FIXED
3.50
13.75
-
13.75
1.0 -
0.7
204.8
(1.0) -
(0.3)
203.5
0.9
174.0
(0.3)
173.7
Weighted average
interest rate
Maturity
Interest
basis
2010
%
2009
%
2010
£m
2009
£m
2015
2015
2018
2018
FIXED
FIXED
FIXED
FIXED
4.58
4.20
5.36
5.03
-
-
-
-
12.0 -
57.7 -
42.9 -
44.8 -
157.4
-
20. Interest-bearing loans & borrowings
Current
Bank overdrafts
Short-term borrowings
Bank loans
Obligations under finance leases (note 27)
Non-current
Bank loans
Fixed rate notes
Obligations under finance leases (note 27)
Bank loans
Revolving credit facility
United States dollar variable rate loans
Bilateral
Canadian dollar variable rate loans
United States dollar variable rate loans
Other
Sterling term loan
Indian rupee term loan
Less current instalments due on bank loans
Sterling term loan
Indian rupee term loan
Non-current bank loans
Fixed rate notes
Private placement
Sterling fixed rate notes
United States dollar fixed rate notes
Sterling fixed rate notes
United States dollar fixed rate notes
Non-current fixed rate notes
CAD$ LIBOR is the Canadian dollar London Inter Bank Offer Rate. US$ LIBOR is the United States dollar London Inter Bank Offer Rate. BoE base rate is the Bank of England
base 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.
On 11 January 2010, the Group issued through a Private Placement to UK and US investors, the equivalent of US$250m of five year (US$110m) and eight year (US$140m)
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%.
During 2010, the Group also cancelled and repaid all borrowings under its existing £625m bilateral facilities and replaced them with a new US$800m multi-currency revolving
credit facility. As at 31 December 2010, £203.1m was drawn under the revolving credit facility.
The interest rate swaps which fixed the rate of interest that the Group would pay on US$50m of its variable rate borrowings at a weighted average of 3.26% matured during
the period.
All bank loans and fixed rate notes are unsecured and rank pari passu.
100 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
21. Trade & other payables
Current
Trade payables
Other creditors
Other taxes & social security costs
Accruals
Contingent consideration
Deferred income
Non-current
Contingent consideration (note 13)
22. Provisions
At 1 January 2010
Additions
Acquisitions
Utilised
Unutilised
Exchange adjustment
At 31 December 2010
Current 2010
Non-current 2010
Current 2009
Non-current 2009
Warranties
2010
£m
2009
£m
222.1
16.8
10.3
74.5
2.7
83.5
409.9
12.0 -
Other
£m
8.4
5.9
0.6
(2.4)
(0.8)
0.5
12.2
10.7
1.5
12.2
5.3
3.1
8.4
171.8
18.3
12.1
60.1
2.7
71.3
336.3
Total
£m
70.5
24.3
7.1
(20.8)
(3.8)
2.7
80.0
41.5
38.5
80.0
33.8
36.7
70.5
Discontinued
operations
Employee warranty &
indemnity
£m
related
£m
Onerous
sales
contracts
£m
Warranties
£m
27.4
13.4
5.3
(12.7)
(1.8)
1.0
32.6
25.0
7.6
32.6
18.9
8.5
27.4
24.0
3.6
1.2
(3.0)
(1.1)
1.0
25.7
4.8
20.9
25.7
4.2
19.8
24.0
6.7
-
-
(2.4)
-
-
4.3
-
4.3
4.3
1.5
5.2
6.7
4.0
1.4
-
(0.3)
(0.1)
0.2
5.2
1.0
4.2
5.2
3.9
0.1
4.0
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. In December 2010, the Group
pleaded guilty to two charges of breaching UN sanctions in connection with a number of Oil for Food programme contracts awarded between 2000 and 2002 (note 8). This
resulted in provisions of £2.4m being utilised in the period. The provision as at 31 December 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.
101
22. Provisions (continued)
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.
23. Deferred tax
Deferred income tax assets
Post-employment benefits
Decelerated depreciation for tax purposes
Intangible assets
Untaxed reserves
Offset against liabilities
Gross deferred income tax assets
Deferred income tax liabilities
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
2010
£m
2009
£m
18.9
3.7
1.9 -
53.9
(51.3)
27.1
(12.7)
(21.7)
(81.5)
(11.6)
51.3
(76.2)
21.1
2.8
37.8
(33.0)
28.7
(10.0)
(18.9)
(60.9)
(3.6)
33.0
(60.4)
(49.1)
(31.7)
The movement in deferred income tax assets and liabilities during the period was as follows.
At 26 December 2008
(Charged) credited to the income statement
Credited (charged) to equity
Exchange adjustment
At 1 January 2010
Acquisitions
(Charged) credited to the income statement
(Charged) credited to equity
Exchange adjustment
At 31 December 2010
Accelerated
Post depreciation
for tax
purposes
£m
employment
benefits
£m
Overseas
tax on
unremitted
earnings
£m
Intangible
assets
£m
Untaxed
reserves
& other
temporary
differences
£m
9.3
-
12.4
(0.6)
21.1
-
(0.3)
(2.1)
0.2
18.9
(2.5)
(5.4)
-
0.7
(7.2)
(1.3)
(0.4)
-
(0.1)
(9.0)
(8.6)
(10.4)
-
0.1
(18.9)
-
0.5
-
(3.3)
(21.7)
(68.5)
1.6
-
6.0
(60.9)
(16.6)
0.8
-
(2.9)
(79.6)
28.1
10.1
(2.8)
(1.2)
34.2
1.1
3.5
0.1
3.4
42.3
Total
£m
(42.2)
(4.1)
9.6
5.0
(31.7)
(16.8)
4.1
(2.0)
(2.7)
(49.1)
Untaxed reserves primarily relate to temporarily disallowed inventory / debtor provisions and accruals / provisions for liabilities where the tax allowance is deferred until the cash
expense occurs.
Deferred tax asset balances for unused tax losses of £1.9m (2009: £4.8m) and deductible temporary differences of £nil (2009: £3.6m) 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 £11.6m (2009: £12.0m) 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 £21.7m (2009: £18.9m) has been recognised in respect of taxes on the unremitted earnings of the South American and Canadian subsidiaries. As at 31
December 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 £820.9m (2009: £762.1m).
102 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
23. Deferred tax (continued)
There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.
A number of changes to the UK corporation tax system were announced in the June 2010 Budget Statement. The Finance Act (No2) 2010 enacted legislation to reduce the UK
corporate rate of taxation from 28% to 27% from 1 April 2011. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 24% by 1 April 2014.
These further changes have not been substantively enacted at the balance sheet date and, therefore, are not included in the consolidated results for the 52 weeks ended 31
December 2010. We expect that these reductions will not have a material effect on the effective tax rate or on the profit for the year in future periods.
24. Pensions & other post-employment benefit plans
The Group has five defined benefit pension plans in the UK and North America. 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.
Plan assets at fair value
Equities
Bonds
Insurance policy
Other
Fair value of plan assets
Present value of plan liabilities
Net pension liability
UK pensions
North American
pensions & post-retirement
healthcare
Total
2010
£m
2009
£m
2010
£m
2009
£m
2010
£m
2009
£m
143.7
95.5
326.5
14.9
580.6
(633.9)
(53.3)
137.2
94.0
301.6
7.0
539.8
(600.3)
(60.5)
7.5
5.5
-
1.2
14.2
(25.9)
(11.7)
5.5
5.3
-
1.6
12.4
(22.9)
(10.5)
151.2
101.0
326.5
16.1
594.8
(659.8)
(65.0)
142.7
99.3
301.6
8.6
552.2
(623.2)
(71.0)
The pension plans have not directly 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.
Recognised in the income statement
Current service cost
Expected return on plan assets
Interest cost on plan liabilities
Other finance costs
Curtailment gain recognised*
Settlement gain recognised*
Taken to the Consolidated 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 Consolidated
Statement of Comprehensive Income
UK pensions
North American
pensions & post-retirement
healthcare
Total
2010
£m
2009
£m
2010
£m
2009
£m
2010
£m
2009
£m
1.3
1.0
(32.5)
33.5
1.0
-
-
56.5
(32.5)
24.0
(25.3)
(29.0)
29.5
0.5
-
(1.5)
93.4
(29.0)
64.4
(122.2)
-
(0.8)
1.4
0.6
-
-
1.3
(0.8)
0.5
(2.6)
0.3
(1.6)
2.6
1.0
(1.5)
(0.7)
1.4
(1.6)
(0.2)
0.3
1.3
1.3
(33.3)
34.9
1.6
-
-
57.8
(33.3)
24.5
(27.9)
(30.6)
32.1
1.5
(1.5)
(2.2)
94.8
(30.6)
64.2
(121.9)
(1.3)
(57.8)
(2.1)
0.1
(3.4)
(57.7)
*In 2009, 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. 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 £9.3m in 2010 (2009: £11.1m of which £1.8m related to the wind up of the Canadian plan) in addition to the employers regular contributions. The
total contributions to the defined benefit plans in 2011 are expected to be £10.0m. 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.
103
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
2010
%
2009
%
2010
%
2009
%
2010
% %
2009
3.4
3.1
2.0
5.4
7.7
3.8
5.4
3.8
3.4
n/a
3.6
3.3
2.1
5.7
8.0
4.7
5.7
4.7
3.6
n/a
3.7
n/a
n/a
5.3
7.7
5.1
n/a
3.9
2.4
n/a
3.8
n/a
n/a
5.9
6.8
5.3
n/a
3.8
2.5
n/a
n/a
n/a
n/a
5.4
n/a
n/a
n/a
n/a
2.4
** *
n/a
n/a
n/a
5.9
n/a
n/a
n/a
n/a
2.1
* 9.67% per annum decreasing to 5% per annum and remaining static at that level from 2014 onwards
** 8.60% per annum decreasing to 4.5% per annum and remaining static at that level from 2028 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
2010
Years
2009
Years
2010
Years
2009
Years
2010
Years
2009
Years
20.9
23.7
23.8
26.6
20.9
23.7
23.8
26.6
18.9
21.1
19.1
21.2
18.5
20.7
18.7
20.8
19.1
21.0
19.1
21.0
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 2040 (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 2011. The effect
of a one percentage point change in those assumptions is set out in the table below.
Expected investment return
Effect on Consolidated Income Statement in the following financial year
Discount rate
Effect on Consolidated Income Statement in the following financial year
Effect on retirement benefit obligation
A one percentage point change in the assumed rate of increase in healthcare costs would have the following effects.
Effect on defined benefit obligation
Increase
2010
£m
Decrease
2010
£m
Increase
2009
£m
Decrease
2009
£m
5.8
(5.8)
5.4
(5.4)
1.8
61.2
(3.1)
(72.8)
1.9
56.1
(1.4)
(68.9)
Increase
2010
£m
Decrease
2010
£m
Increase
2009
£m
Decrease
2009
£m
0.6
(0.5)
0.6
(0.4)
104 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
24. Pensions & other post-employment benefit plans (continued)
Changes in the present value of the defined benefit obligations are analysed as follows.
Opening defined benefit obligations
Current service cost
Interest cost
Benefits paid
Contributions by employees
Curtailment gain
Settlements
Actuarial losses (gains)
Exchange adjustment
Closing defined benefit obligations
UK pensions
North American
pensions & post-retirement
healthcare
Total
2010
£m
600.3
1.3
33.5
(27.3)
0.8
-
-
25.3
-
633.9
2009
£m
501.3
1.0
29.5
(26.8)
0.9
-
(27.8)
122.2
-
600.3
2010
£m
22.9
-
1.4
(1.6)
-
-
-
2.6
0.6
25.9
2009
£m
77.5
0.3
2.6
(1.3)
-
(1.5)
(52.7)
(0.3)
(1.7)
22.9
2010
£m
623.2
1.3
34.9
(28.9)
0.8
-
-
27.9
0.6
659.8
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 £8.4m (2009: £7.2m) arising from unfunded plans and £651.4m (2009: £616.0m) 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
North American
pensions & post-retirement
healthcare
Total
2010
£m
539.8
32.5
10.8
0.8
(27.3)
-
24.0
-
580.6
2009
£m
487.7
29.0
10.9
0.9
(26.8)
(26.3)
64.4
-
539.8
2010
£m
12.4
0.8
1.6
-
(1.6)
-
0.5
0.5
14.2
2009
£m
61.2
1.6
3.6
-
(1.3)
(52.0)
(0.2)
(0.5)
12.4
2010
£m
552.2
33.3
12.4
0.8
(28.9)
-
24.5
0.5
594.8
2009
£m
548.9
30.6
14.5
0.9
(28.1)
(78.3)
64.2
(0.5)
552.2
105
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
2010
£m
2009
£m
2008
£m
2007
£m
2006
£m
580.6
(633.9)
(53.3)
(2.8)
(22.5)
24.0
14.2
(25.9)
(11.7)
(0.3)
(2.3)
0.5
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
The cumulative amount of actuarial gains and losses recognised in other comprehensive income since 28 December 2003 is a loss of £50.0m (2009: a loss of £46.6m).
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.
106 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
25. Share capital & reserves
Issued & fully paid share capital
At the beginning of the period
Issued during the period in respect of LTIP awards
At the end of the period
Treasury shares
At the beginning of the period
Issued during the period in respect of LTIP awards
At the end of the period
2010
Number
Million
2009
Number
Million
212.7
0.1
212.8
212.6
0.1
212.7
2.5
(0.4) -
2.1
2.5
2.5
The Company has one class of ordinary share which carries no rights to fixed income.
As at 31 December 2010, 134,809 shares (2009: 148,075 shares) were held by the EBT with a market value of £2.4m (2009: £1.1m).
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 gains (losses) 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
2010
£m
0.4
0.4
(0.7)
0.1
2009
£m
(0.4)
(4.5)
(8.0)
(12.9)
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
Losses (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
(Increase) decrease in inventories
(Increase) decrease in trade & other receivables & construction contracts
Increase (decrease) 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
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 - operating activities (note 8)
Net (increase) decrease in debt
Change in net debt resulting from cash flows
Lease inceptions
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)
107
2010
£m
2009
£m
291.5
(4.6)
52.3
0.2
0.1
-
(1.8)
3.0
(0.5)
2.1
(39.9)
(61.8)
34.3
274.9
(9.3)
(72.4)
193.2
(203.3) -
(0.1)
(203.4)
-
(0.7)
(0.7)
41.3
(18.6) -
(165.5)
(142.8)
(0.2) -
(0.3) -
(15.5) -
(5.6)
(164.4)
(119.2)
(283.6)
84.0
(6.3)
(361.3)
(283.6)
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
(0.1)
(0.1)
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)
108 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
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
Trade & other payables
Net assets disposed
27. Commitments & legal claims
Operating lease commitments
2010
£m
2009
£m
-
-
-
-
2.9
0.6
0.3
3.8
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
2010
£m
15.6
41.4
14.8
71.8
2009
£m
12.5
32.3
8.7
53.5
The Group has finance leases for buildings and items of plant and equipment. Future minimum lease payments under finance leases together with the present value of the net
minimum lease payments are 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
Minimum
payments
2010
£m
Present
value of
payments
2010
£m
Minimum
payments
2009
£m
Present
value of
payments
2009
£m
0.5
0.4
0.9
-
0.9
0.5
0.4
0.9
0.4
0.6
1.0
(0.1)
0.9
0.4
0.5
0.9
The weighted average outstanding lease term is 2.32 years (2009: 1.92 years). For the 52 weeks ended 31 December 2010, the weighted average effective borrowing rate was
9.22% (2009: 9.70%). All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
Capital commitments
Outstanding capital commitments contracted but not provided for - property, plant & equipment
The Group’s share of the capital commitments of its joint ventures amounted to £0.2m (2009: £0.1m).
2010
£m
6.2
2009
£m
3.0
109
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.
The Company is subject to a claim relating to a civil 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 44 to 51.
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
2010
Number
Million
2.4
0.7
(0.5)
(0.1)
2.5
2010
WASP
£5.54
£9.39
£7.27
£5.20
£6.32
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
An amount of £3.0m (2009: £2.4m) 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 £1.0m (2009: £1.4m) in respect of parent company employees and £2.0m (2009: £1.0m) in respect of employees of
subsidiaries. Certain subsidiary companies made a cash contribution to the parent company of £1.2m (2009: £1.1m) in the period in respect of their LTIP awards.
In addition, the one-off conditional share award granted in 2008 to Mark Selway, the previous chief executive, of 405,953 shares at a market price of 900.5p, which would have
vested on 8 May 2011 subject to specified performance conditions being achieved, was forfeited as the vesting conditions of the award were not satisfied and, as a result, a
credit of £0.8m was recognised in the Consolidated Income Statement in 2009 in respect of the forfeited conditional share award.
The remaining contractual lives of the outstanding LTIP awards at the end of the period are as follows.
Year of award
2007
2008
2009
2010
2010
Number
Million
2010
Remaining
contractual
life
2009
Number
Million
2009
Remaining
contractual
life
-
-
3 months
0.6
1.2 15 months
0.7 27 months
0.5
6 months
0.6 15 months
1.3 27 months
-
-
110 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
28. Equity settled share-based payments (continued)
Fair value of equity settled share-based payments
The fair value of the conditional awards under the LTIP have been estimated using the Monte Carlo simulation model. The following table gives the assumptions made during
the 52 weeks ended 31 December 2010 and the 53 weeks ended 1 January 2010.
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)
2010
2009
2.01
55.00
3.00
1.84
939p
755p
4.62
30.00
3.00
1.90
400p
244p
The expected life of the awards 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
2010
2009
2010
2009
Contributions to the Group pension plans are disclosed in note 24.
Terms & conditions of transactions with related parties
Sales to
related
parties
- goods
£m
Sales to
related
parties
- services
£m
Purchases
from related
parties
- goods
£m
Amounts
owed to
related
parties
£m
0.6
1.3
-
-
0.2
-
-
-
0.1
0.4
-
-
-
-
0.2
0.2
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 52 weeks ended 31 December 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 (2009: £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
2010
£m
4.9
1.6
-
6.5
2009
£m
5.0
0.8
0.1
5.9
Key management comprises the Board and the Group Executive. Further details of the Board remuneration can be found in the Remuneration report on pages 44 to 51.
111
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. 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. 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
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. 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
Liquidity risk could impact negatively on the Group’s reputation, borrowing costs or ultimately its ability to continue as a going concern. Liquidity risk is managed by monitoring
forecast and actual cashflows and ensuring that sufficient committed facilities are in place to meet possible downside scenarios. 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
Credit risk could have a negative impact on reported earnings and cash and consequently the liquidity of the Group.
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 with external credit
rating agencies before entering into contracts with new customers and credit limits are set as appropriate and adhered to. 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. 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 significantly increased the proportion of fixed rate borrowings from 18% as at 1 January 2010 to 44% as at 31 December 2010. All
interest rate swaps, which had the economic effect of converting borrowings from floating to fixed rates, matured in 2010.
Net investment in foreign operations
As at 31 December 2010, US dollar fixed rate notes of US$160.0m (2009: US$nil) and US dollar variable rate loans of US$322.5m (2009: US$175.0m) both included in interest-
bearing loans and borrowings, cross currency swaps of US$334.0m (2009: US$324.0m) and net forward foreign currency liability contracts of US$48.0m (2009: US$90.0m)
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.
112 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
30. Financial assets & liabilities (continued)
Carrying amounts & fair values
Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments that are carried in the financial statements.
Financial assets
Derivative financial instruments recognised at fair value through profit or loss
Derivative financial instruments in designated hedge accounting relationships
Trade & 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
2010
£m
Fair
value
2010
£m
Carrying
amount
2009
£m
8.3
1.5
329.5
84.0
423.3
8.3
1.5
329.5
84.0
423.3
4.7
2.8
224.7
57.0
289.2
Fair
value
2009
£m
4.7
2.8
224.7
57.0
289.2
(8.3)
(40.1)
(8.3)
(40.1)
(4.4)
(43.4)
(4.4)
(44.2)
(4.5)
(328.1)
(0.9)
(204.1)
(158.1)
(744.1)
(4.5)
(328.1)
(0.9)
(204.1)
(161.5)
(747.5)
(1.3)
(252.9)
(0.9)
(173.1)
(0.9)
(476.9)
(1.3)
(252.9)
(0.9)
(173.1)
(0.9)
(477.7)
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 31 December 2010 and 1 January 2010, the Group held all financial instruments at level 2 fair value measurement. During the 52 weeks ended 31 December 2010 and 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.
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
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
Cross currency swaps designated as net investment hedges
Other forward foreign currency contracts
Net derivative financial liabilities
113
2010
£m
2009
£m
0.4
0.2
0.6
0.9
0.2
8.1
9.2
0.5
-
12.2
8.2
20.9
0.6
26.8
0.1
27.5
38.6
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
40.3
114 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
30. Financial assets & liabilities (continued)
Liquidity & credit risk
The maximum exposure to credit risk at the balance sheet date is represented by the carrying value of each financial asset, including derivative financial instruments.
The liabilities which could impact liquidity risk are best represented by the carrying value and maturity profile of each financial liability, including derivative financial instruments.
The 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.
52 weeks ended 31 December 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
Fixed rate notes
Non-derivative financial liabilities
Less than
1 year
£m
1 to 2
years
£m
2 to 5 More than
5 years
years
£m
£m
329.5
84.0
413.5
(316.1)
(0.5)
(4.5)
(4.1)
(7.6)
(332.8)
-
-
-
-
(0.2)
-
(4.6)
(7.6)
(12.4)
-
-
-
(12.0)
(0.2)
-
(217.3)
(89.3)
(318.8)
-
-
-
-
-
-
-
(96.9)
(96.9)
Total
£m
329.5
84.0
413.5
(328.1)
(0.9)
(4.5)
(226.0)
(201.4)
(760.9)
Net non-derivative financial assets (liabilities)
80.7
(12.4)
(318.8)
(96.9)
(347.4)
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)
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
More than
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)
25.2
(176.2)
-
-
-
-
(0.3)
-
(0.7)
(1.0)
(1.0)
-
-
-
-
-
-
-
-
-
Total
£m
224.7
57.0
281.7
(252.9)
(1.0)
(1.3)
(178.5)
(433.7)
(152.0)
115
Total
£m
(235.3)
196.9
(38.4)
(537.5)
537.8
0.3
(772.8)
734.7
(38.1)
(0.5)
(38.6)
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)
Less than
1 year
£m
(55.1)
43.2
(11.9)
(506.4)
506.7
0.3
(561.5)
549.9
(11.6)
1 to 2
years
£m
(57.2)
44.7
(12.5)
(27.0)
27.2
0.2
(84.2)
71.9
(12.3)
2 to 5 More than
5 years
years
£m
£m
(73.1)
61.2
(11.9)
(4.1)
3.9
(0.2)
(77.2)
65.1
(12.1)
(49.9)
47.8
(2.1)
-
-
-
(49.9)
47.8
(2.1)
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
More than
5 years
£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)
-
-
-
(55.1)
44.8
(10.3)
(15.4)
15.4
-
(70.5)
60.2
(10.3)
-
-
-
(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)
30. Financial assets & liabilities (continued)
52 weeks ended 31 December 2010
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 (outflow)
Derivative financial instruments - outflow
Derivative financial instruments - inflow
Derivative financial instruments - net outflow
Effect of discounting
Net derivative financial liabilities
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
116 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Group Financial Statements
(continued)
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.
52 weeks ended 31 December 2010
Fixed rate debt
Bank loans
Fixed rate notes
Obligations under finance leases
Fixed rate derivatives
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
Floating rate derivatives
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
(0.3)
-
(0.5)
(0.8)
-
-
-
(0.3)
-
(0.2)
(0.5)
-
-
-
(0.1)
(69.7)
(0.2)
(70.0)
(12.5)
12.0
(0.5)
-
(87.7)
-
(87.7)
(44.8)
43.0
(1.8)
Total
£m
(0.7)
(157.4)
(0.9)
(159.0)
(57.3)
55.0
(2.3)
(0.8)
(0.5)
(70.5)
(89.5)
(161.3)
84.0
(4.5)
(1.0)
78.5
(51.3)
39.1
(12.2)
-
-
-
-
-
-
(203.1)
(203.1)
(53.3)
40.6
(12.7)
(52.0)
41.0
(11.0)
-
-
-
-
-
-
-
-
84.0
(4.5)
(204.1)
(124.6)
(156.6)
120.7
(35.9)
(160.5)
Net floating rate financial instruments
66.3
(12.7)
(214.1)
30. Financial assets & liabilities (continued)
53 weeks ended 1 January 2010
Fixed net debt
Bank loans
Obligations under finance leases
Notional interest rate swaps
Fixed rate derivatives
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 derivatives
Notional cross currency swaps US dollar leg
Notional cross currency swaps sterling leg
117
Total
£m
(0.9)
(0.9)
(31.0)
(32.8)
-
-
-
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
More than
5 years
£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)
(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)
-
-
-
-
-
-
-
-
-
57.0
(1.3)
(173.1)
31.0
(86.4)
(200.9)
159.8
(41.1)
(127.5)
Net floating rate financial instruments
76.3
(183.5)
(20.3)
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.
118 The Weir Group PLC
Annual Report & Financial Statements 2010 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 in respect of each currency to which the Group has a significant exposure
to interest rate risk. There is no impact on the Group’s equity, with the exception of the Group’s interest rate swaps which matured in 2010.
2010
Canadian dollar
UK sterling
US dollar
2009
Canadian dollar
UK sterling
US dollar
Effect
on profit
before tax
gain (loss)
£m
Effect
on equity
gain
£m
Increase in
basis points
+ 100
+ 100
+ 100
+ 100
+ 100
+ 100
0.1
1.9
(4.0)
(0.6)
1.1
(2.1)
-
-
0.3
-
-
0.2
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. The interest rate swaps which the Group utilised to convert
borrowings from floating to fixed rates of interest all matured during the period. These interest rate swaps were 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.
119
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.
52 weeks ended 31 December 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
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
Net carrying
amount
£m
0.2
-
0.2
(39.0)
-
(38.6)
Net carrying
amount
£m
0.7
(0.6)
0.4
(41.1)
0.3
(40.3)
Recognised
in profit Recognised
in equity
or loss
(loss)
gain (loss)
£m
£m
Maturity
dates
2011 to 2013
n/a
2011
2011 to 2018
2011 to 2015
0.8
(0.7)
-
0.1
0.2
0.4
(0.1)
(0.1)
(1.2)
(10.1)
-
(11.5)
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
The £0.1m gain (2009: £0.9m) 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 £0.3m (2009: £nil). In 2009, 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.
In 2010, there was no ineffectiveness in relation to the Group’s interest rate swaps.
120 The Weir Group PLC
Annual Report & Financial Statements 2010 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 risk relates to the Australian dollar, Canadian dollar, Euro and US dollar. The following table demonstrates the
sensitivity to a reasonably possible change in these foreign currency exchange rates with all other variables held constant. The sensitivity analysis shows the effect on profit
or loss in respect of financial assets and liabilities denominated in foreign currency, including payables, receivables, borrowings and forward foreign currency contracts but
excluding all financial assets and liabilities qualified as either cash flow or net investment hedges. The sensitivity analysis also shows the effect on equity in respect of financial
assets and liabilities denominated in foreign currency qualified as either cash flow or net investment hedges including forward foreign currency contracts, borrowings and cross
currency swaps. The sensitivity analysis adjusts the translation of each respective financial asset or liability at the financial year end for a 25% strengthening of sterling against
the relevant exchange rates.
2010
Australian dollar
Canadian dollar
Euro
US dollar
2009
Australian dollar
Canadian dollar
Euro
US dollar
Increase in
currency rate
Effect
on profit
gain (loss)
£m
Effect
on equity
gain (loss)
£m
+25%
+25%
+25%
+25%
+25%
+25%
+25%
+25%
0.5
(0.4)
2.4
6.2
(0.1)
0.2
3.4
0.8
-
-
(0.9)
113.9
-
-
1.0
76.1
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
Brazilian real
Chilean peso
South African rand
Other
Operating profit from continuing operations before exceptional items & intangibles amortisation
2010
£m
163.6
39.7
47.3
8.3
8.7
19.6
8.1
14.4
309.7
2009
£m
88.7
20.5
51.7
8.6
8.4
13.5
7.8
5.5
204.7
121
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
2010
2009
283.6
921.7
31
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
2010
2009
283.6
291.5
52.5
344.0
0.8
119.2
188.1
45.8
233.9
0.5
Interest cover comprises operating profit from continuing operations before exceptional items and intangibles amortisation divided by net finance costs (excluding other
finance costs).
Operating profit before exceptional items & intangibles amortisation (£m)
Net finance costs (excluding other finance costs) (£m)
Interest cover (ratio)
32. Exchange rates
The principal exchange rates applied in the preparation of these financial statements were as follows.
Average rate (per £)
US dollar
Australian dollar
Euro
Canadian dollar
Brazilian real
Chilean peso
South African rand
Closing rate (per £)
US dollar
Australian dollar
Euro
Canadian dollar
Brazilian real
Chilean peso
South African rand
2010
2009
309.7
13.4
23.1
204.7
16.2
12.6
2010
2009
1.55
1.68
1.17
1.59
2.72
788.31
11.32
1.56
1.52
1.17
1.55
2.59
729.68
10.27
1.57
1.99
1.12
1.78
3.11
873.57
13.08
1.61
1.80
1.13
1.69
2.81
820.02
11.92
122 The Weir Group PLC
Annual Report & Financial Statements 2010 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 52 weeks ended 31 December 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 Account-
ing 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 43, 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 and express
an opinion on 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 dis-
closures 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 31 December 2010;
• have been properly prepared in accordance with United King-
dom 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 Remu-
neration 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 52 weeks ended 31 December
2010.
Hywel Ball (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
8 March 2011
Company
Balance Sheet
at 31 December 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
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
Total creditors falling due after more than one year
Provisions
Net assets excluding retirement benefits
Retirement benefits
Net assets including retirement benefits
Capital & reserves
Share capital
Share premium
Treasury shares
Capital redemption reserve
Special reserve
Profit & loss account
Total equity
123
31 December
2010
£m
Notes
1 January
2010
£m
3
4
5
10
6
10
7
10
8
9
11
12
12
12
12
12
0.3
1,138.9
1,139.2
0.3
1,038.9
1,039.2
20.5
13.7
5.5
39.7
306.9
25.5
332.4
292.7
31.2
10.2
3.1
44.5
305.0
21.1
326.1
281.6
846.5
757.6
391.4
28.2
419.6
349.2
31.2
380.4
9.2
10.3
417.7
366.9
0.9
0.8
416.8
366.1
26.6
38.0
(6.8)
0.5
1.8
356.7
26.6
38.0
(7.9)
0.5
1.8
307.1
416.8
366.1
Approved by the Board of Directors on 8 March 2011
Keith Cochrane, Director
Jon Stanton, Director
124 The Weir Group PLC
Annual Report & Financial Statements 2010 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, fixed rate notes, 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.
125
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 £94.3m (2009: £20.7m). 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 2009: 16.20p (2008: 13.85p)
Interim dividend for 2010: 6.00p (2009: 4.80p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2010: 21.0p (2009: 16.20p)
2010
£m
2009
£m
34.1
12.6
46.7
29.1
10.1
39.2
44.3
34.1
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 44 to 51.
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 (2009: £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, are required to disclose such fees on a consolidated basis.
126 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Company Financial Statements
(continued)
3. Tangible assets
Cost
At 1 January 2010 & at 31 December 2010
Aggregate depreciation
At 1 January 2010 & at 31 December 2010
Net book value at 1 January 2010
Net book value at 31 December 2010
4. Fixed asset investments
Cost
At 1 January 2010
Additions
Disposals / repayments
Written off
At 31 December 2010
Impairment
At 1 January 2010
Disposals
Written off
At 31 December 2010
Net book value at 1 January 2010
Net book value at 31 December 2010
The principal subsidiaries and joint ventures of the Company are listed on page 134.
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
1.2
0.9
0.3
0.3
Subsidiaries
Shares
£m
Loans
£m
Total
£m
546.6
127.9
(125.1)
-
549.4
99.5
(99.3)
-
0.2
612.9
75.2
(77.3)
(15.7)
595.1
21.1
-
(15.7)
5.4
1,159.5
203.1
(202.4)
(15.7)
1,144.5
120.6
(99.3)
(15.7)
5.6
447.1
591.8
1,038.9
549.2
589.7
1,138.9
2010
£m
2009
£m
16.6
0.6
1.3
1.5
0.5
20.5
26.2
0.3
2.1
1.3
1.3
31.2
127
2010
£m
92.3
196.1
2.2
1.4
-
2.4
12.5
306.9
2009
£m
76.6
200.4
13.0
0.9
4.4
2.3
7.4
305.0
2010
£m
2009
£m
1.0
196.1
-
30.8
203.1 -
69.7 -
0.1
87.7
588.5
(1.0)
(196.1)
391.4
Discontinued
operations
warranty &
indemnity
£m
Subsidiaries
£m
6.2
0.8
(1.9)
5.1
4.1
-
-
4.1
-
200.4
107.9
-
241.3
-
549.6
-
(200.4)
349.2
Total
£m
10.3
0.8
(1.9)
9.2
6. Creditors
Bank overdrafts & short-term borrowings
Loans from subsidiaries
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
- bank loan
- loans from subsidiaries
More than one year but not more than two years
- bank loans
- loans from subsidiaries
More than two years but not more than five years
- bank loans
- fixed rate notes
- loans from subsidiaries
More than five years
- fixed rate notes
Less current instalments due on:
- bank loan
- loans from subsidiaries
8. Provisions
At 1 January 2010
Additions
Released - unutilised
At 31 December 2010
Subsidiaries
As at 31 December 2010, a provision of £5.1m (2009: £6.2m) 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 31 December
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.
128 The Weir Group PLC
Annual Report & Financial Statements 2010 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
2010
£m
(1.3)
0.4
(0.9)
2010
£m
0.1
0.1
2009
£m
(1.1)
0.3
(0.8)
2009
£m
0.1
0.1
2010
% %
2009
3.1
5.4
3.4
3.3
5.7
3.6
2010
Years
2009
Years
20.9
23.7
23.8
26.6
20.9
23.7
23.8
26.6
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 2040 (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
Actuarial losses
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
2010
£m
1.1
0.1
(0.1)
0.2 -
1.3
2010
£m
-
0.1
(0.1)
-
2009
£m
1.1
0.1
(0.1)
1.1
2009
£m
-
0.1
(0.1)
-
129
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
2010
£m
(1.3)
(1.3)
-
(0.2)
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)
-
-
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.
Pension contributions are determined with the advice of independent qualified actuaries on the basis of annual valuations using the projected unit method. The total contributions
to the defined benefit plans in 2011 are expected to be £8.8m.
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 period was a gain of £56.5m (2009: £93.4m).
The assets and liabilities of the plans and the long-term expected rates of return are as follows.
Equities
Bonds
Insurance policy
Other
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
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
Actuarial losses recognised in the statement of total recognised gains & losses
2010
%
2010
£m
2009
%
8.0
4.7
5.7
4.7
7.7
3.8
5.4
3.8
143.7
95.5
326.5
14.9
580.6
(632.6)
(52.0)
2009
£m
137.2
94.0
301.6
7.0
539.8
(599.2)
(59.4)
2010
£m
2009
£m
1.3
1.0
(32.5)
33.4
0.9
(29.0)
29.4
0.4
-
(1.5)
56.5
(32.5)
24.0
(25.1)
(1.1)
93.4
(29.0)
64.4
(122.2)
(57.8)
130 The Weir Group PLC
Annual Report & Financial Statements 2010 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
2010
% %
2009
3.4
3.1
2.0
5.4
3.4
3.6
3.3
2.1
5.7
3.6
2010
Years
2009
Years
20.9
23.7
23.8
26.6
20.9
23.7
23.8
26.6
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 2040 (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
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
Closing plan assets
2010
£m
599.2
1.3
33.4
(27.2)
0.8
-
25.1
632.6
2010
£m
539.8
32.5
10.7
0.8
(27.2)
-
24.0
580.6
2009
£m
500.2
1.0
29.4
(26.7)
0.9
(27.8)
122.2
599.2
2009
£m
487.7
29.0
10.8
0.9
(26.7)
(26.3)
64.4
539.8
131
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
2010
£m
2009
£m
2008
£m
2007
£m
580.6
(632.6)
(52.0)
(2.8)
(22.3)
24.0
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
The cumulative amount of actuarial losses recognised in the statement of recognised gains and losses is £210.8m (2009: £209.7m).
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
Cross currency swaps
Forward foreign currency contracts
2010
£m
2009
£m
-
12.3
12.3
1.4
13.7
-
12.2
13.3
25.5
26.8
1.4
28.2
0.6
9.0
9.6
0.6
10.2
0.6
10.4
10.1
21.1
30.7
0.5
31.2
132 The Weir Group PLC
Annual Report & Financial Statements 2010 Financial statements
Notes to the
Company Financial Statements
(continued)
11. Share capital
Allotted, called up & fully paid
Ordinary shares of 12.5p each
Shares allotted
Issued during the period in respect of LTIP awards
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
LTIP awards outstanding at the end of the period
2010
£m
2009
£m
26.6
26.6
2010
Number
Million
2009
Number
Million
0.1
0.1
2.5
(0.4)
2.1
2.5
-
2.5
2.5
2.4
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 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
Profit for the period
Actuarial losses on defined benefit plans
Dividends
Cost of share-based payment net of deferred tax
Exercise of LTIP awards
At 31 December 2010
Share
premium
£m
Treasury
shares
£m
Capital
redemption
reserve
£m
Hedge
accounting
reserve
£m
Special Profit & loss
account
reserve
£m
£m
38.0
-
(7.9)
-
-
-
-
-
38.0
-
-
-
-
-
38.0
-
-
-
-
(7.9)
-
-
-
-
1.1
(6.8)
0.5
-
-
-
-
-
0.5
-
-
-
-
-
0.5
(1.4)
-
1.4
-
-
-
-
-
-
-
-
-
-
1.8
-
-
-
-
-
1.8
-
-
-
-
-
1.8
324.2
20.7
-
(39.2)
2.8
(1.4)
307.1
94.3
(0.2)
(46.7)
3.3
(1.1)
356.7
Total
£m
355.2
20.7
1.4
(39.2)
2.8
(1.4)
339.5
94.3
(0.2)
(46.7)
3.3
-
390.2
The profit and loss account above is stated after deducting an accumulated loss in respect of retirement benefits of £0.9m (2009: £0.8m).
13. Balance sheet - deferred tax
At 1 January 2010
Included in profit for the period
Credit for the period included in equity
At 31 December 2010
Deferred tax
asset
£m
2.4
(1.0)
0.3
1.7
13. Balance sheet - deferred tax (continued)
Included in debtors (note 5)
Included in retirement benefits (note 9)
Other timing differences
Retirement benefits
14. Operating lease commitments
As at 31 December 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
133
2010
£m
2009
£m
1.3
0.4
1.7
1.3
0.4
1.7
2010
£000
15
15
2.1
0.3
2.4
2.1
0.3
2.4
2009
£000
13
13
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
31 December 2010 amounted to £88.3m (2009: net funds of £10.2m).
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
2010
2009
17. Financial risk management objectives & policies
Management
charge
£m
Amounts
due by
£m
0.1
-
0.4
0.3
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.
134 The Weir Group PLC
Annual Report & Financial Statements 2010 Other information
Principal Companies
of the Group
The principal subsidiaries and joint ventures of the Group are as follows.
Name
Subsidiaries
American Hydro Corporation
EnviroTech Pumpsystems Inc
Linatex Rubber Products Sdn. Bhd.
Liquid Gas Equipment Ltd*
Mesa Manufacturing Inc
Multiflo Pumps Pty Ltd
Shengli Oilfield Weir Highland Pump Company Ltd
Specialised Petroleum Manufacturing Ltd
SPM Flow Control Inc
SPM Flow Control Ltd
Vulco Peru SA
Vulco SA
Weir Canada Inc
Weir do Brasil Ltda
Weir Engineering Services Ltd
Weir Floway Inc
Weir Flow Control (Hong Kong) Ltd
Weir Gabbioneta SrL
Weir Hazleton Inc
Weir India Private Ltd (formerly Weir Engineering Services (India) Private Ltd)
Weir Minerals Africa (Pty) Ltd
Weir Minerals Australia Ltd
Weir Minerals Europe Ltd
Weir Minerals France SAS
Weir Minerals Netherlands BV
Weir Power & Industrial France SAS
Weir Slurry Group Inc
Weir Solutions FZE (formerly CH Warman Slurry Technologies FZE)
Weir SOS Ltd
Weir Valves & Controls UK Ltd*
Weir Valves & Controls USA Inc
Ynfiniti Engineering Services SL
Joint ventures
Weir Arabian Metals Company
Wesco LLC
* Companies whose shares are owned directly by The Weir Group PLC.
Country of
registration
or incorporation
% equity
interest 2010
USA
USA
Malaysia
Scotland
USA
Australia
China
Scotland
USA
Canada
Peru
Chile
Canada
Brazil
Scotland
USA
Hong Kong
Italy
USA
India
South Africa
Australia
England
France
Netherlands
France
USA
Dubai
The Bahamas
England
USA
Spain
Saudi Arabia
UAE
100
100
100
100
100
100
60
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
100
100
100
75
100
100
76
49
49
The Company has taken advantage of the exemption under Section 410 (2) of the Companies Act 2006 by providing information only in relation to subsidiary undertakings
whose results or financial position, in the opinion of the Directors, principally affected the financial statements.
A complete list of subsidiary and associated undertakings is attached to the annual return of The Weir Group PLC filed at Companies House.
Group
Products
WARMAN is a registered trademark of both Weir Minerals Australia Ltd and Weir Group African IP Ltd; CAVEX, HAZLETON and MULTIFLO are registered trademarks of Weir
Minerals Australia Ltd; GEHO is a registered trademark of Weir Minerals Netherlands b.v.; ISOGATE is a registered trademark of Weir do Brasil Ltda; FLOWAY is a registered
trademark of Weir Floway, Inc.; LEWIS PUMPS is a trademark of Envirotech PumpSystems, Inc.; TRICENTRIC is a registered trademark of Weir Valves & Controls USA, Inc.;
BLAKEBOROUGH and HOPKINSONS are registered trademarks of Weir Valves & Controls UK Ltd; SPM is a trademark of S.P.M. Flow Control, Inc.; WEIR is a registered
trademark of Weir Engineering Services Ltd; LINATEX is a registered trademark of Linatex Limited; DESTINY is a trademark of S.P.M. Flow Control, Inc.; AMERICAN HYDRO is
a trademark of Weir American Hydro Corporation; GABBIONETA is a trademark of Weir Gabbioneta S.r.L.; BDK is a trademark of Weir India Private Ltd.
135
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 2011 annual general meeting including the notice of the annual
general meeting;
• the Code of Conduct;
• biographies of the members of the Board and the Group Executive; and
• further information on the Company’s corporate governance policies and corpo-
rate 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
log on to www-uk.computershare.com/Investor/ShareDealing.asp.
the service,
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 Computershare 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.
Voting
Information on how you can vote electronically can be obtained through our registrars
by visiting www.eproxyappointment.com.
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.
Shareholder communications
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. This service is
provided in conjunction with our registrars, Computershare.
136 The Weir Group PLC
Annual Report & Financial Statements 2010 Other information
Annual Report & Financial Statements 2010
Glossary
2006 Act
Board
Combined Code
Company
Director
EBIT
EBITA
EBITDA
EBT
Emerging markets
EPS
ESH
Free cash flow
Group
IASB
IFRIC
IFRS
Independent auditors
Input
like-for-like
LTA
low carbon industries
Non-GAAP measure
OE
OEM
Operating margin
Ordinary shares
Registrar
ROCE
RPI
subsidiary
TSR
The Companies Act of 2006, the primary source of UK company law
The Board of Directors of The Weir Group PLC
The Combined Code on Corporate Governance issued by the UK Financial Reporting Council in June 2008
The Weir Group PLC
A director of The Weir Group PLC
Earnings before interest and tax
Earnings before interest, tax and intangibles amortisation
Earnings before interest, tax, depreciation and intangibles amortisation
Employees benefit trust
Asia-Pacific, South America, Africa and Middle East
Earnings per share
Environmental, safety and health
Net cash flow generated from continuing operations excluding the cash impact in relation to acquisitions, disposals and net
proceeds from / repayments of borrowings
The Company together with its subsidiaries
International Accounting Standards Board
International Financial Reporting Interpretations Committee
International Financial Reporting Standards
Ernst & Young LLP
Orders received from customers
On a consistent basis, excluding the impact of current year acquisitions
Lost Time Accident resulting in lost time of more than 4 hours
Nuclear, wind, hydro, solar, biomass and geothermal industries
A measure of historical or future financial performance, financial position or cash flows which is adjusted to exclude or include
amounts that would not be so adjusted in the most comparable measure prescribed by IFRS
Original equipment
Original equipment manufacturer
Operating profit including our share of results of joint ventures divided by revenue
The ordinary shares in the capital of the Company of 12.5p each
Computershare Investor Services plc
Return on capital employed - calculated as EBIT for the period divided by average net assets excluding pension deficit
UK Retail Prices Index
An entity that is controlled, either directly or indirectly, by the Company
Total Shareholder Return comprising dividends paid on ordinary shares and the increase or decrease in the
market price of ordinary shares
United Kingdom Generally Accepted Accounting Practice
UK GAAP
Weir Production System Lean Score The Scores range from 0-40% means the site needs significant improvement, action is required, 41%-66% means relatively good
practice but regular follow up and further improvements are required and 67%-100% is world class practice where process has
taken root and needs to be maintained and improved
Annual report and financial statements 2010 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
2010 revenue by market
Minerals
42%
Oil & Gas
33%
Power
13%
Industrial
7%
Other
5%
The Weir Group is well established in all three of our
chosen markets: Minerals, Oil & Gas and Power & Industrial.
Throughout 2010, we have used our superb manufacturing
platform and resilient business model to deliver a perform-
ance that demonstrates our agility to respond quickly and
benefit from changing market conditions.
Customer focus is a precondition for sustainable growth. Recognising this we will
continue to extend our position in the minerals, oil and gas and power sectors,
all of which are high growth, long cycle markets with positive fundamentals. This
strategy is underpinned by our three principal drivers of growth - Innovation,
Collaboration and Global Capability - and will be delivered through organic
growth supplemented by skillfully integrated, targeted acquisitions with continued
investment in technology, infrastructure and people to grow our market share
and our installed base of original equipment.
Expanding our geographic footprint
2010 saw five value enhancing acquisitions join the Weir family. These five businesses will contribute positively to 2011, expand our
emerging market presence and further the strategy of each division.
March 2010
Petroleum Certification
Services, (PCS), in
Adelaide, Australia is
expanding our Oil & Gas
presence in the newer oil
and gas producing area
of Australia and South
East Asia.
September 2010
Linatex, based in
Malaysia is the global
leader in natural rubber
products for use in high-
wear mine applications
which are highly comple-
mentary to our existing
Minerals portfolio.
October 2010
BDK, an Indian valve
manufacturer, extends
our emerging market
footprint and product
portfolio and provides
a substantial low cost
manufacturing capability
for Power & Industrial.
November 2010
American Hydro, in
Pennsylvania USA,
manufactures turbine
components and with
our existing service
skills, will accelerate
our development in
established and new
hydro power markets.
December 2010
Ynfiniti Engineering
Services (YES), operating
principally in Spain and
Portugal, strengthens
our position in the fast-
growing wind and solar
markets.
improved
Market overview
Market conditions
in 2010
underpinned by strong demand for com-
modities, particularly from emerging mar-
kets and a growing sector confidence.
Most mothballed mines were re-started
and increased activity was evident in the
Canadian oil sands. Increases in capital
expenditure were announced by some
customers with a number of “mega-
projects” likely to get underway in 2011/12
principally across South America and the
Asia-Pacific region.
fields, requiring more
Market overview
The North American upstream mar-
ket experienced a substantial rebound
in on-shore horizontal drilling with sig-
nificant investment in existing and new
shale
intensive
fracturing techniques. Average horizon-
tal rig counts increased 81% on 2009.
International shale opportunities started
to gain momentum in China, Europe and
Australia. Downstream customer activity
remained low while Middle East services
market rebounded off 2009 lows in the
second half.
Market overview
Demand for original equipment for the con-
ventional power market was strong in Asia
but weak in Europe and North America.
The Chinese nuclear market represented
the majority of global nuclear new build,
although procurement began for the first two
new US nuclear plants in 25 years. Hydro
and wind markets grew as demand for
renewable power increased. Existing fossil
and nuclear plants postponed non-essential
maintenance, although new build delays will
increase potential for life extension projects.
Industrial markets remained weak.
Weir Minerals is the global leader in the
provision of slurry handling equipment
and associated spare parts for abrasive
high wear applications. Mining and min-
erals is the division’s largest sector but
it has aligned product sales into niche
markets, including oil sands and flue gas
desulphurisation equipment. Products
include pumps, hydrocyclones, valves,
dewatering equipment and wear resistant
linings and following the Linatex acqui-
sition – rubber products and screen-
ing machines. The partnership with KHD
Humboldt extends the reach into high
pressure grinding rollers, a new break-
through in milling technology.
Weir Oil & Gas designs and manufac-
tures pumps and ancillary equipment for
the global upstream and downstream
oil and gas markets and provides sub-
stantial aftermarket service and support.
The upstream operation specialises in
high-pressure well service pumps and
related flow control equipment along
with repairs, parts and service of pres-
sure control and upstream rotating equip-
ment. 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, with an expanding
geographic footprint in Asia Pacific and
South America.
Weir Power & Industrial designs, manufac-
tures and provides aftermarket support for
specialist and critical-service rotating and
flow control equipment mainly to the global
power sector. The division includes valve
operations; specialist pump, hydro and
steam turbine businesses and aftermar-
ket operations in Europe, North America,
Asia Pacific, Middle East, and South Africa.
Three facilities hold nuclear certification
making the business one of a few globally,
capable of providing safety critical valves
into the nuclear islands of the 3rd and 4th
generation nuclear power stations. The
BDK acquisition expanded the valve port-
folio, while American Hydro and Ynfiniti
Engineering Services added to the renewa-
bles market position.
Facts and figures
No. of people
No. of businesses
2010 order input
2010 revenue
Addressable market
c6,750
20
£984m
£901m
£3.2bn
Facts and figures
No. of people
No. of businesses
2010 order input
2010 revenue
Addressable market
c2,100
13
£626m
£462m
£2.9bn
Facts and figures
c2,900
No. of people
13
No. of businesses
£268m
2010 order input
2010 revenue
£246m
Addressable power market £3.9bn
Major customers
Alcoa
AMEC
Anglo American
Barrick Gold Corporation
BHP Billiton
Chinalco
Freeport McMoran Copper & Gold
Rio Tinto
Vale Inco
Xstrata
Major customers
Baker Hughes
Cal Frac
Enerflow Industries
Frac Tech Services
Schlumberger
Shazand Arak Oil Refining Co
Stewart & Stevenson LLC
Superior Well Services
Trican Well Services
Weatherford International Ltd
Major customers
Canadian Government Public Works
CNPEC & CNEIC
EADS
EDF
Eskom
Hyundai Heavy Industries Co Ltd
Loftyman Engineering
RCM Technologies Inc
Toshiba Corporate
United States Government
Financial
Calendar
Ex-dividend date for final dividend
4 May 2011
Record date for final dividend
6 May 2011
Shareholders on the register at this
date will receive the dividend
Annual general meeting
4 May 2011
Final dividend paid
2 June 2011
Cautionary statement
This annual report contains forward-looking
statements with respect to the financial con-
dition, operations and performance of the
Group. By their nature, these statements
involve uncertainty since future events and
circumstances can cause results and devel-
opments to differ materially from those antici-
pated. 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 up-
date these forward-looking statements. Noth-
ing 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 2010
The Weir Group PLC
Annual report and financial statements 2010 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
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
Sustainability 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
Glossary
1
2
4
8
14
16
28
32
34
37
44
52
67
69
70
71
72
73
74
75
122
123
124
134
135
136
Inside back cover – Financial calendar
and Cautionary statement
Excellent
Engineering
Solutions
The Weir Way
The drivers of growth
The Group has a strong operating platform to drive growth
both through organic development and value enhancing
acquisitions. We also have a clear and focused strategy
to build our functional capabilities and prioritise product
innovation, collaboration and global capabilities as key
enablers of growth in our chosen end markets, along with
an increased commitment to research and development
and investment in sales and engineering resources.
1 InnovatIve
solutIons
Innovation is at the heart of our processes. Our global engineering
teams work to ensure that products continually deliver longer plant
life, extend maintenance cycles, reduce downtime and lower whole-life
operating costs. As well as increasing our research and development
spend, we strongly believe that innovation goes beyond technological
aspects. Innovation is also about being proactive and creative in
delivering operational improvement and increasing customer focus.
2 CollaboratIve
MIndset
We believe we can achieve much more when we work together
across businesses, divisions, markets and regions to solve problems
and exploit market opportunities. Weir people are willing and able to
work in partnership with each other, as well as with our customers and
partners and during 2010 we further optimised our ability to operate
to best effect across divisions and regions.
3 Global
CaPabIlItY
We remain committed to going where our customers are, from the
most challenging oil production environment, to the emerging
power and energy markets and this commitment brings extensive
opportunities for us to further internationalise our products and
services. In 2010 we made considerable progress in leveraging our
presence in some of the fastest growing emerging markets.