The Weir Group PLC Annual Report and Financial Statements 2014 The Weir Group PLC Annual Report and Financial Statements 2014 Our mission is to be wherever and whenever our global customers need us delivering innovative products and services The Weir Group PLC is one of the world’s leading engineering businesses. Since our foundation in 1871, we have been committed to creating innovative engineering solutions for our global customers and delivering long-term value to our shareholders. Our strategy and business model provides a robust platform for sustainable growth across the economic cycle. Read more about Our Strategy and Business Model from page 8. Our competitive advantage is sustained by investing in the best people, products and services to continue to make our customers more efficient and ensure we capture future growth opportunities. Read more in our Chief Executive’s Strategic Review from page 10. We have developed global leadership positions in structurally strong markets and used our scale to successfully expand our range of products and services. Read more in our Operational Review from page 32. We are committed to being a trusted partner of choice to our customers, suppliers and the communities in which we operate around the world. Read more in our Sustainability Review from page 52. Strategic Report Corporate Governance Financial Statements 2014 Highlights Strategic Report 1–68 Revenue Profit before tax1 2014 Highlights 1 Weir at a Glance 2 Understanding Our Markets 4 £2,438m £409m Chairman’s Statement 6 0% -2% Our Strategy and Business Model 8 Chief Executive’s Strategic Review 10 Strategy in Action 14 Operating profit1 Order input2 Key Performance Indicators 22 How We Manage Risk 24 Operational Review 32 £450m £2,473m Financial Review 46 -4% +9% Sustainability Review 52 Dividend per share Earnings per share1 44.0p 141.3p Corporate Governance +5% -3% 69–112 Group Executive 69 Board of Directors 70 Net debt Cash from operations Corporate Governance Report 72 Nomination Committee Report 83 Report of the Audit Committee 85 £861m £421m Remuneration Report 91 -£114m -11% Directors’ Report 109 Strong constant currency growth. 14% increase in aftermarket orders and revenues. Financial Statements Innovation: New products driving growth. Comminution 113–182 and premium fluid end input of £105m; R&D up 15%. Independent Auditor’s Report 113 Consolidated Income Statement 118 Collaboration: Second global customer agreement Consolidated Statement of Comprehensive Income 119 secured with major mining house. Consolidated Balance Sheet 120 Consolidated Cash Flow Statement 121 Value Chain Excellence: £46m in procurement savings Consolidated Statement of Changes in Equity 122 achieved in 2014. Notes to the Group Financial Statements 123 Company Balance Sheet 170 Global Capability: Trio acquisition strengthening Notes to the Company Financial Statements 171 presence in Chinese mining markets and US aggregates. Principal Companies of the Group 183 Total exceptional costs of £212m: Primarily in relation to Shareholder Information 185 £49m of efficiency review costs and the non-cash £160m Glossary 187 oil price driven impairment of Pressure Control goodwill. Financial Calendar 188 1. Continuing operations adjusted to exclude exceptional items and intangibles amortisation. 2. 2013 restated at 2014 average exchange rates. The Weir Group PLC Annual Report and Financial Statements 2014 1 Weir at a Glance Global capability, local delivery The Weir Group consists of three complementary divisions which operate in markets and share strong prospects for long-term growth. Our products and services help meet the demands of the world’s growing population for energy and natural resources. You can learn more in ‘Understanding Our Markets’ on pages 4 and 5. Minerals Read more on page 32 Designing, manufacturing and 2014 Revenue* Key brands: Major customers: supporting products used in Warman, GEHO, Linatex, Vulco, Major and junior mining houses; Cavex, Enduron and Trio. Engineering, Procurement and mining and minerals processing. Main markets: Construction Management companies Weir Minerals is the global £1,128m Mining and minerals processing, (EPCMs); national and international market leader in slurry -4% including comminution, slurry oil companies. handling equipment. transportation and mine dewatering; Main competitors: sand and aggregates; and oil sands. Metso, FLSmidth, KSB and Outotec. 2014 Operating profit* Major operational locations: Employees: US, Chile, Brazil, Peru, UK, Netherlands, 8,900 South Africa, Malaysia, China Addressable market: £226m and Australia. £6.3bn -7% Oil & Gas Read more on page 36 Designing, manufacturing 2014 Revenue* Key brands: Major customers: and supporting products used SPM, Seaboard, Mathena, Oilfield service companies; national and Novatech, Gabbioneta and international oil companies; and EPCMs. in the upstream pressure Weir Oil & Gas Services. Main competitors: pumping, upstream pressure £992m Main markets: FMC Technologies, Gardner Denver, control and downstream refining +32% Oil and gas drilling, completion, Cameron, Sulzer and Flowserve. operations. Weir Oil & Gas is production and refining. Employees: Major operational locations: 4,200 the global market leader in * 2014 Operating profit US, Canada, UK, Middle East, Addressable market: pressure pumping equipment. China and Australia. £225m £8.1bn +32% Power & Industrial Read more on page 42 Designing, manufacturing 2014 Revenue* Key brands: Major customers: and supporting valves, pumps Hopkinsons, Atwood & Morrill, Utility companies; general industrial Blakeborough, Sarasin-RBSD, Sebim, companies; EPCMs. and turbines which are used Tricentric, BDK, Roto-Jet, Weir American Main competitors: in conventional and renewable £318m Hydro and Batley Valve. Flowserve, Pentair, Velan, GE, IMI, power and industrial operations +1% Main markets: Hayward Gordon, Voith and Andritz. and in oil and gas production, Nuclear, conventional and renewable Employees: power generation; water and waste mid-stream and refining markets. 3,200 2014 Operating profit* water; mid and downstream oil and gas; and general industrial processes. Addressable market: £8.1bn Major operational locations: US, Canada, UK, France, South Korea, £19m South Africa, India and China. -37% * In constant currency terms. 2 The Weir Group PLC Annual Report and Financial Statements 2014 Strategic Report Corporate Governance Financial Statements 2014 Group input by market 2014 Group input by geography Minerals 35% North America 46% Oil and gas 47% South America 11% Power 9% Middle East and Africa 13% Industrial and other 9% Europe 12% Asia-Pacific 10% Australasia 8% Weir’s commitment to being wherever and whenever Total facilities Total people our global customers need us, means we have developed a regional manufacturing strategy and a market-leading global network of service centres. This delivers real competitive 253 16,300 advantage in the need-it-now industries we serve. Europe In Europe, nuclear opportunities are emerging as a result of the UK’s development of new power stations. Read more on page 43 Asia-Pacific In Asia-Pacific, the acquisition of Trio Engineered Products expanded our exposure to domestic North America Chinese mining markets. Read more on page 21 Our Oil & Gas premium fluid end product, designed at our advanced research centre, is gaining market share by helping reduce our customers’ breakeven costs. Read more on page 59 Middle East Australasia and Africa South America In Australia, the Minerals In the Middle East and division is using its Weir Minerals has a service Africa, the Group opened a extensive network to centre within 200km of new regional headquarters support the growing every major mine. and manufacturing facility internationalisation of in Dubai. Read more on page 33 the Oil & Gas division. Read more on page 80 Read more on page 38 North America Europe South America 85 facilities 50 facilities 25 facilities 5,000 people 3,000 people 1,900 people Asia-Pacific Middle East and Africa Australasia 34 facilities 37 facilities 22 facilities 3,200 people 2,000 people 1,200 people The Weir Group PLC Annual Report and Financial Statements 2014 3 Understanding Our Markets Weir operates in three main markets with strong prospects for long-term growth Together, minerals, oil and gas and power contribute more than 90% of Group revenue. The United Nations1 (UN) estimates The Group’s mining original equipment the world’s population will increase orders are driven by capital expenditure Figure 1: Global population and from approximately 7 billion people from its global natural resource customers. urbanisation growth (billion) currently to more than 8 billion in 2025 This can come in the form of greenfield 10 and almost 10 billion by 2050. The UN expenditure on new mines or brownfield also predicts that in that period an additional spending, where existing assets are 8 2.5 billion people will have moved from developed to increase production or 6 the countryside to live in cities, a process efficiencies. The abrasive process of known as urbanisation. Both these trends, turning rock into a valuable end-commodity 4 along with economic development and means our equipment is exposed to 2 rising incomes, will underpin growing significant wear and tear, which in turn 2015 2050 2015 2050 demand for natural resources and energy, generates aftermarket revenues for WorldDeveloping supporting long-term growth in the key spares and servicing. This process is Countries end markets served by the Group.