Weir Group profits hit by oil slump

Weir's power and industrial division saw an 11% year-on-year fall in overall orders

Glasgow-based valve and pump maker Weir Group has reported a 40% fall in first-half pre-tax profit, after being hit by a slump in US oil and gas drilling activity.

Profit for the six months to June fell to £108m from £182m a year earlier.

Weir said North American upstream activity had been hit by "the most severe downturn in oil and gas markets for nearly 30 years".

Overall first-half revenue fell by 13% to £1bn.

However, Weir added that it expected its financial performance to improve in the second half of this year.

Workforce cuts

The company said it had focused aggressively on "cost competitiveness", including cutting its North American oil and gas workforce by 32% since November 2014.

It expects its strategy to deliver annualised savings of £85m by the end of 2015.

Weir's minerals division was affected by a continuing decline in customer capital expenditure and lower order levels from oil, power and industrial sectors.

However, Weir said this was offset by "a good initial contribution" from its 2014 acquisition of Trio Engineered Products and "good global mining aftermarket growth".

Its oil and gas arm was hit by significant falls in activity, particularly in North American unconventional markets.

Meanwhile, Weir's power and industrial division saw an 11% year-on-year fall in overall orders. Orders for original equipment such as large hydro and steam turbines were down 26%, while valve and hydro orders were affected in part by delivery delays across oil and gas and power markets.

'Severe downturn'

Chief executive Keith Cochrane said: "This is the most severe downturn in oil and gas markets for nearly 30 years, and as a result North American upstream activity has reduced substantially.

"As we indicated through the first half, this has had a significant impact on the group's interim financial performance.

"During this period, we have remained focused on responding to these conditions, executing effectively and generating cash."

He added: "Looking ahead, oil and gas will continue to be tough, with industry expectations of a modest improvement at best in North American activity levels towards the end of the year.

"However, with the normal seasonal bias of the Minerals and Power & Industrial divisions, increased restructuring benefits, further cost savings and a good contribution from recent acquisitions, we expect a meaningful sequential improvement in our financial performance in the second half of 2015, alongside continued strong cash generation."