Focus on mining
Weir puts oil and gas on block after plunging to loss
John Stanton: focus on mining technology
Weir Group is looking for a buyer for its oil and gas division as it moves to becoming a pure play mining technology business.
The company took a £546 million oil and gas impairment charge that saw its continuing operations slump to a pre-tax loss of £372 million for the year to 31 December.
This compared to an £86m profit for 2018. Operating profits were marginally higher at £352m from £348m.
Jon Stanton, chief executive, said the Glasgow-based group’s stated priority for capital allocation has been on extending its premium mining technology positions.
He said: “North American oil and gas market conditions deteriorated significantly through the year and we undertook a major cost reduction programme in response.
“While the long-term prospects for shale remain positive, current market dynamics mean it now has a very different investment case to our premium mining technology positions. We are therefore taking actions so that we can maximise value for shareholders whenever the right opportunity is identified.
“We have made good progress, including the acquisition and successful integration of ESCO, the sale of Flow Control and continued strengthening of Minerals.
“The Oil & Gas division shares many of the same underlying characteristics as Minerals and ESCO, but its market dynamics have changed with shorter cycles and higher levels of volatility leading to a very different financial profile to our mining businesses.
“As a result, we have recognised a £546m impairment in our North American Oil & Gas business. Our focus is now on becoming a mining technology pure play and we are looking for opportunities to maximise value from the Oil & Gas division at the right time.
“Today, the market backdrop is a challenge, so we will continue to manage the business with a long-term perspective, including taking continued action to optimise our footprint for current market conditions whilst still investing in technology to drive market share gains and support long-term value.
“However, we are taking actions so that whenever we identify a clear solution to drive value for our shareholders, we will be ready and able to capitalise.”
The company has set out an ambition to reduce its own CO2 emissions by 50% by 2030.
The board is recommending a final dividend of 30.45p, resulting in a total dividend of 46.95p for the year, up 2% from 2018 reflecting its confidence in the long term prospects of the group.
Dividend cover is 1.9 times. If approved at the Annual General Meeting on 28 April the final dividend will be paid on 5 June to shareholders on the register on 24 April.
Alasdair Ronald of Brewin Dolphin said: “Weir Group’s results underline the importance of management’s decision to diversify the business.
“The decline of the North American oil and gas market over the past 12 months has been offset to a degree by the growth of its minerals and ESCO divisions, but the company has still swung to a significant loss.
“There are opportunities to enhance its aftermarket offering and geographical diversification – but, perhaps more importantly, Weir needs to move towards higher-margin and recurring sales which should place it on a more secure footing.
‘Regardless, there is more for management to do to reassure investors that Weir is sufficiently protected from the volatility of oil and gas and, more generally, heading in the right direction.”