The Weir Group Annual Report 2013

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The Weir Group PLC
Annual Report and
Financial Statements 2013

THE WEIR GROUP IS A
GLOBAL ENGINEERING
GROUP FOCUSSED
ON PARTNERSHIPS
WITH OUR CUSTOMERS

Strategic Report

Directors’ Report

64–116
Corporate
Governance

1
2

4
6
8
10
14
22
24

31
36
40
43
49

Board of Directors
Group Executive
Corporate Governance Report
Nomination Committee Report
Audit Committee Report
Remuneration Report
Other Statutory Information
Statement of Directors’ Responsibilities

64
66
67
77
79
85
113
116

Financial Statements

117–189
Financial
Statements

Independent Auditor’s 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 Auditor’s Report
Company Balance Sheet
Notes to the Company Financial Statements

117
120

121
122
123
124
125
176
177
178

190–196
Company
Information

Principal Companies of the Group
Shareholder Information
Glossary
Financial Calendar and Cautionary Statement

190
192
194
196

0–3
Overview

2013 Highlights
Weir at a Glance

4–30
Strategic
Review

Understanding Our Markets
Chairman’s Statement
Our Strategy and Business Model
Chief Executive’s Strategic Review
Strategy in Action
Key Performance Indicators
How We Manage Risk

31–63
Operational
Review

Weir Minerals
Weir Oil & Gas
Weir Power & Industrial
Financial Review
Sustainability Review

weir.co.uk
@weirgroup

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2013 Financial highlights

Revenue

£2,430m
-4%

Operating profit1

£467m
-4%

Profit before tax1

£418m
-5%

Order input2

£2,462m
+3%

Dividend per share

Earnings per share1

42.0p
+11%

Net debt

£747m
-£58m

145.4p
-2%

Cash flow from operations

£474m
+19%

1. Continuing operations adjusted to exclude exceptional

items and intangibles amortisation.

2. 2012 restated at 2013 average exchange rates.

How we do it: our four strategic pillars

Growing order momentum in
challenging end markets: second
half input up 12% like for like
on 2012;

Robust aftermarket performance:
16% order growth;

Record operating margins
maintained: 19.2% (2012: 19.1%);

Value Chain Excellence initiatives
delivering results: over £40m in
direct cost savings;

Mining and Oil & Gas platforms
extended: market-leading service
network expanded;

Record cash generation and
full year dividend: increased by
11% to 42.0p.

READ MORE
ON PAGE 21

VALUE CHAIN
EXCELLENCE

Investing in the best people, safety and operational performance.

GLOBAL CAPABILITY

Providing the same high standards and expertise
wherever our customers need us.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Weir at a Glance

WEIR AT A GLANCE:
PARTNERS IN
PRODUCTION

GLOBAL CAPABILITY, LOCAL DELIVERY

Customers are at the centre of Weir’s strategy
for growth. That means delivering the
innovative engineering solutions they need,
wherever in the world they need them.

Learn more about our strategy on pages 8 and 9.

North America

80 facilities
4,670 people

Europe

53 facilities
3,090 people

Asia-Pacific

41 facilities
2,340 people

South America

22 facilities
1,800 people

Middle East
and Africa

37 facilities
2,130 people

Australasia

28 facilities
1,190 people

2013 Group input by market
2013 Group input by market

2013 Group input by geography
2013 Group input by geography

Minerals 40%
Oil and gas 40%
Power 11%
Industrial and other 9%

North America 40%
South America 12%
Middle East and Africa 14%
Europe 14%
Asia-Paciﬁc 10%
Australasia 10%

The Weir Group PLC Annual Report and Financial Statements 2013The Weir Group consists of three complementary
divisions operating in markets which share strong
prospects for long term growth. Our products and
services help meet the demands of the world’s growing
population for commodities and energy. You can learn
more in ‘Understanding our Markets’ on pages 4 and 5.

Oil & Gas
Designing, manufacturing and supporting
products used in the upstream pressure
pumping, pressure control and downstream
refining operations. Weir Oil & Gas is a
market leader in pressure pumping.

Power & Industrial
Designing, manufacturing and supporting
valves, pumps and turbines which are
used in conventional and renewable
power and industrial operations and
in oil and gas production, mid-stream
and refining markets.

2013 Revenue

£796m
-7%

2013 Revenue

£330m
+1%

2013 Operating profit

£181m
-16%

£31m
-2%

Key brands:
SPM, Seaboard, Mathena, Novatech, Mesa,
Gabbioneta, Weir Oil & Gas Services.

Main markets:
Oil and gas drilling and completion; oil refining.

Major operational locations:
US, Canada, UK, Middle East, China, Singapore
and Australia.

Major customers:
Oilfield service companies; national and
international oil companies and EPCMs.

Employees:
3,700

Addressable market:
£8.3bn

Key brands:
Roto-Jet, WEMCO, Blakeborough, Atwood & Morrill,
Batley Valve, BDK, Hopkinsons, Tricentric, Sarasin-
RBSD, Sebim, Allen Steam Turbines, American Hydro.

Main markets:
Nuclear, conventional and renewable power generation;
water and waste water; mid and downstream oil and
gas; and general industrial processes.

Major operational locations:
US, Canada, UK, France, Spain, South Korea,
Singapore, South Africa, India and China.

Major customers:
Utility companies; general industrial companies;
EPCMs.

Employees:
3,200

Addressable market:
£7.7bn

> Read more about Weir Minerals’ performance

> Read more about Weir Oil & Gas’ performance

> Read more about Weir Power & Industrial’s

from page 31.

from page 36.

performance from page 40.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013MineralsDesigning, manufacturing and supporting products used in mining and minerals processing. Weir Minerals is the global market leader in slurry handling equipment. 2013 Revenue£1,304m 0%2013 Operating profit£269m +6%Key brands: Warman, Vulco, Cavex, Enduron and Linatex.Main markets: Mining and minerals processing; oil sands; comminution; aggregates; flue gas desulphurisation; and tunnelling and dredging.Major operational locations: US, Canada, Chile, Brazil, Peru, UK, Netherlands, South Africa, India, China and Australia. Major customers: Major and junior mining houses; Engineering, Procurement and Construction Management companies (EPCMs); national and international oil companies.Employees: 8,300 Addressable market: £6.2bn

Strategic Report:
Understanding Our Markets

Weir operates in three main markets: minerals;
oil and gas; and power. Together, these markets
contribute more than 90% of Group revenue.

Minerals

Figure 1: Weir mining sector commodity exposure1
Mining sector commodity mix

Copper 35%
Gold 14%
Iron 11%
Coal 6%
Phosphate 5%
Nickel 4%
Alumina 3%
Other minerals 22%

Figure 2: Forecast copper ore demand and supply2 (million tonnes)

3,600

3,200

2,800

2013f

2014f

2015f

2016f

2017f

Probable projects
Current production forecast (including mine closures)

Committed projects
Total ore demand

Weir Minerals operates primarily in the global minerals
processing sector. Our equipment and services are
applied across the ‘mill circuit’, the process by which
rock ores are broken down into end commodities such
as copper, gold and iron ore. Our largest exposures
are to those commodities which need the greatest
amount of processing and have the strongest long
term prospects for growth. See Figure 2 which shows
forecast copper demand versus supply.

Demand for these commodities comes from the
growing world population and the trend towards
urbanisation – where greater numbers of people
move from the countryside to cities. This is
particularly the case in emerging economies.

Our original equipment orders are driven by capital
expenditure from mining companies. This can come
in the form of greenfield expenditure on new projects
or brownfield spending, where existing assets are
developed to increase production or efficiencies.
The abrasive process of turning rock into a valuable
end commodity means our equipment is exposed
to significant wear and tear. This generates aftermarket
sales – where our products need regular servicing and
replacement parts. This process is supported by another
trend: global ore grades are in decline which means more
processing is needed to produce the same amount of
raw commodity over time.

Key links to business model and strategy:
• Highly engineered products used in critical processes.
• High levels of aftermarket support provide resilience.
• Strong service presence builds customer intimacy.
• Leadership in core mill circuit technologies.
• Broad product portfolio across mill circuit

process flow.

• Global industry: diversity of revenue and technological

and operational leverage.

1. Source: Weir Minerals mining sector revenues, 2013.
2. Source: SNL, February 2014.
3. Source: EIA 2014 annual report (early release version).
4.
5. Includes CO2 enhanced oil recovery.
6. Source: EIA 2013 International energy outlook.
7. Source: EIA 2013 International energy outlook.

Includes shale formations.

The Weir Group PLC Annual Report and Financial Statements 20134,000UNDERSTANDINGOUR MARKETS
Oil & Gas

Weir Oil & Gas operates in the conventional and
unconventional upstream oil and gas markets, with a
niche position supplying specialist pumps to downstream
markets. Our largest exposure is to the North American
onshore unconventional market with international
unconventional opportunities beginning to emerge.

Unconventional drilling involves the extraction of shale oil
and gas using hydraulic fracturing where high pressure
water, sand and chemicals are used to release gas and oil
from rock far below the surface. We serve these markets in
three main ways: pressure control equipment and services
to Exploration and Production (E&P) companies to ensure
drilling, completion and production processes can be
carried out efficiently and safely; pressure pumping
equipment and services, which provide original equipment
to oil and gas service companies for use in hydraulic
fracturing (fracking); and Weir Oil & Gas services, where
dedicated engineering support and spares are provided to
both conventional and unconventional markets in Europe
and the Middle East. We also serve mid and downstream
oil and gas markets with products for use in Floating
Production Storage and Offloading (FPSO), Liquefied
Natural Gas (LNG) and refining operations.

The main growth driver in these markets is growing
global oil and gas demand. The number of wells drilled
determines the level of demand for our equipment.
The intensity and growing complexity of drilling and
completion applications leads to strong aftermarket
sales. Our downstream business is primarily influenced
by refining activity levels.

Key links to business model and strategy:
• Highly engineered products used in critical processes.
• High pressure abrasive applications increase

aftermarket requirements.

• Leading service presence in all shale plays:

strong customer partnership.

• Pump to wellhead capability: broad portfolio
provides opportunities in conventional and
unconventional markets.

• Global manufacturing and service footprint

to capture international opportunities.

Figure 3: US oil production forecast, 2011–2020
(million barrels per day)3

2013

Projections

History
10

2011

2014

2017

2020

Tight Oil 24 (onshore)
Others 35 (onshore)

Lower 48 (offshore)
Alaska

Figure 4: World tight gas, shale gas, coalbed methane production
(excluding US, Canada) (trillion cubic feet)6

2013

2011

2014

2017

2020

OECD Europe
Australia/New Zealand
Russia

China
Middle East

Central and South America
Rest of World

Power

Figure 5: Total world installed generation capacity by source (Gigawatts)7

Weir Power & Industrial operates in the conventional,
nuclear and renewables power generation, industrial
and mid and downstream oil and gas markets. We serve
these markets through the design and manufacture
of valves, pumps and turbines and the provision of
specialist support services.

Growing global energy demand, particularly from
emerging economies, and the replacement of ageing
facilities to meet new environmental regulations are the
main growth drivers in this market. The increasing global
population dictates the need for new power plants and
the refurbishment of existing facilities along with the
development of renewable projects and oilfield
infrastructure development.

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Key links to business model and strategy:
• Highly engineered products used in critical processes.
• High temperature, high pressure application.
• Global manufacturing and service footprint to

capture international opportunities.

• Broad valves portfolio provides cross-selling

opportunities.

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Coal
Natural gas

Liquids
Nuclear

Hydro and other renewables

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 20136Strategic Report:
Chairman’s Statement

CHAIRMAN’S STATEMENT
A DIVERSE BUSINESS
ABLE TO CAPTURE
GLOBAL OPPORTUNITIES

We are proposing a final dividend payment to shareholders
of 33.2p per share, making 42.0p per share for the full
year, an increase of 11% in line with our commitment to
a double-digit dividend increase in 2013. This is the 30th
consecutive year of dividend growth for the Group and the
8th consecutive year of double-digit growth.

I took over as Chairman on 1 January 2014, succeeding
Lord Smith of Kelvin, who had been in the role for 11 years.
Robert was an outstanding Chairman of Weir and I wish
to record the Board’s appreciation for his deft and wise
leadership, as well as my personal thanks for his advice
and friendship during my time as Deputy Chairman. It is
worth briefly reflecting on the development of the Group
during Lord Smith’s tenure into a highly-focussed, high
margin engineering group operating in the structural
growth markets of minerals, oil and gas, and power.
This has delivered a ten-year total shareholder return of
almost 1,000% – one of the best performances in the
FTSE 100 – an index which Weir joined during Lord Smith’s
time as Chairman.

It was fitting that on his last day as Chairman he was
appointed by the Queen as a Knight of the Thistle,
the highest honour in Scotland.

Strength from our diversity
In preparing for assuming my responsibilities as
Chairman, I have visited many of our operations around
the world. Doing this has allowed me to see our strategy
and business model in action and appreciate how
well positioned this Group is to address current and
future challenges.

One source of strength is our diversity. By serving the
end markets of mining, oil and gas and power, we are
exposed to different capital expenditure cycles, operating
environments and geographies. These opportunities are
captured by a business model which provides resilience
– a point reinforced by our solid 2013 performance which
was ahead of our end markets.

Changing market dynamics in minerals meant a significant
reduction in capital expenditure by mining companies.
Our business was quick to respond: further extending
into adjacent markets; selling an increasing suite of
products; and capturing the aftermarket opportunities
from a growing installed base.

Despite challenging trading conditions,
Weir’s diverse end market and
geographical exposure underpinned
a solid performance in 2013. Revenues
were down 4% at £2.4bn, with pre-tax
profits from continuing operations,
before exceptional items and intangibles
amortisation, of £418m, a 5% decrease
on 2012.

The Weir Group PLC Annual Report and Financial Statements 2013We benefitted from the Group’s industry leading service
network which creates a platform to get closer to our
customers and offers an expanded range of products.
This route to market was also a source of real competitive
advantage for our Oil & Gas division, both in our largest
market of North America and in growing international
opportunities, where it has leveraged Group resources
to best effect.

Overall, this agility allowed us to outperform our key
end markets in an environment of reduced spending
on original equipment.

The safety of our employees and partners is of the utmost
importance to us as a Board and we were all affected by
the loss of a Weir colleague in a fatality towards the end
of the year. As a Group, we continue to improve our safety
culture. Over the course of 2013, the development of the
Weir Environmental, Health and Safety System continued,
with key initiatives including the launch of the Weir
Behavioural Safety System. It contains a number of
Group-wide tools to establish consistent standards
in areas of risk. Significant resources will continue to be
invested in the people, policies and processes to help
us realise our safety ambitions.

This performance was supported by significant progress
in delivering our strategy. In each division, we expanded our
range of products, strengthened partnerships with major
customers and increased our best cost sourcing capability.
This helped deliver greater value to our customers while
operational efficiencies and procurement savings assisted
in sustaining margins. We also made good progress
in expanding in adjacent markets, with the acquisition
of Mathena expanding our pressure control offering
in Oil & Gas.

In Minerals, the division extended into the circa £1bn
comminution segment of the mill processing market –
where materials are crushed, ground and screened –
providing the next leg of growth even in a capital
constrained world.

We also continued to develop our engineering and
human resources to support the effective execution
of our strategy and the achievement of our ambitious
growth plans. As our business has increased in scale
and complexity, it has become even more important
to attract and retain the right people to help take
advantage of future opportunities. That is why we
remain committed to helping our employees achieve
their full potential.

Our Chief Executive, Keith Cochrane, provides a
detailed review of the strategy in action from page 10.

Our wider commitments
Weir is a global business conscious of its obligations
as a responsible corporate citizen. We are committed
to sustainability in the widest possible sense, which
means ensuring the business continues to grow in
a way that benefits communities, at the same time as
managing the environmental impacts associated with
an engineering group.

In 2013, we made a significant economic contribution
through our supply chain and direct support of
community causes. As a Group operating in dynamic
markets, we need to be able to react swiftly to changing
conditions. While this necessitated restructuring in some
businesses, we also invested in growth opportunities and
overall added more than 800 employees, the majority of
which were as a result of acquisitions. Our supply chain
spending was over £1.3bn, and supports businesses
in 50 countries. And this year the Group directly invested
almost half a million pounds in charitable activities in the
communities where we operate.

The Group has also taken steps to assess our
environmental impacts. We have introduced a robust,
Group-wide system to calculate our performance on
carbon emissions and water usage, which will enable
us to measure and target energy reduction initiatives
more effectively.

We are also updating our Code of Conduct in order to
continue to provide relevant guidance to ensure we
all operate to the highest ethical standards. Compliance
with the Code will continue to be regularly monitored.

As part of the Board’s programme of regular visits
across the Group, we spent time in Yorkshire at the
Weir Minerals plant in Todmorden and the Weir Power
& Industrial plant in Elland. These visits are valuable to
all members of the Board, adding to our understanding
of the operations of the Group and recognising the
contribution our people make to its continuing success.
I was particularly pleased to see the Todmorden facility
win its second Queen’s Award for outstanding
achievement in international trade.

I was delighted to welcome Mary Jo Jacobi to the
Board at the beginning of 2014. Mary Jo has extensive
experience in private enterprise and public life in both
the US and the UK. I would like to thank her and all
my fellow Board members for their support and look
forward to continuing to work with them in the future.

On a personal level, I have been struck by the pride
and common purpose shared by all Weir colleagues.
It gives enormous strength to this business and helps
explain Weir’s record of success over the past 143 years.
I would like to thank all colleagues for their hard work
and continued commitment.

It also gives me great optimism for the future. 2013
has demonstrated that Weir is a Group which is well
placed to respond to further challenges in our end
markets and take advantage of future opportunities.

That agility, allied to a clear, well executed strategy and
robust business model, has proved resilient in the past.
I am confident, as we look forward, it will continue to
deliver sustainable and growing returns to shareholders
in the future.

Charles Berry
Chairman
26 February 2014

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Our Strategy and Business Model

Our mission is to be wherever and whenever our global energy and resource
customers need us delivering innovative products and services and becoming
their trusted partner of choice. We deliver our mission through our core strategy
which is to strengthen and extend our position in the structural growth markets
of minerals, oil and gas and power and achieve sustainable growth ahead of
these markets.

Global
megatrends

Our chosen
markets

Driving growth
The Weir Way

Chosen for growth
The Group has chosen
to operate in long cycle
markets with positive
fundamentals. We
believe these sectors
are influenced by trends
that enable long term
sustainable growth
ahead of global GDP.

Minerals

Emerging
market
growth

Urbanisation

Energy
demand

Resource
scarcity

Oil & Gas

INNOVATION

Developing new products and technologies to provide the Group and our
customers with competitive advantage. Innovation is also at the heart of
developing our customer support activities and enhancing our functional
capabilities.

COLLABORATION

Working closely with customers, suppliers and communities and across our
businesses and divisions is of critical importance. This collaborative mindset
ensures Weir gains a better understanding of the markets it serves and the
associated technology and support requirements. Collaboration ensures
effective delivery for the benefit of all stakeholders.

VALUE CHAIN
EXCELLENCE

Investing in people, technology, safety performance and infrastructure to continue
to develop our lean operating platform across the value chain.

Power

GLOBAL CAPABILITY

Providing uniform capability and expertise, wherever our customers are, ensures
Weir can become the solutions provider of choice. Mission critical applications
demand products and services that can be rapidly provided to the point of
customer need.

Environment

Water
security

The Weir Group PLC Annual Report and Financial Statements 2013OUR STRATEGY ANDBUSINESS MODEL:A PLATFORM FORPROFITABLE GROWTHWe execute our strategy by focussing on the
four strategic pillars that define our distinctive
approach and deliver real competitive
advantages: innovation; collaboration; value
chain excellence; and global capability.

These strategic pillars build on our robust
business model, which: grows our installed
base of original equipment; captures the
opportunities presented in the aftermarket
for spares and support; and leverages
our technical leadership, global footprint
and customer channels to cross-sell
complementary products.

Through effective execution of our strategy
and the competitive advantages of our
business model, we seek to: sustainably
grow revenues faster than our markets;
deliver top quartile margins; and increase
returns on capital whilst retaining a solid
financial base to pursue organic and
acquisition-led opportunities.

Our key performance indicators are shown
on pages 22 and 23.

Principal risks and uncertainties
Information on how our business is affected
by risk is contained from page 24.

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Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

Strategic Report:
Chief Executive’s Strategic Review

CHIEF EXECUTIVE’S
STRATEGIC REVIEW:
A RESILIENT PERFORMANCE
FROM A ROBUST BUSINESS

We serve structural growth markets providing leading
engineering solutions to our customers in the minerals,
oil and gas and power sectors. Our products are used
in critical processes. Without our equipment, rock
could not be turned into ore and shale oil and gas
would remain underground.

Because of the industries in which we work, our products
are exposed to high abrasion, high pressure and extreme
temperature environments. This delivers substantial
aftermarket opportunities, which supports healthy
and stable returns throughout the economic cycle.

In line with our aim of becoming a partner of choice, we
have a strong commitment to making our operations and
those of our customers and suppliers more efficient. This
is delivered through a market-leading network of service
centres which ensures Weir products and services are
available where and whenever our customers need them.

We rely on the dedication and commitment of our 15,000
employees and I thank them for their efforts over the
course of 2013.

It is our strategic commitment to innovation, collaboration,
value chain excellence and global capability which has
helped deliver a solid performance in 2013 despite tough
end market conditions. As the year progressed we
revised down our second half expectations in response
to the slower than anticipated recovery in certain markets.
We still saw momentum build through the year as we
delivered operational improvements across the business
and fully captured growth opportunities for our extended
product range. This delivered strong second half profits
and cash generation in line with our updated guidance.

Our markets in 2013
Global economic growth remained subdued. While there
was good momentum in North America and signs of
recovery in Europe, emerging market growth slowed
and contributed to declines in metal prices. In relation
to our two largest exposures in the Minerals division,
copper prices fell by over 10%, but long term prices
remain supportive of investment. However gold prices
fell nearly 30% to below incentive levels and close to
marginal cost levels at many mines.

Falling commodity prices, combined with project over-runs
and senior management changes at a number of major
mining companies, led to an increased concentration on
efficiency and double-digit declines in capital spending.

2013 was a challenging year in many
of our end markets but our relative
outperformance demonstrated the
strength of the Group’s strategy,
the diversity of our portfolio and the
resilience of our aftermarket focussed
business model. This was supported
by a robust performance from Minerals
and growing momentum in Oil & Gas
as we saw a gradual recovery in
upstream markets.

The Weir Group PLC Annual Report and Financial Statements 2013Revenue

£2,430m
-4%

Operating profit1

£467m
-4%

New projects were subject to increased scrutiny which
led to fewer greenfield investments and those that
proceeded were subject to delays. Mining companies
identified brownfield investment as a key focus for future
investment, given the lower risk and higher, faster returns
typically available from such projects.

Commissioning of already committed greenfield
developments, particularly in South America,
experienced delays as a result of regulatory and
operational issues, which had a greater impact than
initially anticipated. Despite this, and the overall fall
in mining capital expenditure, global ore production
continued to expand to meet growing demand.

In oil and gas, oil prices remained strong, supporting
good growth in international upstream markets
particularly in the Middle East.

In North America, tight oil production continued to
increase with the US on track to overtake Saudi Arabia
as the world’s largest oil producer. Infrastructure
constraints and export restrictions led to US oil prices
trading at a discount to Brent Crude but they still remained
supportive for investment. Natural gas prices remained
below incentive levels resulting in a double-digit decline
in gas drilling during 2013. Total upstream investment
was slightly down with oil activity growing to almost 80%
of rig activity by the year end.

Despite a near 10% fall in the number of active rigs, the
number of wells drilled only fell by 3% due to continuing
drilling and completion efficiencies. This was contrary
to an earlier market expectation that there would be an
increase in activity, particularly in the second half of 2013.

Specifically in pressure pumping, there was limited
demand for capital equipment with a modest increase
in frack fleet utilisation failing to eliminate excess
capacity. Aftermarket demand rose through the year as
customers progressively returned to more normalised
buying patterns. There continued to be growing interest
in developing shale resources internationally, particularly
in China, Argentina, Australia and Saudi Arabia.
Downstream investment in Asia and the Middle East
was robust with developments also under way in
North America to address infrastructure constraints.

Global power markets remained subdued with North
America impacted by reduced electricity prices as a
consequence of low US natural gas prices. Nuclear markets
showed tentative signs of improvement with project activity
resuming in China and positive developments in the UK.
General industrial activity levels continued to be subdued,
reflecting the global economic environment.

Our performance in 2013
Overall, in a challenging year, order input in constant
currency was up 3%, with an improving trend through
the year such that second half orders were 13% higher
than the equivalent period in 2012. Aftermarket input
was up 16%, driven by strong growth in Oil & Gas
and positive trends in Minerals, despite some earlier
destocking in South America. In contrast, Power &
Industrial aftermarket orders fell 2% as maintenance
and outage work was delayed. Overall, aftermarket
performance was offset by a 13% decline in original
equipment with input across the Group reflecting
double-digit declines in greenfield mining orders,
overcapacity in pressure pumping and power project
delays. Cross-selling the broader Minerals’ product
portfolio partially compensated for these declines.

Group revenues were down 4% on a constant currency
basis while the proportion of revenues from aftermarket
sales increased to 63% from 55% in 2012. In Minerals,
revenues were flat, with good aftermarket growth offset
by declines in original equipment. Despite the benefits
of the Mathena acquisition, Oil & Gas revenues declined
as good aftermarket growth was more than offset by
substantial reductions in original equipment sales as a
result of a smaller opening order book and continued
subdued Pressure Pumping equipment demand. Power &
Industrial revenues were also broadly flat as tough hydro
markets offset good growth in the core Valves portfolio.

Despite falling revenues and increasingly competitive
markets, Group margins were maintained at record levels
translating into a 4% fall in operating profit to £467m.
Negative operating leverage effects were offset by value
chain initiatives which delivered over £40m in direct
procurement savings and increased efficiencies across
the Group. In addition, the same initiatives contributed
to a reduction in net working capital. Free cashflow
increased to £168m, even after capital investment
totalling £108m, which will underpin future growth
opportunities.

Beyond our influence were the fluctuations of the
international currency markets which saw significant
shifts in exchange rates in the second half of the year,
with the Australian Dollar and emerging markets
currencies experiencing double-digit devaluations
and our largest trading currency, the US Dollar, also
depreciating significantly against Sterling. These
foreign exchange movements contributed to reported
pre-tax profits being 5% lower than 2012.

1. Continuing operations adjusted to exclude exceptional items

and intangibles amortisation.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Chief Executive’s Strategic Review

Capital investment

£108m

A strategy that produces long term value
At Weir we have four strategic pillars which are the
foundation of our continued success and the source
of long term value for our shareholders. Over the course
of 2013, important progress was made in delivering
further innovation, collaboration, value chain excellence
and extending our global capability.

Innovation is part of Weir’s DNA. Our company was
originally founded in 1871 by engineers who invented
a more efficient way to operate steam ship pumps.
Almost a century and a half later we are still innovating
to bring our customers leading engineering solutions.

In 2013, this meant establishing a comminution range,
extending Minerals’ addressable market by circa £1bn
and opening up new opportunities to apply our
differentiated materials expertise. During the year, the first
orders for High Pressure Grinding Rolls were received and
we saw good growth from our expanded screens range.

The Minerals division also increased revenues from
non-mining equipment markets with notable contract
wins in the oil sands sector in Canada and the coal-seam
gas industry in Australia.

In Oil & Gas, our Pressure Pumping bundling strategy,
which packages together our full product offering,
delivered aftermarket revenues at levels last seen at the
peak of the market despite a reduction in overall market
activity. In Pressure Control, we successfully entered the
flowback and zipper manifold markets towards the end
of the year.

By helping to make our customers more efficient we
are ensuring our future success too. That is why we
have a clear strategic focus on collaboration. This was
demonstrated in September when we signed a global
framework agreement with Anglo American which will
see our differentiated mining technology rolled out across
the world, supported by our market-leading service
network. Internally, products have been leveraged
through the Oil & Gas forum which provides a platform
for cross-divisional co-operation. Products developed
through the forum generated £14m in revenues in 2013,
with swellable packers a particular success.

As a Group operating in 70 countries we have a
reputation for supporting our customers wherever they
need us. This means constantly improving our global
capability, including expanding our market leading global
service centre network to almost 200 locations. This
delivers real competitive advantages as demonstrated

by the early progress of Pressure Pumping operations
in China alongside good further development in the
Middle East. Power & Industrial produced a strong
performance in South Korea as the division continued
to expand in structural growth markets. We increased
our manufacturing capacity in other key growth markets
with our purchase of the Xmeco foundry in South Africa
and the Cheong foundry in Malaysia. We announced
plans to further expand our operations in Malaysia with
the development of a new foundry, machine shop and
Linatex rubber processing facility. The acquisition of
the Canada-based R Wales group of companies also
extends our aftermarket position in the production
and servicing of a wide range of rubber-lined wear
components for the North American oil sands and
mining sectors.

As well as pursuing new market opportunities we have
focussed on improving our own operational processes.
That is why value chain excellence is core to our strategy.
By becoming a more efficient operation we can sharpen
our performance and enhance our responsiveness to
customers. Significant progress has been made leveraging
the Group’s procurement capability to deliver substantial
efficiency gains. We are also developing closer relationships
with key suppliers, using our lean operating process
to help reduce customer lead times.

Essential to the successful achievement of our strategy
is our people. At Weir, we take great care to ensure our
highly skilled workforce is given the opportunity to
achieve its full potential. Progress has been made to
extend the support available for all of our people from
apprentices to senior managers. Succession planning
has continued to advance, with processes in place to
ensure we have the engineers and leaders to deliver
growth going forward.

Two new appointments to the Group Executive were
made at the beginning of 2014. John Heasley succeeded
Kevin Spencer as Divisional Managing Director of Power
& Industrial following Kevin’s retirement, and Andrew
Neilson was appointed Director of Strategy and
Corporate Affairs.

Safety
Everyone at Weir shares an ambition to make our
company a zero-accident workplace. I have given
a personal guarantee to all of our employees that
I will support them in their right to stop any work they
feel could be unsafe. The importance of continuous
safety improvement was sadly reinforced during 2013
when a colleague was killed in a road traffic incident.

The Weir Group PLC Annual Report and Financial Statements 2013CHIEF EXECUTIVE’S STRATEGIC REVIEWCONTINUED
Aftermarket input

+16%

This was a tragic reminder of the need to ensure our safety
culture extends beyond our operational environment.
I firmly believe our zero-accident ambition is achievable.
Significant progress has been made and I am pleased
to see a reduction in our Total Incident Rate (TIR) this
year but more needs to be done and will be done over
the course of 2014.

Delivering on 2013 key priorities
In 2013 we identified a series of key priorities for the year:

Continue to enhance supply chain performance to
increase customer responsiveness and benefit from
Group leverage. Established new centres of excellence
helping to deliver Group-wide procurement savings
equivalent to more than 3% of expenditure and in excess
of our £30m target.

Capture North American and international Pressure
Control growth opportunities. Entry to the flowback and
zipper manifold markets was achieved with first wellhead
orders secured in the Middle East and Australia.

Extend Minerals’ presence in comminution markets.
Agreement was secured to give Weir exclusive control
over the design, manufacture and distribution of KHD
High Pressure Grinding Rolls (HPGR) for use in minerals
processing applications – with the first HPGR orders
now received. A partnership with Taiwan-based Minyu
Machinery Corporation was signed to distribute and
develop cone crusher technology.

Drive growth through an integrated global valves
platform. Valve orders were broadly stable year on
year although momentum increased in the last quarter.
Significant progress was achieved in improving
operational capacity to allow us to take advantage of
future growth opportunities.

Deliver an enhanced IT platform to support greater
collaboration. Work is under way on enhancing internal
networks and developing common enterprise resource
planning systems in each division which will enable the
Group to operate more efficiently on a global scale.

Improve working capital performance to enhance
returns. While it took longer to demonstrate progress
than I would have liked, it was encouraging to see a net
working capital reduction in the second half of 2013,
although there is still further work to be done.

Outlook
The Group remains well positioned to benefit from
the long term structural growth drivers in each of our
principal end markets. Demand for minerals will be
underpinned by continuing population growth and the
industrialisation and urbanisation of emerging markets.

Growing desire for energy security and competitiveness
will support the further development of unconventional
oil and gas resources in North America and beyond.
Increasing energy usage in emerging markets,
environmental concerns and ageing power plants in
developed markets will drive demand for new and
refurbished power infrastructure. As easier to reach
and higher quality resources become more scarce,
increasingly complex solutions are needed to access
more difficult to reach natural resources placing greater
demands on the engineering equipment provided by
the Group.

In 2014, we anticipate that the Group will return to
underlying growth despite mixed end market conditions.
We will continue to capture profitable aftermarket
opportunities, cross selling our full product portfolio
across all of our end markets and delivering further
efficiencies from our Value Chain Excellence initiatives.
We expect good constant currency revenue and profit
growth with Group margins broadly in line with 2013
levels, although our reported results are likely to be
impacted by recent adverse foreign currency movements.
Strong cash generation is expected to continue assisted
by further working capital initiatives.

2014 key priorities
In 2014, we will aim to grow ahead of our end markets by:
Increasing technical differentiation through the pursuit
•
of innovative new products.
Improving working capital performance by further
extending value chain excellence initiatives.

•

• Further embedding safety at the heart of our culture.
• Fully capturing growing aftermarket opportunities

in Minerals and accelerating progress in our
comminution strategy.

• Driving growth in frack rentals, flowback and

broadening international oil and gas opportunities.
• Accelerate Valves growth building on a strengthened

operational platform.

Keith Cochrane
Chief Executive
26 February 2014

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Strategy in Action

The Weir Group PLC Annual Report and Financial Statements 2013Creating products, technology and service models
to provide the Group and our customers with
competitive advantage.

How we do it:

Case study

•

Investing in engineering skills
and research.
Investing in operational capability.

•
• Developing innovation as part of

our culture.

What we did in 2013:

• Further investment in the Weir
Advanced Research Centre.
• Developed new products and

entered new markets.

• Rolled out enhanced product

introduction process.

Benefits to Weir:

• Technological advantage.
• Maintain market leadership.
• Access to adjacent markets.
Increased sales and returns.
•

Benefits to our
customers:

• Greater operating efficiencies.
• Lower environmental impact.
• Predictable maintenance cycles.
• Competitive advantage.

Three years ago, in collaboration with the University of Strathclyde,
Weir launched a dedicated research facility in the University’s
Technology and Innovation Centre in Glasgow, with investment
of almost £2 million to date. The Weir Advanced Research Centre
(WARC) is designed to review specific project proposals from
Weir’s global businesses, ranging from immediate product
improvement opportunities to long-term advanced research
activities.

After initial filtering and prioritisation, selected projects are ratified
by the Weir Group Executive before being assigned to the research
team. A small leadership team from Weir and the University
regularly review the direction and progress of selected projects
to ensure project objectives and timescales are met.

The facility provides the Group with access to dedicated academic
resource and research capability and broadens and complements
Weir’s current engineering research capabilities.

Recently, in the Power & Industrial division, WARC helped the team
develop a greater understanding of high pressure static face seals
and the influences that affect the seal tightness. This has increased
Weir’s knowledge and understanding and will enable engineers
and designers to develop the next generation of seal designs,
with increased performance, efficiency and safety.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013STRATEGY IN ACTION: INNOVATIONENHANCES OURCOMPETITIVEADVANTAGEStrategic Report:
Strategy in Action

Working with customers, suppliers, communities
and colleagues ensures a better understanding of
the markets we serve, and their evolving technology
and support requirements.

How we do it:

Case study

Greater collaboration across Weir’s divisions allows the Group to
work closer together to meet and exceed customer expectations
and requirements.

In 2011, Weir established an internal Oil & Gas forum to create
new solutions for customers and more opportunities for Weir within
the oil and gas markets. Through collaboration and innovation
amongst the three Weir Group divisions, the forum set out to bring
new and existing products and expertise to oil and gas customers.

Weir Minerals has applied more than 25 years of experience
in high-performance rubber compounds to a line of swellable
packers including the STAMPEDE™ packer, designed to facilitate
efficient downhole application and enhanced sealing ability
during hydraulic fracturing.

By enhancing the sealing around wells, customers can benefit
from greater operational efficiency. As a result, the product has
been able to support increased demand for more efficient
products in the North America oil and gas market.

£5m

£5m in revenues from swellable
packers developed by the cross-
divisional Oil & Gas forum.

•

Work together to secure contracts,
develop products and expand globally.
Develop deep relationships with
customers to provide engineering
solutions across the product life cycle.

• Create industry alliances to support

growth into new markets.

What we did in 2013:

•

•
•

Worked together across divisions
to bring new products to market.
Expanded service centre network.
Brought existing expertise to new
markets, including coal-seam gas.

Benefits to Weir:

• Customer intimacy.
• Providing Group capability

across all markets.

• Strong, sustainable relationships

with local communities.

• Maximising returns on assets

and intellectual capital.

Benefits to
our customers:

•

Technology and solutions
partnerships.

• Anticipation of future needs.
• Reduction of operating complexity.
• Multi-end market knowledge.

The Weir Group PLC Annual Report and Financial Statements 2013STRATEGY IN ACTION: COLLABORATIONLEVERAGING OURCAPABILITIES17

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Strategy in Action

Developing our lean operating platform across the
customer fulfilment process, from order to delivery.

How we do it:

Case study

•

Embedding customer needs
in technology development.

• Working with suppliers to improve

processes.

• Working with each other to pool
expertise across our three end
markets.

As one of the world’s largest diversified mining and natural
resource groups, Anglo American seeks to minimise its
environmental impact, at the same time as maximising its
production efficiency. Anglo American conducted total cost of
ownership benchmarking of slurry pumping, with Weir solutions
providing significant productivity advantages and energy
consumption improvements.

In September 2013, this led to the signing of a Global Framework
Agreement (GFA) between Weir and Anglo American.

The GFA will see Weir working together with Anglo American
to improve energy consumption and lower maintenance
requirements across its operations in South Africa, South America,
North America and Australia. It will also see Weir accelerate the
roll out of its Wear Reduction Technology across Anglo American’s
installed Warman pumps.

Future opportunities may also see the piloting of innovative
Weir Mill Circuit Technology, promotion of the WBH range
of slurry pumps and wider use of Cavex hydro-cyclones in
dewatering applications.

What we did in 2013:

•

Introduced new service models
to enhance customer experience.

• Worked with supply base to
improve quality and cost.

• Signed landmark Global Framework
Agreement with Anglo American.

Benefits to Weir:

• Culture of continuous improvement.
• Reducing waste.
• Supply chain savings.
•

Increased profitability, cash
and returns on capital.

Benefits to
our customers:

• Enhanced product and service quality.
• Greater understanding of
customer operations.

• Competitively priced solutions.
• Reduced lead times and improved

on time delivery.

The Weir Group PLC Annual Report and Financial Statements 2013STRATEGY IN ACTION: VALUE CHAINEXCELLENCE IMPROVING EFFICIENCYPhoto courtesy of Anglo American.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Strategy in Action

The Weir Group PLC Annual Report and Financial Statements 2013Providing uniform excellence in service and solutions,
wherever our customers are, whenever they are needed.

How we do it:

Case study

•

Establish global manufacturing
facilities.
Grow global service centre capacity.

•
• Create strategic alliances to
strengthen the supply chain.

What we did in 2013:

• Acquired additional foundry
capacity in Malaysia and
South Africa.
Added ten new service centres.
Shared ‘lean’ operational principles
with key suppliers.

•
•

Benefits to Weir:

•
•
•

Worldwide routes to market.
Diverse revenues.
Leveraging single solutions
worldwide.

• Developing cross-Group best

practice.

Benefits to
our customers:

•

•
•
•

Global consistency of products
and service.
Rapid support.
Trusted operational performance.
Partnerships with solutions experts.

In October 2013 we announced a major investment of £70m over
the next three years in our operations in Malaysia. The investment
will increase our capacity within the fast growing Asia-Pacific
region through the creation of an additional foundry, machine shop
and a second Linatex continuous rubber processing plant on a
purpose built campus approximately 70km from Kuala Lumpur.

The foundry and machine shop will expand the production of
high quality castings sourced at best cost. Meanwhile the rubber
line will increase our ability to supply the growing demand for
Linatex products, a 95% natural rubber product used in the
mining industry which exhibits outstanding resilience, strength
and resistance to cutting, tearing and abrasion. The new campus
will be built on a 55 acre site with the new foundry capable of
producing 6,000 tonnes a year with the potential to expand
capacity up to 12,000 tonnes as demand increases.

The investment is one of the largest engineering investments
in Malaysia by a UK company and will result in our workforce
in the country more than doubling, from 400 to over 1,000. The
investment will also support our operations outside the country,
including our valve manufacturing facility in Elland, West Yorkshire.
Over the course of 2014, Elland will double production levels to
cope with increasing demand from its global customers.

At the time of the announcement, UK Prime Minister David
Cameron said: “This is yet another sign of a UK company winning
in the global race. The Weir Group is a fine example of Scottish
engineering excellence”.

£70m

£70 million investment in
Malaysian operations over
the next three years.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013STRATEGY IN ACTION: GLOBAL CAPABILITY GETTING CLOSER TOOUR CUSTOMERSStrategic Report:
Key Performance Indicators

MONITORING
OUR PERFORMANCE

Input1
(£m)

Operating
margin2
(%)

Free
cash
flow
(£m)

Return
on capital
employed3
(£m)

Inventory
turns4

Total
Incident
Rate (TIR)5

Key Performance Indicators

Strategic goals and priorities

Innovation

Collaboration

Value chain excellence

Global capability

Strengthen and extend
addressable markets in
minerals, oil and gas and
power sectors

Attain status of partner
of choice for engineered
products and services
in our chosen markets

1. Calculated at 2013 average exchange rates.
2. Adjusted to exclude exceptional items and intangibles amortisation.
3. Continuing operations EBIT (excluding Mathena and Wales EBIT and exceptional items) divided by average net assets excluding net debt,

pension deficit (net of deferred tax asset) and Mathena and Wales net assets. 2011: As 2012/13 but also excluding Seaboard.
As reported 2011 excluding Seaboard.

4.
5. 2013 average v 2012 and 2011 averages measuring medical treatment of any kind required by employees divided by 200,000 hours worked.

The Weir Group PLC Annual Report and Financial Statements 2013

The Board uses a range of financial and non-
financial metrics, reported on a periodic basis,
to monitor the Group’s performance over time.

Input1 (£m)

£2,462m
+3%

Operating margin2 (%)

19.2%
+10bps

Free cash flow (£m)

£168m
+171%

2,431

2,384

2,462

2,500

2,000

1,500

1,000

500

19.1

19.2

18.0

20%

19%

18%

17%

16%

2011

2012

2013

2011

2012

2013

180

120

168

2011

2012

2013

Excluding acquisitions and disposals
input for the year increased by 2% despite
challenging end market conditions
• Group input increased as a result of a
strong aftermarket performance, with
trends improving as the year progressed.

• Each division continued to broaden its
portfolio by developing and launching
new products.

• We extended our geographic presence

by expanding our service network.

Record margin levels maintained
• Record operating margins were maintained
in 2013 despite competitive markets.

• Minerals achieved margins above

expectations, Power & Industrial remained
broadly stable and Oil & Gas declined
slightly mainly due to Pressure Pumping
market dynamics.

• An increased focus on operational and
procurement initiatives helped support
margins by reducing costs.

Strong cash generation
• Free cash flow increased substantially

following a strong second half
performance.

• Working capital inflows of £22m in
the second half partially offset first
half outflows.

• Each division continued to invest in long
term growth with a total of £108m being
invested in capital expenditure.

Return on capital employed (ROCE)3 (%)

Inventory turns4

Total Incident Rate (TIR)5

19.3%
-290bps

3.0 times
-0.1 times

40%

30%

20%

10%

29.2

22.2

19.3

3.4

3.1

3.0

1.0
-38%

3.4

1.6

2011

2012

2013

2011

2012

2013

2011

2012

1.0

2013

Reduction reflecting lower profits
and continuing investment in long
term growth
• ROCE fell year on year due to lower profits
combined with further investment in fixed
assets and working capital.

• Oil & Gas returns fell reflecting lower

revenues and profits.

• Minerals’ and Power & Industrial’s
returns were broadly maintained.

•

Inventory turns fell as stock levels
reflected increased Q4 activity
• Total inventory declined by 5% in 2013,
despite Q4 output being 8% higher year
on year.
Inventory turns improved by 8% in the
second half of the year due to value chain
excellence initiatives.
Inventory levels in the Oil & Gas division
continue to reflect excess capacity in
the industry but are declining.

•

Incident rate reduced by more than
a third over the course of 2013
• Roll out of the Weir Environment,

Health and Safety system underpinned
substantial safety improvement.

• The rolling programme of safety audits
continues to identify opportunities to
improve performance across the Group.
• The Behavioural Safety System has raised
cultural awareness of safety at all levels
of the business.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Key Performance Indicators: Monitoring and evaluating our performance Strategic Report:
How We Manage Risk

HOW WE MANAGE RISK

The risk agenda
We operate in a complex global environment, where risks offer opportunities as well as challenges. Our objective is to allow our people
to be decisive, so we can take advantage of attractive opportunities whilst ensuring we are not exposing the organisation to excessive risk.

During 2013, the Board agreed a Risk Appetite Statement for the Group. The aim of the Risk Appetite Statement is to highlight the risks
that we should be willing to take, as well as those which are unacceptable. The Risk Appetite Statement includes a series of risk assertions
which are aligned to our strategy, together with the risk parameters within which we expect our people to work. The risk appetite is all
of the risk assertions and the parameters taken together. The parameters can apply to more than one risk assertion, therefore the individual
risk assertions should not be read in isolation. Compliance with the Risk Appetite Statement is monitored through the Group’s standard
monitoring and reporting mechanisms. The Board will review and update the Risk Appetite Statement on an annual basis. Details of the review
of the internal control and risk management systems undertaken during the year are contained in the Audit Committee Report on page 79.

Risk management
The management of risks is at the core of the internal control framework. We have a risk management policy which defines how we expect
risks to be identified, assessed, and managed throughout the organisation.

Risks are assessed, and quantified, in terms
of impact and likelihood of occurrence, both
before and after control mitigation. Assessing
the gross risk before control mitigation also
allows the business to review the relative
impact of the existing controls by comparing
the gross and net risk assessment. This
also allows the business to avoid wasting
resources on mitigating controls and
actions which have a negligible impact
on the risk assessment.

The impact of risks is quantified across
a range of factors including: financial;
reputation; people and property; ability to
perform services; regulation; environment,
health & safety; and investors and funding.
The risk management policy includes defined
criteria for each risk impact factor, supporting
a consistent measurement approach. Risk
management takes place at the grassroots
level, for example in individual projects, all the
way up to Group level assessments, thereby
providing an integrated bottom-up and
top-down approach to risk management.

I dentify
t h e risks

i
f

g
g
n
n
i
i
t
t

xis
xis

s
s
l
l
o
o
r
r
nt
nt
o
o

I d e ntify the e
I d e ntify the e
m itigating c
m itigating c

nitor
d report

o
M

n
a

c
o
n

d
e

Quantif y
the net ri s k

Figure 1: Risk management cycle

The specific risks identified across the business generally fall under one of the categories within the ‘Risk Universe’ as shown below.

Strategic
risk

Industry and market
downturns.
Technological
advances.
Pricing pressures.
Acquisitions
and mergers.
Planning and
resource allocation.

Hazard
risk

Political and
social instability.
Natural disasters
and other major
incidents.
Fraud and
corruption.
Environmental and
safety incidents.

Operational
risk

People.
Delivery and
supply chain.
Quality.
Commercial.
Communication.
IT.
Cyber security.

Compliance
risk

Laws and
regulations.
Code of Conduct.
Environment,
health & safety.
Governance.
Intellectual property.

Financial
risk

Financial
management.
Credit.
Debt and
interest rates.
Foreign exchange.
Accounting
and reporting.
Taxation.
Internal fraud.

Figure 2: Risk Universe

The Weir Group PLC Annual Report and Financial Statements 2013

Not all risks are controllable or foreseeable, a key example being natural disasters. Our response to such risks is having controls which lessen
the impact to our business should they occur. For example, in the case of natural disasters, we have controls in place to reduce the risk of harm
to our people, as well as response planning protocols, with clear accountability, to minimise disruption to operations and our customers.

Risk appetite statement
The Weir Group is strategically positioned in markets with long term high growth potential. We will pursue ambitious growth targets, and
we are willing to accept a higher level of risk to increase the likelihood of achieving or exceeding our strategic priorities, subject to the
parameters below.

Risk assertions

Risk parameters

1. Organic growth: We will aggressively pursue divisional organic

growth strategies to meet our market growth objectives.

Investment of resources will be consistent with divisional strategies
and divisional compound annual growth rates over five-year plans.

2. Mergers and acquisitions: We will actively pursue M&A
opportunities that enhance our strategic platform subject
to meeting investment criteria.

Post-tax returns should exceed our cost of capital within three years
of the acquisition.

3. Returns and profitability: We will not pursue growth at all costs
and expect high margins, strong returns on capital and working
capital discipline.

Short term margin dilution is acceptable in gaining market entry
but over the cycle we aim for top quartile operating margins and
returns on capital.

4. Capital allocation: We will encourage capex in pursuit of our
growth ambitions subject to Internal Rate of Return (IRR) and
achievement of Group free cash flow targets.

Planned IRR on capital expenditure projects should not be less
than 20%.

5. Capital structure: We are prepared to use leverage in pursuit
of our growth agenda and will actively seek low cost debt to
fund the Group but will maintain significant headroom against
our financial covenants.

We will seek to maintain the ratio of net debt/EBITDA below two times
(current financial covenants 3.5 times).

Maintain financing facility headroom of at least £150m.

6. Reputation and brand image: We will manage/avoid situations
or actions that could have a negative impact on our reputation
and brands.

No tolerance for breaches of:
• Legislative/statutory requirements.
• Weir Code of Conduct.
International sanctions.
•
• Delegated authority levels.
• Group and divisional policies.

7. Environment, health and safety (EHS): We will not undertake

Total Incident Rate ≤1 and EHS Audit Score >40%.

or pursue activities that pose unacceptable hazard or risk
to our people, the communities in which we operate, or the
broader environment.

Active community and environmental engagement is expected.

No tolerance for breaches of Weir EHS system.

8. New entry to countries: We are prepared to enter new

countries which offer opportunities for growth consistent with
our overall strategy. We will not enter countries which present
a high risk of harm to our people, damage to our reputation,
or breach of international sanctions.

No tolerance for breaches of:
• Legislative/statutory requirements.
• Weir Code of Conduct.
•
International sanctions.
• Delegated authority levels.
• Group and divisional policies.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
How We Manage Risk

Risk responsibilities and reporting
Ultimately, the Board is responsible for the Group’s risk and internal control framework. It has set out the decisions, and hence the level
of risk, which can be delegated to the Group Executive, divisional and operational company management without requiring escalation.
This is articulated in a series of Group policies and delegated authority matrices, as well as the parameters within the Risk Appetite Statement.
The Board and committee structure can be viewed on page 71.

The bottom-up risk reporting requires key risks identified, and reported, at project level to be escalated to the operating company management,
which in turn may be escalated to divisional management, and ultimately to the Risk Committee and the Board. This is achieved through risk
dashboard reports, which are maintained at operating company, divisional and Group level. The dashboards provide a summary of the top
ten net risks at each respective level, as well as a summary of the key mitigating controls and actions, and further control actions required.
The Risk Committee monitors quarterly risk dashboard reports from the operating companies and divisions. In addition, the Risk Committee
has oversight of the Group Risk Dashboard, providing an update to the Board at each Board meeting. The Board obtains assurance over risks
through the internal control framework. More information on the internal control framework can be found in the Corporate Governance Report
on page 67 and in the Audit Committee Report on page 82.

ortin

p
e
R

Board and
sub-committees

Group Executive

Risk Committee

Divisional management

Operating company management

Figure 3: Risk responsibilities and reporting

The Weir Group PLC Annual Report and Financial Statements 2013HOW WE MANAGE RISKCONTINUED

The key roles and responsibilities for risk management are set out below:

Board
Overall responsibility for the Group’s risk management and internal
control frameworks, and strategic decisions within the Group.

Audit Committee
Delegated responsibility from the Board to review the effectiveness
of the Group’s risk and internal control frameworks.

Risk Committee
Management committee responsible for governance of the Group’s
Risk Management Policy and Framework.

Group Executive
Executive committee with overall responsibility for managing the
Group to ensure we achieve our strategic objectives.

Excellence Committees
Engineering
Environment, Health & Safety
Finance
HR
IT
Manufacturing
Planning
Purchasing
Value Chain

Management committees with representatives from across the
Group in their respective areas of focus. The committees govern
activities and performance in the individual functional areas.

Divisional management
Responsible for managing the businesses within the divisions
to ensure divisional strategic objectives are achieved and there
is compliance with Group policies and standards throughout
their division.

Operating company management
Responsible for ensuring company objectives are achieved and
business activities are conducted in accordance with Group
policies and standards.

Risk management responsibilities

• Annual review of the effectiveness of the risk management,

risk appetite and internal control frameworks.

• Review of risks which have the potential to impact the delivery

of the Group’s strategic objectives.

• Taking decisions in accordance with the delegated authority matrices.

• Annual assessment of the effectiveness of the risk management

and internal control frameworks.

• Review of reports from the internal and external auditors.
• Review of the results from the six-monthly self-assessment

compliance scorecards.

• Review of the design and operation of the Group Risk

•

Management Policy and Framework.
Identification and assessment of the key risks facing the Group,
identification of the key controls mitigating those risks, and
identification of further actions where necessary.

• Review of the Divisional Risk Dashboards considering the

appropriateness of management’s responses to identified risks,
and assessing whether there are any gaps.

• Reporting key Group and divisional risks to the Board.

• Managing risks which have the potential to impact the delivery

of the Group’s strategic objectives.

• Monitoring business performance, in particular key performance

indicators relating to strategic objectives.

• Taking strategic decisions in accordance with the delegated

authority matrices.

• Escalating issues to the Board as required.

• Monitoring the management of key risks across the Group associated

with the respective remits of the Excellence Committees.

• Monitoring performance and compliance with Group objectives,
policies and standards related to the respective remits of the
Excellence Committees.

• Taking decisions in accordance with the delegated authority matrices.
• Escalating issues to the Group Executive as required.
• Reviewing the results from relevant assurance activities.

• Managing risks which have the potential to impact the delivery

of the Divisions’ strategic objectives.

• Monitoring performance and compliance with Group objectives,
policies and standards within the divisions with regard to the
outputs from the Excellence Committees.

• Taking decisions in accordance with the delegated authority matrices.
• Escalating issues to the Group Executive as required.
• Reviewing the results from relevant assurance activities.

• Managing risks which have the potential to impact the delivery

of their company’s strategic objectives.

• Monitoring performance and compliance with Group objectives,

policies and standards within their company.

• Taking decisions in accordance with the delegated authority matrices.
• Escalating issues to divisional management and Excellence

Committees as required.

• Reviewing the results from relevant assurance activities.

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How We Manage Risk

Principal risks and uncertainties
As in any business, there may be unforeseen issues which could impact the Group’s ability to achieve its objectives in the future. However,
we believe the Group’s risk management framework makes this less likely. The principal risks set out below are those which we believe to
have the greatest potential to impact our ability to achieve the Group’s strategic priorities.

Risk

Why we think this is important

How we are mitigating the risk

Global, economic and market conditions

We need to remain sufficiently flexible to allow us to
meet growth in demand when our customers’ markets
are buoyant and therefore capital investment is high,
and equally foresee downturns and/or instability
in territories, to allow us to adjust our operations
accordingly. Otherwise, we are at risk of not maximising
our potential for growth in buoyant markets, and
incurring unnecessary costs during downturns.

• We maintain regular engagement with our customers

to understand their needs and challenges, and
ensure our business is appropriately aligned.
• Our strategic planning utilises extensive market

intelligence to assist in forecasting opportunities
and dips in markets, as well as potential political
and social instability in regions.

• We maintain contingency plans for downturns

and exits from unstable regions.

Changes in key
markets, including
mining and
upstream oil and
gas, and/or political
conditions have
an adverse impact
on customers’
expenditure plans.
This may include
delaying existing
expenditure
commitments.

Technology and innovation

We fail to drive
innovation to ensure
that the business
continues to deliver
sustainable and
attractive solutions
for our customers.

The strength of our business is built upon a history of
delivering innovative and sustainable solutions for our
customers. If we fail to keep abreast of market needs
or to innovate solutions we are at risk of losing market
share to our competitors and lowering margins as
demand will reduce.

Environment, health & safety (EHS)

Failure to adequately
protect our
people and other
stakeholders from
harm associated
with a breach in
EHS standards.

We operate in hazardous environments, and therefore
have a fundamental duty to protect our people and other
stakeholders from harm whilst conducting our business.
As well as the personal impact on our people resulting
from a failure to meet this obligation, we would also be
at risk of:
•
•

reputational damage leading to a loss of business;
legal action from regulators including fines and
penalties; and

• exclusion from markets important for our future growth.

• Continual investment in research and development,
including the Weir Advanced Research Centre in
conjunction with the University of Strathclyde.

• We have a dedicated governance team (Engineering
Excellence Committee) focussed on the delivery of
our strategic objectives for technological advances
and innovation in manufacturing practices to meet
the needs of our customers.

• The Weir EHS Management System is in place

to reduce the risk of safety incidents. In addition,
there are initiatives to prevent the most common
accident types. The Weir global EHS standards are
continually reviewed.

• The EHS Excellence Committee is responsible for

monitoring performance and compliance with Group
objectives, policies and standards relating to EHS.

• There is a formal EHS assurance programme
with issues escalated as required through the
reporting structures.

The Weir Group PLC Annual Report and Financial Statements 2013HOW WE MANAGE RISKCONTINUEDRisk

Why we think this is important

How we are mitigating the risk

Ethics and governance

Interactions with our
people, customers,
suppliers and other
stakeholders are
not conducted
with the highest
standards of integrity
which devalues
our reputation.

We are unwilling to accept dishonest or corrupt
behaviour from our people, or external parties acting
on our behalf, whilst conducting our business. If we
fail to act with integrity we are at risk of:
•
•
•

reputational damage leading to a loss of customers;
increased scrutiny from regulators;
legal action from regulators including fines, penalties
and imprisonment; and

• exclusion from markets important for our future growth.

• The Code of Conduct, supplemented with

Group policies on related topics, provides a clear
benchmark for how we expect our business will
be conducted.

• Regular training is provided using a range of

mechanisms including ‘Town Hall’ style sessions,
online and induction training.

• The financial control framework is continually

•

monitored for effectiveness.
Internal Audit’s remit includes regular review
of the anti-bribery and corruption and financial
controls across the Group. The Group legal team
is responsible for monitoring compliance with the
Code of Conduct.

• A Group-wide crisis management plan has been
developed and rolled out across the organisation
and is subject to periodic testing and regular review.

Supply chain

We fail to adequately
manage the supply
chain thereby
reducing our
ability to meet
customer demand
in an economic and
efficient manner.

Our supply chain is dependent upon a number of factors
including having sufficient manufacturing capacity,
access to raw materials and key components, integrated
sales and production planning, and skilled people. If we
fail to meet the delivery targets agreed with customers as
a result of a failure in the supply chain we risk:
• damaging our reputation and as a consequence

•

losing customers and market share;
incurring penalties as a result of late delivery
contractual clauses; and
reducing margins by incurring unnecessary additional
costs associated with late remedial actions taken to
avoid missing delivery targets.

• There is an established engagement framework

with key suppliers.

• Regular KPI monitoring of the supply chain

throughout the organisation.

• The Value Chain Excellence Committee monitors

performance and compliance with Group objectives,
policies and standards relating to procurement.
• Centres of Excellence have been established to

drive efficiencies and enhance delivery standards
whilst maintaining quality.

• There is a developing Group-wide approach to

inventory control, sales and operational planning.

Political and social risk

Adverse political
action, or political
and social instability,
in territories in
which we operate
may result in
strategic, financial
or personnel loss
to the Group.

We operate across the globe and therefore have
to work within a wide range of political and social
conditions. Adverse events may occur in the territories
in which we operate that may require us to act swiftly
to protect our people, property and to maintain our
competitiveness. Expansions into new territories are
only undertaken after rigorous assessment of the
risks, including the social and political situation within
the territory.

Acquisitions and expansion into new territories

Inadequate planning
and management
of the integration
and expansion
processes impacts
the ability to
generate growth
opportunities,
synergies and cost
savings within
expected timescales.

Acquisitions and expansions into new territories are
only undertaken after rigorous review and identification
of expected synergies, cost savings and growth
opportunities. However, there is a risk that these benefits
may not be achieved, or may not be achieved within the
anticipated timescales, thereby tying up the Group’s
funds in investments with insufficient returns. There is
also a risk that we could be left liable for past acts or
omissions of the acquired businesses without adequate
right of redress.

• Regular review of market attractiveness.
• Monitoring travel by Weir employees to higher

risk locations.

• External expert risk assessments and

regular monitoring in higher risk locations.
• Contingency plans and exit strategy planning.

• The strategic planning process includes market
and competitive position assessments to drive
the acquisition agenda.

• Comprehensive due diligence is performed on

all potential acquisitions.

• We have a formal 100 day integration plan with
dedicated integration directors and managers
appointed to oversee and manage the full
integration programme.

• We seek to secure appropriate legal protection
against potential liabilities and to secure rights of
redress against sellers where such liability arises.

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How We Manage Risk

Risk

Why we think this is important

How we are mitigating the risk

IT security and continuity

• We continually review the effectiveness of our
key IT security controls in consultation with
external experts.

• There is regular reporting of IT incidents and potential

security breaches, with lessons learned across
the Group.

• Significant and ongoing investment in the IT

infrastructure and key systems.

• We have an IT Governance Framework with a focus
on structured change management techniques,
including setting project governance levels in line
with risk.

• Full time programme and project team appointments,

with adequate succession planning for internal
appointments.

• Regular programme and project monitoring.
• External assurance being obtained on major
IT transformation projects reporting through
Internal Audit.

• Close liaison with UK Government bodies

in regard to cyber crime risk.

• There is continual focus on maximising the efficiency
of our products to ensure the solutions provided to
customers deliver the best overall value, allowing our
customers to meet their cost reduction strategies
through lower energy costs and improved productivity.

• Centres of Excellence are driving cost efficiencies,

whilst maintaining quality.

• Expansion of production in best cost locations,
including foundry expansions in Malaysia and
South Africa.

• We regularly monitor market activity to ensure we

remain competitive.

Failure to maintain
business systems
or technical
infrastructure that
serves the business
needs. Failure to
adequately protect
the business
operations from
cyber crime.

Up-to-date data allows us to make informed decisions
about our business. Therefore we require reliable and
efficient IT systems and infrastructure to provide our
data requirements. Breaches of our IT security could
have serious consequences for our business including:
•
•

interruption to business operations; and
loss of intellectual property and other valuable data.

The Group is investing in a significant IT transformation
programme. If this is not managed effectively the
consequences could include:
•

the business becomes too internally focussed whilst
the change is under way, and we fail to maintain our
focus on delivering for our customers; and
interruption to business operations if data is
unavailable due to unsuccessful execution of change.
All of which could impact our ability to compete and our
reputation in the market.

•

Cost competitiveness

Customers are increasingly focussed on the price
competitiveness of products and services as they
seek to lower operating costs. If the Group fails to
demonstrate the value of our products and services
it risks losing market position.

Failure to deliver
cost competitive
products and
services, or failure
to deliver sufficiently
differentiated
products and
services which justify
a price premium
through lowest total
cost of ownership
value propositions.

The Weir Group PLC Annual Report and Financial Statements 2013HOW WE MANAGE RISKCONTINUEDOPERATIONAL REVIEW
WEIR MINERALS
DIVISION

Dean Jenkins
Divisional Managing Director

2013 saw the division continue to deliver
strong results and growing profits despite
challenging trading conditions. We did this
by building closer relationships with our
customers and using our market-leading
position to offer a broader range of
differentiated products which provide
attractive aftermarket benefits. This
performance was supported by initiatives
which delivered increased procurement
and efficiency savings.

Market drivers
Mining sector capital expenditure fell by an estimated
16% in 2013 as metals prices continued to decline
from 2011 highs. Greenfield projects were hardest
hit as mining companies switched their priorities from
new projects to maximising returns from their current
operations. This drive towards optimisation supported
largely unchanged maintenance and brownfield
capital expenditure.

Some new projects experienced order delays as
customers continued to adopt a cautious approach to
large investments. In addition, ongoing projects were
subject to delay. This was particularly evident in South
America where developments were postponed by
regulatory and operational issues.

Prices continued to remain above incentive levels for
key commodities including copper and iron ore. This,
in addition to the commissioning of some greenfield
projects, supported an estimated 3% growth in global
ore production.

Regionally, there was strong growth in Africa (outside
of South Africa) with continued investment in a number
of ongoing greenfield developments. In Europe and North
America, markets remained subdued. In Australia, project
activity stayed at low levels due to difficult conditions in
coal markets in particular. Brownfield investment in South
America continued to offer good opportunities. Outside
of mining end markets, the division saw growth in water
and oil and gas. This included continued growth in
brownfield spending in the Canadian oil sands and the
development of coal-seam gas projects in Australia.

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Operational Review

Market input breakdown
Market input breakdown

Geographic input breakdown
Geographic input breakdown

Minerals 75%
Industrial 8%
Oil & Gas 10%
Power Generation 5%
Other 2%

North America 24%
South America 22%
Australasia 18%
Middle East/Africa 15%
Europe 12%
Asia-Paciﬁc 9%

Key priorities and progress in 2013

Global
capability and
value chain

Continue to
drive market
share of the
full product
portfolio and
services

• Expansion of our best cost

manufacturing base with the
acquisition of two foundries in
South Africa and Malaysia.
• Continued investment across
our regions to strengthen our
service and support capabilities.
Eight service centres were
added during 2013.

• The launch of a global systems

integration programme to exploit
synergies across the division and
provide the management platform
for long term sustainable growth.

• Market entry into the attractive
centrifuge aftermarket with the
acquisition of Australian centrifuge
engineered wear component
manufacturer Aspir.

• Strengthening our aftermarket

capability in the North American
engineered wear lining market
with the acquisition of R Wales.
Increase market share using the
full product portfolio and services.

•

Establishing
capability
within
comminution

• Secured a licensing agreement

with KHD for their market-leading
High Pressure Grinding Roll
(HPGR) technology and achieving
first original equipment orders.
• Established a joint venture with
Taiwan-based Minyu Machinery
Corporation for the development
of crusher technology for mining.

• Secured our first significant
orders for swellable packers
for oil and gas downhole drilling
applications developed using
Minerals elastomer technology.

Build on the
collaborative
successes of
the Oil & Gas
forum to
develop new
products and
services

Strategic progress
The division has continued to make strategic progress
to ensure long term growth whilst at the same time
demonstrating agility in responding to challenging
market conditions. During the year, we reacted to
reductions in mining company capital expenditure
by increasing customer responsiveness, extending
our product range into attractive adjacent markets
and improving our operational efficiency.

We expanded our market-leading service centre network
and opened a new manufacturing plant in Mexico to
support the high growth Central American market.
Globally, our service network proved a valuable platform
for our enhanced and extended product range which
supported a significant increase in aftermarket revenues
and helped to offset the impact of reduced original
equipment spending. As miners concentrated on
brownfield investment to increase productivity at existing
facilities, we were able to take advantage of our lowest

total cost of ownership proposition. A Global Framework
Agreement with Anglo American, one of the world’s largest
mining companies, was signed which will roll out Weir
products to their worldwide operations, helping to improve
energy consumption and lower maintenance requirements.

Over the course of the year we made significant progress
through strategic acquisitions and alliances which
provide access to differentiated technology and
extend our presence in attractive non-mining markets.
The purchase of Aspir complements our existing product
portfolio and allows us to extend our aftermarket offering.
The division also expanded further in the comminution
segment of the mill circuit through two agreements which
increase our product offering. The agreement with KHD
gives Weir direct control over the design, manufacture
and distribution of HPGRs, with the first original
equipment orders received in 2013. We also entered into
a partnership with the Minyu Machinery Corporation,
providing crushing technology from which we can

The Weir Group PLC Annual Report and Financial Statements 2013

Revenue

£1,304m
0%

2013

2012

2011

2011 and 2012 restated at 2013 average exchange rates.

Operating profit

£269m
+6%

£1,304m

£1,307m

£1,169m

2013

2012

2011

£269m

£253m

£208m

develop product lines specifically for mining markets,
using our materials technology. Combined, these
products give us a strong platform to grow and
increase our addressable market in comminution
to circa £1bn.

We also concentrated on building capacity to meet
growing aftermarket demand in mining markets and
expanding the product portfolio into non-mining markets.
The acquisition of additional foundry capacity in South
Africa and Malaysia provides best cost manufacturing
near strategically important markets to support growing
aftermarket demand. Our presence in the Canadian oil
sands market was also strengthened with the acquisition
of the R Wales group of companies. Dewatering pump
technology was used to secure orders in the coal-seam
gas market in Australia.

Our commitment to value chain excellence continued
with significant operational efficiencies, cost reductions
and procurement savings supporting margins and
reductions in working capital. We worked closely with
key suppliers sharing the benefits of our lean operating
system to reduce customer lead times.

Order input increased by 1% to £1,311m (2012: £1,296m)
and was flat on a like for like basis. Original equipment
orders were 6% lower year on year with a double-digit
decline in original equipment slurry pump orders for
mining end markets, partially offset by growth in orders
for the broader product range and success in non-mining
markets. Momentum increased towards the end of the
year with original equipment input up by 19% in the fourth
quarter, including for projects to be delivered in 2015 and
2016. Despite project delays and changes to the scope of
certain greenfield developments, only £3m of prior
year orders were cancelled and the division recorded
a positive book to bill in 2013.

Aftermarket orders grew by 6% (3% like for like) and
represented 63% of total input (2012: 60%) supported
by the benefits of a large and growing installed base,
reflected in the 4% order growth for slurry pump spares.
Aftermarket growth of 5% or more was achieved in three
out of four quarters with Q2 impacted by destocking
in South America.

Order input was supported by the initial success
of our comminution strategy which included the
first orders for HPGRs. In total, comminution orders
(crushers, HPGRs and screens) almost doubled to
more than £30m. Orders from a coal-seam gas project
in Australia supported growth in dewatering pump
orders approaching 50%. Alongside growth in waste
water and general industrial markets, this supported
a near 30% increase in non-mining orders in 2013.

Emerging markets accounted for 46% of input (2012: 52%),
with orders reflecting lower activity in South America and
Indonesia. Orders from mining end markets accounted
for 75% of input (2012: 80%).

Revenue was flat year on year at £1,304m (2012: £1,307m)
and 2% lower on a like for like basis with second half
revenues 1% above the prior year record. Original
equipment sales were 9% lower and accounted for
37% (2012: 41%) of divisional revenues. Short-cycle
production-driven aftermarket revenues increased by
6% (3% like for like), with strong ore production growth
and the benefits of an expanding installed base more
than offsetting the impact of extended wear-life offered
by our latest product enhancements.

Double-digit growth in Africa was offset by revenue
declines in South America and Asia Pacific. Despite
subdued end market conditions, growth was also
achieved in North American and European markets.

Operating profit increased 6% to £269m (2012: £253m)
benefiting from a positive first contribution from
aquisitions, a higher proportion of aftermarket revenues
alongside cost and procurement efficiencies.

Operating margin increased to 20.6% (2012: 19.4%)
and was ahead of expectations reflecting a growing
aftermarket revenue mix, benefits from procurement
initiatives, productivity gains and effective cost control
measures. Combined, these more than offset inflation
and the limited pricing pressure seen in the period.
Margins were maintained at good levels in all regions.

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Operational Review

Partners in production worldwide
CREATING INNOVATIVE
ENGINEERING
SOLUTIONS

The Weir Minerals Screen Design Centre
in Johannesburg, South Africa, is responsible
for the development of the division’s vibrating
screens global product portfolio.

The team comprises design engineers
and draughtsmen who use the latest
engineering analysis equipment to
design new screen products.

The design centre was established
after the Weir Group purchased the
Linatex rubber brand in late 2010. Since
then, we have invested significantly in
our team and provided our employees
with cutting edge technology to develop
innovative screening equipment, helping
enhance our offering under the new
brand identity of Enduron screens.

The design centre is also responsible for
building and testing prototypes, making
use of the dedicated vibrating screen and
geared exciter testing facility situated in
the manufacturing plant in Johannesburg.
The engineers provide design and
manufacturing support to the Group’s
facilities around the world, expanding
the division’s global capability and
building on Weir’s reputation for
creating innovative products.

The Weir Group PLC Annual Report and Financial Statements 2013OPERATIONAL REVIEWCONTINUEDKey priorities in 2014

Invest in comminution process knowledge
and materials wear technology.

Identify new platforms for potential growth
aligned to our core strategy and competencies.

Reduce lead times and working capital through
global supply chain initiatives.

Continue development of Minerals and Oil & Gas
product portfolios through collaboration and
innovation.

Help make our customers’ existing operations
more efficient by continuous improvement of
our core products, wherever they need us.

Investment
Capital expenditure was £53m (2012: £50m) as
investment was made in foundry capacity and wear
resistant lining production. Eight service centres
were added and research and development spending
remained in line with last year at £13m as the division
continued to develop its materials technology positions
and broaden its product portfolio.

In Malaysia, land was secured to build a best cost
manufacturing campus with plans to invest more
than £70m over the next three years establishing
a new foundry, machine shop and continuous rubber
processing line (see case study on page 20).

Including acquisitions, the division added around
400 employees during the year.

Outlook
Weir Minerals remains well positioned to sustain its
growth strategy supported by a strong business model
and the long term attractive market fundamentals in
mining and minerals processing which are driven by
emerging market urbanisation and signs of improving
economic conditions in developed markets. Sustained
ore output growth, underpinned by declining ore grades
and metals prices above incentive levels, lends itself to
ongoing demand as Weir Minerals leverages its strong
aftermarket position.

The division entered 2014 with an order book at similar
levels to the prior year, although total mining capital
expenditure is expected to continue to decline at
double-digit rates in 2014, reflecting miners’ investment
plans. Maintenance and brownfield capital expenditure
is expected to remain relatively stable while greenfield
activity will continue to decline.

The impact on original equipment revenues is
anticipated to be partially offset by the combined
growth of comminution and non-mining end market
sales. Commissioning of ongoing greenfield
developments is expected to support continued
aftermarket growth such that full year divisional revenues
are expected to be slightly ahead of 2013 on a constant
currency basis. It is anticipated margins will decline
slightly reflecting a greater proportion of lower margin
products and further investment in new products
and technology.

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Operational Review

OPERATIONAL REVIEW
WEIR OIL & GAS

Steve Noon
Divisional Managing Director

Market drivers
In North America tight oil production continued to grow
strongly. The US government now estimates the US will
shortly overtake Saudi Arabia as the world’s biggest oil
producer. Throughout the year WTI oil prices remained
above incentive levels but traded at a discount to Brent
because of US infrastructure constraints and restrictions
on exports. Gas prices stayed below incentive levels.
In Canada, an extended spring break and flooding in
Alberta adversely impacted the market. These factors
contributed to a slower recovery in North American
upstream markets than had been anticipated by the
industry, with the number of wells drilled stable from
the second quarter of 2013 onwards. Increased drilling
efficiencies meant well count declined by 3% despite
a 9% decline in average rig count, as pad drilling
enabled each rig to drill more wells. Oil and liquids
drilling increased to 79% of drilling and completion
activity, emphasising the continued move away from
gas, where rig count fell by 14%.

Wells drilled, the key driver of our business, supported
demand for pressure pumping and pressure control
products. In pressure pumping markets, frack fleet
utilisation is estimated to have improved marginally to
76% by the end of the year but remained below the level
required to stimulate an increase in original equipment
demand. There was a reduction in customer inventory
levels, with demand for shorter cycle aftermarket
products and services normalising. International pressure
pumping markets continued to grow strongly, particularly
in China, which saw a 73% increase in its frack fleet.
Pressure control markets declined slightly reflecting the
number of wells drilled and the switch from gas to oil rich
basins which are typically lower pressure and require less
complex solutions.

In the Middle East, services markets continued to grow
with average rig count increasing by 5%. Iraq offered
significant opportunities as the country continued to
rebuild its oil and gas infrastructure. In mid and
downstream markets there were good opportunities
in Liquified Natural Gas (LNG) and Floating Production,
Storage and Offloading (FPSO) sectors, although the core
refining market remained subdued.

In 2013 the division continued to make
progress in pursuit of its key strategic
objectives, despite further challenges
in the pressure pumping market.
By increasing operational efficiency,
leveraging our service centre network
and maximising the benefits from our
complete product portfolio, we were
able to more fully capture aftermarket
opportunities.

The Weir Group PLC Annual Report and Financial Statements 2013Market input breakdown
Market input breakdown

Oil & Gas 99%
Industrial 1%

Geographic input breakdown
Geographic input breakdown

North America 70%
Middle East/Africa 15%
Europe 8%
Asia-Paciﬁc 4%
South America 2%
Australasia 1%

Key priorities and progress in 2013

Develop
aftermarket
business model
and bundling
strategy in
Pressure
Pumping

• Dedicated aftermarket sales team
established with positive impact
across all aftermarket product
streams. Aftermarket input up
32% in Pressure Pumping,
with fluid end valves and seats
especially strong, reflecting
the benefit of the Novatech
acquisition in early 2012.

• Duralast and stainless steel fluid

ends released across the full frack
pump range, assisting recapture
of market share in this category.

• Gabbioneta completed

development of a high capacity
vertical pump for downstream
applications which has the
highest specific speed rating
ever designed by the business.
• Seaboard developed a unique
overshot system for subsea
well kill applications.

•

Input in Saudi Arabia and Iraq
was up more than 40% year on
year (including joint ventures),
as we took advantage of growing
oil and gas production.

Continue
momentum in
new product
development

Capitalise
on growth
opportunities
in Saudi Arabia
and Iraq

Capture
Seaboard
domestic and
international
growth
opportunities

• The business secured its first

Australian revenues with further
orders expected in 2014.
• The customer base was

broadened and the business
grew wellhead revenues in
challenging market conditions.

• Mathena was successfully

integrated and has broadened
its reach and extended its share
of rigs across North America to
over 400, up 26% year on year,
in what was a declining market.

• We successfully launched our
flowback and zipper rental
service streams towards the end
of the year, giving us the platform
for organic growth in 2014.

•

In absolute terms the division
reduced like for like working
capital by £2m.

Integrate
and realise
the benefits
expected from
the Mathena
acquisition

Enhance
Pressure
Control
offering in
North America
upstream
markets

Increase
supply chain
flexibility
and reduce
working capital

Strategic progress
In 2013, we responded to the slower than expected
recovery in upstream markets by increasing our product
range and leveraging our industry-leading service centre
network to grow aftermarket revenues. That network
was a real source of competitive advantage for Pressure
Pumping allowing us to gain market share and leverage
our complete product portfolio through the provision
of integrated aftermarket products and services. We also
made significant changes to ensure continued
operational efficiency. Pressure Pumping manufacturing
was consolidated in Fort Worth, Texas, allowing the
closure of two small satellite manufacturing units. These
initiatives partially offset the impact of pricing pressure,
particularly in frack pumps and legacy fluid ends.

Internationally, Pressure Pumping increased market
share in China as it benefitted from the extension of
the locally manufactured product range and targeted
sales initiatives; capturing both original equipment and
aftermarket opportunities.

In Pressure Control, we launched a zipper frack manifold
product which is used in pad drilling and contributes
to the material efficiency gains seen from this technology.
Seaboard also launched a frack flowback offering which
combines elements of both the Pressure Pumping
and Pressure Control portfolio to safely and efficiently
manage the initial flowback of water and solids
from completed wells. Additional resources were
also invested in Seaboard to increase service and
operational capabilities.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

Strategic Report:
Strategic Report:
Operational Review
Operational Review

Services continued to experience good growth in both
Saudi Arabia and Iraq – where Weir has the first facility
to be awarded internationally recognised API and ISO
licenses, which led to a US$98m order from LUKOIL
in January 2014, to support its operations in southern
Iraq. Downstream operations also saw momentum
build through the year as they expanded into mid and
upstream markets through organic product development.
Profitability improved as the business benefitted from
value engineering initiatives and the commissioning of a
best cost manufacturing facility in Poland.

Revenue decreased by 7% (13% like for like) to £796m
(2012: £857m) reflecting a lower opening order book
at the start of 2013 compared to 2012 and continuing
subdued demand for Pressure Pumping original
equipment. In total, original equipment revenues were down
42% (42% like for like). Aftermarket revenues increased by
22% (11% like for like). Revenues increased sequentially
driven by incremental growth in Pressure Pumping and
Pressure Control. Services and Downstream recorded
strong growth in the period. Divisional second half revenues
were 17% higher year on year (9% like for like).

Order input at £811m (2012: £688m) was 18% higher
and 10% higher like for like. Aftermarket input was
up 41% year on year (29% like for like) due to strong
Pressure Pumping and Services growth and accounted
for 72% (2012: 60%) of divisional orders. Original
equipment input fell 18% (18% like for like) mainly due
to the reduction in demand for new pressure pumping
equipment, which was partially offset by good growth
in Downstream orders.

Pressure Pumping input increased by 9% with
improvement evident through the year such that second
half orders were 34% higher than the equivalent
prior-year period. This was driven by strong aftermarket
growth as a result of the normalisation of inventory levels
and the success of our product bundling strategy. SPM
aftermarket orders exceeded 2011 levels and Novatech
run rates approached levels last seen at the peak of the
market. Original equipment orders were materially lower
year on year reflecting overcapacity in the frack fleet
and accounted for 17% of Pressure Pumping input.
International orders grew strongly as interest in new
shale opportunities continued to grow outside of North
America and now represent almost 15% of Pressure
Pumping input.

Pressure Control was impacted by the decline in well
count and the bias towards tight oil basins. Input was
supported by a good first contribution from Mathena.

Despite sequential second half growth, full year Seaboard
orders reflected the end market conditions and the delayed
introduction of new product initiatives in the first half.

Input from Services and Downstream grew strongly in
the period. In the Middle East, Services benefitted from
regional expansion into Iraq and Oman while LNG and
FPSO orders, alongside good spares trends, supported
Downstream growth.

Operating profit including joint ventures was 16% lower
at £181m (2012: £214m) and 29% lower on a like for like
basis, reflecting a smaller Pressure Pumping contribution.
Total one-off costs of £6m (2012: £3m), were incurred,
primarily due to the closure of two small pressure
pumping manufacturing facilities. Pressure Control
profit growth was supported by a first contribution
from Mathena which was partially offset by additional
investment in Seaboard. Strong profit progression was
seen at Services and Downstream operations. Profits
from joint ventures increased to £8m (2012: £6m)
reflecting good growth in Saudi Arabia and the first
contribution from a North American oil and gas
equipment distribution partnership.

Operating margin declined 230bps to 22.7% (2012:
25.0%) and was down 450bps on a like for like basis
reflecting lower Pressure Pumping activity levels, higher
one-off costs and pricing pressure on legacy fluid ends
and original equipment frack pump orders. Like for like
Pressure Control margins also declined as a result of a
lower proportion of higher margin frack rental revenues
and additional investment in extending sales and
operational capabilities. Divisional margins improved in
the second half due to higher activity levels and improved
efficiencies as a result of the restructuring actions taken
in the first half of 2013.

Investment
Capital expenditure of £38m (2012: £52m) included
expanding the Pressure Pumping service network and
extending Seaboard’s rental product portfolio. Total research
and development expenditure of £5m was focussed on
developing differentiated Pressure Pumping technology.
Employee headcount increased reflecting the increased
input and investment in extending our service network.

The Weir Group PLC Annual Report and Financial Statements 2013OPERATIONAL REVIEWCONTINUEDRevenue

£796m
-7%

2013

2012

2011

2011 and 2012 restated at 2013 average exchange rates.

Operating profit

£181m
-16%

£796m

£857m

£759m

2013

2012

2011

£181m

£214m

£188m

Key priorities in 2014

Capitalise on growing international opportunities
across each business.

Accelerate customer uptake of recent product
and service launches.

Continue to grow share in the pressure
pumping aftermarket.

Expand maintenance services capacity in Iraq,
in support of the LUKOIL contract awarded in
January 2014.

Deliver benefits from Group-wide upstream
and downstream oil and gas forums.

Increase supply chain flexibility and improve
working capital ratios through Value Chain
Excellence initiatives.

Outlook
The medium term outlook for global pressure pumping
and pressure control markets remains positive. In North
America, shale gas production is predicted to grow
strongly as it is increasingly used as a feedstock for
power generation, manufacturing and transport.
Liquefied Natural Gas (LNG) exports are expected to
increase demand in the medium term with six terminals
approved in North America and more applications
pending. Tight oil production is anticipated to continue
its strong growth as infrastructure constraints are
addressed. Internationally, development of shale reserves
is expected to continue to grow in China, Russia,
Saudi Arabia and Argentina, all of which are estimated
to have substantial technically recoverable reserves.

The division entered 2014 at a substantially higher run
rate than the prior year and is expected to deliver strong
full year constant currency revenue growth, supported by
mid single-digit growth in upstream expenditure in North
America and the Middle East, assuming stable oil and
gas prices. Pressure Pumping will also benefit from the
normalisation of aftermarket demand although original
equipment revenues are expected to remain subdued.
It is anticipated divisional margins will remain broadly
in line with the second half of 2013.

Partners in production worldwide

INCREASING OUR
GLOBAL CAPABILITY

When the Weir Group acquired Seaboard
in 2011, the provider of wellhead and frack
stack solutions was focussed on growing
in North American unconventional oil
and gas markets. Weir identified the
opportunity to enter the frack flowback
market by combining the product
offering of Seaboard and SPM.

As a result, the Weir Group is now
using its international experience and
global capability to grow Seaboard’s
product and service lines into new
markets. Weir’s established service
centres, machining capabilities and
well established sales networks enable
the company to expand quickly and
efficiently into developing markets
such as Australia and the Middle East.

With an increasing international
interest in developing shale
resources, demand for wellhead,
frack stack and flowback solutions
is increasing. Seaboard is well
placed to meet this demand, given
its experience in the US and its
exposure through Weir to a platform
which will allow it to offer its
products and services to customers
on a global scale.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

Strategic Report:
Operational Review

OPERATIONAL REVIEW
WEIR POWER &
INDUSTRIAL

John Heasley
Divisional Managing Director

Key priorities and progress in 2013

Embed global
valve structure
and drive global
sales hub
performance

Further leverage
Valve aftermarket
opportunities

Develop
operational
capabilities to
support higher
activity levels

Internationalise
hydro, wind and
power service
offerings

Continue
expansion in oil
and gas markets

Continue
new product
development
and product
extension

• Global valves platform now

well established and operating
under a Valves leadership team
comprising both product line
and operational experts.

• Double-digit emerging market

sales growth.

• UK Valve aftermarket input up

19% since 2012.

• Supply chain and operations
capability upgraded in all
Valve facilities.

• On time delivery performance
increased by more than 10%
in 2013.

• Best cost supply chain enhanced
through acquisition of Cheong
Foundry in Malaysia.

• Additional approved repair

facilities established in Southeast
Asia, further internationalising
the power service offering.
• £20m Libyan power plant

refurbishment contract awarded.

• Wind maintenance offering

extended into South America.

• Entry to the FPSO control valve
market secured with a number
of contract wins.

• Oil and gas sector revenues

up 6%.

• Significant success in control

valve initiatives such as X-Stream
and turbine bypass products.

• Transfer of range of valve

technologies to Korea and China,
extending the addressable
market opportunity.

In 2013, the division established a
global valves platform and increased
operational capabilities which position
us well to take advantage of future
growth opportunities. Over the course of
the year some markets were particularly
challenging but we responded by
enhancing our global capability and
further strengthening our customer
relationships.

Market drivers
Emerging markets offered the best opportunities for growth over
the course of 2013. Within Valves, demand from Korean Engineering
Procurement and Construction Management (EPCM) companies
was strong and there were positive initial signals in the nuclear new
build market – particularly in China and India. However, general
industrial conditions in India deteriorated during 2013, with a direct
impact on demand for valves. In the Middle East momentum
continued in oil and gas markets, supporting control and safety
valve opportunities.

The Weir Group PLC Annual Report and Financial Statements 2013Revenue

£330m
+1%

2013

2012

2011

330

326

302

2011 and 2012 restated at 2013 average exchange rates.

Operating profit

£31m
-2%

2013

2012

2011

In developed markets, aftermarket demand in the UK
and the US improved although the power market in the
US was impacted by low natural gas prices. This led to
challenging trading conditions in the hydro, coal and
nuclear sectors but encouraged new build Combined
Cycle Gas Turbine (CCGT) activity. In Europe,
conventional safety valve demand was subdued
reflecting general economic activity levels.

Strategic progress
Valves aftermarket initiatives made progress as a
successful rapid response business model, which was
initially developed in Canada, was replicated in the UK.
The global valves platform is now well established,
with senior leadership appointed at each plant to drive
improved operational performance. Fourth quarter
revenue run rates were at record levels, reflecting
progress on these operational initiatives. Entry to the
Floating Production, Storage and Offloading (FPSO)
control valve market was secured with a number of
contract wins.

Product transfers to South Korea and China continued,
broadening emerging market opportunities.

Additional repair facilities were established in Southeast
Asia, further internationalising the power service offering.
Action was taken to reduce costs in Hydro operations
to reflect challenging end market conditions and the
wind services offering extended into South America.
At the end of the year, the Services business secured
re-entry into Libya with a large power plant
refurbishment contract.

Order input decreased by 6% to £340m (2012: £363m)
due to material declines in Hydro orders partially offset
by growing Services input, as a result of a £20m contract
win in the fourth quarter. Original equipment orders
declined 10%, primarily reflecting the reduction in Hydro
input. Aftermarket input was 2% lower year on year with
strong second half growth largely offsetting first half
declines. Valve orders declined slightly, with underlying
progress offset by the absence of large individual project
wins. Full year divisional book to bill remained positive
at 1.03 while power markets continue to represent 60%
of orders (2012: 60%). Emerging markets accounted for
33% of input (2012: 34%).

Revenue increased by 1% to £330m (2012: £326m) and
was slightly below expectations as a result of project
delays in the fourth quarter. Double-digit growth in Valves
was offset by declines in Hydro and Services. Within
Valves strong growth was achieved in South Korea and

total Valves fourth quarter revenues were 20% higher
than the equivalent prior year period. Emerging market
revenues increased by 16% year on year and accounted
for 34% of divisional sales.

Operating profit was broadly unchanged at £31m
(2012: £32m), with underlying Valves profit growth offset
by substantial investment in extending capabilities.
A declining contribution from hydro was offset by one-off
proceeds from an insurance settlement of a prior claim
and a gain on sale of property.

Operating margin was broadly stable at 9.5% (2012:
9.8%), reflecting good growth from higher margin valve
operations offset by additional investment to support
future growth.

Investment
Capital expenditure of £11m (2012: £19m) included
investment in our UK aftermarket rapid response
cell and additional capacity at our French safety valve
facility. Investment in research and development
increased by more than 50% to £3m (2012: £2m). The
division added 30 employees as it invested in operational
capabilities and extending sales and service channels
in the Valves business.

Outlook
Long term power and oil and gas fundamentals remain
positive. Our addressable markets are expected to
grow at circa 4-5%, driven by emerging market growth.
Relatively low market shares in valve end markets provide
scope to grow faster than these end markets as we
continue to execute on our expansion plans into oil and
gas markets, in particular. Nuclear remains an attractive
prospect in the medium to long term, particularly in China,
India and the Middle East. Aftermarket opportunities
are being targeted to offset any short term risks from
uncertainty on new build projects. International expansion
will continue to deliver opportunities for our Renewable,
Services and Industrial businesses.

In 2014, emerging markets are expected to continue to
provide good growth opportunities in the power sector
although it is anticipated North American hydro markets
will remain subdued. Continued mid and downstream
investment in oil and gas will also support growth.
The division is expected to benefit from an improved
operational performance in Valves, following measures
taken in 2013. Strong constant currency revenue growth
is expected, driven by Valves and Services, with low
double-digit margins as the business continues to invest
in new products and extending global capability.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Operational Review

Market input breakdown
Market input breakdown

Geographic input breakdown
Geographic input breakdown

Power 60%
Industrial 15%
Oil & Gas 11%
Other 13%
Minerals 1%

Key priorities in 2014

Europe 40%
North America 27%
Asia-Paciﬁc 26%
Middle East/Africa 5%
South America 2%

Geographical expansion:

Aftermarket enhancement:

• Continue strong growth in emerging market

hubs and Korea; establish presence in Russia
and Northern/Eastern Europe; expand presence
in Asia and South America.

• Maximise return from existing installed base,
leveraging Services and Weir Group footprint;
build on success of UK maintenance, repair
and operations.

Best-cost sourcing:

Market expansion:

• Continue product transfers to best-cost

• Expand in oil and gas, including LNG/cryogenics

countries and expand low cost supply chain.

capabilities; increase in-house technical
expertise.

Product development:

• Enhance super/ultra-critical capabilities

for Valves; extend range of markets/
applications for existing products.

Partners in production worldwide

The Power & Industrial team in the UK has
been working to build deeper customer
relationships as part of the Weir Group’s
commitment to being a partner of choice.

As a company with a long history
of supplying the UK’s nuclear industry,
Weir has a large installed base of
equipment in the country’s nuclear reactor
fleet. This is a legacy which goes back
to the first conventional nuclear power
programme at Calderhall in the 1950s.
More than six decades later, we are still
striving to help our customers improve
their operational efficiency. In 2013,
Weir’s Power & Industrial teams focussed
on working more closely with customers
to exceed their expectations.

This involved Weir engineers analysing
how products are used and identifying
potential issues.

By doing this, engineers can recommend
replacing or upgrading equipment as
appropriate, addressing issues early to
help customers improve performance.
Rapid Response Cells set up within Weir
allow teams to respond to customer
needs, turning around orders quickly in
the event that customers are experiencing
unexpected outages requiring parts quickly.

The Weir Group PLC Annual Report and Financial Statements 2013OPERATIONAL REVIEWCONTINUED

FINANCIAL REVIEW
RESILIENCE IN
TOUGH MARKETS

Jon Stanton
Finance Director

The Group performed robustly over
2013, despite challenging end market
conditions, generating an operating
profit (before exceptional items and
intangibles amortisation) of £467m,
a decrease of only 4% on the
previous year.

This result demonstrates the strength of our operating
model and the benefits of the diverse end markets and
geographies in which we operate.

In this Financial Review, and where appropriate, the 2012
comparators have been restated to reflect the adoption
of IAS19 (Revised) in relation to the accounting for the
Group’s defined benefit pension plans.

Order input at £2,462m increased 3% on a constant
currency basis and was 2% higher on a like for like basis
(excluding the impact of acquisitions and disposals).
Original equipment orders were down 13% (down 10%
like for like) as a result of reductions in greenfield mining
orders, continued reduced demand for new pressure
pumping equipment and power project delays.
Aftermarket orders were up 16% (up 10% like for like)
with a double-digit increase in Oil & Gas and good
growth from Minerals. Aftermarket orders represented
64% of overall input (2012: 57%). Minerals order input
was £1,311m, broadly flat on 2012, both in constant
currency and like for like. Input in Oil & Gas of £811m
was 18% up on 2012 (up 10% like for like) following
strong growth in Pressure Pumping aftermarket orders
combined with the first year impact of the Mathena
acquisition. Finally, input in Power & Industrial was
negatively impacted by a shortfall in Hydro, reporting
an overall 6% decrease to £340m (down 6% like for like).

Revenue decreased by 4% to £2,430m on a reported
and constant currency basis, down 5% like for like.
Aftermarket accounted for 63% of revenues, an eight
percentage point increase over the prior year. Emerging
markets revenues decreased by 7% and represented
36% (2012: 37%) of total revenues. Minerals revenues
were flat at £1,304m (2012: £1,307m) on a constant
currency basis and down 2% like for like. Oil & Gas
revenues, including the contribution from Mathena,
decreased by 7% to £796m and were down 13% like for
like. Power & Industrial revenues grew from £326m in
2012 to £330m in 2013, an increase of 1%. The 2013
acquisitions of Mathena and R Wales contributed £70m in
revenue. There were no revenues from other Group
companies following the disposal of LGE Process at the
end of 2012 (2012: £37.7m).

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Financial Review

Operating profit from continuing operations before
exceptional items and intangibles amortisation decreased
by 4% to £467m (2012 restated: £485m). Although year
on year there was a minimal currency translation impact,
movements in the average exchange rates from the first
to second half had an adverse effect on operating profit
of £11m in H2, relative to H1 average rates. The main
driver of this was the US dollar which moved from an
average of $1.54:£1 in H1 to $1.58:£1 in H2, ending
the year at $1.64:£1. Subdued demand for Pressure
Pumping original equipment was only partly offset by
a first contribution from acquisitions and good growth
in aftermarket revenue. One-off costs of £8.0m were
incurred in the period (2012: £9.3m) of which £2.7m (2012:
£4.0m) related to acquisition transaction and integration
costs. Acquisitions contributed profit of £33.7m. There
were no profits from other Group companies (2012:
£2.5m). Unallocated costs were £14.0m (2012: £15.4m),
reflecting targeted cost management initiatives and
reduced discretionary spend.

Operating margin from continuing operations before
exceptional items and intangibles amortisation was
19.2%, an increase of 10 basis points on the prior period
(2012: 19.1%; 19.2% on a constant currency basis).
On a like for like basis, the operating margin was 18.5%
(2012: 19.5%). Sequential margin improvement was seen
in the second half in each division. With regard to
Minerals the operating margin was 20.6% (2012: 19.4%
constant currency) for the full year, reflecting the
strengthening aftermarket revenue mix alongside benefits
from procurement initiatives, productivity gains and
effective cost control. The Oil & Gas full year operating
margin was 22.7% (2012: 25.0% constant currency)
reflecting lower Pressure Pumping activity and higher
one-off costs, only partially offset by the positive impact
of acquisitions and a good performance in Downstream
and Service businesses. As expected, H2 margins
at 23.5% were higher than the first half of 21.8%.
The operating margin in Power & Industrial was 9.5%
(2012: 9.8% constant currency) with the impact of
improved operational performance and higher activity
levels leading to second half margins 380 basis points
higher than the H1.

Earnings before Interest, Tax, Depreciation
and Amortisation (EBITDA)
Depreciation of property, plant and equipment in the
period was £59.1m (2012: £49.4m) resulting in EBITDA
of £525.6m (2012 restated: £534.5m).

Exceptional items and intangibles amortisation
An exceptional gain of £70.5m (2012: £20.2m) combined
with an intangibles amortisation charge of £46.7m (2012:
£36.7m) resulted in total Group operating profit for the
year of £490.3m (2012 restated: £468.6m).

The increase in amortisation year on year is a direct
result of the 2013 acquisitions. The exceptional gain in
the current year relates to two items: (i) the release of the
contingent consideration liability for Weir Mathena of
£67.8m; and (ii) the curtailment gain of £2.7m recorded
following the decision to close one of our main pension
plans to future accrual with effect from 30 June 2015.
The Mathena contingent consideration liability has been
reduced to nil following the continuation of the depressed
natural gas price which led to certain customers reducing
their gas drilling activity in the second half of the year,
resulting in the short term forecasts for the business
no longer supporting payment of the contingent
consideration. The exceptional credit in the prior year
comprises the net of three items, the largest of which
was the gain on sale of LGE Process of £30.5m which
was completed on 28 December 2012. Offsetting this are:
(i) a charge of £4.5m representing the uplift of inventory to
net realisable value on acquisition being charged against
profits as the inventory is sold; and (ii) an uplift of £5.8m
to the net present value of contingent consideration
payable in respect of the acquisition of Weir International.

Net finance costs
Total net finance costs, including exceptional items,
were £59.1m (2012 restated: £47.9m). There are four
components of this net charge, the most significant being
the interest cost of £47.9m (2012: £46.5m) on the Group’s
borrowings (including amounts in relation to derivative
financial instruments). The other elements are finance
income of £3.0m (2012: £5.2m), a charge of £3.5m (2012
restated: £4.0m) in relation to the Group’s defined benefit
pension plans and an exceptional cost of £10.7m (2012:
£2.6m) being the unwind of the discount on the
contingent consideration liability.

The Weir Group PLC Annual Report and Financial Statements 2013FINANCIAL REVIEWCONTINUEDOperating margins1 (%)

Profit before tax2 (£m)

19.2%
+10bps

20%

19%

18%

18.0

2011

£418m
-5%

19.1

19.2

£500m

£400m

£300m

396

440

418

2012

2013

2011

2012

2013

1. Continuing operations excluding exceptional items and intangibles amortisation.
2. 2012 restated to reflect the impact of IAS 19 on pension costs

The unwind of the discount on the contingent
consideration liability is higher than the prior year due
to an amount being recorded in relation to Mathena,
prior to this liability being released in the second half.
The total contingent consideration liability recorded
on the balance sheet in respect of all acquisitions is
£27.7m (2012: £24.5m).

Net finance costs (excluding retirement benefit related
amounts and exceptional items) were covered 10.4 times
by operating profit from continuing operations, before
exceptional items and intangibles amortisation (2012:
11.7 times).

Profit before tax from continuing operations but before
exceptional items and intangibles amortisation decreased
by 5% to £418.1m (2012 restated: £439.8m). Reported
profit before tax from continuing operations increased by
2% to £431.2m (2012 restated: £420.7m) after intangibles
amortisation of £46.7m (2012: £36.7m) and a net
exceptional credit of £59.8m (2012: £17.6m), primarily
in relation to the release of the Mathena contingent
consideration liability.

The tax charge for the year of £107.5m (2012 restated:
£123.3m) on profit before tax from continuing operations
before exceptional items and intangibles amortisation
of £418.1m (2012 restated: £439.8m) represents an
underlying effective tax rate of 25.7% (2012: 28.0%),
primarily reflecting a lower proportion of US profits. The
Group’s policy with regard to tax matters is discussed
later in this report.

Discontinued operations
In 2012, the Group reported income from discontinued
operations of £3.3m representing the release of unutilised
provisions in relation to previous disposals on expiration
of the tax warranty periods.

Earnings per share
Earnings per share from continuing operations before
exceptional items and intangibles amortisation decreased
by 2% to 145.4p (2012 restated: 149.0p). Reported
earnings per share including exceptional items,
intangibles amortisation and profit from discontinued
operations was 157.2p (2012 restated: 147.5p).
The weighted average number of shares in issue
increased to 213.0m (2012: 212.2m).

Cash flows
Cash generated from operations before working capital
movements was in line with the prior year at £514.8m
(2012: £515.5m). Working capital cash outflows of £40.9m
(2012: £116.9m) showed a significant improvement on the
prior period with a second half working capital cash
inflow of £21.9m. This second half performance was the
result of improved supply chain performance and strong
cash collection from receivables. Cash generated from
operations increased by 19% from £398.6m in 2012 to
£473.9m in 2013 representing an EBITDA to cash
conversion ratio of 90% (2012: 75%).

Net capital expenditure decreased from £116.3m in 2012
to £97.3m in 2013 with investment to add capacity in
Minerals and the addition of rental and service capacity
in Oil & Gas. The settlement of financing derivatives
resulted in a net cash outflow of £5.0m (2012: £11.0m).
Additional pension contributions of £12.1m (2012: £7.5m)
were paid in the year in respect of agreed special
contributions to the UK schemes. This will fall to £9.6m
in 2014.

Free cash flow from continuing operations was £168.4m
(2012: £62.3m). Outflows in respect of the acquisition of
subsidiaries of £202.5m and investments in joint ventures
of £14.0m resulted in a closing net debt of £747.0m (2012:
£688.9m, £691.5m constant currency). On a reported
basis, the ratio of net debt to EBITDA was 1.4 times.

Return on capital employed (ROCE)
The Group’s ROCE of 19.3% for 2013 (on a like for like
basis, excluding Mathena and R Wales) was down on
the prior year (2012: 22.2%) primarily reflecting lower
Oil & Gas profits and additional investment to support
future growth.

Dividends
The Board is recommending an 11% increase in the
full year dividend, the 30th consecutive year of dividend
growth, with a final dividend of 33.2p (2012: 30.0p)
making a total of 42.0p for the year (2012: 38.0p).
Dividend cover (being the ratio of earnings per share
from continuing operations before exceptional items
and intangibles amortisation to dividend per share) is 3.5
times (2012 restated: 3.9 times). If approved at the Annual
General Meeting, the final dividend will be paid on 30 May
2014 to shareholders on the register on 2 May 2014.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Financial Review

Acquisitions and disposals
On 31 December 2012, the Group completed the
acquisition of 100% of the voting shares of Mathena, Inc
(Weir Mathena) for an upfront cash consideration of
US$247m (£153m). Details of the contingent consideration
and related accounting have been discussed earlier in this
Financial Review and are also presented in note 13.

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.

During the year the Group also acquired 100% of the
voting shares of the R Wales group of companies (Weir
Wales), 100% of the voting shares of Aspir Pty Limited in
Australia, the business and assets of the Cheong foundry
in Malaysia, and the assets of the Xmeco heavy bay
foundry in South Africa. The combined consideration for
these acquisitions was £55.7m, with an expected
contingent consideration of £1.6m.

Tax policy
The Group’s strategic tax objectives are to:
• comply with all applicable tax laws and regulations,
including the timely submission of all tax returns
and tax payments; and

• develop and maintain strong working relationships
with local tax authorities and undertake all dealings
with them in a professional and timely manner.

The Group has strong controls and clear policies and
procedures covering tax, which must be followed by all
finance personnel. We take a conservative approach to all
tax planning with the overarching aim of paying the right
amount of tax at the right time in each tax jurisdiction in
which we operate. As a large multi-national, we conduct
our business affairs in a way which is efficient from a tax
perspective, for example by looking to take into account
available global tax incentives and allowances, but we do
not undertake tax planning for its own sake.

In terms of cash tax, the Group paid income tax of
£71.9m in 2013 across all of its jurisdictions compared to
£104.9m in 2012. This decrease is driven by the reduced
North American profits of the Group, with the reducing
rate of corporation tax in the UK also a factor. Net cash
tax paid in the UK in 2013 across corporation tax, VAT
and payroll taxes was approximately £45m (2012: £43m).

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.

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.

In July 2013, the Group repaid the US$300m amortising
term loan and refinanced the US$800m multi-currency
revolving credit facility. These facilities have been replaced
with a new five year US$800m multi-currency revolving
credit facility, which matures in 2018. At 3 January 2014,
£43m was drawn under the revolving credit facility leaving
an undrawn facility of £444m.

All covenants were met at 3 January 2014 with significant
headroom under each financial ratio.

The Group held net cash balances of £68.6m at the end
of 2013 (2012: £384.2m) representing operating balances
held by the Group’s subsidiaries. Of this total, £1.3m was
held in the UK (2012: £313.5m); the substantially higher
figure held at the end of 2012 being in preparation for the
completion of the acquisition of Mathena, Inc.

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 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.

The Weir Group PLC Annual Report and Financial Statements 2013FINANCIAL REVIEWCONTINUEDFree Cash Flow

£168m
+171%

£200m

£150m

£100m

£50m

168

2013

2011

2012

Return on Capital Employed1

19.3%
-290bps

30%

25%

20%

29.2

22.2

2011

2012

19.3

2013

1. Continuing operations EBIT (excluding Mathena and Wales EBIT and exceptional items) divided by average net assets excluding net debt,

pension deficit (net of deferred tax asset) and Mathena and Wales net assets. 2011: As 2012/13 but also excluding Seaboard.

Interest rate risk management
The Group’s debt is 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 2013, the
proportion of the Group’s debt at fixed rates was 92%
compared to 71% as at the end of 2012 due to the
repayment of the amortising term loan in the period.

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 three
subsidiaries applied cash flow hedge accounting under
IAS39 during the period.

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 2012 against
most main currencies, offset by a slight weakening
against the Euro, resulted in a net loss on translation of
net assets of £94.8m, including the effect of the balance
sheet hedging programme. The fair value of derivatives
designated as net investment hedges at 3 January 2014
was a net nil position (2012: liability of £0.8m).

The Group does not hedge foreign currency translation
exposures related to profit and loss items. Approximately
55% of the Group’s operating profit is US$ denominated.
A one cent move in the average US$:£ exchange rate
has an impact of circa £2m on operating profit over the
full year.

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
sought to proactively manage its exposure to its pension
plans and more than half of the liabilities of the main UK
scheme are hedged using insurance policies, providing
significant protection against changes in market
conditions. During the current period, agreement was
reached with the Trustees of the Main UK Plan to close
the plan to future accrual of benefits with effect from
30 June 2015 and accordingly a curtailment gain of
£2.7m has been recorded as an exceptional item in the
Income Statement. With regard to the key assumptions
underpinning the IAS19 (Revised) valuation, the discount
rate applied to the pension liabilities has increased
from 4.3% to 4.4% with RPI inflation increasing from
2.9% to 3.4% since 2012. The net effect of these
changes partially offsets the returns on net assets and
contributions in excess of benefit accrual, with an overall
reduction in the net deficit in the Group’s retirement
benefit obligations from £90.4m to £70.4m over the year.

Net assets
Net assets at the end of 2013 were £1,486.7m, an
increase of £176.4m (2012: £1,310.3m). This increase is
driven by the total net comprehensive income for the year
of £247.3m less dividends paid of £82.6m.

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. 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.

There are 1,129 asbestos related claims outstanding in
the US (2012: 917) against Group companies. There are
26 such claims in the UK (2012: 25). All actions are
robustly defended.

On 6 February 2013, an Opinion & Order was filed with
the United States District Court, Southern District of New
York dismissing the claim against the Company (being
one of many companies targeted) relating to a civil action
for damages arising from the UN Oil for Food programme
which was raised in the US. Subsequently the Iraqi
Government filed a notice of appeal. A hearing of this
appeal took place in the 2nd Circuit Court of Appeals on
18 February 2014. The decision of the Court of Appeals is
still awaited at the time of publication. It is the Company’s
intention to continue to defend this action vigorously.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Profit before tax from continuing
operations but before exceptional
items and intangibles amortisation
decreased by 5% to £418.1m
(2012: £439.8m).

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. Sensitivities to
changes in key assumptions are provided in note 24.

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
26 February 2014

Strategic Report:
Financial Review

Critical accounting policies
The financial statements have been prepared in
accordance with IFRS and the material accounting
policies are set out on pages 125 to 131 of this report.
With the exception of the changes required under
IAS19 (Revised) and disclosed in note 2 of the Financial
Statements, there have been no significant changes
to the accounting policies adopted in 2013.

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 on page 126.

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. In consideration of our recent
acquisitions and the related changes to how the
businesses are managed and reported, we have updated
the definitions of our Cash Generating Units (CGUs) for
the purposes of impairment testing of goodwill and other
intangible assets. Full details are set out in note 14.

The Weir Group PLC Annual Report and Financial Statements 2013FINANCIAL REVIEWCONTINUEDOverview

Strategic Review

Operational Review

Corporate Governance

Financial Statements

SUSTAINABILITY REVIEW
A KEY PART OF
OUR STRATEGY

The Weir Group is aware that we have to balance our growing and energy intensive
business with the potential impacts that we may have on the environment and the
communities in which we work. In order to deliver long term sustainable success,
we aim to operate efficiently, minimise our environmental impact wherever possible,
work in an ethically and socially considerate manner and build confidence and trust
with our stakeholders.

Sustainability underpins the Group’s strategic priorities outlined on pages 8 and 9 and is inherent in the Company’s purpose and values.
The Sustainability Review reports on each of our six key sustainability priorities, outlining their importance to our business, our performance
in these areas over the past year, and the policies and practices applied to help monitor and manage this performance.

The Weir Group is pleased to announce that it was admitted to the FTSE4Good index in September 2013. The index provides an objective
performance measure for companies that meet globally recognised corporate responsibility standards.

The Group has six
sustainability priorities:

Environment

Health and safety

Products and
technology

Employees

Communities

Ethics

Engagement with
stakeholders during 2013

Calls and face-to-face meetings
AGM
Reports and announcements
Website
Roadshows and Capital Markets Day
Presentations at conferences

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The Weir Group PLC Annual Report and Financial Statements 2013

Strategic Report:
Sustainability Review

Gavin Nicol
Director of Operations
Support and Development

Environment

The Weir Group’s environmental
strategy is to reduce potentially
adverse impacts of its operations
and to strive to innovate and
enhance the positive benefit of
our products and services.

In addition to the five already owned, the Weir Group
acquired two further foundries during the year. Due
to their innate energy-intensive nature, this will have
a significant impact on our total carbon emissions.
We are a growing business and the markets that we
work in mean the majority of our businesses are energy
intensive. However, we also have operations in the hydro,
wind and nuclear energy industries which are contributing
to the production of clean, low carbon energy.

As our business expands we take sustainability into
account in our organisational decisions and work to
minimise potentially adverse impacts on the environment.
For instance, where we acquire or open new sites,
we assess the means by which potential environmental
impacts can be minimised and look to adopt new
technologies to help achieve this where possible.

50
50

The Weir Group PLC Annual Report and Financial Statements 2013

Environmental risk
Managing environmental risks is key to Weir operations.
The Weir EHS Management System details the top
11 priorities for assessing and measuring risk and
environmental impacts. These include the use of
compliance registers to ensure permit and authorisation
requirements are met, environmental risk to soil and
groundwater is mitigated through a set of storage,
containment and management criteria, and environmental
noise is risk assessed for all operations. The Weir
Standards detail the minimum requirements for controlling
these risks to air, land and water. More details on the Weir
EHS Management System and accompanying Standards
are provided in the Health & Safety section below. We
operate under an awareness not just of the potential risks
our business can have on the environment but equally
the risk to our business from environmental or climatic
events. There have been three reported incidents of the
environment impacting our businesses during 2013.
Two were incidences of flooding and the other was a
tornado in El Reno, Oklahoma, which caused roof damage.
More details on risk can be found on pages 24 to 30.

ISO 14001
ISO 14001 is an internationally recognised specification
which sets out a framework for an effective environmental
management system. Certification to ISO 14001 helps to
demonstrate our ongoing environmental performance
in terms of legal and environmental policy requirements.
Acquisitions, as part of the integration process, are
expected to implement an ISO 14001 programme and
achieve subsequent accreditation. All our continuing
operations are ISO 14001 accredited, or are planned
to be by the end of 2014.

Environmental incidents
No significant environmental incidents were reported
at sites under the operational control of the Group during
the 53 weeks to 3 January 2014. There was a minor
incident at a third party site on 20 May 2013 where a
blow-out occurred at Marathon Oil’s McCoy gas well in
Live Oak County, Texas, while Seaboard employees were
operating Seaboard equipment on the site. No injuries or
physical damage to property or equipment was sustained.
However, a very limited amount of surface environmental
contamination occurred in the immediate area of the well
due to a light spray of associated oil carried in the gas
vapour. This contamination was very quickly cleaned
up and there was only a short term interruption to the
operation of the well. Within the Oil & Gas division, all field
services safety protocols were reviewed to consider
whether they could be further improved.

Greenhouse gas emissions
A review of our approach and systems for measuring our
global greenhouse gas (GHG) emissions was undertaken
in 2013 to consider evolving best practice and to ensure
compliance with the new carbon reporting requirements
under The Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013.

As a result we have procured a new software solution
to enable more complete data collation and more
accurate emissions calculation. A revised GHG Inventory
Management Plan and updated Standard Operating
Procedures have been developed and rolled-out to
all relevant businesses. Implementation of the system
including user training and data entry is ongoing and
will be completed during 2014.

The Weir Group PLC Annual Report and Financial Statements 2013SUSTAINABILITY REVIEW CONTINUEDPeriodic review of our data management system, processes
and procedures is planned in order to continue to maintain
and improve the relevance, accuracy and scope of our
reporting over time.

Our calculation methodology is aligned with the principles
of the Greenhouse Gas Protocol: A Corporate Accounting
and Reporting Standard developed by the World Business
Council for Sustainable Development and the World
Resources Institute.

The Group has chosen to follow the ‘operational control’
approach, whereby it will account for 100% of the carbon
emissions from operations over which it has control. This
is consistent with our approach to financial accounting
and reporting. On this basis, all subsidiary companies
are included in reported annual carbon emissions, whilst
our joint ventures which are not under our operational
control are not. However, in reviewing our reporting we
have excluded some sites on the basis of materiality or
because of the type of site.

The UK Government GHG Conversion Factors 2013 have
been used to calculate UK emissions. Factors from other
credible sources have been used for overseas operations,
specifically those published by the US Environmental
Protection Agency the International Energy Agency
and the International Panel on Climate Change.

As far as can be determined, all material Scope 1 and
Scope 2 emissions sources have been included. Scope 1
sources are those emissions for which the Group is directly
responsible, i.e. combustion of fuel for the operation of our
facilities. Scope 2 sources comprise those emissions for
which the Group is indirectly responsible, i.e. from the
electricity, heat, steam and cooling we purchase to use
in our operations or equipment.

We do not currently measure or report Scope 3 emissions,
which relate to sources that are not within our direct
control, third party warehouses and transport in vehicles
not owned by the Group.

As this is the first reporting year for which the new data
management system and procedures have been used,
no prior year figures have been provided as direct
comparison may not be appropriate. In future reporting
years, emissions figures for 2013 will be presented as the
baseline against which performance can be measured.
The Group’s total annual GHG emissions in tonnes of
carbon dioxide equivalent (tCO2e) for the 53 weeks
ended 3 January 2014 are as follows:

Total annual
GHG
emissions
2013
tCO2e

Emissions
intensity
2013
tCO2e per £m
revenue

82,100

33.8

Scope 1: On-site
combustion of fuel

Scope 2: Purchased electricity,
heat, steam & cooling for own use 129,900

Total

212,000

53.5

87.3

The Group now operates seven foundries, which are
the most energy intensive areas of the business. GHG
emissions data for the foundries acquired during 2013
have been reported from their date of acquisition. We
have presented foundry GHG emissions separately
to enable closer performance review.

Total annual
GHG
emissions:
foundries
2013
tCO2e

Proportion
of 2013 total
annual GHG
emissions
%

Foundry
emissions
intensity
tCO2e per
tonnage of
metal poured

21,800

10%

0.6

68,300

90,100

32%

42%

1.9

2.5

Scope 1: On-site
combustion of fuel

Scope 2: Purchased
electricity, heat,
steam & cooling
for own use

Total

As with total global GHG emissions, it is intended that
2013 emissions figures for the foundries will be provided
in future years as a performance baseline.

Energy reduction measures and targets
One of our sustainability improvement priorities is to
reduce our energy use in relative terms and associated
GHG emissions. Historically targets have been set at
operating company level. This is planned to be reviewed
during 2014 to determine if this continues to be the most
appropriate approach for our business.

Details of some of the sustainability improvement
measures undertaken and targets set during 2013 are:
• Weir Minerals Africa replaced geysers with heat
pumps resulting in a 50% reduction in electricity
consumption through these units.

• Weir Minerals Chile undertook five energy reduction

projects, including the replacement of lighting systems
and engines and making part of the roof transparent
to allow natural light in, with an estimated annual
reduction of almost one million kWh.

• Weir Gabbioneta in Italy has implemented several

projects to reduce energy use and GHG emissions,
including installing a new control panel in the test
room to switch off the transformer when not in use.

• WESCO Abu Dhabi carried out an inspection

survey using infrared equipment to identify the
motors that consume the most power in order
to target future actions.

• Weir American Hydro installed new energy efficient
weld machines, fitted energy efficient office lighting
that consume approximately 40% less electricity, and
introduced a soft-start machine shutdown programme
which reduces peak time energy use. Such projects
helped them achieve a 9% reduction compared to
2012 use, driven by their aim to reduce total energy
consumption during 2013 by 10% compared to the
previous year.

• Weir BDK in India undertook an energy audit and

through subsequent interventions reduced their total
annual electricity consumption by 10.5% compared to
2012 usage. They also further reduced their total GHG
emissions by replacing their diesel boiler burner fuel
with biodiesel.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Sustainability Review

The Group continues to install and make use of telepresence
video-conferencing facilities at its major sites worldwide.
There are now 14 Weir sites in seven different countries
with dedicated telepresence conference rooms. These
allow meetings to be held throughout the Group as
though attendees were in the same location. The facilities
were used for both Board and Group Executive meetings
as well as budget review meetings during the year and
their use has resulted in a notable reduction in air travel
and related GHG emissions.

Recycling
As part of our sustainability strategy, our businesses
also focus on improving resource efficiency; for instance,
increasing the proportion of waste materials that are
recycled and reducing the total quantity of waste going
to landfill.

Foundry recycling (’000 tonnes)

ENVIRONMENTAL
DESIGN

Weir prides itself on promoting the
highest standards of environmental
care in each aspect of its operation.
In 2013, this pride was recognised
when Weir Oil & Gas won a highly
sought-after environmental award
for the design of its new divisional
headquarters in Fort Worth, Texas.

The LEED Gold Certification, issued
by the US Green Building Council,
recognises the efforts made in the
design, construction and operation
of the new headquarters to ensure
it is as environmentally friendly as
possible. The building is the first in the
City of White Settlement, near Fort
Worth, to achieve LEED certification.

LEED (Leadership in Energy and
Environmental Design) is a system
for certifying the greenest performing
buildings in the world. It provides
independent, third-party verification
that a building was designed and built
using strategies aimed at achieving
high performance in five key areas
of human and environmental health:
sustainable site development,
water efficiency; energy efficiency;
material selection; and indoor
environmental quality.

When it came to planning the new
headquarters, teams at Weir worked
with designers to incorporate new
technology to reduce energy
consumption, conserve water

and create an attractive, healthy and
collaborative working environment
all while ensuring the building was
affordable to build and operate.

The building, which was opened
in January 2013, uses ‘low flow’
plumbing fixtures such as toilets and
showerheads to reduce indoor water
usage by 37%. Solar panels, which
double up as car park shading in the
hot Texas sun, also provide up to 5%
of the building’s power.

Along with these innovative solutions,
the building was designed to make the
most of natural resources. The exterior
design and interior space planning
were coordinated to maximise natural
daylight in the building and to provide
views to the outdoors for 90% of the
occupants. The facility has so far
helped contribute to a reduction of
around 30% in energy usage thanks to
its innovative design and continues to
demonstrate Weir’s goal of improving
the environmental credentials of all
aspects of its operation.

12.5 13.2

11.9

Metal
reused
internally

2.4

2.5

2.6

Scrap metal
purchased
from customers

3.8

3.6

1.7

Metal
recycled
to third party

1.4

1.0

0.6

Timber
recycled

2011

2012

2013

Nearly 12,000 tonnes of metal was reused internally in
our foundry operations in 2013. 34% of all metal poured
in the foundries in 2013 was reused internally compared
to 42% in 2012. The decrease in the amount of metal
being reused compared to the prior year is a reflection
of the increased efficiency in our pouring and casting
processes, which resulted in less waste metal being
produced. Recycling data was not available for our new
foundry in Malaysia and is only reported from the date
of acquisition for our new foundry in South Africa.

Additional external reporting
The Group continues to participate in Phase 1 of the
UK’s Carbon Reduction Commitment Energy Efficiency
Scheme (the ‘CRC Scheme’). The CRC Scheme aims to
encourage large public and private sector organisations
to reduce GHG emissions through energy efficiency
interventions. Phase 1 participation is mandatory for
organisations meeting specific legal and technical
criteria. Based on a qualification assessment indicating
these criteria were met, the Group has been a scheme
participant since Phase 1 started in 2010.

The Weir Group PLC Annual Report and Financial Statements 2013SUSTAINABILITY REVIEW CONTINUED
During specific scheme years, participants are required
to purchase and surrender sufficient CRC allowances
for their relevant GHG emissions. In 2013, the Company
purchased and surrendered 3,967 CRC allowances at
a cost of £47,604. Assuming the Company continues
to meet the relevant participation criteria, the Company
will continue to participate in Phase 1 until it ends
in March 2014, with one further round of allowance
purchase and surrender.

A recent legal and technical assessment has confirmed
that the Group does not qualify as a participant in
Phase 2 of the scheme and, therefore, will no longer
be obligated to participate in the CRC Scheme after
Phase 1 ends in March 2014. This is due to a change
in the calculation of the qualification threshold whereby
companies now exclude certain emissions covered
by an alternative reduction scheme.

The CDP scheme (formerly known as the Carbon
Disclosure Project) is a global, voluntary initiative
for major companies to measure, disclose and share
information about sustainability performance and
associated risk management and performance with
transparency and accountability. In 2013, we achieved
a disclosure score of 77 out of a possible 100 and
a ‘D’ rating for our sustainability performance relative
to that of other participants. This was a significant
improvement on the previous year disclosure score
of 41, which was below the scheme threshold of 50 for
receiving a performance rating. This notable improvement
reflects our ongoing focus of continued improvement
for all aspects of corporate sustainability.

Health and safety

The Weir Group is committed to
preventing all accidents. That is
why everyone has the right to stop
an operation if they think it may
not be safe. To help realise our
zero-accident ambition we have
put in place a series of initiatives
to keep our people, customers,
suppliers, sub-contractors and
the environments in which they
operate safe. In addition, safety
has become a standing agenda
item at every Board meeting of
the Company.

In December 2013, an employee of Weir Mathena in
Odessa, Texas, was killed in a road traffic accident close
to the Mathena depot in Odessa as he was returning from
a work site. The vehicle that he was driving drifted across
the central reservation of the highway for an unknown
reason, colliding with an oncoming vehicle. The employee
was killed in the collision. No other injuries were sustained
to third parties involved in the accident. This tragic
incident has been thoroughly investigated by the local
police, Weir’s insurance loss adjuster and internally within
Mathena, but the cause of the accident is still unknown.
Mathena has been providing support to his wife and
young family and to his work colleagues. While the cause

of the accident may never be known, it has prompted
the Group nonetheless to conduct a thorough review
at Group Executive level of its existing driving safety
procedures against potential contributory factors and
in particular to ensure that local policies fit within
a consistent global framework.

EHS Excellence Committee
The action towards a zero-accident workplace is led
by the Environment, Health & Safety (EHS) Excellence
Committee. Its remit is to set and monitor rigorous
standards to improve EHS performance across the
Group. In 2013, the committee continued to implement
the Weir Group EHS Roadmap, which charts the path
to a safer workplace.

Weir EHS Management System
The Weir EHS Management System establishes a
common set of EHS standards and expectations for
addressing the risks that our operations face. Its purpose
is to embed health and safety within our culture,
behaviours and actions. The Duty of Care System provides
an unbroken chain of accountability from the Chief
Executive to our newest apprentice and details individual
responsibilities for managing EHS risks. The EHS
standards cover nine primary areas of risk from supply
chain to field operations and provide step-by-step
guidance on the minimum requirements expected at all
of Weir’s operations anywhere in the world. Weir has
appointed Divisional EHS Directors for each of the three
divisions. These individuals jointly develop EHS strategy
and are responsible for its execution across the Group.
In addition, they lead the implementation of the Weir EHS
Management System and delivery of our EHS objectives.

Weir Zero Harm Behavioural Safety System
In the course of the year, we piloted our Behavioural
Safety System. It assists in promoting a culture that
values behaviours which continually improve our EHS
performance. The system involves face-to-face training
in identifying behavioural types and behavioural states,
and the critical errors that these can cause. The training
is designed to increase awareness of how personal
behaviours and habits influence risks and promote
safe behaviours. It has been designed to address
Weir-specific EHS practice and training in the system
will be given to all employees.

Measuring progress
All these efforts and more have contributed to a reduction
in our Total Incident Rate (TIR). TIR measures medical
treatment of any kind required by employees divided by
200,000 hours worked. The results for 2013 show that
our incident rate has reduced by more than a third over
the course of the year.

TIR performance

3.4

1.6

2011

2012

1.0

2013

Our EHS procedures are regularly assessed. In 2013 we
commissioned a leading independent EHS consultancy
to evaluate our systems. This assessment concluded
Weir was among the ‘best in class’ of those peers who
publish similar EHS information.

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Products and technology

As a key player in the energy and
natural resources businesses, we
are acutely aware of the importance
of having sustainable products and
technology. We continue to drive
for more efficient products which
not only improve performance
and durability but also reduce
environmental impacts.

Using bespoke three-dimensional laser scanning
techniques alongside proprietary computation fluid
dynamic models, Weir has been able to re-engineer
products designed for use in power stations, refineries
and process plants. The resultant improvements in
operating efficiencies allow the products to perform the
same function using less energy and therefore producing
less greenhouse gas emissions. Through this initiative
alone, we estimate the production of some 20,000 tonnes
of carbon dioxide emissions was avoided in 2013.

Technological innovation throughout Weir also focusses
on lowering overall operating costs for customers and
providing equipment and services that contribute to
workplace safety. An example of cost reduction is the
introduction of patented Duralast™ technology in
hydraulic fracturing pumps in North America which
has increased product service life by a factor of two.

Engineering Excellence Committee
Weir’s Engineering Excellence Committee comprises
senior engineering and technology leaders from across
Weir’s three divisions. Its role is to ensure that through
collaboration and cooperation, we are sharing and
implementing best practice across all of our engineering
teams, and specifically, driving leading edge technology
and innovation.

The committee drives the innovation strategy across
the Group and during 2013 facilitated over 20 innovation
workshops to drive technology breakthroughs around the
world. The committee also rolled out an enhanced new
product introduction process, providing cross functional
teams with leading edge tools and techniques to ensure
flawless launches of new products and services.

SAFETY IN ACTION
Weir’s approach to health and safety
continues to be a primary focus across
each of its divisions. Last year, as a result
of this commitment, the Power & Industrial
division’s UK valve facility in Elland was
recognised in the Occupational Health and
Safety Awards 2013 by the safety charity
The Royal Society for the Prevention
of Accidents (RoSPA), for its approach
to occupational health and safety.

Dating back 57 years, the RoSPA
Awards scheme is the largest and
longest-running programme of
its kind in the UK. It recognises
commitment to accident and ill health
prevention and is open to businesses
and organisations of all types and
sizes from across the UK and
overseas. The scheme not only
looks at accident records, but also
overarching health and safety
management systems, including
practices such as leadership and
workforce involvement.

The RoSPA awards mark
achievements at merit, bronze,
silver and gold levels. Organisations
awarded Gold Awards demonstrate
a rigorous approach to occupational
health, high levels of compliance and
reducing rates of error, harm and loss.
David Rawlins, RoSPA’s

awards manager, said: “RoSPA
firmly believes that organisations
that demonstrate commitment to
continuous improvement in accident
and ill health prevention deserve
recognition. Weir Valves & Controls
UK Ltd has shown that it is committed
to striving for such continuous
improvement and we are delighted
to honour it through the presentation
of this award.”

Colin Somers, Environment, Health
and Safety Manager at Weir Valves &
Controls UK, said: “We are delighted
to have been awarded the RoSPA
Gold Award, as it is full testament to
the proactive approach that has been
embraced by Weir, to continually
improve health and safety standards
for all staff and visitors who work for
or on the behalf of our Elland facility.”

The Weir Group PLC Annual Report and Financial Statements 2013SUSTAINABILITY REVIEW CONTINUED
Many of the Group’s products and services are used in
low carbon applications such as nuclear and renewables
power generation. For example, Weir Minerals Lewis
Pumps produce pump equipment used in solar power
plants. A portion of the heat produced is stored in molten
salt during the day when the sun is shining and after the
sun goes down, the pumps reverse the process to allow
the heat stored in the salt to be used to power the
generators during the nighttime hours. As this new
technology enables power production from solar sources
during the hours of darkness, and as solar power is a
cleaner source of energy than fossil fuels, the process
produces proportionately less carbon per unit of energy.

In the US, carbon emissions have fallen to their lowest level
since 1994, driven in part by a move from coal to natural gas
generated electricity sources. In 2012, carbon emissions
were reduced by 6.5% and, as one of the leading providers
of pumps and flow equipment to the production of natural
shale gas, the Weir Group has contributed to this trend.
Through technological innovation which has improved the
efficiency of the shale gas industry, Weir has assisted in
making shale gas a more economical feedstock for power
generation than more carbon intense alternatives. Weir also
manufactures its shale products within North America
reducing potential transportation emissions.

Product stewardship
Weir has introduced formal product stewardship
processes during the course of 2013. A dedicated team
of engineers was assigned in the first quarter of 2013 to
develop policy and protocols for ensuring that adequate
safeguards will be put in place to mitigate the risk
inherent in the installation, utilisation and disposal of
highly technical and sophisticated equipment. Effective
product stewardship ensures that every aspect of our
products and services is incorporated in the design
process. This includes environmental, health and safety
and social considerations, from the drawing board to
decommissioning. Design processes are subjected to
rigorous quality assurance methods and procedures are
in place to ensure that the risk information associated
with a product is passed on to the relevant parties.

2013 saw the appointment of a Group Head of Engineering
and Technology Development, a new position highlighting
the enhanced emphasis that we are placing on engineering
excellence. This position will be responsible for deploying
the Group technology strategy, further enhancing Weir’s
already well established relationships with a network of
academic institutions, advancing our technical capability,
leading the Engineering Excellence Committee and further
embedding innovation into the Group’s DNA.

Design and innovation
The Group spent £21.5m (2012: £23.5m) on research
and development during the financial year. Weir has more
than doubled its spend on research and development
since 2009 and views meaningful investment in research
and development as an essential element in supporting
innovation, one of our four key pillars. We expect this
growth in investment to continue as we work towards
fully meeting customer demands and developing
products and technologies with an increasingly lower
environmental impact. Weir is recognised as a world
leader in the development and application of wear
resistant materials technology.

The Weir Advanced Research Centre (WARC), a
collaboration with the University of Strathclyde in Glasgow,
Scotland, was created in 2011 as the platform for delivering
world class fundamental and applied research. Seven
projects were started in 2013 in a number of engineering
disciplines with another ten planned for 2014. WARC
is now delivering innovative results across our entire
technology portfolio as well as helping us push the
boundaries on new technologies.

One example of the outputs from this collaboration
with academia is that the research centre has used the
skills of world-renowned scientists and engineers with
access to leading edge finite element analysis techniques
to develop an innovative valve design, which has the
potential to double the product service life.

Another notable success was the development of an
advanced computational fluid dynamics (CFD) model
for predicting erosive wear caused by dense slurry flows.
Taking the current CFD capability to the next level has
empowered our designers, allowing them to reduce
wear even further through improved designs.

Innovation in material technology has also been undertaken
to address the more hazardous environments that
equipment is required to operate in. For example, in Alaska
pumping equipment working on produced water injection
applications only lasted three months before having to be
taken out of service for overhaul. Weir Oil & Gas Aberdeen,
in collaboration with Conoco Phillips Alaska, has now
developed equipment designs which incorporate more
exotic materials. The average time between overhauls has
been significantly extended and now exceeds two years.

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Pauline Lafferty
Director of Human Resources

Employees

Motivated, skilled and effective
people are imperative to our
business. We are committed to
attracting and retaining the best
people, and developing them to
ensure they achieve their full
potential. In doing so, we seek to:

• ensure no form of prejudice stands in the way of

recruitment, development or promotion opportunities;
encourage, invest in and support our employees to
achieve their full potential;
identify the training and development needs of
employees and find ways to fulfil those requirements;
use the Weir Group Personal Development Plan (PDP)
to address how we can support the development of
our employees;
employ and retain people who share our values and
behaviours and actively discourage those who do not;
work to maintain a business environment where
individuals feel valued and respected; and
provide development opportunities to internationally
mobile employees by encouraging overseas
appointments.

•

Our values
‘The Weir Way’ is the phrase we use to describe how we
operate. It can be summarised by saying ‘we conduct
our business ethically, safely and responsibly or not
at all’. The Weir Way is guided by our seven core values,
currently expressed as: customer focus, engineering
excellence, integrity, self-determination, valuing people,
working together and leadership.

Our values were established over 12 years ago when
Weir was a much smaller organisation. With a larger
geographical footprint and a much broader and more
diverse workforce, we believe now is the time to consider
our values and ensure they remain the guiding principles
that our employees live by.

In 2013, we undertook an exercise to redefine our values
in consultation with our employees across the Group.
We have mirrored our geographical and cultural diversity
and conducted workshops across five geographical
territories. These workshops featured a mix of employees
participating in the Weir Leadership Programme, our
Graduate Development Programme and our Business
Management Programme, as well as a cross section
of all other employees. The results of this consultation
indicate that our core values remain the same, but that it
is appropriate now to re-express these values in language
more fitting with our business today. The launch of our
re-expressed values will take place across our global
organisation in 2014.

Weir Leadership Programme
The Weir Leadership Programme develops high
performing leaders within our business, equipping
them with the skills necessary to lead Weir into the
future. The programme is specifically designed to prepare
and develop people to think and act strategically and
enable them to deliver a sustainable step change in
our leadership capability. Participants are drawn mainly
from the Senior Management Group, a group of around
300 senior employees with frontline responsibility for
the development and delivery of the Group’s strategy.
In 2013, around 50 senior managers took part in the
programme, with a total of around 200 managers taking
part since the programme was launched in 2011.

Weir Business Management Programme
In conjunction with the University of Strathclyde, we
have facilitated a bespoke business management
programme for our leaders of the future. The programme
puts in place a contextualised education programme
that provides our leaders with the required management
skills and knowledge to succeed within the Group. In
2013, around 40 managers took part in the programme,
with a total of around 60 managers taking part since
the programme was launched in 2012. Completion
of the programme leads to a post-graduate Certificate
in Management. Beyond this, participants could have
the opportunity to obtain a Diploma in Management
qualification and then onto a full Masters in Business
Administration (MBA). One group will start working
towards the diploma qualification in 2014. As well as the
academic benefits, the programme promotes greater
networking and collaboration by bringing together a team
of people from a mix of divisions, regions and functional
backgrounds who complete the programme together.

The Weir Group PLC Annual Report and Financial Statements 2013SUSTAINABILITY REVIEW CONTINUEDA joint business and HR working group is in place to drive
best practice in embracing diversity and inclusion across
the organisation and our Finance Director, Jon Stanton, is
the Executive sponsor for diversity and inclusion initiatives.

Succession planning
Over 140 years of knowledge and expertise has built Weir
into the global engineering solutions provider that it is
today. We recognise the absolute importance of strong
succession planning to identify our engineers and leaders
of the future. As such, we have developed a robust
management and leadership development framework
which supports the succession planning process across
each of our businesses.

We recognise the importance of developing talent from
within the Group as well as bringing in external expertise
in order to successfully compete in the competitive
markets of the future. In 2013, 65% of new or replacement
Senior Management Group positions were internal
appointments, recognising the increasing success
of our internal personal development programmes.

Initiatives at a local level seek to ensure knowledge
is retained within the business. In France, for example,
Weir’s Power & Industrial team recruit people new to
the world of work and pair them with mentors who are
nearing retirement. This programme actively supports
succession planning and knowledge transition from
our highly skilled workforce.

In recognition of the increasing development of existing
employees, in 2014 we will seek to further develop our
first line managers to equip them with and enhance
their people management and leadership skills.

Employee engagement
We engage employees across our business through our
key communication channels: the Weir Bulletin, our online
magazine which provides employees with news features
and information from across the Group every two months;
and the Weir Global Intranet, which provides news,
blogs, videos and a forum for employees to interact with
each other on business-related matters on a regular basis,
as well as policies, procedures and documentation.

In 2014, we will investigate ways to develop innovative
communication channels to reach employees around
the world who do not typically have regular access to
Weir computer systems.

Weir University
The Weir University is an online learning resource
which provides all employees with access to continuous
professional development materials such as e-learning
courses, presentations and reading material. This online
resource continues to evolve, providing more modules
on topics such as health and safety, procurement,
marketing, lean production practices and vibration
analysis. Access to the Weir University is available
to employees across the Group and user numbers
continue to increase. Since its launch in 2011, over
5,000 hours of training have been delivered.

As we look to further enhance our engineering expertise
across the Group, we plan to develop and launch a
bespoke Weir MSc programme in 2014 and, following
a successful pilot in 2013, roll out a dual career ladder
for engineers.

Developing our graduates
Our graduate development programme was established
in 2011 and is designed to provide people joining Weir
as a graduate with greater leadership understanding
and experience. It prepares our graduates to take on
more demanding roles as their career within the Group
develops. In 2013, we recruited a total of around 50
graduates from a variety of professional disciplines and
a further 40 graduates from across the world attended
the well established induction course in Scotland. Taking
this to the next stage, we will run an alumni event in 2014,
for graduates who were recruited in 2011 and 2012.

Supporting society and developing our people
We undertake various initiatives across the organisation
in support of the needs of local people within the regions
in which we operate. One example can be found in
Sweden where we recruit people from community
programmes who are without any training or education.
This programme helps them adapt to society, lifting
their confidence, competency and capability through
a combination of academic learning and working with
experienced Weir professionals who mentor them in
their new roles. The programme helps reduce local
unemployment while providing a solid grounding for
people who would otherwise find it difficult to enter
the labour market.

Diversity and inclusion
We seek to recruit and develop people regardless
of background or personal circumstance. All of our
businesses operate in compliance with the inclusion
and diversity laws and regulations in their respective
countries. The majority of our operating companies also
have an active diversity and inclusion policy in place.

On 3 January 2014, we employed 15,220 people across
the Group, an increase of 869 since last year. Of our
15,220 employees, approximately 13,350 are male and
1,870 are female. There are nine Directors of The Weir
Group PLC, consisting of seven males and two females.
The Senior Management Group is made up of 306 people,
273 of which are male and 33 are female. In addition,
there are 89 individuals who are Directors of subsidiary
companies of The Weir Group PLC, who are not part of
our Senior Management Group. Of these, 84 are male
and five are female.

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At a number of our offices, factories, workshops and
service centres our employees take part in regular Town
Hall meetings. These sessions are designed to educate,
inform and share knowledge and understanding of best
practices. Topics regularly featured include safety,
conduct and operational performance.

During 2013, the Group held three regional conferences for
members of the Senior Management Group in Fort Worth,
Glasgow and Sydney. These events are opportunities for
senior managers to discuss the strategic direction of the
Group with members of the Group Executive, sharing best
practice and aiding our commitment to collaboration. The
meetings focussed on Group-wide strategy, our ongoing
commitment to safety culture, and value chain excellence.
A non-executive member of the Board of Directors gave
a presentation at each meeting.

We began undertaking employee engagement surveys
across most companies in the Group in 2013 using an
employee Net Promoter® scoring (NPS) system. The
system assesses and evaluates employee satisfaction
and was used where other engagement survey tools
are not already in place. A similar NPS system is used
by Weir externally to help us understand customer
satisfaction and the use of the same system internally
allows us to build a consistent picture of a company’s
customer service and employee engagement performance.

In 2013, a number of our leaders undertook specialist
leadership development programmes. One such
programme was run by CSCLeaders, a global leadership
conference run by Common Purpose which “assembles
exceptional senior people from across the Commonwealth
to tackle challenges that businesses, governments
and society face today” with the aim of building global
relationships for them to use in the future.

Other initiatives undertaken during the year included
the CBI Leadership Programme, an intensive course
designed to assist with the Group’s succession planning
in preparing very senior leaders who do not hold board
positions at company level within the Group for the next
step in their careers.

ADVANCED NUCLEAR
APPRENTICESHIP
PROGRAMME
To complement Weir’s ongoing
commitment to developing apprentices
and working in collaboration with our
customers, Weir Power & Industrial’s
service business teamed up with EDF
Energy to participate in their Advanced
Nuclear Apprenticeship Programme last
year, as one of the collaborative partners.

Two apprentices were nominated
by Weir to be trained through the
EDF Advanced Nuclear Apprentice
Programme which began in
September and, on completion, will
work as Weir employees supporting
our ongoing business with EDF.

The programme is a bespoke blend
of academic and vocational training
coupled with the development of
personal and social skills for future
business needs. The first two years
are residential; academic and
technical training takes place at
HMS Sultan in Gosport in the UK,
while residence, recreation and
life skills are provided at HMS
Collingwood in Fareham.

HMS Sultan is the home of the
UK’s Royal Naval School of Marine
Engineering and the Royal Naval
Air Engineering and Survival School
whose primary function is to supply
the fleet with high quality engineers.
It is also the largest dedicated
engineering training facility in Europe
with 2,500 Royal Navy trainees and
up to 400 commercial apprentices.

The programme represents a further
strengthening of the excellent
relationship between Weir and EDF,
allowing both companies to work
collaboratively to continue developing
engineering talent for the future.

The Weir Group PLC Annual Report and Financial Statements 2013SUSTAINABILITY REVIEW CONTINUED
Communities

The Weir Group is fortunate to
be a part of many communities
around the world. We value the
contributions these communities
make to our businesses and
strive to make a positive impact
in return. Wherever we operate
we aim to:

• be responsible employers and neighbours;
• respect the communities we operate in;
• strive to make a positive impact through the
responsible running of our operations; and
invest in the communities for the long term
mutual benefit of the community and Weir.

•

We believe the best people to look after the interests of
communities are those who live and work there. That is
why we devolve responsibility for community relations to
the people who know them best – our local businesses.
Like any good neighbour, we build close relationships by
regularly having open conversations so that local people
are well informed about any of our projects that might
affect them. Where issues do arise we listen carefully
and do our best to help find a solution.

We support our local communities through charitable
contributions and by being a source of employment,
education and training. In addition, we support our
employees in their community initiatives and
fundraising activities.

The interaction of our businesses is far reaching but
is governed by our desire to support and improve
the communities in which we work. Key priorities are
the improvement of health and education of both our
employees and the local community. It is our view that
contributing to these two areas can have an enduring
effect on the well-being of the individuals and the
community as a whole. As a 143 year old engineering
company we are particularly keen to develop engineering
excellence. Weir was the first company in Scotland to set
up an apprentice school and our commitment to training
is as strong in the 21st century as it was in the 19th.

Charitable giving
In 2013, the total amount of charitable donations made
by Weir Group companies was £457,000 (2012: £503,000).

Charitable donations

Community 70%
Education 16%
Health 14%

We do not make any political donations. This includes
cash and non-cash items such as services, materials,
employee time and use of corporate facilities.

Education
Our businesses provide experience and training to
develop the next generation of engineers. Whilst our
focus may be on engineering, we also provide work
placements and internships across all sectors. Our
placement projects allow school children and young
people from around the world to see the opportunities
available to them by working for a global business.

With the aim of promoting opportunities for education
and careers in engineering, the Weir Group holds an
Engineering in Schools competition. For the second
consecutive year, secondary school pupils across
Scotland were asked to produce a report and present
on the topic “The importance of engineering in Scotland”.
This year’s winner came from Wick Academy, competing
against 16 others to impress the panel with insights into
renewable energy and winning £4,000 for the school.

2013 also saw the pilot of the Primary Engineer initiative
which the Weir Group supports as part of the Institution
of Mechanical Engineers community. Primary Engineer is
a not-for-profit organisation established in 2005 with the
aim of encouraging girls and boys from a very early age
to become the engineers of the future. This year, a
volunteer engineer from Weir Services Europe supported
Murray Primary School in East Kilbride, Scotland by
sharing his knowledge, skills and experience towards
delivering engineering focussed lessons. This is
a long term relationship between our engineer and the
school and Weir aims to facilitate more of these in the
coming year.

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Sustainability Review

At Weir Minerals Lewis Pumps in St Louis, Missouri,
the business works in partnership with Granite City High
School offering opportunities for students interested in
entering vocational training. Mentoring is provided and
several students have graduated from high school into
the new CNC Machinist Apprenticeship Program.

Weir Minerals Floway in Fresno, California, encourages
schools and engineering students from the local university
to tour the factory. The operations team also routinely
participates in community outreach programmes to
highlight the importance of manufacturing skills such
as welding and machining.

At Weir American Hydro in York, Pennsylvania, the
business works with York County School of Technology
to provide local individuals with practical, hands-on work
experience and education to develop the next generation
of machinist and welders. It also runs an Engineering
Department Co-op Program with York College, to provide
work experience and education for young people.
This has resulted in permanent engineering positions
being offered to several participants.

Weir China is engaged in social practice sessions with
senior student classes at Cheng Jia Special Education
School in Shanghai and in 2013 received the award
of ‘Golden Heart Organisation’. Once a month, Weir
employees from different parts of the business participate
in the programme. The school is an art and mental health
education model school. The aim is to develop pupils’
skills to make them more independent in the future. It is
estimated that almost 100 employee hours have been
spent volunteering on this project in 2013.

Weir Mathena in El Reno, Oklahoma, works in partnership
with the University of Oklahoma to enhance the
undergraduate learning experience through mentoring,
experiential learning, research and technological
innovations. A design programme with Mechanical
Engineering students is undertaken each year. In addition,
the company is also a member of the University of
Oklahoma School of Aerospace and Mechanical
Engineering Advisory Board. Members of staff attend
meetings each semester to advise and collaborate on
strategic initiatives related to the school and its graduates.

Before

After

CHARITABLE
ALLIANCE

The Weir Group has formed an alliance
with AMAR International Charitable
Foundation (AMAR). AMAR is a British
not-for-profit organisation which has
been working since 1991 to create and
sustain professional services in medicine,
public health, education and basic
need provision within refugee and other
communities living under stress in war
zones or in areas of civil disorder and
disruption. Particular communities of
focus are in Iraq, Lebanon and other key
areas of the Middle East and South Asia.

With the partnership agreement
entered into in August 2013, the Weir
Group has committed to supporting
AMAR financially over the next three
years to improve health, education
and training in Basra, Iraq. Basra is
the base for Weir’s operations in Iraq.
The current project will refurbish
the female sanitation facilities at
seven schools in Iraq which were
officially confirmed as high priority
establishments by the Basra
Directorate of Education.

With the majority of school facilities
lacking access to running water
or a waste water disposal system,
not only are the current conditions
inadequate, they are such that female
pupils often feel prevented from
attending school as they reach
adolescence, which acts as a barrier to
social mobility and future employment
opportunities. The proposed work will
directly benefit approximately 6,250
pupils and dozens of teachers every
day. Substantial work on four of the
schools has already begun.

The Weir Group PLC Annual Report and Financial Statements 2013SUSTAINABILITY REVIEW CONTINUED
Environmental awareness
As outlined in the environment section of this report,
we are conscious of the potential impacts our businesses
can have on the environment and that the environment
can have on our operations. Our community relations
often reflect this and aim to increase awareness about
issues that are core to how we operate. In 2013,
Weir Minerals Brasil ran an environmental awareness
programme educating local students to understand
and preserve the environment in which they live.
The programme was developed in partnership with
the local environmental institute.

Weir Minerals France took part in the Industry Cup in
2013. The aim of the programme is to enable young
people at middle school, aged approximately 15 years
old, to gain an understanding of industrial businesses
and related jobs and products. Pupils focussed on how
our products integrate on the sites of our customers
and the environmental impact they might have. The
programme involved a site visit and a visit to a granite
quarry to see Weir pumps in operation. The pupils then
presented their findings and were awarded the Industrial
Environment Trophy.

Weir Oil & Gas Aberdeen worked in partnership with
students from Robert Gordon’s College who were taking
part in an Engineering Education Scheme. The students
undertook a review of the business’ current facilities
and its electricity and water usage in order to provide
recommendations on how wastage of electrical energy
and water could be reduced.

Employee activities
The Weir Group is very proud of the charitable work that
its employees undertake. Our businesses operate their
own policies for supporting these, whether by matching
donations, providing support or equipment or by allowing
employees to participate in charitable activities during
working hours.

A small selection of the numerous projects undertaken
by our employees in 2013 is highlighted below:
• Twice a year all employees and their families at

•

Weir Minerals Mexico give up a Saturday to help
paint local schools.
Weir SPM employees in Texas, USA, remodelled
a bathroom at a local nursing home and have
started an ‘Adopt a Grandparent’ monthly event.
At Weir Minerals Australia, employees can take up
to five days paid leave if they are undertaking
emergency or disaster relief work in the community.
At Weir Marine Engineering (NETE) in Montreal,
Canada, employees raised C$115,000 for Make-
a-Wish Foundation and C$400,000 for Peddle
for Kids at the Montreal Children’s Hospital.

• Employees at Weir Services Europe in Alloa, Scotland,

carried out maintenance tasks at a hospice for
children during working hours.

Keith Ruddock
General Counsel and
Company Secretary

Ethics

The Code of Conduct provides
a clear framework for decision-
making, highlighting the values
and behaviours we expect our
people to demonstrate whilst
making those decisions.
It provides details of how we
expect our people to conduct
themselves on a day-to-day
basis and guidance on where
to go for help.

The Code of Conduct (the ‘Code’) covers a wide range of
topics including anti-bribery and corruption, competition
(antitrust) law, developing our people, health and safety,
use of company property and resources, and conflicts
of interest. It is available in a wide range of languages
and has practical examples to assist interpretation.

A major review of the Code was undertaken during 2013
with input from various sectors of the Company. The
revised Code received Board approval in January 2014
and is due to be rolled out during 2014. This reflects
developments in a number of areas, both externally and
within the Group, since it was first introduced in January
2011. In particular these changes address developments
in the areas of anti-bribery and corruption and in relation
to competition (antitrust) law.

A hard copy of the updated Code will be provided
individually to all employees and can also be accessed
by our employees on our intranet, as well as being
available to download from our website.

Regular training is provided on the Code to all our
employees. A mandatory e-learning programme is aimed
at those employees who are deemed to have a higher risk
of exposure to bribery and corruption as a consequence

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Strategic Report:
Sustainability Review

Business Integrity Forum Member

The Weir Group has been a member of
the FTSE4Good Index since September
2013. The Company is also a member
of Transparency International UK’s
Business Integrity Forum, having
joined in September 2011.

To be included in the FTSE4Good
Index, a company’s risk and
performance for material environmental,
social, and governance (ESG) issues are
examined. The six ESG criteria themes
cover: environmental management,
climate change, human and labour
rights, supply chain labour standards,
countering bribery, and corporate
governance. Companies with higher
ESG risks must achieve more to obtain
a high score. The ratings indicate a
company’s success at managing its
company specific ESG risks.

FTSE Group confirms that The Weir
Group PLC has been independently
assessed according to the
FTSE4Good criteria, and has satisfied
the requirements to become a
constituent of the FTSE4Good Index
Series. Created by the global index
company FTSE Group, FTSE4Good is
an equity index series that is designed
to facilitate investment in companies
that meet globally recognised
corporate responsibility standards.

Companies in the FTSE4Good
Index Series have met stringent
environmental, social and governance
criteria, and are positioned to capitalise
on the benefits of responsible business
practice. The Weir Group PLC is
very proud to be included in the
FTSE4Good Index.

Transparency International UK (TI-UK)
is the country’s leading anti-corruption
organisation and part of the global
Transparency International (TI)

movement. With colleagues working
in more than 100 countries, TI has
unparalleled global understanding
and expertise in this area.

The Business Integrity Forum (BIF)
is the UK’s leading anti-corruption
forum for businesses in all sectors,
comprising companies and
professional firms of all sizes. Through
their membership, companies are
demonstrating their support for
Transparency International’s work,
helping TI in its mission to reduce
corruption in both the public and the
private sector throughout the world.
All members’ sign up to a set of
principles and are dedicated to
ensuring their operations and business
dealings are corruption free. Through
the Forum, companies have the
opportunity to have well informed
discussions with peers and experts,
increasing their knowledge in relation
to risks, mitigations and emerging
trends, as well as making a positive
contribution to TI-UK’s thought
leadership and to the wider
international debate on corruption.

Peter van Veen, Director of the
Business Integrity Programme said:
“We value The Weir Group PLC as
a member of the Business Integrity
Forum. By their continuing membership
they have made clear their commitment
to ensure their operations and business
dealings are free of corruption in the UK
and abroad.”

of their decision-making responsibilities in regard to third
parties including customers, suppliers, and sales agents.
Employees receiving this training include:
• The Senior Management Group;
• Sales and Marketing employees;
• Purchasing employees; and
• Finance employees.

The same group of employees are also required to complete
a regular online certification process to confirm that they
are in compliance with the Code of Conduct. In 2013, over
2,500 employees completed the e-learning programme.
The completion of the e-learning programme and online
certification is monitored by the Company Secretary.

The Code of Conduct is also reinforced through various
means of communications with our employees, such
as induction training, Town Hall meetings, conferences,
training courses and our 100 day integration plan for
new acquisitions.

The Code applies to everyone who is employed by the
Weir Group and compliance is of the utmost importance.
Anyone found in breach of the Code may be liable to
disciplinary action up to and including termination of
employment or cancellation of contract.

Human rights
As part of its human rights policy, the Group has adopted
a series of human rights principles across all of its
businesses. The principles relate to: anti-discriminatory
attitudes and respect for ethical values; employee rights,
which include health and safety, living wages, working
hours, and freedom of association and the right to
collective bargaining; and prohibition of child labour.

By promoting sound ethical values and human rights
principles, Weir aims to be an aspiring business with which
people are proud to be involved. The Weir Group Human
Rights Policy expresses the organisation’s commitment
to promoting and upholding the “common standard of
achievement for all people and all nations” as endorsed
by the Universal Declaration of Human Rights. Other
guiding principles include those of the Conventions of the
International Labour Organisation and the United Nations
Convention on the Rights of the Child. These manifest
themselves in Weir’s anti-discriminatory attitudes and
respect for ethical values, providing our people with
a safe and healthy working environment and fairness in
employment terms. For example, national living wage
is applied and working hours determined in accordance
with applicable laws as well as the recognition and
non-discrimination of rights of association in collective
bargaining. In addition, Weir has a zero tolerance of
the employment of children in any of its businesses.

The Weir Group PLC Annual Report and Financial Statements 2013SUSTAINABILITY REVIEW CONTINUED
We will not exploit anyone, wherever in the world we are
working. We will respect the human rights of all those
working for or with us, and of the people in the communities
where we operate. We will not do business with companies,
organisations or individuals that we believe are not working
to acceptable human rights standards.

We expect employees to maintain the highest standards
of conformity with these principles and their adoption and
adherence is contained within Weir’s Code of Conduct.
To ensure this policy is upheld in practice, in addition to
Group-wide assurance activity, all operating companies
complete a compliance scorecard self-assessment twice
per annum which assesses compliance with Group
policies and procedures.

Gifts and hospitality
We recognise that gifts and hospitality have the potential
to create a conflict of interest, or the perception of a
conflict of interest. As a result, there are Group policies
with regard to receiving and giving gifts and hospitality
from, and to, third parties. In no circumstances should
gifts or hospitality be solicited, and they should not
place the recipient under any obligation.

All gifts and hospitality above the minimum threshold
must be pre-approved using an online gifts and
hospitality register. Our Internal Audit team assess
compliance with the Group’s gifts and hospitality policies
during audit visits and undertake monthly reviews of the
register, which are shared with senior management.

Suppliers and third parties
We source raw materials, components and services
across the globe. Our suppliers play a critical role in our
business and our relationships with them are based on
achieving best performance, product, delivery, service
and total cost in an ethical and sustainable manner.
Embracing a closer relationship with our key suppliers
is fundamental to our Value Chain Excellence initiative,
launched in 2013 as Weir’s fourth strategic pillar.

The Group recognises that its responsibilities extend to
our supply chain. We have a Supply Chain Policy which
sets out the minimum standards we expect our suppliers
to abide by in connection with:
• how they treat their workforce;
•
• health and safety;
• business ethics; and
•

legal and regulatory compliance;

environmental standards.

During 2013, the Group has been working on increasing
the level of contractual agreements in place with our
supply base. These now equate to almost 50% of
our total spend.

In addition, the Code of Conduct is issued to our key
suppliers. Assessments are undertaken with regard
to compliance with Group standards as part of the
vetting process for new suppliers. We also audit our
key suppliers annually to assess ongoing compliance
with the Supply Chain Policy and other relevant Group
standards. Wherever possible, we work with our suppliers
to support them to address weaknesses identified.
The Weir Group is committed to working only with third
parties, including customers, sub-contractors, suppliers
and joint venture and strategic alliance partners, whose
business ethics and behaviours are consistent with our
own Code of Conduct.

External sales agents
The Group engages a number of external sales agents
across the globe to act on its behalf in locations where
it does not have a permanent sales presence, or in regard
to specific projects. The Group has a sales agents’ manual
which sets out the Group requirements with regard
to appointing and reappointing agents, as well as the
ongoing monitoring requirements. Due diligence is
performed prior to all appointments and reappointments
and overseen by the legal department. The standard Weir
contract must be used unless the legal department have
agreed modifications, but the terms of the agreements
always include stipulation that agents must comply with
the Code of Conduct. The agents are required to confirm
in writing their compliance with the Code of Conduct.

Reporting issues
The Group encourages our people to discuss any ethical
concerns they may have with local management or the
legal department. In addition, the Weir Ethics Hotline,
an independent and confidential telephone helpline and
an online reporting system is available for our employees,
partners and third parties to call or email with any
concerns that they have concerning unethical behaviour.
Calls to the helpline are free and lines are open 24 hours
a day, seven days a week. Reports can be made in a wide
range of languages reflecting our global footprint.

All reports are investigated. During 2013, 21 reports were
submitted via the Weir Ethics Hotline and each report was
fully investigated. No action was required in seven cases,
and the remaining cases were appropriately addressed
through further training, policy review and communication
improvements. Confidentiality is maintained wherever
possible. Complainants can receive updates and the
details of the outcome of the investigation via the Ethics
helpline when it is possible to provide this in adherence
with privacy or local legal restrictions.

The Strategic Report, covering pages 1 to 63 of the
Annual Report and Financial Statements 2013, has been
approved by the Board of Directors in accordance with
the Companies Act 2006 (Strategic Report and Directors’
Report) Regulations 2013.

On behalf of the Board of Directors

Keith Ruddock
Company Secretary
26 February 2014

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Board of Directors

BOARD OF DIRECTORS

Charles Berry
Chairman (61)

Keith
Cochrane
Chief Executive (49)

Alan Ferguson
Non-Executive
Director (56)

Melanie Gee
Non-Executive
Director (52)

Mary Jo Jacobi
Non-Executive
Director (62)

Richard (Rick)

John Mogford

Lord Robertson

Jon Stanton

Menell

Non-Executive

Director (58)

Non-Executive

Director (60)

of Port Ellen

Non-Executive

Director (67)

Finance Director (46)

Nationality

British

Dual American and
British citizenship

South African

British

Date of appointment

Non-Executive Director since
March 2013 and Chairman
since January 2014.

Joined the Group as Finance
Director in July 2006 and
appointed Chief Executive
in November 2009.

December 2011.

May 2011.

January 2014.

April 2009.

June 2008.

February 2004.

April 2010.

Committee membership

Chairman of the Nomination
Committee. Member of
the Audit & Remuneration
Committees during 2013.

Expertise

Charles was an Executive
Director of Scottish Power plc
from 1999 to 2005 and Chief
Executive of their UK division
between 2000 and 2005.
Prior to joining Scottish Power,
he was Group Development
Director of Norwest Holst,
a subsidiary of Compagnie
Générale des Eaux and held
management positions within
subsidiaries of Pilkington plc.

He is a former Non-Executive
Director and Chairman of
Eaga plc and Thus Group plc,
and a former Non-Executive
Director of Impax Environmental
Markets PLC and Securities
Trust of Scotland plc.

Key external appointments

Non-Executive Chairman
of Drax Group plc.

Non-Executive Chairman
of Senior plc.

Member of the Nomination
Committee.

Chairman of the Audit
Committee.

Chairman of the
Remuneration Committee.
Member of the Audit Committee.

Member of the Remuneration
Committee.

Member of the Audit, Nomination

Member of the Audit &

Member of the Nomination &

None.

& Remuneration Committees.

Nomination Committees.

Remuneration Committees.

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.

Alan was Chief Financial Officer
and a Director of Lonmin plc,
one of the world’s largest
producers of platinum group
metals, from 2007 until 2010.
Prior to his role with Lonmin,
he held the position of Group
Finance Director with the
BOC Group plc. Before this
he spent 22 years working
for Inchcape plc in a variety
of roles, including six years
as Group Finance Director.

Alan is a member of the Institute
of Chartered Accountants
of Scotland and sits on their
Business Policy Committee.

Melanie is a Senior Adviser for
Lazard & Co. Limited, having
worked for them since 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.

She was an alternate member
of The Takeover Panel – LIBA
(CFC) between 2006 and 2013.

Melanie was reappointed
to the Council of Fauna &
Flora International in 2013,
having previously served
from 2007 until 2010.

Mary Jo is currently the
Managing Director of her own
consultancy practice and a
board mentor with Critical
Eye. She is a member of The
Leadership Council and holds
several advisory and consultancy
roles in the not-for-profit sector.

She was formerly a Senior
Executive of Royal Dutch Shell
plc, BP America Inc., Lehman
Brothers Inc., HSBC Holdings
plc and Drexel Burnham
Lambert Inc. She was a Non-
Executive Director of Tate & Lyle
plc between 1999 and 2004.

She previously served in the
administrations of Presidents
Reagan and George H.W.
Bush. She currently serves on
the UK Advisory Committee
on Business Appointments
and is a visiting Fellow
at Oxford University.

Non-Executive Director
of Royal Scottish National
Orchestra Society Ltd.

Non-Executive Director and
Audit Committee Chairman
of Johnson Matthey plc.

Non-Executive Director
of Drax Group plc.

Non-Executive Director
of Mulvaney Capital
Management Limited.

Non-Executive Director and
Audit Committee Chairman
of Croda International plc.

Non-Executive Director and
Audit Committee Chairman
of London Mining plc.

Rick worked as an investment

John is currently a Managing

Lord Robertson is an

Jon was formerly a partner with

banker before joining Anglovaal

Director for First Reserve, a large

Adviser to Cable & Wireless

Ernst & Young LLP having joined

Group in 1992. He was

global energy focussed private

Communications plc, Special

as a graduate trainee in their

appointed Chief Executive of

equity firm. As part of this role

Adviser to BP plc and a Senior

Birmingham office in 1988.

Anglovaal Mining in 1996 then

he sits on several boards.

Counsellor with The Cohen

He was appointed as a partner

Executive Chairman in 2002.

In 2005, he left to become

He was formerly an Executive

Secretary of State for Defence

with lead responsibility for the

Group (USA). He was the

in their London office in 2001

President and Chief Executive

Vice President of BP plc having

from 1997 until 1999 before

audit of a number of FTSE

of TEAL Exploration & Mining

been with BP for over 30 years,

becoming Secretary General

100 multinational clients.

Inc. He was formerly Chairman

initially in their exploration

of NATO from 1999 until 2003.

of Avgold Ltd (1996-2004) and

division and progressively rising

He was formerly a Director of

He is a chartered accountant

Bateman Engineering BV (2005-

to Executive Vice President

Smiths Group plc (2004-2006)

and a member of the Institute

2009) and Director of Mutual

(Chief Operating Officer US

and Deputy Chairman of Cable

of Chartered Accountants

& Federal Insurance Company

Downstream & Head of Refining).

& Wireless Communications

in England and Wales.

Ltd (1996-2010) and Standard

He held numerous positions

Plc (2004-2006) and

Bank Group Ltd (1997-2011).

in every area of operations

TNK-BP Ltd (2006-2013).

Rick is a Senior Advisor to

Credit Suisse and Chairman

of Credit Suisse Securities

He was formerly Chairman

(Johannesburg) (Pty) Limited.

of Amromco Energy LLC in

Privy Council, he is Chairman

of the Ditchley Foundation

and of the Commission on

from gas and renewables to

upstream and downstream oil.

A member of Her Majesty’s

He serves as a Director on a

Romania, White Rose Energy

Global Road Safety. He is

number of unlisted companies

Ventures LLP in the UK and a

honorary Professor of Politics at

and not-for-profit organisations.

Non-Executive Director of Deep

Stirling University, an honorary

Gulf Energy LP in America.

Fellow of the Royal Society of

He is a fellow of the Institution

the Corporation of Trinity House

of Mechanical Engineers.

Edinburgh, an Elder Brother of

and is Chancellor of the Order

of St Michael and St George.

Non-Executive Director of CHC

Non-Executive Director of

None.

Helicopters SA in Luxembourg.

Western Ferries (Clyde) Ltd.

Non-Executive Director

of DOF Subsea AS in

Norway and Midstates

Petroleum Inc in America.

He is a fellow of the Geological

Society (London), and

both the Australasian and

South African Institutes of

Mining and Metallurgy.

Non-Executive Director of

Gold Fields Ltd and Sibanye

Gold Limited, both South

African companies listed on

the Johannesburg Stock

Exchange and the New

York Stock Exchange.

Non-Executive Director of

Rockwell Diamonds Inc., a

South African company listed

on both the Johannesburg

Stock Exchange and the

Toronto Stock Exchange.

The Weir Group PLC Annual Report and Financial Statements 2013Charles Berry

Chairman (61)

Keith

Cochrane

Chief Executive (49)

Alan Ferguson

Non-Executive

Director (56)

Melanie Gee

Non-Executive

Director (52)

Mary Jo Jacobi

Non-Executive

Director (62)

Richard (Rick)
Menell
Non-Executive
Director (58)

John Mogford
Non-Executive
Director (60)

Lord Robertson
of Port Ellen
Non-Executive
Director (67)

Jon Stanton
Finance Director (46)

Lord Smith
of Kelvin
Former Chairman (69)

British

South African

British

Dual American and

British citizenship

Non-Executive Director since

Joined the Group as Finance

December 2011.

May 2011.

January 2014.

April 2009.

June 2008.

February 2004.

April 2010.

Non-Executive Director
from February 2002 and
Chairman from July 2002.
Retired in December 2013.

Chairman of the Nomination

Member of the Nomination

Chairman of the Audit

Chairman of the

Member of the Remuneration

Committee.

Remuneration Committee.

Committee.

Member of the Audit, Nomination
& Remuneration Committees.

Member of the Audit &
Nomination Committees.

Member of the Nomination &
Remuneration Committees.

None.

Chairman of the Nomination
Committee during 2013.

Member of the Audit Committee.

Nationality

British

Date of appointment

March 2013 and Chairman

since January 2014.

Committee membership

Committee. Member of

the Audit & Remuneration

Committees during 2013.

Expertise

Director in July 2006 and

appointed Chief Executive

in November 2009.

Charles was an Executive

Following a number of years

Alan was Chief Financial Officer

Melanie is a Senior Adviser for

Mary Jo is currently the

Director of Scottish Power plc

with Arthur Andersen, Keith

and a Director of Lonmin plc,

Lazard & Co. Limited, having

Managing Director of her own

from 1999 to 2005 and Chief

Executive of their UK division

between 2000 and 2005.

joined Stagecoach Group plc

one of the world’s largest

worked for them since 2008.

consultancy practice and a

in 1993. He was appointed

producers of platinum group

Formerly, she spent a number

board mentor with Critical

Finance Director in 1996 and

metals, from 2007 until 2010.

of years with S.G. Warburg

Eye. She is a member of The

Prior to joining Scottish Power,

Group Chief Executive in 2000.

Prior to his role with Lonmin,

(now part of UBS) and was

Leadership Council and holds

He joined ScottishPower plc

he held the position of Group

appointed a Managing Director

several advisory and consultancy

he was Group Development

Director of Norwest Holst,

a subsidiary of Compagnie

Générale des Eaux and held

in 2003 where he became

Director of Group Finance.

management positions within

He is a chartered

subsidiaries of Pilkington plc.

accountant and a member

Finance Director with the

of UBS in 1999. Between 2006

roles in the not-for-profit sector.

BOC Group plc. Before this

and 2008 she was a Senior

he spent 22 years working

for Inchcape plc in a variety

of roles, including six years

Relationship Director of UBS.

She was formerly a Senior

She was an alternate member

plc, BP America Inc., Lehman

Executive of Royal Dutch Shell

He is a former Non-Executive

Accountants of Scotland.

(CFC) between 2006 and 2013.

plc and Drexel Burnham

of the Institute of Chartered

as Group Finance Director.

of The Takeover Panel – LIBA

Brothers Inc., HSBC Holdings

Director and Chairman of

Eaga plc and Thus Group plc,

and a former Non-Executive

Director of Impax Environmental

Markets PLC and Securities

Trust of Scotland plc.

Alan is a member of the Institute

of Chartered Accountants

of Scotland and sits on their

Melanie was reappointed

to the Council of Fauna &

Business Policy Committee.

Flora International in 2013,

having previously served

from 2007 until 2010.

Lambert Inc. She was a Non-

Executive Director of Tate & Lyle

plc between 1999 and 2004.

She previously served in the

administrations of Presidents

Reagan and George H.W.

Bush. She currently serves on

the UK Advisory Committee

on Business Appointments

and is a visiting Fellow

at Oxford University.

Key external appointments

Non-Executive Chairman

of Drax Group plc.

Non-Executive Chairman

of Senior plc.

Non-Executive Director

of Royal Scottish National

Orchestra Society Ltd.

Non-Executive Director and

Non-Executive Director

Audit Committee Chairman

of Drax Group plc.

Non-Executive Director

of Mulvaney Capital

Management Limited.

of Johnson Matthey plc.

Non-Executive Director and

Audit Committee Chairman

of Croda International plc.

Non-Executive Director and

Audit Committee Chairman

of London Mining plc.

Rick worked as an investment
banker before joining Anglovaal
Group in 1992. He was
appointed Chief Executive of
Anglovaal Mining in 1996 then
Executive Chairman in 2002.
In 2005, he left to become
President and Chief Executive
of TEAL Exploration & Mining
Inc. He was 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).

Rick is a Senior Advisor to
Credit Suisse and Chairman
of Credit Suisse Securities
(Johannesburg) (Pty) Limited.
He serves as a Director on a
number of unlisted companies
and not-for-profit organisations.

He is a fellow of the Geological
Society (London), and
both the Australasian and
South African Institutes of
Mining and Metallurgy.

Non-Executive Director of
Gold Fields Ltd and Sibanye
Gold Limited, both South
African companies listed on
the Johannesburg Stock
Exchange and the New
York Stock Exchange.

Non-Executive Director of
Rockwell Diamonds Inc., a
South African company listed
on both the Johannesburg
Stock Exchange and the
Toronto Stock Exchange.

Jon was formerly a partner with
Ernst & Young LLP 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 multinational clients.

He is a chartered accountant
and a member of the Institute
of Chartered Accountants
in England and Wales.

Lord Smith was formerly
Chairman and Chief
Executive of Morgan Grenfell
Private Equity and was
Chief Executive of Morgan
Grenfell Asset Management
between 2000 and 2002.

He is a chartered accountant
and a past president of
the Institute of Chartered
Accountants of Scotland.

John is currently a Managing
Director for First Reserve, a large
global energy focussed private
equity firm. As part of this role
he sits on several 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 was formerly Chairman
of Amromco Energy LLC in
Romania, White Rose Energy
Ventures LLP in the UK and a
Non-Executive Director of Deep
Gulf Energy LP in America.

He is a fellow of the Institution
of Mechanical Engineers.

Lord Robertson is an
Adviser to Cable & Wireless
Communications plc, Special
Adviser to BP 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 Communications
Plc (2004-2006) and
TNK-BP Ltd (2006-2013).

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.

Non-Executive Director of CHC
Helicopters SA in Luxembourg.

Non-Executive Director of
Western Ferries (Clyde) Ltd.

None.

Non-Executive Director
of DOF Subsea AS in
Norway and Midstates
Petroleum Inc in America.

Chairman of SSE PLC
(formerly Scottish
and Southern Energy
PLC); Chairman of the
UK Green Investment
Bank plc; Chairman of
Glasgow 2014 Limited,
the organising committee
for the Commonwealth
Games; Non-Executive
Director of Standard Bank
Group Ltd in South Africa
and Chancellor of the
University of Strathclyde.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013
Directors’ Report:
Group Executive

GROUP EXECUTIVE

Name and title

Biography

Name and title

Biography

Dean Jenkins
Minerals Divisional
Managing Director (42)

Steve Noon
Oil & Gas Divisional
Managing Director (49)

John Heasley
Power & Industrial
Divisional Managing
Director (39)

Keith Ruddock
General Counsel and
Company Secretary (53)

Dean is based in Melbourne,
Australia. He joined the Group
in November 2010, becoming
Power & Industrial Divisional
Managing Director in January
2011. He was appointed to
his current role in August
2012. Dean previously worked
for Qantas Airlines and the
Australian listed infrastructure
services company UGL Ltd,
most recently as Chief Executive
of the latter’s Rail Division.

Steve is based in Fort Worth,
USA. He joined the Group
in 2007. He has worked with
several multinationals 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.

John joined the Group
Executive in January 2014
as Divisional Managing
Director for Weir Power and
Industrial. He is based at
the Divisional headquarters
in East Kilbride, Scotland.
A chartered accountant, he
has held a number of senior
financial, commercial and
operational roles. John joined
Weir in 2008 as Group Financial
Controller before becoming
Valves Managing Director in the
Power & Industrial division.

Keith is based at the Group’s
Head Office in Glasgow. He
joined the Group in April 2012
from Royal Dutch Shell PLC,
where he was General Counsel
for Upstream International,
Shell’s largest business unit,
based in The Hague. He
has extensive international
commercial and legal
experience, having worked
in the Middle East, North
America, Africa, Australasia
and Europe and was a
member of Shell’s Upstream
International leadership team.

Pauline Lafferty
Director of Human
Resources (48)

Gavin Nicol
Director of Operations
Support and
Development (52)

Andrew Neilson
Director of Strategy and
Corporate Affairs (38)

Pauline is based at the Group’s
Head Office in Glasgow. She
joined the Group in 2011. Pauline
was previously in executive
search with Miles Partnership
and Russell Reynolds Associates
in the UK and Australia. Prior
to this, she 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 is the Director of
Operations Support &
Development based at the
Group’s Head Office in Glasgow.
He was previously 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, he worked
for a number of multinationals
including the Terex Corporation,
PwC and Coats Viyella.

Andrew joined the Group
Executive in January 2014
as Director of Strategy and
Corporate Affairs. He is
based at the Group’s Head
Office in Glasgow. Andrew
holds a Masters degree in
engineering from the University
of Strathclyde and he is a
member of the Institute of
Chartered Accountants of
Scotland. Before joining Weir in
2010, he held a variety of senior
roles with banking, energy and
professional services companies
including HSBC, HBOS,
Scottish Power and KPMG.

Keith Cochrane and Jon Stanton are also members of the Group Executive. Their biographical information can be found on pages 64 and 65.

The Weir Group PLC Annual Report and Financial Statements 2013CORPORATE
GOVERNANCE REPORT

3 January 2014, and from that date to the date of approval
of this Annual Report, with the exception of one part of
a provision which is detailed on page 68.

Changes to the Board
Board Changes during 2013 and early 2014:
•
•

I was appointed Non-Executive Director on 1 March 2013.
I was subsequently appointed Deputy Chairman on
1 May 2013.

• Lord Smith retired from the Board and as Chairman
on 31 December 2013. He also retired as Chairman
of the Nomination Committee.
I was appointed Chairman of the Board and
Nomination Committee Chairman on 1 January 2014.

•

• Mary Jo Jacobi was appointed Non-Executive

Director on 1 January 2014.

Induction and training
For a Board to function at its best, individual Directors
must be equipped with the knowledge and skills
needed to undertake their role effectively. I underwent
a sustained period of induction, learning about the
Company in advance of becoming Chairman. The
knowledge gained by doing this was invaluable in
order to allow me to take on this role with a confident
understanding of the business and how it operates.
I will be supporting a continued induction programme
for all new Directors in addition to ongoing training.
More details on this can be found on page 73.

Succession planning and diversity
To maintain an effective Board, it is essential to plan for
the future and to ensure the right individuals are selected
to the Board from a diverse pool of talent. The Board
considers itself diverse in terms of the background and
experience which each individual brings to the Board.
All future appointments will continue to be based on
merit, however, the Board aspires to maintain a significant
level of female representation on the Board. More details
on our diversity policy can be found in the Nomination
Committee Report on page 78. Details of the proportion
of women on the Board, in senior executive positions
and within the whole organisation can be found on
page 57 of the Sustainability Review.

Risk and sustainability
I am mindful that operating under good governance
means a continued focus on two primary areas: risk
and sustainability. Board decisions are not made without
taking these in to consideration and I will ensure that they
continue to receive the time and prominence in the Board
room that they deserve. The relevant sections in the
Annual Report can be found from pages 24 and 49.

Charles Berry
Chairman
26 February 2014

I am approaching my first
anniversary as a Director of
the Weir Group having joined in
March last year. In that time I have
gained a clear understanding of
the business and can assure you
that good corporate governance
is paramount to all that we do.
I come from a strong background
of governance work through
my various executive and non-
executive roles. Lord Smith has
led this Board for the last 11 years
with an exemplary record of
openness, honesty and integrity
and I look forward to maintaining
that best practice in future years.

UK Corporate Governance Code
As Chairman, I am responsible for ensuring that under
my leadership the Board of Directors of The Weir Group
PLC operates effectively and in compliance with the
UK Corporate Governance Code. In accordance with
the Listing Rules, the Weir Group is reporting on how
it has applied the main principles and whether we
have complied with the relevant provisions of the Code.
The Code was revised in September 2012 primarily
with changes to the disclosures for auditors and the
audit committee. Alan Ferguson, as the Chairman
of the Audit Committee has been working with the Audit
Committee and the Board to ensure full compliance
with these changes. Details can be found in the Audit
Committee Report from page 79. I am pleased to
report that the Weir Group has complied fully with
all the principles of the Code, for the 53 weeks to

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Corporate Governance Report

CORPORATE GOVERNANCE REPORT
Continued

The UK Corporate Governance Code
The UK Corporate Governance Code (formerly the Combined Code) is published by the Financial Reporting Council and sets out standards
of good practice in relation to issues such as Board composition and effectiveness, the role of Board committees, risk management,
remuneration and relations with shareholders. Paper and downloadable versions can be obtained from the Financial Reporting Council
via its website at www.frc.org.uk.

As a listed company, we must detail how we have complied with the Code and provide an explanation of instances where we have not.
This report, in addition to the Nomination, Audit and Remuneration Committee Reports, details how the Company has applied the main
principles of the Code. For the 53 weeks ended 3 January 2014, except in the instance of one part of a provision detailed below, the Board
considers that the Company has complied fully with the UK Corporate Governance Code (the ‘Code’).

The Code Provision E.1.1 states that the Senior Independent Director should attend sufficient meetings with a range of major shareholders
to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders. During 2013,
Lord Robertson undertook engagement with various stakeholders but he did not attend meetings with a range of major shareholders. It is
considered that the Company has a robust Investor Relations department which oversees such meetings and that there are sufficient
processes in place for the issues and concerns of major shareholders to be communicated to all members of the Board that it is not necessary
for the Senior Independent Director to attend these meetings. He is of course willing to attend such meetings if the need arises. The Board do
not feel that this in any way impedes its good corporate governance and believe that the current practice is in compliance with the main and
supporting principles under section E regarding dialogue with shareholders. Further details of the Company’s relations with its shareholders
can be found on page 76.

Leadership
The Board of Directors

Table of the Board of Directors

Name

Charles Berry

Keith Cochrane

Alan Ferguson

Melanie Gee

Mary Jo Jacobi

Rick Menell

John Mogford

Lord Robertson

Jon Stanton

Date of appointment

Date of most recent re-election

Designation

Chairman

Chief Executive

1 March 2013

3 July 2006

Non-Executive Director

13 December 2011

Non-Executive Director

Finance Director

4 May 2011

1 January 2014

1 April 2009

1 June 2008

1 February 2004

19 April 2010

1 May 2013

–

1 May 2013

The names of the current Directors of the Company can be found in the table above. Biographical information on the current Directors,
including their relevant experience and significant appointments, can be found on pages 64 and 65. Their relevant skills and experiences
are further detailed in the Board composition section below.

Charles Berry joined the Board as a Non-Executive Director on 1 March 2013. He was appointed Deputy Chairman at the Company’s Annual
General Meeting (AGM) on 1 May 2013 and became Chairman on 1 January 2014. He replaces Lord Smith who resigned as Chairman and
a Non-Executive Director on 31 December 2013. Mary Jo Jacobi was appointed a Non-Executive Director on 1 January 2014.

The role and responsibilities of the Board
The Board of Directors has a collective duty to promote the long term success of the Company for its shareholders. The Board provides
leadership of the Company and sets the Group’s strategic aims. It ensures that the necessary resources are in place to achieve the agreed
strategic priorities and provides guidance to senior management. In determining the long term strategy and objectives of the Group, the Board
is mindful of its duties and responsibilities not just to shareholders but also to customers, employees and other stakeholders. The Board
reviews management and financial performance and monitors the delivery of strategy and the achievement of business objectives. At all times
it works within a robust framework of internal controls and risk management. The Board both develops and promotes the collective vision
of the Group’s purpose, culture, values and behaviours.

Board composition
During the period the Board has comprised two Executive Directors and the Chairman, and the number of Non-Executive Directors increased
from five to six following the appointment of Charles Berry on 1 March 2013. Since 1 January 2014, when Charles Berry was appointed Chairman
to replace Lord Smith following his resignation, and Mary Jo Jacobi was appointed as a Non-Executive Director, the number of Non-Executive
Directors has remained at six. There is a Company Secretary to the Board. More information on their respective positions and the division of their
responsibilities is outlined below.

The Weir Group PLC Annual Report and Financial Statements 2013Chairman and Chief Executive
During 2013, the Board was chaired by Lord Smith of Kelvin. He stepped down from this role at the end of the year and was replaced by
Charles Berry with effect from 1 January 2014. The Chairman leads the Board and is responsible for ensuring conditions that allow for
the effectiveness of individual Directors and the Board as a whole. Charles Berry has continued the approach of openness and accountability
set by Lord Smith and encourages debate within the boardroom. His leadership demonstrates the values and behaviours at the core of
the Weir Group.

The Chairman, in consultation with the Chief Executive and the Company Secretary, sets the agenda for the Board’s meetings and ensures
that there is sufficient time available for the discussion of all items whilst giving the appropriate weighting of time to their relative importance.

Keith Cochrane is the Chief Executive and is responsible for the day-to-day management of the Company. He provides leadership to the Group
to successfully plan and execute the objectives and strategy agreed by the Board. The Chief Executive is supported in his role by the Group
Executive and various management committees, known as ‘Excellence Committees’.

The roles of the Chairman and Chief Executive are separate with each having clearly defined duties and responsibilities.

Non-Executive Directors
The Non-Executive Directors help the Executive Directors by contributing independent challenge and rigour to the Board’s deliberations
and assisting in the development of the Company’s strategy. In addition, they are responsible for monitoring the performance of the Executive
Directors against agreed goals and objectives. Their views are essential in overseeing the performance of the Company and ensuring
the integrity of the financial information, controls and risk management processes. In order to carry out these functions appropriately the
Non-Executive Directors meet regularly with senior management and make periodic site visits. Senior managers are also regularly invited
to Board meetings to make business presentations to the Board.

Senior Independent Director
Lord Robertson is the Senior Independent Director of the Company. The Board considers Lord Robertson to be independent in character
and judgement notwithstanding the length of time that he has served on the Board. The Senior Independent Director works alongside the
Chairman and is available to serve as an intermediary for the other Directors if necessary. He is also available to shareholders if direct contact
with the Chairman, Chief Executive or other Executive Directors has failed to resolve the concerns of shareholders or for which such contact
is inappropriate. As Senior Independent Director he also leads the annual review of the performance of the Chairman.

Company Secretary
Keith Ruddock was appointed as Company Secretary in May 2012. He is secretary to the Board of Directors and to all of the Board
Committees. He is Group General Counsel and a member of the Group Executive and his biography is set out on page 66.

The Company Secretary advises the Board on any changes in legislation, governance codes or regulatory requirements. He reports to
the Chairman on corporate governance matters and oversees, in parallel with the Chairman, the governance procedures of the Board.
The Company Secretary has a responsibility to ensure that these Board procedures are adhered to and periodically reviews them with
regards to best practice.

Board meetings
The Board’s scheduled meetings are held in person or by telepresence video-conferencing. During 2013, there were nine scheduled meetings
held. No additional meetings were required. In September 2013, the Board meeting was held in Todmorden, England. This was part of a
knowledge gathering trip to view both the facilities of Weir Minerals Europe at Todmorden and Weir Valves & Controls UK in Elland. More
information on this can be found on page 74. In addition to the formal Board meetings, the Board maintains an open dialogue throughout the
year and contact by telephone occurs whenever necessary. The Board also met at the Group conference in Perthshire, Scotland, in April 2013.

The table below details the attendance at board meetings of each of the Directors during their term of office for the 53 weeks to 3 January 2014.

Name

Charles Berry1

Keith Cochrane

Alan Ferguson

Melanie Gee

Rick Menell

John Mogford

Lord Robertson

Lord Smith of Kelvin

Jon Stanton

Notes
1. Charles Berry was appointed to the Board on 1 March 2013.
2. There were no Board meetings held between the date of Mary Jo Jacobi’s appointment to the Board on 1 January 2014 and 3 January 2014.

Attendance

7 of 7

9 of 9

8 of 9

9 of 9

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

Directors’ Report:
Corporate Governance Report

CORPORATE GOVERNANCE REPORT
Continued

During the year the Chairman, supported by the Chief Executive and Company Secretary, continued the practice of maintaining a rolling
12 month agenda for Board and committee meetings. At each meeting the Board receives reports from the Chief Executive and other
members of the Group Executive including information on safety, strategy, human resources, finance and legal. The Board also receives
periodic updates from the committee Chairmen, who in particular report to the Board on committee meetings. Other standing items
include reviewing the risk register and internal controls, strategy and succession planning.

The Board’s time during 2013 can be grouped in to six key areas as outlined below. A portion of their time is also spent on administrative matters.

Strategy

Setting strategy
targets.

Reviewing
potential
acquisitions.

Products and
technology.

Risk

Risk Appetite
Statement.

Group’s risk and
internal control
framework.

Crisis
management.

Cyber security.

Governance

Legal updates and
new disclosure
requirements.

Internal Board
review.

Succession
planning.

Finance

Oversight of the
preparation and
management of
the financial
statements.

Dividend policy.

Pensions.

Stakeholder
engagement

AGM and other
shareholder
feedback.

Investor calls,
meetings and
roadshows.

Oversight of
remuneration
consultation
process.

Employee surveys.

The Board receives presentations by members of the Weir Group senior management team and external advisors as required.

The annual timetable is discussed in May of the preceding year and circulated as soon as it is finalised which ensures that the Chairman
can be comfortable that each Director is able to devote the time and resources required to act as a Director during that period. The system
for establishing agenda items means both the Chairman and the Board have the confidence that all required items are included at the
most appropriate time of the year and there is sufficient time allocated for discussion by the Board, allowing the Directors to discharge
their duties effectively.

Board and Group Executive meeting locations for 2011-2013

2013

2012

2011

Board

Group Exec

The Weir Group PLC Annual Report and Financial Statements 2013Safety EHS Standards and Management System.EHS Audit System.Matters reserved for the Board
The Board recognises that to ensure the long term success of the Company, certain specific matters should be reserved for the consideration and
decision of the Board alone. Other matters may be delegated by the Board to its committees or executive management. Decisions specifically
reserved for approval by the Board are formally recorded in a document Matters Reserved to the Board, and include:
• Annual and Interim Report and Financial Statements;
• dividend policy;
• Board appointments;
• Group strategy and the annual operating budget;
• changes relating to the Group’s capital structure;
• changes to the Group’s management and control structure;
• major capital expenditure, acquisitions and disposals;
•
• risk management strategy;
• Group corporate governance policy; and
• environmental, health and safety and sustainability policies.

treasury policies;

The matters reserved for the Board are reviewed on an annual basis to ensure they remain appropriate and adhered to.

Board committees

Board and committee structure

Board of Directors

Board
committees

Audit Committee

Remuneration Committee

Nomination Committee

General Administration
Committee

Chief Executive

Management
committees

Group Executive Committee

Risk
Committee

Engineering
Excellence
Committee

Finance
Excellence
Committee

EHS
Excellence
Committee

IT Excellence
Committee

HR Excellence
Committee

Value Chain
Excellence
Committee

Manufacturing
Excellence
Committee

Purchasing
Excellence
Committee

Planning
Excellence
Committee

The Board has established a number of committees to assist in the discharge of its responsibilities. The principal committees are the
Nomination Committee, the Audit Committee and the Remuneration Committee. The responsibilities of these Board committees are set out
in the individual Terms of Reference of each committee, which are available on the Company’s website. The roles and responsibilities of the
committees along with the activities undertaken during the period are outlined in each of their respective reports found on pages 77 to 112.
The Company Secretary acts as secretary to the committees.

Only committee members are entitled to attend meetings, however, other Directors, professional advisors and members of the senior
management team are able to attend when invited to do so.

When the need arises, separate ad hoc committees may be set up by the Board to consider specific issues.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Corporate Governance Report

CORPORATE GOVERNANCE REPORT
Continued

General Administration Committee
The General Administration Committee is a sub-committee of the Board which comprises any two Directors of the Company, at least one
of whom must be an Executive Director. The Committee is responsible to the Board as a whole and meets as required. The principal duties
of the Committee include attending to administrative and procedural matters in relation to existing bank and finance facilities and the issue
and allotment of shares under Group share plans. It also attends to other matters of a routine manner relating to the Company’s share capital,
including the administration of unclaimed dividends and the Company’s Dividend Reinvestment Plan. The Committee has written Terms of
Reference which are periodically reviewed to ensure their continuing appropriateness. These were last updated and approved by the Board
in January 2013. Minutes of meetings of the General Administration Committee are made available to all Directors.

Group Executive
In 2013 the Group Executive comprised the Chief Executive, the Finance Director, the General Counsel and Company Secretary, the three
Divisional Managing Directors, the Director of Operations Support and Development and the Director of Human Resources. In January 2014,
Andrew Neilson joined the Group Executive as Director of Strategy and Corporate Affairs. Biographical details of the members of the Group
Executive can be found on page 66. The Group Executive is chaired by the Chief Executive, Keith Cochrane.

In the 53 weeks ended 3 January 2014, the Group Executive met 12 times. The Group Executive 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 Group Executive’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.

Management committees
In addition to the committees above, there exist several management committees, known as Excellence Committees. These have been
created to deal with specific areas and under their clearly defined remits they work across the Group promoting best practice and information
sharing. In 2013, two new Excellence Committees were established: the Planning Excellence Committee and the Value Chain Excellence
Committee. The Planning Excellence Committee is focussed on updating all aspects of planning across the value chain, including Sales and
Operations Planning and Production Planning. The updated and fully integrated planning model is aimed at further improving our on-time
delivery to customers and reducing the level of inventory held across the Group. The Planning Excellence Committee reports, along with
the Purchasing and Manufacturing Excellence Committees, into the Value Chain Excellence Committee.

The Executive Directors and members of the Group Executive are able to delegate their responsibilities to these committees and utilise the
areas of expertise contained within them. The Excellence Committees report to the Group Executive and to the Board as required.

The composition of the various committees along with their accompanying terms of reference, the matters reserved for the Board, and delegated
authority matrices combine to create a clear authority matrix across the Group for timely and effective decision-making. This structure provides
the Board with confidence that the appropriate decisions are being taken at the appropriate levels, and information flows both up and down
reporting lines.

Effectiveness
Board skills and attributes

Independence

Executive

Banking &
finance

Governance

International

Leadership

Mining

Oil & gas

Power

Skills and experience

Charles Berry1

Keith Cochrane

Alan Ferguson

Melanie Gee

Mary Jo Jacobi

Rick Menell

John Mogford

Lord Robertson

Lord Smith

Jon Stanton

Note
1. Charles Berry was considered independent during 2013 and on his appointment as Chairman.

The Board considers that it has the right combination of skills, experience, independence and knowledge to be useful and effective in meeting
the needs of the business. More than half of the Board are independent Non-Executive Directors. All the Non-Executive Directors are considered
by the Board to be independent in character and judgement. This includes Lord Robertson who despite having served on the Board for a period
of more than nine years is considered independent primarily due to his long-standing history of distinguished public service at the very highest
levels. He brings a wealth of experience to the Board’s deliberations and is considered to be free from any business or other relationship that
could materially interfere with his independent judgement.

The Weir Group PLC Annual Report and Financial Statements 2013This combination of individuals and skills ensures that the Board is sufficiently balanced such that no individual or group of individuals can
dominate decision-making and allows for an effective division of responsibilities within the Board and its committees. The positions of
Chairman and Chief Executive are held separately. Each Director devotes sufficient time and attention as is necessary in order to perform
their duties.

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.

Appointment and tenure

Name

1 year

2 years

3 years

4 years

5 years

6 years

7 years

8 years

9 years

10 years

or re-election

Length of tenure at 3 January 2014

Date of next election

Charles Berry

Keith Cochrane

Alan Ferguson

Melanie Gee

Mary Jo Jacobi

Rick Menell

John Mogford

Lord Robertson

Jon Stanton

1 May 2014

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. Further details can also be found
in the Remuneration Report.

Mary Jo Jacobi will resign and offer herself for election at the Company’s AGM on 1 May 2014. All other Directors on the Board at 3 January
2014 will seek re-election at the Company’s AGM in compliance with the Code.

Induction and ongoing training
When a new Director joins the Company he or she is provided with information on the Group’s structure, operations, policies and other relevant
documentation. New Directors are able to attend the Group’s induction programme which provides an insight into the Group’s key processes
and controls. In addition, the Board meets once a year or more at one of the Group’s operational sites, which includes presentations from key
senior employees and the opportunity to meet employees across the global operations. Directors are informed of relevant material changes to
laws and regulations affecting the Group’s business and their duties as Directors. The Company Secretary advises the Board on governance
matters and is available to all Directors for advice as required. During 2013, a Non-Executive Director also gave a presentation at each of the
three regional conferences for senior managers held during the year.

Additional induction and training is also available to new committee members as required.

In advance of becoming Chairman in January 2014, Charles Berry undertook a detailed induction to the Company, its operations and its
employees. Between June and December 2013, he visited 19 operational sites in America, Australia, India, The Netherlands, South Africa,
the United Arab Emirates, the UK and the US. He held individual meetings with each head of department at the Weir Group Head Office
in Glasgow and met with all members of the Group Executive. He has also met with all members of the Board on a one-to-one basis.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Corporate Governance Report

CORPORATE GOVERNANCE REPORT
Continued

BOARD SITE VISIT
In September 2013, the Weir Group Board visited two
Weir facilities in West Yorkshire, England.

In September 2013, the Weir Group Board visited the facilities
of Weir Valves & Controls UK Ltd in Elland, West Yorkshire, UK.
They learned about the production systems in place and had
a chance to inspect the new Rapid Response manufacturing cell,
which has been a recent key investment in order to aid customers
with requirements for short lead time aftermarket requirements
and timely support for key valve applications. The Board met
with operatives and management from the plant and gained
an insight into the advances made in the factory to keep pace
with the increasing levels of output that the plant is delivering.

The following day, the Board visited the Todmorden site of
Weir Minerals Europe Limited. During the morning session,

the Directors were given an overview of the recent successes
achieved by the Europe, North Africa and Russia regions of the
Minerals Division, before being given a tour of the foundry. The
Todmorden foundry carries an exceptional global reputation
and a significant investment was committed in 2012 to expand the
manufacturing capacity of the site to meet global demand with the
construction of a new fast loop extension, which was completed
and formally opened in July 2013. Following the tour, guest
speaker Magnus Ericsson, from IntierraRMG, presented an analyst
view of the mining sector to 2020, and Dean Jenkins, Divisional
Managing Director, outlined the strategic plan of the Minerals
Division to 2018. The Board then held its meeting at Todmorden
in the afternoon.

Directors and their other interests
Under the Companies Act 2006, a director of a company must avoid a situation in which he or she has, or can have, a direct or indirect interest
that conflicts, or may possibly conflict, with the interests of the company. The Company has a formal procedure in place to manage the disclosure,
consideration and, if appropriate, the authorisation of any such possible conflict. Each Director is aware of the requirement to notify the Board,
via the Company Secretary, as soon as they become aware of any possible future conflict or a material change to an existing authorisation. Upon
receipt of any such notification, the Board, in accordance with the Company’s Articles of Association, will consider the situation before deciding
whether to approve the perceived conflict. At the outset of every Board meeting, the Chairman also checks that no new conflicts have arisen.
Only Directors who have no interest in the matter being considered are able to take the relevant decision and Directors are able to impose
limits or conditions when giving authorisation if they think this is appropriate. The Director in question will then be notified of the outcome.

None of the Non-Executive Directors have any material business or other relationship with the Company or its management.

Details of the Directors’ service contracts, emoluments, the interests of the Directors in the share capital of the Company and options
to subscribe for shares in the Company are shown in the Remuneration Report.

Board evaluation
Following the internal review undertaken in 2012 the Board decided to consider allotting additional time to certain areas to improve its
effectiveness further. As a result, additional focus was given to reviewing talent development and related trends across the Company with a
detailed review of senior succession coverage and a presentation made to the Nomination Committee by the Director of Human Resources on
senior executive succession planning. In addition, there has been increased focus on the areas of risk and strategy, particularly in relation to
safety which has become a standing agenda item at every Board meeting.

The Weir Group PLC Annual Report and Financial Statements 2013The Board evaluation was again conducted in-house in 2013. This was facilitated through the completion of questionnaires which focussed
on areas such as the role and composition of the Board, the content and process of meetings and the roles of the committees. In addition,
the Chairman conducted individual discussions with each Non-Executive Director. The Chairman conducted the process, assisted by the
Company Secretary. As is customary, Lord Robertson as Senior Independent Director oversaw the review of the Chairman.

The overall responses from the 2013 evaluation again generally reflected a very high level of satisfaction with the current working of the Board
and its committees. The Board considered the 2013 evaluation at both its December 2013 and January 2014 meetings. In particular, the Board
has agreed that further consideration will be giving to further improving the effective operation of the Board and of the Nomination and Audit
Committees in particular. In addition, measures will be implemented to ensure that all Board members are kept fully and directly informed of
external developments in relation to the Company on a more systematic and ongoing basis.

In line with the Code, the Board intends to have external facilitation of its next Board evaluation in 2014.

Accountability
The Audit Committee and auditors
Details on the roles and responsibilities of the Audit Committee and its members can be found in the Audit Committee Report on pages
79 to 84. Information on the Company’s external auditors is also contained within this section.

Internal control and risk management
In accordance with Internal Control: Guidance to Directors (formally known as the Turnbull Guidance) the Group has an ongoing process for
identifying, evaluating and managing the significant risks through an internal control framework. This process has been in place throughout
2013. More information can be found on risk management on pages 24 to 30.

Our internal control framework has four key layers:

t h i c a l

& c u ltural environment
A s s u r a nce activities

M o n it o
nctio

u
F

r i n g & oversight co

ntr

o
l
s

a l & f ront line c

Risks

Figure 1: Internal Control Framework

– Functional and front line controls
This includes a wide spectrum of controls as seen in most organisations, including, for example, standard operating procedures and policies;
a comprehensive financial planning and reporting system, including quarterly forecasting; regular performance appraisal and training for
employees; restricted access to financial systems and data; delegated authority matrices for review and approval of key transactions;
protective clothing and equipment to protect our people from harm; IT and data security controls; business continuity planning; and
assessment procedures for potential new recruits.

– Monitoring and oversight controls
There is a clearly defined organisational structure within which roles and responsibilities are articulated. There are monitoring controls
at operating company, regional, divisional and Group level, including standard key performance indicators, with action plans to address
underperforming areas.

A compliance scorecard self-assessment is completed and reported by all operating companies twice per annum. The scorecard assesses
compliance with Group policies and procedures.

Financial monitoring includes comparing actual results with the forecast and prior year position on a monthly and year-to-date basis.
Significant variances are highlighted to Directors on a timely basis allowing appropriate action to be taken.

– Assurance activities
We obtain a wide range of assurance to provide comfort to management and the Board that our controls are providing adequate protection
from risk and are operating as we would expect. Sources of assurance include: External Audit, Internal Audit, EHS audits, Intellectual Property
audits, Engineering audits, Procurement audits, IT audits, and Production System Lean audits. The legal function is also planning to introduce
a legal audit programme in 2014.

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Corporate Governance Report

CORPORATE GOVERNANCE REPORT
Continued

The various audit teams plan their activities on a risk basis, ensuring resources are directed at the areas of greatest need. Issues and
recommendations to enhance controls are reported to management to ensure timely action can be taken, with oversight provided from
the relevant governance committees, including the Audit Committee and the Excellence Committees.

– Ethical and cultural environment
We are committed to doing business at all times in an ethical and transparent manner. This is supported by the Weir values which are the core
behaviours we expect our people to live by in their working lives. The Weir Code of Conduct also contributes to our culture, providing a high
benchmark by which we expect our business to be conducted. Any examples of unethical behaviour are dealt with robustly and promptly.
The Ethics section detailed in the Sustainability Review on page 61 provides more details on the Group’s activities to promote ethical
behaviour.

The Group’s internal control procedures described above and on page 82 of the Audit Committee Report do not cover joint venture interests.
We have Board representation on each of our joint venture companies where separate, albeit similar, internal control frameworks have
been adopted.

Remuneration
Details of the Company’s Remuneration Committee, including its roles, responsibilities and members are contained within the Remuneration
Report on pages 85 to 112. The Remuneration Report also details the Company’s remuneration policy and the remuneration received by
Directors in 2013.

Relations with shareholders
The Board recognises the importance of establishing and maintaining good relationships with all of the Company’s shareholders. The Company’s
investor relations programme includes formal presentations of full year and interim results and meetings with individual investors. Through this
programme the Company has directly engaged with 528 investors in 2013 either face-to-face or via telephone or video-conferencing. Other areas
where the Company engages with shareholders include attendance at investor conferences held by the financial community and roadshows
and Investor Relations events held by the Company, of which there were 20 during the year held in Canada, Denmark, Finland, Germany,
The Netherlands, Sweden, the UK, and the US.

The Company holds an annual capital markets day, which this year was held in London in June. This event allows shareholders to meet the
broader management team and to gain a more in-depth understanding of one business or one aspect of the business. The capital markets
day this year focussed on progress in our Power & Industrial division and initiatives relating to procurement and supplier development.

During the period under review, the Chief Executive, Group Finance Director, Group Chairman and Remuneration Committee Chairman have
met with analysts or institutional shareholders to keep them informed of significant developments and report to the Board accordingly on the
views of these stakeholders. Each of the other Non-Executive Directors is also offered the opportunity to attend meetings with major
shareholders and would do so if requested by any major shareholder.

Our brokers and public relations advisors undertake investor roadshow feedback which is shared with the Board. The Company Secretary
is also charged with bringing to the attention of the Board any material matters of concern raised by the Company’s shareholders.

The primary means of communicating with the Company’s shareholders are the Weir Group’s Annual Report and Financial Statements
and the Interim Report. Both are available on the Company’s website and the Annual Report is posted out to all shareholders who elect
to receive it. Copies are available upon request to the Company Secretary.

The Board recognises the importance of the internet as a means of communicating widely, quickly and cost-effectively and a Group website
is maintained to facilitate communications with shareholders. As well as the Interim and Annual Report, the website contains information on
the business of the Company and corporate governance, all Group press releases and Company news, key dates in the financial calendar and
other important shareholder information. The terms of reference for the Audit, Nomination and Remuneration Committees can also be found
on the website.

The Board is committed to the constructive use of the Annual General Meeting as a forum to meet with shareholders and to hear their views
and answer their questions about the Group and its business. The 2014 AGM is to be held on Thursday 1 May 2014 at the Radisson Blu Hotel,
Glasgow. The Chairmen of the Remuneration, Nomination and Audit Committees will be available to answer questions relevant to the work of
those Committees. It is the Company’s practice to propose separate resolutions on each substantive issue at the AGM. Details on proxy voting
will be contained in the proxy form and the Notice of Meeting sent to shareholders and the Chairman will also advise shareholders at the
meeting. Electronic proxy voting is available and details of this are also included in the Notice of Meeting.

The Weir Group PLC Annual Report and Financial Statements 2013THE NOMINATION
COMMITTEE
Charles Berry
Nomination Committee Chairman

Current members

Charles Berry (Chairman)1

Keith Cochrane

Rick Menell

John Mogford2

Lord Robertson

Name

Keith Cochrane

Rick Menell

Lord Robertson

Lord Smith3

Attendance

5 of 5

4 of 5

5 of 5

Notes
1. Charles Berry was appointed Chairman of the Committee on 1 January 2014. There were no meetings held from the date of his appointment to 3 January 2014.
2. John Mogford was appointed to the Committee on 21 January 2014.
3. Lord Smith retired from the Committee and as Chairman of the Committee on 31 December 2013.

The Nomination Committee consists of the Chairman, the Chief Executive and in 2013 two of the Non-Executive Directors. John Mogford
joined the Committee at the start of 2014. The Committee was chaired by Lord Smith until 31 December 2013. Charles Berry has
succeeded him as Chairman of the Committee. A majority of the members of the Committee are independent Non-Executive Directors.
Senior members of management and advisors are invited to attend meetings as appropriate.

There were five scheduled meetings held during the year. Details of the attendance of the members of the Committee for the 53 weeks
to 3 January 2014 are contained in the table above.

The Chairman does not chair the meeting when the matters under consideration relate to him or his position. Similarly, should a matter
under discussion relate to any of the other Committee members they would excuse themselves from the meeting. During the year,
there were several agenda items on the replacement of Lord Smith as Chairman. Lord Smith was not party to these discussions, which
were led by Lord Robertson in his absence.

Committee’s role
The Committee has responsibility for considering the size, structure and composition of the Board of the Company, for reviewing
senior management succession plans, retirements and appointments of additional and replacement Directors and making appropriate
recommendations so as to maintain an appropriate balance of skills and experience on the Board. The Terms of Reference of the
Committee are available on the Company’s website.

The Committee was evaluated as part of the annual Board evaluation process and its performance was found to be satisfactory.

Independence
The Nomination Committee reviewed and confirmed the independence of all Non-Executive Directors and in particular Lord Robertson
who, as of February 2014, has been a Non-Executive Director of the Company for a period of ten years. In accordance with the UK Corporate
Governance Code a rigorous review was undertaken which examined his continued contribution to the Board and its Committees and his
external interests and roles. It was concluded that the Board still considers all of its Non-Executive Directors, including Lord Robertson,
to be independent in character and judgement. Lord Robertson’s experience and objectivity was considered to still bring value to the
Board and his fellow Directors.

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Nomination Committee Report

NOMINATION COMMITTEE REPORT
Continued

Processes are in place to identify any business relationships held by Non-Executive Directors or additional directorships or significant links
with other directors through involvement in other companies or bodies which may be of relevance in determining the independence of a
Non-Executive Director. The Nomination Committee is satisfied that all Non-Executive Directors continue to be independent in character and
judgement and that there are no relationships or circumstances which are likely to affect, or could appear to affect, the Directors’ judgement.

Board appointments
The Committee has established a process for Board appointments that it considers to be formal, rigorous and transparent and involves
the use of external executive recruitment agencies. This process includes drawing up a description of the role and capabilities required
for the particular appointment together with a review of the skills, knowledge and experience of the existing Directors. The existing balance
of the Board and the time commitment required are also taken into consideration when assessing candidates.

A significant amount of the Committee’s time in 2013 was spent recruiting a successor to Lord Smith as Chairman and on the recruitment
of an additional Non-Executive Director. External search consultancies were used in both instances. The Company engaged The Inzito
Partnership for the appointment of Charles Berry and Odgers Berndtson in the appointment of Mary Jo Jacobi. Neither company has any
other connection with the Weir Group.

Succession planning
The Committee has given increased focus to the talent pool for potential candidates and succession planning within the Group. During
the year, the Director of Human Resources presented a review of senior executive succession planning, containing details of ongoing
or proposed talent development, the methods for identifying and cultivating potential internal candidates, and the balance of internal and
external recruiting for the most senior positions. The Committee also spends time on succession planning for the various Board level roles.

Boardroom diversity
The considerations to be taken into account in each appointment to the Board are stipulated in the terms of reference of the Nomination
Committee which are available on the Company’s website. Specifically, the Nomination Committee must ‘consider candidates on merit and
against objective criteria, and with due regard for the benefits of diversity on the Board, including gender’ in identifying and recommending
candidates. The Nomination Committee recommends appointments to the Board based on the existing balance of skills, knowledge and
experience on the Board, on the merits and capabilities of the nominee and on the time they are able to devote to the role in order to promote
the success of the Company.

The Board acknowledges the benefits a diverse pool of talent can bring to a boardroom. Among other things, a diverse board encompasses
diversity of experience, social background, education and training, life skills and personal attributes, as well as differences in age, nationality,
race and gender.

Having considered the question of diversity during the year, the Board approved a policy with respect to Board diversity at its meeting
in January 2014. The Nomination Committee will operate under and report against this policy from this date.

The recent focus on Board diversity has centred on gender and the Board aspires to maintain a significant level of female representation
on the Board. As of January 2014, two of the nine Board members of the Company are female (22%). The Board will continue to consider
its policy with respect to Board diversity on future appointments but will not place a higher regard on one form of diversity over any other.
The appropriate composition of the Board as a whole with regard to the size and activity of the Company will be taken in to account at all times.

Charles Berry
On behalf of the Nomination Committee
26 February 2014

The Weir Group PLC Annual Report and Financial Statements 2013THE AUDIT
COMMITTEE
Alan Ferguson
Audit Committee Chairman

Introduction
As Chairman of the Audit Committee I am pleased to present our first report to shareholders following our adoption of the revised UK
Corporate Governance Code (the “Code”), which applies for the first time this year. It is my intention that through this report we will
demonstrate our commitment, as an Audit Committee, to our responsibilities under the Code and how we have discharged them effectively
during the year.

Key objective
Our key objective is to provide effective governance over the appropriateness of the Group’s financial reporting including the adequacy of
disclosures, the performance of both the internal audit function and the external auditor, and oversight of the Group’s systems of internal
control, framework of identification and management of business risks and related compliance activities. These activities include a detailed
review of the process and related reporting underpinning the fair, balanced and understandable conclusion in relation to this Annual Report,
a decision which is reserved for the full Board.

Membership
I chair the Committee and am joined by Melanie Gee, John Mogford and Rick Menell, three of my fellow Board members, all of whom
are independent Non-Executive Directors. Charles Berry was appointed to the Committee on joining the Board on 1 March 2013 and
subsequently left the Committee on his appointment to Chairman on 1 January 2014. Both Melanie and John have been members of
the Committee for the full year and to the date of this report with Rick Menell being appointed to the Committee on 21 January 2014.

Each of the Committee members has, through their other business activities, significant experience in financial matters and has been
selected with the aim of providing the wide range of financial and commercial expertise necessary to fulfil our responsibilities. Summary
biographies have been presented on pages 64 and 65.

Responsibilities
As a Committee, we are responsible for:
•

reviewing the announcements of the Group’s financial results, including the Interim Report and Annual Report and Financial Statements,
and monitoring compliance with relevant statutory and Listing Rules requirements;

• reporting to the Board on the appropriateness of the Group’s accounting policies and practices including critical accounting policies

and those judgements and estimates with the most significant effect on the amounts recognised in the financial statements;

• advising the Board on whether the Committee believes that the processes underlying the compilation of the Annual Report and Financial

Statements are robust and support the assertion reached by the Board that the document, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy;
• overseeing the relationship with the external auditor, covering their appointment, independence, fees and audit quality and effectiveness;
• reviewing and approving the remit of the Internal Audit function, ensuring its independence and that there are the necessary resources

and access to information available in order for it to fulfil its mandate;

• reviewing the effectiveness of the Group’s systems for financial control, financial reporting and risk management, incorporating a review

of reports on any significant frauds, misappropriation of assets or unethical behaviour;

• oversight of the Anti-Bribery & Corruption (AB&C) programme and providing input to the Board on ethics compliance; and
• reviewing treasury policy including foreign exchange exposure.

The Terms of Reference can be found on the Group’s website, weir.co.uk.

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AUDIT COMMITTEE REPORT
Continued

Meetings
We met four times during the period. This represents an additional meeting compared to prior years and was the result of a decision made
by the members of the Committee following review of the annual agenda and the time allocated to each of its responsibilities. In the current
period, the additional time was mainly used to discuss reports presented by the Divisional Finance Directors on internal control compliance.
Each Committee meeting takes place prior to a Board meeting, during which I provide a report on our activities.

There is at least one meeting each year when we meet with each of the Head of Internal Audit and the external auditors separately, without
any executive management present. This provides us with the opportunity for any issues of concern to be raised by, or with, the auditors.

We have the ability to call on Group employees to assist in our work and to obtain any information required from Executive Directors in order
to carry out our roles and duties. We are also able to obtain outside legal or independent professional advice if required.

The table below details the Board members and members of senior management who were invited to attend meetings as appropriate during
the calendar year. In addition, Ernst & Young LLP (EY) attended the meetings as auditors to the Group by invitation.

Audit Committee attendees

Lord Smith

Keith Cochrane

Jon Stanton

Keith Ruddock

Lindsay Dixon

Sarah Caldwell

Group Chairman (to 31/12/13)

Chief Executive

Group Finance Director

Attends by invitation

Group Counsel & Company Secretary

Attends as secretary to the Committee

Group Financial Controller

Head of Internal Audit

Attends by invitation

The Committee members’ attendance at the meetings held during the calendar year is summarised in the table below.

Current members

Alan Ferguson (Chairman)

Melanie Gee

Rick Menell1

John Mogford

Name

Charles Berry2

Alan Ferguson

Melanie Gee

John Mogford

Attendance

2 of 2

4 of 4

Notes
1. Rick Menell joined the Committee on 21 January 2014.
2. Charles Berry attended all meetings in the period of his appointment to the Committee on 1 March 2013. He resigned from the Committee on 1 January 2014.

Between the end of the calendar year and the date of this report, there were two meetings of the Audit Committee. Following his appointment
as Chairman, succeeding Lord Smith, Charles Berry attended the meetings by invitation. All other members of the Committee attended both
those meetings.

Main activities during the period
Over the course of the period, our work was focussed in the following areas:
(i) financial reporting;
(ii) internal control and risk management;
(iii) internal audit; and
(iv) external audit.

The following sections provide more detail on our specific items of focus under each of these headings, explaining the work we,
as a Committee, have undertaken and the results of that work.

(i) Financial reporting
Our principal responsibility in this area is the review and challenge, where necessary, of the actions and judgements of management in relation
to the half year and annual financial statements before submission to the Board, paying particular attention to:
•
•
•
•
•

critical accounting policies and practices, and any changes therein;
decisions requiring judgements and estimates with the most significant effect or where there has been discussion with the external auditor;
the existence of any adjustments resulting from the audit;
the clarity of the disclosures and compliance with accounting standards and relevant financial and governance reporting requirements; and
the processes surrounding the compilation of the annual report and financial statements with regard to fair, balanced and understandable.

The Weir Group PLC Annual Report and Financial Statements 2013We received formal reports from the Group Finance Director and the external auditor, summarising the main discussion points for both the
half year and full year reporting and explored these in detail at our meetings in January, February and August.

The Audit Committee has reviewed the contents of this year’s annual report and financial statements and the process that has been
undergone in the preparation of the document. With regard to the latter, the Committee received a report from management summarising
the detailed approach that had been taken which covered, but was not limited to, the following:
•

involvement of a cross section of management across the organisation, including the Group Executive, Group Communications,
Group Finance (including Group Tax) and Company Secretariat;
input and advice from appropriate external advisers, including the Company’s broker and PR agency;
•
use of available disclosure checklists for both Corporate Governance and financial statement reporting;
•
regular research to identify emerging practice and guidance from relevant regulatory bodies, for example the Financial Reporting Lab;
•
• regular weekly meetings of the Disclosure Committee, which comprises the key contributors to the document, during which specific

consideration was given to the fair, balanced and understandable assertion; and

• use of two cold readers; one of these a member of the Senior Management Group of the Group and the other an external, independent

proof reader.

The successful completion of this work has been reported to the Board.

Current period matters
(1) Accounting for the acquisition of Mathena Inc. (“Mathena”)
The specific items we have discussed and reviewed with management and the external auditors, EY, in relation to the acquisition of Mathena
were: (a) the Purchase Price Allocation (PPA) exercise to attribute values to separately identifiable intangible assets and related accounting
for deferred tax; (b) the assessment of acquisition fair values of other assets and liabilities, specifically Property, Plant & Equipment and
provisions; and (c) compliance of the disclosures in the financial statements with IFRS 3, ‘Business Combinations’.

Management engaged with an independent external advisor to complete the PPA exercise and reported a summary of the underpinning
assumptions and related results to us during the year. We reviewed that summary and also compared the assumptions used to those for other
recent acquisitions where appropriate. The final fair values are disclosed in note 13. The accounting for deferred tax has included technical
input from the Group Head of Tax. We examined the nature and extent of fair value adjustments to other assets and liabilities noting a rigorous
process had been undertaken and property values were supported by third party valuations. Finally, we challenged management on the
completeness of the related disclosures and satisfied ourselves that they were complete, accurate, understandable and compliant with IFRS 3.

(2) Exceptional items – reassessment of Mathena contingent consideration
An initial assessment of the contingent consideration payable under the terms of the Sale & Purchase Agreement (SPA) was undertaken
at the date of acquisition. Based on conditions at that time, a liability was recorded, with an equivalent increase in goodwill, on the assumption
that the EBITDA targets, relating to 2013 and 2014, would be achieved in full. Subsequent to this initial assessment and due to the continuation
of the depressed natural gas price, certain customers reduced their gas drilling activity. This impacted the short term forecasts for the business
such that the reassessment performed by management of the contingent consideration payable has reduced to nil with an exceptional credit
being recorded in the Income Statement. We have held detailed discussions with management covering the key assumptions underpinning the
revised assessment and also any potential resultant impact on impairment testing of the goodwill and customer relationships balances.
The Committee is satisfied on the basis of this work that the credit to the Income Statement is appropriate, as is its presentation as an
exceptional item on the face of that statement, and that there is no requirement for an impairment loss to be recognised.

(3) Valuation of inventory
The shift of North American drilling activity from gas to oil and liquids rich shale formations in Q1 2012 impacted customer activity levels such
that there remains excess capacity in certain pressure pumping equipment sectors within the market. As a result, the Committee has given
specific consideration to the work undertaken by management in assessing the valuation of our related inventory, including consideration of
the proportion of gross inventory provided for at the balance sheet date of just over 8%, and concluded it is appropriate given current and
expected market conditions.

(4) Reassessment of Cash Generating Units (CGUs)
We challenged management on the process undergone to reassess the appropriateness of the CGUs during the year and their allocation of
recent acquisitions to existing or new CGUs. This included questioning of the evidence identified by management in support of the changes
made. We agree that the requirements of IAS 36, including those in respect of the management of cash flows, supports the level at which the
CGUs are identified and reported on and that the level of disclosure in the financial statements is appropriate.

Recurring agenda items
(1) Impairment testing of intangible assets
At least once every year, as required, management undertakes a detailed, formal impairment review of goodwill and other intangible assets,
the book value of which is £1,615m (2012: £1,454m) at the balance sheet date. The most significant judgements are in setting the assumptions
underpinning the calculation of the value in use of the CGUs, specifically the achievability of the long-term business plan and macroeconomic
assumptions underlying the valuation process. Specific focus was given to long term growth rates, discount rates and any CGUs with lower
levels of headroom. Business plans and budgets were Board approved and underpin the cash flow forecasts.

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AUDIT COMMITTEE REPORT
Continued

In the current year, we undertook a detailed review of the results of the testing, and underlying assumptions, of the impairment model,
including those individual CGUs collectively presented as ‘other’ in note 14, with specific consideration given to the renewables businesses.
We agree that there is no impairment charge required.

(2) Accounting for pensions
The detailed disclosure as required under IAS 19 (Revised) is included in note 24. We have examined these disclosures and the prior year
adjustment required following adoption of the new standard and we are satisfied they are complete and accurate. In reaching this conclusion,
we have challenged management on the key assumptions used underpinning the valuation, taking assurance from the fact that external
advice is taken by them.

During the current period, we gave specific consideration to the accounting treatment applied following the announcement that agreement
had been reached between the Company and the trustees of the UK’s Main Plan that it would close to future accrual of benefits from 30 June
2015 and agreed with the presentation on the face of the Income Statement.

(3) Tax charge and provisioning
The Audit Committee receives a detailed report from the Group Finance Director every six months which covers the following key areas: (i)
status of ongoing enquiries and tax audits with local tax authorities; (ii) the Group’s effective tax rate for the current year; and (iii) the level of
provisioning for known and potential liabilities, including significant movements on the prior period. In addition, the Committee takes comfort
from the presentation to the main Board on tax strategy and risk, given by the Group Head of Tax, every year. Based on the work we have
undertaken in the current year we are satisfied that the position presented in these financial statements is reasonable. This is supported by
the reporting we have received from the Group’s external advisor.

(4) Accounting for provisions
Total provisions on the Group Balance Sheet are £55m (2012: £70m) at the end of the period with the breakdown by category presented
in note 22. In respect of the current year, we have examined the key movements between the opening and closing provision balances and
challenged management on the commercial drivers which caused them. We have also examined, through discussion and updates provided
by the Group General Counsel (where it is relevant to do so based on the nature of the provision), the appropriateness of the closing positions.

(ii) Internal control and risk management
During the year, we reviewed the process by which the Group evaluated its internal control environment. Our work in this area was supported
by reporting from the Head of Internal Audit on the results of the programme of audit visits undertaken; the overall assessment of the internal
control environment; and the incidence of any significant frauds or any fraud that involved management or employees with a significant role
in internal controls.

The Committee also receives regular reporting on the Group’s compliance related activities from the Group General Counsel and Company
Secretary and Head of Internal Audit. In addition, reporting, either verbal or written, from senior management covering any investigations
into known or suspected fraudulent activities is reviewed.

Since the last Annual Report and Financial Statements there have been presentations from the three Divisional Finance Directors (DFDs)
on the results of the most recent Compliance Scorecards and their divisional priorities for the coming year.

The Compliance Scorecard is a control mechanism whereby each operating company undertakes a self-assessment every six months of their
compliance with Group policies and procedures, including key internal controls across a range of categories including finance, Anti-Bribery
& Corruption, tax, treasury, Trade & Customs, HR, IT and legal. As far as the elements relating to finance are concerned, these cover (but
are not limited to) management accounts and financial reporting, balance sheet controls, employee costs and other financial policies.

Operating companies are required to gather evidence and undertake sample testing to validate their self-assessment responses. Internal
Audit then has responsibility for confirming the self-assessment responses during planned visits. Any significant variances are reported to
local, divisional and Group management. Any companies reporting lower levels of compliance are required to prepare improvement plans
to demonstrate how they will improve over a reasonable period of time. The overall compliance scores (in percent) are tracked over time
and reported to the Audit Committee twice a year with the Committee paying particular attention to the variances between self-assessed
and Internal Audit assessed scores as well as trends and the performance of newly acquired companies.

Our role with regard to risk is to look at the process of formulating the risk matrix and the assurance provided over internal controls and other
mitigating factors. The ultimate responsibility for reviewing and approving the principal risks included in the Annual Report and Financial
Statements remains with the Board.

The Weir Group PLC Annual Report and Financial Statements 2013(iii) Internal audit
One of the main duties of the Committee is to review the annual internal audit programme and ensure that the internal audit function is
adequately resourced, effective (including an assessment of the independence of the function) and has appropriate standing within the
Company. As far as the scope of the Internal Audit programme is concerned, the aim is to carry out visits to each operating company in the
Group on a periodic, rotational basis. A risk based approach is taken when planning any one years’ audit plan with factors such as volatility
of end markets, critical system or senior management changes in the period, results of the last Internal Audit visit and any other assurance
reviews undertaken and whether the business is a recent acquisition being taken into consideration. In addition, the emergence of any
common themes or trends in the findings of recent internal audit visits or compliance scorecard submissions (see previous section) are taken
into consideration in formulating the internal audit plan. Finally, Anti-Bribery & Corruption reviews are undertaken, focussing on areas such
as relationships with agents, accounting for employee expenses and corporate hospitality/gifts.

The Internal Audit Plan is reviewed and approved by the Committee each year. Twice annually the Head of Internal Audit reports on audit
activities, progress against the plan, and the results of audit visits with particular focus on high priority findings and the action plans, including
management responses, to address these areas. No trends or common themes have been identified during the current year that required
or warranted a change to the internal audit plan for 2014.

Private discussions between myself and the Head of Internal Audit are held during the year and once a year with the full Committee.

The Head of Internal Audit has progressed to a Finance Director role within the business with effect from the end of January 2014 and
a replacement, who I interviewed as part of my role in the recruitment process, has been appointed and commenced work at the start
of February 2014.

(iv) External audit
Auditor effectiveness
The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. EY present
their detailed audit plan to us each year identifying their assessment of these key risks. For the current period, the significant risks identified
were acquisition accounting, the carrying value of goodwill and intangible assets, liability provisioning, including provisions for legal obligations
and taxation, and the valuation of inventory due to the inherent management judgement required in all these areas. Our work in each of these
areas has been covered in detail earlier in this report.

Our assessment of the effectiveness and quality of the audit process in addressing these matters is formed by amongst other things a review
of the reporting from the auditors and also by seeking feedback from management on the effectiveness of the audit process. During the first
half of the year, management issued a detailed questionnaire to every Finance Manager/Director and Divisional Finance Director to collect
feedback on the 2012 audit process. This covered resource and expertise of the audit teams, quality of planning, execution and deliverables
as well as an assessment of overall performance. Resultant themes and findings were discussed between ourselves, management and EY
with both management and the auditors reporting to us on the actions being implemented in response. In addition, on a periodic basis, the
Finance Director meets with the overseas external audit teams. The Committee also noted the Audit Quality Inspection report issued by the
FRC in May 2013 which was positive in tone and direction for EY.

Overall management were satisfied that there had been appropriate focus and challenge on the primary areas of audit risk, although there are
of course some areas where improvements can be made, and assessed the quality of the audit process to be good. Based on the input from
management and discussions we have had with EY and key finance individuals, we also hold this view. This process was repeated in respect
of the 2013 audit.

The Committee holds private meetings with the external auditor each year to provide additional opportunity for open dialogue and feedback
from the Committee and the auditor without management being present. Matters typically discussed include the auditor’s assessment of
business risks and management activity thereon, the transparency and openness of interactions with management, confirmation that there
has been no restriction in scope placed on them by management and how they have exercised professional scepticism. I also meet with the
lead audit partner outside the formal committee process as necessary throughout the year.

Independence policy and non-audit services
The Audit Committee maintains a policy on the appointment and role of the auditors. This includes keeping under review the auditor’s
independence by providing guidelines on any non-audit services that are to be provided by them. In addition, a formal policy exists which
ensures that the nature of the advice to be provided could not impair the objectivity of the auditor’s opinion on the Group’s financial
statements. All non-audit services require the approval of management and, where the expected cost of the service is in excess of £75,000,
the approval of the Audit Committee. No changes have been made to either policy in the current year. The auditors confirm their
independence at least annually.

Fees payable to EY in respect of audit and assurance services for 2013 of £1.9m (2012: £1.7m) were approved by the Committee after a review
of the level and nature of work to be performed, including the impact of acquisitions, and after being satisfied by EY that the fees were
appropriate for the scope of the work required.

Non-audit fee work conducted by EY over the past year for assurance services amounted to £0.1m, which represented 5% of the total
fees including audit fees, and were incurred primarily in relation to other assurance services. We are of the view that the level and nature
of non-audit work does not compromise the independence of the external auditors.

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Directors’ Report:
Audit Committee Report

AUDIT COMMITTEE REPORT
Continued

Auditor choice, tenure and tendering
The Committee considers the reappointment of the external auditor, including rotation of the audit partner, each year. The external auditor
is required to rotate the audit partner responsible for the Group audit every five years and the current lead audit partner has been in place for
two years, including 2013.

EY, or its predecessor firms, has been the Company’s external auditor since prior to its stock market listing in 1946. As part of our annual
review of the objectivity and effectiveness of the audit we conduct an in depth review of their performance as noted above. There were no
matters arising from the review in the current year, which we felt required the service to be tendered immediately. We have considered the
audit tendering provisions outlined in the Code, which we are supportive of. We have also reviewed the recent guidance provided by the
European Commission and the Competition Commission. The European transitional provisions relating to Mandatory Firm Rotation are likely
to require rotation of the external auditor of the Group within 6 years from July 2014, effectively the 2020 year end, which is also when it is
likely that the Competition Commission would mandate a tender process. However after due consideration we expect to tender the audit,
at the latest, coincident to the next rotation of the incumbent lead audit partner, which would be for the 2017 year end.

Having considered the relationship with the independent auditor, their qualifications, expertise, resources and effectiveness, in particular
noting the rotation of lead audit partner in the prior year, the Committee concluded that the external auditors remain independent and effective
and recommended to the Board that EY be re-appointed as the Company’s external auditors for 2014. 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.

A resolution to re-appoint EY as the Company’s auditors will be put to the forthcoming Annual General Meeting.

Alan Ferguson
On behalf of the Audit Committee
26 February 2014

The Weir Group PLC Annual Report and Financial Statements 2013
DIRECTORS’
REMUNERATION
REPORT
Melanie Gee
Chairman of the
Remuneration Committee

Dear Shareholder
This Remuneration Report in respect of 2013 has been prepared in compliance with the new UK reporting requirements. In line with these
regulations, the Report now comprises three sections with the Directors’ Remuneration Policy and the Annual Report on Remuneration
following this annual statement. Shareholders will be invited to approve the Directors’ Remuneration Policy in a binding vote and the Annual
Report on Remuneration in an advisory vote at the Company’s Annual General Meeting (AGM) on 1 May 2014.

In my 2012 letter I indicated that senior management and the Remuneration Committee (the ‘Committee’) intended to take the opportunity
in 2013 to conduct a detailed review of executive and senior management remuneration, in light of both changing legislation and the
requirement for a new Long Term Incentive Plan (LTIP) in 2014.

As a leading global engineering solutions provider, our business is complex and our customers are exposed to a number of end markets.
Our Group strategy targets delivery of sustainable profitable growth which is faster than our end markets and this is supported by our key pillars
of Value Chain Excellence, Innovation, Collaboration and Global Capability. We have a clear understanding of our core values that underpin
Group strategy and it was with these in mind that we approached our detailed review of the overall shape of our executive remuneration.

In addition to our extensive internal work, including a full market review with our consultants, we examined emerging best practice and
feedback from our shareholders, including from our 2013 AGM. We undertook a specific consultation on these proposals with our major
shareholders and their representative bodies towards the end of the year.

Our proposals represent a simplification of existing arrangements and continue to comprise three elements: base salary, plus benefits
in kind; an annual bonus scheme, with cash and shares; and a long term incentive plan, with shares. Two of the three elements are
performance related.

Overview of our revised remuneration plan
The Committee adopted a number of key principles against which to evaluate revised proposals, including the following:
• our remuneration structure should support the Group’s strategy and business objectives, drive long term and sustainable value creation,

and identify the interests of executives with those of our shareholders;

• overall value should remain broadly constant;
•

the plan should provide a flexible framework to extend performance related remuneration further down the organisation and cascade
to the top 300 executives in the Company; and
the plan should be acceptable to our shareholders.

•

The Committee is mindful of the difficult economic conditions in much of the global economy and the broad range of views on
remuneration. In finalising our proposals, the Committee had regard to both the external environment and the global and complex
nature of the business.

The revised remuneration proposals reinforce Weir’s overarching strategy of delivering sustainable growth ahead of our markets and
becoming our customers’ partner of choice. Specific elements also support our key pillars and our key output measures of delivering
top quartile margins and increased return on capital.

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Remuneration Report

REMUNERATION REPORT
Continued

The revised remuneration proposals incorporate a number of significant changes which I have summarised below, with full details in the
Directors’ Remuneration Policy:
• removal of both the voluntary deferral option on annual bonus and matching awards under the existing LTIP, providing simplification;
•

the addition of a return on capital employed (ROCE) measure to our LTIP targets, alongside total shareholder return (TSR) and earnings
per share (EPS) in equal proportions, to enhance the alignment of our LTIP with business strategy. ROCE is a key internal measure for
the Group;
the introduction of a formalised and increased shareholding requirement for Executive Directors and the other members of the Group Executive;
Executive Directors to hold vested shares for an additional period of two years, to strengthen alignment of senior management and
shareholder interests;
the overall plan to be cascaded down to the top 300 executives with flexibility below Executive Director level to respond to specific market
requirements, providing global consistency with local flexibility; and
adoption of changes to the terms and conditions of the proposed new LTIP, to reflect emerging best practice.

•
•

•

The Committee reviewed all other key elements of the current arrangements and agreed to retain these. The most important included the three
year performance period for the LTIP. The Committee concluded that, given our exposure to a number of different end markets (some of which
have long cycles) and the importance of both the original equipment and aftermarkets to our business, a three year performance period for the
LTIP represented an appropriate long term time frame.

The overall impact of the simplification of the new proposals is to increase the potential level of award under the LTIP to compensate for the
removal of the voluntary deferral option on annual bonus and matching awards under the existing LTIP.

Towards the end of the year, the Committee considered the appropriate targets for both the 2014 annual bonus scheme and our proposed
new LTIP, including the targets for the new ROCE measure. While in the medium term the Group will benefit from structural growth trends,
mixed end market conditions are expected to impact performance in 2014. Further details of the performance targets are included in the
Directors’ Remuneration Policy. The Committee was concerned to ensure that the targets not only support the Group’s overarching strategy
and high achievement expectations, but are both challenging and realistically achievable. The Committee is comfortable that the right balance
has been struck for each of the targets.

Total compensation opportunity levels for our Chief Executive and Finance Director
Under our current arrangements, target total compensation for both our Chief Executive and Finance Director are well below market
competitive levels.

The Committee spent some time analysing how this has emerged. In part it is a result of the Company making no specific pension provision
for our Chief Executive and Finance Director. We are only one of two companies in the FTSE 51 to 100 where such provision is not made.
This is normally taken as a non-bonusable ‘cash in lieu of pension’ payment of between 25% and 30% of salary per annum. In the current
environment the Committee took the view that it was not appropriate to propose the introduction of such a cash payment. The proposed
increased LTIP goes some way to address this gap. Unlike a cash payment, this is performance linked and the 2014 award will not vest for
three years.

As part of the discussion around pension provision, the Committee also reviewed the Company’s plans for auto-enrolment (applicable to all UK
employees) below Board level which will come into full effect during 2014. The Committee decided that it would be appropriate to extend the
same terms to the Executive Directors. Details are summarised in the policy table.

Our Finance Director, Jon Stanton, was appointed to his role in 2010 and it was his first public company appointment. As highlighted in
previous reports, as his experience and contribution has increased, the Committee has increased his compensation towards market rates.
The Committee believes that it is now appropriate, in addition to the increased LTIP award referred to above, to increase his maximum bonus
percentage from 100% to 125% of salary, in line with peers.

The Committee also considered possible base pay increases for the Executive Directors for 2014 in line with our proposed new policy (broadly
in line with salary increases applied to UK employees). We were comfortable that the relative performance of the business, the performance of
the two individuals, and market data supported such an increase. However, the Committee concluded that there should be no increase in base
pay for 2014 for the Chief Executive and Finance Director. This takes account of shareholder feedback following our consultation on the terms
of our new remuneration proposals and recognises the increase in total compensation levels being proposed for both individuals, which has
the full support of the Committee.

The Weir Group PLC Annual Report and Financial Statements 20132013 performance and remuneration outcomes
During 2013 our key end markets in minerals and oil and gas continued to be challenging. The senior team provided strong leadership
throughout, delivering significant cost and efficiency savings whilst also driving continued focus on talent management in line with strategy.
Whilst the relative performance of the business was strong, the minimum profit target for payment of the profit related element of the annual
bonus for 2013 was not achieved as we saw a more gradual recovery in key end markets than had been anticipated when the targets were
set. The Committee reviewed the personal performance criteria for each of the Executive Directors, representing 20% of bonus entitlement.
For 2013, half of the personal element for Executive Directors was linked to a stretching Group working capital target. Whilst good progress
has been made in this area, the Group target was not achieved. All other personal objectives were achieved in full and the Executive Directors
were awarded a bonus of 10 per cent of maximum bonus entitlement.

Our 2011 LTIP performance shares and matching shares will vest in March 2014, based on TSR and EPS performance conditions over the
three year period to 31 December 2013. The overall level of vesting is 42.8 per cent of the awards. The Group achieved EPS growth during
this period of slightly more than 13 per cent per annum, which will lead to vesting of 85.5 per cent of this element. TSR growth was below
median performance relative to peers, resulting in no vesting of this element.

2013 has been a busy year for the Committee. We are grateful for the extensive work undertaken by the Company and our remuneration
advisers and for the support we have received from our major shareholders and their representative bodies. We are confident that the revised
remuneration proposals, together with our policy statement and the decisions taken in respect of 2014 salaries, bonus and LTIP targets
increase the alignment of compensation for our senior executives with shareholders’ interests, provide a sound base for the medium term
and, importantly, also represent an overall fair outcome.

Melanie Gee
Chairman of the Remuneration Committee
26 February 2014

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Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

Directors’ Remuneration Policy

Directors’ future policy table
The policy described in this section will apply from the date of the 2014 AGM, subject to a binding shareholder vote at that meeting,
after which the policy section will be displayed in the Remuneration Committee section on the Company’s website.

The remuneration policy has been determined through an extensive strategic remuneration review in 2013. This has involved significant
consultation internally and externally with shareholders and shareholder bodies. The Remuneration Committee considers the remuneration
policy for senior executives periodically to ensure that it remains aligned with business needs and is appropriately positioned relative to
the market. In line with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013
(the ‘Regulations’), there is no current intention to revise the policy more frequently than every three years.

The Group’s overarching remuneration policy is designed to ensure that remuneration supports the Group’s strategy and business objectives.
The policy and practice have been developed to support the creation of value for shareholders, drive appropriate behaviours and incentivise
outperformance, while being clearly linked to both individual and corporate performance. The Committee is mindful of a broad range of
stakeholders in setting this policy and has considered best practice guidelines from shareholders and representative bodies. As part of this
process, the Committee has adopted a set of principles which are used as the basis against which remuneration arrangements have been
established.

The Group’s remuneration principles are that reward should enable the Group to:
• attract, motivate and retain senior executives with the necessary abilities to manage and develop the Group’s activities successfully for the

benefit of shareholders;

• clearly align remuneration outcomes with the long term interests of the Group and its shareholders;
• drive appropriate behaviours that are in line with the culture of the Group and focus senior executives on the critical business objectives

by rewarding them against challenging performance criteria; and

• provide a significant part of potential reward through performance based incentive plans.

Future policy table

How the element supports our
strategic objectives

Base salary

The provision of a competitive
base salary as part of an overall
compensation package enables
the Group to attract and retain
talented leaders.

Operation of the element

Maximum potential value and
payment at threshold

Performance metrics used, weighting
and time period applicable

Reviewed annually with
effect from 1 April. Set by
reference to market practice
for a similar role in a peer
group of global companies of
a similar size and complexity;
personal performance; the
wider employee context; and
economic and labour market
conditions.

—

It is expected that salary
increases for Executive
Directors will be made
broadly in line with salary
increases applied to UK
employees or the relevant
jurisdiction if an Executive
Director is based outside the
UK. Higher increases may
apply if there is a change
in role or responsibility,
the individual is relatively
new in role, or there is
significant variance to the
market. Any significant
salary increases will be
appropriately explained. The
maximum salary level for
each Executive Director is set
by reference to a peer group
of FTSE 51-100 companies
and appropriate overseas
comparators of similar
size and complexity. The
Remuneration Committee
has the discretion to change
the peer group during the life
of this policy.

The Weir Group PLC Annual Report and Financial Statements 2013How the element supports our
strategic objectives

Benefits and pension

To provide a market aligned
benefits package.

Operation of the element

Maximum potential value and
payment at threshold

Performance metrics used, weighting
and time period applicable

The auto-enrolment provision for
Executive Directors is expected
to commence in August 2014.

The value of relevant benefits
will be determined by the
cost of the provision of
insured products. As the
cost of providing such
insurance benefits varies
according to premium rates
and the cost of other benefits
is dependent on market rates
and other factors, there is no
formal maximum monetary
value. Car allowance will
normally be no greater than
£20,000 per annum.

As part of the Company’s
provision in respect of auto-
enrolment, at senior levels
individuals will be eligible
for a contribution into the
pension plan or a cash
allowance of 12% of salary
per annum.

Benefits include, but are not
limited to: Group health care;
car allowance; travel allowance;
and death in service insurance.
The Company may also meet
certain mobility costs and pay
additional tax arising due to an
international assignment, and
may also provide for long term
disability benefits. Additional
benefits may be provided where
required by legislation or to
align the package with market
practice where these are not
significant in value. Directors
and Officers Liability insurance
will also be provided.

The Group makes no specific
provision for Executive Directors’
pensions. However, the Board
has considered the implications
of the new UK government
legislation on auto-enrolment for
UK employees and has adopted
a policy for all UK employees
to be implemented when the
auto-enrolment regulations
come into force.

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Remuneration Report

REMUNERATION REPORT
Continued

How the element supports our
strategic objectives

Operation of the element

Maximum potential value and
payment at threshold

Performance metrics used, weighting
and time period applicable

Annual bonus (see also notes 1 and 3)

To reward the achievement of
stretching Group performance for
the current year, supporting our
strategy of delivering sustainable
growth in our key markets.

The annual bonus (the Executive
Bonus Scheme) is based on
in-year performance against
financial, personal and strategic
goals.

The annual bonus plan has two
parts – a cash element (70%)
and an element converted
into shares where there is a
restriction on sale for three years
(30%). The size of both elements
is determined by performance
in the year.

Until the end of 2013, an
additional 25% of bonus could
have been voluntarily deferred
into shares for the Chief
Executive and 20% for the
Finance Director.

Targets are set at the beginning
of the performance year which
runs from the start to the end
of each financial period.

Any changes to original targets,
measures or payout levels
will be fully explained in the
relevant Annual Report on
Remuneration.

On change of control, the bonus
payment will be pro-rated
for time and an assessment
of performance over the
appropriate period, with the
Committee having discretion
to make adjustments to this
figure if appropriate.

150% of salary for Chief
Executive (2013: 150%).

125% of salary for other
Executive Directors (2013:
Finance Director 100%).

The achievement of stretch
targets results in maximum
bonus pay out. 20% of bonus
will pay out for performance
at threshold, with payment
on a straight line basis
between threshold and
stretch.

The measures, as well as the
weightings within these measures,
will depend on the strategic focus
of the Company in any given year.

The financial element of the
annual bonus is based on
the achievement of a Group
Normalised Profits before Tax
and Amortisation (NPBTA)
target measured over the
financial period.

No more than 20% of the annual
bonus will be based on personal
performance targets. For 2014,
this weighting is 20%.

Payouts under the NPBTA
element may be reduced to the
extent that Group working capital
targets are not achieved.

The Committee has discretion
in exceptional circumstances to
alter the measures and/or targets
during the performance period if
it believes the original measures
and/or targets are no longer
appropriate.

The Committee also has
discretion in exceptional
circumstances to alter the payout
levels of an award at the end
of the performance period if it
believes this will better reflect
the underlying performance
of the Company but in no
circumstances will exceed the
maximum bonus potential.

The Weir Group PLC Annual Report and Financial Statements 2013How the element supports our
strategic objectives

Operation of the element

Maximum potential value and
payment at threshold

Performance metrics used, weighting
and time period applicable

Bonus shares subject to restriction on sale

30% of any bonus payable
is converted into shares.

The Bonus shares are subject to a
restriction on sale for three years.
No performance conditions apply.

Bonus converted into shares
with restriction on sale (Bonus
shares), which supplements the
long term elements of pay and
further aligns executives to the
interests of shareholders.

30% of the annual bonus paid in
respect of the performance year
is converted into shares with a
restriction on sale.

Bonus shares are subject to
malus and clawback which
enables the Company not to
release any bonus shares before
the end of the restriction period,
or to clawback the relevant
value after the restriction period
has ended for a period of up
to three years. Malus and
clawback may be applied in
certain circumstances where
there is found to be a material
misstatement in the audited
accounts of the Group or a
Group company accounts,
where the executive’s action
or conduct amounts to gross
misconduct, or where there
is a significant detrimental
reputational impact on the
Company for which the
executive is responsible.

Bonus shares subject to a
restriction on sale may vest on
a change of control and on
certain other corporate events
in accordance with the rules
of the 2014 LTIP.

Until the end of 2013, shares
have been deferred under the
rules of the Company’s existing
Long Term Incentive Plan
approved by shareholders in
2004 (the ‘Company’s LTIP’)
and from 2014, shares would
be subject to a restriction on
sale under the rules of the
Company’s proposed new LTIP
subject to shareholder approval
of the plan at the 2014 AGM
(the ‘2014 LTIP’).

The ability to voluntarily defer
additional shares which has
been available under the
Company’s LTIP, is not included
in the 2014 LTIP.

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Remuneration Report

REMUNERATION REPORT
Continued

How the element supports our
strategic objectives

Operation of the element

Maximum potential value and
payment at threshold

Performance metrics used, weighting
and time period applicable

Performance shares (see also notes 2 and 3)

Awards may be made to
Executive Directors at the
following levels:

• Chief Executive: 250%.

• Other Executive
Directors: 200%.

300% of salary may be
awarded in exceptional
circumstances.

In 2013, the award level for
all Executive Directors was
100% of salary.

Until the end of 2013, awards
were also made of matching
shares equalling two times
the number of shares
voluntarily and compulsorily
deferred under the annual
bonus. The shares were
subject to performance
conditions. Matching shares
will not be granted under
the Company’s proposed
2014 LTIP.

Allows for annual grants of
performance shares. Awards vest
after three years, subject to
performance conditions. Vested
shares for Executive Directors
are then subject to a two year
holding period.

Participants are entitled to dividend
equivalents between award and
vesting, paid in additional shares
at vesting in respect of awards
that vest.

Malus and clawback arrangements
operate in respect of performance
shares. These enable the Company
to reduce unvested awards and to
clawback the relevant value of the
vested shares for a period of up to
three years after the date of vesting.
Malus and clawback may be
applied in certain situations where
there is found to be a material
misstatement in the audited
accounts of the Group or a Group
company accounts, where the
executive’s action or conduct
amounts to gross misconduct,
or where there is a significant
detrimental reputational impact
on the Company for which the
executive is responsible.

Awards granted under the LTIP
may vest on a change of control
and certain other corporate events,
assessed (unless the Committee
in its discretion otherwise decides)
against performance conditions
and on a time pro-rated basis
in accordance with the rules of
the plan.

Until the end of 2013, performance
shares have been granted under
the rules of the Company’s LTIP
and are subject to performance
conditions and from 2014 would be
granted under the rules of the
Company’s proposed 2014 LTIP.

Performance conditions measured
over three financial years. Vested
shares for Executive Directors are
then subject to a two year holding
period.

Performance measures and relative
weightings are:

• Earnings per share (EPS) growth

(1/3 weighting).

• Relative total shareholder return

(TSR) (1/3 weighting).

– TSR relative to comparator
group of global engineering
companies.

– Threshold vesting at median.
Maximum vesting at upper
quintile.

•

Improvement in average return
on capital employed (ROCE)
(1/3 weighting).

For all three measures, 25% of the
maximum award vests at threshold
and 100% at maximum, with vesting
calculated on a straight line basis.

The two measures under which
performance was assessed for
performance and matching shares
granted until 2013 were relative EPS
and TSR growth.

The following performance
conditions apply to outstanding
awards made prior to 2014:

EPS growth
p.a. (50%
weighting)

TSR
(50%
weighting)

7% – 15%

5% – 11%

Median
to upper
quintile

2011

2012

2013

In exceptional circumstances, where
the Committee believes that the
original performance measures and
targets are no longer appropriate,
it has discretion to substitute or
vary these measures and targets.
The Committee will only take such
a course of action where it considers
it to be in the best interests of the
shareholders. In these exceptional
circumstances, the Committee
will make full disclosure of the
arrangements and their rationale in
the following year’s Annual Report
on Remuneration.

To incentivise executives to
achieve sustained growth
through superior long term
performance and create
alignment with shareholders.

The performance share
awards reward executives
for performance against key
measures which are critical
to delivering our strategy.

The Weir Group PLC Annual Report and Financial Statements 2013How the element supports our
strategic objectives

Shareholding guidelines

To ensure the interests
of the Executive Directors
remain aligned with those
of shareholders.

Operation of the element

Maximum potential value and
payment at threshold

Performance metrics used, weighting
and time period applicable

—

The minimum shareholding
requirement is as follows:

• Chief Executive: 200%

of base salary.

• Other Executive Directors:

150% of base salary.

The restriction on sale and
the shareholding requirement
will take effect from the date
of approval of the Directors’
Remuneration Policy.

Executive Directors are required
to build up a shareholding in
the Company over a five year
period.

Under the 2014 LTIP, 30% of
the annual bonus is converted
into shares with a restriction on
sale. The Company requires
Executive Directors to retain
50% of performance shares
received, after the deduction
of applicable taxes, from the
2014 LTIP and the bonus shares
subject to restriction on sale
until the requirements are met.

All shares beneficially owned
by an executive and shares
subject to a restriction on sale
count towards achieving these
guidelines. The Committee
reviews share ownership levels
annually for this group.

The Committee has flexibility
in the application of this policy
to take into account particular
individual circumstances.

Until 2013, Executive Directors
were encouraged to build up a
shareholding in the Company
of 100% base salary over a five
year period.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

How the element supports our
strategic objectives

Operation of the element

Maximum potential value and
payment at threshold

Performance metrics used, weighting
and time period applicable

The fees paid to the Chairman
and the Non-Executive Directors
are not performance related.

Increases are effective
in April and any planned
increases in fees will take into
account general increases
across the Group along with
market practice.

The maximum fee level for
each Non-Executive Director
would be set within the range
of fee levels in our peer group
of companies of a similar size
and complexity.

Non-Executive Directors’ fees

To attract and retain experienced
and skilled Non-Executive
Directors.

Fees will be reviewed annually
by reference to companies of
similar size and complexity,
economic and labour
market conditions as well
as time commitment and
responsibilities.

For 2014, the following fees
will apply:

• Chairman’s fee is £275,000
per annum for all of his
responsibilities.

• Non-Executive Directors’ base
fee is £55,000 per annum.

•

In the event that the Company
appoints a Deputy Chairman,
an additional fee of up to
£10,000 per annum may be
paid.

• Additional fees of £10,000 per
annum are paid to the Audit
Committee Chairman and the
Remuneration Committee
Chairman to reflect their extra
responsibilities.

• As the Chairman also chairs
the Nomination Committee,
there are currently no
additional fees paid for this
role. However, additional fees
may be paid in future years in
line with the fees for the Chairs
of the Audit and Remuneration
Committees.

• Additional fees of £10,000 per
annum are paid to the Senior
Independent Director.

Additional allowances are made
available to Non-Executive
Directors, where appropriate,
to reflect the additional time
commitment in attending
intercontinental Board meetings
and operational visits.

•

Notes to the policy table
1. Annual bonus performance measures and targets
• The profit performance measure of Normalised Profit before Tax and Amortisation (NPBTA) was selected by the Company as profitability
is central to the Company’s overall strategy. The performance measure is adjusted to exclude items that are one off in nature, subject to
Remuneration Committee approval.
The performance targets are determined annually by the Committee. The performance targets for the NPBTA performance measure are set
in the context of consensus forecasts and the internal budget.
The performance required for maximum payout is typically set at a level that is above the level of the Company’s forecasts. If performance
is in line with the forecast then typically part of the annual bonus would pay out.
The performance target of NPBTA is adjusted to match the actual foreign exchange rates during the financial period and is also increased or
decreased to reflect the impact of any acquisitions or disposals made in the year that are of a size requiring Board approval. For acquisitions,
the target is increased by the expected NPBTA from the acquired business. For disposals, the target is reduced by the budgeted NPBTA from
the business which was disposed of.

•

The Weir Group PLC Annual Report and Financial Statements 2013•

The Committee is of the view that the performance target for the financial element under the annual bonus is commercially sensitive and that it
would be detrimental to the interests of the Company to disclose this before the end of the financial year. Disclosure of the performance target
of the financial element in advance could lead the Company to be at a competitive disadvantage as many competitors are not listed in the UK
and would not be subject to this requirement. The Company would be releasing potentially commercially sensitive information which many of
the Company’s direct competitors in its three end markets would not be required to disclose.
• The personal performance measures relate to achievement of personal and strategic goals.
•

Personal performance measures and targets are set by the Chairman for the Chief Executive and by the Chief Executive for other Executive
Directors. The Committee discusses and approves these targets for Executive Directors in consultation with the Director of Human
Resources and they are linked to the Company’s annual appraisal process.
The Committee is of the view that the performance targets for the personal element are commercially sensitive as they relate to internal
management projects and personal goals.
The performance targets for the financial elements of the bonus and the main groupings of individual performance measures will be
retrospectively disclosed after the end of the relevant financial period in the Annual Report on Remuneration.

•

2. LTIP performance measures and targets
• The Committee selected the performance conditions for the LTIP as these are central to the Company’s overall strategy and are intended

to link reward to long term sustainable growth.

• The performance measures are EPS, TSR and ROCE:

– EPS is adjusted earnings per fully paid ordinary share in the capital of the Company calculated on such basis as the Committee may
specify. In addition, the EPS figure used to calculate the award may be adjusted for changes in accounting standards to ensure a
consistent measurement basis across the performance period.

– TSR is the increase in the net return index (the index that reflects movements in share price over a period and dividend reinvested net
of any associated tax credit in shares on the ex-dividend date) for a company as calculated by Datastream (or such other financial
information provider as selected by the Committee) over the performance period.

– ROCE is defined as earnings before interest and tax divided by capital employed. Earnings before interest and tax is taken as Group
continuing operations after intangibles amortisation but before exceptional items for the relevant financial year. Capital employed is
taken as the average of opening and closing Group net assets excluding net debt/cash and pension deficit (net of deferred tax asset)
for the relevant financial year. To eliminate the impact of movements in foreign exchange rates over the period of the plan, the average
foreign exchange rates for the base year are held constant throughout the plan period. With regard to acquisitions, those acquisitions
made in the base year are included, based on a full year’s ownership, for the purposes of target setting. Where acquisitions are made
in subsequent years of the plan period, these are excluded from the assessment of performance relative to the target. Where there are
disposals during the plan period, the base and target ROCE calculations will be restated to eliminate the contribution from the disposed
business in the period of ownership.

• The performance targets are determined annually by the Committee. EPS, TSR and ROCE targets are set to ensure they are sufficiently

stretching but also motivational and consistent with the Company’s remuneration strategy. In setting targets the Committee considers the
Company’s operating environment, and internal and external growth forecasts.
The performance required for maximum vesting is typically set at a level that is above the level of the Company’s forecasts. If performance
is in line with the forecast then typically part of the award would vest.
EPS, TSR and ROCE targets are disclosed prospectively in the Annual Report on Remuneration for the relevant year.

•

3. Differences in remuneration policy for all employees
• The Company seeks to operate a locally driven approach to pay and benefits in all its locations.
• Employees in management roles are also eligible to participate in an annual bonus. The maximum opportunity available in the annual bonus

scheme is based on the seniority and responsibility of the role.

• The LTIP seeks to encourage a shared focus on our corporate goals within the senior management and executive populations. Grants under
the proposed 2014 LTIP may be made to around 300 of the most senior managers in the Group. The nature of the award depends on the
individual’s location and seniority. When used, the performance conditions will be the same throughout the Group.
In markets other than the UK, LTIP awards may be made in the form of a combination of performance shares and/or either restricted shares
or share appreciation rights with a corresponding reduction in award level. The restricted shares or share appreciation rights are subject to
a service condition of continued employment within the Group.

•

Elements of old policy to continue to apply
Deferred bonus, matching shares and other LTIP shares from historical awards made prior to the adoption of this policy will continue to pay out
in accordance with the respective rules and guidelines for each award.

Approach to recruitment remuneration
The following table sets out the various components which would be considered for inclusion in the remuneration package for the appointment
of an Executive Director and the approach to be adopted by the Committee in respect of each component. On the appointment of a new Executive
Director through an internal promotion, the Company will honour existing remuneration arrangements made prior to and not in contemplation
of promotion, and these will continue to pay out in accordance with the respective rules and guidelines for each element of remuneration as
originally set, notwithstanding that this may be inconsistent with the policy for existing Executive Directors.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013REMUNERATION REPORT
Continued

Area

Overall

Policy and operation

• The Committee’s approach when considering the overall remuneration arrangements in the recruitment of an Executive

Director externally is to take account of the individual’s remuneration package in their role prior to joining the Weir Group; the
market positioning of the remuneration package against the local market; and not to pay more than necessary to facilitate
the recruitment of the individual in question.

• The maximum level of variable remuneration which may be granted to an Executive Director in order to facilitate their

recruitment will be aligned with bonus and LTIP individual limits as a percentage of salary, as set out in the future policy table
of the Remuneration Report. This excludes the value of any replacement awards.

Service contracts

• To recruit the best executives, the Committee may in the future agree a contractual notice period with the Executive Director
which initially exceeds the standard twelve months, particularly if it is necessary to attract executives who will be required
to relocate their families. This will reduce to a 12 month rolling notice period once the individual is 12 months from the end
of their initial notice period.

Base salary

• The salary level will be consistent with those in the Company’s peer group, from similar positions, locations and experience

consistent with the policy table.

Benefits
and pension

• Salary will be set so as not to pay more than necessary to facilitate the recruitment of the individual in question.

• The Executive Director shall be eligible for benefits in line with the Company’s policy for current Executive Directors.

• Pensions arrangements for future recruits will be in line with the market practice at that time.

Annual bonus

• The appointed Executive Director will be eligible to earn a discretionary annual bonus in accordance with the terms of the

Company’s Executive Bonus Scheme. 30% of any bonus earned will be converted into shares with a restriction on sale in line
with the policy table for existing Executive Directors.

• The maximum level of opportunity will be consistent with the opportunity levels for Executive Directors as set out in the policy

table.

LTIP

• The Executive Director will be eligible for performance share awards in such amounts as the Committee may determine in its

sole discretion, subject to the rules of the 2014 LTIP (and subject to the approval of that plan at the 2014 AGM).

• The maximum level of opportunity will be consistent with the opportunity levels for Executive Directors as set out in the

policy table.

Replacement
awards

• The Committee will consider what replacement awards (if any) are reasonably necessary to facilitate the recruitment of an
Executive Director. This includes an assessment of the awards and any other compensation and benefit items that would
be forfeited on leaving their current employer.

• The Committee will seek to structure any replacement awards such that overall they are no more generous in terms of

quantum or vesting period than the awards due to be forfeited.

•

In determining quantum and structure of these commitments, the Committee will seek to replicate the value, taking into
account, as far as practicable, the timing and performance requirements of remuneration foregone and which the Committee
will seek to deliver in Company shares.

• The Committee will seek to ensure a meaningful proportion of the replacement awards which are not attributable to long

term incentives foregone will be delivered in Company shares, released at a later date and subject to continued employment.

•

If the Executive Director’s prior employer pays any portion of the remuneration that was deemed foregone, the replacement
payments shall be reduced by an equivalent amount.

Other

• The Committee may agree that the Company will meet certain mobility or relocation costs, including but not limited to

temporary living and transportation expenses, in line with the Company’s prevailing mobility policy for senior executives.
The Committee may also agree that the Company meets the cost of relevant professional fees.

• The Company shall reimburse the Executive Director for all reasonable expenses incurred as part of their recruitment.

• Directors and Officers liability insurance will also be provided in line with the policy for Executive Directors.

Service contracts and policy on payment for loss of office
The Board’s policy on Directors’ service contracts, letters of appointment and termination arrangements is set out below. This includes
a description of any obligation on the Company contained or proposed to be in all Directors’ service contracts or letters of appointment.
The Directors’ service contracts and letters of appointment are available for inspection at the Company’s registered office.

Executive Directors’ service contracts
As an overriding principle, it is the Board’s policy that there should be no element of reward for failure. The Committee’s approach when
considering payments in the event of termination is to take account of the individual circumstances including the reason for termination,
contractual obligations of both parties as well as share plan and pension scheme rules.

The Weir Group PLC Annual Report and Financial Statements 2013In the event that the Company terminates 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 Executive Director, will give full consideration
to the obligation of that Executive Director to mitigate any loss which they may suffer as a result of the termination of their contract.

All the Executive Directors who served during the year have service contracts with the Company. The table below sets out the Company’s
policy and, except where noted, these terms also apply to existing service contracts.

Contract
commencement
date

Executive Director
Keith Cochrane
Jon Stanton

Contract commencement date
2 November 2009
19 April 2010

Unexpired term

• The unexpired term of all Executive Directors’ service contracts is 12 months. It is the Company’s policy

that Executive Directors have rolling service contracts.

Notice period

• The Executive Directors who served during the year have service contracts with the Company that provide

Contractual payments

for a minimum period of notice of:
– 12 months by Keith Cochrane and six months by Jon Stanton.
– 12 months by the Company.

• The Company’s policy on the setting of contractual notice periods for Executive Directors is to set a notice
period of 12 months for both parties, although the Committee may in the future agree contractual notice
periods which initially exceed 12 months in the circumstances described above in the Company’s
approach to recruitment remuneration.

Policy for future service contracts
•

Executive Directors’ contracts allow for termination with contractual notice from the Company or
termination by way of payment in lieu of notice (PILON) at the Company’s discretion. Neither notice
nor a PILON will be given in the event of gross misconduct.

• Employment contracts may include PILON clauses potentially including up to 12 months’ base salary

and the cash equivalent of 12 months’ contractual benefits. There would be no contractual entitlement
to receive annual bonus awards in respect of the notice period – any award would be at the Committee’s
absolute discretion, performance-related and capped at the contractual target level.

• PILONs would be made where circumstances dictate that the Executive Directors’ services are not

required for the full 12 months of their notice period. Contracts would also allow for phased payments on
termination, which allows for further reduction in payments if the individual finds alternative employment
outside of the Group during the notice period.

Policy for existing service contracts
• The employment contracts for Keith Cochrane and Jon Stanton were agreed before 27 June 2012

and contain certain provisions which it is not proposed to include in the contracts of future Directors.
The Committee reviewed the provisions in existing contracts and are comfortable that no amendments
have been made to the contracts and therefore the grandfathering provisions for contracts in place
prior to June 2012 apply.

• The Company may make a PILON equal to 12 months’ salary and the cost to the Company of providing
all other benefits for that period, or a sum equivalent to 10% of the individual’s annual salary in respect of
other benefits. PILON will exclude pension, bonus and share related incentives. The Company may make
the PILON in instalments, subject to reduction where the individual commences alternative employment.

•

In addition, the Company may pay a bonus of up to 12 months subject to performance, as determined by
the Remuneration Committee. The amount payable would be consistent with any performance
determination made for other employees of broadly similar status or seniority. If the departing Executive
Director commences alternative employment, the Committee may reduce that payment to take account
of any performance related bonus that the individual receives from the alternative employment for
that period.

•

If the Group terminates an Executive Director’s service contract other than in accordance with its terms,
the Company shall make a payment calculated in the same way as if it had made a PILON.

Additional policy for future and existing service contracts
•

In the event of a compromise or settlement agreement, the Committee may make payments it considers
reasonable in settlement of potential legal claims, e.g. unfair dismissal or where agreed under a compromise
or settlement agreement. This may include an entitlement to compensation in respect of their statutory
rights under employment protection legislation in the UK or in other jurisdictions. It may include in such
payments reasonable reimbursement of legal fees in connection with such agreements.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013
Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

Annual bonus plan

LTIP

• An Executive Director will only be eligible to receive a bonus under the Group’s Executive Bonus Scheme
if he is an employee of the Group at the time that the Company authorises payment of the bonus although
at the discretion of the Committee, a pro-rated payment may be made to an Executive Director who has
retired subject to assessment of the bonus targets.

• As part of the Group’s Executive Bonus Scheme, Executive Directors have been granted awards of shares
in respect of the deferred element of the bonus and matching shares under the Company’s LTIP, which
is governed by the rules of that plan. The treatment of awards under that plan is described in the section
below entitled LTIP.

• Additional shares which Executive Directors have voluntarily invested under the Company’s LTIP
(and in respect of which matching shares have been awarded under the Company’s LTIP) are not
subject to forfeiture.

• The Company is seeking shareholder approval for a 2014 LTIP under which bonuses converted into
shares with a restriction on sale would be awarded. The treatment of awards under that plan is also
described in the section below entitled LTIP.

• Existing performance share awards and matching share awards have been granted under the Company’s
LTIP. It is proposed that future awards of performance shares would be granted under the 2014 LTIP to be
put to shareholders for approval in 2014.

• The treatment of Executive Directors ceasing to be employees of the Group under both the Company’s
LTIP and the 2014 LTIP depends on whether they leave for a “good leaver” reason. Good leaver reasons
include retirement, disability, ill-health, injury or disability, redundancy, on the sale of the individual’s
employing company or business or in other circumstances that the Committee determines.

In these circumstances, unvested performance shares and matching shares granted under the Company’s
LTIP normally vest on the normal vesting date assessed against any applicable performance conditions over
the normal performance period and (with the exception of cessation for retirement) pro-rated for time, unless
the Committee exercises its discretion to allow vesting following termination where performance is measured
over a shortened period and time pro-rated, unless the Committee in its discretion decides otherwise.

In the case of performance shares granted under the 2014 LTIP, it is proposed that for awards to the
Executive Directors there would be a three year vesting period followed by a two year holding period.
Where an Executive Director ceases to be an employee for a “good leaver” reason before the end of the
three year vesting period, shares would normally be delivered at the end of the holding period, assessed
against any applicable performance conditions over the normal three year vesting period and pro-rated for
time, unless the Committee in its discretion decides otherwise. Where an Executive Director ceases to be
an employee for any reason after the three year vesting period but before the end of the holding period,
the shares which vested at the end of the three year vesting period will be released to him at the end of the
holding period. Performance shares are subject to the operation of malus or clawback. The Committee
may instead exercise its discretion to release shares before the end of the holding period, and if it permits
this to take place during the normal vesting period, performance is measured over a shortened period and
time pro-rated, unless the Committee in its discretion decides otherwise.

Under both the Company’s LTIP and the 2014 LTIP, where an Executive Director’s employment is
terminated for a reason other than a “good leaver” reason, his unvested performance shares and
matching shares will lapse.

• Awards which are already vested as at the date of termination of employment are exercisable for three

months following cessation.

• On death, the award vests at the date of death and can be exercised for a period of 12 months by the

deceased’s estate.

• Awards of compulsory investment shares made under the Company’s LTIP which were made in

connection with the Group’s Executive Bonus Scheme may be exercised in full within three months
following the relevant Executive Director’s termination of employment or, if the Committee considers
appropriate, in full during the period of three months of the third anniversary of the date the awards were
granted. In the case of circumstances warranting dismissal for gross misconduct the award shall lapse.

• Bonuses converted into shares with a restriction on sale made under the proposed 2014 LTIP which are
made in connection with the Group’s Executive Bonus Scheme will have the restriction removed on the
third anniversary of the date the awards were granted, or if the Committee considers appropriate, following
the relevant Executive Director’s termination of employment. Bonuses converted into shares with a
restriction on sale will only lapse in the case of circumstances warranting dismissal for gross misconduct.
Awards with a restriction on sale are subject to malus and clawback.

Change in control

• No Executive Director has provisions in his or her service contract that relate to a change of control of

the Company.

The Weir Group PLC Annual Report and Financial Statements 2013Chairman 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 Non-Executive Directors can be removed in accordance with the Company’s Articles of Association.

The details, including notice periods, contained in the letters of appointment in relation to the Non-Executive Directors who served during the
year are set out in the table below. Directors are required to retire at each Annual General Meeting and seek re-election by shareholders.

With the exception of the Chairman, the Company policy for notice periods for future Non-Executive Directors is for no notice period by the
individual and a notice period of six months by the Company. This is in line with the details in the table for Non-Executive Directors appointed
since 2011.

None of the Chairman or the Non-Executive Directors have provisions in their letters of appointment that relate to a change of control of the Company.

Non-Executive
Director

Charles Berry

Alan Ferguson

Melanie Gee

Mary Jo Jacobi

Rick Menell

John Mogford

Lord Robertson

Lord Smith1

Contract

commencement date

1 January 2014

13 December 2011

4 May 2011

1 January 2014

1 April 2009

1 June 2008

1 February 2004

6 February 2002

Expiry of
current term

May 2014

–

Notice period

by the individual

6 months

–

6 months

–

Notice period
by the Company

6 months

–

Note
1. Lord Smith resigned as a Director on 31 December 2013.

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.

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Long term incentive
Short term incentive
Fixed element

£4,000

£3,000

£2,000

£1,000

Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

100%

Illustrations of application of remuneration policy
A key element of the Company’s remuneration policy is to provide a significant part of potential reward through performance based incentive
plans. Set out below is the reward mix for both Executive Directors at minimum performance, on-target performance and maximum
performance as proposed under the future policy table. The package is broadly structured so that for maximum performance at least 75%
of the overall package is delivered through variable pay. As such, the aggregate level of remuneration received by the Executive Directors
demonstrates a clear relationship between reward and performance.

£3,000

£2,000

£4,000

60%

80%

40%

Minimum

Package Value £’000
On-target

Maximum

Minimum

On-target

Maximum

£1,000

Chief Executive
Package make up

100%

80%

60%

40%

20%

100%

80%

60%

Finance Director
Package make up

20%

Long term incentive
Short term incentive
Fixed element

4,000

3,000

2,000

1,000

Minimum

On-target

40%

Maximum

Minimum

On-target

Maximum

Minimum

Package Value £’000
On-target

Maximum

Minimum

On-target

Maximum

100%

80%

60%

40%

20%

Long term incentive
Short term incentive
Fixed element

2,500

2,000

1,500

1,000

500

Long term incentive
Short term incentive
Fixed element

Minimum

On-target

Maximum

Minimum

On-target

Maximum

Notes
1. The scenarios presented above demonstrate the amount of each remuneration element at minimum, on-target and maximum performance.
2. Salary is shown based on current salary.
3. Benefits are shown based on 2013 benefits received as a percentage of 2013 salary as set out in the single total figure table in the 2013 Annual Report on Remuneration.
4. Pension is shown based on the employer contribution or cash allowance of 12% of salary.
5. Bonus is shown based on opportunity levels as set out in the future policy table and includes both bonus paid in cash and bonus converted into shares with a restriction on sale.

Minimum performance assumes no payout of the bonus. Target performance assumes 60% payout of the bonus. Maximum performance assumes 100% payout of the bonus.
6. LTIP is shown based on opportunity levels as set out in the future policy table. Minimum performance assumes no vesting under the LTIP. Target performance assumes 60% vesting

under the LTIP. Maximum performance assumes 100% vesting under the LTIP.

The scenarios presented above demonstrate the proportion of maximum remuneration that is represented by each remuneration element at
maximum, on-target, and minimum performance. On-target performance is defined as performance at which 60% of maximum on the short
term and long term incentive would be paid.

The level of annual bonus and bonus converted into shares with a restriction on sale reflects performance achieved in the financial period.
The level of 2014 LTIP reflects performance achieved over multiple financial periods.

Stakeholder considerations
Material factors taken into account when setting the remuneration policy
The Committee is mindful of a broad range of stakeholders in the business and is keen to engage where appropriate on key areas of policy
setting and implementation. The Committee has considered the following in developing the policy for 2014.

Shareholder engagement
The Committee is committed to ongoing dialogue with the Company’s shareholder base. This can take a variety of forms, such as:
• meetings with major shareholders to consider significant potential changes to policy or specific issues of interest to particular

shareholder groups;
other dialogue to update shareholders and take their feedback on planned refinements to arrangements; and
the annual votes on the Directors’ Remuneration Policy and the Annual Report on Remuneration.

•
•

During 2013, the Chair of the Committee met with and wrote to the Company’s largest shareholders and their representative bodies, consulting
them on the proposed policy and changes to the Executive Directors’ remuneration to be implemented in 2014.

The Committee has also considered the feedback provided by shareholders, the Association of British Insurers (ABI) and the Institutional
Shareholder Services (ISS) from the 2013 AGM and reflected this feedback in carrying out the strategic review of remuneration in 2013. The high
level of support as seen by the results of the advisory vote at the 2013 AGM for the 2012 Directors’ Remuneration Report (97% votes For) and the
vote for the previous two years (2011: 96% For, 2010: 99% For) indicates strong shareholder support for the Directors’ Remuneration Reports.

100

The Weir Group PLC Annual Report and Financial Statements 2013The wider employee context
The Committee is kept regularly updated on pay and conditions across the Group, although when setting the Directors’ remuneration policy,
the wider employee group is not consulted. In determining the adjustments to the Executive Directors and Group Executive salaries, the
Committee considers the increases to pay levels across the broader employee population.

Annual Report on Remuneration

Implementation of Directors’ remuneration policy in 2014
In 2014, the Executive Director and Non-Executive Director remuneration policies will be implemented as follows.

Implementation of Executive Directors’ remuneration policy
Fixed elements – Base salary
The Committee made the following 2014 base salary decisions which are in line with the disclosed policy on page 88 of this report:

Keith Cochrane

Jon Stanton

2014 salary
£

2013 salary
£

Percentage
change

725,000

440,000

Salaries are effective from 1 April each year. The Committee has considered the broader employee context in determining salaries. In 2014,
the increase in base salary for UK employees was an average of 3%.

Fixed elements – Retirement and other benefits
The implementation of policy in relation to pension and benefits is in line with the disclosed policy on page 89 of this report. The auto-enrolment
provision for Executive Directors is expected to commence in August 2014.

Short term incentives – Annual bonus
The implementation of policy in relation to annual bonus is in line with the disclosed policy on page 90 of this report.

The annual bonus is based on in-year performance against targets. The performance measures are: 80% Group Normalised Profits before Tax
and Amortisation (NPBTA) measured over the financial period and 20% personal performance targets. Payouts under the NPBTA element may
be reduced to the extent that Group working capital targets are not achieved.

Targets are approved by the Remuneration Committee prior to the beginning of the performance year. As set out in the Directors’
Remuneration Policy, the Company will be disclosing NPBTA targets and the main groupings of individual performance measures
retrospectively in the Annual Report on Remuneration. Performance targets will not be disclosed prospectively for commercial reasons.

30% of bonus payable will be converted into shares with a restriction on sale under the 2014 LTIP. There are no performance conditions on the
bonus shares.

Long term incentives – performance shares
The Committee has determined that the following awards be made for 2014 in line with the disclosed policy on page 92 of this report, subject
to shareholder approval at the 2014 AGM of the 2014 LTIP rules. Grants will be made within 42 days from the date of shareholder approval of
the plan.

Awards vest after three years subject to performance conditions. Awards for Executive Directors are then subject to a two year holding period.

Award type

Basis on which award made

Keith Cochrane

Performance shares

Jon Stanton

Performance shares

A grant of shares will be made
based on policy opportunity levels,
the salary of the individual, and the
share price on the three days prior
to grant.

Face value of award
at threshold vesting
(% of 2014 salary)

Face value of award
at maximum vesting
(% of 2014 salary)

62.5%

50%

250%

200%

Performance Period1

1 Jan 2014 –
31 Dec 2016

Note
1. The performance period for each LTIP award is based on calendar years. The TSR performance measure is calculated over calendar years. The EPS and ROCE measures are

calculated over the relevant financial periods.

In all cases, awards will only vest subject to the achievement of the performance conditions and if the Committee determines that the
underlying performance of the Company is sufficient to justify the vesting of the awards.

101

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

The three performance measures for the 2014 award apply in equal weighting and their performance targets are:

TSR

EPS

ROCE

Relative TSR growth
against comparator group

Percentage of TSR
proportion vesting

EPS growth
per annum

Percentage of EPS
proportion vesting

Improvement in average
ROCE per annum

Percentage of ROCE
proportion vesting

Upper quintile

Median

Below median

100%

25%

11%

Less than 5%

100%

25%

0.5%

Less than 0.5%

100%

25%

The TSR comparator group for the 2014 LTIP grant is:
Amec PLC, Atlas Copco AB, Cameron International Corporation, Crane Company, Dover Corporation, Dresser-Rand Group Inc., Fenner PLC,
FLSmidth & Co. A/S, Flowserve Corporation, FMC Corporation, IMI PLC, ITT Corporation, Joy Global Inc., Melrose Industries PLC, Metso
Corporation, Outotec Oyj, Rotork PLC, Sandvik AB, Smiths Group PLC, Spirax-Sarco Engineering Plc, SPX Corporation, Sulzer Ltd, Vesuvius
Plc, and John Wood Group PLC.

Implementation of Non-Executive Directors’ remuneration policy
Annual fees for 2014
The implementation of the Non-Executive Director policy is in line with the disclosed policy on page 94 of this report. The fees per annum for
Non-Executive Directors are set out in the table below.

Chairman

Non-Executive Directors’ base fee

Additional fee for Senior Independent Director

Additional fee for Audit Committee Chairman

Additional fee for Remuneration Committee Chairman

Additional fee for Deputy Chairman

2014 fees
£

2013 fees
£

Percentage
change

275,000

55,000

10,000

–

10,000

–

Fees are effective from 1 April each year. Additional allowances are made available to Non-Executive Directors, where appropriate, to reflect
the additional time commitment in attending intercontinental Board meetings and operational visits.

Single total figure of remuneration for Non-Executive Directors and the Chairman
Details of the remuneration for the 53 weeks ended 3 January 2014 and the 52 weeks ended 28 December 2012 received by the Non-Executive
Directors and the Chairman who served on the Board during the 2013 financial period are set out in the table below. The table and
accompanying notes are subject to audit.

Base Fee

Other fees

Total Fees

Benefits1

2013
£

45,416

53,750

2012
£

2013
£

2012
£

2013
£

–

6,667

–

52,083

50,000

10,000

63,750

6,452

63,750

–

53,750

8,750

3,238

62,500

2012
£

–

60,000

56,452

50,000

53,238

2013
£

2012
£

–

Total

2013
£

52,083

63,750

53,750

62,500

2012
£

–

60,000

56,452

50,000

53,238

Charles Berry2

Alan Ferguson

Melanie Gee3

Rick Menell

John Mogford

Lord Robertson4

Lord Smith

268,750

250,000

–

268,750

250,000

498

269,248

250,498

Notes
1. Benefits to Lord Smith include Group healthcare for 2012 and 2013.
2. Charles Berry joined the Board as a Director on 1 March 2013. He was appointed Deputy Chairman from 1 May 2013.
3. Melanie Gee became Remuneration Committee Chairman on 9 May 2012.
4. Lord Robertson became Senior Independent Director on 9 May 2012.
5. Mary Jo Jacobi joined the Board as a Director on 1 January 2014 and did not receive any remuneration during 2013.

102

The Weir Group PLC Annual Report and Financial Statements 2013Single total figure of remuneration for Executive Directors
Details of the remuneration for the 53 weeks ended 3 January 2014 and the 52 weeks ended 28 December 2012 received by the Executive
Directors who served on the Board during the 2013 financial period are set out in the table below. The summary table comprises a number of
key components which are set out in further detail in the relevant sections that follow. The table and accompanying notes are subject to audit.

Fixed elements

Short term incentives

Long term incentives

Pension

Base salary (i)

Benefits (ii)

Annual bonus (iii)

LTIP – performance
shares and matching
shares (iv)

2013
£

2012
£

2013
£

2012
£

2013
£

2012
£

2013
£

2012
£

Keith Cochrane

718,750

687,500

21,656

23,001

108,750

568,584

820,417 2,084,470

Jon Stanton

435,000

415,000

18,334

14,466

44,000

227,433

351,267

659,655

Retirement
Benefits (v)

2013

–

Total

2012
£

–

2013
£

2012
£

1,669,573 3,363,555

848,601 1,316,554

Notes to the single figure of remuneration for Executive Directors table
There were no other payments made during 2012 and 2013 and no Executive Director received remuneration for external appointments
during 2013.

i) Base salary
Corresponds to the amounts received during the 2013 financial year
Salary is paid monthly to Executive Directors. Salaries were last increased in April 2013 when Keith Cochrane’s salary was increased from
£700,000 to £725,000 and Jon Stanton’s salary was increased from £420,000 to £440,000.

ii) Benefits
Corresponds to the taxable value of all benefits paid in respect of the 2013 financial year.

Life insurance cover

Car allowance

Group healthcare

Keith Cochrane
2013
£

Jon Stanton
2013
£

4,143

3,866

17,015

13,970

498

21,656

18,334

103

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013
Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

iii) Short term incentives
Corresponds to the total bonus earned under the annual bonus in respect of 2013 performance and includes both the cash element (70%) and
the bonus to be converted into shares with a restriction on sale (30%).
The 2013 annual bonus was based on achievement of Group Normalised Profits before Tax and Amortisation (NPBTA) (80%) and personal
performance targets (20%). Executive Directors’ 2013 performance was assessed relative to both the financial targets and other performance
considerations further outlined below.

2013 performance measures for Executive Directors

Financial KPI – NPBTA

Based on the achievement of NPBTA targets
measured over the financial period1.

2013 performance
required
£m

Actual performance
£m

Maximum payout
achievable as percentage
of total bonus opportunity

Payout as a percentage

of maximum

Threshold

Target

Stretch

425

463

503

418

80%

Individual performance

Individual performance objectives are robustly set and are customised for each individual.
All objectives are measurable and are objectively determined. Individual objectives for 2013
were built around the Company’s key performance indicators. Objectives covered areas such
as strategic growth of the Company, innovation, working capital, stakeholder engagement
and organisational capability.

Maximum payout
achievable as percentage
of total bonus opportunity

Actual payout
as a percentage of total
bonus opportunity

20% Keith Cochrane: 10%

Jon Stanton:

10%

Note
1. The performance measure is Normalised Profit before Tax and Amortisation (NPBTA) as disclosed in the Group’s financial reporting for the relevant financial year. The targets are set
before the start of the period and are subsequently adjusted at the end of the period to ensure comparability. The adjustments are approved by the Remuneration Committee and
include restating targets on a constant currency basis and updating the targets to reflect the expected performance of acquisitions and disposals of a size requiring Board approval
made in the year.

2013 short term incentive awards
Based on the outcome of 2013 performance as outlined above, the Committee approved the following annual bonus awards under the
Executive Bonus Scheme to Executive Directors:

Executive Director

Keith Cochrane

Jon Stanton

Includes 30% conversion into shares with restriction on sale over three years.

Notes
1.
2. Bonus percentage is based on salary as at 31 December in the relevant financial year.
3. Bonus to be paid in March 2014.

Award1
£

Percentage
of salary2

Percentage
of maximum
opportunity

108,750

44,000

15%

10%

iv) Long term incentives
The value represents an estimate of the market value of the 2011 performance and matching share awards at year end.
In accordance with the Regulations, the single total remuneration figure for 2013 includes the value of the performance and matching shares
made under the 2011 LTIP Award, with a performance period from 1 January 2011 to 31 December 2013. These awards are due to vest in
March 2014. The 2013 values will be restated next year once the share price at date of vesting is known. Prior year calculations are based on
the share price at date of vesting.

The Committee reserves the right to make adjustments to the performance conditions to reflect significant one-off items which occur during
the performance period.

104

The Weir Group PLC Annual Report and Financial Statements 2013LTIP awards vesting in 2014
The 2011 performance share and matching share awards for Keith Cochrane and Jon Stanton will vest on 17 March 2014. The table below
sets out a summary of the performance conditions, performance against these conditions as well as the resulting gross vesting value using
the share price over Q4 of 2013 in accordance with the Regulations. No discretion was exercised in respect of the awards.

2011 performance
share awards

Keith Cochrane

Jon Stanton

2011 matching
share awards

Keith Cochrane

Jon Stanton

Maximum potential value

Shares with value of
100% of salary on the
date of grant.

Performance conditions
and targets set

Performance conditions
set out on page 107.

Performance period of
three years ended on
31 December 2013 with
vesting on 17 March
2014.

Performance conditions
set out on page 107.

Performance period of
three years ended on
31 December 2013 with
vesting on 17 March
2014.

Shares with value of
200% of compulsory
and voluntary deferred
annual bonus on the
date of grant, subject to
continued employment
and retention of
compulsory investment
shares and voluntary
investment shares where
applicable.

Maximum number
of shares granted

Performance metrics, weighting
and period and method of
determining performance

41,481 Overall level of
vesting 42.8%.

50% of award is based on
EPS growth. Actual EPS
growth was 13.45% p.a.
resulting in 85.5% vesting1.

25,526

41,680

10,080

50% of award is based
on TSR growth. Actual
TSR growth was 38%,
corresponding to below
median performance
relative to peers between
January 2011 and
December 2013, resulting
in 0% vesting.

Dividend equivalents
are paid on vested
shares based on dividend
payments over the
performance period.
Dividend equivalents will be
delivered in shares.

Resulting
vesting

409,227

251,824

Resulting
vesting

411,190

99,443

Note
1. The EPS outcome has been adjusted to remove the impact of IAS19R on the 2013 result to ensure a consistent measurement basis across the performance period.

Share price at vesting was estimated as the average of the Company’s share price over the last financial quarter of 2013, giving the price
£21.97. The vesting total includes dividend equivalents of 100.8p per share, being the dividends paid between the date of award and the date
of vesting. Of the total vesting value, the value of dividend equivalents for Keith Cochrane’s awards is £38,440 and for Jon Stanton’s awards
is £16,459.

Note that compulsory and voluntary investment shares will also be released in 2014 to individuals alongside the matching awards. The number
of shares expected to be released in 2014 is 16,847 for Keith Cochrane and 5,040 for Jon Stanton. The compulsory investment shares also
have the right to receive dividend equivalents in the form of shares to the value of 100.8p per share at the date of vesting. The value of these
shares does not form part of the Single Total Figure Table as they have not been subject to performance measures since they were granted.

v) Retirement benefits
Represents the cash value of the total Company contributions towards retirement benefit provision
The Group made no specific provision for Executive Director pensions in 2012 and 2013.

105

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

Scheme interests awarded during 2013
The following table sets out the interests of the Executive Directors in the Company’s share schemes, comprising awards of performance
and matching shares and compulsory investment shares under the LTIP, which were awarded during the 53 weeks ended 3 January 2014.
The closing market price of the Company’s ordinary shares at 3 January 2014 was £21.09 and the range during the year was £18.33 to £24.90.
The table and accompanying notes are subject to audit.

2013 LTIP awards

Award type

Keith Cochrane

Jon Stanton

Performance
and matching

Compulsory
investment

Performance
and matching

Compulsory
investment

Share price
on date

of award

pence Basis of award

Date of
award

11 Mar 13

2,474

100% salary plus
200% of compulsory
investment shares

Face value
of award at
threshold
vesting
£

Face value
of award at
maximum
vesting
£

Number
of shares
awarded

Date of
vesting

Performance
period

44,313

274,076

1,096,304

11 Mar 16

1 Jan 13
– 31 Dec 15

11 Mar 13

2,474 30% of bonus

7,090

175,407

11 Mar 16

–

11 Mar 13

2,474

100% salary plus
200% of compulsory
investment shares

23,960

148,193

592,770

11 Mar 16

1 Jan 13
– 31 Dec 15

11 Mar 13

2,474 30% of bonus

2,836

70,163

11 Mar 16

–

Type of
interest
awarded

Nil cost
options

Notes
1. The figures shown for performance and matching share awards 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 107. Threshold vesting equals 25% vesting. Maximum vesting equals 100% vesting. No performance and matching shares will vest
for below-threshold performance.

2. The performance period for each LTIP award is based on calendar years. The TSR performance measure is calculated over calendar years. The EPS measure is calculated over

financial periods.

3. The face value of the award is based on the share price. The exercise price for performance and matching shares and for compulsory investment shares is zero.
4. Keith Cochrane and Jon Stanton did not elect to voluntarily defer any additional portion of their bonus in respect of 2012.
5. No additional shares were granted other than at the date of award set out above.

106

The Weir Group PLC Annual Report and Financial Statements 2013Performance conditions for the LTIP

TSR

Weighting

Target structure

Maximum
performance

Threshold
performance

Below threshold
performance

2011

50%

2012

50%

2013

50%

Relative TSR
Growth against
comparator group

Percentage of
the TSR portion
of the award
that vests

Relative TSR
Growth against
comparator group

Percentage of
the TSR portion
of the award
that vests

Relative TSR
Growth against
comparator group

Percentage of
the TSR portion
of the award
that vests

Upper quintile

100%

Upper quintile

100%

Upper quintile

100%

Median

25%

Median

25%

Median

Below median

25%

Comparator group AMEC2, Cameron, Crane,
Dover, Dresser Rand, FL
Smidth, Flowserve, FMC,
Halma, IMI, Joy Global, Meggitt,
Melrose, Metso, Outotec, Rotork,
Smiths Group, Spirax Sarco, SPX,
Sulzer, Vesuvius3, Wood Group

AMEC2, Cameron, Crane,
Dover, Dresser Rand, FL
Smidth, Flowserve, FMC,
Halma, IMI, Joy Global, Meggitt,
Melrose, Metso, Outotec, Rotork,
Smiths Group, Spirax Sarco, SPX,
Sulzer, Vesuvius3, Wood Group

AMEC2, Cameron, Crane,
Dover, Dresser Rand, Fenner, FL
Smidth, Flowserve, FMC, Forum
Energy4, Halma, IMI, Joy Global,
Meggitt, Melrose, Metso, Outotec,
Rotork, Smiths Group, Spirax Sarco,
SPX, Sulzer, Vesuvius3, Wood Group

Growth in EPS1

Weighting

Target structure

Maximum
performance

Threshold
performance

50%

EPS growth
per annum

Percentage of
EPS portion
of the award
that vests

50%

EPS growth
per annum

Percentage of
EPS portion
of the award
that vests

50%

EPS growth
per annum

Percentage of
EPS portion
of the award
that vests

Below threshold
performance

Less than
7%

15%

100%

25%

15%

Less than
7%

100%

25%

11%

Less than
5%

100%

25%

Performance
periods

Single three year performance period
for both elements

Notes
1. Adjusted to exclude intangibles, amortisation and exceptional items.
2. Charter plc was acquired during 2011 and has been replaced by AMEC in the comparator group.
3. Cookson Group demerged on 1 November 2012, with the new company Alent Plc being separated from the rest of the business, which has been renamed Vesuvius Plc. Vesuvius Plc

will succeed Cookson Group in the comparator group.

4. Gardner Denver was acquired and delisted in 2013. It has been removed from the 2011 and 2012 comparator groups and replaced by Forum Energy Technologies in the 2013

comparator group.

5. Lufkin was acquired during 2013 and has been removed from the 2011, 2012 and 2013 comparator groups.

107

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

Directors’ shareholding and share interests
The Committee believes that employee share ownership is an important means to support long term commitment to the Company and the
alignment of employee interests with those of shareholders.

The interests of the Executive Directors and other senior executives are closely aligned with those of shareholders in this regard through
the operation of the Company’s LTIP and the conversion into shares with restriction on sale of 30% of the annual bonus award for a period
of three years. These remuneration elements constitute a significant proportion of individual remuneration packages.

Subject to shareholder approval at the 2014 AGM, the shareholding guidelines will apply as outlined in the policy table on page 93. Until then,
the current practice of encouraging Executive Directors to build up a shareholding in the Company of 100% of base salary over a five year
period will continue to apply. All shares beneficially owned by an Executive Director count towards achieving these guidelines. There is no
shareholding requirement for Non-Executive Directors.

Current shareholding levels for Directors are set out in the table below.

Summary of awards
Summary of total number of interests in shares in the Company and scheme interests as at 3 January 2014
The table and accompanying notes are subject to audit.

Interests in shares
in the Company
as at 3 January 2014

Scheme interests
as at 3 January 2014

Scheme interests
vested and exercised
in 2013 (2010 grant)1

Security type

Total shares

Total shares
(% of 2013
salary)

Total
performance
shares and
matching
shares
(options with
performance
conditions)2

Total
compulsory
investment
shares
(options
without
performance
conditions)

Total
performance
shares and
matching
shares
(options with
performance
conditions)

Total
compulsory
investment
shares
(options
without
performance
conditions)

Total shares
contributing
to
shareholding
guidelines
(% of 2013
salary)

Proposed
shareholding
guidelines
(% of 2014
salary)

Keith Cochrane

257,788

750%

211,000

35,275

18,975

91%

93,465

14,039

Jon Stanton

Charles Berry

Alan Ferguson

Melanie Gee

Mary Jo Jacobi

Rick Menell

John Mogford

2,000

2,730

2,500

–

1,000

11,481

Lord Robertson

10,650

Lord Smith

163,400

–

84,838

30,204

–

10,181

–

750%

91%

200%

150%

–

Notes
1. On 15 March 2013, the 2010 Award under the LTIP for Keith Cochrane vested in full and on 9 August 2013, the 2010 Award under the LTIP for Jon Stanton vested in full. As a result they
exercised their awards as set out above, selling 44,914 shares and 14,229 shares respectively to pay the relevant tax and national insurance and retaining the balance. The market price
at date of vesting was 2,457p and 2,184p respectively. Options exercised in 2013 had zero exercise price.

2. Awards under the LTIP take the form of nil cost options and have no performance retesting facility.
3. The share awards granted in 2011 onwards have a right to receive dividend equivalents in the form of shares payable at vesting.
4. No Director had, during or at the end of the year, any material interest in any contract of any significance in relation to the Group’s business, in any debenture stocks of the Company,

or in the share capital or debenture or loan stocks of any subsidiary.

5. No shares lapsed or did not vest during the year.
6. There are no unexercised vested options held by Executive Directors.
7. All scheme interests outstanding or vesting in the year were share options rather than shares.
8. Total shares as a percentage of salary is based on salary as of 31 December in the relevant financial year and on the market price of the Company’s ordinary shares at the financial

period end. For 2013, the closing market price at 3 January 2014 was £21.09.

9. There have been no changes to Directors’ interests between 3 January 2014 and 26 February 2014.

108

The Weir Group PLC Annual Report and Financial Statements 2013Performance graph and table
The graph below shows the total shareholder return (TSR) for The Weir Group PLC, the FTSE 100 Index and the 2013 LTIP Comparator Group
over the five year period ending 31 December 2013. This is compared with the total vested and received remuneration for the Chief Executive
over the same period.

The Company considers that these are the most relevant indices for a comparison of total shareholder return.

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

2008

2009

2010

2011

2012

2013

1,000

900

800

700

600

500

400

300

200

100

1000
900
800
700
600
500
400
300
200
100
0

Performance &
matching shares

Bonus

Fixed elements

The Weir Group PLC TSR
FTSE 100 Index TSR
2013 LTIP Comparator Group TSR

Remuneration history for Chief Executive between 2009 and 2013

Fixed elements

Bonus (percentage of maximum)

Performance shares and matching
shares (percentage of maximum)

Mark Selway

20091

£662,077

83.7%

Keith Cochrane

20092

2010

2011

2012

2013

£95,384

£572,146

£646,645

£710,501

£740,406

83.7%

100.0%

54.0%

10.0%

100.0%

42.8%

Total remuneration

£2,237,201

£217,746

£2,913,022

£4,728,338

£3,363,555

£1,669,573

Notes
1. 2009 remuneration relates to the ten months Mark Selway was Chief Executive until his resignation in November 2009.
2. 2009 remuneration relates to the two months Keith Cochrane was Chief Executive from November 2009.

Total remuneration is calculated on the same basis as the 2013 remuneration summary in the Single total figure of remuneration for Executive
Directors table on page 103. In particular, this includes the value of performance shares and matching shares that vest following the end of
each financial year, including dividends equivalents where appropriate. For 2013, the value of the share awards is estimated based on the
average share price in the last financial quarter. This will be restated next year once the share price at date of vesting is known. Prior year
calculations are based on the share price at date of vesting.

Percentage change in Chief Executive remuneration
Excluding long term incentives, the percentage change in remuneration for the Chief Executive between the 52 weeks ended 28 December 2012
and the 53 weeks ended 3 January 2014 is detailed below. The change in remuneration for UK employees for the same period is also provided.

Salary & fees

Taxable benefits

Bonus

Chief Executive
percentage
change

UK Employees
percentage
change

4.5%

-5.8%

4.0%

-5.7%

-80.9%

-79.0%

109

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013
Directors’ Report:
Remuneration Report

REMUNERATION REPORT
Continued

For the purposes of this section, remuneration has been calculated in accordance with the Regulations which includes salary, fees, taxable
benefits (including emoluments) and certain performance-related pay for the relevant financial year (primarily bonuses but excluding long term
incentives). Pension and retirement benefits are not included. To help minimise distortions in the data, the UK employee remuneration figures
have been prepared on the basis of full-time, permanent employees who were employed by Weir companies whose principal reporting
currency was pounds Sterling during 2012 and 2013. Following the sale of Weir LGE in December 2012, the remuneration of these employees
has been removed for 2012 for comparative purposes. The Chief Executive’s change in base salary reflects planned increases agreed with
shareholders as part of a three-year plan.

The UK employee population has been selected as it reflects a broad sample of employees which includes Head Office employees and other
individuals located in the same country as the Executive Directors.

Relative importance of spend on pay
The table below shows the expenditure of the Company on employee remuneration costs in the 2013 financial year and 2012 financial year.
In addition, it details the disbursements from profit made by way of dividend payments during the same periods.

Profit distributed by way of dividend

Overall spend on pay for employees

2013
£m

82.6

602.0

2012
£m

Percentage
change

71.7

568.4

15.2%

5.9%

Details of the overall spend on pay for employees can be found in note 4 to the Financial Statements on page 135. Employees include
Executive Directors but not Non-Executive Directors. The Company considers employee remuneration costs in the context of the general
financial performance and position of the Company, including when determining the salary increase budget, annual bonus funding, long term
incentive grant budget, and pension levels.

Total pension entitlement#
The Group made no specific provision for Executive Director pensions in 2013.

Payments to past directors#
The following payments were made to Alan Mitchelson in 2013 in relation to his outstanding 2010 LTIP Award set out in the Company’s 2012
Remuneration Report:
• 49,581 Performance and Matching Shares from the 2010 LTIP Award, giving a taxable gain on exercise of £1,210,272.21, based on the

closing market share price on 14 March 2013 of £24.41. Options exercised in 2013 had zero exercise price. The award vested on 15 March
2013 with a closing market share price of £24.57.

• 5,731 Compulsory Investment Shares from the 2010 LTIP Award, giving a taxable gain on exercise of £139,893.71, based on the closing
market share price on 14 March 2013 of £24.41. Options exercised in 2013 had zero exercise price. The award vested on 15 March 2013
with a closing market share price of £24.57.

Further payments are due in 2014 in relation to the 2011 LTIP. These will be disclosed in the 2014 Annual Report on Remuneration.

Details of Alan Mitchelson’s outstanding share awards at the date of his ceasing employment and the 2012 bonus paid in 2013 were disclosed
in the Remuneration Report of the 2012 Annual Report.

Lord Smith received a gift from the Company on retirement to the value of £7,058, on which tax and national insurance contributions were
also paid.

Payments for loss of office#
No payments were made for loss of office during the year.

# Audited.

110

The Weir Group PLC Annual Report and Financial Statements 2013

Consideration by the Directors of matters relating to Directors’ remuneration
Terms of reference
To ensure reward arrangements support the Company’s philosophy, strategy and culture, the Committee reviews compensation and benefit
plans for the Executive Directors, senior leadership, and the broader employee population. In December 2013, the Committee reviewed its
terms of reference. The annual performance of the Remuneration Committee was evaluated as part of the Board evaluation in December 2013
and it was concluded that the Board and all its Committees were functioning strongly in accordance with good corporate governance.

More details of the Board evaluation can be found on pages 74 and 75. The Terms of Reference of the Committee are available on the
Company’s website.

Remuneration Committee membership and attendance

Current members

Melanie Gee (Chairman)

Mary Jo Jacobi1

Rick Menell

Lord Robertson

Remuneration Committee attendees

Lord Smith

Keith Cochrane

Keith Ruddock

Pauline Lafferty

Name

Charles Berry2

Melanie Gee

Rick Menell

Lord Robertson

Attendance

5 of 5

7 of 7

6 of 7

7 of 7

Group Chairman during 2013

Chief Executive

Attends by invitation

Group Counsel & Company Secretary

Attends as secretary to the Committee

Director of Human Resources

Attends by invitation

Pricewaterhouse Coopers LLP

Attends as adviser to the Committee

Notes
1. Mary Jo Jacobi was appointed to the Committee on 21 January 2014.
2. Charles Berry was appointed to the Committee on 1 March 2013 and resigned from the Committee on 31 December 2013.

There were seven meetings held during the 53 weeks to 3 January 2014, and the attendance of the individual members of the Committee
during that period is detailed in the table above. All members of the Committee are considered to be independent Non-Executive Directors
and no Director plays a part in the determination of their own remuneration. Executive Directors and senior management attend committee
meetings at the invitation of the Committee Chairman. No member of the Committee has any personal financial interest, other than as a
shareholder, in the matters decided by the Committee.

Remuneration Committee activities in 2013
In 2013, the Committee discussed the key agenda items set out in the following table:

Date

January

February

June

July

September

October

December

Agenda items

Approval of Group Executive bonus payments; noting of remuneration of the Group Executive;
approval of bonus measures and targets for year; approval of changes to LTIP comparator
group; and review of final draft of the 2012 Directors’ Remuneration Report.

Noting of bonus payments to be paid to senior executives; approval of LTIP vesting in respect
of 2010; approval of participants and performance conditions of the 2013 LTIP award; and
finalisation of the 2012 Director’s Remuneration Report.

Consideration of update on the strategic review of remuneration.

Approval of LTIP grants for new joiners; approval of changes to the LTIP comparator groups;
and consideration of the strategic remuneration review proposals for 2014.

Consideration of updated proposals under the strategic remuneration review and discussion
on Remuneration Committee advisor performance.

Approval of final proposals for 2014 remuneration structure; consideration of interim updates
of bonus and LTIP performance; review of internal operating guidelines for incentives; and review
of pension proposals under auto-enrolment.

Consideration of shareholder feedback to strategic remuneration review; approval of proposed
2014 LTIP performance targets and proposed measures and targets for the 2014 annual bonus
plan; review of salaries for Executive Directors for 2014 and initial proposals for the wider Group;
review of the Remuneration Committee Terms of Reference and review of the 2014 calendar for
the Remuneration Committee.

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Remuneration Report

REMUNERATION REPORT
Continued

Advisors
In discharging its responsibilities in 2013, the Committee was materially assisted by the Director of Human Resources and the Company
Secretary.

PricewaterhouseCoopers LLP (PwC) was appointed following a review of providers by the Committee in 2011 and continued to serve as
independent external advisor to the Committee. Fees paid to PwC in relation to remuneration services provided to the Committee in 2013
totalled £108,000. This included advice on remuneration policy and practice as well as guidance to the Committee on corporate governance
trends and best practice. PwC is a signatory to the Remuneration Consultants’ Group Voluntary Code of Conduct.

The Committee recognises the need to obtain independent advice and given that PwC provides additional services to the Group, the
Remuneration Chairman has discussed this with PwC and management. The Committee is confident that any potential conflicts are managed
appropriately by the Company and PwC. For information, the additional services provided by PwC include advice on pension schemes,
taxation, company secretariat services and global mobility services. PwC also provided internal audit services, advice in relation to working
capital management, and provided due diligence and corporate finance advice in relation to acquisitions.

Statement on voting
The Company is committed to maintaining an open shareholder dialogue and takes an active interest in voting outcomes. In the event of
a substantial vote against the Directors’ Remuneration Report, the Company would seek to understand the reasons for any such vote and
would set out in the following Annual Report actions implemented in response.

At the Company’s last Annual General Meeting on 1 May 2013, the resolution to approve the Directors’ Remuneration Report as contained
in the Annual Report and Financial Statements 2012 was supported as follows:

Voting outcome

2012 Directors’ Remuneration Report

133,236,019

96.81% 4,389,417

3.19% 137,625,436

1,645,175

Votes for

Percentage

against

Percentage

Votes

Votes
total

Votes
withheld

On behalf of the Board of Directors

Melanie Gee
Chairman of the Remuneration Committee
26 February 2014

112

The Weir Group PLC Annual Report and Financial Statements 2013OTHER STATUTORY INFORMATION

2014 Annual General Meeting
The Annual General Meeting will be held at 2.30pm on Thursday 1 May 2014 at the Radisson Blu Hotel, Argyle Street, Glasgow. The Notice
of Meeting along with an explanation of the proposed resolutions are set out in a separate circular to shareholders which accompanies this
Annual Report and can be downloaded from the Company’s website.

Notice of the AGM is sent to shareholders at least 20 working days before the meeting. The Company conducts the vote at the AGM by
electronic poll and the result of the votes, including proxies, is published on the Company’s website after the meeting.

Dividend
The Directors have recommended a final dividend of 33.2p per share for the 53 weeks ended 3 January 2014. Payment of this dividend is subject
to shareholder approval at the 2014 AGM.

Substantial shareholders
At 3 January 2014, 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

Aberdeen Asset Managers Ltd

AXA

Legal & General

Norges Bank

Number of
shares

Percentage of
issued share
capital

10,797,589

10,637,959

9,978,391

8,503,919

5.07%

4.99%

4.70%

3.99%

No changes have been disclosed to the Company between 3 January 2014 and 26 February 2014. Since this date, 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 135.

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.

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.

Further details of the Group’s employment policies and involvement are detailed in the Sustainability Review on pages 56 to 57.

Greenhouse gas emissions
The Company is required to state the annual quantity of emissions in tonnes of carbon dioxide equivalent from activities for which the Company
is responsible, including the combustion of fuel and the operation of any facility. The Group’s global greenhouse gas (GHG) emissions for
2013 and related disclosures required under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 are
contained in the Sustainability Review on pages 50 to 53 and form part of the Directors’ Report disclosures.

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 165 to 173.

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Other Statutory Information

OTHER STATUTORY INFORMATION
Continued

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 159. The rights attaching to the shares are set out in the Company’s 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.

The Weir Group has two employee benefit trusts: one with the trustees Kleinwort Benson (Guernsey) Trustees Limited (the ‘Kleinwort EBT’)
and one with the trustees Appleby Trust (Jersey) Limited (the ‘Appleby EBT’).

During the period, the 2010 LTIP award vested and the trustees of the Kleinwort EBT transferred 24,528 ordinary shares to employees to satisfy
the LTIP awards using ordinary shares purchased by the Kleinwort EBT in the market. A further 382,450 ordinary shares were transferred out
of treasury to satisfy awards under the LTIP. In addition, a total of 259,159 ordinary shares, with an aggregate value of £32,394.88, were allotted
during the period in connection with the Company’s LTIP.

Both EBTs have agreed to waive any right to all dividend payments on shares held by them, with the exception of shares held in respect
of awards which have a dividend entitlement. Details of the shares held by the EBTs are set out in note 25 to the Group financial statements
on page 159. The Kleinwort EBT holds, through its account nominee K.B. (CI) Nominees Limited, 0.04% of the issued share capital of the
Company, as at 3 January 2014, in trust for the benefit of certain Executive Directors and senior executives of the Group. The Appleby EBT
holds, through account nominee Forest Nominees Limited, 0.12% of the issued share capital of the Company as at 3 January 2014. 0.04% of
this is held in trust for the benefit of certain senior executives of the Group, and 0.08% is held in trust on behalf of the Company for satisfaction
of any future vesting of the Weir Group Deferred Bonus Plan. With the exception of the shares held for the benefit of certain senior executives,
the voting rights in relation to these shares are exercised by the trustees. The EBTs may vote or abstain from voting with the shares or accept
or reject any offer relating to shares, in any way they see fit, without incurring any liability and without being required to give reasons for
their decision.

Repurchase of shares
At the 2013 Annual General Meeting, shareholders renewed the Company’s authority to make market purchases of up to 21.12m ordinary
shares (representing approximately 10% of the issued share capital excluding treasury shares). No shares were purchased under this authority
during the 53 weeks ended 3 January 2014 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 AGM specifies deadlines for exercising voting rights and appointing
a proxy or proxies to vote in relation to resolutions to be passed at the AGM. The Company conducts the vote at the AGM by electronic poll.
All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the AGM 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.

Directors’ indemnities
The Company has granted indemnities to each of its Directors in respect of all losses arising out of or in connection with the execution
of their powers, duties and responsibilities as Directors to the extent permitted by the Companies Act 2006 and the Company’s Articles
of Association. In addition, Directors and officers of the Company and its subsidiaries and trustees of its pension schemes are covered
by Directors and Officers liability insurance.

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The Weir Group PLC Annual Report and Financial Statements 2013Change 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 five year US$800m multi-currency revolving credit facility with a syndicate of 12 banks due to mature in July 2018.
Under the terms of this agreement, if there is a change of control of the Company any lender may request, by not less than 30 days’ notice
to the Company, that its commitment be cancelled and all outstanding amounts be repaid to that lender at the expiry of such notice period.

The Company has in issue fixed rate private placement notes with a range of maturities: US$90m at an interest rate of 4.2% due on 11 January
2015, £12m at an interest rate of 4.58% due on 11 January 2015, US$70m at an interest rate of 5.03% due on 11 January 2018, £43m at an
interest rate of 5.36% due on 11 January 2018, US$210m at an interest rate of 3.69% due on 16 February 2019, US$590m at an interest rate
of 4.27% due on 16 February 2022 and US$200m at an interest rate of 4.34% due on 16 February 2023. Under the terms of the applicable note
purchase 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.

Management report
The Strategic Report and the Directors’ Report constitute the management report as required under the Disclosure and Transparency Rule
4.1.5R.

Directors’ Report disclosures contained in the Strategic Report
The Company has chosen to disclose the following information in the Strategic Report on pages 1 to 63:
• Particulars of any important events, if any, affecting the Company which have occurred since the end of the financial year.
• An indication of likely future developments in the business of the Company.
•

An indication of the activities of the Company in the field of research and development.

Confirmations
So far as each of the Directors is aware, there is no relevant audit information (as defined by section 481 of the Companies Act 2006) of which
the Company’s auditors are unaware.

Each of the Directors has taken all of the steps that he or she ought to have taken as a Director to make themselves aware of any relevant audit
information and to establish that the Company’s auditors are aware of that information.

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 165 to 173. Each of these items
has been considered in relation to the Group’s banking facilities described in note 20 on pages 150 and 151.

The Directors’ Report, covering pages 64 to 116 of the Annual Report and Financial Statements 2013 has been approved by the Board of
Directors in accordance with the Companies Act 2006.

On behalf of the Board of Directors

Keith Ruddock
Company Secretary
26 February 2014

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Statement of Directors’ Responsibilities

STATEMENT OF DIRECTORS’ 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 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.

The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors consider that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s performance, business model and strategy.

Each of the Directors, as at the date of this report, confirms to the best of their knowledge that:
• The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,

liabilities, financial position and profit of the Group.

• The Strategic Report and the Director’s Report include 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.

On behalf of the Board of Directors

Charles Berry
Chairman
26 February 2014

Keith Cochrane
Chief Executive
26 February 2014

116

The Weir Group PLC Annual Report and Financial Statements 2013

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE WEIR GROUP PLC

We have audited the Group financial statements of The Weir Group PLC for the 53 weeks ended 3 January 2014 which comprise the Consolidated
Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Cash Flow
Statement, the Consolidated Statement of Changes in Equity and the related notes 1 to 32. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an 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 and auditor
As explained more fully in the Statement of Directors’ Responsibilities set out on page 116, 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 to identify material inconsistencies with
the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the audit. 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 3 January 2014 and of its profit for the 53 weeks then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

Our assessment of risks of material misstatement
We identified the following risks of material misstatement that had the greatest effect on the audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team:
• acquisition accounting, focussing on the fair value adjustments made on the 2013 acquisition of Mathena Inc;
•

the assessment of the valuation applied to contingent consideration, focussing on the consideration related to the 2013 acquisition
of Mathena Inc;

• valuation of inventory, focussing on the excess and obsolescence risk associated with the North American Oil and Gas pressure

•

pumping businesses;
the carrying value of goodwill and intangible assets, focussing on the reassessment and disclosure of the change in CGUs applied
during the year and the carrying values of intangibles related to the renewables businesses;

• adequacy of the Group’s liability provisioning, including those relating to legal or regulatory obligations;
•

the Group’s exposure to significant tax risks and the level of provisions recognised, given the estimation uncertainty in respect
of settlements with tax authorities around the world; and
the risk of fraud and management override of internal controls, specifically in relation to revenue and profit recognition on significant
construction contracts across the Group.

•

Our application of materiality
We set certain thresholds for materiality. These provide a basis for determining the nature, timing and extent of risk assessment procedures,
identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures.

Based on our professional judgement, we determined materiality for the Group to be £20m (2012: £20m), which is below 5% of forecast profit
before tax from continuing operations.

We agreed with the Audit Committee that we would report to the Committee all individual unadjusted audit differences and significant
judgemental items which either affect the Income Statement in excess of £0.5m (2012: £0.5m), or the Balance Sheet in excess of £2m (2012:
£2m), as well as differences below that threshold that, in our professional judgement, warranted reporting on qualitative grounds.

An overview of the scope of our audit
Following our assessment of the risk of material misstatement to the Group financial statements, we selected twenty one (2012: nineteen)
locations which represent the principal business units within the Group’s three reportable segments and account for 69% (2012: 70%) of the
revenue, 73% (2012: 77%) of the profit before tax from continuing operations and 75% (2012: 72%) of the net assets. Three (2012: two) of these
were subject to a full audit, whilst the remaining eighteen (2012: seventeen) were subject to a partial audit where the extent of audit work was
based on our assessment of the risks of material misstatement and of the materiality of the Group’s business operations at those locations.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE WEIR GROUP PLC
Continued

The audit work at the twenty one locations was executed at levels of materiality applicable to each individual entity which were lower than
Group materiality.

In addition, certain central reporting entities and Group functions including those covering treasury, taxation, pensions and the Parent
Company were subject to a full scope audit. For the remaining locations, we performed other procedures to confirm there were no significant
risks of material misstatement in the Group financial statements.

The Group audit team continued to follow a programme of planned visits and video-conferencing that has been designed to ensure that the
Senior Statutory Auditor or his designate visits those locations with greatest exposure to the risks of material misstatements noted above.

Our response to the risks of material misstatement identified above included the following procedures:

Acquisition accounting
• For the acquisition of Mathena Inc in the year, we reviewed the purchase contracts to understand key terms and conditions, reviewed
due diligence accounting checklists prepared by management or their independent advisors and the disclosures proposed for the
financial statements.

• We challenged management’s assumptions in their assessment of the acquisition fair values of other assets and liabilities, focussing on

the adjustments to provisions, properties and taxation.

• We engaged valuation specialists to challenge the key judgements and models applied in the recognition and measurement of separately

identifiable intangible assets.

The fair valuation assessment of contingent consideration
• We obtained and reviewed the purchase contracts for the Mathena Inc acquisition, along with current and forecasted operating results

for that entity.

• We challenged management’s current fair valuation assessment of the contingent consideration balance, and considered any impact

on the carrying value of related goodwill or intangible balances.

• We reviewed the presentation and disclosure within the financial statements of the contingent consideration balance and the adjustments

made during the year.

Valuation of inventory
• Focussing on the North American Oil and Gas pressure pumping business, we performed an aged analysis of the inventory, comparing
specific inventory lines against market activity as well as current and forecast sales to identify excess or obsolete inventory exposures.

• We also considered the application of the inventory provisioning accounting policy, including challenging the appropriateness of

assumptions made by management, through comparison of the provisioning made at a local and Group level against our analysis
of excess or obsolete inventory.

The carrying value of goodwill and intangible assets
• We challenged management’s impairment testing of intangible assets including projected cash flows and perpetuity rates and sensitivities

performed, and engaged our valuations specialists to review the discount rate assumptions. We considered potential indicators of
impairment for each Group entity with associated intangible assets, focussing on the specific renewables businesses noted as having
indicators of impairment. We considered a reasonable change in impairment assumptions to determine whether an impairment charge
was required.

• We challenged management’s process for reassessing the appropriateness of the CGUs during the year, and their disclosure of the

basis for this change in the year.

Adequacy of the Group’s liability provisioning
• We have reviewed the assumptions and methodologies applied behind specific provision calculations, and compared against our

expectations. Where applicable, we have agreed projected costs against historical cost experience or supporting external evidence.
• We have discussed the status of current litigation or regulatory issues with in house legal and external lawyers throughout our audit

process, reviewing correspondence with third parties and related contractual agreements.

The Group’s exposure to significant tax risks
• We have utilised internal national and appropriate international taxation specialists to assist the Group team in the evaluation of the

assumptions and estimates in relation to the level of provisions recognised for significant tax risks. We have considered the movements
in these provisions during the period, and the closing balances against our expectations.

The risk of fraud and management override of internal controls, specifically in relation to revenue and profit recognition
on significant construction contracts across the Group
•

In relation to the specific risk of management override noted, we tested controls around accounting for significant construction contracts
at specific locations, performed reviews of those contracts at those locations with operational management, and challenged the
appropriateness of assumptions made by management following the outcome of similar assumptions made at the prior year end.

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The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial period for which the Group’s 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 ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing

our audit; or
is otherwise misleading.

•

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit
and the Directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report
appropriately discloses those matters that we communicated to the Audit Committee which we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in our opinion:
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:
•
•

the Directors’ statement, set out on page 115, 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.

Other matter
We have reported separately on the Company financial statements of The Weir Group PLC for the 53 weeks ended 3 January 2014 and on the
information in the Remuneration Report that is described as being audited.

James Nisbet (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
26 February 2014

119

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013CONSOLIDATED INCOME STATEMENT
for the 53 weeks ended 3 January 2014

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 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

53 weeks ended 3 January 2014

52 weeks ended 28 December 2012
Restated (note 2)

Before
exceptional
items &
intangibles
amortisation
£m

Exceptional
items &
intangibles
amortisation
(note 5)
£m

Notes

Before
exceptional
items &
intangibles
amortisation
£m

Exceptional
items &
intangibles
amortisation
(note 5)
£m

Total
£m

2,429.8

–

2,429.8

2,538.3

–

2,538.3

458.1

8.4

23.8

481.9

478.7

(16.5)

462.2

–

8.4

6.4

–

6.4

466.5

23.8

490.3

485.1

(16.5)

468.6

(47.9)

(10.7)

(58.6)

(46.5)

(2.6)

(49.1)

3.0

(3.5)

418.1

(107.5)

310.6

–

13.1

12.0

25.1

–

3.0

(3.5)

5.2

(4.0)

431.2

439.8

(95.5)

(123.3)

335.7

316.5

–

310.6

25.1

335.7

316.5

–

(19.1)

12.6

(6.5)

3.3

(3.2)

5.2

(4.0)

420.7

(110.7)

310.0

3.3

313.3

309.8

0.8

310.6

25.1

334.9

316.2

(3.2)

313.0

–

0.8

0.3

–

0.3

25.1

335.7

316.5

(3.2)

313.3

145.4p

157.2p

149.0p

157.2p

144.9p

156.6p

148.1p

156.6p

147.5p

145.9p

146.6p

145.1p

120

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the 53 weeks ended 3 January 2014

Profit for the period

Other comprehensive income

Gains taken to equity on cash flow hedges

Exchange losses on translation of foreign operations

Exchange gains on net investment hedges

Reclassification adjustments on cash flow hedges

Tax relating to other comprehensive (expense) income to be reclassified in subsequent periods

Items that are or may be reclassified to profit or loss in subsequent periods

Remeasurements on defined benefit plans

Tax relating to other comprehensive income (expense) that will not be reclassified in subsequent periods

Items that will not be reclassified to profit or loss in subsequent periods

Net other comprehensive expense

Total net comprehensive income for the period

Attributable to:

Equity holders of the Company

Non-controlling interests

52 weeks
ended
28 December
2012
Restated
(note 2)
£m

53 weeks
ended
3 January
2014
£m

335.7

313.3

Notes

0.1

(111.3)

16.5

0.2

0.3

1.4

(84.9)

38.6

0.8

(0.4)

(94.2)

(44.5)

8.0

(2.2)

5.8

(10.8)

2.5

(8.3)

(88.4)

(52.8)

247.3

260.5

247.3

260.5

–

247.3

260.5

121

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013CONSOLIDATED BALANCE SHEET
at 3 January 2014

ASSETS

Non-current assets

Property, plant & equipment

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

Approved by the Board of Directors on 26 February 2014

Keith Cochrane
Director

Jon Stanton
Director

122

3 January
2014
£m

28 December
2012
£m

Notes

398.7

374.0

1,614.5

1,454.1

27.1

17.2

1.1

12.0

30.4

0.8

2,058.6

1,871.3

485.0

497.1

28.3

11.1

2.3

79.1

1,102.9

3,161.5

26.5

476.8

12.1

9.6

36.7

28.9

512.7

478.2

21.7

3.6

4.1

391.1

1,411.4

3,282.7

65.4

485.8

13.7

14.7

28.6

36.4

590.6

644.6

799.6

1,014.6

22.4

0.6

25.7

165.5

70.4

1,084.2

1,674.8

1,486.7

26.7

38.0

(5.8)

0.5

(57.3)

0.8

26.3

0.8

33.2

162.5

90.4

1,327.8

1,972.4

1,310.3

26.7

38.0

(5.6)

0.5

37.5

0.2

1,479.3

1,482.2

4.5

1,209.8

1,307.1

3.2

1,486.7

1,310.3

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

CONSOLIDATED CASH FLOW STATEMENT
for the 53 weeks ended 3 January 2014

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

Investment in joint ventures

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 incentives

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 equity holders of the Company

Net cash (used in) generated from financing activities

Net (decrease) increase in cash & cash equivalents from continuing operations

Cash & cash equivalents at the beginning of the period

Foreign currency translation differences

Cash & cash equivalents at the end of the period

Notes

53 weeks
ended
3 January
2014
£m

52 weeks
ended
28 December
2012
£m

473.9

398.6

(12.1)

(71.9)

389.9

(7.5)

(104.9)

286.2

(201.2)

(123.3)

(0.3)

(14.0)

22.9

–

(108.4)

(123.6)

11.1

2.8

6.1

7.3

5.1

5.4

(303.9)

(206.2)

(2.2)

(3.0)

312.5

786.9

(572.0)

(462.5)

(1.3)

(5.0)

(43.3)

0.6

(1.9)

(11.0)

(33.4)

1.0

(82.6)

(71.7)

(393.3)

204.4

(307.3)

384.2

(8.3)

68.6

284.4

108.6

(8.8)

384.2

123

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the 53 weeks ended 3 January 2014

Share
capital
£m

Share
premium
£m

Treasury
shares
£m

Capital
redemption
reserve
£m

Foreign
currency
translation
reserve
£m

Hedge
accounting
reserve
£m

Retained
earnings
£m

Attributable
to equity
holders
of the
Company
£m

Non-
controlling
interests
£m

Total
equity
£m

At 30 December 2011

26.6

38.0

(5.6)

0.5

83.5

(1.6)

974.0

1,115.4

2.1 1,117.5

Profit for the period (restated note 2)

Gains taken to equity on cash
flow hedges

Exchange losses on translation
of foreign operations

Exchange gains on net investment
hedges

Remeasurements on defined
benefit plans (restated note 2)

Reclassification adjustments on cash
flow hedges

Tax relating to other comprehensive
income (restated note 2)

Total net comprehensive income for
the period (restated note 2)

Proceeds from increase in
non-controlling interests

Cost of share-based payments
inclusive of tax charge

Dividends

Purchase of shares*

–

Exercise of LTIP awards

0.1

–

(2.0)

2.0

–

(84.6)

38.6

–

313.0

0.3

313.3

1.4

–

1.4

(84.6)

(0.3)

(84.9)

–

1.4

–

38.6

(10.8)

0.8

–

(0.4)

2.5

0.8

2.1

(46.0)

1.8

304.7

260.5

–

1.1

4.9

(71.7)

–

(2.1)

4.9

(71.7)

(2.0)

–

38.6

(10.8)

0.8

2.1

260.5

1.1

4.9

(71.7)

(2.0)

–

26.7

38.0

(5.6)

0.5

37.5

0.2 1,209.8

1,307.1

3.2 1,310.3

At 28 December 2012
(restated note 2)

Profit for the period

Gains taken to equity on cash
flow hedges

Exchange losses on translation
of foreign operations

Exchange gains on net investment
hedges

Remeasurements on defined
benefit plans

Reclassification adjustments 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 credit

Dividends

Purchase of shares*

Exercise of LTIP awards

–

At 3 January 2014

26.7

38.0

–

(1.4)

1.2

(5.8)

–

(111.3)

16.5

–

334.9

0.8

335.7

0.1

–

0.2

0.3

–

8.0

–

0.1

(111.3)

16.5

8.0

0.2

(2.2)

(1.9)

–

0.1

(111.3)

16.5

8.0

0.2

(1.9)

(94.8)

0.6

340.7

246.5

0.8

247.3

–

0.5

12.6

(82.6)

–

(1.2)

12.6

(82.6)

(1.4)

–

12.6

(82.6)

(1.4)

–

0.5

(57.3)

0.8 1,479.3

1,482.2

4.5 1,486.7

* These shares were purchased on the open market and are held by the Appleby EBT on behalf of the Group for satisfaction of any future vesting of the deferred bonus plan.

124

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

NOTES TO THE GROUP FINANCIAL STATEMENTS

1. Authorisation of financial statements and statement of compliance
The consolidated financial statements of The Weir Group PLC (the ‘Company’) and its subsidiaries (together, the ‘Group’) for the 53 weeks
ended 3 January 2014 (‘2013’) were approved and authorised for issue in accordance with a resolution of the directors on 26 February 2014.
The comparative information is presented for the 52 weeks ended 28 December 2012 (‘2012’). 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 period has been analysed between:
i) profit before exceptional items and intangibles amortisation; and
ii) the effect of exceptional items and intangibles amortisation.

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
may include but are not restricted to: profits or losses arising on disposal or closure of businesses; the cost of significant business restructuring;
significant impairments of intangible or tangible assets; adjustments to the fair value of acquisition related items such as contingent consideration
and inventory; other items deemed exceptional due to their significance, size or nature; and the related exceptional taxation.

Intangibles amortisation, including impairment, has been shown separately to provide visibility over the impact of increased acquisition activity
on intangible assets.

Further analysis of the items included in the column ‘Exceptional items & intangibles amortisation’ is provided in note 5 to the financial statements.

The accounting policies which follow are consistent with those of the previous periods except for the adoption of the following standards and
interpretations which have not had a material impact on the Group’s financial statements in the period of initial application.

IAS 19 (Revised), ‘Employee benefits’
The Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in
Equity and affected notes have been restated for the 52 weeks ended 28 December 2012, to reflect changes in the calculation of pension costs
in accordance with IAS 19 (Revised) ‘Employee Benefits’. The net charge to the Income Statement for the 52 weeks ended 28 December 2012
increased by £3.3m, on a pre tax basis, with a tax impact of £0.9m. Operating profit reduced by £0.5m due to the recognition of administrative
costs, while other finance costs increased by £2.8m following the introduction of the concept of recognising net interest on the net defined
benefit obligation in place of the interest on the defined benefit obligation and the expected return on plan assets recognised under the original
standard. The restatements have been reflected in the Consolidated Statement of Comprehensive Income and there was no impact on the
disclosed defined benefit obligation at 28 December 2012. The additional net charge to the income statement reduces basic earnings per
share for total operations by 1.1p to 147.5p and diluted earnings per share for total operations by 1.1p to 146.6p. The impact on the current
year is disclosed in note 24.

Amendment to IAS 1, ‘Presentation of financial statements’ – presentation of items of other comprehensive income
The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or
recycled) to profit or loss at a future point in time now have to be presented separately from items that will never be reclassified. The amendment
affected presentation only and had no impact on the Group’s financial position or performance.

IFRS 13, ‘Fair value measurement’
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required
to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application
of IFRS 13 has not materially impacted the fair value measurements carried out by the Group. IFRS 13 also requires specific disclosures on
fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures.
The relevant disclosures are reflected in notes 13 and 30.

Several other amendments apply for the first time in 2013. However, they do not impact the Group financial statements.

125

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES 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 48 and in notes 14 and 24.

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 direct activities that significantly
influence returns. 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 over 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 IFRS 1, 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.

126

The Weir Group PLC Annual Report and Financial Statements 2013Financial StatementsRevenue 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 sale 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, and 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

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 is recognised at the acquisition date. Subsequent changes to the fair value of the contingent consideration are
adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes
in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and
circumstances that existed as of the acquisition date, and is subject to a maximum of one year.

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.

127

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

2. Accounting policies (continued)
The expected useful lives of acquired intangible assets are as follows:

Brand names
Customer relationships
Purchased software
Intellectual property & trade marks
Other

–
–
–
–
–

indefinite life
5 – 25 years
4 – 8 years
6 – 15 years
up to 6 years

Research & development costs
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 is 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 and contingent consideration in relation to acquisitions.

A financial asset is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability
is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the
respective carrying amounts together with any costs or fees incurred are recognised in profit or loss.

Trade 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.

128

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements
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 and counterparty and own credit risk. 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, spot foreign exchange rates and counterparty and own credit
risk. Changes in their fair values have been recognised in the income statement, except where hedge accounting is used, provided the
conditions specified by IAS 39 are met. Hedge accounting is applied in respect of hedge relationships where it is both permissible under
IAS 39 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.

Share-based payments
Equity settled share-based incentives are provided to employees under the Group’s Long Term Incentive Plan (LTIP), the Executive Bonus
Scheme (EBS) and as a consequence of occasional one-off conditional awards made to senior executives.

The fair value of the LTIP 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 or performance conditions.

The EBS is determined as a percentage of the annual bonus. This percentage is matched by the Group with a share award that will vest on the
third anniversary of the grant date provided the individual continues to hold the original bonus shares awarded and continues to be employed by
the company at the date of vesting. The EBS includes a strategic bonus shares element for a limited number of senior employees. The fair value of
the matching and strategic elements of the EBS is determined at the date of grant of the bonus and the cost is recognised on a straight-line basis
over the vesting period. 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 changes to the LTIP which will take effect in 2014 are described in the Directors Remuneration Policy on page 88.

As permitted by IFRS 1, the Group has applied IFRS 2 ‘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.

129

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

2. Accounting policies (continued)
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 certain current and former employees in the UK, US and Canada and
post-retirement healthcare benefits provided to certain employees in the US.

For defined benefit pension and post-retirement healthcare plans, the annual service cost is calculated using the projected unit credit method
and is recognised over the future service lives of participating employees, in accordance with the advice of qualified actuaries. Current service
cost and administration expenses are recognised in operating costs and net interest on net pension liability is recognised in finance costs.

The finance cost recognised in the income statement in the period reflects the net interest on the net pension liability. This represents the
change in the net pension liability resulting from the passage of time, and is determined by applying the discount rate to the opening net
liability, taking into account employer contributions paid into the plan, and hence reducing the net liability, during the period.

Past service costs resulting from enhanced benefits are recognised immediately in the income statement. Actuarial gains and losses,
which represent differences between interest on the plan assets, experience on the benefit obligation and the effect of changes in
actuarial assumptions, are recognised in full in other 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 yields at the balance sheet date on appropriate high quality corporate bonds that have maturity
dates approximating the terms of the Group’s obligations and are denominated in the currency in which the benefits are expected to be paid,
minus the fair value of the plan assets, if any, at the balance sheet date. The balance sheet amount recognised is limited to the present value
of economic benefits which the Group expects to recover by way of refunds or a reduction in future contributions. In order to calculate the
present value of economic benefits, consideration is also given to any minimum funding requirements.

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:
a. deferred tax arising from the initial recognition of goodwill, or of an asset or liability in a transaction that is not a business combination, that,

at the time of the transaction, affects neither accounting nor taxable profit or loss, is not recognised;

b. 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; and

c. a deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset

can be utilised.

130

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements
Deferred tax liabilities represent tax payable in future periods in respect of taxable temporary differences. Deferred tax assets represent tax
recoverable in future periods in respect of deductible temporary differences, the carry forward of unutilised tax losses and the carry forward of
unused tax credits. Deferred tax is measured on an undiscounted basis using the tax rates and tax laws that have been enacted or substantively
enacted at the balance sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled.

Current and deferred tax is recognised in the income statement except if it relates to an item recognised directly in equity, in which case it is
recognised directly in equity.

New standards & interpretations
The International Accounting Standards Board and International Financial Reporting Interpretations Committee have issued the following
standards and interpretations, which are considered relevant to the Group, with an effective date after the date of these financial statements.

International Accounting Standards (IAS/IFRS)

IFRS 10 ‘Consolidated Financial Statements’

IFRS 11 ‘Joint Arrangements’

IFRS 12 ‘Disclosure of Interests in Other Entities’

Amendments to IFRS 10, 11 and 12 on transition guidance

IAS 27 (revised 2011) ‘Separate financial statements’

IAS 28 (revised 2011) ‘Associates and joint ventures’

Amendment to IAS 32, ‘Financial instruments: Presentation’, on offsetting financial assets and financial liabilities

IAS 36 (amendment) ‘Impairment of Assets’, recoverable amount disclosures for non-financial assets

IAS 39 (amendment) ‘Financial Instruments’, novation of derivatives and continuation of hedge accounting

IFRIC 21 Levies

IAS 19 ‘Defined benefit plans’, employee contributions

Annual Improvements to IFRSs 2010-2012 Cycle

Annual Improvements to IFRSs 2011-2013 Cycle

* Not yet adopted for use in the European Union.

Effective date for
periods commencing

1 January 2014

1 January 2014*

1 July 2014

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 IFRS 8. 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 is the global leader in the provision of slurry handling equipment and associated aftermarket support for abrasive
high wear applications used in the mining and oil sands markets. The Oil & Gas segment provides products and service solutions to upstream,
production, transportation, refining and related industries. The Power & Industrial segment 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. In prior periods,
all other segments, disclosed as Group companies, included the results of LGE Process which supplied equipment to the liquefied petroleum
gas marine and onshore markets. The business was sold on 28 December 2012 (note 5).

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.

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Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

3. Segment information (continued)
The segment information for the reportable segments for the 53 weeks ended 3 January 2014 and the 52 weeks ended 28 December 2012
is disclosed below.

Revenue

Sales to external customers

Inter-segment sales

Segment revenue

Group companies sales to external customers

Eliminations

Minerals

Oil & Gas

Power & Industrial

Total continuing operations

2013
£m

2012
£m

2013
£m

2012
£m

2013
£m

2012
£m

2013
£m

2012
£m

1,304.3

1,333.6

4.4

4.3

1,308.7

1,337.9

795.9

15.7

811.6

843.6

15.3

858.9

329.6

323.4

2,429.8

2,500.6

7.3

4.0

27.4

23.6

336.9

327.4

2,457.2

2,524.2

–

(27.4)

37.7

(23.6)

2,429.8

2,538.3

Sales to external customers – 2012 at 2013 average exchange rates

Sales to external customers

1,304.3

1,307.1

795.9

856.6

329.6

325.6

2,429.8

2,489.3

Group companies sales to external customers

–

37.7

2,429.8

2,527.0

Result (restated note 2)

Segment result before share of results
of joint ventures

268.7

255.9

172.1

204.2

Share of results of joint ventures

–

8.4

6.4

Segment result

268.7

255.9

180.5

210.6

31.3

–

31.3

31.5

472.1

491.6

–

8.4

6.4

31.5

480.5

498.0

Group companies

Unallocated expenses

Operating profit before exceptional items & intangibles amortisation

Total exceptional items & intangibles amortisation

Net finance costs before exceptional items

Other finance costs – retirement benefits before exceptional items

Profit before tax from continuing operations

–

(14.0)

466.5

13.1

(44.9)

(3.5)

2.5

(15.4)

485.1

(19.1)

(41.3)

(4.0)

431.2

420.7

Segment result (restated note 2) – 2012 at 2013 average exchange rates

Segment result before share of results of
joint ventures

268.7

253.0

172.1

207.3

Share of results of joint ventures

–

8.4

6.5

Segment result

268.7

253.0

180.5

213.8

Group companies

Unallocated expenses

Operating profit before exceptional items & intangibles amortisation

There are no material revenues derived from a single external customer.

31.3

–

31.3

31.9

472.1

492.2

–

8.4

6.5

31.9

480.5

498.7

–

(14.0)

466.5

2.5

(15.4)

485.8

132

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

Minerals

Oil & Gas

Power & Industrial

Total continuing operations

2013
£m

2012
£m

2013
£m

2012
£m

2013
£m

2012
£m

2013
£m

2012
£m

Assets & liabilities

Intangible assets

Property, plant & equipment

Working capital assets

397.0

198.7

449.6

368.4

1,109.4

199.1

485.9

147.2

390.9

974.4

121.6

365.8

1,045.3

1,053.4

1,647.5

1,461.8

Investments in joint ventures

–

27.1

12.0

101.6

109.8

1,608.0

1,452.6

50.9

176.2

328.7

–

52.2

396.8

372.9

167.0

1,016.7

1,018.7

329.0

3,021.5

2,844.2

–

27.1

12.0

Segment assets

Unallocated assets

Total assets

1,045.3

1,053.4

1,674.6

1,473.8

328.7

329.0

3,048.6

2,856.2

112.9

426.5

3,161.5

3,282.7

Working capital liabilities

243.4

263.7

149.9

128.0

87.3

88.0

480.6

479.7

Group companies liabilities

Unallocated liabilities

Total liabilities

Other segment information

–

3.4

1,194.2

1,489.3

1,674.8

1,972.4

Segment additions to non-current assets

56.6

50.4

37.6

52.3

11.1

18.6

105.3

121.3

Unallocated additions to non-current assets

Total additions to non-current assets

6.3

2.3

111.6

123.6

Segment depreciation & amortisation

35.3

31.5

54.9

42.9

14.2

10.9

104.4

Unallocated depreciation & amortisation

Total depreciation & amortisation

1.4

105.8

85.3

0.8

86.1

Unallocated assets primarily comprise 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, contingent consideration 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).

Geographical information
Geographical information in respect of revenue and non-current assets for the 53 weeks ended 3 January 2014 and the 52 weeks ended
28 December 2012 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, intangible assets and
investments in joint ventures.

53 weeks ended 3 January 2014

Revenue from continuing operations

UK
£m

USA
£m

Canada
£m

Europe
& FSU
£m

Asia
Pacific
£m

Australia
£m

South
America
£m

Middle East

& Africa
£m

Total
£m

Sales to external customers

104.8

743.4

234.6

Non-current assets

102.8

1,251.5

58.1

246.1

141.7

229.8

180.3

223.2

157.5

308.1

339.8

2,429.8

50.2

98.2

2,040.3

52 weeks ended 28 December 2012

Revenue from continuing operations

UK
£m

USA
£m

Canada
£m

Europe
& FSU
£m

Asia
Pacific
£m

Australia
£m

South
America
£m

Middle East

& Africa
£m

Total
£m

Sales to external customers

87.7

787.1

262.5

Non-current assets

103.2

1,083.1

24.1

215.4

143.3

287.9

172.4

236.0

163.5

316.3

345.4

2,538.3

52.1

98.4

1,840.1

133

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NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

3. Segment information (continued)
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 (2012: £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

2013
£m

2012
£m

818.8

1,039.3

1,074.4

990.8

1,893.2

2,030.1

461.4

415.7

75.2

92.5

2,429.8

2,538.3

3.0

5.2

2,432.8

2,543.5

2012
Restated
(note 2)
£m

2013
£m

2,429.8

2,538.3

(1,557.2)

(1,652.2)

872.6

70.8

(222.6)

(238.9)

8.4

886.1

35.2

(220.8)

(238.3)

6.4

490.3

468.6

* Other operating income includes £67.8m exceptional gain on release of Mathena contingent consideration (note 5) in 2013. The prior year includes £30.5m in relation to the exceptional

gain on sale of LGE Process.

2013
£m

2012
£m

1,557.2

1,652.2

59.1

46.7

2.7

5.3

4.1

5.5

49.4

36.7

1.0

8.3

0.3

3.3

Operating profit is stated after charging

Cost of inventories recognised as an expense

Depreciation of property, plant & equipment (note 11)

Amortisation of intangible assets (note 12)

Acquisition transaction costs

Other one-off costs*

Net foreign exchange losses

Net impairment of trade receivables (note 17)

* Other one-off costs include restructuring, integration and aborted acquisition costs.

134

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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

Other assurance services

Corporate finance services

Taxation advisory services

Fees payable in respect of the Group’s pension schemes

Audit

2013
£m

2012
£m

0.4

1.4

0.1

–

0.1

0.3

1.3

–

0.2

0.1

Research & development costs
Research & development costs amount to £21.5m (2012: £23.5m) of which £17.6m (2012: £22.2m) were charged directly to cost of sales in the
income statement and £3.9m (2012: £1.3m) were capitalised (note 12).

Operating leases
Minimum lease payments under operating leases recognised as an expense in the period were £42.1m (2012: £37.1m).

Employee benefits expense

Wages & salaries

Social security costs

Pension costs

Defined benefit plans (note 24)

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

2012
Restated
(note 2)
£m

491.1

50.9

2.6

–

16.3

7.5

2013
£m

523.0

52.7

2.6

(2.7)

17.7

8.7

602.0

568.4

2013
Number

2012
Number

7,699

3,234

2,752

7,326

2,999

2,813

107

13,750

13,245

At 3 January 2014, the number of persons employed by the Group including those under temporary contracts was 15,220 (2012: 14,351).

135

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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 – release of Mathena contingent consideration liability (note 13)

Exceptional item – pension curtailment gain (note 24)

Exceptional item – charging of fair value inventory uplift

Exceptional item – gain on sale of LGE Process

Exceptional item – uplift in respect of contingent consideration liability

Recognised in finance costs

Exceptional item – unwind in respect of contingent consideration liability

Recognised in arriving at profit for the period from discontinued operations

Exceptional items (note 8)

2013
£m

2012
£m

(46.7)

(36.7)

67.8

2.7

–

23.8

–

(4.5)

30.5

(5.8)

(16.5)

(10.7)

(2.6)

–

3.3

The exceptional items in 2012 related to:
(i) The fair value uplift to inventory on acquisition of Seaboard and Novatech that was released to the income statement as an exceptional item

after the inventory was sold in the year.

(ii) The gain on sale of LGE Process, disclosed within other operating income (note 4).
(iii) Uplift in the contingent consideration payable on acquisition of Weir International.

6. Finance (costs) income

Finance costs

Interest payable on bank loans, fixed rate notes & overdrafts

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

2013
£m

2012
£m

(39.1)

(35.7)

(2.9)

(5.9)

(47.9)

(10.7)

(58.6)

2013
£m

1.3

1.7

3.0

(5.0)

(5.8)

(46.5)

(2.6)

(49.1)

2012
£m

0.7

4.5

5.2

136

The Weir Group PLC Annual Report and Financial Statements 2013Financial 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*

2012
Restated
(note 2)
£m

2013
£m

(12.1)

4.2

(7.9)

0.5

(2.6)

(2.1)

(81.2)

(110.2)

1.0

3.1

(88.1)

(109.2)

(1.9)

(1.2)

(1.3)

(3.0)

(7.4)

(0.2)

(1.6)

(1.1)

1.4

(1.5)

Total income tax expense in the Consolidated Income Statement

(95.5)

(110.7)

Includes £3.2m of deferred tax debit relating to foreign tax (2012: £1.3m credit).

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

2012
Restated
(note 2)
£m

2013
£m

(107.5)

(123.3)

(0.5)

12.5

1.5

11.1

(95.5)

(110.7)

Current tax for 2013 has been reduced by £nil (2012: £nil) 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.

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 (charge) credit on actuarial losses on retirement benefits

Deferred tax credit (charge) on hedge losses

Tax credit (charge) in the Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Deferred tax on share-based payments

Current tax on share-based payments

Tax credit (charge) in the Consolidated Statement of Changes in Equity

2013
£m

3.9

(6.1)

(2.2)

0.3

(1.9)

0.8

3.1

3.9

2012
£m

1.8

0.7

2.5

(0.4)

2.1

(2.6)

–

(2.6)

137

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

7. Tax expense (continued)
Reconciliation of the total tax charge
The tax expense in the Consolidated Income Statement for the period is less than the weighted average of standard rates of corporation tax
across the Group of 29.7% (2012: 30.2%). The differences are reconciled below.

Profit before tax from continuing operations

Profit before tax from discontinued operations

Accounting profit before tax

2012
Restated
(note 2)
£m

420.7

3.3

2013
£m

431.2

–

431.2

424.0

At the weighted average of standard rates of corporation tax across the Group of 29.7% (2012: 30.2%)

128.2

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 items ineligible for tax

Gains exempt from tax

At effective tax rate of 22.1% (2012: 26.1%)

(5.2)

3.0

(1.2)

1.2

5.6

(0.5)

(1.4)

(1.2)

1.6

4.6

(16.9)

(15.4)

1.1

(20.3)

–

1.1

(7.4)

95.5

110.7

8. Discontinued operations
There were no disposals of core businesses during the 53 weeks ended 3 January 2014 or the 52 weeks ended 28 December 2012. The profit
arising from discontinued operations of £3.3m in 2012 was as a result of the release of unutilised provisions relating to prior year disposals on
expiration of the tax warranty periods.

Earnings per share from discontinued operations were as follows.

Basic

Diluted

2013
pence

n/a

2012
pence

1.6

1.5

These earnings per share figures were derived by dividing the net profit attributable to equity holders of the Company from discontinued
operations of £3.3m by the weighted average number of ordinary shares for both basic and diluted amounts shown in note 9.

138

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements
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 is 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)

2012
Restated
(note 2)

313.0

309.7

316.2

2013

334.9

309.8

213.0

213.8

212.2

213.5

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 and deferred bonus awards

Adjusted weighted average number of ordinary shares for diluted earnings per share

2013
Shares
Million

213.0

0.8

2012
Shares
Million

212.2

1.3

213.8

213.5

The profit attributable to equity holders of the Company used in the calculation of both basic and diluted earnings per share from 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*

Basic earnings per share:

Total operations*

Continuing operations*

Continuing operations before exceptional items & intangibles amortisation*

Diluted earnings per share:

Total operations*

Continuing operations*

Continuing operations before exceptional items & intangibles amortisation*

* Adjusted for £0.8m (2012: £0.3m) in respect of non-controlling interests.

2013
£m

334.9

(25.1)

309.8

2013
pence

157.2

145.4

156.6

144.9

2012
Restated
(note 2)
£m

309.7

6.5

316.2

2012
Restated
(note 2)
pence

147.5

145.9

149.0

146.6

145.1

148.1

There have been no share options (2012: nil) exercised between the reporting date and the date of signing of these financial statements.

139

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

10. Dividends paid & proposed

Declared & paid during the period

Equity dividends on ordinary shares

Final dividend for 2012: 30.0p (2011: 25.8p)

Interim dividend for 2013: 8.8p (2012: 8.0p)

Proposed for approval by shareholders at the annual general meeting

Final dividend for 2013: 33.2p (2012: 30.0p)

2013
£m

2012
£m

63.8

18.8

82.6

54.8

16.9

71.7

70.8

63.8

The proposed dividend is based on the number of shares in issue, excluding treasury shares held, at the date the financial statements were
approved and authorised for issue.

The final dividend may differ due to increases or decreases in the number of shares in issue between the date of approval of the report and
financial statements and the record date for the final dividend.

140

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements11. Property, plant & equipment

Cost

At 30 December 2011

Additions

Acquisitions

Disposals

Reclassifications to intangible assets (note 12)

Reclassifications

Exchange adjustment

At 28 December 2012

Additions

Acquisitions

Disposals

Reclassifications from intangible assets (note 12)

Reclassifications

Exchange adjustment

At 3 January 2014

Accumulated depreciation & impairment

At 30 December 2011

Depreciation charge for the period

Disposals

Exchange adjustment

At 28 December 2012

Depreciation charge for the period

Disposals

Reclassifications from intangible assets (note 12)

Reclassifications

Exchange adjustment

At 3 January 2014

Land &
buildings
£m

Plant &
equipment
£m

Total
property,
plant &
equipment
£m

125.9

27.9

1.2

(5.5)

–

(0.2)

(4.0)

145.3

17.4

6.9

382.9

87.4

6.6

(18.4)

(0.2)

0.2

(13.6)

444.9

73.0

19.5

508.8

115.3

7.8

(23.9)

(0.2)

–

(17.6)

590.2

90.4

26.4

(3.3)

(20.6)

(23.9)

–

4.1

(10.8)

159.6

1.0

(4.1)

(33.6)

480.1

1.0

–

(44.4)

639.7

32.8

157.1

189.9

4.7

(2.4)

(0.9)

34.2

6.1

44.7

(15.1)

(4.7)

182.0

53.0

49.4

(17.5)

(5.6)

216.2

59.1

(1.0)

(15.9)

(16.9)

–

0.7

(2.1)

37.9

0.4

(0.7)

(15.7)

203.1

0.4

–

(17.8)

241.0

Net book value at 30 December 2011

93.1

225.8

318.9

Net book value at 28 December 2012

111.1

262.9

374.0

Net book value at 3 January 2014

121.7

277.0

398.7

The carrying value of buildings held under finance leases is £1.3m (2012: £1.7m). The carrying value of plant and equipment held under finance
leases is £0.4m (2012: £0.5m). 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 £29.2m (2012: £52.9m).

141

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

12. Intangible assets

Cost

Goodwill
£m

Brand
names
£m

Customer
relationships
£m

Purchased
software
£m

Intellectual
property &
trade marks
£m

Development
costs
£m

At 30 December 2011

884.1

172.3

345.7

Additions

Acquisitions

Disposals

Reclassifications to property,
plant & equipment (note 11)

Exchange adjustment

At 28 December 2012

Additions

Acquisitions

Disposals

Reclassifications to property,
plant & equipment (note 11)

Reclassifications

Exchange adjustment

At 3 January 2014

–

57.0

–

(32.2)

908.9

–

95.5

–

4.5

–

(7.1)

169.7

–

9.7

–

53.4

–

(14.6)

384.5

–

129.2

–

(32.6)

971.8

(4.2)

175.2

(11.6)

502.1

Accumulated amortisation & impairment

At 30 December 2011

Amortisation charge for the period

Disposals

Exchange adjustment

At 28 December 2012

Amortisation charge for the period

Disposals

Reclassifications to property,
plant & equipment (note 11)

Reclassifications

Exchange adjustment

At 3 January 2014

–

45.6

24.0

–

(2.2)

67.4

37.0

–

1.0

(3.0)

102.4

30.5

6.0

–

(2.5)

0.2

(1.0)

33.2

6.6

–

(0.9)

(1.0)

(0.7)

(1.8)

35.4

18.3

3.4

(2.3)

(0.6)

18.8

3.8

(0.9)

(0.4)

0.4

(1.1)

20.6

55.6

–

4.7

–

(2.3)

58.0

10.4

0.2

–

(1.7)

66.9

15.0

5.6

–

(0.7)

19.9

4.4

–

(0.7)

23.6

Net book value at 30 December 2011

884.1

172.3

300.1

12.2

40.6

Net book value at 28 December 2012

908.9

169.7

317.1

14.4

38.1

Net book value at 3 January 2014

971.8

175.2

399.7

14.8

43.3

3.3

1.3

–

(0.1)

4.5

3.9

–

0.7

(0.7)

8.4

0.2

0.1

–

0.3

0.4

–

0.7

3.1

4.2

7.7

Other
£m

Total
£m

16.5

1,508.0

1.0

1.8

(0.7)

–

(0.9)

8.3

121.4

(3.2)

0.2

(58.2)

17.7

1,576.5

0.3

–

21.2

234.6

(0.9)

(1.0)

–

(1.0)

(53.6)

17.0

1,776.8

13.8

3.6

(0.7)

16.0

1.1

–

(1.4)

(0.7)

15.0

92.9

36.7

(3.0)

(4.2)

122.4

46.7

(0.9)

(0.4)

–

(5.5)

162.3

2.7

1,415.1

1.7

1,454.1

2.0

1,614.5

The increase to goodwill of £95.5m during 2013 is represented by the current year acquisitions of Mathena and R Wales (note 13).

Brand names have been assigned an indefinite useful life and as such are not amortised. The carrying value of £175.2m (2012: £169.7m) 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 Multiflo, Weir Novatech, Weir Mathena and Weir Wales all of which are considered to be market
leaders in their respective markets.

142

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

The allocation of significant brand names is as follows.

Weir Gabbioneta

Weir Linatex

Weir Mathena

Weir Seaboard

Weir SPM

Weir Warman

Other

The allocation of customer relationships and the remaining amortisation period of these assets is as follows.

Remaining amortisation
period

2013
Years

2012
Years

–

Up to 17

Up to 18

Weir Seaboard

Weir Novatech

Weir SPM

Weir Mathena

Other

The amortisation 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

Brand Names

2013
£m

2012
£m

5.6

34.7

7.2

29.8

28.0

50.5

19.4

5.6

35.3

–

30.3

28.4

51.4

18.7

175.2

169.7

Customer relationships

2013
£m

2012
£m

130.2

142.0

44.1

76.6

99.1

49.7

399.7

2013
£m

2.0

0.6

44.1

46.7

48.9

82.4

–

43.8

317.1

2012
£m

2.8

0.4

33.5

36.7

143

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

13. Business combinations
On 31 December 2012, the Group completed the acquisition of 100% of the voting shares of Mathena, Inc (‘Weir Mathena’) for a cash
consideration of $247m (£153m) with a maximum future payment of $145m payable over two years. Of this potential future payable, $120m was
contingent consideration and $25m was an employee benefit expense which at the period end is no longer expected to fall due. The contingent
consideration is discussed in further detail below. Based in El Reno, Oklahoma, Weir Mathena is a leading provider of pressure control rental
equipment and services for onshore oil and gas drilling applications and provides a strong strategic fit with Weir Seaboard in the pressure control
market and supports the expansion of Weir’s flow back services. The fair values of Weir Mathena are disclosed in the table below. The fair values
are final following the completion of the fair value exercise in respect of each class of asset. There are certain intangible assets included in the
£64.5m of goodwill recognised that cannot be individually separated and reliably measured due to their nature. These items include anticipated
business growth, intellectual property, synergies and an assembled workforce.

During the period the Group also acquired 100% of the voting shares of the R Wales group of companies (‘Weir Wales’), 100% of the voting
shares of Aspir Pty Limited in Australia, the business and assets of the Cheong foundry in Malaysia, and the assets of a heavy bay foundry in
South Africa. The combined consideration for these acquisitions was £55.7m, with an expected contingent consideration of £1.6m. The fair
values of these acquisitions are disclosed in the table below and are final following the completion of a fair value exercise in respect of each
class of asset for each acquisition. There are certain intangible assets included in the £31.0m of goodwill recognised that cannot be individually
separated and reliably measured due to their nature. These items include anticipated business growth, synergies and an assembled workforce.

Property, plant & equipment

Inventories

Intangible assets

– customer relationships

– brand name

– intellectual property

Trade & other receivables

Cash & cash equivalents

Interest-bearing loans & borrowings

Trade & other payables

Provisions

Deferred tax

Fair value of net assets

Goodwill arising on acquisition

Total consideration

Cash consideration

Contingent consideration

Settlement of external debt of subsidiaries on acquisition

Total consideration

The total net cash outflow on current year acquisitions was as follows:

– cash paid

– cash and cash equivalents acquired

Total cash outflow (note 26)

Mathena
2013
£m

19.7

0.7

Others
2013
£m

6.7

2.0

Total
2013
£m

26.4

2.7

108.6

20.6

129.2

7.4

–

11.2

3.3

(1.3)

(1.9)

(0.4)

–

147.3

64.5

211.8

2.3

0.2

3.5

3.2

(0.2)

(5.9)

(0.4)

(5.7)

26.3

31.0

57.3

9.7

0.2

14.7

6.5

(1.5)

(7.8)

(0.8)

(5.7)

173.6

95.5

269.1

153.0

55.7

208.7

60.1

(1.3)

1.6

–

61.7

(1.3)

211.8

57.3

269.1

(153.0)

(55.7)

(208.7)

3.3

3.2

6.5

(149.7)

(52.5)

(202.2)

Together, Weir Mathena and the other acquisitions contributed £78.6m to revenue and £16.4m to operating profit (including exceptional items
and intangibles amortisation) in the 53 weeks ended 3 January 2014. The contribution of the individual acquisitions to revenue and profit for
the period from continuing operations after exceptional items and intangibles amortisation of the Group was not material and so has not
been separately disclosed. If the acquisitions had occurred at the start of 2013 the combined revenue and profit for the period from acquired
operations after exceptional items and intangibles amortisation, would not have been materially different from the results disclosed in the
Consolidated Income Statement.

The fair values for Weir Novatech, Weir Seaboard and Weir International were finalised in the financial statements for the 52 weeks ended
28 December 2012. The 2012 cash flows in relation to these acquisitions are disclosed in note 26.

144

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

Contingent consideration
As part of the purchase agreement with the previous owner of Mathena Inc, a maximum amount of $120m was agreed to be payable to the
former owners contingent on the achievement of specific profit growth targets over 2013 and 2014. At the date of acquisition, the full liability
of £60.1m was recognised on a discounted basis, and the unwind of the discount of £8.6m was recognised as an exceptional item during the
period. The balance recorded was based on vendor forecasts of discounted cash flows at the date of acquisition and reflected management
expectations of short term growth in the market. During the second half of the period, the continuation of the depressed natural gas price
resulted in certain customers reducing their gas drilling activity and this impacted the short term forecasts for the business to the extent
that the contingent consideration liability has reduced to nil. The adjustment to release the contingent consideration liability of £67.8m,
after allowing for exchange movements in the period, is recorded as an exceptional item in the Income Statement.

The acquisition of Weir International in 2011 included an earn out based on EBITDA achieved in 2013 and 2014, with further EBITDA targets
also stretching out to 2019. The estimated fair value of the contingent consideration at the date of acquisition was £13.9m 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 £45m.

As at 29 December 2012, the key performance indicators of Weir International highlighted that it is highly probable that the expected EBITDA
levels will be achieved and the contingent liability was uplifted accordingly as per note 5. There has been no change to this view during the
53 week period ended 3 January 2014, therefore, the contingent consideration continues to reflect this position, with only the unwind of the
discount being recognised through the Income Statement in the period.

A significant increase (decrease) in the EBITDA of Mathena Inc or Weir International would result in higher (lower) fair value of the contingent
consideration liability, while a significant increase (decrease) in the discount rate would result in lower (higher) fair value of the liability.
The discount rates applied in the fair value calculations were 9.0% for Weir International and 8.7% for Weir Mathena.

A reconciliation of fair value measurement of the contingent consideration liability is provided below.

Opening balance as at 28 December 2012

Liability arising on business combinations

Fair value changes in profit or loss

Exchange movements in the period

Contingent consideration paid

Unwind of discount

Closing balance as at 3 January 2014

£m

24.5

61.7

(67.8)

(1.1)

(0.3)

10.7

27.7

The contingent consideration in relation to other acquisitions is considered to be immaterial for further disclosure.

The contingent consideration liability for Mathena Inc is due for final measurement at the end of 2014, while the contingent consideration
liability for Weir International is due for final measurement and payment to the former shareholders in 2019.

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 cash
generating units (CGUs) that are expected to benefit from that business combination.

During the period, the Group completed a review of its cash generating units (CGUs) to reflect: (i) recent changes to the management of certain
cash inflows as a result of increased collaboration across businesses, in part due to the realisation of revenue and cost synergies arising from
the successful integration of acquisitions of recent periods; (ii) changes to the internal and external reporting structure of the Group’s operations;
and (iii) the allocation of recent acquisitions to CGUs on joining the Group.

The review resulted in four primary CGUs; Minerals, Pressure Pumping, Pressure Control and Gabbioneta, plus a further seven which are not
significant for separate disclosure and are therefore grouped within ‘Other’. This replaces the previous structure which comprised Warman,
SPM, Seaboard and Gabbioneta, plus twelve individually immaterial CGUs within ‘Other’.

The acquisitions during 2013, as described in note 13, have been allocated to these CGUs. Mathena has been included within the Pressure
Control CGU, while R Wales, Cheong and Aspir have been added to the Minerals CGU.

145

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

14. Impairment testing of goodwill & intangible assets with indefinite lives (continued)
The carrying amount of goodwill and intangible assets with indefinite lives has been allocated as per the table below.

Weir Pressure Pumping

Weir Pressure Control

Weir Gabbioneta

Weir Minerals

Other

Goodwill
2013
£m

Intangibles*
2013
£m

Goodwill
2012
£m

Intangibles*
2012
£m

279.3

321.9

59.7

239.6

71.3

971.8

33.2

37.1

5.6

90.7

8.6

175.2

284.3

262.7

58.9

230.5

72.5

908.9

33.7

30.3

5.6

90.6

9.5

169.7

The carrying amount of goodwill and intangible assets with indefinite lives were previously allocated as per the table below.

Weir SPM

Weir Seaboard

Weir Gabbioneta

Warman companies

Other

Goodwill
2012
£m

Intangibles*
2012
£m

223.0

262.7

58.9

221.0

143.3

908.9

28.5

30.3

5.6

86.6

18.7

169.7

Intangible assets with indefinite lives (brand names).

A description of each of the CGUs is provided below along with a summary of the key drivers of revenue growth and EBIT margin.

Weir Pressure Pumping
Weir Pressure Pumping includes the Weir SPM, Weir Novatech and Weir Mesa brands. Weir Pressure Pumping is a supplier of oil and gas well
service pumps, associated flow control equipment and services to the oil and gas production industry. Demand for Weir Pressure Pumping
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 2013.

Weir Pressure Control
Weir Pressure Control includes the Weir Seaboard and Weir Mathena brands. Weir Pressure Control is a supplier of oil and gas wellhead
solutions, flowback services and associated rental equipment to the oil and gas production industry. A large proportion of the business’
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 2013.

Weir Minerals
Weir Minerals includes the Weir Warman, Weir Linatex, Weir Multiflo and Weir Wales brands. Weir Minerals 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 2013.

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 2013.

146

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

Other
The amounts included in Other are not considered individually significant. The main movements in Other are the reallocation of Novatech,
acquired in 2012, and Mesa, acquired in 2008, to the Weir Pressure Pumping CGU.

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 the impairment tests for the four primary CGUs 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 Pressure Pumping

Value in use

5 years 12.2% (2012:12.2%)

1.5% (2012:1.2%)

Weir Pressure Control

Value in use

5 years 12.2% (2012:12.2%)

1.5% (2012:1.2%)

Weir Gabbioneta

Value in use

5 years 13.6% (2012:14.2%)

1.5% (2012:1.2%)

Weir Minerals

Value in use

5 years 14.7% (2012:13.9%)

1.5% (2012:1.7%)

Revenue growth
EBIT margins

External forecast
Historic experience

Revenue growth
EBIT margins

External forecast
Historic experience

Revenue growth
EBIT margins

External forecast
Historic experience

Revenue growth
EBIT margins

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 the WACCs
in mature economies have remained relatively stable compared to 2012 due to an increase in government bond yields being largely offset by
the reduction in the cost of equity. The discount rates for emerging markets have broadly decreased, directly linked to movement in the yields
on Government bonds. Government bond yields in Italy have decreased as local credit risks have reduced, the reduction visible in the Weir
Gabbioneta WACC. A change in the cash flow profile in Weir Minerals towards a higher proportion from emerging markets with higher WACCs
drives the small increase in the Weir Minerals WACC, with the real growth rate declining in line with lower growth rates in emerging markets.

2 Real growth
Real growth beyond the five year forecast period of 1.5%, a 30 bps increase on 2012, driven by the majority of mature economies exiting the
recession of the previous two years.

EBIT margins
EBIT margins have been forecast based on historic levels taking cognisance of the likely impact of changing economic environments and
competitive landscapes on volumes and revenues and the impact of associated management actions on costs.

Sensitivity analysis
Base case forecasts show significant headroom above carrying value for each of the CGUs. There were no indicators of impairment under
the previous CGU structure either.

Sensitivity analysis has been undertaken for each CGU to assess the impact of any reasonable possible change in key assumptions. There is no
reasonably possible change that would cause the carrying values to exceed recoverable amounts.

15. Investments in joint ventures
The significant investments in joint ventures are as follows.

At 30 December 2011

Share of results

Share of dividends

Exchange adjustment

At 28 December 2012

Additions

Share of results

Share of dividends

Exchange adjustment

At 3 January 2014

£m

11.4

6.4

(5.4)

(0.4)

12.0

14.0

8.4

(6.1)

(1.2)

27.1

147

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

15. Investments in joint ventures (continued)
Details of the Group’s share of the balance sheets, revenue and profits of its joint ventures are given below.

2013
£m

2012
£m

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

The Group’s significant investments in joint ventures are listed on page 190.

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 63 days (2012: 59 days).

Analysis of trade receivables

Neither impaired nor past due

Past due but not impaired

Impaired

148

11.8

19.9

3.3

(6.2)

(1.7)

27.1

36.8

(22.9)

(2.6)

(1.5)

(1.4)

8.4

2013
£m

150.8

112.8

221.4

485.0

2013
£m

437.9

(15.4)

422.5

22.8

11.4

21.8

18.6

3.2

12.0

2.7

(4.3)

(1.6)

12.0

23.5

(13.5)

(0.9)

(1.6)

(1.1)

6.4

2012
£m

162.3

94.7

255.7

512.7

2012
£m

424.0

(12.6)

411.4

24.5

12.0

13.1

17.2

497.1

478.2

2013
£m

286.6

135.9

15.4

437.9

2012
£m

309.9

101.5

12.6

424.0

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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

2012 includes a fair value adjustment in relation to the Weir Seaboard acquisition of £1.1m adjusted against goodwill.

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

2013
£m

100.8

21.1

14.0

2012
£m

74.2

14.5

12.8

135.9

101.5

2013
£m

(12.6)

(7.1)

1.5

0.3

1.6

0.9

2012
£m

(13.9)

(4.2)

2.6

0.4

2.0

0.5

(15.4)

(12.6)

2013
£m

3.2

0.8

11.4

15.4

2013
£m

28.3

(12.1)

16.2

2012
£m

1.4

1.0

10.2

12.6

2012
£m

21.7

(13.7)

8.0

94.4

114.7

(78.2)

(106.7)

16.2

8.0

The amount of retentions held by customers for contract work amounted to £nil (2012: £nil) and the amount of advances received from
customers for contract work amounted to £4.9m (2012: £2.5m).

149

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

19. Cash & short-term deposits

Cash at bank & in hand

Short-term deposits

For the purposes of the Consolidated Cash Flow Statement, cash & cash equivalents comprise the following:

Cash & short-term deposits

Bank overdrafts & short-term borrowings (note 20)

2013
£m

70.9

8.2

79.1

2012
£m

228.0

163.1

391.1

79.1

(10.5)

68.6

391.1

(6.9)

384.2

Cash at bank & 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.

2013
£m

8.1

2.4

10.5

15.8

0.2

26.5

2012
£m

3.9

3.0

6.9

58.3

0.2

65.4

40.3

759.0

0.3

242.7

771.4

0.5

799.6

1,014.6

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)

150

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

Bank loans

Revolving credit facility

United States dollar variable rate loans

Seaboard acquisition finance

Maturity

Interest basis

2014 US$ LIBOR

2018 US$ LIBOR

Weighted average
interest rate

2013
%

–

0.97

2012
%

1.20

–

2013
£m

2012
£m

–

148.0

39.9

–

United States dollar variable rate amortising term loan

2014 US$ LIBOR

–

2.08

–

152.9

Other

Uncommitted facility loan

United States dollar buyer credit facility

Indian rupee term loan

Less: current instalments due on bank loans

United States dollar variable rate amortising term loan

Uncommitted facility 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

2014

£ LIBOR

2015 US$ LIBOR

0.82

2.24

–

2013

FIXED

–

13.75

15.8

0.4

–

0.1

2014 US$ LIBOR

2014

2013

£ LIBOR

FIXED

Maturity

Interest basis

2015

2018

2019

2022

2023

FIXED

Weighted average
interest rate

2013
%

4.58

4.20

5.36

5.03

3.69

4.27

4.34

2012
%

4.58

4.20

5.36

5.03

3.69

4.27

4.34

56.1

301.0

–

(58.2)

(15.8)

–

(0.1)

40.3

242.7

2013
£m

2012
£m

12.0

54.8

43.0

42.6

127.5

357.8

121.3

759.0

12.0

55.7

42.9

43.3

129.7

364.3

123.5

771.4

US$ LIBOR is the United States dollar London Inter Bank Offer Rate. The weighted average interest rates include an applicable margin over
and above the interest basis.

The disclosures above represent the interest profile and currency profile of financial liabilities before the impact of derivative financial instruments.

During July 2013, the Group repaid the existing US$300m amortising term loan and refinanced the US$800m multi-currency revolving credit
facility. These facilities have been replaced with a new 5 year US$800m multi-currency revolving credit facility. At 3 January 2014 US$70m
was drawn under the new revolving credit facility. Total unamortised issue costs at 3 January 2014 were £4.9m (2012: £6.2m).

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 undertaken in 2011 to fund the Weir Seaboard acquisition.

151

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 20132013
£m

2012
£m

272.9

281.5

18.8

12.9

13.8

18.0

100.7

105.1

5.3

66.2

0.1

67.3

476.8

485.8

–

22.4

1.9

24.4

26.3

Other
£m

6.2

5.6

0.2

(7.4)

(1.4)

(0.2)

3.0

2.2

0.8

3.0

5.1

1.1

6.2

Total
£m

69.6

22.9

0.8

(25.0)

(11.3)

(2.4)

54.6

28.9

25.7

54.6

36.4

33.2

69.6

Warranties
& onerous
sales
contracts
£m

Discontinued
operations
warranty &
indemnity
£m

Employee
related
£m

34.6

14.4

0.6

(14.7)

(6.3)

(0.8)

27.8

21.7

6.1

27.8

26.7

7.9

34.6

27.1

2.9

–

(2.5)

(3.6)

(1.4)

22.5

3.7

18.8

22.5

3.9

23.2

27.1

1.7

–

(0.4)

–

1.3

–

1.3

0.7

1.0

1.7

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

21. Trade & other payables

Current

Trade payables

Other creditors

Other taxes & social security costs

Accruals

Contingent consideration

Deferred income

Non-current

Other payables

Contingent consideration

22. Provisions

At 28 December 2012

Additions

Acquisitions

Utilised

Unutilised

Exchange adjustment

At 3 January 2014

Current 2013

Non-current 2013

Current 2012

Non-current 2012

152

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

Warranties and onerous sales contracts
Provision has been made in respect of actual warranty and contract penalty claims on goods sold and services provided and allowance has
been made for potential warranty claims based on past experience for goods and services sold with a warranty guarantee. It is expected that
all costs related to such claims will have been incurred within five years of the balance sheet date. Provision has been made in respect of sales
contracts entered into for the sale of goods in the normal course of business where the unavoidable costs of meeting the obligations under
the contracts exceed the economic benefits expected to be received from the contracts. Provision is made immediately when it becomes
apparent that expected costs will exceed the expected benefits of the contract. It is expected that the majority of these costs will be incurred
within one year 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 2025.

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 3 January 2014 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 one year of the balance sheet date.

Other
Other provisions relate to an environmental clean up programme in the United States for a company acquired in 1992 and various other legal
claims and exposures across the Group. The environmental provision is based on management’s current best estimate of the expected costs
under the programme. It is expected that these costs will be incurred in the period up to 2019.

23. Deferred tax

Deferred income tax assets

Post-employment benefits

Decelerated depreciation for tax purposes

Intangible assets

Untaxed reserves

Offset against liabilities

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

Deferred income tax liabilities

Net deferred income tax liability

2013
£m

2012
£m

15.7

13.8

–

47.0

(59.3)

17.2

23.0

3.0

0.6

65.0

(61.2)

30.4

(49.4)

(24.3)

(31.6)

(24.1)

(148.0)

(154.9)

(3.1)

59.3

(13.1)

61.2

(165.5)

(162.5)

(148.3)

(132.1)

153

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

23. Deferred tax (continued)
The movement in deferred income tax assets and liabilities during the period was as follows.

At 30 December 2011

Acquisitions

(Charged) credited to the income statement (note 7)

Credited (charged) to equity

Exchange adjustment

At 28 December 2012 (restated note 2)

Acquisitions

(Charged) credited to the income statement (note 7)

(Charged) credited to equity

Exchange adjustment

At 3 January 2014

Post
employment
benefits
£m

Accelerated
depreciation
for tax
purposes
£m

Overseas
tax on
unremitted
earnings
£m

Intangible
assets
£m

Untaxed
reserves
& other
temporary
differences
£m

Total
£m

23.0

(19.9)

(27.1)

(147.3)

60.7

(110.6)

–

(0.5)

0.7

(0.2)

23.0

–

(1.2)

(6.1)

–

15.7

(2.2)

(7.6)

–

1.1

–

3.0

–

(21.4)

8.3

–

6.1

(28.6)

(24.1)

(154.3)

(0.1)

(7.9)

–

1.1

–

(2.0)

–

1.8

(5.8)

9.7

–

2.5

0.6

(4.7)

(3.1)

(1.6)

51.9

0.2

(6.0)

0.8

(3.2)

(23.0)

(1.5)

(2.4)

5.4

(132.1)

(5.7)

(7.4)

(5.3)

2.2

(35.5)

(24.3)

(147.9)

43.7

(148.3)

Untaxed reserves primarily relate to temporarily disallowed inventory/debtor provisions and accruals/provisions for liabilities where the tax
allowance is deferred until the cash expense occurs.

Deferred tax asset balances for unused tax losses of £4.9m (2012: £4.5m) 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 £5.8m (2012: £9.8m) 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 £24.3m (2012: £24.1m) has been recognised in respect of taxes on the unremitted earnings of the South American and
Canadian subsidiaries. As at 3 January 2014, 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 £1,513.2m (2012: £1,367.0m).

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

A number of changes which reduce future UK corporation tax rates were announced in the UK Budget Statement of 20 March 2013. Following
on from this, legislation was enacted on 2 July 2013 such that the main rate of UK corporation tax will be 21% from April 2014 and 20% from
April 2015. Consequently, deferred tax has been provided on UK temporary differences at 20% (2012: 23%).

154

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements24. Pensions & other post-employment benefit plans
The Group has five main defined benefit pension plans in the UK and North America (four from 2014 onwards following a merger of arrangements
in the United States). All defined benefit plans are closed to new members. The most significant of the defined benefit plans are the two funded
UK plans.

UK Plans
In the UK, the Group has two funded defined benefit plans (Main plan and Executive plan) and an unfunded retirement benefit plan for retired
executive directors. The Group operates a defined contribution plan for new hires. Contributions to the defined contribution arrangements are
in addition to those set out below and are charged directly to profit and loss.

For the defined benefit plans, benefits are related to service and final salary. Contributory salary in respect of the Group’s Main UK plan is
subject to capped increases, with the cap being in line with RPI inflation up to a maximum of 5% per annum. Following a consultation process
which ended in August 2013, the Main UK plan will close to future accrual of benefits effective from 30 June 2015, resulting in a curtailment
gain of £2.7m being recognised in the period.

The weighted average duration of the expected benefit payments from the Main plan is around 16 years and from the Executive plan is around
11 years.

The current funding target for the UK plans is to maintain assets equal to the value of the accrued benefits based on projected salaries where
relevant (subject to the cap above for the Main plan). The Main UK plan holds insurance policies in respect of a significant proportion of
deferred and retired pensioners.

The regulatory framework in the UK requires the Trustees and Group to agree upon the assumptions underlying the funding target, and then to
agree upon the necessary contributions required to recover any deficit at the valuation date. There is a risk to the Group that adverse experience
could lead to a requirement for the Group to make considerable contributions to recover any deficit. This risk is significantly reduced for the Main
UK plan through the significant insurance policies held by the plan.

North American Plans
The Group also sponsors a number of funded defined benefit pension plans in the United States and Canada and certain unfunded post-
employment healthcare benefits to senior employees in the United States.

These plans combined make up 4% of the Group’s pension and other post-employment benefit plan commitments and 2% of the Group’s
total associated assets. The weighted average duration of these plans is around 11 years.

Assumptions
The principal actuarial assumptions used for accounting purposes reflect prevailing market conditions in each of the countries in which the
Group operates and are as follows:

UK
pensions

North American
pensions

Post-retirement
healthcare

2013

2012

2013

2012

2013

2012

Significant actuarial assumptions

Discount rate (% pa)

Retail Prices inflation assumption (% pa)

Post-retirement mortality (Life expectancies in years)

Current pensioners at 65 – male

Current pensioners at 65 – female

Future pensioners at 65 – male

Future pensioners at 65 – female

Other related actuarial assumptions

Rate of increases for pensions in payment (% pa)

Pre 6 April 2006 service

Post 5 April 2006 service

Consumer Prices inflation assumption (% pa)

Rate of increase in healthcare costs

4.4

3.4

22.0

24.5

23.8

26.5

3.3

2.2

2.4

n/a

4.3

2.9

21.8

24.3

23.6

26.3

2.9

2.1

2.2

n/a

4.7

n/a

20.0

21.9

21.5

22.7

n/a

2.0

n/a

3.9

n/a

19.9

21.8

21.4

22.6

n/a

2.0

n/a

4.7

n/a

19.6

21.5

21.1

22.4

n/a

2.3

* 7.7% per annum decreasing to 4.5% per annum and remaining static at that level from 2028 onwards.

3.9

n/a

19.5

21.4

21.0

22.3

n/a

2.4

155

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

24. Pensions & other post-employment benefit plans (continued)
The assumptions used to determine end-of-year benefit obligations are also used to calculate the following year’s cost. For North America,
weighted assumptions are shown where applicable.

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 2034
(in 20 years time).

The assets and liabilities of the plan are as follows:

Plan assets at fair value

Equities (quoted)

Diversified Growth Funds (primarily quoted)

Corporate bonds (quoted)

Government bonds (quoted)

Insurance policies (unquoted)

Cash (quoted)

Fair value of plan assets

Present value of funded obligations

Net funded obligations

Present value of unfunded obligations

Net liability

Total

2013
£m

2012
£m

156.3

130.3

38.4

63.6

67.9

34.3

63.0

65.2

346.2

348.2

8.6

8.5

681.0

649.5

(744.0)

(731.8)

(63.0)

(7.4)

(70.4)

(82.3)

(8.1)

(90.4)

The government bonds held are primarily index-linked, with around only 8% of the total government bonds being fixed interest. 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.

In the UK, where the majority of the Group’s pension assets are held, the investment strategy is to hold equities and other return-seeking
assets such as diversified growth funds and a mixture of bonds to meet the assessed value of the benefits promised for the current active
member employees and some deferred pensioners. For the remaining deferred pensioners and the bulk of pensioners currently receiving
their benefit, the liabilities are backed by insurance policies and suitable bonds.

The change in net liabilities recognised in the balance sheet is comprised as follows:

2012
Restated
(note 2)
£m

(84.7)

(6.6)

(10.8)

11.1

0.6

2013
£m

(90.4)

(3.4)

8.0

15.4

–

(70.4)

(90.4)

Opening net liabilities

Expense charged to profit and loss

Amount recognised outside profit and loss

Employer contributions

Currency adjustment

Closing net liabilities

156

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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

Administrative expenses

Past service curtailment gain

Included in operating profit

Interest on net pension liability

Total expense charged to profit and loss

Recognised in the Consolidated Statement of Comprehensive Income

Actual return on plan assets

Less: interest on plan assets

Other actuarial (losses) gains due to:

Changes in financial assumptions

Changes in demographic assumptions

Experience on benefit obligations

Actuarial gains (losses) recognised in the Consolidated Statement of Comprehensive Income

2013
£m

(2.2)

(0.4)

2.7

0.1

(3.5)

(3.4)

49.5

(27.5)

22.0

(14.0)

–

8.0

2012
Restated
(note 2)
£m

(2.1)

(0.5)

–

(2.6)

(4.0)

(6.6)

65.6

(28.4)

37.2

(55.4)

(7.1)

14.5

(10.8)

Current service cost and administration expenses are recognised in operating costs and net interest on net pension liability is recognised
in other finance costs. The curtailment gain as a result of the Main UK plan closing to future accrual is recognised as an exceptional item.

Pension contributions are determined with the advice of independent qualified actuaries on the basis of regular valuations using the projected unit
method. The Group made special contributions of £12.1m over the period to 2013 (2012: £7.5m) in addition to the Group’s regular contributions.
The special contributions for 2014 are expected to be £9.6m. The total contributions to the defined benefit plans in 2014 are expected to be
£12.6m (2013: £15.4m).

The figures above for this accounting period have been calculated under IAS 19 (Revised). There has been no impact from the adoption
of IAS 19 (Revised) on the disclosed defined benefit obligation, fair value of assets or net liabilities. However, the net charge to the Income
Statement for this accounting period has increased by £3.3m on a pre tax basis (relative to that which would have applied under the previous
version of IAS 19), with a tax impact of £0.8m. Operating profit reduced by £0.4m due to the recognition of administrative costs, while other
finance costs increased by £2.9m. The actuarial loss recognised has decreased correspondingly by £3.3m. The additional net charge to the
income statement reduces basic earnings per share for total operations by 1.2p and diluted earnings per share for total operations by 1.2p.

The 2012 prior year figures have been restated under IAS 19 (Revised). There was no impact on the disclosed defined benefit obligation,
fair value of assets or net liabilities. However, the prior year net charge to the Income Statement was increased by £3.3m (relative to that
disclosed previously), and the prior year actuarial loss recognised for 2012 was decreased correspondingly by £3.3m.

Sensitivity Analysis
Changes in key assumptions can have a significant effect on the reported retirement benefit obligation and the income statement expense for
2014. The effects of changes in those assumptions are set out in the table below.

Increase
2013
£m

Decrease
2013
£m

Increase
2012
£m

Decrease
2012
£m

Discount rate

Effect on defined benefit obligation of a 1.0% change

Effect on net liability of a 1.0% change

RPI inflation (and associated assumptions)

Effect on defined benefit obligation of a 1.0% change

Effect on net liability of a 1.0% change

Life expectancy

Effect on defined benefit obligation of a 1 year change

Effect on net liability of a 1 year change

106.0

73.4

(128.1)

(91.7)

103.8

70.6

(124.9)

(87.8)

(71.4)

(53.1)

(20.5)

(10.1)

71.2

47.6

20.5

10.1

(69.9)

(51.6)

(20.2)

(9.7)

69.7

46.2

20.2

9.7

157

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

24. Pensions & other post-employment benefit plans (continued)
The impact on the net liability is significantly reduced as a result of the insurance policies held. In the absence of such policies, the impact
of the net liability would equal the significantly higher impact on the defined benefit obligation.

These sensitivities have been calculated to show the movement in the defined benefit obligation and net liability in isolation, and assuming
no other changes in market conditions at the accounting date. In practice, for example, a change in discount rate is unlikely to occur without
any movement in the value of the invested (non-insurance policy) assets held by the plans.

Changes in the present value of the defined benefit obligations are analysed as follows.

Opening defined benefit obligations

Current service cost

Past service curtailment gain

Interest on benefit obligations

Benefits paid

Contributions by employees

Actuarial (losses) gains due to:

Changes in financial assumptions

Changes in demographic assumptions

Experience on benefit obligations

Exchange rate adjustment

Closing defined benefit obligations

2012
Restated
(note 2)
£m

2013
£m

(739.9)

(690.9)

(2.2)

2.7

(31.0)

32.6

–

(14.0)

–

0.4

(2.1)

–

(32.3)

32.3

(0.1)

(55.4)

(7.1)

14.5

1.2

(751.4)

(739.9)

The past service curtailment gain of £2.7m in the current period arose as a result of the decision taken, following consultation, to close the
Main UK plan to the future accrual of benefits with effect from 30 June 2015 onwards. This decision was announced to members in August
2013, at which point the curtailment gain was recognised under IAS 19 (Revised).

Changes in the fair value of plan assets are analysed as follows.

Opening plan assets

Interest on plan assets

Employer contributions

Administrative expenses

Benefits paid

Actuarial return on plan assets less interest on plan assets

Exchange rate adjustment

Closing plan assets

2012
Restated
(note 2)
£m

2013
£m

649.5

606.2

27.5

15.4

(0.4)

(32.6)

22.0

(0.4)

28.4

11.1

(0.5)

(32.3)

37.2

(0.6)

681.0

649.5

158

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements25. 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

2013
Number
Million

2012
Number
Million

213.6

213.0

0.3

0.6

213.9

213.6

1.1

(0.4)

0.7

1.7

(0.6)

1.1

The Company has one class of ordinary share which carries no rights to fixed income.

As at 3 January 2014, 90,827 shares (2012: 125,196 shares) were held by the Kleinwort EBT with a market value of £1.9m (2012: £2.3m).

As at 3 January 2014, 168,764 shares (2012: 104,568) were held by the Appleby EBT for the strategic and matching elements of the deferred
bonus and 82,667 shares (2012: 51,255) for the deferred element. These shares have a market value of £5.3m (2012: £2.9m).

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 during the period are included in the following line items in the Consolidated Income Statement and
Balance Sheet.

2013
£m

2012
£m

Revenue

Cost of sales

Interest

Inventory

0.3

(0.4)

0.4

(0.5)

(0.2)

–

(0.8)

–

(0.8)

159

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

26. Additional cash flow information

Continuing operations

Net cash generated from operations

Operating profit

Non cash exceptional items

Share of results of joint ventures

Depreciation of property, plant & equipment

Amortisation of intangible assets

Gains on disposal of property, plant & equipment

Funding of pension & post-retirement costs

Employee share schemes

Net foreign exchange including derivative financial instruments

Decrease in provisions

Cash generated from operations before working capital cash flows

Decrease (increase) in inventories

(Increase) decrease in trade & other receivables and construction contracts

Decrease in trade & other payables and construction contracts

Cash generated from operations

Additional pension contributions paid

Income tax paid

Net cash generated from operating activities

2012
Restated
(note 2)
£m

2013
£m

490.3

468.6

(70.5)

(8.4)

59.1

46.7

(1.3)

(0.5)

8.7

4.1

(13.4)

514.8

1.6

(37.1)

(5.4)

(20.2)

(6.4)

49.4

36.7

(0.9)

(0.8)

7.5

0.3

(18.7)

515.5

(61.6)

24.4

(79.7)

473.9

398.6

(12.1)

(71.9)

389.9

(7.5)

(104.9)

286.2

The settlement of the external debt of Weir Mathena and Weir Novatech on acquisition has been classified as a financing cash flow in
accordance with IAS 7.

160

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

The following tables summarise the cashflows arising on acquisitions:

Acquisitions of subsidiaries

Current period acquisitions (see below)

Previous periods acquisitions contingent consideration paid

Acquisition of subsidiaries – cash paid

Cash and cash equivalents acquired

Acquisition of subsidiaries – current year acquisitions

Settlement of external debt of subsidiary on acquisition

Total cash outflow on acquisition of subsidiaries – current year (note 13)

Previous periods acquisitions contingent consideration paid

Total cash outflow relating to acquisitions

Disposals of subsidiaries

Current period disposals – proceeds

– cash disposed of

Prior period disposals

Proceeds from sale

Cash disposed

Net cash inflow from current year disposals

Current year disposals had the following effect on the Group’s assets and liabilities

Trade and other receivables

Construction contract assets

Net derivative financial instruments

Trade and other payables

Construction contract liabilities

Provisions

Net assets disposed

2013
£m

2012
£m

(200.9)

(114.9)

(0.3)

(8.4)

(201.2)

(123.3)

(207.4)

(125.1)

6.5

10.2

(200.9)

(114.9)

(1.3)

(1.9)

(202.2)

(116.8)

(0.3)

(8.4)

(202.5)

(125.2)

–

(0.3)

–

25.2

(1.8)

(0.5)

22.9

25.2

(1.8)

23.4

6.2

0.9

(0.6)

(8.1)

(6.7)

(2.9)

(11.2)

161

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013
NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

26. Additional cash flow information (continued)

Reconciliation of net (decrease) increase in cash & cash equivalents to movement in net debt

Net (decrease) increase in cash & cash equivalents from continuing operations

Net decrease (increase) in debt

Change in net debt resulting from cash flows

Lease inceptions

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)

2013
£m

2012
£m

(307.3)

284.4

260.7

(322.6)

(46.6)

(38.2)

(0.1)

(1.5)

(9.9)

(58.1)

(688.9)

(747.0)

(0.1)

(2.3)

24.9

(15.7)

(673.2)

(688.9)

79.1

(26.5)

391.1

(65.4)

(799.6)

(1,014.6)

(747.0)

(688.9)

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 no more than five years

More than five years

2013
£m

24.1

57.1

19.0

2012
£m

25.0

56.1

19.5

100.2

100.6

Finance lease commitments
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
2013
£m

Present
value of
payments
2013
£m

Minimum
payments
2012
£m

Present value
of payments
2012
£m

0.2

0.4

–

0.6

(0.1)

0.5

0.2

0.3

–

0.5

0.2

0.5

0.1

0.8

(0.1)

0.7

0.2

0.5

–

0.7

The weighted average outstanding lease term is 4.04 years (2012: 4.42 years). For the 53 weeks ended 3 January 2014, the weighted average
effective borrowing rate was 5.33% (2012: 5.74%).

All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

162

The Weir Group PLC Annual Report and Financial Statements 2013Financial StatementsCapital 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 £0.5m (2012: £0.5m).

2013
£m

11.0

2012
£m

13.6

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.

On 6 February 2013, an Opinion & Order was filed with the United States District Court, Southern District of New York dismissing the claim against
the Company (being one of many companies targeted) relating to a civil action for damages arising from the UN Oil for Food programme which
was raised in the US. Subsequently the Iraqi Government filed notice of appeal. A hearing of this appeal took place in the 2nd Circuit Court of
Appeals on 18 February 2014. The decision of the Court of Appeals is still awaited at the time of publication. It is the Company’s intention to
continue to defend this 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 upon the Group’s financial position.

28. Equity settled share-based payments
LTIP
There are three types of award which may be made under the LTIP to senior executives: performance shares, matching shares and investment
shares. Details of each award are outlined in the Remuneration report on pages 85 to 112. The changes to the 2014 LTIP as described in the
Directors Remuneration Policy on page 88 will take effect for the 2014 year end.

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

Outstanding at the end of the period

2013
Number
Million

1.7

0.4

(0.6)

1.5

2013
WASP

£14.57

£24.11

£7.57

£15.44

2012
Number
Million

2.3

0.5

(1.1)

1.7

2012
WASP

£8.26

£19.43

£4.01

£14.57

An amount of £7.4m (2012: £6.7m) 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 £2.4m (2012: £2.0m) in respect of parent company
employees and £5.0m (2012: £4.7m) in respect of employees of subsidiaries.

Certain subsidiary companies made a cash contribution to the parent company of £3.2m (2012: £2.0m) 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

2010

2011

2012

2013

2013
Number
Million

2013
Remaining
contractual
life

2012
Number
Million

2012
Remaining
contractual
life

–

0.6

3 months

0.6 3 months

0.6 15 months

0.5 15 months

0.5 27 months

0.4 27 months

–

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 53 weeks ended 3 January 2014 and the 52 weeks ended 28 December 2012 in the calculation of the fair
value of awards made in those years.

2013

2012

Weighted average expected volatility (%)

Weighted average expected life (years)

Weighted average risk free rate (%)

Weighted average share price (£)

Weighted average fair value (£)

39.91

40.00

3.00

0.37

24.11

20.24

3.00

0.53

19.43

14.32

163

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

28. Equity settled share-based payments (continued)
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 volatility 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.

Deferred Bonus Plan
There are three types of award which may be made under the Deferred Bonus Plan: shares purchased on the employee’s behalf as part of the
annual bonus, matching shares and strategic shares for senior executives.

The following table illustrates the number of shares awarded under the Deferred Bonus Plan.

Outstanding at the beginning of the period

Awarded during the period

Forfeited during the period

Outstanding at the end of the period

2013
Number
Million

2012
Number
Million

0.1

–

0.2

–

0.2

(0.1)

0.1

An amount of £1.3m (2012: £0.8m) 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.

29. Related party disclosure
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

2013

2012

2013

2012

Sales to
related
parties –
goods
£m

Sales to
related
parties –
services
£m

Purchases
from related
parties –
goods
£m

Purchases
from related
parties –
services
£m

Amounts
owed to
related
parties
£m

5.6

1.0

–

0.5

0.2

–

2.7

1.7

–

1.7

2.6

–

2.3

1.4

Contributions to the Group pension plans are disclosed in note 24.

Terms & conditions of transactions with related parties
Sales to and from related parties are made at normal market prices. Outstanding balances at the period end are unsecured and settlement
occurs in cash. There have been no guarantees provided or received for any related party balances. For the 53 weeks ended 3 January 2014,
the Group has not raised any provision for doubtful debts relating to amounts owed by related parties as the payment history has been
excellent (2012: £nil). This assessment is undertaken each financial year through examining the financial position of the related party and
the market in which the related party operates.

Compensation of key management personnel

Short-term employee benefits

Share-based payments

Post-employment benefits

Emoluments paid to the Directors of The Weir Group PLC for the 53 weeks ended 3 January 2014

Remuneration

Gains made on the exercise of Long Term Incentive Plan awards

2013
£m

4.6

3.2

–

7.8

2013
£m

2.0

2.8

4.8

2012
£m

6.5

2.7

0.1

9.3

2012
£m

2.7

5.7

8.4

Key management comprises the Board and the Group Executive. Further details of the Directors’ remuneration are disclosed in the Directors’
remuneration report.

164

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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 a significant concentration of foreign exchange risk has been identified may also apply hedge accounting in accordance
with IAS 39. 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 an investment grade credit rating or better at contract
inception, based upon ratings provided by the major agencies. Exposures to those counterparties are regularly reviewed and, when the market
view of a counterparty’s credit quality changes, adjusted as considered appropriate. Accordingly in normal market conditions, the probability
of material loss due to non-performance by counterparties is considered to be low.

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. Details of changes to the Group’s loans and
facilities has been included in note 20.

Net investment in foreign operations
As at 3 January 2014, US dollar fixed rate notes of US$1,160.0m (2012: US$1,088.2m) and US dollar variable rate loans of US$70.0m (2012:
US$252.0m), both included in interest-bearing loans and borrowings, cross currency swaps of US$89.4m (2012: US$89.4m) and net forward
foreign currency liability contracts of US$170.4m (2012: 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, Weir Seaboard, Weir Novatech and Weir Mathena. Gains or losses on
the retranslation of the borrowings and contingent consideration 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.

165

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES 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 the Group’s financial instruments that are reported in the
financial statements.

Fair Value measurement using

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

Contingent consideration

Amortised cost

Fixed rate borrowings

Floating rate borrowings

Obligations under finance leases

Bank overdrafts & short-term borrowings*

Carrying
amount
2013
£m

Fair value
2013
£m

Level 1
Quoted prices
in active
markets
£m

Level 2
Significant
observable
inputs
£m

Level 3
Significant
unobservable
inputs
£m

10.4

1.8

467.1

79.1

558.4

9.4

0.8

27.7

10.4

1.8

467.1

79.1

558.4

9.4

0.8

27.7

759.0

716.2

56.1

0.5

10.5

56.1

0.5

10.5

–

10.4

1.8

9.4

0.8

–

716.2

56.1

0.5

–

27.7

–

Trade & other payables excluding statutory liabilities & deferred income*

395.8

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

Contingent consideration

Amortised cost

Fixed rate borrowings

Floating rate borrowings

Obligations under finance leases

Bank overdrafts & short-term borrowings*

1,259.8

1,217.0

Fair Value measurement using

Carrying
amount
2012
£m

Level 1
Quoted prices
in active
markets
£m

Level 2
Significant
observable
inputs
£m

Level 3
Significant
unobservable
inputs
£m

Fair value
2012
£m

4.2

0.2

449.0

391.1

844.5

14.6

0.9

24.5

771.5

301.0

0.7

6.9

4.2

0.2

449.0

391.1

844.5

14.6

0.9

24.5

792.7

301.0

0.7

6.9

–

4.2

0.2

14.6

0.9

–

792.7

301.0

0.7

–

24.5

–

Trade & other payables excluding statutory liabilities & deferred income*

400.4

1,520.5

1,541.7

* The fair value of cash and short-term deposits, trade and other receivables and trade and other payables approximates their carrying amount due to the short-term maturities of these

instruments. As such disclosure of the fair value hierarchy for these items is not required.

166

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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, interest rate curves, counterparty and own credit risk. The fair value of cross currency swaps is calculated as the
present value of the estimated future cash flows based on spot foreign exchange rates and counterparty and own credit risk. 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 3 January 2014 and 28 December 2012, the Group has classified contingent consideration as level 3. A reconciliation of the movements
in the contingent consideration fair value has been included in note 13.

During the 53 weeks ended 3 January 2014 and the 52 weeks ended 28 December 2012, there were no transfers between level 1 and level 2
fair value measurements and no transfers into or out of level 3 fair value measurements.

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. The basis for the calculation of the fair value of contingent consideration is
outlined in detail in note 13.

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

Cross currency swaps designated as net investment 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

Other cross currency swaps

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

2013
£m

0.6

0.1

0.4

1.1

0.7

0.4

10.0

11.1

(0.1)

(0.2)

–

(9.3)

(9.6)

(0.2)

(0.3)

(0.1)

(0.6)

2012
£m

–

0.8

0.2

–

3.4

3.6

(0.1)

(0.3)

(9.1)

(5.2)

(14.7)

–

(0.5)

(0.3)

(0.8)

Net derivative financial assets (liabilities)

2.0

(11.1)

167

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES 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.

53 weeks ended 3 January 2014

Less than 1
year
£m

1 to 2 years
£m

2 to 5 years
£m

More than 5
years
£m

Trade & other receivables excluding statutory assets & prepayments

Cash & short-term deposits

Cash flows relating to 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

467.1

79.1

546.2

(401.1)

(0.2)

(10.5)

(16.7)

(33.1)

–

(4.4)

(0.1)

–

(0.3)

–

(1.0)

(42.8)

(27.7)

(433.2)

–

(0.6)

(10.5)

(60.5)

(97.0)

(171.7)

(678.0)

(979.8)

Cash flows relating to non-derivative financial liabilities

(461.6)

(102.5)

(214.8)

(705.7)

(1,484.6)

Net cash flows relating to non-derivative financial assets (liabilities)

84.6

(102.5)

(214.8)

(705.7)

(938.4)

52 weeks ended 28 December 2012

Less than 1
year
£m

1 to 2 years
£m

2 to 5 years
£m

More than 5
years
£m

Trade & other receivables excluding statutory assets & prepayments

Cash & short-term deposits

Cash flows relating to 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

449.0

391.1

840.1

(400.5)

(0.2)

(6.9)

(60.8)

(33.5)

–

(5.4)

(0.2)

–

(243.7)

(33.5)

Cash flows relating to non-derivative financial liabilities

(501.9)

(282.8)

–

(4.8)

(0.3)

–

(27.8)

(438.5)

(0.1)

–

(0.8)

(6.9)

(304.5)

(159.7)

(164.8)

(803.0)

(1,029.7)

(830.9)

(1,780.4)

Total
£m

467.1

79.1

546.2

Total
£m

449.0

391.1

840.1

–

Net cash flows relating to non-derivative financial assets (liabilities)

338.2

(282.8)

(164.8)

(830.9)

(940.3)

168

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

53 weeks ended 3 January 2014

Cross currency swaps – outflow

Cross currency swaps – inflow

Cross currency swaps – net inflow

Forward foreign currency contracts – outflow

Forward foreign currency contracts – inflow

Forward foreign currency contracts – net inflow

Derivative financial instruments – outflow

Derivative financial instruments – inflow

Derivative financial instruments – net inflow

Effect of discounting

Net derivative financial assets

52 weeks ended 28 December 2012

Cross currency swaps – outflow

Cross currency swaps – inflow

Cross currency swaps – net outflow

Forward foreign currency contracts – outflow

Forward foreign currency contracts – inflow

Forward foreign currency contracts – net (outflow) inflow

Derivative financial instruments – outflow

Derivative financial instruments – inflow

Derivative financial instruments – net (outflow) inflow

Effect of discounting

Net derivative financial liabilities

Less than 1
year
£m

1 to 2 years
£m

2 to 5 years
£m

More than 5
years
£m

(2.8)

(14.5)

(48.4)

2.9

0.1

14.6

0.1

48.8

0.4

(642.1)

(18.4)

(16.7)

644.2

2.1

18.9

0.5

17.0

0.3

(644.9)

(32.9)

(65.1)

647.1

2.2

33.5

0.6

65.8

0.7

–

Less than 1
year
£m

1 to 2 years
£m

2 to 5 years
£m

More than 5
years
£m

Total
£m

(65.7)

66.3

0.6

(677.2)

680.1

2.9

(742.9)

746.4

3.5

(1.5)

2.0

Total
£m

(53.1)

43.8

(9.3)

(584.8)

583.3

(1.5)

(2.9)

2.8

(0.1)

(19.3)

19.0

(0.3)

(13.9)

(33.0)

14.2

0.3

33.6

0.6

(43.4)

(118.7)

43.1

(0.3)

–

108.7

(10.0)

(631.7)

631.1

(0.6)

(637.9)

(16.8)

(52.3)

(43.4)

(750.4)

627.1

(10.8)

17.0

0.2

52.6

0.3

43.1

(0.3)

739.8

(10.6)

(0.5)

(11.1)

169

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

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.

53 weeks ended 3 January 2014

Fixed rate debt

Fixed rate notes

Obligations under finance leases

Fixed rate derivatives

Notional cross currency swaps US dollar leg

Notional cross currency swaps Sterling leg

Less than 1
year
£m

1 to 2 years
£m

2 to 5 years
£m

More than 5
years
£m

Total
£m

–

(0.2)

–

(66.8)

(0.1)

(66.9)

(19.5)

12.0

(7.5)

(85.5)

(606.7)

(759.0)

(0.2)

–

(0.5)

(85.7)

(606.7)

(759.5)

(69.9)

43.0

(26.9)

–

(89.4)

55.0

(34.4)

Net fixed rate financial instruments

(0.2)

(74.4)

(112.6)

(606.7)

(793.9)

Floating rate net debt

Cash & short-term deposits

Bank overdrafts & short-term borrowings

Bank loans

Net floating rate financial instruments

79.1

(10.5)

(15.8)

52.8

–

(0.4)

–

(39.9)

–

79.1

(10.5)

(56.1)

12.5

170

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements52 weeks ended 28 December 2012

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

Less than 1
year
£m

1 to 2 years
£m

2 to 5 years
£m

More than 5
years
£m

Total
£m

(0.1)

–

(0.3)

(0.4)

–

(0.2)

–

(0.1)

(67.7)

(703.7)

(771.4)

(0.3)

–

(0.8)

(68.0)

(703.7)

(772.3)

(19.5)

12.0

(7.5)

(69.9)

43.0

(26.9)

(89.4)

55.0

(34.4)

Net fixed rate financial instruments

(0.4)

(0.2)

(75.5)

(730.6)

(806.7)

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

391.1

(6.9)

(58.3)

325.9

(81.0)

41.0

(40.0)

–

(242.7)

–

Net floating rate financial instruments

285.9

(242.7)

–

391.1

(6.9)

(301.0)

83.2

(81.0)

41.0

(40.0)

43.2

Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. Interest on financial instruments classified
as floating rate is repriced at intervals of less than one year. The other financial instruments of the Group that are not included in the above
tables are non-interest bearing and are therefore not subject to interest rate risk.

The 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.

2013

UK Sterling

US Dollar

2012

UK Sterling

US Dollar

A decrease of 100 basis points would have an equal and opposite effect.

Effect on
profit before
tax (loss)
gain
£m

Effect on
equity (loss)
£m

Increase in
basis points

+ 100

(0.1)

–

2.2

(1.5)

–

(0.7)

–

(2.4)

171

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE GROUP FINANCIAL STATEMENTS
Continued

30. Financial assets & liabilities (continued)
Effect of hedge & 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.
During the period three subsidiaries within the Group have applied cash flow hedge accounting to these forward foreign currency transactions.
On 28 December 2012, the hedge relationships within LGE Process Ltd were discontinued on disposal of the company with the outstanding
hedge reserve balance of £0.2m charged to the income statement at that time. 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.

53 weeks ended 3 January 2014

Forward foreign currency contracts designated as cash flow hedges

Forward foreign currency contracts designated as net investment hedges

Net carrying
amount
£m

1.0

0.2

Maturity dates

2014 to 2017

2014

Cross currency swaps designated as net investment hedges

(0.2)

2015 to 2018

Other forward foreign currency contracts at fair value through profit or loss

52 weeks ended 28 December 2012

Forward foreign currency contracts designated as cash flow hedges

Forward foreign currency contracts designated as net investment hedges

2014 to 2017

1.0

2.0

Net carrying
amount
£m

0.1

(0.3)

Maturity dates

2013

Cross currency swaps designated as net investment hedges

(0.5)

2013 to 2018

Other forward foreign currency contracts at fair value through profit or loss

(10.4)

2012 to 2017

(11.1)

Gain (loss)
recognised in
profit or loss
£m

Gain
recognised
in equity
£m

Loss
recognised
in inventory
£m

0.3

(0.1)

(10.6)

(10.1)

0.3

5.3

0.3

–

5.9

(0.5)

–

(0.5)

Gain (loss)
recognised in
profit or loss
£m

Gain
recognised in
equity
£m

Gain (loss)
recognised in
inventory
£m

(0.9)

–

0.4

(1.7)

(2.2)

1.0

1.4

4.9

–

7.3

–

The net £0.2m gain (2012: £0.4m) recognised in profit or loss in respect of cross currency swaps and forward foreign currency contracts
designated as net investment hedges reflects the benefit of the 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 (2012: £nil).

172

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

Foreign exchange risk
The Group considers the most significant foreign exchange risk relates to the Australian 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 qualifying as either cash flow or net investment hedges including forward foreign currency contracts,
borrowings and cross currency swaps. The sensitivity analysis below has been presented to demonstrate the impact of a 25% strengthening
of the relevant functional currency against the currencies shown below and therefore give an indication of the transactional foreign exposure
that exists at a subsidiary level across the Group.

2013

Australian dollar

Euro

US dollar

2012

Australian dollar

Euro

US dollar

Increase in
currency
rate

Effect on
profit gain
(loss)
£m

Effect on
equity gain
£m

+25%

0.7

3.3

–

1.6

(3.7)

180.6

0.3

4.9

5.0

–

0.7

183.3

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

United Kingdom pound

Other

Operating profit from continuing operations before exceptional items & intangibles amortisation

2012
Restated
(note 2)
£m

296.2

57.4

36.4

41.2

7.8

31.3

8.8

(19.7)

25.7

485.1

2013
£m

241.3

46.2

44.5

42.6

5.0

33.8

9.7

0.2

43.2

466.5

173

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013NOTES 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 (%)

2013

747.0

2012

688.9

1,486.7

1,310.3

50.2

52.6

Net debt to EBITDA cover
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 items included in operating profit (note 5) (£m)

Depreciation, intangibles amortisation & impairment (£m)

EBITDA (£m)

Net debt to EBITDA cover (ratio)

2013

747.0

490.3

(70.5)

105.8

525.6

1.4

2012
Restated
(note 2)

688.9

468.6

(20.2)

86.1

534.5

1.3

Interest cover
Interest cover comprises operating profit from continuing operations before exceptional items and intangibles amortisation divided by net
finance costs (excluding exceptional items and other finance costs).

2012
Restated
(note 2)

485.1

41.3

11.7

Operating profit before exceptional items & intangibles amortisation (£m)

Net finance costs (excluding exceptional items and other finance costs) (£m)

Interest cover (ratio)

2013

466.5

44.9

10.4

174

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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 items and other finance costs) (£m)

Interest cover (ratio)

* Adjusted for current year acquisitions

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

2012
Restated
(note 2)

719.8

471.7

(20.2)

86.3

537.8

1.3

2012
Restated
(note 2)

488.2

41.3

11.8

2013

775.9

491.4

(70.5)

105.8

526.7

1.5

2013

467.6

44.9

10.4

2013

2012

1.56

1.61

1.18

1.61

3.36

1.58

1.53

1.23

1.58

3.10

771.29

770.51

15.01

13.01

1.64

1.83

1.21

1.74

3.91

1.62

1.56

1.22

1.61

3.30

869.82

775.72

17.50

13.69

175

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE WEIR GROUP PLC

We have audited the Parent Company financial statements of The Weir Group PLC for the 53 weeks ended 3 January 2014 which comprise
the Company Balance Sheet and the related notes 1 to 18. The financial reporting framework that has been applied in their preparation is
applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them
in an 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 and auditor
As explained more fully in the Statement of Directors’ Responsibilities set out on page 116, the directors are responsible for the preparation
of the parent 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 parent 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 parent 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 to identify material inconsistencies with the
audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. 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 parent company financial statements:
• give a true and fair view of the state of the company’s affairs as at 3 January 2014;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
•
•

the part of the Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the Parent Company financial statements.

Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from

•

branches not visited by us; or
the Parent Company financial statements and the part of the Remuneration Report to be audited are not in agreement with the accounting
records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Other matter
We have reported separately on the Group financial statements of The Weir Group PLC for the 53 weeks ended 3 January 2014.

James Nisbet (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Glasgow
26 February 2014

176

The Weir Group PLC Annual Report and Financial Statements 2013Financial StatementsCOMPANY BALANCE SHEET
At 3 January 2014

Fixed assets

Tangible assets

Intangible 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

The cash at bank & in hand includes £nil (2012: £149.4m) of short term deposits.

Approved by the Board of Directors on 26 February 2014

Keith Cochrane
Director

Jon Stanton
Director

3 January
2014
£m

28 December
2012
£m

Notes

1.8

3.8

1.2

1.7

2,239.7

2,245.6

2,245.3

2,248.5

95.8

14.6

12.8

123.2

726.5

16.7

743.2

620.0

38.2

9.0

321.6

368.8

697.6

19.2

716.8

348.0

1,625.3

1,900.5

1,093.6

1,318.7

1.4

1,095.0

1,320.1

2.1

528.2

578.3

1.1

1.0

527.1

577.3

26.7

38.0

(5.8)

0.5

1.8

26.7

38.0

(5.6)

0.5

1.8

465.9

515.9

527.1

577.3

177

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

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 United Kingdom accounting standards.

Foreign currency translation
The presentational 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.

Intangible assets
Intangible assets are stated at cost and the cost is amortised over the estimated useful life by equal annual instalments at the rate of 25%.

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 FRS 17, 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. 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 Executive
Bonus Scheme (‘EBS’) and as a consequence of occasional one-off conditional awards made to senior executives.

The fair value of the LTIP 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.

The EBS is determined as a percentage of the annual bonus. This percentage is matched by the Company with a share award that will vest on the
third anniversary of the grant date provided the individual continues to hold the original bonus shares awarded and continues to be employed by
the Company at the date of vesting. The EBS includes a strategic bonus shares element for a limited number of senior employees. The fair value of
the matching and strategic elements of the EBS is determined at the date of grant of the bonus and the cost is recognised on a straight line basis
over the vesting period. 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.

As permitted by FRS 20, the Company has applied FRS 20 ‘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.

178

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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 de-recognition of the original liability and the recognition of a new liability, such that the difference in
the respective carrying amounts together with any costs or fees incurred are recognised in profit or loss.

Derivative financial instruments
The Company uses derivative financial instruments, principally forward foreign currency contracts, to reduce its exposure to exchange rate
movements. Additionally, the Company uses interest rate swaps to manage its exposure to interest rate risk. The Company does not hold
or issue derivatives for speculative or trading purposes.

Derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. The fair value
of forward foreign currency contracts is calculated 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 FRS 26 are met. Hedge accounting is applied in
respect of hedge relationships where it is both permissible under FRS 26 and practical to do so. When hedge accounting is used, the relevant
hedging relationships will be classified as a cash flow hedge or fair value 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 FRS 29 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 IFRS 7.

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.

179

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued

2. Profit attributable to the Company
The profit dealt with in the accounts of the Company was £24.3m (2012: £267.2m). 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 2012: 30.0p (2011: 25.8p)

Interim dividend for 2013: 8.8p (2012: 8.0p)

Proposed for approval by shareholders at the annual general meeting

Final dividend for 2013: 33.2p (2012: 30.0p)

2013
£m

2012
£m

63.8

18.8

82.6

54.8

16.9

71.7

70.8

63.8

The proposed dividend is based on the number of shares in issue, excluding treasury shares, at the date the financial statements were
approved and authorised for issue. The final dividend may differ due to increases or decreases in the number of shares in issue between
the date of approval of the report and financial statements and the record date for the final dividend.

Directors
Details of directors remuneration, benefits and LTIP awards are included in the Remuneration report on pages 85 to 112, and in note 29
to the Group financial statements.

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 £14,000
(2012: £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.

3. Tangible assets

Cost

At 28 December 2012

Additions

Disposals

At 3 January 2014

Aggregate depreciation

At 28 December 2012

Charge for year

Disposals

At 3 January 2014

Net book value at 28 December 2012

Net book value at 3 January 2014

180

Office &
computer
equipment
£m

1.8

1.0

(0.1)

2.7

0.6

0.4

(0.1)

0.9

1.2

1.8

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

4. Intangible assets

Cost

At 28 December 2012

Additions

At 3 January 2014

Aggregate amortisation

At 28 December 2012

Charge for year

At 3 January 2014

Net book value at 28 December 2012

Net book value at 3 January 2014

5. Fixed asset investments

Cost

At 28 December 2012

Additions

Repayments

At 3 January 2014

Impairment

At 3 January 2014 & at 28 December 2012

Net book value at 28 December 2012

Net book value at 3 January 2014

The principal subsidiaries and joint ventures of the Company are listed on page 190.

6. Debtors

Amounts recoverable within one year

Amounts owed by subsidiaries

Deferred tax recoverable (note 14)

Other debtors

Prepayments & accrued income

Purchased
Software
£m

Development
Costs
£m

Total
£m

2.0

1.7

3.7

0.7

0.2

0.9

1.3

2.8

0.4

0.6

1.0

–

0.4

1.0

2.4

2.3

4.7

0.7

0.2

0.9

1.7

3.8

Subsidiaries
Shares
£m

Loans
£m

Total
£m

737.9

1,513.3

2,251.2

35.0

–

(40.9)

35.0

(40.9)

772.9

1,472.4

2,245.3

0.2

5.4

5.6

737.7

1,507.9

2,245.6

772.7

1,467.0

2,239.7

2013
£m

2012
£m

91.2

32.8

1.5

2.4

0.7

2.3

2.6

0.5

95.8

38.2

181

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued

7. Creditors

Bank overdrafts & short-term borrowings

Loans from subsidiaries

Amounts owed to subsidiaries

Tax payable

Other taxes & social security costs

Other creditors

Accruals & deferred income

8. 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

– fixed rate notes

– 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

– loans from subsidiaries

Less current instalments due on:

– bank loans

– loans from subsidiaries

2013
£m

144.0

509.3

49.6

0.9

1.4

4.6

16.7

726.5

2012
£m

114.7

544.8

9.6

0.5

1.3

4.8

21.9

697.6

2013
£m

2012
£m

15.8

509.3

0.4

66.9

15.1

39.9

85.7

279.2

606.4

–

58.3

544.7

242.7

–

11.9

–

67.7

–

703.7

292.7

1,618.7

1,921.7

(15.8)

(58.3)

(509.3)

(544.7)

1,093.6

1,318.7

The loans from subsidiaries with a maturity date greater than two years and less than five years are repayable in 2018 and have an interest rate
of 6.37%. These loans are not secured.

Details of the interest and repayment terms of the bank loans and fixed rate notes can be found in note 20 to the Group financial statements.

182

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

9. Provisions

At 3 January 2014 and 28 December 2012

Discontinued
operations
Warranty &
indemnity
£m

Subsidiaries
Shares
£m

1.1

1.0

Total
£m

2.1

Subsidiaries
As at 3 January 2014, a provision of £1.1m (2012: £1.1m) has been made against the deficiency of underlying net assets in certain subsidiaries.

10. 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 (note 14)

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 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

2013
£m

(1.4)

0.3

(1.1)

2013
£m

0.1

2013
%

3.3

4.4

3.4

2013
Years

22.0

24.5

23.8

26.5

2012
£m

(1.4)

0.4

(1.0)

2012
£m

0.1

2012
%

2.9

4.3

2.9

2012
Years

21.8

24.3

23.6

26.3

183

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued

10. Retirement benefits (continued)
Changes in the present value of the defined benefit obligations are analysed as follows.

Opening defined benefit obligations

Interest cost

Benefits paid

Closing defined benefit obligations

Changes in the fair value of plan assets are analysed as follows.

Opening plan assets

Employer contributions

Benefits paid

Closing plan assets

History of experience gains and losses

Present value of defined benefit obligation

Deficit in the plans

Changes in assumptions underlying plan liabilities

2013
£m

1.4

0.1

(0.1)

1.4

2013
£m

–

0.1

(0.1)

–

2010
£m

(1.3)

(0.2)

2012
£m

1.4

0.1

(0.1)

1.4

2012
£m

–

0.1

(0.1)

–

2009
£m

(1.1)

–

2013
£m

(1.4)

–

2012
£m

(1.4)

–

2011
£m

(1.4)

(0.1)

In addition, the Company also participates in the defined benefit plan arrangements within The Weir Group Pension & Retirement Savings Scheme
(Main Plan) and The Weir Group 1972 Pensions and Life Assurance Plan for Senior Executives (Executive Plan). 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 FRS 17, 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 Company made special contributions of £12.1m in 2013 (2012: £7.5m) in addition to the employers regular contributions. The
special contributions for 2014 are expected to be £9.6m. The total contributions to the defined benefit plans in 2014 are expected to be £11.7m
(2012: £14.4m).

Plan assets are stated at their market values at the respective balance sheet dates and overall expected rates of return are established by
applying published brokers forecasts to each category of plan assets and allowing for plan expenses. The actual return on plan assets in the
period was a gain of £46.7m (2012: £63.6m).

The assets and liabilities of the plans and the long-term expected rates of return are as follows.

2013
%

7.4

3.9

4.4

1.3

2013
£m

185.2

124.6

346.2

8.1

664.1

(723.6)

(59.5)

2012
%

6.8

3.4

4.3

0.5

2012
£m

156.9

121.3

348.2

7.6

634.0

(708.5)

(74.5)

Equities

Bonds

Insurance policy

Other

Fair value of plan assets

Present value of plan liabilities

Net deficit in the plans

184

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

Recognised in the profit & loss account

Current service cost

Past service curtailment 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 gains (losses) recognised in the statement of total recognised gains & losses

2013
£m

2.1

(2.7)

(0.6)

2012
£m

2.0

–

2.0

(29.6)

(30.5)

29.8

0.2

31.1

0.6

46.7

(29.6)

17.1

(16.6)

0.5

63.6

(30.5)

33.1

(45.3)

(12.2)

The curtailment gain of £2.7m in the 53 weeks ended 3 January 2014 arose as a result of a decision taken, following consultation, to close the
Main UK Plan to the future accrual benefits with effect from 30 June 2015. This decision was announced to members in August 2013, at which
point the curtailment gain was recognised under FRS 17.

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

2013
%

3.3

2.2

4.4

3.4

2013
Years

22.0

24.5

23.8

26.5

2012
%

2.9

2.1

4.3

2.9

2012
Years

21.8

24.3

23.6

26.3

185

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued

10. Retirement benefits (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

Interest cost

Benefits paid

Contributions by employees

Actuarial losses

Closing defined benefit obligations

Changes in 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 gains

Closing plan assets

History of experience gains and losses

Fair value of plan assets

2013
£m

2012
£m

708.5

660.9

2.1

(2.7)

29.8

(30.7)

–

16.6

723.6

2013
£m

634.0

29.6

14.1

–

(30.7)

17.1

664.1

2.0

–

31.1

(30.9)

0.1

45.3

708.5

2012
£m

591.7

30.5

9.5

0.1

(30.9)

33.1

634.0

2013
£m

2012
£m

2011
£m

2010
£m

2009
£m

664.1

634.0

591.7

580.6

539.8

Present value of defined benefit obligations

(723.6)

(708.5)

(660.9)

(632.6)

(599.2)

Deficit in the plans

(59.5)

(74.5)

(69.2)

(52.0)

(59.4)

Experience adjustments arising on plan liabilities

Changes in assumptions underlying plan liabilities

Experience adjustments arising on plan assets

–

(16.6)

17.1

14.5

(59.8)

33.1

0.9

(42.5)

(0.5)

(2.8)

(22.3)

24.0

(10.6)

(111.6)

64.4

The cumulative amount of actuarial losses recognised in the statement of recognised gains and losses is £264.6m (2012: £265.1m).

186

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

11. 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

2013
£m

2012
£m

13.5

8.1

1.1

14.6

–

16.7

1.1

0.3

1.4

0.9

9.0

9.1

10.1

19.2

0.9

0.5

1.4

The figures in the above table are inclusive of derivative financial instruments where the counterparty is a subsidiary of The Weir Group PLC.

12. 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

2013
£m

2012
£m

26.7

2013
Number
Million

2012
Number
Million

0.3

0.6

1.1

(0.4)

0.7

1.7

(0.6)

1.1

1.5

1.7

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.

187

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013

NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued

13. Reserves

At 30 December 2011

Profit for the period

Dividends

Cost of share-based payment inclusive of tax credits

Purchase of shares

Exercise of LTIP awards

At 28 December 2012

Profit for the period

Dividends

Cost of share-based payment inclusive of tax credits

Purchase of shares

Exercise of LTIP awards

At 3 January 2014

14. Deferred tax asset

At 28 December 2012

Included in profit for the period

Credit for the period included in equity

At 3 January 2014

Included in debtors (note 6)

Included in retirement benefits (note 10)

Other timing differences

Retirement benefits

Share
Premium
£m

Treasury
Shares
£m

Capital
Redemption
Reserve
£m

Special
Reserve
£m

Profit & loss
Account
£m

38.0

(5.6)

0.5

1.8

–

38.0

–

38.0

–

(2.0)

2.0

(5.6)

–

(1.4)

1.2

(5.8)

–

0.5

1.8

–

317.6

267.2

(71.7)

4.9

–

(2.1)

515.9

24.3

(82.6)

9.5

–

(1.2)

0.5

1.8

465.9

£m

2.7

(1.7)

0.8

1.8

2012
£m

2.3

0.4

2.7

2.3

0.4

2.7

2012
£000

2013
£m

1.5

0.3

1.8

1.5

0.3

1.8

2013
£000

–

15. Operating lease commitments
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

188

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

16. 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 3 January 2014 amounted to £134.1m (2012: £228.8m).

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.

On 6 February 2013, an Opinion & Order was filed with the United States District Court, Southern District of New York dismissing the claim against
the Company (being one of many companies targeted) relating to a civil action for damages arising from the UN Oil for Food programme which
was raised in the US. Subsequently the Iraqi Government filed notice of appeal. A hearing of this appeal took place in the 2nd Circuit Court of
Appeals on 18 February 2014. The decision of the Court of Appeals is still awaited at the time of publication. It is the Company’s intention to
continue to defend this action vigorously.

17. Related party disclosures
The Company has taken advantage of the exemption in FRS 8 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

Ynfiniti Engineering Services SL

2013

2012

2013

2012

Management
charge
£m

Amounts
due by
£m

0.2

0.4

0.3

–

0.3

0.1

0.3

–

18. Financial risk management objectives and policies
The 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.

189

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013PRINCIPAL COMPANIES OF THE GROUP
The principal subsidiaries and joint ventures of the Group are as follows.

Name

Subsidiaries

American Hydro Corporation

EnviroTech Pumpsystems, Inc.

Gema Industrigummi AB

Linatex Rubber Products Sdn Bhd

Mathena Inc.

Mesa Manufacturing, Inc.

Multiflo Pumps Pty Ltd

Seaboard Holdings, Inc.

Shengli Oilfield Weir Highland Pumps Company Ltd

Specialised Petroleum Manufacturing Ltd

SPM Flow Control, Inc.

SPM Flow Control Ltd

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 Netherlands BV

Novatech Holdings Corp.

Weir Power & Industrial France SAS

Weir – R. Wales Canada Inc.

Weir Slurry Group Inc.

Weir Solutions FZE

Weir Valves & Controls UK Ltd*

Weir Valves & Controls USA Inc

Weir Valves & Controls (Suzhou) Co. Ltd

Ynfiniti Engineering Services SL

Joint ventures

Weir Arabian Metals Company

Wesco LLC

* Companies whose shares are owned directly by The Weir Group PLC.

190

Country of registration
or incorporation

% equity
interest
2013

USA

Sweden

Malaysia

USA

Australia

USA

China

Scotland

USA

Canada

Chile

Canada

Brazil

Scotland

USA

Italy

USA

India

South Korea

South Africa

Australia

England

Netherlands

USA

France

Canada

USA

Dubai

England

USA

China

Spain

Saudi Arabia

UAE

100

The Weir Group PLC Annual Report and Financial Statements 2013Financial StatementsThe Company has taken advantage of the exemption under Section 410 (2) of the Companies Act 2006 by providing information only in relation
to subsidiary undertakings whose results or financial position, in the opinion of the Directors, principally affected the financial statements.

A complete list of subsidiary and associated undertakings is attached to the annual return of the The Weir Group PLC filed at
Companies House.

Group products
Some of the key product trade marks owned by the Principal Companies are set out below, most of which are registered in one or more countries:

WARMAN is a trade mark of Weir Minerals Australia Ltd and Weir Group African IP Ltd; ASPIR, CAVEX, HAZLETON and MULTIFLO are trade
marks of Weir Minerals Australia Ltd; LEWIS and LEWIS PUMPS are trade marks of Envirotech Pumpsystems Inc.; GEHO is a trade mark of
Weir Minerals Netherlands BV; FLOWAY is a trade mark of Weir Floway Inc.; VULCO is a trade mark of Vulco SA; ISOGATE is a trade mark of
Weir do Brasil Ltda.; LINATEX is a trade mark of Linatex Ltd; ENDURON is a trade mark of Weir Minerals Europe Ltd; KHD is a trade mark used
under license by companies forming part of The Weir Group; SPM and MESA are trade marks of S.P.M. Flow Control, Inc.; SEABOARD is a
trade mark of Seaboard International, Inc.; NOVATECH is a trade mark of Novatech, LLC; GABBIONETA is a trade mark of Weir Gabbioneta Srl;
BEGEMANN is a trade mark of Weir Minerals Netherlands BV; MATHENA is a trade mark of Mathena, Inc.; ALLEN STEAM TURBINES is a
trade mark of Weir Engineering Services Ltd; AMERICAN HYDRO is a trade mark of American Hydro Corporation; ATWOOD & MORRILL
and TRICENTRIC are trade marks of Weir Valves & Controls USA, Inc; BDK is a trade mark of Weir India Pvt Ltd; BATLEY, BATLEY VALVE,
BLAKEBOROUGH, HOPKINSONS and MAC VALVE are trade marks of Weir Valves and Controls UK Ltd; SARASIN-RSBD and SEBIM are
trade marks of Weir Power & Industrial France SAS; ROTO-JET is a trade mark of Envirotech PumpSystems, Inc.; WEMCO is a trade mark
used under licence by companies forming part of The Weir Group; WEIR is a trade mark of Weir Engineering Services Ltd.

191

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013SHAREHOLDER INFORMATION

Shareholder enquiries
The Company’s registrars are:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol, BS99 6ZZ
Website: www.investorcentre.co.uk
Telephone: 0870 707 1402

Shareholder enquiries relating to shareholding, dividend payments, change of address, loss of share certificate and other related matters
should be addressed to Computershare.

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 the name of the company in which you hold shares, your Shareholder Reference Number (SRN), your postcode or country if outside
of the UK or Channel Islands and security code (provided on screen). For security purposes, Computershare will send a unique activation code
to your registered address. Your SRN can be found on your share certificate or dividend tax voucher.

Dividends
2013 final dividend
The Directors have recommended a final dividend of 33.2 pence per share for the 53 weeks ended 3 January 2014. Payment of this dividend
is subject to approval at the 2014 Annual General Meeting. Key dates relating to this dividend are given below:

Ex-dividend date
Annual General Meeting
Record date
Final day for receipt of DRIP elections
Payment date

30 April 2014
1 May 2014
2 May 2014
8 May 2014
30 May 2014

Dividend payments
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:

• 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. To switch to this method of payment you can apply online at www.investorcentre.co.uk or download a
dividend mandate form from the FAQ section of the Company’s website (weir.co.uk), under ‘Shareholder Information’ in the ‘Investor’ section.
Alternatively, you can contact Computershare, who will also be able to assist with any questions you may have. A Consolidated Tax Voucher
(CTV) detailing all payments made throughout the tax year will then be sent to you once a year either electronically or to your registered
address. In 2014, the CTV will be dispatched with the November 2014 dividend payment and contain the tax and payment information for
dividends paid during the 2014/2015 tax year.

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. If you wish to participate in the DRIP, you
can apply online at www.investorcentre.co.uk or alternatively, you can complete a DRIP mandate form obtainable from Computershare.

• 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. Please note that a payment charge would be deducted from each
individual payment before conversion into your local currency. This service can be set up at www.investorcentre.co.uk or by contacting
Computershare.

Capital gains tax
For the purpose of capital gains tax, the market value of an ordinary share of The Weir Group PLC as at 31 March 1982 was 29.75p. This market
value has been adjusted to take account of the sub-division of the share capital whereby each ordinary share of 25p was sub-divided into two
ordinary shares of 12.5p each on 28 June 1993. Rights issues of ordinary shares took place in April 1987 at 157p per share on the basis of one new
ordinary share for every seven ordinary shares held, in July 1990 at 250p per share on the basis of one new ordinary share for every five ordinary
shares held and in September 1994 at 252p per share on the basis of one new ordinary share for every four ordinary shares held.

192

The Weir Group PLC Annual Report and Financial Statements 2013Financial Statements

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 the
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.

Company website
Shareholders are encouraged to visit the Company’s corporate website (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 source of information for shareholders, containing details on the share price,
our financial results, shareholder meetings and dividends, as well as a ‘Frequently asked questions’ section. Current and past Annual and
Interim Reports are also available to view and download.

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 a trading account in order to deal. Real time dealing is available during market hours (8.00 am to 4.30 pm Monday
to Friday excluding bank holidays). 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, which appears on share certificates and tax dividend vouchers. Please note that, at present, this service is only available
to shareholders in certain European jurisdictions. Please refer to the Computershare website for an up-to-date list of these countries.

Telephone share dealing commission is 1%, 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. 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 Conduct 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. Share scams are often run from ‘boiler rooms’ where fraudsters cold-call investors offering them worthless, overpriced or even
non-existent shares.

These callers can be very persistent and extremely persuasive and their activities have resulted in considerable losses for some investors. Whilst
usually by telephone, the high-pressure sales tactics can also come by email, post, word of mouth or at a seminar. Shareholders are advised to be
very wary of any unsolicited advice, offers to buy shares at a discount, sell your shares at a premium 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 and take a note of any other details they provide, such as a telephone

number or address.

• Check that the caller is properly authorised by the Financial Conduct Authority (FCA) by visiting www.fca.org.uk.
• Report any approach from such organisations to the FCA using the share fraud reporting form at www.fsa.org.uk/scams, where you can

also find out about the latest investment scams. You can also call the FCA Consumer Helpline on 0845 111 6768.
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.

193

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013
GLOSSARY

AGM

Appleby EBT

Board

bps

Brent

CGU

capex

comminution

Company

Director

EBIT

EBITDA

EHS

elastomer

Annual General Meeting

Employee benefit trust (Appleby Trust (Jersey) Ltd)

The Board of Directors of The Weir Group PLC

Basis points, ten basis points are equivalent to 0.1% movement

An internationally recognised benchmark for the price of oil

Cash generating unit

Capital expenditure

The first stage of minerals processing through which solid materials are reduced in size through
crushing and screening

The Weir Group PLC

A Director of The Weir Group PLC

Earnings before interest and tax

Earnings before interest, tax, depreciation and amortisation

Environment, health and safety

An elastic polymer used in pump linings

emerging markets

Asia-Pacific, South America, Africa and the Middle East

EPCMs

EPS

Engineering, Procurement and Construction Management companies

Earnings per share

Excellence Committees

Weir Group Management Committees ensuring best practice

free cash flow

Net cash flow generated from continuing operations excluding the cash impact in relation
to acquisitions, disposals and net proceeds from/repayments of borrowings

GHG

Group

IAS

IFRS

Greenhouse gas

The Company together with its subsidiaries

Human resources

International Accounting Standards

International Financial Reporting Standards

Independent auditors

Ernst & Young LLP

194

The Weir Group PLC Annual Report and Financial Statements 2013Financial StatementsInput

ISO

Kleinwort EBT

KPI

like for like

Orders received from customers

International Organisation for Standardisation

Employee benefit trust (Kleinwort Benson (Guernsey) Trustees Ltd)

Key Performance Indicator

On a consistent basis, excluding the impact of acquisitions

low carbon industries

Nuclear, wind, hydro, solar, biomass and geothermal industries

LTIP

mill circuit

Oil & Gas forum

operating margin

ordinary shares

NPBTA

PBTA

Registrar

R&D

ROCE

RPI

subsidiary

TIR

TSR

UK GAAP

WTI

Long Term Incentive Plan

The various stages of extracting and processing ore

An initiative to develop products and services for the North American upstream oil and gas markets
by leveraging the expertise of all three Weir divisions

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

Normalised profit before tax and amortisation

Profit before tax and amortisation

Computershare Investor Services plc

Research and development

Continuing operations EBIT (excluding Mathena and Wales EBIT and exceptional items) divided
by average net assets excluding net debt, pension deficit (net of deferred tax asset) and Mathena
and Wales net assets

UK Retail Prices Index

An entity that is controlled, either directly or indirectly, by the Company

Total Incident Rate (medical treatment of any kind required by employees divided
by 200,000 hours worked)

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, an internationally recognised benchmark for the price of oil

195

Strategic ReviewOperational ReviewCorporate GovernanceFinancial StatementsOverviewThe Weir Group PLC Annual Report and Financial Statements 2013
FINANCIAL CALENDAR

Ex-dividend date for final dividend
30 April 2014

Annual General Meeting
1 May 2014

Record date for final dividend
2 May 2014
Shareholders on the register at this date will receive the dividend.

Final day for receipt of DRIP elections
8 May 2014

Final dividend paid
30 May 2014

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 and Company Number
20 Waterloo Street
Glasgow G2 6DB
Scotland
Registered in Scotland
Company Number 2934

196

The Weir Group PLC Annual Report and Financial Statements 2013Financial StatementsPrinted on an FSC-recognised paper, produced from well-managed
forests. This publication was printed with vegetable oil-based inks by
an FSC-recognised printer that holds an ISO 14001 certification.

The Weir Group PLC
20 Waterloo Street
Glasgow G2 6DB, Scotland

T: +44 (0)141 637 7111
F: +44 (0)141 221 9789
E: investor-relations@weir.co.uk

weir.co.uk