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CEO says balance sheet remains strong

Weir shares slump near 9% as oil price fall and project delays hit profits

Keith CochraneShares in Scottish engineering group Weir slumped 8.75% after profits fell last year as customers delayed orders following the slump in the oil price.

The Glasgow-based group saw pre-tax profits slip 2% from £418 million to £409m.

However, there was a 14% uplift in the aftermarket order book and revenues.

Keith Cochrane, chief executive, said: “In terms of outlook for 2015, we will continue to make progress in delivering our strategy while responding to market conditions as they evolve. The group has already acted following steep price declines in key commodities, particularly oil, taking additional measures to reduce operating costs.”

“While visibility in oil and gas remains limited, it is clear that the Group’s strategic progress and cost initiatives will only partly offset the impact of a substantial reduction in demand and the associated pricing pressure.

“As a result we are planning for a significant reduction in constant currency group revenues and lower operating margins in 2015. However, we will continue to invest in extending the group’s global leadership positions and increasing market share, supported by a strong balance sheet and the cash generative nature of the Group.”

The board is recommending a 5% increase in the full year dividend, with a final dividend of 29p (2013: 33.2p) to be paid on 29 May, making a total of 44p for the year (2013: 42p). This is the 31st consecutive year of dividend growth.

Graham Spooner, investment research analyst at The Share Centre, said: “Shares in Weir fell by over 9% after the company warned it was preparing for a difficult year ahead. It reported that in a challenging 2014, both order input and revenue on a constant currency basis had increased and profit before tax was up 7%. However, as a result of the significant fall in the price of oil and other commodities, it predicts that lower revenues and operating margins will be experienced in 2015.

“The group’s performance is linked to the price of commodities, with over half of its sales and profits coming from the mining sector and a significant amount from after-sale services. Like many others in the sector, the company has responded to these market conditions by taking additional measures to reduce operating costs. However, investors should note that these measures cannot offset the impact of reduced demand and associated pricing pressure.

“We currently recommend Weir as a ‘hold’ for medium risk investors, as the share price has potentially factored in the sector woes and fallen by around 35% since September. The group has been increasing its exposure to shale oil and gas, if the oil price were to stay low for a lengthy period, the company’s expansion and exposure to US shale oil could be a significant future head wind. As a result, there is every chance that share price volatility will remain.”

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