The Weir Group PLC
Annual report and financial statements 2011
The Weir Group PLC
Annual report and financial statements 2011 Directors report
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The Weir Group PLC
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB, Scotland
Telephone: +44 (0)141 637 7111
Facsimile: +44 (0)141 221 9789
Email: investor-relations@weir.co.uk
Website: www.weir.co.uk
Excellent
Engineering
Solutions
Contents
Directors report
Inside front cover
Financial highlights
Chairman’s statement
Chief Executive’s review
Driving growth The Weir Way
Key Performance Indicators
Operational review
Financial review
Board of directors
Principal risks and 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
Inside back cover – Financial
calendar and Cautionary statement
01
02
04
08
14
15
26
30
32
36
44
54
69
71
72
73
74
75
76
77
124
125
126
136
137
139
The Weir Way
The drivers of growth
A focus on operational excellence and customer
requirements provides the strong operating platform
from which the Weir Group drives growth. We continue
to invest in engineering expertise and technical skills
to meet our strategy of prioritising product and service
innovation. The development of collaborative working
practices across the divisions and our expanding
geographic footprint are key enablers of growth as we
provide our full capability to our chosen end markets.
1 InnovatIve
aCtIon
Innovation is at the heart of our processes as we seek to provide
existing and new customers with a competitive advantage.
We focus on delivering enhanced product and service capability
wherever it is required by investing in people, engineering skills,
technology and research to ensure that our products deliver longer
plant life, extend maintenance cycles, reduce downtime and lower
whole-life operating costs. In 2011, our innovative action delivered
new products into all our end markets and established a research
partnership to support breakthrough technology development.
2 CollaboratIve
MIndset
Weir people work together and with customers and partners to
provide the best solutions. This collaborative approach ensures
that the Group’s complete capability can be offered to the end
markets that we serve. During 2011, through effective collaboration
across our divisions and geographical regions, we offered a broader
product and service portfolio to customers.
3 Global
CaPabIlItY
Weir’s global capability means delivering consistently excellent
products and services as we work alongside our customers in
the territories that drive demand in minerals, oil and gas and
power generation. Global capability during 2011 has internationalised
further our products and services through our existing and
expanding routes to market.
The Weir Group PLC
Annual report and financial statements 2011
The Weir Group PLC
Annual report and financial statements 2011 Directors report
T
h
e
W
e
i
r
G
r
o
u
p
P
L
C
A
n
n
u
a
l
r
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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
1
The Weir Group PLC
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB, Scotland
Telephone: +44 (0)141 637 7111
Facsimile: +44 (0)141 221 9789
Email: investor-relations@weir.co.uk
Website: www.weir.co.uk
Excellent
Engineering
Solutions
Contents
Directors report
Inside front cover
Financial highlights
Chairman’s statement
Chief Executive’s review
Driving growth The Weir Way
Key Performance Indicators
Operational review
Financial review
Board of directors
Principal risks and 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
Inside back cover – Financial
calendar and Cautionary statement
01
02
04
08
14
15
26
30
32
36
44
54
69
71
72
73
74
75
76
77
124
125
126
136
137
139
The Weir Way
The drivers of growth
A focus on operational excellence and customer
requirements provides the strong operating platform
from which the Weir Group drives growth. We continue
to invest in engineering expertise and technical skills
to meet our strategy of prioritising product and service
innovation. The development of collaborative working
practices across the divisions and our expanding
geographic footprint are key enablers of growth as we
provide our full capability to our chosen end markets.
1 InnovatIve
aCtIon
Innovation is at the heart of our processes as we seek to provide
existing and new customers with a competitive advantage.
We focus on delivering enhanced product and service capability
wherever it is required by investing in people, engineering skills,
technology and research to ensure that our products deliver longer
plant life, extend maintenance cycles, reduce downtime and lower
whole-life operating costs. In 2011, our innovative action delivered
new products into all our end markets and established a research
partnership to support breakthrough technology development.
2 CollaboratIve
MIndset
Weir people work together and with customers and partners to
provide the best solutions. This collaborative approach ensures
that the Group’s complete capability can be offered to the end
markets that we serve. During 2011, through effective collaboration
across our divisions and geographical regions, we offered a broader
product and service portfolio to customers.
3 Global
CaPabIlItY
Weir’s global capability means delivering consistently excellent
products and services as we work alongside our customers in
the territories that drive demand in minerals, oil and gas and
power generation. Global capability during 2011 has internationalised
further our products and services through our existing and
expanding routes to market.
Annual Report & Financial Statements 2011 Directors report
01
Financial highlights
2011
• Growth ahead of strong markets: order input up
30%, revenue up 40%;
• Record performance by Minerals and Oil & Gas
Divisions;
• Upstream oil and gas revenues doubled to US$982m
with input of US$1,160m;
• Momentum continued in H2 with order input and
revenue ahead of H1;
• Strategic progress with two value enhancing
acquisitions during the year and ongoing organic
growth initiatives;
• Pre-tax profits up 34% to £396m;
• Full year dividend increased by 22% to 33.0p;
• Strong orderbook entering 2012.
Group results
Continuing operations
Revenue
£2,292m Up 40%
Operating profit2
£413m Up 33%
Profit before tax2
£396m Up 34%
Order input1
£2,467m Up 30%
Earnings per share2
133.6p Up 33%
133.6p
100.4p
140
120
100
80
60
40
20
64.1p
2009
2010
2011
Dividend per share
33.0p Up 22%
33.0p
27.0p
21.0p
35
30
25
20
15
10
5
2009
2010
2011
Net debt
£673m Up 137%
1 2010 restated at 2011 average exchange rates
2 Continuing operations adjusted to exclude
exceptional items & intangibles amortisation
The Weir Group PLC
Annual report and financial statements 2011 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
2011 revenue by market
Minerals
40%
Oil & Gas
38%
Power
11%
Industrial
7%
Other
4%
The Weir Group is well established in all three of our chosen
markets: minerals, oil and gas and power. Throughout 2011,
our strong manufacturing platform, operational excellence
and flexible business model combined to enable the
effective execution and acceleration of our growth
plans in rapidly growing markets.
Our priority of extending our positions in the high growth, long cycle minerals,
oil and gas and power sectors through customer focus and operational
excellence has been underpinned by our drivers of growth, Innovation,
Collaboration and Global Capability.
Innovation
Customer focus and investment in
engineering resources led to the successful
launch of the WBH® pump, just one of
a number of new or enhanced core
product launches.
Collaboration
Weir’s collaborative mindset was further
developed through a range of initiatives
including a broadened shared engineering
services capability in India, eliminating
bottlenecks in product development.
Global Capability
Weir is committed to going where its
customers are and growing its presence in
fast growing markets. This was underscored
by the acquisition of Seaboard and the
acquisition of a majority stake in HIM Tech,
as well as an expansion of the Group’s
service footprint in all its end markets.
Market overview
Capital expenditure in the mining sector
increased as miners broke ground on a
number of greenfield developments and
brownfield expansions. Activity levels
increased strongly in South America,
Australia and Asia-Pacific, while promising
progress was seen in North America,
Africa, Eastern Europe and the Middle East.
Activity levels in Western Europe remained
low due to macro economic concerns in
the region.
Sustained high oil prices supported
increased investment and activity levels
in the North American oil sands market.
Market overview
The North American upstream market
experienced a second year of rapid growth,
underpinned by increased horizontal drilling
of oil and liquids rich shale formations.
Average US horizontal rig count, a leading
indicator of upstream pressure pumping
demand, increased 22% on 2010, while
greater operating efficiency resulted in
an estimated 32% increase in horizontal
wells drilled.
Middle East services markets benefited
from oilfield development in Iraq and Saudi
Arabia while downstream markets continue
to be challenging.
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
constitutes the division’s largest sector
but it has aligned product sales into niche
markets, including oil sands. Products
include pumps, hydrocyclones, valves,
dewatering equipment, wear resistant
linings, rubber products and
screening machines.
Weir Oil & Gas designs and manufactures
pumps and ancillary equipment and
provides aftermarket service and support
activities principally for the upstream oil and
gas markets. The acquisitions of Seaboard
and Novatech expand the division’s
conventional and unconventional upstream
equipment product portfolio to include
high-pressure wellhead equipment and a
broadened range of aftermarket pressure-
pump expendable components.
The division has a presence in the world’s
key mining markets including South
America, Australia, Asia-Pacific,
Africa and North America.
The downstream business occupies
a niche position in the design and
manufacture of centrifugal pumps for
the refining industry. The division’s main
operations are in North America, Europe
and the Middle East with an expanding
footprint in Asia-Pacific and South America.
Market overview
The global nuclear market, active in the
early part of the year, slowed following the
Fukushima reactor incident. Demand for
original equipment and spares across
European and US thermal power markets
remained subdued although growth
continued in emerging markets, particularly
India. Activity picked up in the oil and gas
markets with good project activity in the
Middle East and Asia-Pacific. The North
American hydro power market saw good
levels of activity. While renewables markets
remained challenging in Europe, a number
of opportunities have emerged across South
America and Africa. General industrial and
municipal markets remained subdued while
unrest in Libya led to the cessation of all
project activity in February 2011.
Weir Power & Industrial designs and
manufactures valves, pumps and turbines
as well as providing specialist and support
services to the global power generation,
industrial and oil and gas sectors.
The division has locations in Europe,
the Middle East, North America, India,
China, Asia-Pacific and South Africa.
The division’s capability in emerging
markets was strengthened in 2011 with the
acquisition of a majority stake in HIM Tech,
a valves manufacturer in South Korea.
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable market
c7,750
20
£1,263m
£1,216m
£4.5bn
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable market
c3,100
15
£865m
£743m
£5.3bn
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable power market £6bn
c3,050
15
£312m
£307m
Major customers
Alcoa
AMEC
Anglo American
Barrick Group
BHP Billiton
Codelco
Rio Tinto
Suncor Energy
Vale Inco
Xstrata
Major customers
Baker Hughes
Cal Frac
Enerflow
Frac Tech Services
Schlumberger
Stewart & Stevenson LLC
Surefire Industries
Trican Well Services
United Engines
Weatherford International
Major customers
Ameren Missouri
The Government of Canada
CNPEC & CNEIC
EADS
EDF
FirstLight Power Resources
PPL Generation
Toshiba Corporation
US Bureau of Reclamation
Westinghouse
Financial
Calendar
Ex-dividend date for final dividend
2 May 2012
Record date for final dividend
4 May 2012
Shareholders on the register at this
date will receive the dividend
Annual general meeting
9 May 2012
Final dividend paid
1 June 2012
Cautionary statement
This annual report contains forward-looking
statements with respect to the financial
condition, operations and performance of
the Group. By their nature, these statements
involve uncertainty since future events
and circumstances can cause results and
developments to differ materially from those
anticipated. The forward-looking statements
reflect knowledge and information available
at the date of preparation of this annual report
and the Company undertakes no obligation
to update these forward-looking statements.
Nothing in this annual report should be
construed as a profit forecast.
Registered office & company number
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB
Scotland
Registered in Scotland
Company Number 2934
Designed by Design Motive
Printed by Royle Print
It is important that our annual report is produced in an environmentally
responsible manner, including the sourcing of materials. The annual report
is printed in the UK by Royle Print Ltd, a Carbon Neutral printing company,
using vegetable-based inks.
The material is Revive Pure Uncoated which is certified as 100% recycled by
the Forest Stewardship Council. The printer and paper manufacturing mill both
have ISO 14001 accreditation for environmental management.
Annual report and financial statements 2011 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
2011 revenue by market
Minerals
40%
Oil & Gas
38%
Power
11%
Industrial
7%
Other
4%
The Weir Group is well established in all three of our chosen
markets: minerals, oil and gas and power. Throughout 2011,
our strong manufacturing platform, operational excellence
and flexible business model combined to enable the
effective execution and acceleration of our growth
plans in rapidly growing markets.
Our priority of extending our positions in the high growth, long cycle minerals,
oil and gas and power sectors through customer focus and operational
excellence has been underpinned by our drivers of growth, Innovation,
Collaboration and Global Capability.
Innovation
Customer focus and investment in
engineering resources led to the successful
launch of the WBH® pump, just one of
a number of new or enhanced core
product launches.
Collaboration
Weir’s collaborative mindset was further
developed through a range of initiatives
including a broadened shared engineering
services capability in India, eliminating
bottlenecks in product development.
Global Capability
Weir is committed to going where its
customers are and growing its presence in
fast growing markets. This was underscored
by the acquisition of Seaboard and the
acquisition of a majority stake in HIM Tech,
as well as an expansion of the Group’s
service footprint in all its end markets.
Market overview
Capital expenditure in the mining sector
increased as miners broke ground on a
number of greenfield developments and
brownfield expansions. Activity levels
increased strongly in South America,
Australia and Asia-Pacific, while promising
progress was seen in North America,
Africa, Eastern Europe and the Middle East.
Activity levels in Western Europe remained
low due to macro economic concerns in
the region.
Sustained high oil prices supported
increased investment and activity levels
in the North American oil sands market.
Market overview
The North American upstream market
experienced a second year of rapid growth,
underpinned by increased horizontal drilling
of oil and liquids rich shale formations.
Average US horizontal rig count, a leading
indicator of upstream pressure pumping
demand, increased 22% on 2010, while
greater operating efficiency resulted in
an estimated 32% increase in horizontal
wells drilled.
Middle East services markets benefited
from oilfield development in Iraq and Saudi
Arabia while downstream markets continue
to be challenging.
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
constitutes the division’s largest sector
but it has aligned product sales into niche
markets, including oil sands. Products
include pumps, hydrocyclones, valves,
dewatering equipment, wear resistant
linings, rubber products and
screening machines.
Weir Oil & Gas designs and manufactures
pumps and ancillary equipment and
provides aftermarket service and support
activities principally for the upstream oil and
gas markets. The acquisitions of Seaboard
and Novatech expand the division’s
conventional and unconventional upstream
equipment product portfolio to include
high-pressure wellhead equipment and a
broadened range of aftermarket pressure-
pump expendable components.
The division has a presence in the world’s
key mining markets including South
America, Australia, Asia-Pacific,
Africa and North America.
The downstream business occupies
a niche position in the design and
manufacture of centrifugal pumps for
the refining industry. The division’s main
operations are in North America, Europe
and the Middle East with an expanding
footprint in Asia-Pacific and South America.
Market overview
The global nuclear market, active in the
early part of the year, slowed following the
Fukushima reactor incident. Demand for
original equipment and spares across
European and US thermal power markets
remained subdued although growth
continued in emerging markets, particularly
India. Activity picked up in the oil and gas
markets with good project activity in the
Middle East and Asia-Pacific. The North
American hydro power market saw good
levels of activity. While renewables markets
remained challenging in Europe, a number
of opportunities have emerged across South
America and Africa. General industrial and
municipal markets remained subdued while
unrest in Libya led to the cessation of all
project activity in February 2011.
Weir Power & Industrial designs and
manufactures valves, pumps and turbines
as well as providing specialist and support
services to the global power generation,
industrial and oil and gas sectors.
The division has locations in Europe,
the Middle East, North America, India,
China, Asia-Pacific and South Africa.
The division’s capability in emerging
markets was strengthened in 2011 with the
acquisition of a majority stake in HIM Tech,
a valves manufacturer in South Korea.
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable market
c7,750
20
£1,263m
£1,216m
£4.5bn
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable market
c3,100
15
£865m
£743m
£5.3bn
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable power market £6bn
c3,050
15
£312m
£307m
Major customers
Alcoa
AMEC
Anglo American
Barrick Group
BHP Billiton
Codelco
Rio Tinto
Suncor Energy
Vale Inco
Xstrata
Major customers
Baker Hughes
Cal Frac
Enerflow
Frac Tech Services
Schlumberger
Stewart & Stevenson LLC
Surefire Industries
Trican Well Services
United Engines
Weatherford International
Major customers
Ameren Missouri
The Government of Canada
CNPEC & CNEIC
EADS
EDF
FirstLight Power Resources
PPL Generation
Toshiba Corporation
US Bureau of Reclamation
Westinghouse
Financial
Calendar
Ex-dividend date for final dividend
2 May 2012
Record date for final dividend
4 May 2012
Shareholders on the register at this
date will receive the dividend
Annual general meeting
9 May 2012
Final dividend paid
1 June 2012
Cautionary statement
This annual report contains forward-looking
statements with respect to the financial
condition, operations and performance of
the Group. By their nature, these statements
involve uncertainty since future events
and circumstances can cause results and
developments to differ materially from those
anticipated. The forward-looking statements
reflect knowledge and information available
at the date of preparation of this annual report
and the Company undertakes no obligation
to update these forward-looking statements.
Nothing in this annual report should be
construed as a profit forecast.
Registered office & company number
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB
Scotland
Registered in Scotland
Company Number 2934
Designed by Design Motive
Printed by Royle Print
It is important that our annual report is produced in an environmentally
responsible manner, including the sourcing of materials. The annual report
is printed in the UK by Royle Print Ltd, a Carbon Neutral printing company,
using vegetable-based inks.
The material is Revive Pure Uncoated which is certified as 100% recycled by
the Forest Stewardship Council. The printer and paper manufacturing mill both
have ISO 14001 accreditation for environmental management.
02 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Overview by Chairman
Lord Smith of Kelvin
Structured
for growth
In a year of slowing
global economic
growth and considerable
uncertainty in the
eurozone, I am pleased
to report that 2011 was
a successful year for the
Weir Group, delivering
another record financial
performance.
Underpinning this were three main factors: the ability of our operations to execute
effectively against our growth plans; positive conditions in the main markets that
we serve; and our focus on consolidating and extending our positions in the
world’s fastest growing economies. Whilst this is a business that always guards
against complacency, the Group demonstrated during 2011 the strength of its
business model and its ability, through the balance of its chosen end markets
and operating geographies, to create shareholder value.
Revenues were up 40% and we are able to report an increase in Group pre-
tax profit from continuing operations before exceptional items and intangibles
amortisation of 34% to a record £396m with cashflow from operations of £303m.
We are proposing a final payment to shareholders of 25.8p per share, making
33p for the full year, an increase of 22%. This reflects the Board’s confidence in
the ability of the Group’s strategy, management and employees to continue to
deliver sustainable growth.
An important theme of 2011 has been the progress made by the business
in developing new products and enhancing underlying technologies. Whilst
there has been strong momentum across the Group behind the other strategic
priorities of collaboration and global capability, innovation has been a particular
focus. Weir produces and supports technologically advanced products that
are relied upon to function in many of the world’s harshest and most remote
operating environments. Our passion for continuously improving these products
and developing new technology to meet changing market challenges has
resulted in a number of important new products and research developments
during 2011. Innovation creates sustainable competitive advantage for Weir,
high barriers to entry and is a key enabler of our continued aim to grow faster
than our end markets.
In addition to important organic growth initiatives, the acquisition in December
2011 of Seaboard Holdings extends our leading position in the production
and servicing of a wide range of surface equipment targeted at unconventional
upstream oil and gas markets, with strong opportunities to take Seaboard
products into new markets through Weir’s global networks. The acquisition in
February 2012 of Novatech expands Weir’s offering in the fast-growing hydraulic
fracturing pump consumables markets.
03
Dividend per share
33.0p
27.0p
21.0p
35
30
25
20
15
10
5
2009
2010
2011
The Board visits Weir Minerals operation in
Jundiai, Brasil in October 2011
Doing business the right way means behaving with integrity, respecting the
environment and the communities where we operate and providing safe working
conditions for our employees and contractors. We have continued to focus on
these commitments. The Group’s Code of Conduct and programme of training
for Weir employees supporting the Code creates an ethical framework that is
well understood and acted upon by Weir employees, wherever they operate.
The Group’s sustainability initiatives have also progressed, with actions underway
to reduce greenhouse gas emissions across our businesses. A number of initiatives
are in place to improve safety performance and bolster the safety culture across
the Group. Our sustainability report on pages 54 to 68 provides more detail.
During 2011, the Board visited our operations in South America to develop a
better understanding of one of our key markets. The visit reinforced yet again
the major contribution made to the success of the Weir Group by our people,
wherever they operate. The substantial investment this year in a new management
and leadership development framework across the Group is a positive illustration
of how we are developing talent across the organisation. A key element in
sustaining the success of the Group lies in ensuring that the right people are in
the right roles and that sufficient leadership potential is being nurtured throughout
the organisation to enable effective succession planning. This framework will
play an important role in developing and supporting these aims.
Central to the effective management of the business and maintaining the
confidence of investors are high standards of corporate governance. As
Chairman, I seek to ensure that the Board is as effective as possible and I believe
strongly that this is the case. This year the issue of diversity was focused upon,
considering how this applies both at Board level and throughout the wider
organisation. The Board composition today includes experts in our principal
end markets alongside City and relevant financial experience. Of our ten directors,
one is female and one a foreign national. We will continue to consider the benefits
of greater diversity, in balance with ensuring the best person is appointed to
the relevant role.
I would like to thank my fellow directors for their hard work and support
throughout the year, including two new non-executive directors, Melanie Gee
and Alan Ferguson, who added their skills and experience to the Board during
2011. I would also like to thank three members of the Board who stand down
at our annual general meeting in May. Michael Dearden, our senior independent
director and Remuneration Committee chairman, leaves the Board after nine
years and Stephen King, Audit Committee chairman, leaves after six years.
Alan Mitchelson, Legal and Commercial Director, also stands down after 12
years with the Group, 11 of those as an executive director. On behalf of the
Board, I would like to thank them for their excellent contributions to the Group.
Lord Robertson will become senior independent director, Alan Ferguson Audit
Committee chairman and Melanie Gee Remuneration Committee chairman.
At the same time, Keith Ruddock, who is currently General Counsel for Upstream
International, Royal Dutch Shell plc, will take over as General Counsel and
Company Secretary.
As we seek to grow ahead of our end markets, concerns over the health of
many of the world’s major economies continue. It is difficult to predict how
strong these economic headwinds could become, but we approach 2012
with the confidence that our clear strategy and flexible business model will
enable continued progress.
Lord Smith of Kelvin
Chairman
29 February 2012
04 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Overview by Chief Executive
Keith Cochrane
Driving growth
The Weir Way
The Group has
successfully advanced
its strategy in 2011,
extending its positions
in the mining, oil and
gas and power markets
and adding business
capability. Combined
with effective execution
in rapidly growing
markets, this has
resulted in a strong
performance, achieving
in two years our
ambition set out in June
2010 to double 2009
profits in five years.
New product introductions, further benefits from cross-divisional collaboration
and an expansion of our global sales and service footprint contributed to these
results. We also benefited from accelerating our upstream capacity expansion
plans announced in March last year and our focus on growing sales of the
broader product portfolio. Successful delivery of our growth plans is due to
the efforts of the more than 14,000 people who work for Weir and I want to
thank each of them for their contribution.
Against an uncertain macro-economic environment, conditions in our two
principal markets remained positive. In mining, continued growth in emerging
market demand alongside forecast shortages of key commodities triggered a
significant pick-up in capital spending with a number of greenfield projects now
underway across South America, Australia and the Asia-Pacific region. In oil and
gas, North American upstream markets experienced further rapid growth from
onshore drilling in oil and liquids rich shale formations with US domestic oil
production at its highest level for nearly a decade and over US$80 billion of
investment by exploration and production majors in this sector. In power
markets, following the Fukushima incident, safety assessments delayed new
nuclear developments and low levels of conventional generation new build
and general industrial activity continued in North America and Europe.
2011 performance
Overall order input, in constant currency, was up 30% with original equipment
input up 36% as expansion of the North American frac fleet continued and
procurement for greenfield mining projects commenced. Aftermarket input was
up 25% as we benefited from increased activity levels across our main markets
and market share gains across the broader minerals product portfolio.
Group revenues were up 40% on a constant currency basis, while the proportion
of revenues from original equipment sales increased to 48% from 42% last year.
Our upstream oil and gas operations more than doubled their revenues for the
second year in succession. Together these contributed to a record profits
performance. While operating margins were impacted by the swing to lower
margin original equipment, this investment will provide an increasing installed
base to drive future higher margin aftermarket opportunities.
Across our divisions a number of notable successes contributed to the financial
performance. In Minerals, significant contract awards were achieved in all mining
markets, with South America particularly strong. The division benefited from
growing sales of our enlarged mine dewatering portfolio and a broader range
of ancillary products and services. In upstream oil and gas, rapid market
acceptance of the new Destiny™ pump, combined with capacity and supply
chain expansion, helped to gain market share in the fast growing North American
market. Power & Industrial achieved a landmark contract win for nuclear control
valves in South Korea and the 2010 acquisitions have contributed positively to
divisional performance.
During 2011, we continued to invest in growth plans with around 2,000 new
employees joining the Group. Investment in research and development increased
by 24% to £18m, whilst capital expenditure of £95m supported growth plans
including capacity expansion at Weir SPM with a further US$75m investment
in capacity now underway for that operation.
We generated free cashflow from continuing operations of £29m after significant
investment in working capital and fixed assets to support business growth.
Despite this investment, our return on capital employed increased by over
2% as we leveraged our global operating platform in delivering this growth.
Following the year end, the balance sheet has been strengthened by the issue
of attractively priced long term debt to refinance short term bank debt taken on
to fund the Seaboard acquisition and provide additional financial resources.
We retain financial flexibility to pursue both organic growth initiatives and
further acquisition opportunities in line with our strategy.
Group strategy and business model
The Group will continue to extend its position in the minerals, oil and gas and
power sectors and aims to deliver growth ahead of these end markets. These
are high growth, long cycle markets with positive fundamentals. This strategy
is delivered through sustainable organic growth supplemented by targeted
acquisitions consistent with our disciplined financial criteria. We invest in people,
technology and infrastructure to develop and maintain the strong and lean
operating platform from which we grow market share and create competitive
advantage. Our strategy is underpinned by our three pillars - Innovation,
Collaboration and Global Capability.
05
During 2011 we continued to make good
progress against our key priorities:
• Took new major products such as the
Destiny™ and Warman® WBH® pumps
successfully to market.
• Established the Weir Advanced Research
Centre to provide technological competitive
advantage.
• Captured market share with strong growth in
sales of the dewatering portfolio and ancillary
products and services in minerals markets and
in upstream oil and gas markets through new
products and operational responsiveness.
• Accelerated growth with strategically aligned
and value-enhancing acquisitions in South
Korea and the North American upstream
oil and gas sector.
• Extended the Group’s presence in fast
growing economies through the growth
of the Indian and Chinese operations.
• Invested over £95m in capital expenditure
to improve operating efficiency, customer
focus and extend manufacturing and service
capability including:
• Investment in manufacturing and service
capacity in North American upstream
operations to address demand for pressure
pumping and related flow control equipment
• Growing the global sales and service
footprint with new facilities in Europe,
Africa, North America and Asia-Pacific.
Continuing operations
Revenue
£2,292m
Up 40%
Operating profit1
£413m
Up 33%
1 Continuing operations adjusted to exclude
exceptional items & intangibles amortisation
Group Executive (pictured)
From left to right: Gavin Nicol (Director of Operations Support and Development), Alan Mitchelson (Legal & Commercial Director),
Keith Cochrane (Chief Executive), Steve Noon (Oil & Gas Divisional Managing Director), Pauline Lafferty (Director of Human Resources),
Dean Jenkins (Power & Industrial Divisional Managing Director), Scot Smith (Minerals Divisional Managing Director), Jon Stanton (Finance Director)
06 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
3-fold strategy
INNOvATIvE
SOLUTIONS
COLLABORATIvE
MINDSET
GLOBAL
CAPABILITy
1
2
3
Earnings per share1
133.6p
100.4p
140
120
100
80
60
40
20
64.1p
2009
2010
2011
1 Continuing operations adjusted to exclude
exceptional items & intangibles amortisation
Weir provides mission critical engineering solutions that can operate in highly
abrasive environments and require specialised service and support, often in
remote locations. Engineering expertise, supply chain quality and global support
capability provide the operating context for our business model. This focuses
on supplying innovative and highly engineered original equipment to grow an
installed base which in turn provides future aftermarket opportunities, enabling
exposure to customers capital and operating budgets and providing resilience
in cyclical markets.
Driving growth
The Group has made good progress against its strategic priorities throughout
the year. Each division introduced new products during the period, including
the launch of enhanced core products for the Oil & Gas and Minerals Divisions.
We have invested in engineering resources across our divisions, recruiting more
engineers and developing Group-wide engineering initiatives. The Weir Advanced
Research Centre, aimed at developing breakthrough technologies in the form of
new products and enhancements to existing products for our key markets was
established during the year and a number of projects are underway. All three
divisions have worked together to ensure that the full capability of the Group
can be brought to bear on the markets that we serve with the upstream oil and
gas sector an area of particular focus through the work of the Oil & Gas Forum,
which brings together cross-divisional technical and market expertise to
target growth opportunities.
In December 2011, we extended our presence in the fast growing upstream oil
and gas markets with the acquisition of Seaboard, a leading US manufacturer of
wellhead solutions and in February 2012 completed the acquisition of Novatech,
a US supplier of pressure pump expendables. Seaboard broadens our product
portfolio and service footprint in attractive conventional and unconventional
markets and acquisition integration is now well underway. The acquisition of
a majority stake in HIM Tech, now Weir International, a South Korean valves
manufacturer, expands our control valve expertise and provides access to the
domestic market and Korea’s successful international engineering contractors.
Our priority of driving growth in our Indian and Chinese businesses has
progressed, with a 65% increase in like-for-like revenues and a growing
contribution to the best-cost sourcing activities of the Group.
This progress has been supported by an ongoing focus on operational
excellence and functional initiatives. A number of procurement activities were
introduced during 2011 which will increase the efficiency of the supply chain in
2012 and enable the Group to better leverage its purchasing power. Improving
metrics for the Weir Commercial System, Weir Production System and Net
Promoter Score demonstrate our continued focus on customer service and
the application of a lean philosophy across our operating platform.
People
Keeping our people safe remains our number one priority. Following a strong
performance in 2010, our safety record during 2011 was disappointing. The
imperative to improve led to a reinvigorated focus on safety across the Group
and an improved performance in the second half of the year. An Environment,
Health and Safety (EHS) excellence committee has been established under the
leadership of the director of operations support and development. The committee
has introduced a number of important initiatives to ensure adherence to high
and globally consistent standards in health and safety practices across
our operations.
07
Around the world
Top – Lord Smith, Chairman and Keith
Cochrane break ground for the next phase
of capacity expansion at Weir SPM in Fort
Worth, Texas, flanked by Steve Noon, Divisional
Managing Director, Weir Oil & Gas (left of
picture) and Paul Coppinger, President,
Weir SPM (right of picture).
Bottom – Keith Cochrane lays the foundation
stone for a new block at Gokul Primary School,
Hubli, India, part of Weir’s commitment to
supporting local education projects. Naveen
Ganzu, Country Head, Weir India is in the
foreground.
Strong progress was made during 2011 on the priority of developing the
capability of our people as the Group continues to grow in size, complexity and
geographical reach. Key senior management appointments were made focused
on operational support and talent development. A consistent management and
leadership development framework aligned to the Weir strategy was also
established during the year, creating a talent pipeline to support the present
and future capability needs of our global operations.
Finally, I am proud of the professional and responsive way in which our people
acted to evacuate safely colleagues and contractors from Libya at the onset of
unrest in February 2011.
Outlook
The Group remains well positioned to benefit from the medium term growth
prospects of our end markets despite the uncertain global economic environment:
• Demand for minerals, oil and gas and power is underpinned by the continuing
population growth and industrialisation of major developing economies such
as China and India.
• The development of the world’s growing unconventional oil and gas resources
will provide greater energy security for many countries.
• Industrialisation, environmental concerns and ageing power plants will
accelerate the need for new and refurbished power infrastructure in both
the developed and developing world.
We will maintain our focus on our three strategic pillars and continue to drive
operational excellence throughout the Group. In 2012, we aim to grow ahead
of our end markets by:
• Successfully integrating Seaboard and Novatech to leverage products,
skills and geographic reach.
• Delivering on our Weir SPM multi-site expansion plans and adding capacity
in the Minerals Division.
• Building on the new products momentum with a specific focus on Oil & Gas
Forum initiatives.
• Enhancing supply chain performance to drive operational efficiency and
increase customer responsiveness.
• Improving operational and safety performance through ongoing investment
and the work of the EHS excellence committee.
The Group enters 2012 with a strong orderbook and with our clear strategy
and flexible business model we expect a year of further good progress
consistent with current consensus expectations.
Keith Cochrane
Chief Executive
29 February 2012
08 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
1
A dewatering ‘mega-barge’ developed by
Weir Minerals Canada
The Destiny™ pump from Weir Oil & Gas
Weir Minerals Linatex, Malaysia
Driving growth The Weir Way
innovaTive
SoLUTionS
Innovation is central to Weir’s growth plans. The development
of new products and technologies provides the Group and our
customers with competitive advantage. Innovation also applies to
the operational improvements that we make and how we extend
our existing product ranges into new markets. During 2011, we
introduced new products in each of our key markets, focusing on
enabling our customers to operate for longer, with less frequent
maintenance requirements. We invested in the infrastructure to
support innovation, establishing the Weir Advanced Research
Centre with Strathclyde University, providing a platform for creating
breakthrough technologies in areas such as materials development
and flow control. We also continued to invest heavily in engineering
resources across the Group.
Significant new product introductions during 2011 included the market
leading Destiny™ pump for the onshore upstream oil and gas sector.
The pump offers higher output and pressure loads, responding to
customer demand for equipment to meet the challenges of harsher shale
environments. The new Warman® WBH® centrifugal slurry pump was also
launched across our global minerals networks, featuring more than 20 design
enhancements compared to existing technology and good progress was
made on the development of new technology for nuclear markets.
One of the key differentiators of Weir products is the superiority of our
materials and wear life. This year we have committed to developing our
underlying technologies with a cross-divisional team of Weir engineers and
leading engineering academics from the Weir Advanced Research Centre
examining how our products can benefit from the use of specialist coatings
used in applications in other industries. This project is an early example of
the potential commercial application this new research framework provides
the Group.
Enhanced engineering processes were developed throughout the year
with the establishment of best practice audits and cross-divisional groups
to ensure new approaches in technology can be leveraged across all our
businesses. We also invested in state-of-the-art software to enhance failure
and performance analysis to ensure our engineering capability remains at
the leading edge of the industry.
Innovation also applies to extending our product offering to new and existing
markets. Strong growth this year in sales of ancillary products and services,
such as Linatex rubber products in the minerals and oil and gas sectors,
demonstrates how products from our recently acquired businesses are
enabling the Group to build out its position in important markets. After
engineers and service experts worked with customers around the world,
this year, for the first time, Minerals took a full mine dewatering product
portfolio to global mining markets.
09
“ During 2011, we introduced new
products in each of our key markets,
focusing on enabling our customers
to operate for longer, with less
frequent maintenance requirements.”
T
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W
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10 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
2
Shared engineering services in India
HPGR technology
STAMPEDE™, the first product taken to market
by the Oil & Gas Forum
Driving growth The Weir Way
CoLLaBoRaTive
MinDSeT
The end markets served by Weir share similar technical challenges
and production characteristics, allowing us to apply expertise
and engineering skills in abrasive and critical applications from
all our divisions to one particular sector. To make the most of this
Group-wide capability, we work together across our businesses,
divisions and regions to share expertise, solve problems and help
our customers. Weir people worked in partnership with each other,
our customers and other partners throughout 2011 to optimise our
performance across our key markets.
The Oil & Gas Forum, a cross-divisional initiative, uses the expertise and
resources across the Group to focus on a wider customer and market base
within the oil and gas sector. The Forum has 13 projects underway, with
successful trials being held, several millions of dollars in revenue generated
and new products taken to market. One example is the development of
STAMPEDE™, a new line of downhole packing equipment applying Minerals
leading elastomer expertise to upstream oil and gas applications.
A broadened shared engineering services capability in India, offering
design, value engineering and automation solutions has provided additional
engineering resources to all divisions in 2011, eliminating bottlenecks in
product development and reducing product time to market.
In Africa and Australia, a new approach to sales and customer targeting has
led to the Power & Industrial Division joining forces with Minerals colleagues
to leverage the strength of Minerals infrastructure and operations in order to
increase market share.
The alliance between Minerals and KHD Humboldt on High Pressure Grinding
Rollers (HPGR) made good progress this year with a number of new projects
secured and increasing aftermarket support for HPGR as acceptance of the
benefits of this technology by the mill circuit industry grows. As capital costs
associated with traditional SAG mills have increased with the growth of large
scale minerals processing plants, the HPGR alternative offers lower initial
start up costs, which is further enhanced by reduced operating costs owing
to its more efficient grinding action.
Closer collaboration with customers has also been made possible by the
opening this year of new onsite service centres at some of the largest mining
operations in the Asia-Pacific region, enabling Weir to provide rapid support.
11
W
e
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r
i
M
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r
a
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r
v
c
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u
s
t
o
m
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r
s
i
t
e
i
n
I
n
d
o
n
e
s
a
i
“ Weir people worked in partnership with
each other, our customers and other
partners throughout 2011 to optimise our
performance across our key markets.”
12 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
3
Weir Minerals Netherlands, Taicang, China
Weir International, South Korea
Weir Oil & Gas Services, Deer Park, Texas
Driving growth The Weir Way
GLoBaL
CaPaBiLiTY
Weir is one of the few engineering solutions providers with global
capability. Around one third of our revenues during 2011 came
from the fast growing economies of Asia-Pacific, South America,
the Middle East and Africa as global demand for resources
continues. We are committed to be where our customers are,
from upstream oil and gas production in North America to nuclear
power generation in South Korea and copper mining in Chile.
This commitment to global capability enables Weir to best serve
our customers and provide our products and services to new
international markets.
In 2011, good progress was made in developing Weir’s presence in fast
growing markets.
The acquisitions of Seaboard and Novatech accelerate Weir’s growth
momentum in North American unconventional oil and gas markets, whilst
also strengthening Weir’s product offering for emergent international shale
opportunities and further expanding the service footprint. The addition to
the Group of the South Korean valves business, Weir International, provides
access to a developing domestic market as well as to the increasing
international success of Korean engineering, procurement and
construction contractors.
Prompted by the growth and increasing geographical spread of US and
Canadian shale drilling operations, our upstream operations have expanded
manufacturing and service capacity, utilising other Group facilities in North
America to support growth. The development of North American multi-
site manufacturing is at an advanced stage, with key aftermarket products
now produced from three sites, ensuring customer equipment is supplied,
repaired and put back in the field as quickly as possible.
Growth ambitions in China were supported by the opening by Weir Minerals
Netherlands of an assembly facility for its GEHO® pumps in Taicang,
enhancing customer relationships by ensuring rapid original equipment
and parts supply for the large installed base of GEHO® pumps in China.
Weir Shengli Highland, the joint venture established in 2010 to serve the
emergent onshore oil and gas drilling sector in China, assembled and
tested its first pumps during the year.
Expansion of the Minerals service centre network during 2011 supported
sales of a broadening product portfolio in all key mining markets. Fifteen
new centres were opened across Europe, Africa, the US, Australia and
Asia-Pacific.
13
“ We are committed to be where our
customers are, from upstream oil and
gas production in North America to
nuclear power generation in South Korea
and copper mining in Chile.”
•
W
e
i
r
S
e
a
b
o
a
r
d
,
H
o
u
s
t
o
n
,
T
e
x
a
s
14 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Key Performance indicators
Delivering excellent 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 Group strategy and operating priorities are set out below.
Input1, 3 (£m)
Operating margin2, 3 (%)
Profit before tax2, 3 (£m)
2,467
1,896
1,368
3000
2500
2000
1500
1000
500
20
16
12
8
4
18.9
18.0
14.7
396
295
450
350
250
150
50
187
2009
2010
2011
2009
2010
2011
2009
2010
2011
During 2011 the Group has driven
orders through:
During 2011 the Group has been:
During 2011 the Group has been:
• Delivering efficiencies by leveraging our
• Successfully driving organic
• Broadening our product portfolio.
global capability.
growth initiatives.
• Strong performances by recent acquisitions.
• Driving growth in sales of original equipment.
• Driving operating efficiency.
• Product innovation and development.
• Maximising aftermarket opportunities.
• Expanding our low cost sourcing.
• Extending our service coverage.
• Continued drive for greater
customer focus.
• Maintaining a proactive approach to capacity
planning and associated management of our
cost base.
Free cashflow3 (£m)
Group Lean Score (%)
Lost time accidents
141
150
125
100
75
50
25
80
29
80
60
40
20
70
73
65
55
40
26
60
50
40
30
20
10
2009
2010
2011
2009
2010
2011
2009
2010
2011
During 2011 the Group has been:
During 2011 the Group has been:
During 2011 the Group has been:
• Enhancing treasury risk management and
• Developing the world-class platform
• Seeking improvement in safety performance
hedging processes and developing best cost
sources of finance.
established in recent years.
• Eliminating waste and reducing lead times
• Committing capital expenditure in support
in business processes.
of growth plans across all divisions.
• Focusing on working capital management
recognising absolute growth requirements.
• Focusing on on-time delivery.
The Lean Score is determined by comparing our
current processes against world-class practice
and performance.
through a range of initiatives including
the establishment of an EHS excellence
committee and the Weir EHS System.
• Prioritising the introduction of a behavioural
safety system with high global standards.
1 Calculated at 2011 average exchange rates 2 Adjusted to exclude exceptional items & intangibles amortisation 3 Continuing operations
Weir Minerals Division
operational review
Weir Minerals is the global leader in abrasive high wear
applications of slurry handling and dewatering solutions, providing
comprehensive ‘through life’ service and aftermarket support.
Mining is the division’s largest sector with aligned product sales
into other markets, particularly the North American oil sands.
The division continues to extend successfully its market reach
through adjacent product areas including wear resistant linings,
rubber products and screening machines. Collaboration with
KHD Humboldt has ensured a growing presence in high pressure
grinding rollers, a new and more efficient milling technology that
lowers capital and operating costs on large mining projects.
The division’s leadership position is underpinned by specialist
engineering expertise and ongoing investment in wear resistant
materials technology and engineered hydraulics. This focus
delivers high performance equipment in a range of applications
that are critical to customer operations.
The division has a growing manufacturing, service and support
footprint in all key mining markets, including South America,
Australia, Asia-Pacific, Africa and North America.
Market review
Capital expenditure in the mining sector increased by over 20%
in 2011, as miners broke ground on a number of greenfield
developments and brownfield expansions. Activity levels increased
strongly in South America, Australia and Asia-Pacific in particular,
driven by copper and iron ore projects, while promising progress was
seen in North America, Africa, Eastern Europe and the Middle East.
In contrast, activity levels in Western Europe remained low due to
macro-economic concerns in the region. Although the timing of
orders for large projects is unpredictable, quotation activity continued
at elevated levels throughout the year, despite falling industrial metal
prices in the second half. Copper prices fell by around 20% in the
year but, similar to most industrial metals, remained above the
incentive level required for new investment. Gold prices gained
11% in the year and continue to attract investment.
Global ore production increased by an estimated 5% in 2011,
again driven by increasing demand from China and other emerging
markets, particularly for copper, iron ore and coal. Average ore
yields continued to fall as lower grade ores were developed,
necessitating increased rock processing to obtain similar
volumes of refined commodities.
15
Minerals
76%
General Industry
9%
Oil and Gas
7%
Power Generation
6%
Other
2%
South America
23%
North America
22%
Australia
19%
Middle East/Africa
15%
Europe/FSU
11%
Asia-Pacific
10%
Divisional results1
Order input
£1,263m
Up 27%
Revenue
£1,216m
Up 33%
Operating profit
£214m
Up 22%
Sector input breakdown
Geographic input breakdown
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
16 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Weir Minerals Division
operational review (continued)
Sustained high oil prices supported increased investment and
activity levels in the North American oil sands market, with new
project developments and increased production across the market.
Demand for flue gas desulphurisation projects remained low, with
customers in the US postponing investment pending clarity on the
impact of new environmental legislation.
Achievements and contract awards
• Engineering innovation brought key new products and product enhancements to the
market, including the Warman® WBH® pump, Multiflo® CF and MF dewatering pumps,
Warman® mechanical seals, the Warman® 750MCR mill circuit pump and Isogate®
Pinch valves.
• Strong growth in sales of a full dewatering portfolio and ancillary products and services,
benefiting from a strategic focus on offering a broader portfolio in all markets.
• Major contract awards included the second largest order ever for pipeline
transportation equipment for a Brazilian iron ore project, two multimillion dollar orders
for Canadian oil sands projects and a multimillion dollar contract for supplying molten
salt pumps to the solar power sector.
• Successfully integrated Linatex® into Weir Minerals global sales, branding and
manufacturing organisation.
• New service centres opened in Europe, Africa, Australia and at customer sites
throughout Asia-Pacific, enhancing customer focus and service capability.
Operational performance
The division delivered a record financial performance in positive
conditions in mining and oil sands markets and through the
successful execution of its strategic growth plans. Delivery of
the division’s strategic priorities of product innovation, extending
service coverage and growing complementary product sales
enabled it to capitalise on high levels of investment and increased
production volumes in its end markets. Global sales of a full
dewatering portfolio nearly doubled and included the successful
delivery of a dewatering ‘mega barge’ to a North American oil
sands project, an engineering first for the Group. In its first full year
within the Group, Linatex has been an important driver of growth
in ancillary products and services, a key strategic focus as the
division broadens its offering of mill circuit solutions. In addition,
annualised synergies of more than US$15m were achieved from
the Linatex integration against initial expectations of between
US$5m and US$10m. The opening of new service centres in
major mining markets increased local support for customers
and enhanced the division’s opportunities to drive sales of
the broader portfolio.
GEHO® pumps in place at the Anglo Ferrous iron ore
mine in Brasil, the world’s biggest pump station
17
The division has a number
of key priorities in 2012:
• Expand global production capacity.
• Continue to drive market share in ancillary
products and services.
• Take product innovation to new areas within
the mill circuit.
• Build further on the collaborative successes of
the Oil & Gas Forum to develop new products
and services.
Aftermarket input (£m)
735
571
471
800
700
600
500
400
300
200
100
2009
2010
2011
A dewatering solution from Weir Minerals
Multiflo in Amurskaya, Russia
Order input increased by 27% to £1,263m (2010: £996m).
On a like-for-like basis, excluding the impact of the September
2010 acquisition of Linatex, which contributed £108m (2010:
£27m), order input increased 19%. Original equipment orders
grew 24% (23% on a like-for-like basis). Aftermarket orders grew
29% and 16% on a like-for-like basis, benefiting from the strategic
focus on the sale of ancillary products and services with organic
growth of 26%. Original equipment orders represented 42% of
total input (2010: 43%) and 45% (2010: 43%) excluding the
impact of Linatex.
The division secured orders from every major greenfield and
brownfield project in South America, with greenfield projects
driving strong demand for slurry and dewatering pumps. Orders
were received for GEHO® positive displacement pumps for iron
ore and copper pipeline transportation projects totalling £40m.
Elsewhere, notable orders included a £6m contract to supply
a range of pumps and hoses for a Canadian oil sands project.
Strong growth in ancillary products and services included the
supply of cyclones and mill liners to a Polish copper mine, valves,
cyclones and hoses for a large Russian gold mining project and
a £2m order for Linatex screens for a North American iron ore
project. Emerging markets accounted for 48% of input (2010:
51%), with order growth from North American and European
markets rising by 35% and 57% respectively.
Revenue increased by 33% to £1,216m (2010: £911m). Like-for-
like revenues increased 26%, reflecting high activity levels across
all main mining markets throughout the year, excluding Western
Europe. Original equipment sales accounted for 42% of revenues
(2010: 39%) or 45% (2010: 39%) on a like-for-like basis.
Operating profit increased by 22% to £214m (2010: £176m) as
the division benefited from strong revenue growth and a full year
profit contribution from Linatex of £14m, including synergies
realised in the year.
Operating margin declined to 17.6% (2010: 19.3%), reflecting
a shift in mix towards original equipment deliveries, investment
to support strategic growth initiatives and an increased proportion
of lower margin ancillary products and service revenues.
18 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Weir Minerals Division
operational review (continued)
Weir in action
Customer
Sibelco Australia and New Zealand processes
and supplies raw materials for the Asia-Pacific
region. It is part of the Sibelco Group, one
of the largest industrial minerals companies
in the world, with more than 225 sites in
41 countries.
Investment
The division has invested throughout 2011 in people, research and facilities in order to
align capacity to strategic growth plans. Capital expenditure was £49m (2010: £30m)
while research and development spend increased by 28% to £10m as the division took
a range of new products to market and continued to develop its technology position
for minerals markets and Oil & Gas Forum applications.
Expansion of an existing facility in Johannesburg enabled the consolidation of Linatex
activities in South Africa with investment in heavy duty rubber presses, supporting
strong sales growth of Linatex elastomer products.
During 2011, Weir Minerals Netherlands opened an assembly facility for its GEHO®
pumps brand in Taicang, China. This facility is a key element in delivering GEHO®’s
objective to enhance customer relationships by ensuring rapid original equipment and
spare parts supply and excellent services for the installed base of some 200 industrial
GEHO® pumps in China.
Fifteen new service centres were added to the Minerals service footprint during 2011,
in South Africa, Indonesia, Malaysia, Europe, the US and Australia, enhancing
customer focus and extending opportunities to provide ancillary products and services.
The acquisition in January 2012 of Swedish service business Gema expands Weir’s
presence in one of Europe’s biggest centres for iron ore and copper mining.
The WBH® centrifugal slurry pump onsite in
New South Wales, Australia
Foundry upgrades in Chile led to production increases of 30% with operational
efficiency gains and improved customer delivery performance.
Weir Minerals has also added around 900 employees during the year to support
the division’s growth. The Mill Circuit University was expanded with employees from
around the globe attending an extensive programme in which they learn about the
entire minerals processing circuit, enhancing the professionalism with which the
division provides total solutions for customers.
Outlook
Market fundamentals remain strong, driven by continued urbanisation and
industrialisation in emerging markets and their increasing demand for raw materials.
This increased demand, coupled with declining ore grades, supports the continued high
level of investment planned by miners over the coming years, although industry-wide
resource and skill shortages are likely to smooth and extend the current capital cycle.
Forecasts show global mining capital expenditure remaining above 2011 levels through
to 2015. Global ore production is expected to grow by around 5% per annum over the
same period, supporting aftermarket products and services growth.
In 2012, our expectations are that mining activity levels will remain robust and we expect
moderate growth in original equipment input, albeit the timing of orders for large projects
is hard to predict. Market forecasts of ore production volume growth and a continuing
focus on ancillary products and services mean that we anticipate good progress in
shorter cycle aftermarket orders. Together with delivery of its strong opening orderbook,
this is expected to result in higher 2012 revenues and operating profits compared to
2011, while operating margins will stabilise at a broadly similar level.
Brief
Sibelco constantly seeks to use innovative
methods and sophisticated equipment in its
work of processing and supplying raw materials
for the Australian, New Zealand and Asian
markets. Its Tallawang mine in central western
New South Wales was chosen as the site for
the world’s first trial of Weir Minerals new
Warman® WBH® centrifugal slurry pump.
Solution
Weir staff were onsite to oversee and assist
with the pump installation. It was a trouble-free
process, even with the need to make up a base
plate for the WBH® to bring it to the same height
as its predecessor, a Warman® 8/6 AH. The
changeover was completed in half the timescale
estimated by Sibelco and the pump functioned
effectively straight away.
Result
The pump uses less power, runs cooler and can
be adjusted during production, something that
could not be achieved with previous pumps,
extending the production cycle at the Tallawang
site. When pump maintenance was required,
Weir Minerals staff performed a complete rebuild
onsite in one day, serving the additional purpose
of training mine staff to perform the task in the
future. “We had no hesitation in purchasing
the pump at the end of the trial,” said Matt
Cosgrove, Sibelco maintenance supervisor.
Since the Sibelco trial, a further 39 WBH® units
are being trialled across global mining markets.
Weir oil & Gas Division
operational review
Weir Oil & Gas designs and manufactures pumps and ancillary
equipment and provides aftermarket service and support activities
principally for the upstream oil and gas markets. The acquisitions
of Seaboard and Novatech expand the division’s unconventional
and conventional upstream equipment product portfolio to
include high-pressure wellhead equipment and a broadened
range of aftermarket pressure-pump expendable components.
The downstream business occupies a niche position in the design
and manufacture of centrifugal pumps for the refining industry.
The division’s main operations are in North America, Europe and
the Middle East with an expanding footprint in Asia-Pacific and
South America.
Market review
The North American upstream market experienced a second
year of rapid growth, underpinned by increased horizontal drilling
of oil and liquids rich shale formations, reflecting the attractive
economics flowing from an average price for WTI crude of around
US$90 a barrel and ending the year at over US$100. Average
US horizontal rig count, a leading indicator of upstream pressure
pumping demand, increased 22% on 2010, with the rate of growth
moderating in the final quarter of the year, while greater operating
efficiency resulted in an estimated 32% increase in horizontal wells
drilled. Oil and liquids rich shale drilling now accounts for over half
of all activity in North America and US domestic oil production
rose to its highest level for nearly a decade. Conversely, falling US
natural gas prices, driven by excess supply from the abundance of
unconventional sources, led to an 11% reduction in the number of
North American rigs targeting gas formations.
Merger and acquisition interest in US and Canadian oil shale
assets increased materially in 2011, with national oil and major
exploration and production companies purchasing acreage and
service companies to increase their exposure to this fast-developing
market. Investment began in infrastructure aligned to shale markets
with pipeline construction and petrochemical plant expansion.
Responsible shale development was identified by President Obama
as a key part of the US energy future and a US Energy Secretary-
appointed committee recommended ways to ensure the adoption
of best practice across the rapidly growing industry.
Outside of North America, China, Poland, Argentina and Australia
started to develop their own significant shale resources with
exploratory drilling underway while elsewhere there is growing
international interest.
19
Oil and Gas
99%
General Industry
1%
North America
80%
Middle East/Africa
9%
Europe/FSU
8%
Asia-Pacific
2%
South America
1%
Divisional results1
Order Input
£865m
Up 42%
Revenue
£743m
Up 65%
Operating profit
£183m
Up 61%
Sector input breakdown
Geographic input breakdown
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
20 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Weir oil & Gas Division
operational review (continued)
Middle East services markets benefited from investment in Iraqi and
Saudi Arabian oilfield developments to increase production levels
while downstream markets continue to be challenging.
Achievements & contract wins
• Accelerated upstream capacity expansion to meet growing market demand with
a further US$75m investment now underway.
• Rapid market acceptance of the new Destiny™ pump.
• Completed development and commenced testing of ‘Mousetrap’, a more durable
pump fluid end, due to launch in 2012, providing technological leadership in onshore
completion operations.
• Expanded service centre network in North America and Australia, increasing market
share and providing improved levels of customer service.
• Established a service operation in Iraq and achieved input of more than US$20 million
for Iraqi oilfield service contracts.
• Executed effectively ongoing restructuring plans in downstream operations.
Operational performance
The division has again delivered a record financial performance,
ahead of expectations, benefiting from rapid growth in the
upstream shale markets and an ability to respond quickly to these
trends. During 2011, upstream operations added manufacturing
and support capacity, introduced new products and extended
the service centre footprint as it seeks to meet growing customer
demands. Good progress was also made by the Middle East
Service operations, while downstream performance was impacted
by competitive market conditions. No contribution has been
recognised for the two week post-acquisition period of
Seaboard given the close proximity to the year end.
Order input increased by 42% to £865m (2010: £609m).
Upstream operations achieved input growth of 58% to a record
£723m (US$1,160m), benefiting from strong market conditions,
higher operating intensities and market share gains. This reflects a
strengthening in orders through the second half with growth of 18%
against the first half of the year with a new input record established
in the fourth quarter as we saw significant forward ordering for delivery
in the first half of 2012. Demand for original equipment continued to
be driven by increased utilisation, fleet expansion and a replacement
cycle accelerated by longer duration, higher pressure applications
while aftermarket demand is benefiting from a growing installed
base. Input across downstream and service operations fell by
5% with growth in the Middle East service markets benefiting from
growing activity in Iraq, offset by a challenging downstream market.
Weir SPM staff and equipment at a North American
hydraulic fracturing site
21
The division has a number
of key priorities in 2012:
• Delivering on capacity expansion.
• Acquisition integration and capturing effectively
synergy opportunities.
• New product development.
• Completion of downstream restructuring.
Weir Seaboard, Houston, Texas
Revenue increased by 65% to £743m (2010: £451m). Upstream
revenues more than doubled to £613m (US$982m), benefiting
from the strong opening orderbook, positive original equipment
and aftermarket trends and market share increases over the year.
This was achieved by the acceleration of capacity expansion
plans, additional third party outsourcing and greater use of the
Group’s North American existing capacity alongside the opening
of four new service centres.
Operating profit including joint ventures increased by 61%
to £183m (2010: £114m) driven by the substantial increase in
upstream activity and growing profits from the Middle East Service
operations offset by a substantially reduced contribution from
the downstream operations. In addition, one-off restructuring
and transaction costs of £11m have been expensed, including
those for the Seaboard acquisition.
Operating margin was 24.7% in 2011 (2010: 25.2%), with a
positive mix effect from the upstream business and improving
margins at the Middle East Service operations being offset by
lower downstream margins reflecting reduced activity and
one-off costs. Excluding one-off costs, margins were 26.1%.
Investment
Weir Oil & Gas continued to invest in its growth plans with capital expenditure of £32m
(2010: £17m). During the year, Weir SPM expanded capacity at the Fort Worth facility
completing the US$40m initial expansion plans, while a state-of-the-art plunger facility
was installed at Weir Mesa and further investment was made in the Edmonton and
Houston operations. A further US$75m investment was announced in the upstream
business encompassing both additional machining capacity and office accommodation
at the Fort Worth facility, further investment in Edmonton and the transfer of the Washington,
North Carolina facility from the Power & Industrial Division. These projects will be
completed by the end of 2012.
Operating facilities are now established for the joint venture formed in 2010 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,
with the first pumps manufactured locally towards the end of 2011.
In December 2011, Seaboard Holdings was acquired for US$671m (£432m) and
the acquisition of Novatech for an equivalent enterprise value of US$176m (£112m)
was completed in February 2012. Seaboard is a respected manufacturer of wellhead
equipment with extensive North American service operations and strong product
adjacency to Weir’s existing upstream equipment portfolio. The acquisition increases
the division’s contribution from high-growth markets, broadens activities beyond
pressure pumping and increases Weir’s profile with service companies and end-user
E&P companies. As well as driving the international growth of Seaboard’s products
through the Weir network, the combination of Weir’s products and Seaboard’s field
service capabilities will open up new adjacent markets. Novatech, a market leading
valve and valve seat manufacturer, provides a platform to significantly increase
aftermarket revenues in expendable components across the pressure pumping market.
22 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Weir oil & Gas Division
operational review (continued)
Weir in action
Customer
With the world’s largest identified shale gas
reserves, the nascent Chinese onshore oil
and gas industry is an attractive future market
for shale developments, with the Chinese
Government identifying natural gas development
as a key economic development goal. In late
2010, Weir Oil & Gas entered into a joint venture
with Shengli Oilfield Highland Petroleum
Equipment Company and began building a
well service pump manufacturing facility in
Dongying, China.
Pump assembly at Weir Shengli Highland,
Dongying, China
Brief
This new well service pump manufacturing
facility would manufacture SPM® pumps in
China for the Chinese market using the
technology and expertise of the Weir SPM
business in Fort Worth, Texas. The goal was
to begin manufacturing SPM® cement and
frac pumps by the end of 2011.
Solution
In late 2010 work commenced to locate and
build the facility that would manufacture,
assemble and test the SPM® pumps. Almost
£1m of capital was invested in the building,
machine tools and testing equipment. A new
Chinese supply chain was developed to source
most of the components locally with support
from Weir SPM in Fort Worth.
Result
Within a year of signing the joint venture
agreement the local business in Dongying was
operational, with the first pumps assembled
and tested. Weir Shengli Highland is now well
positioned to capitalise on the growing
unconventional shale gas opportunities in China.
Overall spending on research and development increased by 13% to £5m. In addition
to the development of ‘Mousetrap’, a quintuplex version of the Destiny™ pump will be
launched in the first half of 2012, a product specifically designed for the longer duty
cycles increasingly required in fracturing operations.
A review of downstream operations was completed in the year to identify actions to
improve product positioning and cost competitiveness in challenging market conditions.
Restructuring of Italian operations is underway while a new assembly operation will open
in Poland in early 2012. At the same time, investment in broadening routes to market
and developing a range of more cost competitive products, positions the business to
compete more effectively in 2012. Begemann, a range of process pumps focused on
the downstream markets, was transferred to Oil & Gas from the Minerals Division,
extending the division’s existing product portfolio.
Reflecting strong growth, over 500 employees joined the division this year, with effective
assimilation and training programmes a key priority. Business capability was also
expanded in the year to ensure the division has the appropriate skills, expertise and
capacity to support higher activity levels and to embed a talent pipeline to support future
growth and market needs. Management training and development initiatives continue
across each operation in support of Group-wide plans while senior management
resources were added to the upstream operations to support future growth potential.
Outlook
Weir Oil & Gas remains well positioned to deliver further growth. Current forecasts
for 2012 indicate overall modest growth in average horizontal rig count in North America
with a reduction in gas drilling offset by the continued shift towards oil and liquids
rich drilling.
We expect 2012 original equipment input for SPM and Mesa to be lower than 2011
as pressure pumping market supply and demand move into balance, lead times reduce
and the effects of forward ordering in 2011 unwind. This will be partly offset by good
aftermarket input growth, driven by the larger installed base, continuing high activity
levels and our recent and planned capacity additions. As a result, with a record opening
orderbook providing good visibility over the first half, we now expect 2012 full year
revenues from these operations to slightly exceed US$1 billion, somewhat ahead of
our previous expectations.
The outlook for Seaboard and Novatech is in line with our expectations at the time
of acquisition. Further growth is expected in the Middle East in 2012, underpinned
by increased activity in Iraq and Saudi Arabia. A modest improvement in the 2012
performance of downstream operations is anticipated.
The medium term outlook for upstream remains positive with continued investment
and associated infrastructure development anticipated in the North American onshore
oil and gas sector. Responsible shale development was identified in 2012 by President
Obama as a key part of the US energy future. Outside North America, international shale
development is expected to grow, with exploration already underway in the large shale
formations of Argentina, China and Australia.
Weir Power & industrial Division
operational review
Weir Power & Industrial designs and manufactures valves, pumps
and turbines as well as providing specialist support services to
the global power generation, industrial and oil and gas sectors.
The division has locations in Europe, the Middle East, North
America, India, China, Asia-Pacific and South Africa.
The valve portfolio was extended in 2011 with the acquisition of
Weir International in South Korea, strengthening the division’s
emerging market focus.
Market review
The global nuclear market, active in the early part of the year,
slowed following the Fukushima reactor incident. New build
projects and non-essential maintenance and repair work were
delayed with operators and developers awaiting clarification on
the expected changes to safety requirements as a result of this
incident. Demand for original equipment and spares across
European and US thermal power markets remained subdued while
growth continued in emerging markets, particularly India. The oil
and gas markets saw good project activity in the Middle East and
Asia-Pacific. The North American hydro power market saw good
levels of activity with a number of significant projects started in the
year. The European renewables market remained challenging while
opportunities across South America and Africa emerged during
the year. General industrial and municipal markets remained
subdued with unrest in Libya leading to the cessation of all
project activity in February 2011.
Achievements & contract wins
• Awarded breakthrough Shin Ulchin reactor contract for nuclear service control valves
with KHNP in South Korea.
• First full year revenues from Indian valves business Weir BDK more than 50% higher
than the prior year period with increasing sales to the oil and gas and minerals sectors.
• Developed product localisation strategy in China and India through Weir BDK and our
Chinese control valves joint venture.
• Secured large order to supply specialist sub-sea gate valves to major oil and gas
customer.
• Weir American Hydro secured several multimillion dollar orders from major North
American power companies for rehabilitation and turbine runner replacement and
related field service work.
• Developed renewables presence in South America with a contract to erect 44 wind
turbines in Brasil.
23
Power
57%
General Industry
14%
Oil and Gas
13%
Other
11%
Water/Wastewater
5%
North America
34%
Europe/FSU
34%
Asia-Pacific
26%
Middle East/Africa
5%
South America
1%
Divisional results1
Order Input
£312m
Up 18%
Revenue
£307m
Up 26%
Operating profit
£27m
Up 3%
Sector input breakdown
Geographic input breakdown
1 Statements in respect of divisional performance are
on a constant currency basis with operating profits
stated before intangibles amortisation
24 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Weir Power & industrial Division
operational review (continued)
Weir American Hydro, York, Pennsylvania
The sub-sea rotary gate valve
Operational performance
During the year, the division has focused on extending its product
offering and routes to market, leveraging its low cost supply chain
and integrating its 2010 and 2011 acquisitions. Good progress
has been made against these strategic objectives, with a growing
emerging market presence. The division has retained its focus on
global power markets, particularly nuclear and hydro and at the same
time is targeting the growing opportunities in the oil and gas sector for
many of the division’s products and fully participating in the Oil & Gas
Forum. The sub-sea rotary gate valve has been one example of this,
with sales of the product to a broader range of oil and gas customers.
Order input increased by 18% to £312m (2010: £264m) with
a £63m (2010: £17m) contribution from the 2010 and 2011
acquisitions and like-for-like growth of 1%. Despite the South
Korean contract success, nuclear input at £72m (2010: £82m)
reflected the broader global slowdown in new projects and
maintenance activity following the Fukushima reactor incident.
Control and safety valve orders were up 34% benefiting from
strategic investment in 2010. Strong domestic markets supported
positive input trends at Weir BDK with the ability to now package a
broader range of valve types already achieving good results while
Weir American Hydro saw increased project activity levels. The
proportion of orders from the power sector was 57% (2010: 61%).
Revenue increased by 26% to £307m (2010: £244m) with
a positive contribution from the 2010 and 2011 acquisitions.
Underlying like-for-like revenues were up 1% and impacted by
reduced power-focused maintenance activity and the cessation
of work in Libya. Revenues from emerging markets increased by
17% as the division benefits from its increased presence.
Operating profit increased by £1m to £27m (2010: £26m). There
was a £6.4m contribution from current and prior year acquisitions
compared to £1.0m last year, although this was offset by acquisition
related costs of £2.9m (2010: £2.6m). A provision of £2.0m was
recorded in the year for Libyan working capital exposures while
further incremental investment was made in building business
capability in support of the division’s strategic growth plans.
Operating margin fell to 8.7% from 10.7% in 2010. While margins
benefited from a positive contribution from the acquisitions, they
were impacted by one-off costs, the Libya trading and provision
impact and further investment in our strategic growth plans.
Excluding acquisition related and other one-off costs, margins
were 10.6% (2010: 11.7%).
Investment
Weir Power & Industrial continued to pursue its growth plans with capital expenditure of
£13m and investment of £2m in research and development as new product initiatives
gained further momentum.
A new facility in Marseille for the French nuclear business was opened in December
2011 and will consolidate previous facilities on a single site, while the construction
of a new service centre in Montreal is well underway. This will add capacity to hydro
power operations, supporting the important Canadian market and providing additional
service and backup manufacturing capability to Weir American Hydro’s main facility
in Pennsylvania. The manufacture of control valves through the Chinese joint venture
commenced towards the end of the year, providing a cost competitive product for this
important market.
The division has also announced plans to consolidate its US valve production at the
Ipswich, Massachusetts facility in 2012 with the Washington, North Carolina facility
transferring to Weir Oil & Gas providing additional manufacturing capacity to support
their growth plans.
The division added to its valve portfolio through the acquisition of a majority stake in
July 2011 of Weir International, a South Korean valve manufacturer. The business adds
local content in Korea, expands engineering capabilities and provides strong links to
important Korean contractors who supply both the home and international markets.
Growth plans have been supported with the external appointments of key people to the
divisional management team. Driving product innovation is the remit for the division’s first
engineering director and a divisional sales director will ensure the division capitalises on
its broader product portfolio and greater routes to market and grows opportunities for
Power & Industrial products in aligned sectors.
Outlook
Current market conditions remain mixed with global economic concerns and ongoing
delays in both new power plant build programmes and maintenance activities offset by
continuing good opportunities to drive growth through our strategic initiatives and recent
acquisitions. The oil and gas sector will continue to offer good opportunities in 2012
and we are hopeful of a pick up in nuclear activity as safety recommendations following
the Fukushima incident are reflected in new build designs and generate increased
service and aftermarket demand from the installed base. The global power market
outlook across the medium term remains positive given a structural shortage of power
in emerging markets extending over a number of years while growing environmental
requirements and ageing plant drives growth in developed markets.
An improved financial performance is expected in 2012 as the division benefits from
a strong opening orderbook, a reduction in one-off costs and an increased focus on
opportunities in oil and gas markets.
25
The division has a number
of key priorities in 2012:
• Improving cost competitiveness through
increased product localisation in India, South
Korea and China.
• Capitalising on a broader product range and
increased routes to market through a fully
integrated sales structure.
• Expanding presence in oil and gas end markets.
• Developing competitive advantage through
product innovation.
Weir in action
Customer
Keokuk Hydroelectric Station on the Mississippi
river was the world’s largest hydropower facility
when it was completed in 1913. Recently, the
owner of the plant, Ameren Missouri of St Louis,
sought to increase efficiency by upgrading and
refurbishing turbine units at the facility.
Keokuk Hydroelectric Station, USA
Brief
Weir American Hydro, based in york,
Pennsylvania had previously worked on
upgrading and refurbishing nine of the plant’s 15
units. The business was awarded a contract to
design, manufacture and install two advanced
technology runners at the power station.
Solution
Scheduled to be completed in mid-2012, the
project has involved two years of engineering
design, hydraulics research and testing and
manufacturing. The massive runners are more than
five metres in diameter, weighing over 60 tons.
Result
The site crew arrived in October 2011 to begin the
disassembly of the first unit. The new design has
higher turbine efficiencies with a maximum power
more than 35% above the current turbines.
26 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Review by Jon Stanton
Finance Director
Building on
success
Continuing operations
Operating margins1 (%)
18.9
18.0
14.7
20
16
12
8
4
2009
2010
2011
Profit before tax1 (£m)
396
295
450
350
250
150
50
187
2009
2010
2011
Return on capital employed2 (%)
29.2
27.0
20.1
30
25
20
15
10
5
2009
2010
2011
1 Continuing operations adjusted to exclude
exceptional items and intangibles amortisation.
2 Continuing operations EBIT (excluding exceptional
pension gain) divided by average net assets
excluding net debt, pension deficit (net of deferred
tax asset) and, for 2011, Seaboard net assets.
2011 saw the Group build very successfully on what was the
record financial performance of 2010 with continued strength
across our key end markets and another increase in operating
profit of more than £100m. Our organic growth was
complemented by strong performances from our 2010
acquisitions where integration was completed swiftly delivering
results above expectations. In July, we completed the acquisition
of Weir International in South Korea and the acquisition of
Seaboard was completed in December. Due to the completion of
this deal taking place so near the year end there is no contribution
from Seaboard included in the results for the year. Since the year
end, we have re-financed the Seaboard acquisition facilities
raising US$1 billion in the US private placement market at
very attractive maturities and coupons.
Order input at £2,467m on a constant currency basis increased 30% on
2010 and was 24% higher on a like-for-like basis (excluding the impact of
acquisitions). Original equipment orders were up 36% (32% like-for-like),
driven by continued expansion of the North American pressure pumping market
and increasing mining capital expenditure. Aftermarket orders were up 25%
(17% like-for-like) with increased activity levels across the Group’s main markets
and market share gains across the Oil & Gas and Minerals product ranges
and represented 52% (2010: 54%) of total input in 2011. Each of the divisions
reported year on year order input growth with Oil & Gas delivering the largest
increase, up 42% on 2010 to £865m (constant currency and like-for-like).
Minerals order input for 2011 was £1,263m, an increase of 27% on 2010
(19% like-for-like) with Power & Industrial reporting an 18% increase to £312m
(1% up excluding the impact of Weir BDK, Weir American Hydro, Weir yES and
Weir International).
Revenue grew by 40% to £2,292m on a constant currency basis, with like-
for-like revenues up 33%. Original equipment represented 48% of revenues
with aftermarket sales accounting for 52%, a shift towards original equipment
when compared to last year. The continued strength of our North American
businesses resulted in our exposure to emerging markets decreasing to 35%
(2010: 39%) although emerging markets revenues have increased by 25% in
absolute terms. On a divisional basis, each division translated increased order
input into increased revenues. Minerals revenues were 33% higher at £1,216m
27
(2010: £911m) with like-for-like revenues 26% up year on year. Oil & Gas revenues increased by 65% to £743m (constant
currency and like-for-like). Power & Industrial revenues grew from £244m in the prior year to £307m in 2011, an increase
of 26% (up 1% like-for-like). Together, the acquisitions made in 2010 contributed £171m of revenue against a 2010
proforma annualised figure of £151m. Revenues from other Group companies increased by 2% to £26m.
Operating profit from continuing operations before exceptional items and intangibles amortisation increased by 33%
to £412.7m (2010: £309.7m) after a negative currency translation impact of £2.4m, with the strengthening of sterling
relative to the average US dollar rate in the prior year largely offset by weakness against the Australian dollar. Excluding
this impact, year on year growth in constant currency was 34%, with the increase in underlying performance being
driven by growth in upstream oil and gas operations, strong performances across the Minerals portfolio and the impact
of 2010 acquisitions within Power & Industrial. One-off acquisition related transaction and integration costs and other
restructuring costs of £16.6m (2010: £11.0m) include £5.1m of costs associated with the acquisition of Seaboard. The
2010 acquisitions contributed £21.1m to EBITA against a 2010 proforma annualised contribution of £15.5m. The profit
contribution from other Group companies was £3.0m (2010: £3.5m) while central costs were £14.1m (2010: £12.0m).
Operating margin (also from continuing operations before exceptional items and intangibles amortisation) decreased from
18.9% (18.8% on a constant currency basis) to 18.0%, reflecting the impact of the 2010 acquisitions, the shift in revenue mix
towards original equipment and ancillary products and services and the increase in one-off charges in the period. Excluding
one-off costs and acquisitions, the operating margin was 19.3% (2010: 19.7%). On a constant currency basis, Minerals
operating profits increased by 22% to £213.9m (2010: £176.0m) giving a divisional operating margin of 17.6% (2010: 19.3%)
with the reduction driven by revenue mix and the dilution impact of Linatex margins. Oil & Gas operating profits including joint
venture interests increased to £183.1m (2010: £113.8m) with an operating margin of 24.7% (2010: 25.2%); excluding the
impact of acquisitions and one-off costs, the Oil & Gas divisional margin was 26.1% (2010: 25.2%). The operating profit
from Power & Industrial for 2011 was £26.8m, an increase of £0.8m or 3% on 2010. This represents a margin of 8.7%
(2010: 10.7% constant currency) and excluding the impact of acquisitions and one-off costs a margin of 10.6% (2010: 11.7%).
Depreciation and impairment of property, plant and equipment and investment property in the year was £37.7m
(2010: £34.3m) resulting in operating profits from continuing operations before depreciation and intangibles amortisation
(“EBITDA”) of £450.4m (2010: £344.0m).
Exceptional items and intangibles amortisation
Total Group operating profit for the year of £408.6m (2010: £291.5m) includes an exceptional credit of £19.0m
(2010: £nil) and intangibles amortisation of £23.1m (2010: £18.2m). The exceptional credit of £19.0m is a past service
gain recognised under IAS19 following the decision by the Trustees of the Group’s main staff and executive plans in the
UK to provide CPI and not RPI-linked benefits to deferred members. This follows the Government’s recent changes in
legislation to use CPI rather than RPI as the statutory measure by which to increase pensions.
Net finance costs
Net finance costs were £17.1m (2010:
£15.0m) due to higher average net debt than
the prior year given the timing of acquisitions
in 2010. This charge comprises four
components, the most significant of which
is the interest cost of £19.4m (2010: £14.9m)
on the Group’s net borrowings (including
amounts in relation to derivative financial
instruments). The balance comprises finance
income of £4.3m (2010: £1.5m), a £1.3m
charge (2010: £1.6m) in relation to the
Group’s defined benefit pension plans and
an exceptional cost of £0.7m (2010: £nil)
being the unwinding of the discount on
the contingent consideration for the Weir
International acquisition in the second half
of the year. This last component has been
disclosed as exceptional due to its nature.
Net finance costs (excluding retirement
benefit related amounts and exceptional
items) were covered 27.3 times by operating
profit from continuing operations (before
exceptional items and intangibles
amortisation) (2010: 23.1 times).
Profit before tax from continuing operations
but before exceptional items and intangibles
amortisation increased by 34% to £396.3m
(2010: £294.7m). Reported profit before tax
from continuing operations increased by 42%
to £391.5m (2010: £276.5m) after intangibles
amortisation of £23.1m (2010: £18.2m) and
the exceptional pension past service gain of
£19.0m (2010: £nil).
The tax charge for the year of £114.2m
(2010: £82.8m) on profit before tax from
continuing operations before exceptional
items and intangibles amortisation of £396.3m
(2010: £294.7m) represents an underlying
effective tax rate of 28.8% (2010: 28.1%),
reflecting a greater proportion of US profits
which are taxed at a higher rate. The expected
tax rate of 32.0% (2010: 31.0%) is higher
than the effective rate due to adjustments
in respect of prior years, predominantly from
the release of provisions in relation to tax
judgements now agreed with the relevant
tax authority and the availability of indexation
relief to offset the exceptional gain following
disposal of the Cathcart, Glasgow property.
Discontinued operations
The sale of the former Weir Pumps facility
at Cathcart, Glasgow to Clyde Union was
completed in December 2011. Net proceeds
on the sale were £25.0m giving rise to a gain
on disposal of £19.9m taking account of
asset carrying value, disposal costs and
other costs arising from discontinued
operations. This gain has been recorded
as an exceptional item in the year.
Earnings per share
Earnings per share from continuing operations
before exceptional items and intangibles
amortisation increased by 33% to 133.6p
(2010: 100.4p). Reported earnings per share
including exceptional items, intangibles
amortisation and discontinued operations
was 141.5p (2010: 87.9p), reflecting the net
post-tax charge of £3.1m (2010: £12.8m) for
exceptional items and intangibles amortisation
from continuing operations and the
exceptional net gain on sale of investment
property within discontinued operations of
£19.9m (2010: net charge of £13.6m).
The weighted average number of shares in
issue increased to 211.2m (2010: 210.6m).
28 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Financial review
(continued)
Cash flows
Cash generated by operations before
working capital movements increased by
34% to £457.9m (2010: £342.3m). Working
capital outflows of £155.3m (2010: £67.4m)
were driven by receivables increases in line
with revenue growth, the impact on inventory
of the shift in orders towards longer cycle
original equipment projects and the impact
of the 2010 and 2011 acquisitions. Net cash
generated from operations increased by
10% from £274.9m to £302.6m representing
an EBITDA to cash conversion ratio of
67% (2010: 80%), a direct result of the
investment in working capital.
Capital expenditure increased from £50.9m
in 2010 to £95.4m in 2011 principally in
support of Minerals and Oil & Gas growth
plans. The settlement of financing
derivatives resulted in a net cash outflow of
£10.9m (2010: £13.4m). Additional pension
contributions of £6.6m (2010: £9.3m) were
paid in the period in respect of agreed
special contributions to the UK schemes.
Free cash flow from continuing operations
was £28.9m (2010: £79.9m) and from
discontinued operations was £24.6m
(2010: outflow of £18.6m). Outflows in
respect of acquisitions were £441.4m
including the payment to settle external
debt of Seaboard on acquisition giving a year
end net debt of £673.2m (2010: £283.6m).
On a reported basis, the ratio of net debt
to EBITDA was 1.5 times and on a proforma
basis including the Seaboard and Weir
International acquisitions from the beginning
of 2011 was 1.3 times.
Return on capital employed (“ROCE”)
The Group’s ROCE is 29.2% for 2011,
an increase of 220 basis points on the
return of 27.0% in 2010.
Dividends
The Board is recommending a final dividend
of 25.8p per share which, together with the
interim dividend of 7.2p per share paid on
4 November 2011, makes the total dividend
for the year 33.0p, an increase of 22%
over last year’s total of 27.0p. This results
in dividend cover (being the ratio of earnings
per share from continuing operations before
exceptional items and intangibles amortisation
to dividend per share) of 4.0 times compared
to 3.7 times in 2010.
Once approved, the final dividend will be
payable on 1 June 2012 to ordinary
shareholders whose names are on the
Company’s register of members at close
of business on 4 May 2012.
Acquisitions
The Group made two acquisitions during
the year. The first of these was of 60% of the
voting shares of a new Korean company,
Weir International, into which the HIM Tech
Co Ltd valves business was transferred.
The acquisition was structured as an initial
60% purchase including an earn out with
the remaining 40% being subject to put and
call options exercisable between 2014 and
2019 and based on an EBITDA multiple
of profits in the two years immediately
preceding exercise of the option. The cash
consideration paid was £9.8m and the
estimated fair value of the contingent
consideration recognised is £14.0m.
The second acquisition was of 100% of
Seaboard Holdings Inc (“Seaboard”) for a
cash consideration of US$671m (£432.1m),
which was completed on 14 December
2011. In addition an amount of £9.1m has
been recognised in respect of contingent
consideration. The costs associated with
these acquisitions totalled £5.6m and this
has been charged in full to the Income
Statement in 2011.
The post acquisition trading by Weir
International is included in these results
although there is no contribution from
Seaboard due to completion of the
transaction just prior to the end of the year.
There are clear plans in place to integrate the
Seaboard business into the Group in 2012.
Further information on these acquisitions
can be found in note 13 to the Group
financial statements.
Together with the acquisition of Novatech in
February 2012, the proforma revenue and
EBITA (excluding integration costs) from
these three recently acquired businesses
for 2011 is £172m and £43m respectively.
Treasury management
The Group is financed through a combination
of bank debt, fixed rate private placement
notes and equity. The capital structure is
managed centrally with the objectives of
optimising capital efficiency, diversifying the
investor base, achieving an orderly maturity
of funding yet maintaining a good degree of
financial headroom.
The principal financial risks faced by the Group
are those relating to liquidity, foreign currency
and credit risk. The Group’s treasury policies
and procedures, which are reviewed and
updated on a regular basis, seek to reduce
these financial risks. Within this framework,
the Group uses financial assets and liabilities
including derivatives to hedge certain foreign
exchange and interest rate risks.
Funding and 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 16 February 2012, the Group made a
further placing of attractively priced long term
debt with the private placement market in the
US. Notes to the value of US$1billion have
been issued with a variety of maturities;
US$210m of seven year notes, US$590m
of ten year notes and US$200m of eleven
year notes. The weighted average coupon
is 4.16%. These fixed rate notes improve
the Group’s financial flexibility by diversifying
our sources of finance and investor base
and lengthening the maturity profile of
borrowings, with US$380m of the proceeds
from the placing being used to repay the
short-term bridging loan taken out at the
time of the Seaboard acquisition, fund
the acquisition of Novatech and repay
other borrowing facilities.
With regard to the US$800m revolving credit
facility, £163.0m was drawn down under
these at the end of the year leaving an
undrawn amount of £352.8m.
All covenants were met at 30 December
2011 with significant headroom under each
financial ratio.
The Group also held net cash balances of
£108.6m at the end of 2011 (2010: £79.5m)
representing operating balances held by the
Group’s subsidiaries. Of this total, £48.5m
was held in the UK (2010: £5.4m).
The Group has additional committed and
uncommitted bonding facilities under which
guarantees are issued in order to support
commercial activities.
Credit management
The Group’s credit risk is primarily attributable
to its trade receivables with risk spread over
a large number of countries and customers.
There is no significant concentration of
credit risk. Credit worthiness checks are
undertaken before entering into contracts
with new customers and credit limits are set
as appropriate. We will also use trade finance
instruments such as letters of credit and
insurance to mitigate any identified risk.
The Group’s exposure to the credit risk
of financial institutions is limited by the
adherence to counterparty limits and by
only trading with counterparties that have
a strong credit standing based on ratings
provided by the major agencies.
29
Intangible assets
On the acquisition of a business it is
necessary to attribute fair values to any
intangible assets acquired, provided they
meet the recognition criteria. The fair values
of these intangible assets are dependent on
estimates of attributable future revenues,
margins and cash flows, as well as
appropriate discount rates. In addition,
the allocation of useful lives to acquired
intangible assets requires the application
of judgement 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 as well as annually
for goodwill and other intangible assets
with indefinite lives and so not subject to
amortisation. This testing includes exercising
management judgement about future cash
flows and other events which are, by their
nature, uncertain.
Retirement benefits
The assumptions underlying the valuation
of retirement benefits assets and liabilities
are important and based on actuarial 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
interpretation of complex tax regulations
and the amount and timing of future taxable
income. Given the wide range of international
business relationships and the long term
nature and complexity of existing contractual
arrangements, differences arising between
the actual results and the assumptions made
or future changes to such assumptions could
result in future adjustments to tax income
and expense already recorded. Provisions are
established based on reasonable estimates
for possible consequences 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
differences of interpretation may arise on a
wide variety of issues depending on the
conditions prevailing in the respective
Group company’s domicile.
Jon Stanton
Finance Director
29 February 2012
Interest rate risk management
The Group’s debt is denominated in a
combination of fixed and variable rates
of interest. It is our policy to maintain a
proportion of debt at fixed rates of interest
subject to the future outlook for the level of
interest rates. As at the end of 2011, the
proportion of the Group’s gross debt at fixed
rates was 20% compared to 44% as at 31
December 2010, due to the initial funding of
the Seaboard acquisition via floating rate
bank borrowings. Following the issuance of
US$1billion fixed rate notes on 16 February
2012, the proportion of the Group’s debt at
fixed rates has increased post year end.
Foreign exchange
The Group is exposed to movements in
exchange rates for transactions undertaken
in non-functional currencies of the operating
companies concerned and the translation
of foreign currency denominated net assets
and profit and loss items.
All material transactional currency exposures
are hedged, usually by means of forward
contracts thereby ensuring certainty over
revenue and costs. Subject to local exchange
controls, foreign exchange transactions are
executed by the central treasury function.
No speculative transactions are undertaken.
Although hedging is carried out for all
material economic exposures, only two
subsidiaries apply cash flow hedge
accounting under IAS39.
The Group manages a proportion of the
potential currency translation exposures
from US dollar denominated net investments
through a combination of US dollar borrowing,
forward foreign currency contracts and cross
currency swaps. The strengthening of sterling
relative to the US dollar offset by its weakening
against the Australian dollar resulted in a net
loss on translation of net assets of £20.3m,
including the effect of the balance sheet
hedging programme. The fair value of
derivatives designated as net investment
hedges at 30 December 2011 was a liability
of £27.6m (2010: £38.8m) reflecting primarily
the part settlement of floating rate cross
currency swaps during the year.
The Group does not hedge foreign currency
translation exposures related to profit and
loss items.
Further information on financial risk
management objectives and policies
can be found in note 30 to the Group
financial statements.
Retirement benefits
The Group has five defined benefit pension
plans, the largest of these being the two
UK plans.
The Group has continued to pro-actively
manage its exposure to its pension plans.
However, reflecting a reduction in the
discount rate, partially offset by a reduction
in inflation assumptions, the net deficit for the
Group’s retirement benefit obligations at the
end of the year was £84.7m (2010: £65.0m).
Net assets
Net assets at the end of 2011 were
£1,118.1m, an increase of £196.4m on
the 2010 level of £921.7m. This increase is
driven by the total net comprehensive income
for the year of £243.2m less dividends paid
of £59.5m.
Litigation
The Company and certain subsidiaries are,
from time to time, parties to legal proceedings
and claims which arise in the normal course
of business.
There are 585 asbestos related claims in the
US (2010: 411) outstanding against Group
companies. There are 24 such claims in
the UK (2010: 22). All actions are
robustly defended.
There has been little progress on the claim
against the Company relating to a civil action
for damages arising from the UN Oil for Food
programme which has been raised in the US.
Weir is one of around 100 companies
targeted in this claim and we are defending
the action vigorously.
To the extent not already provided for, the
Directors do not anticipate that the outcome
of these proceedings and claims, either
individually or in aggregate, will have a
material adverse effect on the Group’s
financial position.
Critical accounting policies
The financial statements have been prepared
in accordance with IFRS and the material
accounting policies are set out on pages
77 to 83 of this report. There have been no
significant changes to the accounting policies
adopted in 2010.
In the process of applying the Group’s
accounting policies, management has
applied certain judgements, assumptions and
estimates. These estimates and assumptions
are based on historical experience,
information available at the time and other
factors considered relevant. Those with the
most significant effect on the amounts
recognised in the financial statements are set
out below. Further judgements, assumptions
and estimates are set out in the accounts.
30 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Board of Directors
Lord Smith of Kelvin
Chairman (67)
Keith Cochrane
Chief Executive (47)
Keith Cochrane joined the Group as finance
director in July 2006 and was appointed
chief executive in November 2009. Following
a number of years with Arthur Andersen,
Keith joined Stagecoach Group plc in 1993.
He was appointed finance director in 1996
and group chief executive in 2000. He joined
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.
Lord Robertson of Port Ellen (George)
KT, GCMG, HonFRSE, PC
Non-Executive Director (65)
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).
A member of Her Majesty’s Privy Council,
he is Chairman of the Ditchley Foundation
and of the Commission on Global Road Safety.
He is honorary Professor of Politics at Stirling
University, an honorary Fellow of the Royal
Society of Edinburgh, an Elder Brother of the
Corporation of Trinity House and is Chancellor
of the Order of St Michael and St George.
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 chairman of Deutsche Asset
Management between 2000 and 2002.
He has also held a number of other positions
in the financial services industry, 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
president of the Institute of Chartered
Accountants of Scotland.
From left to right:
Lord Smith of Kelvin
Keith Cochrane
Lord Robertson of Port Ellen
Michael Dearden
Stephen King
Jon Stanton
Alan Ferguson
Melanie Gee
Richard Menell
John Mogford
Alan Mitchelson
Michael Dearden
Non-Executive Director (69)
Michael Dearden was appointed a non-
executive director in February 2003 and retires
at this year’s annual general meeting. 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 chairman of the Remuneration Committee
and the senior independent director.
Stephen King
Non-Executive Director (51)
Stephen King was appointed a non-executive
director in February 2005 and retires at this
year’s annual general meeting. Stephen is group
finance director of Caledonia Investments plc.
In February 2011, Stephen was appointed to
the board of Bristow Group Inc. and in October
2011 he was appointed to the board of TT
Electronics plc. Between 2003 and 2009 he
was the group finance director of De La Rue plc
and prior to that, finance director of Aquila
Networks plc (formerly Midlands Electricity plc).
Stephen has held senior financial positions in
several companies including Lucas Industries
plc and Seeboard plc, having qualified as a
chartered accountant with Coopers & Lybrand.
He was a non-executive director of Camelot
Group plc from 2008 until 2009. He is a fellow
of the Institute of Chartered Accountants in
England & Wales and an associate member
of the Association of Corporate Treasurers.
He is chairman of the Audit Committee.
31
Jon Stanton
Finance Director (45)
Melanie Gee
Non-Executive Director (50)
John Mogford
Non-Executive Director (58)
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 Ferguson
Non-Executive Director (54)
Alan Ferguson was appointed a non-executive
director in December 2011. He is a non-executive
director of Johnson Matthey plc and Croda
International plc where he chairs the audit
committees. Between 2007 and 2010, he was
chief financial officer of Lonmin plc, one of the
world’s largest producers of platinum group
metals. Prior to his role with Lonmin, he held
the position of group finance director with the
BOC Group plc and Inchcape plc. Alan is a
member of the Institute of Chartered
Accountants of Scotland.
Melanie Gee was appointed a non-executive
director in April 2011. Melanie was appointed
a Managing Director of Lazard & Co. Limited
in 2008. Formerly, she spent a number of years
with S.G. Warburg (now part of UBS) and was
appointed a Managing Director of UBS in 1999.
Between 2006 and 2008 she was a Senior
Relationship Director of UBS. Melanie has
been an alternate member of The Takeover
Panel – LIBA (CFC) since 2006.
Richard Menell
Non-Executive Director (56)
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 from 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 a 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.
John Mogford was appointed a non-executive
director in June 2008. He is currently advising
private equity and investment banking 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.
He is a fellow of the Institution of
Mechanical Engineers.
Alan Mitchelson
Legal and Commercial Director
& Company Secretary (62)
Alan Mitchelson joined the Group as company
secretary in March 2000 and was appointed a
director in December 2001. Alan is retiring at
the annual general meeting in 2012.
Following a period in legal private practice, a
number of years were spent in the oil industry
before joining Trafalgar House as a legal advisor.
He joined Highland Distillers plc in 1988 where
he was company secretary before being
appointed legal and personnel director in 1991.
He is currently a non-executive director of
Glasgow 2014 Ltd.
He is a solicitor and member of the Law Society
of Scotland.
Audit Committee
Remuneration Committee
Nomination Committee
32 The Weir Group PLC
Managing risk The Weir Way
Principal risks and uncertainties
The Weir Group is committed to identifying and managing the full spectrum of risks faced across its
global operations, many of which have the potential to adversely impact its operational, financial and
reputational performance.
To support this approach, the Group operates a rigorous and transparent risk management framework
which promotes the use of quality risk information in the development of strategy and decision-making.
The risk and control framework is described in detail in the Corporate Governance report.
The Group has identified the following principal risks which could have a material impact on the business.
RISK
POTENTIAL IMPACT
MITIGATION
Environmental, health & safety
Our principal environmental, health and safety
(EHS) risks relate to the potential for a serious
environmental incident, serious injury and fatal
accidents in the workplace and regulatory action
for non-compliance with statutory requirements.
Failure to manage these risks could result in
a serious deterioration of the Group’s safety
performance or an environmental regulatory
breach which could lead to:
• fines and penalties;
• loss of key customers;
• exclusion from market sectors deemed
important for future growth; and
• damage to reputation.
Technology & innovation
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 also its ability to develop and
produce new and enhanced products in a
cost effective and timely manner to meet
customer demands.
Failure of the Group to drive innovation
and continue to ensure the development of
attractive, sustainable products and solutions
has the potential to give rise to customer
dissatisfaction, loss of market share and/or
competitors developing superior Weir
product substitutes.
The Group is committed to a zero
accident workplace and the highest
environmental standards.
During 2011, Weir has established the EHS
excellence committee to drive improvement in
the environmental, health and safety agenda.
A programme of external audits of EHS
performance has begun from which global
standards will be developed and improvement
plans created and implemented. In addition,
initiatives to address the most common
accident types have been developed and the
implementation in 2012 of a Weir behavioural
safety system will further reduce the risk
of incidents.
To remain competitive, the Group
invests continuously in its research
and development, manufacturing,
marketing, customer service support
and distribution networks.
During 2011, the Group established the
Weir Advanced Research Centre (WARC) in
conjunction with the University of Strathclyde,
tasked with supporting new product
innovation and delivering enhancements
to the Group’s existing product range.
The Group maintains the highest
manufacturing and quality standards which
include regular dialogue with customers to
ensure that their requirements are met through
the Group’s key account management
process. It also takes appropriate action to
ensure that its cost base remains competitive
and margins are protected through its global
procurement activities.
Annual Report & Financial Statements 2011 Directors report 33
RISK
POTENTIAL IMPACT
MITIGATION
Compliance & corruption
As the business grows in size and geographical
scope, the potential for fraudulent and
dishonest activity by our suppliers, customers
and employees increases.
Potential impacts include fines, penalties,
regulatory scrutiny, reputational damage
and imprisonment.
The Group has a central legal and compliance
function which assists and monitors all Group
businesses. The recent appointments
of in-house counsel has strengthened
internal resource in the Americas
and Asia-Pacific.
The Group’s internal audit activities have
been expanded to incorporate regular
review of the anti-bribery and corruption
assurance framework.
In addition, the Group’s Code of Conduct
provides a clear framework within which all
employees have to operate to maintain the
Group’s high standards of doing business.
In 2011, online training modules on the
Code were completed by staff, with a self-
certification process ensuring compliance.
Face to face presentations on the Code and
UK Bribery Act were also carried out across
the business.
Acquisitions
The continued pursuit of our growth plans
through a blend of organic growth initiatives
and acquisitions brings with it a degree of
risk, the most significant being that a poorly
executed acquisition fails to deliver the
anticipated benefits.
Key suppliers & delivery
The Group’s ability to meet customer delivery
schedules is dependent on a number of factors
including sufficient manufacturing capacity,
access to raw materials, inventory control,
sufficient trained and equipped employees,
engineering expertise and the appropriate
planning and scheduling of the manufacturing
process. Many of the contracts it enters into
require long lead times and therefore contain
clauses in relation to on-time delivery.
In addition, the Group is dependent on the
continued 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 acquisitions, these benefits
may not always be achieved or be achieved
within the anticipated timescales. 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
process 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
financial penalties, damage customer
relationships and, as a result, impact
on the Group’s financial performance.
In addition, failure of a supplier or availability
of scarce raw materials could result in the
Group incurring additional costs in sourcing
an alternative.
Manufacturing scheduling and planning
is subject to stringent internal assurance
processes to optimise each business unit’s
order book. The effect of this is to maximise
capacity and minimise reworking costs and
delays in delivery times. This is complemented
by the use of the Group’s Manufacturing
Resource Planning systems, together with
the slotting and scheduling achieved through
the Weir Production System.
The Group seeks to develop long-term
relationships with its subcontractors and the
Group’s procurement function is responsible
for establishing robust supplier relationships.
In addition, the procurement function
conducts a regular review of strategically
important suppliers.
34 The Weir Group PLC
Managing risk The Weir Way
Principal risks and uncertainties (continued)
RISK
POTENTIAL IMPACT
MITIGATION
Global & economic conditions
The Group is exposed to global growth trends
and continued weakness in the global economy
and banking sectors may trigger a subsequent
downturn in customer demand.
Failure to successfully anticipate any future
market downturns and not execute our
developed mitigation strategies effectively
could adversely affect Group revenues,
profitability and cash flows.
As part of our strategic planning process the
Group utilises extensive market intelligence
to closely monitor the stability of and
opportunities within all our markets.
The Group continues to maintain proactive
downturn plans with identified trigger points,
enabling a quick response to deteriorating
market conditions.
Commodity prices
The Group is exposed to volatility in
commodity prices.
An inability to respond to input price volatility
could have a potential impact on the Group’s
operating results, revenue and cash flows.
The Group closely monitors commodity
inputs and adapts a range of mechanisms
to protect margins including back to back
contractual terms, indexation agreements
with customers and hedging of certain
commodity input prices.
Dependency risk
The Group generates a material proportion of
its profits from Weir SPM, its Texas based well
service pump business. Market, operational
and technological developments may adversely
affect the position of Weir SPM.
Its high proportional contribution to the Group
and changes to the demand for hydraulic
fracturing equipment in its end markets could
have a significant impact on the Group’s profits
and free cashflow.
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
personnel of acquired companies.
If it is unable to attract and retain excellent
talent, the Group may not be able to effectively
implement its business strategies.
The Group closely monitors the leading
indicators impacting Weir SPM’s end
markets and, together with Weir SPM’s flexible
business model and continued investment in
new product offerings, will ensure that Weir
SPM can react to changes in demand. Over
time organic and acquisitive growth of other
operations in the Group is expected to dilute
the dependency on Weir SPM.
The Group constantly reviews its remuneration
packages to ensure they remain competitive
and has also established in 2011 a
management and leadership development
framework to ensure present and
future capability and facilitate effective
succession planning.
The Group’s employee development
programmes are explained in more detail
on pages 60 to 62.
Annual Report & Financial Statements 2011 Directors report 35
RISK
Legal
POTENTIAL IMPACT
MITIGATION
Manufacturing companies are, from time to
time, exposed to personal injury claims and
class actions or other litigation resulting from
injuries sustained at work, including asbestosis
or other health problems associated from
working in industries that used asbestos
in the 20th century.
The Group has insurance cover for certain
claims but not for all potential 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 could increase.
The Group has internal policies and
procedures for monitoring these risks,
managing and mitigating against these
liabilities and to ensure that there is regular
reporting to the Board on any changes
or developments.
Low-cost competition
Increasing competitive threat from low-cost
markets which are using total “cost innovation”
in product design, supply chain and low labour
costs to gain a competitive advantage.
Failure to build on our emerging market
presence and realise growth through the
delivery of innovative and creative product
solutions may result in our existing customer
base switching to low-cost suppliers,
leading to a reduction in market share.
The Group has an established and growing
global footprint to ensure proximity to
customers and consistent quality of service
coupled with continued product innovation
to provide technological differentiation and
barriers to entry.
The Group continues to drive operational
excellence across all plants with a
continued focus on the key areas of lean,
on time delivery, global sourcing and other
procurement and supply chain initiatives
and the Weir Production System, all of
which contribute to the delivery of enhanced
operational efficiencies.
36 The Weir Group PLC
Corporate governance
report
Introduction
The Board is committed to the principles of good governance
and good corporate governance is an integral part of the Board’s
stewardship obligations. 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.
The Board’s review of its effectiveness, conducted during the
period, considered its composition and skills and concluded
that it has the right experience to address and respond to the
challenges it faces.
Corporate governance code
The UK Corporate Governance Code 2010 (the “Code”)
took effect from 29 June 2010, replacing the Combined Code
on Corporate Governance 2008 as the standard of good
governance practice in the UK. The Financial Services Authority
requires listed companies to disclose whether they have complied
with the provisions of the Code throughout the financial year.
The Board considers that the Company complied with the
Code for the whole of the 52 weeks ended 30 December 2011.
In respect of Code provision B.7.1 the Board decided in early
2011 to adopt this provision and therefore all executive and
non-executive directors retired and offered themselves for
re-election commencing from the 2011 annual general meeting.
This section of the Annual Report along with the Remuneration
report on pages 44 to 53 provide details of how the Company
has applied the main principles of the Code during the 52 weeks
ended 30 December 2011. Further information on the Code is
publicly available on the Financial Reporting Council’s website
www.frc.org.uk.
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, health and safety 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.
• Risk management strategy and the system of internal control.
Board meetings
In the 52 weeks ended 30 December 2011, the Board met eight
times, with one meeting in Santiago, which combined visits to the
Weir Minerals sites in Chile and Brasil, one meeting at the Group
conference in Perthshire, one held in London and the remainder
held at the Company’s head office in Glasgow. There is regular
contact outside formal meetings between the chairman, chief
executive and the other directors.
The following table identifies the attendance record of individual
directors at the eight board meetings held during 2011.
Name
Lord Smith
Keith Cochrane
Michael Dearden
Alan Ferguson1
Melanie Gee2
Stephen King
Richard Menell
Alan Mitchelson
John Mogford
Lord Robertson
Jon Stanton
Attendance
8 of 8
8 of 8
8 of 8
1 of 1
5 of 5
7 of 8
7 of 8
8 of 8
8 of 8
8 of 8
8 of 8
1 Alan Ferguson joined the board on 13 December 2011.
2 Melanie Gee joined the board on 4 May 2011.
Changes to the Board
Details of the current directors of the Company are set out on
pages 30 to 31. Melanie Gee joined the Board on 4 May 2011
and Alan Ferguson on 13 December 2011.
Re-election of directors
In accordance with the Code, all directors submit themselves
for annual re-election by shareholders. Each new director
may be appointed by the Board, but is subject to election by
shareholders at the first opportunity after their appointment.
Any non-executive director who has served on the Board for
more than six years is subject to a particularly rigorous review.
Annual Report & Financial Statements 2011 Directors report
37
Board information and development
On joining the Board, directors are provided with documentation
on the Group and its activities. New directors are provided with
an appropriate induction programme and, where appropriate,
site visits are arranged to major business units. Ongoing training
is provided as necessary.
All directors are provided with updates on corporate governance
developments, legislative and regulatory changes and relevant
industry and technical information.
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.
Review of board effectiveness
Our 2011 review of board effectiveness was led by an
independent third party who undertook interviews with the
chairman, each of the directors and the external auditors,
in addition, an assessment of the chairman’s performance was
carried out by the senior independent director. Feedback was
sought on the operation of the principal board committees
and on the contributions of individual directors.
The review considered the effectiveness of leadership,
governance arrangements and management practices
in a number of areas including:
• Board constitution including the mix of skills, knowledge
and experience.
• Relationships between the Board, committees and
executive directors.
• Responsibilities, delegated authorities and reporting lines.
• Succession planning, induction and training.
• Communication with shareholders.
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.
Board balance and independence
As at 30 December 2011, the Board comprises the chairman,
chief executive, finance director, legal and commercial director
and seven non-executive directors. Michael Dearden is the
senior independent director. Lord Robertson will replace Michael
Dearden as senior independent director following his retirement
from the board after the annual general meeting in 2012.
There is an agreed procedure for directors to take independent
professional advice, where appropriate, on any matter at the
Company’s expense. The company secretary is responsible for
ensuring that board procedures are followed and all directors
have direct access to the advice and services of the company
secretary. The company secretary is also responsible for
facilitating the induction and professional development of
the board members and information flows within the Board,
its committees and between the non-executive directors
and senior management.
All directors bring their own independent judgement to major
matters affecting the Group. Each of the non-executive directors
is considered by the Company to be independent.
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 a
senior level in other companies, which allows for well informed
and broad 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 appointments can
be terminated at any time with six months notice. 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.
Details of the directors service contracts, remuneration and
interests in share awards are set out in the Remuneration report
on pages 44 to 53.
38 The Weir Group PLC
Corporate governance
report (continued)
Directors conflicts of interests
Each director has a duty under the Companies Act 2006
(the “2006 Act”) to 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
execution 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.
Shareholders
The Company is committed to a process of continual dialogue
with its shareholders. This dialogue is taken forward by the
Group’s investor relations programme and includes regular
update meetings and presentations with major shareholders and
industry analysts. Feedback from these presentations, which is
reported to the Board, gives investors an opportunity to comment
on the quality of the communications they receive in their contact
with the chief executive and finance director. Attendees at
the results presentations include the chairman, the executive
directors, the senior independent director and a number of
the non-executive directors. The Company also encourages
communication with private shareholders throughout the year
and welcomes their participation at shareholder meetings. In
addition to the chairman’s statement at the annual general
meeting, a trading update to shareholders is given and details
of the Company’s trading activities are on display. The directors
attend the annual general meeting and the chairmen of the Audit,
Remuneration and Nomination Committees are available to
answer questions. The date of the key publications in 2012
can be found on the Company’s website.
Notice of the annual general meeting is sent to shareholders
at least 20 working days before the meeting. The Company
conducts the vote at the annual general meeting by electronic
poll and the result of the votes (including proxies) is published
on the Company’s website after the annual general meeting.
Electronic proxy voting, details of which are included in the
notice of the 2012 annual general meeting, is available. Voting
participation at the annual general meetings in 2009, 2010 and
2011 was 64%, 63% and 67% 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. 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.
During 2011, the Group produced a corporate brochure
which is available on the Group website at www.weir.co.uk.
The website also 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 30 and 31), three divisional managing
directors, the director of operations support and development
and HR director whose details are set out below:
Dean Jenkins (40) was appointed the Power & Industrial
Divisional Managing Director on 1 January 2011 and is based in
East Kilbride, UK. 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.
Annual Report & Financial Statements 2011 Directors report 39
Steve Noon (47) 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 (48) 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.
Pauline Lafferty (46) is the Director of Human Resources based at
the Group’s Head Office. Before joining the Group in July 2011,
Pauline spent 13 years in executive search with Miles Partnership
and Russell Reynolds Associates in the UK and Australia. Prior
to this, Pauline held business planning and operational roles for
11 years with Motorola and Digital Equipment Corporation (DEC)
in Scotland, Australia and Hong Kong, ultimately becoming Asia
Pacific Director of Supply for DEC.
Gavin Nicol (51) is the Director of Operations Support &
Development based at the Group’s Head Office. Before joining
the Group Executive in July 2011, he was President of Weir SPM
for two years, based in Fort Worth, Texas. Gavin joined Weir in
2005 and was managing director of the Weir Pumps business
prior to its sale in 2007. Before joining Weir, Gavin worked for
a number of multinationals including the Terex Corporation,
PWC and Coats Viyella.
In the 52 weeks ended 30 December 2011, the Group Executive
Committee met 12 times.
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, John Mogford
until 29 July 2011 and Richard Menell from 29 July 2011.
Melanie Gee will become a member of the Committee and
Committee chairman following the annual general meeting.
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.
• To recommend to the Board the remuneration of the chairman
of the Board.
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 is constituted and operated throughout
2011 in accordance with the relevant provisions of the Code.
The Committee’s terms of reference can be found on the
Company’s website.
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.
The Committee met five times in 2011. The following table
identifies the attendance record of individual directors at the
Committee meetings held during 2011.
Name
Michael Dearden (chairman)
John Mogford
Lord Robertson
Richard Menell
Attendance
5 of 5
3 of 3
5 of 5
1 of 2
40 The Weir Group PLC
Corporate governance
report (continued)
Nomination Committee
The members of the Committee during 2011 were Lord
Smith (chairman), Keith Cochrane, Michael Dearden and Lord
Robertson. Alan Mitchelson acts as secretary to the Committee.
The Committee meets at least twice a year and at other times
when necessary and in 2011 met four times. The following table
identifies the attendance record of individual directors at the
Committee meetings held during 2011.
Name
Lord Smith (chairman)
Keith Cochrane
Michael Dearden
Lord Robertson
Attendance
4 of 4
4 of 4
4 of 4
4 of 4
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. During the year,
following discussion of the recommendations of the Lord Davies
report on boardroom diversity, the Committee determined not
to set a specific female Board member quota. All appointments
to the Board will continue to be based on the diversity of
contribution, experience and required skills, irrespective
of gender.
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 in skills, knowledge and experience of the
Board and prepares a description of the role and capabilities
required for the particular appointment. The Committee also
reviews the succession planning and leadership needs of the
organisation and ensures that, on appointment, all directors
receive a formal contract or letter of appointment as appropriate.
The Committee’s terms of reference are available on the
Company’s website.
Audit Committee
The chairman of the Committee is Stephen King. During 2011,
the other members of the Committee were Melanie Gee from
4 May 2011 and John Mogford. Richard Menell served on the
Committee until 4 May 2011. Alan Ferguson was appointed
to the Committee on 13 December 2011. 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.
The Board is satisfied that Stephen King has recent and relevant
financial experience. As previously announced, Alan Ferguson
will take over from Stephen King as chairman of the Committee.
The Board is satisfied that Alan Ferguson 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’s terms of reference can be found on the
Company’s website.
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
auditors and the level of audit fee.
• Discuss with the auditors the nature and scope of the audit.
• Review the draft interim and annual financial statements before
submission to the Board for approval.
• Discuss any problems and reservations arising from the annual
audit and any matters the auditors may wish to raise.
• Discuss with the auditors the Group’s system of internal
financial controls and any recommendations for improvement.
• Consider the findings of internal investigations and
managements response.
• Oversee the implementation of systems for financial control
and risk management.
• Pre-approve non-audit services provided by the auditor.
• Review the internal audit programme and its implementation.
• Receive and review internal audit reports.
• Review treasury policy.
Annual Report & Financial Statements 2011 Directors report 41
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.
There were four meetings in 2011, in January, March, July
and September. The following table identifies the attendance
record of individual directors at the Committee meetings held
during 2011.
Name
Stephen King (chairman)
Richard Menell
John Mogford
Melanie Gee
Attendance
4 of 4
2 of 2
4 of 4
2 of 2
The Committee maintains a formal calendar of items for
consideration at its meetings and within the annual audit cycle to
ensure that its work is in line with the requirements of the Code.
During the March meeting, the Committee undertook a full review
of the audit with the Group’s auditors.
In the course of 2011, 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 internal audit scope and approach for 2011.
• The Group accounting policies.
• The findings of internal audit reviews.
• The Group’s risk process and the results of the
compliance scorecard.
• The fees for Ernst & Young LLP for 2011.
• The anti-bribery and corruption assurance framework.
• The audit strategy for year end 2011 audit.
• The fraud and error guidelines contained in ISA240.
During 2011, the Committee conducted an in depth review of
the performance of the external auditors with a scope that went
beyond the regular effectiveness review. The review considered,
inter alia, the team, the scope of the audit and overall value for
money provided. The review identified improvement areas which
have been addressed by the external auditors and accordingly
it was not considered necessary to conduct a broader tender
process. In accordance with applicable ethical and professional
standards the external auditors are required to periodically
rotate partners at a Group, divisional or country level in order
to maintain their independence and objectivity with the lead
partner required to rotate every five years. Such changes are
carefully planned to ensure the Company benefits from continuity
of staffing without incurring undue risk or inefficiency. The
Annual Report 2011 is the final signing year for the incumbent
lead partner and during the year the Committee has reviewed
the process to select the new lead partner culminating in the
approval of the appointment for the next five years from 2012.
Having carried out the review described above and having
satisfied itself that the external auditors remain independent
and effective, the Committee recommended to the Board that
Ernst & Young LLP be re-appointed as the Company’s external
auditor for 2012. There are no contractual obligations restricting
the Group’s choice of external auditors and the Committee also
keeps under review the value for money of the audit.
Non-audit fee work conducted by Ernst & Young LLP over the
past year for assurance services amounted to 14% of the total
fees including audit fees. The Committee considers that the
level and nature of non-audit work does not compromise the
independence of the external auditors.
The minutes of each meeting are circulated to the Board.
The Committee’s terms of reference can be found on the
Company’s website.
The Committee maintains a policy on the appointment and role
of the auditors. This includes guidelines on their appointment
which is subject to 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.
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 £1.8m (2010: £1.6m) in respect of 2011 were approved by
the Committee.
42 The Weir Group PLC
Corporate governance
report (continued)
Code of Conduct
The Weir Code of Conduct was launched on the Group’s global
Intranet and the company’s website at the end of December
2010. The Code of Conduct sets out the Group’s commitment
to doing business at all times in an ethical and transparent
manner and explains in practical terms the behaviours and
values expected from all Group employees and how they
can raise concerns or ask questions.
The Code of Conduct is supported by:
• A hotline which is available to all employees to report any
concerns or apparent breaches of the Code of Conduct.
This is a confidential service run by an independent provider.
• Online training modules provide an introduction to the Code
of Conduct and practical scenarios that may be faced by
employees in their day to day work.
• A training module on anti-bribery and corruption which is
mandatory for employees in high risk territories.
• Further training in the form of local ‘Town Hall’ meetings for
individual business units.
The Board and Group Executive Committee regularly review
performance against the Code of Conduct. More information
can be found in the Sustainability report on pages 67 to 68.
Internal control
In accordance with the Turnbull Guidance on internal control,
the Board ensures that there is an ongoing process for
identifying, evaluating and managing the significant risks faced
by Group companies. This process has been in place throughout
2011 and up until the date of this report, applying to all Group
companies but not the Group’s joint ventures. The directors have
overall responsibility for the Group’s system of internal control
and for reviewing its effectiveness. The Board delegates to
executive management the responsibility for designing, operating
and monitoring both the system and the maintenance of effective
internal control in each of the businesses which comprise the
Group. In addition, each operating company is responsible for
the operation of key internal controls and to formally assess the
effectiveness of the internal control environment through the
submission, twice yearly, of the Group compliance scorecard.
An internal audit function is in place to review and challenge the
effectiveness of key internal controls and to suggest relevant
actions to address potential weaknesses. The internal audit
review programme is based on a risk based approach that helps
to prioritise resource upon the areas of perceived greatest risk to
the Group. This process is supplemented by a number of peer
reviews that seek to further monitor and evaluate the process
of internal control and share best practice around the Group.
Internal audit and peer review reports are reviewed by the Audit
Committee which considers and determines relevant action in
respect of any control issues raised.
To support this approach the Group operates a rigorous and
transparent risk management framework which promotes the
use of quality risk information in the development of strategy
and decision making.
The Weir Group risk management framework provides guidance
and focus across the organisation and facilitates the embedding
of risk management practices and culture. The company
managing directors are responsible for the day-to-day control
of risk management within their individual companies. The Group
divisional managing directors are ultimately responsible for risk
management throughout their divisions and ensuring that they
comply with the Group’s corporate risk appetite. The Group’s
risk and control manager is responsible for the co-ordination for
all risk activities within the Group. Each division will assist the
risk and control manager in the flow of risk information and the
active monitoring of the risk management process within their
area of responsibility.
In the first instance, each Group operating company and
business identifies all key risks that might reduce the ability
of that operating company to achieve its business objectives.
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. This risk assessment process and the
accompanying action plans are identified on a risk dashboard
for their respective business. These are reported through the
divisions to the Group Executive Committee on a monthly basis.
Finally, a Group-wide risk dashboard is prepared, which identifies
the key divisional and Group risks. The Group risk dashboard 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 dashboard and how they are managed or mitigated are
summarised on pages 32 to 35.
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.
Annual Report & Financial Statements 2011 Directors report 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:
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 clearly defined organisational structure within which individual
liabilities, financial position and profit of the Group.
• 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
The directors have a reasonable expectation that the Group has
adequate resources to continue to operate 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 113 to 121. Each of these items
has been considered in relation to the Group’s banking facilities
described on page 101.
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 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
29 February 2012
responsibilities are identified and monitored.
• A Group compliance scorecard which records compliance
with policies and procedures.
• Policies and procedures manuals which are in place and
communicated 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 compares results with forecast and the previous year
on a monthly and cumulative basis. Management information
systems provide directors with relevant and timely reports that
identify significant variations from approved forecasts, and
revised forecasts for the 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.
• State for the Company financial statements whether the
applicable UK Accounting Standards have been followed,
subject to any material departures being disclosed
and explained.
The directors confirm that they have complied with the above
requirements in preparing the financial statements.
44 The Weir Group PLC
Remuneration
report
Introduction
In 2011, the Group performed successfully in uncertain macro-
economic conditions. The Group delivered record financial
results and continued to demonstrate significant year on year
growth in revenue and profits. The Group’s full results are
discussed in more detail in the Directors report.
Our successful performance, effective delivery of the Group’s
strategy and strong business model have been reflected in a
rising share price and ranking in the FTSE 100. As we continue
to pursue further growth through organic initiatives and value
enhancing acquisitions, the Remuneration Committee is
committed to ensuring that the remuneration structures in
place remain appropriate to drive our business needs.
During 2011, as a Committee we have reviewed the
remuneration arrangements for the executive directors and
senior managers against the established remuneration policy.
The Committee is satisfied that the remuneration structure
remains appropriate and that the incentive arrangements
are aligned to business strategy.
Actual performance of strategic and financial measures
Bonus Plan - Profit before tax1
£396.3m
Up 34% in 2011
Long Term Incentive Plan - Earnings per share1, 2
133.6p
Up 125%
Share Price Increase2
435%
¹ Continuing operations adjusted to exclude exceptional items and intangibles
amortisation.
² Calculated over the three year performance period relevant for the awards under
the Long Term Incentive Plan made in 2009 showing the relative growth
between 2008 and 2011.
The Committee has adjusted the chief executive’s and finance
director’s base salaries for 2012 observing the commitment
made to shareholders in 2010. Full details of the proposed salary
increases are provided in this Remuneration report. In addition
a clawback provision has been introduced under the bonus
in order to ensure alignment with prevailing market practice.
All other components of the executive directors remuneration
packages remain unchanged.
Membership of the Remuneration Committee
During 2011, the Committee was chaired by Michael Dearden.
The other members were Lord Robertson, John Mogford until
his retirement from the Committee on 29 July 2011, and Richard
Menell, who was appointed a member of the Committee on 29
July 2011. Melanie Gee will become a member of the Committee
and Committee chairman following the annual general meeting.
All members of the Committee are considered independent
non-executive directors. The secretary to the Committee is
Alan Mitchelson.
No individual plays a part in the determination of their
own remuneration.
The Committee is responsible for formulating and implementing
policy on remuneration for executive directors and senior
management. The Committee also has regard to pay and
conditions amongst the wider employee population.
The Committee’s terms of reference can be found on the
Company’s website.
Hewitt New Bridge Street (a trading name of Aon Corporation)
(“HNBS”), having been appointed by the Committee in 2003,
provided independent external advice to the Committee until
September 2011. HNBS provided no other services to the Group.
The Committee undertook a selection process to appoint new
advisors during 2011 and appointed PwC as its independent
external advisors with effect from December 2011. PwC provides
additional services to the Group including advice on the Group’s
pension plans, taxation and valuation of long term incentive
arrangements. In 2011, PwC also provided internal audit
services, due diligence in relation to acquisitions and advice
in relation to the Group’s carbon emissions.
Remuneration strategy and policy for executive directors
The Committee ensures that effective remuneration
arrangements are in place that drive appropriate behaviours
and create alignment with the Group’s strategy and business
objectives. The Committee has adopted the following
policy which forms the basis upon which the remuneration
arrangements have been implemented:
• 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 potential reward through performance-
based incentive plans.
• To ensure the interests of management remain aligned with
those of shareholders, executive directors will be expected to
build a meaningful shareholding in the Company of 100% of
base salary over a five year period. This may be achieved by
purchasing shares or retaining a proportion of share awards
that vest. In addition, executive directors are obliged to convert
part of their bonus into shares under the Group’s Long Term
Incentive Plan (LTIP).
Annual Report & Financial Statements 2011 Directors report 45
Elements of remuneration
The following table provides a summary of the key elements of the executive directors remuneration package:
Element
Objective
Policy
Salary
To provide a competitive base
salary to attract and retain
talented leaders.
Base salaries are reviewed annually by reference to companies of a broadly similar size.
The Committee also takes account of the economic environment and employment
conditions throughout the Group.
In reviewing salaries for 2012 the Committee has taken account of:
• Individual and Group performance.
• Competitiveness against the market.
• Expected general employee pay increases across 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 maximum potential bonus receivable by the chief executive is 150% of salary and
for the other executive directors is 100% of salary.
The bonus opportunity is based on the achievement of a normalised pre-tax profit
performance condition and the Committee takes into account the overall performance
of the Group during the period.
As part of the LTIP, 30% of all executive directors bonuses are compulsorily deferred in
the form of shares into the LTIP (“investment shares”). The chief executive has an option
of voluntarily deferring an additional 25% of his bonus and the other executive directors
may voluntarily defer up to an additional 20% of their bonus into investment shares.
Each investment share may attract the award of up to two matching shares, subject to
the achievement of performance targets over a three year period.
The maximum annual award for all executive directors is 100% of salary. Vesting of
awards is subject to the achievement of the following targets in equal proportion:
• Growth in earnings per share.
• Relative total shareholder return.
Performance against these targets is measured over a three year performance period.
Annual bonus
Bonus payments are intended to
reflect the achievement of agreed
business objectives and positive
contribution to stretching the
performance of the Group.
Long term share
incentives
To incentivise executives to
achieve sustained growth through
superior long term performance
and create alignment with
shareholder interests.
46 The Weir Group PLC
Remuneration
report (continued)
Structure of remuneration
The following charts show the intended elements and
proportions of the remuneration package for the executive
directors relating to 2012. The package is broadly structured
so that at stretch performance between 70% and 75% of the
overall total is delivered through variable pay.
Chief Executive (%)
Maximum remuneration
Target remuneration
0
20
40
60
80
100
Finance Director (%)
Maximum remuneration
Target remuneration
0
20
40
60
80
100
Base Bonus Deferral match LTIP
Salary and benefits
Over the past few years, the Group has grown significantly and
is now more complex and geographically diverse. Our strong
performance has been reflected in the Group’s share price which
has out-performed the market and since 2010 the Group has
improved further its position in the FTSE 100.
As recorded in the 2010 Remuneration report, it is the Committee’s
intention to increase the chief executive’s salary to a target salary
of £725,000 over a three year period, subject to individual and
company performance including, in particular, the Group’s
financial success and the maintenance of its ranking in the
FTSE 100.
In 2010, the Committee made the first adjustment which
resulted in the chief executive’s salary increasing to £650,000
from April 2011. Last year, the Committee made a commitment
that any further significant increases would be made after prior
consultation with the representative bodies of the Group’s
major investors, the Association of British Insurers (“ABI”) and
Research, Recommendations and Electronic Voting (“RREV”).
In light of the chief executive’s performance, which has continued
to be of a high standard and is reflected by the Group’s
continued strong performance and enhanced FTSE position,
after consultation with the ABI and RREV, the Committee has
agreed to proceed with the planned adjustment in 2012 which
will result in the chief executive’s salary increasing to £700,000.
It remains the Committee’s intention to make the final adjustment
to the chief executive’s salary in 2013. The Committee will
continue to keep the chief executive’s salary level under review
and will ensure that it remains competitive with the market and
fully reflects the performance of the individual and that of the
Group in making the decision.
The Committee has also decided that an adjustment be made
to the finance director’s salary from £400,000 to £420,000,
an increase of 5%. The Committee took account of the finance
director’s individual performance as well as that of the Group.
The legal & commercial director’s salary will remain unchanged
at £350,000 as he will not be standing for re-election at the
2012 annual general meeting.
All salary adjustments will take effect from April 2012. The
Committee continues to be conscious of the need to pay no
more than is appropriate to attract and retain key individuals.
In determining the adjustments to the executive directors
salaries, the Committee has considered the increases to pay
levels across the broader employee population, which range
from 2% to 5% in the UK depending on individual performance
and circumstances.
Executive directors also receive other benefits which are the
provision of a car allowance, participation in a Group health
care scheme, travel allowance and death in service insurance.
Annual Report & Financial Statements 2011 Directors report 47
Bonus
Under the Group’s annual performance-related bonus scheme,
the maximum potential bonus receivable by the chief executive
is 150% of salary and for the other executive directors is 100%
of salary.
Annual bonus awards were based on normalised pre-tax profit
targets and for the 2011 performance year, the range was set at
a level significantly above that achieved by the Group in 2010,
with entry-level bonus payable for exceeding 2010 performance
by a considerable margin. In 2011, Group profits exceeded the
superior performance level and as a result, the bonus award
was paid in full. The Committee also took account of the overall
performance of the Group during the period.
In 2011, executive directors were required to defer 30% of
their bonus in the form of shares into the LTIP. In addition, the
chief executive has an option to defer voluntarily an additional
25% of his bonus, while the finance director and the legal &
commercial director may defer voluntarily an additional 20% of
their bonuses in the form of shares into the LTIP. These shares
may be matched on the achievement of a performance condition
calculated over a three year period.
For 2012, the bonus will continue to be based on a stretching
pre-tax profit target. In accordance with good practice, a
clawback provision has now been introduced into the bonus
scheme, which will enable the Company to clawback all,
or a proportion of, the bonus paid in the event of a material
misstatement of the Company’s financial results for any of the
previous three financial years. The Committee will have the
discretion to effect the clawback by retaining all or part of the
current bonus awards including any part of the bonus that will
be deferred into the LTIP and any matching element.
The Group cascades the bonus structure described above,
including a deferred element, to key employees below
Board level.
Long Term Incentive Plan
During 2011, the Company continued with its annual grant policy
under the LTIP. Details of each award are as follows:
• Performance shares are conditional awards of shares subject
to Group performance and continued employment until the
third anniversary of the award. In 2011 awards were made
up to a maximum of 100% of salary, in accordance with the
normal grant policy.
• Executive directors are required to compulsorily defer an
element of any Group bonus earned in exchange for which they
are awarded investment shares. In addition, executive directors
are also allowed to voluntarily convert a further proportion of
their Group bonus into Weir Group shares.
• Matching shares are conditional awards to acquire free shares,
subject to Group performance and continued employment until
the third anniversary of the award. As in 2011, matching shares
may be awarded up to a maximum of two times the pre-tax
value of the deferred bonus “invested”, both on a compulsory
and voluntary basis, under the LTIP.
In addition, since 2011, the performance share awards, the
compulsory investment share awards and the matching share
awards have the right to receive the equivalent to the dividends
that participants would have received as shareholders from
the date of the LTIP award to the award’s vesting date.
These equivalents will be made in the form of shares.
The awards are based on the Group’s share price, using the
average published closing price for the three dealing days
immediately preceding the date of award.
The vesting of conditional awards of performance and matching
shares is subject to the satisfaction of highly demanding
performance conditions as described on page 48.
During 2011, 100% of the 2008 LTIP award vested as the
Company’s TSR ranked first in the comparator group applicable
for the 2008 award.
For 2012, awards will continue to be granted up to a maximum
of 100% of salary.
48 The Weir Group PLC
Remuneration
report (continued)
Performance criteria
Performance share awards and matching share awards made in
2011 under the LTIP were subject to the following performance
conditions. Fifty per cent of each award is based on an earnings
per share (“EPS”) growth target and the other fifty per cent of the
award is based on the growth in the Group’s total shareholder
return (“TSR”) against the TSR of a comparator group of peer
companies. Both performance conditions are measured over
a single three year performance period.
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 EPS targets for awards made in 2011 and in 2012 under
the LTIP are shown 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%
The EPS targets for LTIP awards made in 2010 are
shown below.
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%
The EPS growth measure is adjusted to exclude intangibles
amortisation and exceptional items.
The relative TSR performance measures for 2011, 2012 and
earlier awards that remain outstanding were as follows:
Relative Total Shareholder Return
growth against comparator group
% of the Total Shareholder Return
portion of the award which vests
Upper quintile
Median
Below median
100%
25%
0%
TSR is based on performance over three consecutive financial
years, beginning with the year in which the award is made.
Between upper quintile and median performance, awards vest
on a sliding scale basis. The TSR calculation is performed by
PwC for the Committee at the time of vesting.
The Committee considers that these are a demanding range
of targets.
For awards made in 2011, the Committee introduced a new
comparator group of UK and international peer companies
for the TSR condition. The group comprises 40% UK-based
companies, 40% US-based companies with the remainder
based in Europe. The market capitalisations of these
companies range from approximately £3bn below the
Group’s market capitalisation to approximately £3.5bn
above as at 30 December 2011.
The comparator group comprises:
Company
AMEC
Cookson Group
Halma
IMI
Meggitt
Melrose
Rotork
Smiths Group
Sprirax-Sarco Engineering
Wood Group
Crane
Dover
SPX
Cameron
Dresser Rand
FMC
Gardner Denver
Lufkin
FL Smidth
Joy Global
Metso
Outotec
Flowserve
Sulzer
Country of
Main listing
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
US
US
US
US
US
US
US
US
Denmark
US
Finland
Finland
US
Switzerland
Rationale
UK engineer
UK engineer
UK engineer
UK engineer
UK engineer
UK engineer
UK engineer
UK engineer
UK engineer
UK engineer
Gen. Ind.
Gen. Ind.
Gen. Ind.
O&G peer
O&G peer
O&G peer
O&G peer
O&G peer
Mining peer
Mining peer
Mining peer
Mining peer
P&I peer
P&I peer
During the course of the performance period the Committee
may, in its absolute discretion, vary, add, remove or alter the
companies making up the comparator group where events
happen which cause the Committee to consider that such
change is appropriate to ensure a fair measure of performance.
The comparator group for awards made in 2012 will comprise
the same companies as those in the comparator group for the
2011 awards. Charter plc was acquired during 2011 and has
been replaced by AMEC plc for both the 2011 and 2012 awards.
For awards made under the LTIP in 2010 and earlier years,
the comparator group comprised 16 UK companies: 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.
Annual Report & Financial Statements 2011 Directors report
49
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.
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-executive directors who served during the year are:
Director
Contract
commencement date
Expiry of
current term
Notice period
by Company
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
£129,600.
Lord Smith
Michael Dearden
Lord Robertson
Stephen King
John Mogford
Richard Menell
Melanie Gee
Alan Ferguson
6 February 2002
17 February 2003
1 February 2004
3 February 2006
1 June 2008
1 April 2009
4 May 2011
13 December 2011
May 2012
May 2012
May 2012
May 2012
May 2012
May 2012
May 2012
May 2012
6 months
6 months
6 months
6 months
6 months
6 months
6 months
6 months
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.
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 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
May 2012
12 months
12 months
12 months
12 months
50 The Weir Group PLC
Remuneration
report (continued)
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. No executive director received
remuneration for external appointments during 2011.
Remuneration of the chairman and non-executive directors
The chairman’s fee 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 PwC. 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 fees are
reviewed annually by the Board. With effect from 1 April 2011,
fees for the respective non-executive positions were: Chairman
£250,000 (2010: £182,500) and non-executive directors
£50,000 (2010: £45,000). Additional fees paid to the chairmen
of the Audit and Remuneration Committees are £10,000
(2010: £7,500). The fee paid to Michael Dearden in respect
of his role as senior non-executive director is £5,000
(2010: £2,500). There will be no increases to fees in 2012.
Total shareholder return
The graph below illustrates the performance of the Company
against the FTSE 100 Share Index and the comparator group
used in the LTIP awards for 2011. The Board believes that these
measures represent an appropriate and fair comparator against
which to measure the Group’s performance for this purpose.
The Weir Group PLC
FTSE 100 Index
LTIP Comparator Group
600
500
400
300
200
100
2007
2008
2009
2010
2011
This chart shows the value as at 30 December 2011 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 and the average of the comparator group
used in the LTIP for the awards in 2011. The other points are the values at the
intervening financial year ends.
Annual Report & Financial Statements 2011 Directors report 51
Directors interests
The interests of the directors in the ordinary shares of the Company as at 30 December 2011 and at the end of the preceding financial
period were as follows:
Lord Smith
Keith Cochrane
Michael Dearden
Alan Ferguson
Melanie Gee
Stephen King
Richard Menell
Alan Mitchelson
John Mogford
Jon Stanton
Lord Robertson
As at 30 December 2011
As at 31 December 2010
Shares LTIP awards
Shares LTIP awards
159,000
120,658
10,000
-
-
50,050
1,000
219,641
7,981
3,000
10,000
-
366,314
-
-
-
-
-
238,062
-
70,850
-
155,900
66,522
10,000
-
-
50,050
1,000
180,299
7,981
3,000
10,000
-
374,687
-
-
-
-
-
278,597
-
30,204
-
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. There have been no changes to the directors interests between 30 December 2011 and 29 February 2012.
Directors remuneration#
Chairman and non-executive directors:
Lord Smith
Michael Dearden
Alan Ferguson
Melanie Gee
Stephen King
Richard Menell
John Mogford
Lord Robertson
Former director
Executive directors:
Keith Cochrane
Alan Mitchelson
Jon Stanton
Previous year comparatives
# Audited
Salary
& Fees
£
Bonus
(note 5)
£
Benefits
(note 6)
£
Notes
Total 2011
£
Total 2010
£
1
2
3
4
233,125
62,500
6,288
32,930
58,125
48,750
48,750
48,750
-
539,218
-
-
-
-
-
-
-
-
-
-
489
-
-
-
-
-
-
-
-
233,614
62,500
6,288
32,930
58,125
48,750
48,750
48,750
-
182,980
53,750
-
-
51,250
43,750
43,750
43,750
17,083
489
539,707
436,313
625,000
344,127
392,500
975,000
350,000
400,000
21,645
14,457
14,457
1,621,645
708,584
806,957
1,259,646
665,887
732,573
1,900,845
1,725,000
51,048
3,676,893
3,094,419
1,571,657
1,277,279
245,483
Notes
1. The fees for Michael Dearden include £10,000 for services as chairman of the Remuneration Committee (2010: £7,500) and £5,000 for his role as senior independent director (2010: £2,500).
2. Alan Ferguson was appointed on 13 December 2011.
3. Melanie Gee was appointed on 4 May 2011.
4. The fees for Stephen King include £10,000 for services as chairman of the Audit Committee (2010: £7,500).
5. The bonus figures for Keith Cochrane and Jon Stanton include £292,500 (2010: £206,250) and £120,000 (2010: £78,980) respectively, which will be compulsorily deducted from their bonus
in exchange for which they will be awarded investment shares which, subject to remaining employed with the Group, will be receivable on the third anniversary of the 2012 award. Alan Mitchelson
will be paid his bonus in full and no amount will be compulsorily deducted (2010: £97,953).
6. Benefits include, as appropriate, car allowance, participation in the Group health care scheme, travel allowance and death in service insurance.
52 The Weir Group PLC
Long term incentive awards#
Number of
shares under
award as at
1 Jan 2011
Date of
award
Shares
granted
during
year
Notes
Shares
lapsed/did
not vest
during
year
Shares
Number of
exercised shares under Market price Market price Market value
at date of
at date of
vesting
award
award as at
30 Dec 2011
at date of
vesting
during
year
Normal exercise period
(note 3)
Keith Cochrane
Performance &
matching shares
Compulsory
investment shares
Alan Mitchelson
Performance
& matching shares
Compulsory
investment shares
Jon Stanton
Performance
& matching shares
Compulsory
investment shares
# Audited
1 25 Mar 08
08 May 08
16 Mar 09
15 Mar 10
6 17 Mar 11
25 Mar 08
16 Mar 09
15 Mar 10
6 17 Mar 11
1 25 Mar 08
08 May 08
16 Mar 09
15 Mar 10
6 17 Mar 11
25 Mar 08
16 Mar 09
15 Mar 10
6 17 Mar 11
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
-
-
-
-
83,161
-
-
-
13,162
96,323
-
-
-
-
34,838
-
-
-
6,251
41,089
1 09 Aug 10
6 17 Mar 11
30,204
-
-
35,607
6 17 Mar 11
-
5,040
30,204
40,647
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
86,101
8,699
-
-
-
9,896
-
-
-
104,696
66,611
7,354
-
-
-
7,659
-
-
-
81,624
-
-
155,257
84,838
83,161
-
19,715
10,181
13,162
366,314
-
-
124,995
49,581
34,838
-
16,666
5,731
6,251
238,062
730p
900.5p
400p
923p
1606p
730p
400p
923p
1606p
730p
900.5p
400p
923p
1606p
730p
400p
923p
1606p
1733p £1,492,130
1896p
£164,933
-
-
-
-
-
- 16.03.12 - 16.06.12
- 15.03.13 - 15.06.13
- 17.03.14 - 17.06.14
1733p
-
-
-
£171,498
-
- 16.03.12 - 16.06.12
- 15.03.13 - 15.06.13
- 17.03.14 - 17.06.14
1733p £1,154,369
1896p
£139,432
-
-
-
-
-
- 16.03.12 - 16.06.12
- 15.03.13 - 15.06.13
- 17.03.14 - 17.06.14
1733p
-
-
-
£132,730
-
- 16.03.12 - 16.06.12
- 15.03.13 - 15.06.13
- 17.03.14 - 17.06.14
30,204
35,607
1240p
1606p
5,040
1606p
70,851
-
-
-
-
-
-
-
-
-
09.08.13 - 09.11.13
17.03.14 - 17.06.14
17.03.14 - 17.06.14
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 page 48.
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 to 30 December 2011.
4. On 25 March 2011 and 13 May 2011, the 2008 awards under the LTIP vested in full. As a result Keith Cochrane and Alan Mitchelson exercised their awards as set out above, selling 54,245 and
42,282 shares respectively to pay the relevant tax and national insurance and retaining the balance. The aggregate gains made on all award exercises by directors during the year totalled £3,255,092
(2010: £961,474).
5. The closing market price of the Company’s shares at 30 December 2011 was 2032p and the range for the year was 1375p to 2218p.
6. The awards granted in 2011 have a right to receive dividend equivalents in the form of shares payable at vesting.
Annual Report & Financial Statements 2011 Directors report
53
Directors pension benefits#
Alan Mitchelson was a member of a defined benefit scheme provided by the Group during the year 2011. Keith Cochrane and Jon
Stanton are responsible for their own pension provision. Pension entitlement and the corresponding transfer values were as follows
during the year:
Accrued
pension as at
1 January
2011
£
Notes
Increase
in accrued
pension
during the
period (net
of inflation)
(note 8)
£
Increase
in accrued
pension
during the
period
£
Accrued
pension
as at 30
December
2011
(note 1)
£
Transfer value
of accrued
pension as
at 1 January
2011
£
Change in transfer
value of accrued
pension during
the year net of
directors ordinary
contributions
(note 3)
£
Transfer value
of accrued
pension as at
30 December
2011
(note 2)
£
Transfer value
of increase
(net of
inflation) (note
2 & 8)
£
Directors
ordinary
contributions
£
Alan Mitchelson
4, 5, 6, 7
37,552
2,870
1,931
40,422
840,827
138,530
4,450
983,807
46,997
# 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 year.
2. With effect from 1 October 2008, Government legislation requires the trustees (having taken actuarial advice) to take responsibility for setting the assumptions underlying the calculation of voluntary
transfer values to be paid from the plan. Prior to this date the scheme actuary had this responsibility. Consequently, the transfer value of the accrued pension at the year end has been calculated in
accordance with this revised requirement.
3. The change in the amount of the transfer value over the year is made up of the following elements:
a. transfer value of the increase in accrued pension
b. increase in the transfer value of accrued pension at year start due to ageing
c. impact of any change in the economic or mortality assumptions underlying the transfer value basis – as referred to in 2. above
d. less the director’s ordinary contributions
4. The change in the amount of the transfer value over the year includes the effect of fluctuations in the transfer value due to factors beyond the control of the Group and directors, such as stockmarket
movements; which will be reflected within 3c above. The inflation measure for leavers during 2011 with at least one year to their normal retirement date was 2.5%. Consequently, the rate of inflation
assumed in the above figures is 2.5%.
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 for Alan Mitchelson allow for the impact of the plan specific earnings cap and his 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
29 February 2012
54 The Weir Group PLC
Annual Report & Financial Statements 2011 Directors report
Sustainability
report
The Group
considers
sustainability a
key part of its
strategy and
recognises its
importance
in delivering
shareholder value.
Our sustainability
approach is
embedded in our
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
55
How is this
delivered?
The Board sets the
strategy for each of
these areas, with the
responsibility for
implementation resting
with the Group Executive
Committee. Progress
and performance is
managed and monitored
through the Corporate
Sustainability Steering
Committee, comprising
specialist representation
and expertise from
across the Group.
During 2011, the
Committee was led by
the Group Legal and
Commercial Director.
Environment
The Weir Group is committed to achieving the
highest environmental standards. Our businesses
have been focused in 2011 on achieving ISO 14001
certification with all existing businesses now fully
accredited. Our operating companies have
established sustainability committees to ensure
consistent best practice in environmental
performance and identify and implement
carbon reduction projects.
Health & safety
Employee health and safety is of paramount
importance to the Weir Group. The Group is
committed to zero accident workplaces. During
2011, we have introduced an Environmental,
Health and Safety (EHS) excellence committee
to drive best practice throughout the Group,
set global EHS standards and provide consistent
benchmarking of health and safety performance.
Employees
One of the foundations of a sustainable business
is the ability to recruit, develop and retain good
quality people. During 2011, substantial investment
was made in establishing a strong development
framework to ensure a robust talent pipeline exists
to serve the present and future needs of the
business. The Weir Leadership Programme,
Emerging Leaders Programme and the Graduate
Development Framework provide appropriate
development opportunities for employees at
different stages of their careers, with the shared
aim of supporting the needs of a growing and
increasingly complex organisation. Support for
technical and engineering skills also progressed
in 2011, with the online Weir University accessible
to employees across our operations, facilitating
the delivery of best practice.
Communities
Weir respects the communities in which it operates
and during 2011 a number of new and existing
projects worldwide recognised our ongoing
obligation to minimise our environmental impact
and invest in local communities. As a global
company doing business in more than 70 countries,
we have a consistent framework in place to guide
our community investment activities.
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. Our research
activities, enhanced during 2011 by the
establishment of the Weir Advanced Research
Centre, are geared towards developments in
materials technology and reducing energy usage,
ensuring that Weir innovation activity is aligned with
customer demands and corporate sustainability
goals. Our Engineering Excellence Committee
continually aims to enhance energy efficiency
in our products both through the design and
manufacturing process and in customer operations.
Ethics
Doing business in the right way is the only way in
which the Weir Group operates. The Group Code of
Conduct, anti-bribery and corruption training and an
ethics hotline ensure that all employees understand
how to adhere to the Group’s zero tolerance policy
on ethical breaches. We recognise that corporate
behaviour is a factor that is taken increasingly
into account by investors, existing and potential
customers and present and future employees.
Ensuring Weir operates with the highest standards
of ethical behaviour is a key focus for all leaders
in our business.
56 The Weir Group PLC
Sustainability report
1: Environment
The Group aims to continuously reduce its impact
on the environment in two main ways. First, by
improving the environmental performance of
our operations and secondly, through time by
enhancing the energy efficiency of our products.
Our main environmental impacts include
greenhouse gas (GHG) emissions; material and
solvent usage; and waste products. Emissions are
identified and managed through our Environmental
Management System (EMS) which is certified to ISO
14001 standard. We monitor upcoming legislation
and share best practice across our operations.
ISO 14001
All our continuing operations are ISO 14001
accredited or, in the case of new acquisitions,
a plan is put in place to achieve accreditation
during the integration process. ISO 14001 is an
internationally recognised specification for an
environmental management system which
helps organisations achieve environmental
and economic goals as well as assisting in the
implementation of environmental policy. It provides
assurance that our environmental performance
meets and will continue to meet legal and
environmental policy requirements.
Carbon footprint
The Weir Group is an energy intensive business,
due to the requirement for electricity and gas
for industrial manufacturing operations across a
global footprint. However, when compared with
sector peers against the latest available data,
we rank above average in terms of our tonnage
by turnover performance.
The Group’s absolute emissions have increased
year on year. This increase is attributable to the
growth of the Group during 2011 and its increased
output. On a tonnage by turnover basis, the Group
has decreased its carbon footprint this year by
12% compared with 2010.
The majority of the Group’s greenhouse gas
emissions come from electricity and gas use at
our facilities (67%, 2011). Our foundries, the most
energy intensive area of our operations, produce
66,600 tonnes of carbon dioxide equivalent1
(CO2e), equal to 40% of the Group total.
In 2011, sustainability committees at each of
the Group’s operating companies have been
challenged to identify and implement three carbon
emission reduction projects, adding new projects as
each is completed. Over time this will start to have
an impact on the Group’s overall carbon footprint.
Our carbon emissions are reported in accordance
with the principles of the World Business Council
for Sustainable Development and the World
Resources Institute’s Greenhouse Gas Protocol
(“GHG Protocol”). The GHG Protocol categorises
emissions as follows:
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 Weir Group reports on its Scope 1 and
2 emissions, as defined in the GHG Protocol.
Approximately 5% of the emissions data provided
is derived, or partly derived, from estimates.
The Group’s total carbon footprint for 2009, 2010
and 2011 for continuing operations is as follows:
Total CO2 tonnes (‘000)
120
133
165
200
150
100
50
2009
2010
2011
The Group’s total carbon footprint by turnover for
the years 2009, 2010 and 2011 is as follows:
tCO2e/£m
85
82
72
100
80
60
40
20
2009
2010
2011
1 Greenhouse gas emissions are reported as tonnes of CO2
equivalent (abbreviated as tCO2e), based on the Global Warming
Potential (“GWP”) of each of the “basket of six” greenhouse gases,
as defined by the Kyoto Protocol. The GWP of CO2 is 1 (1 tonne
CO2 = 1 tonne CO2e). For other greenhouse gases in the “basket
of six”, including refrigerants, the GWP is relative to CO2 over
a 100-year time horizon (eg one tonne of the refrigerant R407C
is equivalent to 1,526 tonnes of CO2 in terms of the potential
climate change impact).
Annual Report & Financial Statements 2011 Directors report
2011
1,436
tonnes of wood recycled
at our foundries
20,000
tonnes of metal recycled in our
foundry operations
24%
increase in internal recycling
at our foundries
500
tonnes of landfill waste
recycled at Weir SPM,
Fort Worth
57
Foundry recycling
The Group’s five foundries recycled 20,000 tonnes
of metal in 2011 of which 18,000 tonnes is metal
recycled internally. This means that on average 61%
of the metal poured at our foundries is recycled.
The amount recycled internally has increased by
24% on 2010. The results of the foundry recycling
can be seen in the following graph:
Environmental initiatives
Weir SPM, Fort Worth
A recycling programme was introduced at Weir
SPM to reduce the amount of waste going to
landfill. To date, that has resulted in a reduction
of 500 tonnes, including 238 tonnes of wood
and 175 tonnes of paper and cardboard.
Weir Minerals Brasil
At Weir Minerals Brasil, water consumption has
been reduced from 8m³ per tonne of metal cast
to 5m³ per tonne. In addition, the site’s biomass
boiler uses waste wood which would otherwise
be sent to landfill.
2009
2010
2011
Foundry recycling (‘000 tonnes)
20
18
16
14
12
10
8
6
4
2
Carbon reduction commitment (CRC)
The carbon reduction commitment (CRC) energy
efficiency scheme is the UK’s mandatory climate
change and energy saving scheme. The scheme,
targets large organisations whose emissions are
currently not included in any European energy
trading schemes or Climate Change Agreements.
The Group is a participant in the CRC scheme,
and during 2010 the UK operations started detailed
monitoring of all electricity, gas and diesel use for
the CRC scheme. The first phase footprint report
and the first annual report of our emissions under
the CRC scheme was completed in July 2011.
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.
Weir Minerals Europe
Reducing the environmental impact on the local
community led to Weir Minerals Europe investing
in silencers for all external fans and the planting
of 50 trees on the site to reduce noise to the
surrounding community.
Weir Gabbioneta
Weir Gabbioneta operates two production sites
that are three kilometres apart. Transporting people
between the two sites was previously carried out
by car but in 2011, was replaced by six electric
quadricycles, with an estimated reduction in carbon
dioxide emissions equivalent to three tonnes a year.
The Gabbioneta Quadricycle
Weir Minerals Peru
In March 2011, the Peruvian Environment Minister
awarded Weir Minerals Peru with first place in the
waste management category in national awards
for the ‘most eco-efficient enterprise in Peru’ for
its work in recycling glass, paper, wood and used
electronic equipment for local charities.
58 The Weir Group PLC
Sustainability report
2: Health & Safety
The safety of Weir’s employees is the highest priority for every member of the
Senior Management Group. The Group is committed to an accident-free health
and safety environment based on the belief that all accidents are preventable.
The core elements of our approach to safety are:
— an EHS system designed specifically for the applications
we operate.
— adoption of a behavioural safety ethos which promotes
risk assessment of all tasks, no matter how routine they
may appear.
— enforcement of a clear chain of command and
responsibility in EHS issues.
— robust improvement plans at business, divisional and
Group level.
— implementation of best practice by sharing effective
initiatives across the Group.
The EHS excellence committee
EHS Excellence Committee
During 2011, Weir established the Environment,
Health and Safety (EHS) excellence committee
to focus on EHS issues across the Group. The
committee has Group Executive Committee level
leadership through the director of operations
support and development and involves senior
managers from across the Group from operational,
human resource and legal functions.
Since it was established, the committee has led
the development of a Weir EHS System which has
been deployed throughout all operating companies.
A leading global consultancy has undertaken a
programme of external audits of EHS performance
from which global minimum standards will be
developed and improvement plans created and
implemented to bring all businesses in line with
the requirements of the Weir EHS System.
In addition, the committee appointed divisional
champions to monitor and drive the environmental
and health and safety agenda, ensuring employees
understand best practice and their EHS obligations.
The committee has also developed the planned
introduction in 2012 of a Weir behavioural safety
system to reinforce the culture of zero tolerance
to workplace accidents.
Weir Environment, Health and Safety
(EHS) System
The development of a Weir EHS system began
during 2011 to set out global standards for areas
including behavioural safety, operational control of
risk, fire and environment. It is deployed to deliver
the following outcomes:
• Deliver a set of consistent minimum EHS
standards across Weir companies.
• Develop measurable and proactive indicators
of EHS performance.
• Develop methodology to identify top EHS
performers to share best practice approaches
across the Group.
Annual Report & Financial Statements 2011 Directors report 59
OHSAS 18001
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
consistently and accurately identify hazards
and risks within their operations.
Our existing businesses have achieved accreditation
and all new acquisitions have detailed plans to
achieve OHSAS 18001 within an agreed timescale.
Lost Time Accidents
Weir is focused on a zero-accident culture. 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 three days,
choosing a definition of “incidents resulting in lost
time of more than four hours”. The results for 2009,
2010 and 2011 are as follows:
Case studies
Hand, wrist and finger injury
Interactive workshops took place during the year
to establish the main issues in relation to hand,
wrist and finger injuries – a common cause of
injury throughout the industry. Three main factors
underpinning health and safety in this area were
established: body mechanics/ergonomics, tooling
selection and job safety analysis/‘Point of Work’
risk assessment.
Safe acts audits
‘Safe Acts Audits’ focus on observing an employee
for 15 minutes in their working environment and the
behaviours the employee is demonstrating. Team
leaders and supervisors of the pump assembly
team at Weir SPM’s Fort Worth facility conduct
these audits weekly, completing an average of 40
audits per week. The data gathered from the audits
is used to establish where additional behavioural
training is required.
55
40
26
60
50
40
30
20
10
2009
2010
2011
A safety debrief for members of Weir SPM’s pump assembly team
The reasons underlying the rise include record
activity levels across our operations alongside
a higher workforce headcount with around 2,000
new employees joining the Group.
With effect from 2011, the Group has started
to report its safety performance based on Total
Incident Rate (TIR). This measures medical
treatment of any kind required by employees,
divided by 200,000 hours worked. It is a standard
safety measurement methodology widely employed
across industry. The 2012 annual report will publish
the Group’s performance against this measure.
Weir Minerals North America
Weir Minerals in Madison, Wisconsin provides
employee information on health issues such as
breast cancer awareness, smoking cessation and
diabetes. They also run safety tool box meetings
and operate an Employee Assistance Programme
(EAP) which provides employers and employees
the opportunity to manage issues before they
become serious and impair work performance.
The EAP provides employees the opportunity
to seek treatment for specific problems such as
depression, anxiety and marital or family problems.
Weir BDK
Weir BDK in Hubli, India offers all employees access
to an occupational health centre which provides
various medical checkups, including eye test and
colour vision, pulmonary function tests, audiometric
tests, chest x-rays and physical fitness. The centre
also offers the local community subsidised medicines
and treatment and organises health and blood
donation camps.
60 The Weir Group PLC
Sustainability report
3: Employees
The Group recognises the importance of
motivated and effective people to ensure the
sustainable success of the business. We are
committed to attracting and retaining the best
people available for the role and developing them
to achieve their potential.
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 fulfil
those requirements.
• 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.
During 2011, important steps were put in place
to establish a comprehensive management and
leadership development framework for the Group,
providing a talent pipeline capable of supporting
the present and future needs of the business.
Weir Leadership Programme
The Weir Leadership Programme was launched
at the start of 2011 to develop high performing
leaders and strategic awareness in order to further
leverage the delivery of Weir’s strategic agenda.
Programme participants are drawn from the Senior
Management Group (SMG) with around 100 senior
managers taking part so far. The SMG is a group
of around 300 senior employees from across the
Weir Group who are key to the development and
delivery of the Group’s strategy. The programme
is designed around practical business challenges
and peers from across the Group’s operations
collaborate and support each other in facilitated
learning groups. All Senior Management Group
members will participate in the programme,
which runs until the end of 2013.
Emerging Leaders Programme
The Emerging Leaders Programme was launched
in 2011 for nominated managers and employees
who are identified as potential senior Weir leaders
of the future. Designed in conjunction with a
leading business school, the programme is tailored
to delivering the Weir Way and covers critical
management areas including leading people in
organisations, financial management, commercial
awareness, operations management, innovation
and project management. Completion of the
programme leads to a postgraduate Certificate in
Management and the opportunity for participants
to obtain a Masters in Business Administration
(MBA) qualification.
Annual Report & Financial Statements 2011 Directors report 61
100
senior managers take part
in the Weir Leadership
Programme
75
graduates recruited in 2011
Graduate Development Framework
During 2011, Weir recruited a total of 75 graduates
from a variety of professional disciplines, including
engineering, across the Group. The Graduate
Development Framework provides a consistent
development programme to provide graduates
within Weir with a broad knowledge and
understanding of the business.
A successful pilot graduate development programme
took place in September for 12 nominated graduates
from the UK, Canada, India, Italy, North America,
and South Africa, enabling participants to gain a
wider understanding of the Weir Group and share
in joint development activities.
Weir University
The Weir University was launched at the end of
March to provide all employees with online access
through the Weir Intranet homepage to continuous
professional development resources. With an initial
focus on Weir’s areas of technological competitive
advantage and supporting engineering skills and
resources, courses on metallurgy, failure analysis,
corrosion and finite element analysis (FEA) were
the first to be made available.
In addition, a new learning management system is
available for the majority of staff across the group,
providing access to online learning courses, books,
simulations and video clips.
Weir Aspire
Weir Aspire, an HR Information system, was
made available to all members of the Senior
Management Group and Head Office employees.
The introduction of this system is to help bring
a consistent and more efficient way of capturing
key employee information, carrying out annual
performance and development reviews and
supporting the succession planning process.
“To see how serious
the Group is about our
development as graduates
really motivated me. I realised
that graduates are not just
young people who are at the
bottom of the chain but they
are regarded as the future of
this organisation.”
Pauline Mohlala, Graduate, Weir Minerals Africa
The graduates who
attended the pilot graduate
development programme
62 The Weir Group PLC
Sustainability report
3. Employees (continued)
Succession planning
The initiatives rolled out in 2011 combine to establish
a robust management and leadership development
framework. This framework, in part, is designed
to contribute to the Group’s succession planning
process across its businesses, by identifying and
matching at an early stage, where human capital
is required to enhance the Group’s capability.
Particular focus has been brought to succession
planning across the Senior Management Group,
the key leaders across the organisation.
Case studies
Weir Minerals Africa
Graduates with Weir Minerals Africa provide
community service to non-profit charitable
organisations as part of their development
programme. In 2011, the graduates collected
clothing, books and food from Weir staff which
were donated to the Kingdom Life orphanage.
The graduates also provided maths lessons to
groups of disadvantaged students in five local
high schools.
Senior Management Group
During 2011 further regional meetings were held
of the Senior Management Group in Europe,
North America, and Malaysia. These meetings
provided the chief executive with the platform
to communicate face-to-face with the global
leadership team and discuss and drive forward
the strategic agenda.
Group conference
The theme of the 2011 Group conference was
’Accelerating Growth’. Weir Managing Directors
and other senior managers came together for two
days of strategy workshops and plenary sessions
to establish a shared vision for delivering the next
phase in the development of the Group.
Engineering Directors
The global Engineering Directors Conference
in Sydney, Australia brought together senior
engineers from across the Group to discuss how
collaboration and innovation can be advanced in
Weir’s engineering activities. The event provided a
focus for sharing the 2011 work of the Engineering
Excellence Committee and developing the
technology agenda for 2012 and beyond.
Two of the graduates helping the children of the
Kingdom Life orphanage
Weir India
Under the Weir Higher Education Scholarship
Scheme established in 2010, a number of children
of employees receive scholarships towards their
higher education.
Weir Group SMG regional
meeting, Kuala Lumpur 2011
Annual Report & Financial Statements 2011 Directors report Sustainability report
4: Communities
63
£ 35,000
invested in building a new
school block in Gokul, India
Weir recognises its obligation to respect and invest
in the communities where its operations have an
impact. Our investment should have a sustainable
impact on a community, should be aligned with the
sustainability goals of our business and delivered
together with local organisations.
£ 422,300
donated to charity by the group
companies in 2011
Our opportunities to invest are identified through
contact with local people and organisations. We
work closely in delivery with local charities and
community groups.
Charitable donations
The total charitable donations of Group companies
made during the financial year was £422,300
(2010: £333,900), as shown below:
Community
77%
Education
16%
Health
10%
Our Code of Conduct sets out that the Weir Group
companies will be ‘good citizens’ by:
• 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.
Key themes for our community investment
are education and health. These are enduring
priorities for communities worldwide and focused
investment, whether at early years or adult level,
can make a profound difference to individuals and
their communities.
The Group’s Code of Conduct prohibits political
contributions and therefore no political donations
were made during the period.
Case studies
Education
The Weir Group PLC
During 2011 the Weir Group sponsored the
purchase of eight Rapman 3D kits for use in the
Young Engineers and Science Clubs throughout
Scotland. The Royal Academy of Engineering, the
Scottish Council for Development and Industry
and the University of Strathclyde Department of
Design, Manufacture and Engineering Management
invited the clubs to participate in an innovative rapid
prototyping project to build the 3D printers using
the kits and then come up with a project to use the
3D printers to manufacture anything from jewellery
to parts for underwater robots. The project aimed
to motivate and excite school pupils and improve
young people’s knowledge of, and attitude to,
21st century manufacturing.
Lord Smith, Chairman,
visiting a school in Aberdeen
to see one of the Rapman
3D kits used by aspiring
young engineers in Scotland
64 The Weir Group PLC
Sustainability report
4. Communities (continued)
Weir India
Since 2008 Weir India has supported two local
‘transit schools’ for children rescued from child
labour. The support is partly financial, supporting
teacher and other staff salaries and also includes
the time spent by volunteers amongst Weir India
employees. The ongoing financial commitment
benefits around 100 children studying in these
two schools. In late 2011 Weir India alongside
two NGOs, Paraspara Trust and Biocon
Foundation held two free health camps in the
communities surrounding the ‘transit schools’.
The camps encouraged good health practices
amongst the children and their families.
The Group entered a partnership in 2011 with a
local authority in India to support the infrastructure
needs of a primary school in Gokul village, near
the operations of Weir BDK. Weir has invested
£35,000 in the building of a new block at the school
and other infrastructure improvements. Weir also
established a programme to teach English with this
and other school activities supported by volunteers
from Weir BDK.
Weir Minerals Chile
Ignacio Carrera Pinto is a school for underprivileged
children, in San Bernardo, near Weir Minerals main
facility in Santiago. It has 100 students from 5 to
17 years old, most of whom are socially vulnerable.
Weir provides support in several ways, including
improving the school bathrooms and infrastructure,
collecting and distributing used books and staff
volunteering to paint the school.
Weir Minerals staff at Ignacio Carrera Pinto school, Santiago, Chile
“The mere fact of going
to paint a small school
knowing the realities of the
children studying there
meant I was doing good for
the community and the
children at risk.”
Sergio Pizarro, Weir Minerals Chile
Keith Cochrane, Weir CEO inaugurates the new school block in Gokul village, Hubli, India
Annual Report & Financial Statements 2011 Directors report Sustainability report
5: Products and technology
65
42%
of Power & Industrial Division
input in 2011 came from within
the low carbon sector
Developing new products that are more
environmentally friendly offers a competitive
advantage to ourselves and to our customers.
Additionally, many of our existing products
and services contribute to environmental
protection in critical areas such as power
generation and service.
£18.4m
spent on research and
development during 2011
The Group’s focus on the renewable energy
sector continues and within the Power & Industrial
Division 42% of input (40% in 2010) came from
products and services supplied to low carbon
industries in nuclear, hydro and biomass.
Research and development
During the financial year, the Group spent £18.4m
(2010: £14.8m) on research and development.
The desire of our customers for materials
technology and innovation that will extend product
operating life, enhance safety performance and
reduce energy costs, ensures that Weir’s research
activities and corporate sustainability goals are
closely aligned.
Weir Advanced Research Centre (WARC)
The Weir Advanced Research Centre (WARC)
was established in March this year at the University
of Strathclyde in Glasgow. The establishment of
WARC marks a new approach to innovation for
Weir and is expected to provide a pipeline of new
product innovation and significant improvements
in existing product performance. Several projects
are already underway, focusing on ‘blue sky’
innovations in the areas of coatings and flow
control. Weir funded the centre with an initial
investment of £1.9m over three years. This
funding creates four PhD studentships per year,
underscoring Weir’s commitment to education
and advancing engineering skills in the UK.
Engineering Excellence Committee
The Engineering Excellence Committee is
responsible for the implementation of engineering
best practice across the divisions.
During 2011, the Committee was involved
in a number of projects that seek to improve
environmental performance including using
advanced design techniques to maximise pump
efficiency and power use and ensuring high
recycling potential in the materials used in
wear resistant parts.
Continuously seeking efficiency at the pump technology centre in Sydney
66 The Weir Group PLC
Sustainability report
5. Products and technology (continued)
Sustainability engineers
During 2011 Weir appointed two sustainability
engineers. A key focus for these individuals is to
introduce and develop sustainability improvements
in the Group’s operating businesses. Sustainability
engineers work across the business to identify
and implement changes to enhance areas such as
energy management, waste disposal and recycling.
Case studies
RTS Alcan Lochaber
Weir Power & Industrial Alloa played a major role
in delivering the completion of a powerhouse
modernisation project for RTS Alcan for their
Lochaber aluminium production facility.
The project required the replacement of 12 twin
jet Pelton machines, originally installed in 1929.
The project was completed in three phases
between 2009 and 2011 and used the Weir Power
& Industrial designed Cooling Water System
incorporating the use of an environmentally friendly,
non-toxic heat transfer fluid product based on
refined vegetable extracts instead of more toxic
anti-freeze protection products normally selected
for this type of application.
RTS Alcan’s aluminium production facility, Lochaber, Scotland
Annual Report & Financial Statements 2011 Directors report 67
This group of employees have decision-making
responsibilities in regard to customers, suppliers,
sales agents and other third parties and accordingly
have a higher risk of exposure to bribery and other
corrupt practices.
Two e-learning modules were rolled out in 2011,
one covering the UK Bribery Act, including the
prevention of bribery and corruption, and the
second addressing the Code of Conduct. In total,
over 1,600 employees have completed the two
modules. Monitoring controls are in place to ensure
training is completed in a timely manner and to
ensure new employees are added to training
participant lists as required. A Code of Conduct
e-learning plan is in place for 2012. An online
certification process enables these employees
to certify on a quarterly basis that they are in
compliance with the Code of Conduct.
The Group has also conducted a number of ‘Town
Hall’ meetings to explain the requirements of the
Code of Conduct to all employees. During 2011,
these took place in Russia, China, India, Indonesia,
Italy and South America. Further meetings will be
undertaken in 2012.
The Code of Conduct is also
reinforced through an ongoing series
of communications, for example:
— The Group conference and all
regional and functional conferences
— Induction days for new executives
— Training courses for the SMG
— As part of the 100 day integration
plan for new acquisitions.
Sustainability report
6: Ethics
Driving Growth the Weir Way means doing
business at all times in an ethical and transparent
manner. Since the launch of the Code of Conduct
in December 2010, the chief executive has
reinforced this message in written and face-to-
face communications with employees worldwide,
making clear that the highest standards of integrity
must be maintained, consistent with the Code.
The UK Bribery Act, which came into force during
2011, affects all employees, not only those based in
the UK, and training has been delivered around the
global operations to ensure employees are aware
of the Act’s requirements.
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 covers bribery and corruption
and other areas such as respecting communities
and workplace integrity.
The Code of Conduct is written in easy to
understand language with practical examples
in each section. It has been made available in a
number of different languages for global employees.
A mandatory e-learning training
programme exists for the following
employees, including:
— The Senior Management Group
— All sales and marketing employees
— All purchasing employees.
68 The Weir Group PLC
Sustainability report
6. Ethics (continued)
All sales agent agreements have been reviewed
during 2011 and are being updated, subject to
contractual restrictions, as necessary to reflect
the Code of Conduct and anti-bribery & corruption
requirements. Sales agents are subject to formal
and ongoing due diligence prior to appointment
or reappointment. They must also confirm their
compliance with the Code of Conduct in regard to
business conducted on behalf of the Weir Group.
In addition, there is an ongoing programme of
work across the Group to communicate the Code
of Conduct to third party suppliers with expanded
assessment criteria to ensure new suppliers comply
with the ethical requirement of the Group’s supply
chain policy.
Gifts & Hospitality
During 2011, the Group’s policies were updated
and communicated to all businesses to ensure
that employees have clarity on the provision and
acceptance of gifts and hospitality. In addition,
an online gifts and hospitality approval and register
system was implemented across the Group which
is mandatory for all employees.
Ethics Hotline
In support of the Code of Conduct, an independent
and confidential helpline is available for employees
to call with 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.
In total, 16 complaints were received during 2011.
After investigation, no action was required in 12
cases, with the remainder addressed through
further training and communication improvements
or disciplinary processes.
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 and
our relationships with them are based on achieving
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 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.
During 2011, we have developed our new supplier
assessment criteria to address compliance with
the Group Supply Chain Policy. We audit our main
existing suppliers annually against the requirements
of the policy and other Group standards, particularly
in the area of health and safety. This is a particular
focus on ‘best cost’ countries where we increase
our sourcing activities. We will not deal with
suppliers who, on the basis of the information
available to Weir, fail to adhere to these
requirements.
We recognise that our corporate responsibility also
reflects the way we behave towards our suppliers.
The Group does not operate a standard policy
in respect of payments to suppliers and each
operating company is responsible for agreeing
the terms and conditions under which business
transactions are conducted, including the terms
of payment.
It is Group policy that payments to suppliers are
made in accordance with the agreed terms.
At 30 December 2011, the Group had an
average of 70 days purchases outstanding
in trade creditors.
Annual Report & Financial Statements 2011 Directors report Other statutory
information
2012 annual general meeting
The annual general meeting will be held at 2.30pm on
Wednesday 9 May 2012 at the Hilton Glasgow Hotel, 1 William
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 29 February 2012, 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
Legal & General
BlackRock
AXA
Aberdeen Asset Management
FMR Corp
Number of
shares
Percentage of
issued share
capital
10,646,643
10,607,332
10,477,626
10,443,509
6,425,000
5.03%
5.02%
4.96%
4.96%
3.09%
Since the date of disclosure to the Company, the interest of any
shareholder listed above may have increased or decreased. No
requirement to notify the Company of any increase or decrease
would have arisen unless the holding moved up or down through
a whole number percentage level. The percentage level may
increase (if the Company cancelled shares pursuant to the power
to purchase its own shares) or decrease (on the issue of new
shares under the LTIP).
Material contracts
There are no persons with whom the Company has contractual
or other arrangements which are essential to the business of
the Company.
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 87.
Group companies operate within a framework of HR policies,
practices and regulations appropriate to their market sector
and country of operation. Policies and procedures for
recruitment, training and career development promote equality
of opportunity regardless of gender, sexual orientation, age,
marital status, disability, race, religion or other beliefs and
ethnic or national origin.
69
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 113 to 121.
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 108. 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 2008 LTIP award vested and the trustees
of the Company’s employees benefit trust (EBT), Kleinwort
Benson (Guernsey) Trustees Limited, transferred 37,143 ordinary
shares to employees to satisfy the LTIP awards using ordinary
shares purchased by the EBT in the market. A further 369,291
ordinary shares were transferred out of treasury to satisfy awards
under the LTIP. In addition, a total of 212,853 ordinary shares,
with an aggregate value of £26,606.63 were allotted during the
period in connection with the Company’s LTIP.
The EBT has agreed to waive any right to all dividend payments
on shares held by it,with the exception of shares held in respect
of awards which have a dividend entitlement. Details of the
shares held by the EBT are set out in note 25 to the Group
financial statements on page 108. The EBT holds, through its
account nominee K.B (CI) Nominees Limited, 0.08% of the
issued share capital of the Company, as at 30 December 2011,
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.
70 The Weir Group PLC
Other statutory
information (continued)
Repurchase of shares
At the 2011 annual general meeting, shareholders renewed the
Company’s authority to make market purchases of up to 21.08m
ordinary shares (representing 10% of the issued share capital
excluding treasury shares). No shares were purchased under this
authority during the 52 weeks ended 30 December 2011 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 certificated 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.
The Group has in place a four year US$800m multi currency
revolving credit facility with a syndicate of 12 banks due
to mature in September 2014. 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 Group has in place a three year US$300m term loan with Banc
of America Securities Limited and HSBC Bank plc, coterminous with
the revolving credit facility. Under the terms of these agreements,
if there is a change of control of the Company either 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.
As outlined in the Finance Review, the Company secured an
additional placing of fixed rate private placement notes to the
value of US$1bn in February 2012. As a result, the Company
is now party to various note purchase agreements with
a range of maturities; US$90m at an interest rate of 4.2%
due in 11 January 2015, £12m at an interest rate of 4.58% due
in 11 January 2015, US$70m at an interest rate of 5.03%
due in 11 January 2018, £43m at an interest rate of 5.36% due
in 11 January 2018, US$210m at an interest rate of 3.69% due in
16 February 2019, US$590m at an interest rate of 4.27% due in
16 February 2022 and US$200m at an interest rate of 4.34% due
in 16 February 2023. 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
29 February 2012
Annual Report & Financial Statements 2011 Directors report 71
Opinion on other matter prescribed by the 2006 Act
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 2006 Act 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; and
• the part of the Corporate governance report relating to the
Company’s compliance with the nine provisions of the UK
Corporate Governance 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 30 December 2011
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
29 February 2012
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 30 December 2011 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 33.
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 (“the 2006 Act”). 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 auditor’s 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 & auditor
As explained more fully in the Directors statement of responsibilities
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 Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s circumstances and have
been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information
in the Annual Report and Financial Statements 2011 to identify
material inconsistencies with the audited financial statements.
If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
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
30 December 2011 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 2006 Act and Article 4 of the IAS Regulation.
72 The Weir Group PLC
Consolidated
Income Statement
for the 52 weeks ended 30 December 2011
52 weeks ended 30 December 2011
52 weeks ended 31 December 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
Profit (loss) 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
2,292.0
-
2,292.0
1,635.0
-
1,635.0
15
6
6
24
7
8
9
407.9
4.8
412.7
(19.4)
4.3
(1.3)
396.3
(114.2)
282.1
-
282.1
282.1
-
282.1
133.6p
132.2p
(4.1)
-
(4.1)
(0.7)
-
-
(4.8)
1.7
(3.1)
19.9
16.8
16.8
-
16.8
403.8
4.8
408.6
(20.1)
4.3
(1.3)
391.5
(112.5)
279.0
19.9
298.9
298.9
-
298.9
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
141.5p
132.1p
140.1p
130.7p
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
Annual Report & Financial Statements 2011 Financial statements
Consolidated
Statement of Comprehensive Income
for the 52 weeks ended 30 December 2011
73
52 weeks
ended
52 weeks
ended
30 December 31 December
2010
£m
2011
£m
Note
Profit for the period
Other comprehensive income
Losses taken to equity on cash flow hedges
Exchange (losses) 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
Net other comprehensive (expense) income
Total net comprehensive income for the period
Attributable to
Equity holders of the Company
Non-controlling interests
7
298.9
185.5
(1.1)
(18.9)
(1.4)
(45.0)
(1.5)
12.2
(55.7)
243.2
243.2
-
243.2
(0.2)
56.9
(17.3)
(3.4)
(0.1)
1.5
37.4
222.9
222.5
0.4
222.9
74 The Weir Group PLC
Consolidated
Balance Sheet
at 30 December 2011
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
30 December
2011
£m
Notes
31 December
2010
Restated
(note 2)
£m
11
11
12
15
23
30
16
17
18
30
19
20
21
18
30
22
20
21
30
22
23
24
321.8
-
1,332.6
11.4
38.0
0.1
1,703.9
469.8
517.2
19.6
6.4
11.5
113.9
1,138.4
2,842.3
92.0
565.4
26.8
24.4
33.4
53.7
795.7
695.1
15.5
15.2
36.6
81.4
84.7
928.5
1,724.2
1,118.1
26.6
38.0
(5.6)
0.5
83.5
(1.6)
974.6
1,116.0
2.1
1,118.1
257.4
3.9
954.6
10.3
27.5
0.6
1,254.3
310.1
351.4
16.2
9.2
0.4
84.0
771.3
2,025.6
6.3
410.3
21.8
20.9
29.7
45.4
534.4
361.3
1.7
27.5
38.5
75.5
65.0
569.5
1,103.9
921.7
26.6
38.0
(6.8)
0.5
103.8
0.4
758.8
921.3
0.4
921.7
Approved by the Board of Directors on 29 February 2012
Keith Cochrane, Director
Jon Stanton, Director
Annual Report & Financial Statements 2011 Financial statements
Consolidated
Cash Flow Statement
for the 52 weeks ended 30 December 2011
Continuing operations
Cash flows from operating activities
Cash generated from operations
Additional pension contributions paid
Income tax paid
Net cash generated from operating activities
Continuing operations
Cash flows from investing activities
Acquisitions of subsidiaries
Disposals of subsidiaries
Purchases of property, plant & equipment & intangible assets
Other proceeds from sale of property, plant & equipment & intangible assets
Interest received
Dividends received from joint ventures
Net cash used in investing activities
Continuing operations
Cash flows from financing activities
Purchase of shares for equity settled share-based incentive
Proceeds from borrowings
Repayments of borrowings
Settlement of external debt of subsidiary on acquisition
Settlement of derivative financial instruments
Interest paid
Proceeds from increase in non-controlling interests
Dividends paid to non-controlling interests
Dividends paid to equity holders of the Company
Net cash generated from financing activities
Net increase in cash & cash equivalents from continuing operations
Net decrease in cash & cash equivalents from discontinued operations - operating activities
Net increase in cash & cash equivalents from discontinued operations - investing activities
Cash & cash equivalents at the beginning of the period
Foreign currency translation differences
Cash & cash equivalents at the end of the period
75
52 weeks
ended
52 weeks
ended
30 December 31 December
2010
£m
2011
£m
Notes
26
26
26
26
10
19
302.6
(6.6)
(97.3)
198.7
274.9
(9.3)
(72.4)
193.2
(386.0)
-
(95.4)
4.0
4.3
4.1
(469.0)
(0.4)
469.0
(50.8)
(55.4)
(10.9)
(17.7)
1.7
-
(59.5)
276.0
5.7
-
24.6
79.5
(1.2)
108.6
(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
76 The Weir Group PLC
Consolidated
Statement of Changes in Equity
for the 52 weeks ended 30 December 2011
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 1 January 2010
26.6
38.0
(7.9)
0.5
64.0
0.6
620.4
742.2
0.2
742.4
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
Cost of share-based payments inclusive
of tax credits
Dividends
Exercise of LTIP awards
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1.1
-
-
-
-
-
-
-
-
-
-
-
-
-
56.9
(17.3)
-
-
0.2
-
(0.2)
185.1
-
-
-
-
(0.1)
0.1
-
-
(3.4)
-
1.2
185.1
(0.2)
56.9
(17.3)
(3.4)
(0.1)
1.5
0.4
-
-
-
-
-
-
185.5
(0.2)
56.9
(17.3)
(3.4)
(0.1)
1.5
39.8
(0.2)
182.9
222.5
0.4
222.9
-
-
-
-
-
-
3.3
(46.7)
(1.1)
3.3
(46.7)
-
-
(0.2)
-
3.3
(46.9)
-
At 31 December 2010
26.6
38.0
(6.8)
0.5
103.8
0.4
758.8
921.3
0.4
921.7
Profit for the period
Losses taken to equity on cash flow hedges
Exchange losses 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
Proceeds from increase in
non-controlling interests
Cost of share-based payments inclusive
of tax credits
Dividends
Exercise of LTIP awards
At 30 December 2011
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
26.6
-
-
-
38.0
-
-
1.2
(5.6)
-
-
-
-
-
-
-
-
-
-
-
-
0.5
-
-
(18.9)
(1.4)
-
-
-
-
(1.1)
298.9
-
-
-
-
(1.5)
0.6
-
-
(45.0)
-
11.6
298.9
(1.1)
(18.9)
(1.4)
(45.0)
(1.5)
12.2
(20.3)
(2.0)
265.5
243.2
-
-
-
-
-
-
-
-
298.9
(1.1)
(18.9)
(1.4)
(45.0)
(1.5)
12.2
243.2
-
-
-
-
83.5
-
-
-
-
(1.6)
-
-
11.0
(59.5)
(1.2)
974.6
11.0
(59.5)
-
1,116.0
1.7
-
-
-
2.1
1.7
11.0
(59.5)
-
1,118.1
Annual Report & Financial Statements 2011 Financial statements
Notes to the
Group Financial Statements
77
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 30 December 2011
(“2011”) were approved and authorised for issue in accordance with a resolution of the directors on 29 February 2012. The comparative information is presented for the
52 weeks ended 31 December 2010 (“2010”). 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 items of income and expense which, because of the nature, size and / or 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. Exceptional items include the movement on contingent consideration
which, due to its nature, is separately disclosed on the face of the Consolidated Income Statement.
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.
During the 52 weeks ended 30 December 2011, the provisional fair values attributed to the 2010 acquisitions were finalised. In accordance with IFRS3, the net impact
of the adjustments to the provisional fair values has been recognised by means of a decrease to goodwill and the adjustments to the provisional amounts have been
recognised as if the accounting for the business combinations had been completed at the relevant acquisition dates. As such, all affected balances and amounts
have been restated in the financial statements. To this effect, the Consolidated Balance Sheet and affected notes present restated comparative information for the
52 weeks ended 31 December 2010. There was no material impact on the Consolidated Income Statement for the 52 weeks ended 31 December 2010.
Further details of the adjustments made to the provisional fair values can be found in note 13.
The accounting policies which follow are consistent with those of the previous periods except as described below.
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.
IAS24 Related Party Disclosures (Revised).
IAS32 Classification of Rights Issues (amendment to IAS32 Financial Instruments: Presentation).
Improvements to IFRS (issued 2010).
IFRIC14 Amendment to IFRIC14 Prepayments of a Minimum Funding Requirement.
IFRIC19 Extinguishing Financial Liabilities with Equity Instruments.
78 The Weir Group PLC
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 29.
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.
Annual Report & Financial Statements 2011 Financial statements 79
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
Until December 2011, the Group owned one property which was classified as investment property on the basis that it was being held to earn rentals and for capital
appreciation rather than for use in the production or supply of goods and services. This property was sold in December 2011. Investment property was stated at cost less
accumulated depreciation. Depreciation was 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 the acquisition date. Subsequent changes to the fair value of the contingent consideration, which is deemed
to be an asset or a 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.
80 The Weir Group PLC
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
5 - 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.
Annual Report & Financial Statements 2011 Financial statements 81
2. Accounting policies (continued)
Trade 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.
82 The Weir Group PLC
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”) and as a consequence of occasional one-off
conditional awards made to senior executives. 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 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.
Annual Report & Financial Statements 2011 Financial statements 83
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)
IAS1
IAS12
IAS19
IFRS7
IFRS9
IFRS10
IFRS11
IFRS12
IFRS13
Presentation of Items of Other Comprehensive Income (Amendments to IAS1)*
Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets*
Employee Benefits (Revised)*
Financial Instruments: Disclosures (Amendment)
Financial Instruments*
Consolidated Financial Statements*
Joint Arrangements*
Disclosure of Interests in Other Entities*
Fair Value Measurement*
* Not yet adopted for use in the European Union.
Effective date for
periods commencing
1 July 2012
1 January 2012
1 January 2013
1 July 2011
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
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 under IFRS8. The operating and reportable
segments were determined based on the reports reviewed by the Chief 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 Chief 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 Chief 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.
84 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
3. Segment information (continued)
The segment information for the reportable segments for the 52 weeks ended 30 December 2011 and the 52 weeks ended 31 December 2010 is disclosed below.
Minerals
Oil & Gas
Power & Industrial
Total continuing
operations
2011
£m
2010
£m
2011
£m
2010
£m
2011
£m
2010
£m
2011
£m
2010
£m
Revenue
Sales to external customers
Inter-segment sales
Segment revenue
Group companies sales to external customers
Eliminations
Sales to external customers - at 2011 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 before exceptional items
Other finance costs - retirement benefits
Profit before tax from continuing operations
Segment result - at 2011 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
1,216.3
5.2
1,221.5
901.4
1.8
903.2
742.7
14.7
757.4
461.7
7.5
469.2
306.7
6.6
313.3
246.0
3.5
249.5
1,216.3
911.4
742.7
451.0
306.7
243.5
213.9
-
213.9
174.5
-
174.5
178.3
4.8
183.1
112.8
4.6
117.4
26.8
-
26.8
26.3
-
26.3
213.9
-
213.9
176.0
-
176.0
178.3
4.8
183.1
109.7
4.1
113.8
26.8
-
26.8
26.0
-
26.0
2,265.7
26.5
2,292.2
26.3
(26.5)
2,292.0
1,609.1
12.8
1,621.9
25.9
(12.8)
1,635.0
2,265.7
26.3
2,292.0
1,605.9
25.9
1,631.8
419.0
4.8
423.8
3.0
(14.1)
412.7
(4.8)
(15.1)
(1.3)
391.5
419.0
4.8
423.8
3.0
(14.1)
412.7
313.6
4.6
318.2
3.5
(12.0)
309.7
(18.2)
(13.4)
(1.6)
276.5
311.7
4.1
315.8
3.5
(12.0)
307.3
There are no material revenues derived from a single external customer.
Annual Report & Financial Statements 2011 Financial statements
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
Minerals
Oil & Gas
Power & Industrial
2010
Restated
(note 2)
£m
161.7
353.9
515.6
-
515.6
2011
£m
187.4
470.9
658.3
-
658.3
2010
Restated
(note 2)
£m
43.1
188.0
231.1
10.3
241.4
2011
£m
89.5
398.1
487.6
11.4
499.0
2010
Restated
(note 2)
£m
39.8
120.3
160.1
-
160.1
2011
£m
44.3
143.2
187.5
-
187.5
262.2
207.5
205.2
96.4
86.5
75.5
49.0
30.2
32.5
17.2
13.4
3.4
29.1
23.6
21.3
20.6
9.6
7.7
85
Total continuing
operations
2010
Restated
(note 2)
£m
2011
£m
321.2
1,012.2
1,333.4
11.4
1,344.8
3.2
1,494.3
2,842.3
553.9
11.2
1,159.1
1,724.2
94.9
0.5
95.4
60.0
0.4
60.4
244.6
662.2
906.8
10.3
917.1
1.2
1,107.3
2,025.6
379.4
14.3
710.2
1,103.9
50.8
0.1
50.9
51.9
0.4
52.3
Unallocated assets primarily comprise intangible assets, cash and short-term deposits, derivative financial instruments, income tax receivable and deferred tax assets as
well as those assets which are used for general head office purposes. Unallocated liabilities primarily comprise interest-bearing loans and borrowings, derivative financial
instruments, income tax payable, provisions, deferred tax liabilities and retirement benefit deficits as well as liabilities relating to general head office activities. Segment
additions to non-current assets do not include those additions which have arisen from business combinations (note 13).
86 The Weir Group PLC
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 30 December 2011 and the 52 weeks ended 31 December 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 30 December 2011
UK
£m
USA
£m
Canada
£m
Europe
& FSU
£m
Asia
Pacific
£m
Australia
£m
South Middle East
& Africa
£m
America
£m
Total
£m
Revenue from continuing operations
Sales to external customers
100.6
702.3
267.3
183.5
280.0
231.0
262.3
265.0
2,292.0
Non-current assets
98.6
913.2
18.1
140.9
145.3
167.1
45.9
136.7
1,665.8
52 weeks ended 31 December 2010 - restated (note 2)
UK
£m
USA
£m
Canada
£m
Europe
& FSU
£m
Asia
Pacific
£m
Australia
£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
213.8
160.8
203.4
243.6
1,635.0
Non-current assets
100.3
497.4
11.0
143.1
160.8
161.2
46.3
106.1
1,226.2
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 (2010: £nil).
4. Revenues & expenses
The following disclosures are given in relation to continuing operations.
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
2011
£m
2010
£m
1,014.7
888.2
1,902.9
313.5
75.6
2,292.0
4.3
2,296.3
637.7
680.3
1,318.0
271.9
45.1
1,635.0
1.5
1,636.5
2011
£m
2010
£m
2,292.0
(1,495.4)
1,635.0
(1,017.7)
796.6
23.9
(211.3)
(205.4)
4.8
408.6
617.3
0.5
(169.8)
(161.1)
4.6
291.5
Annual Report & Financial Statements 2011 Financial statements
4. Revenues & expenses (continued)
Operating profit is stated after charging (crediting)
Cost of inventories recognised as an expense
Depreciation of property, plant & equipment & investment property (note 11)
Amortisation of intangible assets (note 12)
Acquisition transaction costs (note 13)
Other one-off costs*
Net foreign exchange losses (gains)
Net impairment of trade receivables (note 17) (included within administrative expenses)
87
2011
£m
2010
£m
1,495.4
37.3
23.1
5.6
11.0
4.5
0.7
1,017.7
34.1
18.2
2.6
8.4
(0.5)
2.0
* Other one-off costs include restructuring, integration and aborted acquisition costs as well as the provision recorded in 2011 for Libyan working capital exposures.
The following disclosures are given in relation to total operations.
Auditors remuneration
The total fees payable by the Group to Ernst & Young LLP and their associates for work performed in respect of the audit and other
services provided to the Company and its subsidiary companies during the period are disclosed below.
Fees payable to the Company’s auditor for the audit of the Company & Group financial statements
Fees payable to the Company’s auditor and its associates for other services
The audit of the Company’s subsidiaries pursuant to legislation
Transaction support services
Fees payable in respect of the Group’s pension schemes
Audit
2011
£m
2010
£m
0.3
1.4
0.3
0.1
0.3
1.2
-
0.1
Research & development costs
Research & development costs amount to £18.4m (2010: £14.8m) of which £17.8m (2010: £13.9m) were charged directly to cost of sales in the income statement and
£0.6m (2010: £0.9m) were capitalised (note 12).
Operating leases
Minimum lease payments under operating leases recognised as an expense in the period were £28.7m (2010: £20.9m).
Employee benefits expense
Wages & salaries
Social security costs
Pension costs
Defined benefit plans
Defined benefit plans exceptional item (note 5)
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
At 30 December 2011, the number of persons employed by the Group was 13,996 (2010: 11,789).
2011
£m
2010
£m
413.0
44.2
1.3
(19.0)
14.9
4.9
459.3
339.4
36.8
1.3
-
11.7
3.0
392.2
2011
Number
2010
Number
6,649
2,196
2,723
101
11,669
5,786
1,784
1,962
95
9,627
88 The Weir Group PLC
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)
Exceptional item - past service gain on UK defined benefit scheme (note 24) (included in other operating income)
Recognised in finance costs
Exceptional item - unwind of discount in respect of contingent consideration
Recognised in arriving at profit (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
Losses on financial assets & liabilities at fair value through profit & loss
Finance charges related to committed loan facilities
Unwind of discount in respect of contingent consideration - exceptional item (note 5)
Finance income
Interest receivable on financial assets
Gains on financial assets & liabilities at fair value through profit & loss
2011
£m
2010
£m
(23.1)
19.0
(4.1)
(18.2)
-
(18.2)
(0.7)
-
19.9
(13.6)
2011
£m
(12.0)
-
(4.5)
(2.9)
(19.4)
(0.7)
(20.1)
2011
£m
0.9
3.4
4.3
2010
£m
(9.2)
(0.7)
(2.7)
(2.3)
(14.9)
-
(14.9)
2010
£m
0.6
0.9
1.5
Annual Report & Financial Statements 2011 Financial statements
7. Tax expense
Income tax expense
Consolidated Income Statement
Current income tax
UK corporation tax - continuing operations
Adjustments in respect of previous years
UK corporation tax
Foreign tax - continuing operations
Adjustments in respect 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
Adjustments in respect of previous years
Total deferred tax*
89
2011
£m
2010
£m
(3.1)
(2.0)
(5.1)
(112.0)
17.5
(99.6)
(8.2)
0.1
(0.7)
(4.1)
(12.9)
(6.3)
(1.3)
(7.6)
(78.9)
5.0
(81.5)
1.4
4.2
(0.5)
(1.0)
4.1
Total income tax expense in the Consolidated Income Statement
(112.5)
(77.4)
* Includes £6.6m of deferred tax charge relating to foreign tax (2010: a credit of £5.9m).
The total income tax expense is disclosed in the Consolidated Income Statement as follows.
Tax expense - continuing operations before exceptional items & intangibles amortisation
- exceptional items
- intangibles amortisation
Total income tax expense in the Consolidated Income Statement
Current tax for 2011 has been reduced by £0.1m (2010: £4.2m) 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.
2011
£m
(114.2)
(4.8)
6.5
(112.5)
2010
£m
(82.8)
-
5.4
(77.4)
90 The Weir Group PLC
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
Deferred tax - origination & reversal of temporary differences
Tax credit on actuarial losses on retirement benefits
Deferred tax credit on hedge 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
2011
£m
2010
£m
2.5
9.1
11.6
0.6
-
12.2
3.3
(2.1)
1.2
0.1
0.2
1.5
2011
£m
2010
£m
5.1
1.0
6.1
(0.2)
0.5
0.3
Reconciliation of the total tax charge
The tax expense in the Consolidated Income Statement for the period is less than the weighted average of standard rates of corporation tax across the Group of
32.0% (2010: 31.0%). The differences are reconciled below.
Profit from continuing operations before tax
Profit (loss) from discontinued operations before tax
Accounting profit before tax
At the weighted average of standard rates of corporation tax across the Group of 32.0% (2010: 31.0%)
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
Exceptional gain from discontinued operations covered by indexation relief
At effective tax rate of 27.3% (2010: 29.4%)
The adjustments in respect of previous years include the release of £11.0m of provisions held for years which have now been closed.
2011
£m
391.5
19.9
411.4
131.6
(15.5)
4.1
(0.6)
(0.1)
6.7
(9.0)
0.7
-
(5.4)
112.5
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
Annual Report & Financial Statements 2011 Financial statements
91
8. Discontinued operations
There were no disposals of businesses during the 52 weeks ended 30 December 2011 or the 52 weeks ended 31 December 2010.
In December 2011, the Group disposed of the former Weir Pumps site at Cathcart to SPX Clyde UK Limited for cash proceeds of £25.0m resulting in a net gain of £19.9m
(net of tax of £nil) after taking account of disposal costs and other costs arising from discontinued operations. Since the property was used by the Weir Pumps business,
which was sold in 2007, the net gain is shown as a profit from discontinued operations.
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 provision and accruals, were shown as a loss from discontinued operations.
Earnings (losses) per share from discontinued operations were as follows.
Basic
Diluted
2011
pence
9.4
9.3
2010
pence
(6.5)
(6.4)
These earnings (losses) per share figures were derived by dividing the net profit attributable to equity holders of the Company from discontinued operations of £19.9m
(2010: loss of £13.6m) 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.
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
Basic earnings per share (number of shares, million)
Diluted earnings per share (number of shares, million)
2011
2010
298.9
279.0
282.1
185.1
198.7
211.5
211.2
213.4
210.6
213.1
92 The Weir Group PLC
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
2011
Shares
Million
211.2
2.2
213.4
2010
Shares
Million
210.6
2.5
213.1
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 £nil (2010: £0.4m) in respect of non-controlling interests.
There have been no share options (2010: 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 2010: 21.0p (2009: 16.2p)
Interim dividend for 2011: 7.2p (2010: 6.0p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2011: 25.8p (2010: 21.0p)
2011
£m
279.0
3.1
282.1
2010
£m
198.7
12.8
211.5
2011
£m
2010
£m
44.3
15.2
59.5
34.1
12.6
46.7
54.5
44.3
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.
Annual Report & Financial Statements 2011 Financial statements
93
Land &
buildings
£m
Plant &
equipment
£m
Total
property,
plant &
equipment
£m
Investment
property
£m
87.2
3.4
19.6
(5.9)
-
0.9
6.1
111.3
18.6
0.6
(3.8)
-
2.0
(3.1)
125.6
24.5
5.8
-
(4.0)
-
-
1.3
27.6
5.7
0.1
(1.7)
-
1.7
(0.6)
32.8
268.3
43.0
15.1
(15.0)
(1.5)
(1.3)
20.4
329.0
72.4
22.6
(23.2)
(2.3)
(0.4)
(12.0)
386.1
131.6
28.0
0.2
(14.2)
(0.3)
(0.4)
10.4
155.3
31.3
0.3
(22.2)
(1.6)
(0.7)
(5.3)
157.1
355.5
46.4
34.7
(20.9)
(1.5)
(0.4)
26.5
440.3
91.0
23.2
(27.0)
(2.3)
1.6
(15.1)
511.7
156.1
33.8
0.2
(18.2)
(0.3)
(0.4)
11.7
182.9
37.0
0.4
(23.9)
(1.6)
1.0
(5.9)
189.9
62.7
136.7
199.4
83.7
173.7
257.4
92.8
229.0
321.8
11.8
-
-
-
-
-
-
11.8
-
-
(10.2)
-
(1.6)
-
-
7.6
0.3
-
-
-
-
-
7.9
0.3
-
(7.2)
-
(1.0)
-
-
4.2
3.9
-
11. Property, plant & equipment & investment property
Cost
At 1 January 2010
Additions
Acquisitions
Disposals
Reclassifications to intangible assets
Reclassifications
Exchange adjustment
At 31 December 2010 - restated (note 2)
Additions
Acquisitions
Disposals
Reclassifications to intangible assets
Reclassifications
Exchange adjustment
At 30 December 2011
Accumulated depreciation & impairment
At 1 January 2010
Depreciation charge for the period
Impairment
Disposals
Reclassifications to intangible assets
Reclassifications
Exchange adjustment
At 31 December 2010
Depreciation charge for the period
Impairment
Disposals
Reclassifications to intangible assets
Reclassifications
Exchange adjustment
At 30 December 2011
Net book value at 1 January 2010
Net book value at 31 December 2010 - restated (note 2)
Net book value at 30 December 2011
The carrying value of buildings held under finance leases is £1.9m (2010: £1.8m). The carrying value of plant and equipment held under finance leases is £0.7m (2010: £0.6m).
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
£26.7m (2010: £12.2m).
In December 2011, the Group disposed of the former Weir Pumps site at Cathcart, which has been treated as an investment property since the disposal of the
Weir Pumps business in 2007, to SPX Clyde UK Limited. Up to the date of disposal, rental income was generated from Clyde Union Ltd. The rental income included
in the income statement amounts to £2.3m (2010: £2.3m).
The impairment charge of £0.4m relates to specific assets in one location which are unable to be transferred to that operation’s new location. In 2010 the impairment
charge of £0.2m related to specific assets in a number of locations across the Group where associated product lines had been changed or updated to reflect changing
market conditions.
94 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
12. Intangible assets
Cost
At 1 January 2010
Additions
Acquisitions
Disposals
Reclassifications from property, plant & equipment
Reclassifications
Exchange adjustment
At 31 December 2010 - restated (note 2)
Additions
Acquisitions
Disposals
Reclassifications from property, plant & equipment
Reclassifications
Exchange adjustment
At 30 December 2011
Accumulated amortisation & impairment
At 1 January 2010
Amortisation charge for the period
Disposals
Reclassifications from property, plant & equipment
Reclassifications
Exchange adjustment
At 31 December 2010
Amortisation charge for the period
Disposals
Reclassifications from property, plant & equipment
Reclassifications
Exchange adjustment
At 30 December 2011
Goodwill
£m
Customer
Brand
names relationships
£m
£m
Purchased
software
£m
Intellectual
property & Development
costs
£m
trade marks
£m
Other
£m
Total
£m
494.1
-
78.3
-
-
-
25.4
597.8
-
402.1
-
-
-
(2.3)
997.6
-
-
-
-
-
-
-
-
-
-
-
-
-
90.2
-
47.6
-
-
-
3.5
141.3
-
-
-
-
-
(0.6)
140.7
-
-
-
-
-
-
-
-
-
-
-
-
-
150.5
-
27.7
-
-
-
5.8
184.0
-
-
-
-
-
(3.4)
180.6
20.5
11.3
-
-
-
0.7
32.5
12.8
-
-
(0.1)
(0.3)
44.9
22.3
3.8
0.1
(2.4)
1.3
-
1.2
26.3
4.7
-
(1.7)
1.9
0.2
(0.9)
30.5
14.8
2.7
(2.1)
0.3
-
0.7
16.4
2.7
(1.7)
1.6
(0.2)
(0.5)
18.3
7.5
9.9
22.5
0.2
33.2
-
-
(1.9)
1.8
55.8
-
-
-
-
(0.2)
-
55.6
7.7
3.2
-
-
(0.8)
0.1
10.2
5.5
-
-
(0.8)
0.1
15.0
14.8
45.6
-
0.7
-
(0.7)
0.2
1.9
0.2
2.3
0.6
-
-
0.4
-
-
3.3
-
-
(0.7)
-
0.7
0.1
0.1
0.1
-
-
-
-
0.2
12.7
-
3.7
-
-
-
0.9
17.3
-
-
-
-
-
(0.8)
16.5
9.4
1.0
-
-
0.1
0.5
11.0
2.0
-
-
1.1
(0.3)
13.8
792.3
4.7
190.6
(3.1)
1.5
-
38.8
1,024.8
5.3
402.1
(1.7)
2.3
-
(8.0)
1,424.8
52.4
18.2
(2.8)
0.3
-
2.1
70.2
23.1
(1.7)
1.6
-
(1.0)
92.2
-
3.3
739.9
2.2
3.1
6.3
954.6
2.7
1,332.6
Net book value at 1 January 2010
494.1
90.2
130.0
Net book value at 31 December 2010 - restated (note 2)
597.8
141.3
151.5
Net book value at 30 December 2011
997.6
140.7
135.7
12.2
40.6
The increase to goodwill of £402.1m during 2011 is represented by current year acquisitions goodwill of £403.2m (note 13) offset by a £1.1m reduction to goodwill following
settlement of the final deferred consideration payment in respect of Weir SOS. This has been treated as an adjustment to goodwill on the basis that the acquisition occurred
before IFRS3 (Revised) was adopted by the Group.
Brand names have been assigned an indefinite useful life and as such are not amortised. The carrying value of £140.7m (2010: £141.3m) 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.
The allocation of customer relationships and the remaining amortisation period of these assets is as follows.
Weir SPM
Weir Gabbioneta
Warman companies
Other
Remaining amortisation
period
Customer
relationships
2011
Years
2010
Years
20
19
Up to 9
Up to 19
21
20
Up to 10
Up to 20
2010
Restated
(note 2)
£m
95.0
15.0
18.1
23.4
151.5
2011
£m
90.6
13.9
14.0
17.2
135.7
Annual Report & Financial Statements 2011 Financial statements
95
2011
£m
2.6
0.4
20.1
23.1
2010
£m
1.3
0.4
16.5
18.2
12. Intangible assets (continued)
The amortisation and impairment charge for the period is included in the income statement as follows.
Cost of sales
Selling & distribution costs
Administrative expenses
Amortisation charge for the period
13. Business combinations
On 1 July 2011, the Group acquired a majority interest in the South Korean valves business formerly operated by HIM Tech Co Ltd. The Group acquired 60% of the voting
shares of a new Korean company, Weir International Co. Ltd (“Weir International”), into which the HIM Tech valves business has been transferred. Located in Ansan, near
Seoul, the business designs and manufactures control and choke valves for severe service power generation and oil and gas applications. The acquisition was structured as
an initial 60% purchase including an earn out based on EBITDA achieved in 2013 and 2014. The remaining 40% is subject to put and call options exercisable between 2014
and 2019 and based upon an EBITDA multiple of profits in the two years preceding the exercise of the option. The cash consideration paid was £9.8m and the estimated
fair value of the contingent consideration is £14.0m. This is based on an assessment of the probability of possible outcomes discounted to net present value. The range of
possible outcomes on an undiscounted basis is between zero and £33.4m. Costs associated with the acquisition amounting to £0.5m have been charged to the income
statement in the 52 weeks ended 30 December 2011.
On 14 December 2011, the Group finalised the acquisition of 100% of the voting shares of Seaboard Holdings Inc. (“Weir Seaboard”), an independent wellhead solutions
provider focused on the growing North American unconventional oil and gas drilling and production markets, based in Houston, Texas, for a total cash consideration
of £432.1m. In addition, an amount of £9.1m has been recognised in respect of contingent consideration relating to tax refunds. Costs associated with the acquisition
amounting to £5.1m have been charged to the income statement in the 52 weeks ended 30 December 2011.
The fair values on acquisition of these business combinations are provisional due to the timing of the transactions and will be finalised during the following financial year. No
allocation has been made in the determination of the provisional fair values from goodwill to identifiable intangible assets. External advisers are assisting with this allocation, the
process has commenced and initial draft reports are due in April 2012. This allocation will be finalised along with all other fair values in the next financial year. There will be certain
intangible assets included in the £403.2m of goodwill recognised 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. None of the goodwill is expected to be deductible for tax purposes. The provisional fair value of the
trade receivables amounts to £41.2m. The gross amount of trade receivables is £43.3m.
Property, plant & equipment
Inventories
Trade & other receivables
Cash & cash equivalents
Interest-bearing loans & borrowings
Trade & other payables
Provisions
Income tax
Deferred tax
Fair value of net assets
Goodwill arising on acquisition
Total consideration
Cash consideration
Settlement of external debt of subsidiary on acquisition
Contingent consideration
Total consideration
The cash outflow on acquisition was as follows
Cash & cash equivalents acquired
Cash paid
Net cash outflow
Provisional fair values
Weir
Seaboard
2011
£m
Weir
International
2011
£m
23.1
29.6
42.3
2.2
(55.4)
(41.5)
(1.5)
6.3
1.1
6.2
379.6
385.8
432.1
(55.4)
9.1
385.8
2.2
(432.1)
(429.9)
0.1
0.7
1.1
0.2
(0.2)
(1.6)
-
(0.1)
-
0.2
23.6
23.8
9.8
-
14.0
23.8
0.2
(9.8)
(9.6)
Total
2011
£m
23.2
30.3
43.4
2.4
(55.6)
(43.1)
(1.5)
6.2
1.1
6.4
403.2
409.6
441.9
(55.4)
23.1
409.6
2.4
(441.9)
(439.5)
The contribution from Weir Seaboard and Weir International since their respective dates of acquisition to the 2011 revenue of the Group and 2011 profit for the period
from continuing operations of the Group is deemed to be immaterial. The combined continuing operations revenue and profit for the period from continuing operations
of the Group, assuming that Weir Seaboard and Weir International had been acquired at the start of 2011, would have been £2,425.4m and £277.5m respectively.
96 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
13. Business combinations (continued)
During the 52 weeks ended 31 December 2010, the Group acquired five businesses of which Linatex was the most significant. The other acquisitions were Petroleum
Certification Services (PCS), the valves business of BDK Engineering Industries Limited, American Hydro Corporation and Ynfiniti Engineering Services SL (YES).
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 contingent consideration recognised at the acquisition date was estimated
at £12.0m (m14m) based on an assessment undertaken shortly after the acquisition date of the probability of the possible outcomes discounted to net present value. In
conjunction with the finalisation of the provisional fair values, the contingent consideration payable has been reduced to £1.7m.
In the 2010 annual report and accounts, the fair values on acquisition of the above businesses were provisional, with the exception of PCS, due to the timing of the
transactions. The fair values have been finalised in 2011 resulting in adjustments to the provisional fair values attributed. The following table summarises the adjustments
made to the provisional fair values during the measurement period.
Provisional fair values
Adjustments to provisional fair values
Restated fair values
Total
2010
£m
Linatex
2010
£m
Other
2010
£m
Total
2010
£m
Linatex
2010
£m
Other
2010
£m
Property, plant & equipment
- land & buildings
- plant & equipment
Intangible assets
- brand name
- customer relationships
- purchased software
- intellectual property & trade marks
- other
Inventories
Trade & other receivables
Construction contract assets
Cash & cash equivalents
Interest-bearing loans & borrowings
Trade & other payables
Construction contract liabilities
Provisions
- warranty
- employee related
- other
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
15.9
12.5
36.5
9.0
-
26.2
-
15.5
12.0
-
3.1
(15.8)
(13.3)
-
(1.1)
(1.2)
(0.1)
(1.7)
(16.9)
80.6
31.1
111.7
111.7
-
-
-
111.7
3.1
(111.7)
-
(108.6)
Other
2010
£m
4.3
4.3
3.6
13.6
0.1
14.5
3.7
6.1
12.4
3.0
-
-
(6.4)
(3.9)
(4.2)
-
(0.5)
(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)
20.2
16.8
40.1
22.6
0.1
40.7
3.7
21.6
24.4
3.0
3.1
(15.8)
(19.7)
(3.9)
(5.3)
(1.2)
(0.6)
(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)
(0.6)
(1.5)
-
-
-
-
-
-
-
-
-
-
(0.1)
-
(0.2)
(0.2)
-
0.2
1.1
(1.3)
1.3
-
-
-
-
-
-
-
-
-
-
-
(0.2)
7.5
5.1
-
(7.5)
-
(0.1)
(1.2)
-
-
-
(1.1)
-
(3.5)
-
-
0.2
-
(0.8)
(9.6)
(10.4)
(0.4)
-
(10.3)
0.3
(10.4)
-
0.4
-
0.4
(0.6)
(1.7)
7.5
5.1
-
(7.5)
-
(0.1)
(1.2)
-
-
-
(1.2)
-
(3.7)
(0.2)
-
0.4
1.1
(2.1)
(8.3)
(10.4)
(0.4)
-
(10.3)
0.3
(10.4)
-
0.4
-
0.4
Total
2010
£m
19.6
15.1
47.6
27.7
0.1
33.2
3.7
21.5
23.2
3.0
3.1
(15.8)
(20.9)
(3.9)
(9.0)
(1.4)
(0.6)
(1.7)
(15.7)
128.8
78.3
207.1
206.8
(0.8)
1.7
(0.6)
207.1
15.3
11.0
36.5
9.0
-
26.2
-
15.5
12.0
-
3.1
(15.8)
(13.4)
-
(1.3)
(1.4)
(0.1)
(1.5)
(15.8)
79.3
32.4
111.7
111.7
-
-
-
111.7
4.3
4.1
11.1
18.7
0.1
7.0
3.7
6.0
11.2
3.0
-
-
(7.5)
(3.9)
(7.7)
-
(0.5)
(0.2)
0.1
49.5
45.9
95.4
95.1
(0.8)
1.7
(0.6)
95.4
3.1
(111.7)
-
(108.6)
-
(95.1)
0.8
(94.3)
3.1
(206.8)
0.8
(202.9)
Annual Report & Financial Statements 2011 Financial statements
97
14. Impairment testing of goodwill & intangible assets with indefinite lives
Goodwill acquired through business combinations and intangible assets with indefinite lives have been allocated at acquisition to the cash generating units (CGUs) that are
expected to benefit from that business combination.
The current year acquisition of Weir Seaboard has been determined to be a separate CGU and Weir International has been allocated to “Other”. The previous 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 Seaboard
Weir SPM
Warman companies
Weir Gabbioneta
Other
Year
acquired
2011
2007
various
2005
various
Goodwill
2011
£m
Intangibles*
2011
£m
380.0
229.0
221.9
60.2
106.5
997.6
-
29.7
90.2
5.7
15.1
140.7
Goodwill
2010
Restated
(note 2)
£m
Intangibles*
2010
Restated
(note 2)
£m
-
227.8
221.4
61.7
86.9
597.8
-
29.5
89.8
5.8
16.2
141.3
* Intangible assets with indefinite lives (brand names).
The Group tests goodwill and intangible assets with indefinite lives annually for impairment, or more frequently if there are indications that these might be impaired. The basis
of these impairment tests including key assumptions are set out in the table below.
CGU
Basis of
valuation
Period of
forecast
Discount
rate1
Real
growth2
Key
assumptions
Source
Weir Seaboard
Value in use
5 years
11.9% (2010: n/a)
1.2% (2010: n/a)
Weir SPM
Value in use
5 years
11.9% (2010: 13.7%)
1.2% (2010: 1.2%)
Warman companies
Value in use
5 Years
16.4% (2010: 15.4%)
1.7% (2010: 1.7%)
Weir Gabbioneta
Value in use
5 Years
16.9% (2010: 13.7%)
1.2% (2010: 1.2%)
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 2010 in
mature economies largely due to a reduction in government bond yields being only partially offset by an increase in credit spreads. The increase in credit spreads in
emerging economies has been compounded by an increase in government bond yields on 2010 levels. The WACC in relation to Weir Gabbioneta has increased
significantly on 2010, driven by the increase in Italian government bond yields.
2 Real growth
Real growth beyond the five year forecast period of 1.2%, for all businesses except South Africa where a rate of 4.0% is used, 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 Seaboard
Weir Seaboard is a wellhead solutions provider focused on the growing North American unconventional oil and gas drilling and production markets. Demand for Weir
Seaboard’s products and services is closely related to the number of conventional and unconventional oil drilling rigs and gas well drilling rigs 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 2011.
98 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
14. Impairment testing of goodwill & intangible assets with indefinite lives (continued)
5 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 the
business’s 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 2011.
6 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 capital
expenditure and activity have been used to derive revenue growth assumptions. These independent forecasts were prepared during the final quarter of 2011.
7 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 2011.
Sensitivity analysis
Base case forecasts show significant headroom above carrying value for each of the CGUs with the exception of Weir Gabbioneta. Sensitivity analysis has been undertaken for
each CGU to assess the impact of any reasonable possible changes in key assumptions. Other than in relation to Weir Gabbioneta, there is no reasonably possible change that
would cause the carrying values to exceed recoverable amounts. With regard to Weir Gabbioneta, downside sensitivities have been assessed and, although headroom exists
between the carrying value of goodwill and intangible assets with indefinite useful lives and their value in use, this headroom is much reduced. As at 30 December 2011, the
headroom is £10.2m. The main drivers for this are the increased competition in the markets the business operates in and an increase of over 300 basis points in the discount
rate applied when compared to 2010, the latter being driven by macro-economic conditions in the Eurozone. The headroom existing in the base case would be eliminated with
the CGU at breakeven if the discount rate were to increase by a further 150 basis points or if operating cashflows in year 1 of the forecast period were to reduce by 40%.
15. Investments in joint ventures
The significant investments in joint ventures are as follows.
At 1 January 2010
Share of results
Share of dividends
Exchange adjustment
At 31 December 2010
Share of results
Share of dividends
Exchange adjustment
At 30 December 2011
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
9.7
4.6
(4.2)
0.2
10.3
4.8
(4.1)
0.4
11.4
2011
£m
2010
£m
3.4
10.8
2.8
(4.1)
(1.5)
11.4
18.9
(10.8)
(0.7)
(1.8)
(0.8)
4.8
3.4
8.7
3.0
(3.8)
(1.0)
10.3
18.5
(10.9)
(1.0)
(1.2)
(0.8)
4.6
Carrying value of investments in joint ventures
11.4
10.3
The Group’s significant investments in joint ventures are listed on page 136.
Annual Report & Financial Statements 2011 Financial statements
16. Inventories
Raw materials
Work in progress
Finished goods
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 49 days (2010: 51 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
99
2010
Restated
(note 2)
£m
96.4
81.4
132.3
310.1
2010
Restated
(note 2)
£m
311.8
(13.8)
298.0
29.3
7.8
0.3
16.0
351.4
2010
Restated
(note 2)
£m
240.9
57.1
13.8
311.8
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)
2011
£m
138.7
118.8
212.3
469.8
2011
£m
455.6
(12.8)
442.8
42.5
12.6
5.5
13.8
517.2
2011
£m
343.5
99.3
12.8
455.6
2011
£m
77.5
15.6
6.2
99.3
2011
£m
(13.8)
(4.2)
1.0
0.4
3.5
0.3
(12.8)
100 The Weir Group PLC
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
2011
£m
1.8
0.9
10.1
12.8
2011
£m
19.6
(26.8)
(7.2)
119.6
(126.8)
(7.2)
2010
£m
1.7
2.4
9.7
13.8
2010
£m
16.2
(21.8)
(5.6)
116.4
(122.0)
(5.6)
The amount of retentions held by customers for contract work amounted to £nil (2010: £0.1m) and the amount of advances received from customers for contract work
amounted to £5.7m (2010: £7.2m).
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)
2011
£m
73.8
40.1
113.9
113.9
(5.3)
108.6
2010
£m
82.3
1.7
84.0
84.0
(4.5)
79.5
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.
Annual Report & Financial Statements 2011 Financial statements
101
2011
£m
2010
£m
1.7
3.6
5.3
86.2
0.5
92.0
536.3
158.2
0.6
695.1
3.4
1.1
4.5
1.3
0.5
6.3
203.5
157.4
0.4
361.3
Weighted average
interest rate
Maturity
Interest
basis
2011
%
2010
%
2011
£m
2010
£m
2014
US$ LIBOR
1.28
1.26
163.0
203.1
2014
2013
US$ LIBOR
US$ LIBOR
2.28
1.78
-
-
190.3
243.7
-
-
2012
US$ LIBOR
2011 BoE base rate
FIXED
2013
1.60
-
13.75
-
3.50
13.75
2014
2012
US$ LIBOR
US$ LIBOR
25.1
-
0.4
622.5
(60.8)
(25.1)
-
(0.3)
536.3
-
1.0
0.7
204.8
-
-
(1.0)
(0.3)
203.5
Weighted average
interest rate
Maturity
Interest
basis
2011
%
2010
%
2011
£m
2010
£m
2015
2015
2018
2018
FIXED
FIXED
FIXED
FIXED
4.58
4.20
5.36
5.03
4.58
4.20
5.36
5.03
12.0
58.1
42.9
45.2
158.2
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
Seaboard acquisition finance
United States dollar variable rate amortising term loan
United States dollar variable rate bridging loan
Other
Uncommitted facility loan
Sterling term loan
Indian rupee term loan
Less current instalments due on bank loans
United States dollar variable rate amortising term loan
Uncommitted facility loan
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
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. All bank loans and fixed rate notes are unsecured and rank pari passu.
As part of the acquisition of Weir Seaboard the Group entered into two bank loans. Firstly a US$300m term loan, amortising in equal instalments semi-annually to
22 September 2014. Secondly a US$380m bridging loan repayable at the earlier of 23 May 2013 or 7 days after a Debt Capital Markets issue. As at 30 December 2011 both
these facilities were fully drawn. These new facilities are in addition to the Group’s existing US$800m multi-currency revolving credit facility which was entered into in 2010.
As at 30 December 2011, £163.0m was drawn under the revolving credit facility. On 16 February 2012, the Group issued US dollar denominated fixed rate notes via a
Private Placement to US investors totalling US$1bn. The notes were US$210m of seven year, US$590m of ten year and US$200m of eleven year notes. The average
coupon payable is 4.16%. Following this issue, the Group repaid in full the US$380m bridging loan.
102 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
21. Trade & other payables
Current
Trade payables
Other creditors
Other taxes & social security costs
Accruals
Contingent consideration (note 13)
Deferred income
Non-current
Contingent consideration
22. Provisions
At 31 December 2010
Prior year adjustments
At 31 December 2010 - restated (note 2)
Additions
Acquisitions
Utilised
Unutilised
Exchange adjustment
At 30 December 2011
Current 2011
Non-current 2011
Current 2010
Non-current 2010
Warranties & onerous sales contracts
2010
Restated
(note 2)
£m
222.9
16.0
10.3
74.9
2.7
83.5
410.3
2011
£m
346.3
19.3
17.0
107.6
9.1
66.1
565.4
15.5
1.7
Other
£m
12.2
-
12.2
6.4
-
(6.3)
(3.9)
(0.3)
8.1
6.8
1.3
8.1
10.7
1.5
12.2
Total
£m
80.0
3.9
83.9
39.0
1.5
(25.0)
(7.9)
(1.2)
90.3
53.7
36.6
90.3
45.4
38.5
83.9
Warranties
& onerous
sales
contracts
£m
Discontinued
operations
Employee warranty &
indemnity
£m
related
£m
37.8
3.7
41.5
27.9
1.5
(16.4)
(3.6)
(0.4)
50.5
40.0
10.5
50.5
29.7
11.8
41.5
25.7
0.2
25.9
3.5
-
(2.3)
(0.4)
(0.5)
26.2
3.6
22.6
26.2
5.0
20.9
25.9
4.3
-
4.3
1.2
-
-
-
-
5.5
3.3
2.2
5.5
-
4.3
4.3
Provision has been made in respect of actual warranty and contract penalty claims on goods sold and services provided and for potential warranty claims based on past experience
for goods and services sold with a warranty guarantee. Provision has also 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 all costs 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. The provision as at 30
December 2011 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.
Other
Other provisions relate to an environmental clean up programme in the United States for a company acquired in 1992, restructuring costs 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.
Annual Report & Financial Statements 2011 Financial statements
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
103
2010
Restated
(note 2)
£m
18.9
3.7
1.9
55.0
(52.0)
27.5
(12.7)
(21.7)
(81.5)
(11.6)
52.0
(75.5)
2011
£m
23.0
5.8
0.9
48.1
(39.8)
38.0
(19.5)
(27.1)
(74.3)
(0.3)
39.8
(81.4)
(43.4)
(48.0)
The movement in deferred income tax assets and liabilities during the period was as follows.
At 1 January 2010
Acquisitions
(Charged) credited to the income statement
Credited (charged) to equity
Exchange adjustment
At 31 December 2010 - restated (note 2)
Acquisitions
(Charged) credited to the income statement
Credited to equity
Exchange adjustment
At 30 December 2011
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
21.1
-
(0.3)
(2.1)
0.2
18.9
-
(5.0)
9.1
-
23.0
(7.2)
(1.3)
(0.4)
-
(0.1)
(9.0)
1.8
(6.5)
-
-
(13.7)
(18.9)
-
0.5
-
(3.3)
(21.7)
-
(6.7)
-
1.3
(27.1)
(60.9)
(16.6)
0.8
-
(2.9)
(79.6)
(1.3)
7.2
-
0.3
(73.4)
34.2
2.2
3.5
0.1
3.4
43.4
0.4
(1.9)
5.7
0.2
47.8
Total
£m
(31.7)
(15.7)
4.1
(2.0)
(2.7)
(48.0)
0.9
(12.9)
14.8
1.8
(43.4)
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 £1.6m (2010: £1.9m) have not been recognised on the grounds that there is insufficient evidence that these assets
will be recoverable. These assets will be recovered when future tax charges are sufficient to absorb these tax benefits. Deferred tax asset balances for capital losses in the
UK amounting to £10.7m (2010: £11.6m) 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 £27.1m (2010: £21.7m) has been recognised in respect of taxes on the unremitted earnings of the South American and Canadian subsidiaries.
As at 30 December 2011, 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 £1,095.0m (2010: £820.9m).
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 2011 enacted legislation to reduce the UK
corporate rate of taxation from 26% to 25% from 1 April 2012. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by the financial year
beginning 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 to 30 December 2011. 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.
104 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
24. Pensions & other post-employment benefit plans
The Group has five defined benefit pension plans in the UK and North America. All defined benefit plans are closed to new members. The most significant of the defined
benefit plans are the two UK plans. Contribution salary in respect of the Group’s main UK plan is capped and will increase in line with RPI up to a maximum of 5% per annum
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
2011
£m
2010
£m
2011
£m
2010
£m
2011
£m
2010
£m
150.2
91.4
335.3
14.8
591.7
(662.3)
(70.6)
143.7
95.5
326.5
14.9
580.6
(633.9)
(53.3)
7.1
6.3
-
1.1
14.5
(28.6)
(14.1)
7.5
5.5
-
1.2
14.2
(25.9)
(11.7)
157.3
97.7
335.3
15.9
606.2
(690.9)
(84.7)
151.2
101.0
326.5
16.1
594.8
(659.8)
(65.0)
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 Consolidated Income Statement
Current service cost
Past service gain - exceptional item (note 5)
Expected return on plan assets
Interest cost on plan liabilities
Other finance costs
Taken to the Consolidated Statement of Comprehensive Income
Actual return on plan assets
Less: expected return on plan assets
Other actuarial losses
Actuarial losses recognised in the Consolidated Statement of Comprehensive Income
UK pensions
North American
pensions & post-retirement
healthcare
Total
2011
£m
2010
£m
2011
£m
2010
£m
2011
£m
2010
£m
1.3
(19.0)
(32.2)
33.1
0.9
31.7
(32.2)
(0.5)
(41.7)
(42.2)
1.3
-
(32.5)
33.5
1.0
56.5
(32.5)
24.0
(25.3)
(1.3)
-
-
(0.9)
1.3
0.4
0.5
(0.9)
(0.4)
(2.4)
(2.8)
-
-
(0.8)
1.4
0.6
1.3
(0.8)
0.5
(2.6)
(2.1)
1.3
(19.0)
(33.1)
34.4
1.3
32.2
(33.1)
(0.9)
(44.1)
(45.0)
1.3
-
(33.3)
34.9
1.6
57.8
(33.3)
24.5
(27.9)
(3.4)
Pension contributions are determined with the advice of independent qualified actuaries on the basis of annual valuations using the projected unit method. The Group made
contributions of £6.6m in 2011 (2010: £9.3m) in addition to the employers regular contributions. The total contributions to the defined benefit plans in 2012 are expected
to be £9.5m. 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.
Annual Report & Financial Statements 2011 Financial statements
105
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
2011
%
2010
%
2011
%
2010
%
Post-retirement
healthcare
2011
%
2010
%
3.1
2.9
1.9
4.8
8.1
3.3
4.8
3.3
3.1
n/a
3.4
3.1
2.0
5.4
7.7
3.8
5.4
3.8
3.4
n/a
3.4
n/a
n/a
4.5
6.2
4.1
n/a
3.8
2.2
n/a
3.7
n/a
n/a
5.3
7.7
5.1
n/a
3.9
2.4
n/a
n/a
n/a
n/a
4.5
n/a
n/a
n/a
n/a
2.1
**
n/a
n/a
n/a
5.4
n/a
n/a
n/a
n/a
2.4
*
* 8.60% per annum decreasing to 4.5% per annum and remaining static at that level from 2028 onwards.
** 8.30% 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
2011
Years
2010
Years
2011
Years
2010
Years
2011
Years
2010
Years
20.9
23.7
23.8
26.6
20.9
23.7
23.8
26.6
19.3
21.3
19.5
21.4
18.9
21.1
19.1
21.2
19.1
21.0
19.1
21.0
19.1
21.0
19.1
21.0
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 2041 (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 2012.
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
2011
£m
Decrease
2011
£m
Increase
2010
£m
Decrease
2010
£m
6.0
(6.0)
5.8
(5.8)
0.8
71.1
(2.1)
(71.7)
1.8
61.2
(3.1)
(72.8)
Increase
2011
£m
Decrease
2011
£m
Increase
2010
£m
Decrease
2010
£m
0.6
(0.5)
0.6
(0.5)
106 The Weir Group PLC
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
Past service gain - exceptional item (note 5)
Interest cost
Benefits paid
Contributions by employees
Actuarial losses
Exchange adjustment
Closing defined benefit obligations
UK pensions
North American
pensions & post-retirement
healthcare
Total
2011
£m
633.9
1.3
(19.0)
33.1
(29.5)
0.8
41.7
-
662.3
2010
£m
600.3
1.3
-
33.5
(27.3)
0.8
25.3
-
633.9
2011
£m
25.9
-
-
1.3
(1.3)
-
2.4
0.3
28.6
2010
£m
22.9
-
-
1.4
(1.6)
-
2.6
0.6
25.9
2011
£m
659.8
1.3
(19.0)
34.4
(30.8)
0.8
44.1
0.3
690.9
2010
£m
623.2
1.3
-
34.9
(28.9)
0.8
27.9
0.6
659.8
The defined benefit obligations comprise £8.4m (2010: £8.4m) arising from unfunded plans and £682.5m (2010: £651.4m) from plans that are wholly or partially funded.
The past service gain of £19.0m has arisen as a result of a decision by the Trustees of The Weir Group Pension and Retirement Saving Scheme that, following the Government’s
recent change in legislation, certain elements of pension will now increase in line with Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). This decision was
announced to the members of the scheme in July 2011. The past service gain has been recognised as an exceptional item in the Consolidated Income Statement.
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
Actuarial (losses) gains
Exchange adjustment
Closing plan assets
UK pensions
North American
pensions & post-retirement
healthcare
Total
2011
£m
580.6
32.2
8.1
0.8
(29.5)
(0.5)
-
591.7
2010
£m
539.8
32.5
10.8
0.8
(27.3)
24.0
-
580.6
2011
£m
14.2
0.9
1.1
-
(1.3)
(0.4)
-
14.5
2010
£m
12.4
0.8
1.6
-
(1.6)
0.5
0.5
14.2
2011
£m
594.8
33.1
9.2
0.8
(30.8)
(0.9)
-
606.2
2010
£m
552.2
33.3
12.4
0.8
(28.9)
24.5
0.5
594.8
Annual Report & Financial Statements 2011 Financial statements
107
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
2011
£m
2010
£m
2009
£m
2008
£m
2007
£m
591.7
(662.3)
(70.6)
0.9
(42.6)
(0.5)
14.5
(28.6)
(14.1)
(0.3)
(2.1)
(0.4)
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)
The cumulative amount of actuarial gains and losses recognised in other comprehensive income since 28 December 2003 is a loss of £95.0m (2010: £50.0m).
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.
108 The Weir Group PLC
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
2011
Number
Million
2010
Number
Million
212.8
0.2
213.0
212.7
0.1
212.8
2.1
(0.4)
1.7
2.5
(0.4)
2.1
The Company has one class of ordinary share which carries no rights to fixed income.
As at 30 December 2011, 168,142 shares (2010: 134,809 shares) were held by the EBT with a market value of £3.4m (2010: £2.4m).
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
2011
£m
(0.5)
2.0
-
1.5
2010
£m
0.4
0.4
(0.7)
0.1
Annual Report & Financial Statements 2011 Financial statements
109
2011
£m
2010
£m
408.6
(4.8)
60.4
0.4
(0.8)
(19.0)
(1.3)
4.9
4.5
5.0
457.9
(137.6)
(127.8)
110.1
302.6
(6.6)
(97.3)
198.7
291.5
(4.6)
52.3
0.2
0.1
-
(1.8)
3.0
(0.5)
2.1
342.3
(39.9)
(61.8)
34.3
274.9
(9.3)
(72.4)
193.2
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
(Gains) losses on disposal of property, plant & equipment
Defined benefit plans past service gain
Funding of pension & post-retirement costs
Employee share schemes
Net foreign exchange including derivative financial instruments
Increase in provisions
Cash generated from operations before working capital cash flows
Increase in inventories
Increase in trade & other receivables & construction contracts
Increase in trade & other payables & construction contracts
Cash generated from operations
Additional pension contributions paid
Income tax paid
Net cash generated from operating activities
Acquisitions of subsidiaries
The settlement of the external debt of Weir Seaboard on acquisition has been classified as a financing cash flow in accordance with IAS7. The following tables summarise the
cashflows arising on acquisitions:
Current period acquisitions (see below)
Previous periods acquisitions deferred consideration paid
Settlement of external debt of subsidiary on acquisition
Acquisition of subsidiaries - current year acquisitions
Total cash outflow on acquisition of subsidiaries - current year (note 13)
Previous periods acquisitions deferred consideration paid
Total cash outflow relating to acquisitions
Disposals of subsidiaries
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 in cash & cash equivalents from discontinued operations - investing activities (note 8)
Net increase 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)
2011
£m
(384.1)
(1.9)
(386.0)
(55.4)
(384.1)
(439.5)
(1.9)
(441.4)
2010
£m
(203.3)
(0.1)
(203.4)
-
(203.3)
(203.3)
(0.1)
(203.4)
-
(0.7)
5.7
-
24.6
(362.8)
(332.5)
(0.9)
-
(55.6)
(0.6)
(389.6)
(283.6)
(673.2)
113.9
(92.0)
(695.1)
(673.2)
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)
110 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
27. Commitments & legal claims
Operating lease commitments
The Group has entered into commercial leases for land and buildings, motor vehicles and plant and equipment. Land and building leases have an average term of between
two and ten years, motor vehicles leases have an average term of between two and four years and plant and equipment leases have an average term of between three and
five years. Certain leases have terms of renewal, at the option of the lessee, but there are no purchase options or escalation clauses. Future minimum rentals payable under
non-cancellable operating leases are shown in the table below.
Less than one year
After one year but not more than five years
More than five years
Finance lease commitments
2011
£m
16.0
44.2
11.1
71.3
2010
£m
15.6
41.4
14.8
71.8
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
After five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
Minimum
payments
2011
£m
Present
value of
payments
2011
£m
Minimum
payments
2010
£m
Present
value of
payments
2010
£m
0.5
0.6
0.1
1.2
(0.1)
1.1
0.5
0.6
-
1.1
0.5
0.4
-
0.9
-
0.9
0.5
0.4
-
0.9
The weighted average outstanding lease term is 4.58 years (2010: 2.32 years). For the 52 weeks ended 30 December 2011, the weighted average effective borrowing rate
was 5.95% (2010: 9.22%). 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 £0.3m (2010: £0.2m).
Legal claims
2011
£m
28.2
2010
£m
6.2
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.
Annual Report & Financial Statements 2011 Financial statements
111
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 53.
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
2011
Number
Million
2.5
0.5
(0.6)
(0.1)
2.3
2011
WASP
£6.32
£16.13
£7.47
£7.03
£8.26
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
An amount of £4.9m (2010: £3.0m) has been charged to the Consolidated Income Statement in respect of the number of awards which are expected to be made at the
end of the vesting period. This comprises an amount of £1.4m (2010: £1.0m) in respect of parent company employees and £3.5m (2010: £2.0m) in respect of employees
of subsidiaries the latter including an amount of £0.1m in respect of a one-off conditional award made to a senior executive. Certain subsidiary companies made a cash
contribution to the parent company of £2.0m (2010: £1.2m) in the period in respect of their employees LTIP awards.
The remaining contractual lives of the outstanding LTIP awards at the end of the period are as follows.
Year of award
2008
2009
2010
2011
2011
Number
Million
2011
Remaining
contractual
life
2010
Number
Million
2010
Remaining
contractual
life
-
-
1.2 3 months
0.6 15 months
0.5 27 months
3 months
0.6
1.2 15 months
0.7 27 months
-
-
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 30 December 2011 and the 52 weeks ended 31 December 2010.
Weighted average dividend yield (%)
Weighted average expected volatility (%)
Weighted average expected life (years)
Weighted average risk free rate (%)
Weighted average share price (£)
Weighted average fair value (£)
2011
2010
-
50.00
3.00
1.66
16.13
12.69
2.01
55.00
3.00
1.84
9.39
7.55
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.
112 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
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
2011
2010
2011
2010
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
0.7
0.6
-
-
-
0.2
-
-
2.4
0.1
-
-
-
-
1.5
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 30 December 2011, the Group has not raised any provision for doubtful debts
relating to amounts owed by related parties as the payment history has been excellent (2010: £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
2011
£m
6.6
2.0
8.6
2010
£m
4.9
1.6
6.5
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 53.
Annual Report & Financial Statements 2011 Financial statements
113
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 risk 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 derivatives, 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.
In respect of transactional foreign currency risk, the Group maintains a policy that all operating units eliminate exposures on material committed transactions, usually by
undertaking forward foreign currency contracts through the Group’s treasury function. In addition, it is Group policy that those companies where the most significant
concentration of foreign exchange risk has been identified also apply hedge accounting in accordance with IAS39. 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 cash flows 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 23 November 2011, the Group entered into a new 3 year term loan of US$300m and a new
18 month US$380m bridging loan. This reduced the proportion of fixed rate borrowings from 44% as at 31 December 2010 to 20% as at 30 December 2011.
On 16 February 2012, the Group issued US$1bn of fixed rate notes to the US private placement market with maturities of seven years (US$210.0m), ten years (US$590.0m)
and eleven years (US$200.0m). On receipt of these funds, the Group repaid the US$380.0m bridging loan and reduced the proportion of floating rate borrowings.
This matured when the notes were issued.
Net investment in foreign operations
As at 30 December 2011, US dollar fixed rate notes of US$160.0m (2010: US$160.0m) and US dollar variable rate loans of US$926.5m (2010: US$322.5m), both included
in interest-bearing loans and borrowings, cross currency swaps of US$254.0m (2010: US$334.0m) and net forward foreign currency liability contracts of US$48.0m
(2010: US$48.0m) have been designated as a hedge of the Group’s exposure to translational foreign exchange risk on its net investments in Weir SPM, Weir Warman
and Weir Seaboard. 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.
114 The Weir Group PLC
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
2011
£m
5.8
0.7
490.8
113.9
611.2
Carrying
amount
2010
Restated
(note 2)
£m
Fair
value
2010
Restated
(note 2)
£m
8.3
1.5
327.6
84.0
421.4
8.3
1.5
327.6
84.0
421.4
Fair
value
2011
£m
5.8
0.7
490.8
113.9
611.2
(9.2)
(30.4)
(9.2)
(30.4)
(8.3)
(40.1)
(8.3)
(40.1)
(5.3)
(497.8)
(1.1)
(622.1)
(158.6)
(1,324.5)
(5.3)
(497.8)
(1.1)
(622.1)
(166.1)
(1,332.0)
(4.5)
(318.2)
(0.9)
(204.1)
(158.1)
(734.2)
(4.5)
(318.2)
(0.9)
(204.1)
(161.5)
(737.6)
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 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.
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 30 December 2011 and 31 December 2010, the Group held all financial instruments at level 2 fair value measurement. During the 52 weeks ended 30 December 2011
and the 52 weeks ended 31 December 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.
Annual Report & Financial Statements 2011 Financial statements
30. Financial assets & liabilities (continued)
Derivative financial instruments
Set out in the table below is a summary of the types of derivative financial instruments included within each balance sheet category.
Included in non-current assets
Forward foreign currency contracts designated as cash flow hedges
Other forward foreign currency contracts
Included in current assets
Forward foreign currency contracts designated as cash flow hedges
Forward foreign currency contracts designated as net investment hedges
Other forward foreign currency contracts
Included in current liabilities
Forward foreign currency contracts designated as cash flow hedges
Forward foreign currency contracts designated as net investment hedges
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
115
2011
£m
2010
£m
0.1
-
0.1
0.6
-
5.8
6.4
2.1
0.4
12.9
9.0
24.4
0.7
14.3
0.2
15.2
33.1
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
116 The Weir Group PLC
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 30 December 2011
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
490.8
113.9
604.7
(482.3)
(0.5)
(5.3)
(99.0)
(7.6)
(594.7)
-
-
-
-
(0.3)
-
(312.6)
(7.6)
(320.5)
-
-
-
(8.2)
(0.3)
-
(236.2)
(86.6)
(331.3)
Total
£m
490.8
113.9
604.7
-
-
-
(15.8)
(0.1)
-
-
(92.7)
(108.6)
(506.3)
(1.2)
(5.3)
(647.8)
(194.5)
(1,355.1)
Net non-derivative financial assets (liabilities)
10.0
(320.5)
(331.3)
(108.6)
(750.4)
52 weeks ended 31 December 2010 - restated (note 2)
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 loans
Non-derivative financial liabilities
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
More than
5 years
£m
327.6
84.0
411.6
(316.5)
(0.5)
(4.5)
(4.1)
(7.6)
(333.2)
-
-
-
-
(0.2)
-
(4.6)
(7.6)
(12.4)
-
-
-
(1.7)
(0.2)
-
(217.3)
(89.3)
(308.5)
-
-
-
-
-
-
-
(96.9)
(96.9)
Total
£m
327.6
84.0
411.6
(318.2)
(0.9)
(4.5)
(226.0)
(201.4)
(751.0)
Net non-derivative financial assets (liabilities)
78.4
(12.4)
(308.5)
(96.9)
(339.4)
Annual Report & Financial Statements 2011 Financial statements
117
Total
£m
(180.7)
154.0
(26.7)
(671.5)
665.8
(5.7)
(852.2)
819.8
(32.4)
(0.7)
(33.1)
Total
£m
(235.3)
196.9
(38.4)
(537.5)
537.8
0.3
(772.8)
734.7
(38.1)
(0.5)
(38.6)
Less than
1 year
£m
(57.1)
45.1
(12.0)
(642.4)
637.6
(4.8)
(699.5)
682.7
(16.8)
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
(55.3)
43.9
(11.4)
(23.1)
22.3
(0.8)
(78.4)
66.2
(12.2)
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
(20.7)
19.6
(1.1)
(6.0)
5.9
(0.1)
(26.7)
25.5
(1.2)
(47.6)
45.4
(2.2)
-
-
-
(47.6)
45.4
(2.2)
2 to 5
years
£m
More than
5 years
£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)
30. Financial assets & liabilities (continued)
52 weeks ended 30 December 2011
Cross currency swaps - outflow
Cross currency swaps - inflow
Cross currency swaps - net outflow
Forward foreign currency contracts - outflow
Forward foreign currency contracts - inflow
Forward foreign currency contracts - net outflow
Derivative financial instruments net outflow
Derivative financial instruments net inflow
Derivative financial instruments net outflow
Effect of discounting
Net derivative financial liabilities
52 weeks ended 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
118 The Weir Group PLC
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 30 December 2011
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
Net floating rate financial instruments
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)
-
-
-
(0.1)
-
(0.3)
(0.4)
-
-
-
-
(70.1)
(0.3)
(70.4)
(12.6)
12.0
(0.6)
-
(88.1)
-
(88.1)
(45.1)
43.0
(2.1)
Total
£m
(0.4)
(158.2)
(1.1)
(159.7)
(57.7)
55.0
(2.7)
(0.8)
(0.4)
(71.0)
(90.2)
(162.4)
113.9
(5.3)
(85.9)
22.7
(53.5)
40.6
(12.9)
-
-
(304.4)
(304.4)
(52.2)
41.0
(11.2)
-
-
(231.8)
(231.8)
-
-
-
9.8
(315.6)
(231.8)
-
-
-
-
-
-
-
-
113.9
(5.3)
(622.1)
(513.5)
(105.7)
81.6
(24.1)
(537.6)
Annual Report & Financial Statements 2011 Financial statements
119
Total
£m
(0.7)
(157.4)
(0.9)
(159.0)
(57.3)
55.0
(2.3)
Less than
1 year
£m
1 to 2
years
£m
2 to 5
years
£m
More than
5 years
£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)
30. Financial assets & liabilities (continued)
52 weeks ended 31 December 2010
Fixed net 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
(0.8)
(0.5)
(70.5)
(89.5)
(161.3)
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
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)
Net floating rate financial instruments
66.3
(12.7)
(214.1)
-
-
-
-
-
-
-
-
84.0
(4.5)
(204.1)
(124.6)
(156.6)
120.7
(35.9)
(160.5)
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.
120 The Weir Group PLC
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 and cross currency swaps in respect of each currency to which the Group has a significant exposure
to interest rate risk.
2011
Canadian dollar
UK sterling
US dollar
2010
Canadian dollar
UK sterling
US dollar
Effect
on profit
before tax
gain (loss)
£m
Effect
on equity
gain (loss)
£m
Increase in
basis points
+ 100
+ 100
+ 100
+ 100
+ 100
+ 100
-
1.5
(1.8)
0.1
1.9
(4.0)
-
-
(9.1)
-
-
0.3
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. All other forward foreign currency contracts,
while representing commercial hedges, are not subject to cash flow hedge accounting with all fair value movements being recognised in the income statement.
The net carrying amount, maturity dates and the amounts recognised for the period in profit or loss and equity for each derivative financial instrument are set out below.
52 weeks ended 30 December 2011
Forward foreign currency contracts designated as cash flow hedges
Forward foreign currency contracts designated as net investment hedges
Cross currency swaps designated as net investment hedges
Other forward foreign currency contracts at fair value through profit or loss
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
Net carrying
amount
£m
(2.1)
(0.4)
(27.2)
(3.4)
(33.1)
Net carrying
amount
£m
0.2
-
0.2
(39.0)
-
(38.6)
Recognised
in profit Recognised
in equity
or loss
gain (loss)
gain (loss)
£m
£m
Maturity
dates
2012 to 2013
2012
2012 to 2018
2012 to 2017
1.5
-
0.2
4.3
6.0
(1.2)
(0.1)
1.0
-
(0.3)
Recognised
in profit Recognised
in equity
or loss
gain (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)
The £0.2m gain (2010: £0.1m) recognised in profit or loss in respect of cross currency swaps designated as net investment hedges reflects the benefit of US dollar / sterling
interest rate differential. The Group’s forward foreign currency contracts subject to cash flow hedge accounting which were deemed to be ineffective during the period
resulted in a net charge to the income statement of £nil (2010: £0.3m). The interest rate swaps which were used by the Group to convert borrowings from floating to fixed
rates of interest matured during 2010. In 2010 there was no ineffectiveness in relation to the Group’s interest rate swaps.
Annual Report & Financial Statements 2011 Financial statements
121
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 United States dollar. The following table
demonstrates the sensitivity to a reasonably possible change in these foreign currency exchange rates with all other variables held constant. The sensitivity analysis shows
the effect on profit or loss in respect of financial assets and liabilities denominated in foreign currency, including payables, receivables, borrowings and forward foreign
currency contracts but excluding all financial assets and liabilities qualified as either cash flow or net investment hedges. The sensitivity analysis also shows the effect on
equity in respect of financial assets and liabilities denominated in foreign currency qualified as either cash flow or net investment hedges including forward foreign currency
contracts, borrowings and cross currency swaps. The sensitivity analysis adjusts the translation of each respective financial asset or liability at the financial year end for a
25% strengthening of sterling against the relevant exchange rates.
Increase in
currency rate
Effect
on profit
gain (loss)
£m
Effect
on equity
gain (loss)
£m
2011
Australian dollar
Canadian dollar
Euro
US dollar
2010
Australian dollar
Canadian dollar
Euro
US dollar
+25%
+25%
+25%
+25%
+25%
+25%
+25%
+25%
0.3
0.5
(12.6)
9.6
0.5
(0.4)
2.4
6.2
As noted above, the Group does not hedge translational exposure arising from profit and loss items. The Group’s operating profit from continuing operations before
exceptional items and intangibles amortisation was denominated in the following currencies.
US dollar
Australian dollar
Euro
Canadian dollar
Brazilian real
Chilean peso
South African rand
Other
Operating profit from continuing operations before exceptional items & intangibles amortisation
2011
£m
253.5
57.0
27.7
29.5
11.7
24.4
8.4
0.5
412.7
-
-
(1.4)
183.7
-
-
(0.9)
113.9
2010
£m
163.6
39.7
47.3
8.3
8.7
19.6
8.1
14.4
309.7
122 The Weir Group PLC
Notes to the
Group Financial Statements
(continued)
31. Capital management
The primary objective of the Group’s capital management is to ensure that it maintains 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
2011
2010
673.2
1,118.1
60
283.6
921.7
31
Net debt to EBITDA comprises net debt divided by operating profit from continuing operations before exceptional items, depreciation, intangibles amortisation and impairment.
Net debt (£m)
Operating profit (£m)
Exceptional item included in operating profit (note 5) (£m)
Depreciation, intangibles amortisation & impairment (£m)
EBITDA (£m)
Net debt to EBITDA cover (ratio)
Interest cover
2011
2010
673.2
408.6
(19.0)
60.8
450.4
1.5
283.6
291.5
-
52.5
344.0
0.8
Interest cover comprises operating profit from continuing operations before exceptional items and intangibles amortisation divided by net finance costs (excluding exceptional
item and other finance costs).
Operating profit before exceptional items & intangibles amortisation (£m)
Net finance costs (excluding exceptional item and other finance costs) (£m)
Interest cover (ratio)
2011
2010
412.7
15.1
27.3
309.7
13.4
23.1
The Group’s banking arrangements also require the calculation of net debt to EBITDA and interest cover as part of the bi-annual financial covenant certifications. For the
purposes of the covenants required by the Group’s lenders, the net debt is to be converted at the exchange rate used in the preparation of the Group’s income statement
and cash flows, ie. average rate. In addition, profits of businesses acquired in the financial year have to be included as if the acquisitions occurred at the start of the financial
year. The covenant calculations for the purposes of the Group’s lenders are shown below.
Net debt to EBITDA cover - lender covenants basis
Net debt at average exchange rates (£m)
Operating profit* (£m)
Exceptional item included in operating profit (note 5) (£m)
Depreciation, intangibles amortisation & impairment* (£m)
EBITDA* (£m)
Net debt to EBITDA cover (ratio)
Interest cover - lender covenants basis
Operating profit before exceptional items & intangibles amortisation* (£m)
Net finance costs (excluding exceptional item and other finance costs)* (£m)
Interest cover (ratio)
* Adjusted for current year acquisitions.
2011
2010
652.5
437.6
(19.0)
65.8
484.4
1.3
286.4
305.5
-
55.5
361.0
0.8
2011
2010
441.7
15.1
29.3
323.7
13.4
24.2
Annual Report & Financial Statements 2011 Financial statements
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
123
2011
2010
1.60
1.56
1.15
1.59
2.68
774.99
11.64
1.55
1.51
1.20
1.58
2.89
805.90
12.53
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
33. Events after the balance sheet date
On 22 February 2012, the Group completed the acquisition of Novatech LLC for an equivalent enterprise value of US$176m (£112m).
On 16 February 2012, the Group issued US$1bn of senior unsecured fixed rate notes through a private placement to US investors with maturities of 7, 10 and 11 years
and an average interest rate of 4.16%. The proceeds were used to repay the US$380m bridging loan taken out to fund the Seaboard acquisition, to fund the acquisition
of Novatech and repay other borrowing facilities.
No further disclosures have been provided under IFRS3 in respect of business combinations after the balance sheet date on the basis that the initial accounting is not
yet complete.
124 The Weir Group PLC
Annual Report & Financial Statements 2011 Financial statements
Independent Auditors
Report
Independent auditors report to the members of The Weir
Group PLC
Opinion on other matter prescribed by the 2006 Act
In our opinion:
• the part of the Remuneration report to be audited has been
properly prepared in accordance with the 2006 Act; 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 2006 Act requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Company financial statements and the part of the
Remuneration report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Other matter
We have reported separately on the Group financial statements of
The Weir Group PLC for the 52 weeks ended 30 December 2011.
Hywel Ball (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
29 February 2012
We have audited the Company financial statements of The Weir
Group PLC for the 52 weeks ended 30 December 2011 which
comprise the Company Balance Sheet and the related notes
1 to 17. The financial reporting framework that has been applied
in their preparation is applicable law and United Kingdom
Accounting Standards (UK GAAP).
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 (“the 2006 Act”). 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 auditor’s 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 & auditor
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 Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and
the overall presentation of the financial statements. In addition,
we read all the financial and non-financial information in the
Annual Report and Financial Statements 2011 to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
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 30 December 2011;
• have been properly prepared in accordance with UK GAAP; and
• have been prepared in accordance with the requirements of the
2006 Act.
Company
Balance Sheet
at 30 December 2011
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
125
30 December 31 December
2010
£m
2011
£m
Notes
3
4
5
10
6
10
7
10
8
9
11
12
12
12
12
12
0.8
1,597.5
1,598.3
0.3
1,138.9
1,139.2
30.3
17.6
47.3
95.2
568.7
29.6
598.3
503.1
20.5
13.7
5.5
39.7
306.9
25.5
332.4
292.7
1,095.2
846.5
694.4
15.5
709.9
391.4
28.2
419.6
5.4
9.2
379.9
417.7
1.0
0.9
378.9
416.8
26.6
38.0
(5.6)
0.5
1.8
317.6
26.6
38.0
(6.8)
0.5
1.8
356.7
378.9
416.8
Approved by the Board of Directors on 29 February 2012
Keith Cochrane, Director
Jon Stanton, Director
126 The Weir Group PLC
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 and 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.
Annual Report & Financial Statements 2011 Financial statements 127
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 £11.6m (2010: £94.3m). 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 2010: 21.0p (2009: 16.20p)
Interim dividend for 2011: 7.2p (2010: 6.00p)
Proposed for approval by shareholders at the annual general meeting
Final dividend for 2011: 25.8p (2010: 21.0p)
2011
£m
2010
£m
44.3
15.2
59.5
34.1
12.6
46.7
54.5
44.3
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 53.
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 (2010: £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.
128 The Weir Group PLC
Notes to the
Company Financial Statements
(continued)
3. Tangible assets
Cost
At 31 December 2010
Additions
At 30 December 2011
Aggregate depreciation
At 31 December 2010
Charge for year
At 30 December 2011
Net book value at 31 December 2010
Net book value at 30 December 2011
4. Fixed asset investments
Cost
At 31 December 2010
Additions
Repayments
At 30 December 2011
Impairment
At 31 December 2010 & at 30 December 2011
Net book value at 31 December 2010
Net book value at 30 December 2011
The principal subsidiaries and joint ventures of the Company are listed on page 136.
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
0.6
1.8
0.9
0.1
1.0
0.3
0.8
Subsidiaries
Shares
£m
Loans
£m
Total
£m
549.4
43.3
-
592.7
595.1
472.9
(57.6)
1,010.4
1,144.5
516.2
(57.6)
1,603.1
0.2
5.4
5.6
549.2
589.7
1,138.9
592.5
1,005.0
1,597.5
2011
£m
2010
£m
21.3
0.8
5.7
1.9
0.6
30.3
16.6
0.6
1.3
1.5
0.5
20.5
Annual Report & Financial Statements 2011 Financial statements
129
2011
£m
197.0
345.2
2.0
2.0
4.3
18.2
568.7
2010
£m
92.3
196.1
2.2
1.4
2.4
12.5
306.9
2011
£m
2010
£m
85.9
345.2
304.4
-
231.8
70.1
-
1.0
196.1
-
30.8
203.1
69.7
0.1
88.1
1,125.5
87.7
588.5
(85.9)
(345.2)
694.4
(1.0)
(196.1)
391.4
Discontinued
operations
warranty &
indemnity
£m
Subsidiaries
£m
5.1
(3.8)
1.3
4.1
-
4.1
Total
£m
9.2
(3.8)
5.4
6. Creditors
Bank overdrafts & short-term borrowings
Loans from subsidiaries
Amounts owed to subsidiaries
Other taxes & social security costs
Other creditors
Accruals & deferred income
7. Loans
Amounts due are repayable as follows
Less than one year
- bank loans
- 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 loans
- loans from subsidiaries
8. Provisions
At 31 December 2010
Released - unutilised
At 30 December 2011
Subsidiaries
As at 30 December 2011, a provision of £1.3m (2010: £5.1m) 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 30
December 2011 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.
130 The Weir Group PLC
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
2011
£m
(1.4)
0.4
(1.0)
2011
£m
0.1
0.1
2011
%
2.9
4.8
3.1
2010
£m
(1.3)
0.4
(0.9)
2010
£m
0.1
0.1
2010
%
3.1
5.4
3.4
2011
Years
2010
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 2041 (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
2011
£m
1.3
0.1
(0.1)
0.1
1.4
2011
£m
-
0.1
(0.1)
-
2010
£m
1.1
0.1
(0.1)
0.2
1.3
2010
£m
-
0.1
(0.1)
-
Annual Report & Financial Statements 2011 Financial statements
131
9. Retirement benefits (continued)
History of experience gains & losses
Present value of defined benefit obligation
Deficit in the plans
Experience adjustments arising on plan liabilities
Changes in assumptions underlying plan liabilities
2011
£m
(1.4)
(1.4)
-
(0.1)
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
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 2012 are expected to be £8.0m.
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. The actual return on plan assets in the period was a gain of £31.7m (2010: £56.5m).
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
Past service gain
Expected return on plan assets
Interest cost on plan liabilities
Other finance costs
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
2011
%
2011
£m
2010
%
7.7
3.8
5.4
3.8
8.1
3.3
4.8
3.3
150.2
91.4
335.3
14.8
591.7
(660.9)
(69.2)
2010
£m
143.7
95.5
326.5
14.9
580.6
(632.6)
(52.0)
2011
£m
2010
£m
1.3
(19.0)
(32.2)
33.0
0.8
31.7
(32.2)
(0.5)
(41.6)
(42.1)
1.3
-
(32.5)
33.4
0.9
56.5
(32.5)
24.0
(25.1)
(1.1)
The past service gain of £19.0m has arisen as a result of a decision by the Trustees of The Weir Group Pension and Retirement Saving Scheme that, following the Government’s
recent change in legislation, certain elements of pension will now increase in line with Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). This decision was
announced to the members of the scheme in July 2011. The past service gain has been recognised as an exceptional item in the Consolidated Income Statement.
132 The Weir Group PLC
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
2011
%
2010
%
3.1
2.9
1.9
4.8
3.1
3.4
3.1
2.0
5.4
3.4
2011
Years
2010
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 2041 (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
Past service gain
Interest cost
Benefits paid
Contributions by employees
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
Actuarial (losses) gains
Closing plan assets
2011
£m
632.6
1.3
(19.0)
33.0
(29.4)
0.8
41.6
660.9
2011
£m
580.6
32.2
8.0
0.8
(29.4)
(0.5)
591.7
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
Annual Report & Financial Statements 2011 Financial statements
133
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
2011
£m
2010
£m
2009
£m
2008
£m
591.7
(660.9)
(69.2)
0.9
(42.5)
(0.5)
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)
2007
£m
586.8
(550.3)
36.5
(7.0)
49.0
(21.0)
The cumulative amount of actuarial losses recognised in the statement of recognised gains and losses is £252.9m (2010: £210.8m).
10. Derivative financial instruments
Current assets
Derivative financial instruments due within one year
Forward foreign currency contracts
Derivative financial instruments due after more than one year
Forward foreign currency contracts
Creditors falling due within one year
Cross currency swaps
Forward foreign currency contracts
Creditors falling due after more than one year
Cross currency swaps
Forward foreign currency contracts
The figures in the above table are inclusive of derivative financial instruments where the counterparty is a subsidiary of The Weir Group PLC.
2011
£m
2010
£m
16.5
12.3
1.1
17.6
12.9
16.7
29.6
14.3
1.2
15.5
1.4
13.7
12.2
13.3
25.5
26.8
1.4
28.2
134 The Weir Group PLC
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
2011
£m
2010
£m
26.6
26.6
2011
Number
Million
2010
Number
Million
0.2
0.1
2.1
(0.4)
1.7
2.5
(0.4)
2.1
2.3
2.5
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 1 January 2010
Profit for the period
Actuarial losses on defined benefit plans
Dividends
Cost of share-based payment inclusive of tax credits
Exercise of LTIP awards
At 31 December 2010
Profit for the period
Actuarial losses on defined benefit plans
Dividends
Cost of share-based payment inclusive of tax credits
Exercise of LTIP awards
At 30 December 2011
Share
premium
£m
Treasury
shares
£m
Capital
redemption
reserve
£m
Special Profit & loss
account
reserve
£m
£m
38.0
-
-
-
-
-
38.0
-
-
-
-
-
38.0
(7.9)
-
-
-
-
1.1
(6.8)
-
-
-
-
1.2
(5.6)
0.5
-
-
-
-
-
0.5
-
-
-
-
-
0.5
1.8
-
-
-
-
-
1.8
-
-
-
-
-
1.8
307.1
94.3
(0.2)
(46.7)
3.3
(1.1)
356.7
11.6
(0.1)
(59.5)
10.1
(1.2)
317.6
Total
£m
339.5
94.3
(0.2)
(46.7)
3.3
-
390.2
11.6
(0.1)
(59.5)
10.1
-
352.3
The profit and loss account above is stated after deducting an accumulated loss in respect of retirement benefits of £1.0m (2010: £0.9m).
Annual Report & Financial Statements 2011 Financial statements
13. Balance sheet - deferred tax
At 31 December 2010
Included in profit for the period
Credit for the period included in equity
At 30 December 2011
Included in debtors (note 5)
Included in retirement benefits (note 9)
Other timing differences
Retirement benefits
14. Operating lease commitments
As at 30 December 2011, annual commitments under non-cancellable operating leases in respect of office equipment amounted to
of which payable in respect of operating leases ending in the second to fifth years inclusive
135
Deferred tax
asset
£m
1.7
(0.8)
5.2
6.1
2010
£m
1.3
0.4
1.7
1.3
0.4
1.7
2010
£000
15
15
2011
£m
5.7
0.4
6.1
5.7
0.4
6.1
2011
£000
9
9
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 30 December 2011 amounted to £125.2m (2010: net funds of £88.3m).
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
2011
2010
17. Financial risk management objectives & policies
Management
charge
£m
Amounts
due by
£m
0.4
0.1
0.4
0.4
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.
136 The Weir Group PLC
Annual Report & Financial Statements 2011 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
Seaboard Holdings Inc
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 Gabbioneta SrL
Weir Hazleton Inc
Weir India Private Ltd
Weir International Co 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
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
Country of
registration
or incorporation
% equity
interest 2011
USA
USA
Malaysia
Scotland
USA
Australia
USA
Scotland
USA
Canada
Peru
Chile
Canada
Brazil
Scotland
USA
Italy
USA
India
South Korea
South Africa
Australia
England
France
Netherlands
France
USA
Dubai
The Bahamas
England
USA
Spain
Saudi Arabia
UAE
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
60
100
100
100
100
100
100
100
100
100
100
100
100
49
49
* Companies whose shares are owned directly by The Weir Group PLC.
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 by the financial statements.
A complete list of subsidiary and associated undertakings is attached to the annual return of the The Weir Group PLC filed at Companies House.
Group Products
ALLEN STEAM TURBINES is a trademark of Weir Engineering Services Ltd; AMERICAN HYDRO is a trademark of American Hydro Corporation; ATWOOD & MORRILL
and TRICENTRIC are registered trademarks of Weir Valves & Controls USA, Inc; BDK is a trademark of Weir India Pvt Ltd; BATLEY VALVE, BLAKEBOROUGH,
HOPKINSONS and MAC VALVE are registered trademarks of Weir Valves & Controls UK Ltd; SARASIN-RSBD and SEBIM are trademarks of Weir Power & Industrial
France SAS; ROTO-JET is a registered trademark of Envirotech Pumpsystems, Inc; WEMCO is a registered trademark used under licence by companies forming part of
The Weir Group PLC. WARMAN is a registered trademark of Weir Minerals Australia Ltd and Weir Group African IP Ltd; CAVEX, HAZLETON and MULTIFLO are registered
trademarks of Weir Minerals Australia Ltd; LEWIS and LEWIS PUMPS are registered trademarks of Envirotech Pumpsystems, Inc; GEHO is a registered trademark of
Weir Minerals Netherlands bv; FLOWAY is a registered trademark of Weir Floway Inc; VULCO is a registered trademark of Vulco SA; ISOGATE is a registered trademark
of Weir do Brasil Ltda; LINATEX is a registered trademark of Linatex Ltd. GABBIONETA is a trademark of Weir Gabbioneta Srl; MESA is a trademark of Mesa Manufacturing,
Inc; SPM is a registered trademark of S.P.M. Flow Control, Inc; BEGEMANN is a registered trademark of Weir Minerals Netherlands bv. WEIR is a registered trademark of
Weir Engineering Services Ltd.
Shareholder
information
137
2011 final dividend
Capital gains tax
The directors have recommended a final dividend of 25.8p per share, for the
52 weeks ended 30 December 2011. Payment of this dividend is subject to
approval at the 2012 annual general meeting. Key dates relating to this dividend
are given below:
Ex dividend date
Record date
Final day for receipt of DRIP elections
Annual general meeting
Payment date
Investor Centre
2 May 2012
4 May 2012
11 May 2012
9 May 2012
1 June 2012
You can choose to receive your dividend in a number of ways. Dividends will
automatically be paid to you by cheque and sent to your registered address unless
you have chosen one of the options below:
1. Direct payment to your bank: Cash dividends can be paid directly to a UK bank
or building society account. This is more convenient and helps reduce the risk
of cheques becoming lost or delayed in the post. The associated tax voucher
will still be sent direct to your registered address. To switch to this method
of payment you can apply online at Computershare’s secure website
www.investorcentre.co.uk or download a dividend mandate form from
the FAQ section of the Company’s website (www.weir.co.uk), under
‘Shareholder Information’ in the ‘Investor’ section. Alternatively, you can
contact Computershare on 0870 707 1402, who will also be able to assist
with any questions you may have.
2. Global payment service: If you live overseas, Computershare offers a
Global Payment Service which is available in certain countries. This may
make it possible to receive dividends direct into your bank account in your
local currency*. This can be set up at www.investorcentre.co.uk or contact
Computershare.
3. Dividend Reinvestment Plan (DRIP): The Company offers shareholders the
opportunity to join the Computershare regulated DRIP to use their dividend to
purchase further Weir Group shares. Instead of receiving cash, shareholders
receive as many whole shares as can be bought with their dividend, taking into
account related purchase costs. Any residual cash will be carried forward and
added to their next dividend.
* Please note that a payment charge would be deducted from each individual payment before conversion into your local currency.
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 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.
Communications
Annual and interim reports
The Weir Group publishes an annual and interim report every year. The annual
report is sent to all shareholders who have elected to receive a hard copy through
the post as a printed document unless the shareholder has chosen to receive
e-communications (see below). The interim report is published on the Company’s
website and a printed copy is available from the Company Secretary on request.
E-communications
The Company offers shareholders the opportunity to access shareholder
documents, such as annual reports and notices of AGM, via e-communications
rather than receiving printed documents in the post.
To sign up for e-communications, please register at www.investorcentre.co.uk.
In order to do this, you will need your SRN which can be found on your share
certificate or on your dividend tax voucher. Once registered, you will need to
change your mailing preference to e-communications and provide your email
address. We will then be able to notify you by email as soon as shareholder
documents are available on the Company’s website.
Consolidated tax vouchers
Corporate website
Starting in June 2012, the Company will adopt the Consolidated Tax Voucher
(CTV) process in relation to future dividend payments. This means that rather than
shareholders receiving a separate tax voucher for each dividend payment made
they will receive a CTV once a year, detailing all payments made throughout that
year. The first CTV will be dispatched with the November 2012 dividend mailing to
shareholders and contain the tax and payment information for dividends paid during
the tax year 2011/2012.
Investor Centre
Investor Centre is a free, secure share management website provided by
Computershare. 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 WEP. This information can be found on your share certificate
or dividend tax voucher.
Shareholders are encouraged to visit the Company’s corporate website
(www.weir.co.uk), which contains a wealth of information about the Weir Group.
The website includes information about the markets in which we operate, our
strategy and business performance, recent news from the Group and product
information. The Investor section is a key tool for shareholders with information on
the share price, our financial results, shareholder meetings and dividends, as well
as a ‘Frequently asked questions’ section. You can also download current and past
annual and interim reports.
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 1%, subject to a minimum charge of £30.
In addition, stamp duty, currently 0.5%, is payable on purchases. There is no need
to open an account in order to deal. Real time dealing is available during market
hours. In addition, there is a convenient facility to place your order outside of market
hours. Up to 90 day limit orders are available for sales. To access the service,
log on to www-uk.computershare.com/Investor/ShareDealing.asp. Shareholders
should have their SRN available. The SRN appears on share certificates and tax
dividend vouchers. A bank debit card will be required for purchases. Please note
that, at present, this service is only available to shareholders in certain European
jurisdictions. Please refer to the Computershare website for an up-to-date list of
these countries.
138 The Weir Group PLC
Shareholder information
(continued)
Telephone share dealing commission is 1%, plus £35. 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.investorcentre.co.uk/eproxy.
Shareholder Alerts
Unsolicited investment advice and fraud
Many companies have become aware that their shareholders have received
unsolicited phone calls or correspondence concerning investment matters.
These are typically from overseas ‘brokers’ who target shareholders offering
to sell them what often turn out to be worthless or high risk shares, generally
in US or UK investments.
These callers can be very persistent and extremely persuasive and their activities
have resulted in considerable losses for some investors. It is not just the novice
investor that has been deceived in this way; many of the victims have been
successfully investing for several years. Shareholders are advised to be very
wary of any unsolicited advice, offers to buy shares at a discount or offers of
free company reports.
If you receive any unsolicited investment advice:
• Make sure you get the correct name of the person and organisation.
• Check that they are properly authorised (for example, in the UK by the FSA)
before getting involved. You can check by visiting www.fsa.gov.uk/register.
• Any approach from such organisations should be reported to the FSA, as they
also maintain a list of unauthorised overseas firms who are targeting, or have
targeted, UK investors. This will assist the FSA to keep the list up to date and
undertake other appropriate actions as considered necessary. The FSA can
be contacted by completing an online form at www.fsa.gov.uk/pages/doing/
regulated/law/alerts/overseas.shtml.
• If calls persist, hang up.
Please note that if you deal with an unauthorised firm, you will not be eligible
to receive payment under the Financial Services Compensation Scheme.
More detailed information on this or similar activity can be found at
www.moneyadviceservice.org.uk.
Annual Report & Financial Statements 2011 Financial statements Annual Report & Financial Statements 2011
Glossary
139
2006 Act
Board
Company
Director
E&P
EBIT
EBITA
EBITDA
EBT
elastomer
emerging markets
EPS
EHS
free cash flow
Group
horizontal rig
HR
IASB
IFRIC
IFRS
Independent auditors
Input
like-for-like
LTA
low carbon industries
mill circuit
operating margin
ordinary shares
quintuplex
Registrar
ROCE
RPI
SAG
subsidiary
TSR
UK GAAP
WTI
Weir Production System Lean Score
The Companies Act of 2006, the primary source of UK company law
The Board of Directors of The Weir Group PLC
The Weir Group PLC
A director of The Weir Group PLC
Exploration and production
Earnings before interest and tax
Earnings before interest, tax and intangibles amortisation
Earnings before interest, tax, depreciation and intangibles amortisation
Employee benefit trust
An elastic polymer used in pump linings
Asia-Pacific, South America, Africa and Middle East
Earnings per share
Environmental, health and safety
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
A directional drilling rig term where the rig is slanted at an angle to facilitate horizontal drilling
Human resources
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
The various stages of extracting and processing ore
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
A five cylinder reciprocating pump used in the oil and gas market
Computershare Investor Services plc
Continuing operations EBIT (excluding exceptional pension gain) divided by average net assets excluding net debt,
pension deficit (net of deferred tax asset) and, for 2011, Seaboard net assets
UK Retail Prices Index
Semi-autogenous grinding mills
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
West Texas Intermediate
Weir’s designed lean production process
140 The Weir Group PLC
Notes
Annual Report & Financial Statements 2011 Other information
Annual report and financial statements 2011 Directors report
The Weir Group PLC
Operational excellence
This map is illustrative, but not fully definitive of our locations.
2011 revenue by market
Minerals
40%
Oil & Gas
38%
Power
11%
Industrial
7%
Other
4%
The Weir Group is well established in all three of our chosen
markets: minerals, oil and gas and power. Throughout 2011,
our strong manufacturing platform, operational excellence
and flexible business model combined to enable the
effective execution and acceleration of our growth
plans in rapidly growing markets.
Our priority of extending our positions in the high growth, long cycle minerals,
oil and gas and power sectors through customer focus and operational
excellence has been underpinned by our drivers of growth, Innovation,
Collaboration and Global Capability.
Innovation
Customer focus and investment in
engineering resources led to the successful
launch of the WBH® pump, just one of
a number of new or enhanced core
product launches.
Collaboration
Weir’s collaborative mindset was further
developed through a range of initiatives
including a broadened shared engineering
services capability in India, eliminating
bottlenecks in product development.
Global Capability
Weir is committed to going where its
customers are and growing its presence in
fast growing markets. This was underscored
by the acquisition of Seaboard and the
acquisition of a majority stake in HIM Tech,
as well as an expansion of the Group’s
service footprint in all its end markets.
Market overview
Capital expenditure in the mining sector
increased as miners broke ground on a
number of greenfield developments and
brownfield expansions. Activity levels
increased strongly in South America,
Australia and Asia-Pacific, while promising
progress was seen in North America,
Africa, Eastern Europe and the Middle East.
Activity levels in Western Europe remained
low due to macro economic concerns in
the region.
Sustained high oil prices supported
increased investment and activity levels
in the North American oil sands market.
Market overview
The North American upstream market
experienced a second year of rapid growth,
underpinned by increased horizontal drilling
of oil and liquids rich shale formations.
Average US horizontal rig count, a leading
indicator of upstream pressure pumping
demand, increased 22% on 2010, while
greater operating efficiency resulted in
an estimated 32% increase in horizontal
wells drilled.
Middle East services markets benefited
from oilfield development in Iraq and Saudi
Arabia while downstream markets continue
to be challenging.
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
constitutes the division’s largest sector
but it has aligned product sales into niche
markets, including oil sands. Products
include pumps, hydrocyclones, valves,
dewatering equipment, wear resistant
linings, rubber products and
screening machines.
Weir Oil & Gas designs and manufactures
pumps and ancillary equipment and
provides aftermarket service and support
activities principally for the upstream oil and
gas markets. The acquisitions of Seaboard
and Novatech expand the division’s
conventional and unconventional upstream
equipment product portfolio to include
high-pressure wellhead equipment and a
broadened range of aftermarket pressure-
pump expendable components.
The division has a presence in the world’s
key mining markets including South
America, Australia, Asia-Pacific,
Africa and North America.
The downstream business occupies
a niche position in the design and
manufacture of centrifugal pumps for
the refining industry. The division’s main
operations are in North America, Europe
and the Middle East with an expanding
footprint in Asia-Pacific and South America.
Market overview
The global nuclear market, active in the
early part of the year, slowed following the
Fukushima reactor incident. Demand for
original equipment and spares across
European and US thermal power markets
remained subdued although growth
continued in emerging markets, particularly
India. Activity picked up in the oil and gas
markets with good project activity in the
Middle East and Asia-Pacific. The North
American hydro power market saw good
levels of activity. While renewables markets
remained challenging in Europe, a number
of opportunities have emerged across South
America and Africa. General industrial and
municipal markets remained subdued while
unrest in Libya led to the cessation of all
project activity in February 2011.
Weir Power & Industrial designs and
manufactures valves, pumps and turbines
as well as providing specialist and support
services to the global power generation,
industrial and oil and gas sectors.
The division has locations in Europe,
the Middle East, North America, India,
China, Asia-Pacific and South Africa.
The division’s capability in emerging
markets was strengthened in 2011 with the
acquisition of a majority stake in HIM Tech,
a valves manufacturer in South Korea.
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable market
c7,750
20
£1,263m
£1,216m
£4.5bn
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable market
c3,100
15
£865m
£743m
£5.3bn
Facts and figures
No. of people
No. of businesses
2011 order input
2011 revenue
Addressable power market £6bn
c3,050
15
£312m
£307m
Major customers
Alcoa
AMEC
Anglo American
Barrick Group
BHP Billiton
Codelco
Rio Tinto
Suncor Energy
Vale Inco
Xstrata
Major customers
Baker Hughes
Cal Frac
Enerflow
Frac Tech Services
Schlumberger
Stewart & Stevenson LLC
Surefire Industries
Trican Well Services
United Engines
Weatherford International
Major customers
Ameren Missouri
The Government of Canada
CNPEC & CNEIC
EADS
EDF
FirstLight Power Resources
PPL Generation
Toshiba Corporation
US Bureau of Reclamation
Westinghouse
Financial
Calendar
Ex-dividend date for final dividend
2 May 2012
Record date for final dividend
4 May 2012
Shareholders on the register at this
date will receive the dividend
Annual general meeting
9 May 2012
Final dividend paid
1 June 2012
Cautionary statement
This annual report contains forward-looking
statements with respect to the financial
condition, operations and performance of
the Group. By their nature, these statements
involve uncertainty since future events
and circumstances can cause results and
developments to differ materially from those
anticipated. The forward-looking statements
reflect knowledge and information available
at the date of preparation of this annual report
and the Company undertakes no obligation
to update these forward-looking statements.
Nothing in this annual report should be
construed as a profit forecast.
Registered office & company number
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB
Scotland
Registered in Scotland
Company Number 2934
Designed by Design Motive
Printed by Royle Print
It is important that our annual report is produced in an environmentally
responsible manner, including the sourcing of materials. The annual report
is printed in the UK by Royle Print Ltd, a Carbon Neutral printing company,
using vegetable-based inks.
The material is Revive Pure Uncoated which is certified as 100% recycled by
the Forest Stewardship Council. The printer and paper manufacturing mill both
have ISO 14001 accreditation for environmental management.
The Weir Group PLC
Annual report and financial statements 2011
The Weir Group PLC
Annual report and financial statements 2011 Directors report
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The Weir Group PLC
Clydesdale Bank Exchange
20 Waterloo Street
Glasgow G2 6DB, Scotland
Telephone: +44 (0)141 637 7111
Facsimile: +44 (0)141 221 9789
Email: investor-relations@weir.co.uk
Website: www.weir.co.uk
Excellent
Engineering
Solutions
Contents
Directors report
Inside front cover
Financial highlights
Chairman’s statement
Chief Executive’s review
Driving growth The Weir Way
Key Performance Indicators
Operational review
Financial review
Board of directors
Principal risks and 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
Inside back cover – Financial
calendar and Cautionary statement
01
02
04
08
14
15
26
30
32
36
44
54
69
71
72
73
74
75
76
77
124
125
126
136
137
139
The Weir Way
The drivers of growth
A focus on operational excellence and customer
requirements provides the strong operating platform
from which the Weir Group drives growth. We continue
to invest in engineering expertise and technical skills
to meet our strategy of prioritising product and service
innovation. The development of collaborative working
practices across the divisions and our expanding
geographic footprint are key enablers of growth as we
provide our full capability to our chosen end markets.
1 InnovatIve
aCtIon
Innovation is at the heart of our processes as we seek to provide
existing and new customers with a competitive advantage.
We focus on delivering enhanced product and service capability
wherever it is required by investing in people, engineering skills,
technology and research to ensure that our products deliver longer
plant life, extend maintenance cycles, reduce downtime and lower
whole-life operating costs. In 2011, our innovative action delivered
new products into all our end markets and established a research
partnership to support breakthrough technology development.
2 CollaboratIve
MIndset
Weir people work together and with customers and partners to
provide the best solutions. This collaborative approach ensures
that the Group’s complete capability can be offered to the end
markets that we serve. During 2011, through effective collaboration
across our divisions and geographical regions, we offered a broader
product and service portfolio to customers.
3 Global
CaPabIlItY
Weir’s global capability means delivering consistently excellent
products and services as we work alongside our customers in
the territories that drive demand in minerals, oil and gas and
power generation. Global capability during 2011 has internationalised
further our products and services through our existing and
expanding routes to market.