Weir Group 2013 Interim Report (PDF, 0.59 MB) - The Weir Group

Strategic progressThe Minerals division has continued to add capacityto meet growing aftermarket demand for a number ofgreenfield projects which have still to be commissioned,with the purchase of foundries in South Africa andMalaysia supporting best cost sourcing while theacquisition of R Wales in Canada extends the footprintof wear resistant rubber applications and products.A series of agreements enhanced the platform forgrowth in the comminution segment of mineralsprocessing, a c.£3bn market for crushing, grindingand screening equipment and services. The division’stechnology position was further extended withsuccessful trials of new alloys and the launch of newscreens technology. Targeted capacity addition andproduct localisation has supported growth in thedivision’s broad range of ancillary products andservices, with investment in additional sales resources.Tight cost control and procurement savings improvedoperational performance in the period.Operational performanceOrder input decreased by 4% to £700m (2012: £731m),6% lower on a like for like basis. Input increasedsequentially quarter on quarter through the period, withsecond quarter orders broadly flat year on year. Originalequipment orders declined 15%, with second quarterorders showing good sequential growth, as brownfieldand non-mining contract wins partially offset furtherproject delays. Aftermarket orders grew 4%, includinga good first contribution from R Wales, and were up2% like for like. Good underlying aftermarket growth,benefiting from the growing installed base, was offsetin the second quarter by certain project commissioningdates slipping into the second half and some temporarydestocking in South American markets. Aftermarketinput represented 62% of the total, compared to 57%in the prior year.The division continued to gain traction across the broaderoriginal equipment product portfolio, further reducing itsreliance on the core slurry pump product range. Ordersfor dewatering pumps and screens were both up over30%. Notable contracts during the period included amaterial contract for a Canadian oil sands brownfieldexpansion, a large pump order in Peru and a landmarkdewatering contract for a Queensland, Australia coal bedmethane project. Aftermarket input strengthened acrossa range of commodities with the benefits of a large andgrowing installed base reflected in 3% order growth inslurry pump spares. Emerging markets accounted for47% of input (2012: 50%) with orders from Africa risingby 10%.Revenue fell by 1% to £659m (2012: £668m) and was3% lower like for like. Original equipment sales were 6%lower and accounted for 37% of revenues (2012: 39%).Production-driven aftermarket revenues increasedby 1%, flat on a like for like basis, slightly lower thanexpectations due to destocking and delays incommissioning certain projects.Operating profit increased by 7% to £130m(2012: £121m), 5% like for like, as the divisionbenefited from strengthening aftermarket mixand operational improvements.Operating margin increased 160bps to 19.8%(2012: 18.2%), ahead of expectations, reflecting thestrengthening aftermarket revenue mix alongsidebenefits from continuing business improvement andcost initiatives.Capital expenditure totalled £23m (2012: £22m)and included investment in service and machiningcapacity in China and Africa alongside foundry capacityexpansion in Europe. Overall spending on researchand development of £6m was broadly flat year on year.7