The Weir Group PLC Annual Report and Financial Statements 2012 The Weir Group PLC Annual Report and Financial Statements 2012 THE WEIR GROUP IS A GLOBAL ENGINEERING GROUP We are focused on delivering engineering solutions to customers in the minerals, oil and gas and power markets. Operating in more than 70 countries and employing more than 14,000 people, we support our customers through a worldwide network of around 200 manufacturing and service facilities. > Read more about the Company on page 2. The equipment and support we provide, together with a commitment to excellence across the value chain, helps our customers to deliver resources upon which society depends. > Read more about our performance from page 12. Directors’ Report Section I. Financial Statements Overview of Weir Section IV. 2012 Highlights ............................................................................................... 1 Independent Auditor’s Report ..................................................................... 83 Weir at a Glance ............................................................................................... 2 Consolidated Income Statement ................................................................ 84 Chairman’s Statement .................................................................................... 4 Consolidated Statement of Comprehensive Income ................................ 85 Our Strategy and Business Model ................................................................ 6 Consolidated Balance Sheet ....................................................................... 86 Consolidated Cash Flow Statement ........................................................... 87 Section II. Consolidated Statement of Changes in Equity .......................................... 88 Notes to the Group Financial Statements .................................................. 89 Review of the Year Independent Auditor’s Report ................................................................... 138 Key performance Indicators ........................................................................... 8 Company Balance Sheet ........................................................................... 139 Understanding Our Markets ........................................................................ 10 Notes to the Company Financial Statements ........................................... 140 Chief Executive’s Strategic Review ............................................................. 12 Excellence Across the Value Chain .............................................................. 20 Company Information Our People ..................................................................................................... 22 Principal Companies of the Group ............................................................ 151 Operational Review Shareholder information ............................................................................ 152 > Weir Minerals .............................................................................................. 24 Glossary ...................................................................................................... 154 > Weir Oil & Gas ............................................................................................. 28 Financial Calendar and Cautionary Statement ......................................... IBC > Weir Power & Industrial ............................................................................. 32 Financial Review ........................................................................................... 36 How We Manage Risk ................................................................................... 42 Sustainability Review ................................................................................... 46 Board of Directors ........................................................................................ 48 Group Executive ............................................................................................ 50 Section III. Corporate Governance Corporate Governance Report .................................................................... 51 Remuneration Report ................................................................................... 66 Other Statutory Information ......................................................................... 81 Cover image: Lucivaldo Gonçalves dos Santos, foundry assembler, Weir Minerals Brasil. Minerals Weir assembler, foundry Santos, dos Gonçalves Lucivaldo image: Cover weir.co.uk/annualreport2012 Directors’ Report: Overview of Weir I 2012 Highlights II III IV Financial Revenue Profit before tax2 £2,538m £443m +11% +12% Operating profit2 Order input1 £486m £2,397m +18% -2% Dividend per share Earnings per share2 38.0p 150.1p +15% +12% Net debt £689m Financial and Strategic Record pre-tax profits up 12% to £443m; Record Group operating margin, supported by strong performance by Minerals; Strengthening aftermarket input: 57% of total orders (2011: 52%); Resilient Oil & Gas performance, supported by positive contributions from acquisitions; Strategic progress: higher R & D investment; expanded product portfolio and service presence; Full year dividend increased by 15% to 38.0p with further double digit increase planned in 2013. 1. 2011 restated at 2012 average exchange rates. 2. Continuing operations adjusted to exclude exceptional items and intangibles amortisation. The Weir Group PLC Annual Report and Financial Statements 2012 1 Directors’ Report: Overview of Weir Weir at a Glance Our divisions provide mission critical engineering equipment, services and support to customers in the global energy and natural resources markets. PARTNERS IN PRODUCTION WORLDWIDE Our aim of extending our positions in the high growth, long cycle minerals, oil and gas and power markets is delivered through our strategic pillars of value chain excellence, innovation, collaboration and global capability. > Read more about strategy on page 6. NORTH AMERICA EUROPE 76 facilities 30 facilities 4,330 people 3,000 people ASIA-PACIFIC 18 facilities 2,350 people SOUTH AMERICA 23 facilities 1,750 people MIDDLE EAST AND AFRICA AUSTRALIA 26 facilities 27 facilities 1,770 people 1,160 people 2012 Group input by market 2012 Group input by geography Minerals 45% North America 37% Oil & Gas 33% South America 14% Power & Industrial 18% Middle East and Africa 14% Other 4% Europe 14% Asia-Pacific 12% Australia 9% 2 The Weir Group PLC Annual Report and Financial Statements 2012 I II III IV Minerals Oil & Gas Power & Industrial Designing, manufacturing and supporting Designing, manufacturing and supporting Designing, manufacturing and supporting products used in mining and minerals products used in upstream pressure- valves, pumps and turbines for the processing. Weir Minerals is the global pumping, pressure control and downstream conventional and renewable power leader in slurry handling equipment. refining operations. Weir Oil & Gas is the and industrial and oil and gas markets. market leader in pressure-pumping equipment in North America. Revenue Revenue Revenue £1,334m £844m £323m +12% +13% +7% Operating profit Operating profit Operating profit £256m £211m £31m +21% +14% +20% Key brands: Key brands: Key brands: Warman, Vulco, Cavex and Linatex SPM, Seaboard, Novatech, Mesa, Gabbioneta Roto-Jet, Blakeborough, Atwood & Morrill, Batley Valve, Main markets: and Weir Oil & Gas Services BDK, Hopkinsons, Tricentric, Sarasin-RBSD, Sebim, Mining and minerals processing; oil sands; aggregates; Main markets: Allen Steam Turbines, American Hydro and WEMCO flue gas desulphurisation and tunnelling and dredging Oil and gas drilling and completion; oil refining Main markets: Major operational locations: Major operational locations: Nuclear and conventional power generation; water and US, Canada, Chile, Brasil, Peru, UK, Netherlands, US, Canada, UK, Middle East, China, Singapore wastewater; mid and downstream oil and gas; waste South Africa, India, China and Australia and Australia to energy; biomass; paper and pulp and foodstuffs Major customers: Major customers: Major operational locations: Major and Junior Mining Houses; EPCs (Engineering, Oilfield Service Companies; National and International US, Canada, UK, France, Spain, South Korea, Procurement and Construction Companies); National Oil Companies; EPCs Singapore, South Africa, India and China and International Oil Companies Employees: Major customers: Employees: 3,100 Utility Companies; General Industrial Companies; EPCs 7,9 0 0 Addressable market: Addressable market: £4.5bn Employees: £5.7bn 3,170 Addressable market: £7bn > Read more about Weir Minerals’ performance > Read more about Weir Oil & Gas’ performance > Read more about Weir Power & Industrial’s from page 24. from page 28. performance from page 32. The Weir Group PLC Annual Report and Financial Statements 2012 3 Directors’ Report: Overview of Weir Chairman’s Statement Lord Smith of Kelvin The Weir Group continued to perform well during 2012, borne out by revenues which grew 11% to £2.5bn and record pre-tax profits from continuing operations, before exceptional items and intangibles amortisation, of £443m, a 12% increase on 2011. We are proposing a final dividend payment to shareholders of 30.0p per share, making 38.0p for the full year, an increase of 15%. In 2013, we plan to continue the double digit dividend growth rate which we have delivered every year since 2005. This will be the 30th consecutive year of dividend growth