Final Results

RNS Number : 4845X

Weir Group PLC

22 February 2017

Press Release
22 February 2017

The Weir Group PLC today reports its full year results for the period ended 31 December 2016

Positioned for growth

· 10% order growth in Q4 as mining and oil and gas markets showed signs of recovery

· Minerals revenues and profits increased; consistently outperforming its markets

· Upstream North American oil and gas markets troughed in Q2; division returned to breakeven in Q4

· Flow Control margins relatively stable in challenging downstream markets

· Full year PBTA¹ of £170m was impacted by severe oil and gas market downturn

o Reported PAT from continuing operations of £43m after £74m of exceptional items

· Continued strong cash generation: Group-wide free cash flow of £130m

· Strategic investment of £15m in people and technology planned for 2017

Continuing Operations²	2016	2015	Reported Growth	Constant Currency³
Order input³	£1,860m	£2,025m	n/a	-8%
Revenue	£1,845m	£1,880m	-2%	-11%
Operating profit¹	£214m	£258m	-17%	-26%
Operating margin¹	11.6%	13.7%	-210bps	-240bps
Profit before tax¹	£170m	£219m	-22%	-31%
Reported profit after tax	£43m	£(157)m	n/a	n/a
Cash from operations⁴	£293m	£396m	-26%	n/a
Earnings per share¹	61.2p	78.0p	-22%	n/a
Dividend per share	44.0p	44.0p	0%	n/a
Return on capital employed⁵	7.6%	9.6%	n/a	-200bps
Net debt	£835m	£825m	-£10m	+£123m

Jon Stanton, Chief Executive Officer, commented:

"Following a challenging and prolonged downturn, the Group returned to growth in the fourth quarter of 2016 as our main markets showed signs of improvement and we benefited from our on-going investment in new technology and long-term customer relationships.

"Minerals increased revenues from both original equipment and aftermarket. Oil & Gas extended its technology leadership amidst difficult end markets and Flow Control benefited from its recent restructuring which supported margins in challenging downstream energy markets. Our record of excellent cash generation continued.

"In recent months I have been encouraged by macro commodity trends and the signs in our mining and oil and gas markets that point to a cyclical upturn. Our new strategic priorities will strengthen our capabilities and enable us to fully capture opportunities presented by improving markets, although there is a range of views about the precise shape of the recovery in 2017. At a Group level, we expect to deliver strong cash generation and good growth in constant currency revenues. Profit growth will be further supported by foreign currency translation benefits, partly offset by incremental investments in people and technology."

A live webcast of the management presentation will begin at 0900 (GMT) on 22 February 2017 at www.investors.weir A recording of the webcast will also be available at www.investors.weir

Enquiries:
Investors: Stephen Christie	+44 (0) 7795 110456
Media: Raymond Buchanan	+44 (0) 7713 261447
Brunswick PR advisers: Patrick Handley / Diana Vaughton	+44 (0) 20 7404 5959

Notes:

1. Adjusted to exclude exceptional items and intangibles amortisation. Reported operating profit and profit before tax from continuing operations were £90m (2015: operating loss of £133m) and £43m (2015: loss before tax of £174m) respectively. Reported earnings per share was 20.1p (2015: loss per share 73.1p).

2. Continuing operations excludes American Hydro and YES, which were disposed of during H1 2016 and are reported in discontinued operations.

3. 2015 restated at 2016 average exchange rates.

4. Cash from operations includes continuing and discontinued operations.

5. Continuing operations EBIT before exceptional items on a constant currency basis (excluding Delta EBIT and exceptional items) divided by average net assets (excluding Delta net assets) excluding net debt and pension deficit (net of deferred tax asset).

Strategic priorities

The Group provides highly engineered mission-critical solutions for global mining, oil and gas, power and other aftermarket-orientated process industries. The Group will execute its revised strategy, 'We are Weir' by focusing on four distinctive competencies: People; Customers; Technology and Performance to fully benefit from the expected market recovery.

People:

In order to drive improvement towards achieving Weir's ambition of becoming a zero-harm workplace, a Chief Executive's Safety Committee was established. Comprising the CEO, Division Presidents and the Chief People Officer, its first action was to publish a new charter that clearly sets out the priorities and actions that will deeply embed a safety-first culture across the Group's global operations. 2016's graduate intake was the first to have an equal gender balance and the Group aims to ensure a third of the Board, Group Executive and their direct reports are female by 2020.

In 2017, Weir will improve safety through a programme of awareness aimed at changing the behaviours that lead to harm. The Group will invest an additional £8m in attracting, retaining and developing its people including leadership and training programmes and consolidating best practice across the Group to foster a greater coaching culture. Businesses will be given additional support to improve diversity further, and a global engagement programme will support the implementation of the new Group strategy.

Customers:

One of the Group's core strengths is its close and long-term strategic relationships with a diverse range of customers. The Minerals division deployed a greater proportion of its engineers to mines in order to help customers meet their objectives of optimising plants to deliver increased productivity. Flow Control's safety valve technology was successfully deployed in the Arctic Circle - one of the most challenging operating environments in the world.

In 2017, the Group will pursue long-term strategic relationships with more customers, strengthening and leveraging existing relationships. Training and support will be targeted at promoting a 'solutions mind-set' in all operations to ensure customers fully benefit from the Group's deep engineering knowledge. New product development and sales processes will be updated to ensure they are consistently driven by customer insights.

Technology:

The Group is the technology leader in its main markets and in 2016 continued to leverage its engineering expertise to design and produce efficient solutions including a new cone crusher for comminution markets and the commercialisation of the next generation frack pump, which was developed in response to customer demand for continuous duty service. The Group also increased its digital offering with the initial launch of a Flow Control e-commerce platform. In total, new products generated £110m (6%) of revenues in the year.

Recognising the importance of technology to its strategy, the Group has appointed its first Chief Technology Officer. In 2017, Weir will also invest an additional £7m in its digital and innovation programmes including launching its first Synertrex^TM solution, enabling Internet of Things connected products and assisting moves towards a more digital enabled field service. The Group will also prioritise expanding its skills-base to reflect the digitisation of industrial products, and will increase investment in research and development. The Group's new innovation framework will be embedded throughout the business supported by an extensive training programme.

Performance:

The Group has a flexible business model that allows it to respond quickly to market cycles. In 2016 this approach delivered £60m in annualised run-rate savings, including an additional £10m actioned in December as North American Oil & Gas management and operations were fully integrated and the closure of a small Minerals manufacturing facility in Michigan was announced. Since Q4-2014, actions taken have reduced the Group's cost base by a total of £170m, which will support margins as revenues recover.

To improve strategic focus, Flow Control disposed of renewables businesses Ynfiniti Engineering Services and American Hydro, contributing to a Group-wide disposals programme that delivered proceeds of £78m. The Group also achieved procurement savings of £48m or c.5% of costs. The Group's investment in lean manufacturing capability continued with the opening of the Weir Gabbioneta facility in Milan, consolidating three previous sites into one. A strong focus on working capital management delivered a £32m inflow in the period.

In 2017, the Group will remain committed to continuously improving its operational performance with a specific focus on on-time delivery and inventory turns. Lean disciplines will be reinvigorated supported by a simplified value-chain excellence process that will be applied rigorously applied across all operations and underpinned by a comprehensive training programme, self-assessments and independent audits.

Segmental analysis
Continuing operations £m	Minerals	Oil & Gas	Flow Control	Unallocated expenses	Total	Total OE	Total AM
Input (constant currency)
2016	1,125	417	318	n/a	1,860	579	1,281
2015	1,093	568	364	n/a	2,025	615	1,410
Variance:
- Constant currency	3%	-27%	-13%		-8%	-6%	-9%
- Like for Like²	3%	-27%	-13%		-8%	-7%	-9%
Revenue
2016	1,112	401	332	n/a	1,845	580	1,265
2015 (as reported)	1,001	541	338	n/a	1,880	574	1,306
Variance:
- As reported	11%	-26%	-2%		-2%	1%	-3%
- Constant currency	2%	-34%	-10%		-11%	-8%	-12%
- Like for Like²	2%	-34%	-10%		-11%	-8%	-12%
Operating profit³
2016	217	(9)	30	(24)	214
2015 (as reported)	192	52	33	(19)	258
Variance:
- As reported	13%	-117%	-7%	-28%	-17%
- Constant currency	2%	-115%	-16%	-27%	-26%
- Like for Like²	3%	-115%	-16%	-27%	-25%
Operating margin
2016	19.5%	-2.2%	9.1%	n/a	11.6%
2015 (as reported)	19.2%	9.6%	9.5%	n/a	13.7%
Variance:
- As reported	30bps	-1180bps	-40bps		-210bps
- Constant currency	0bps	-1190bps	-70bps		-240bps
- Like for Like²	20bps	-1190bps	-70bps		-230bps
¹The Group financial highlights and divisional financial reviews include a mixture of GAAP measures and those which have been derived from our reported results in order to provide a useful basis for measuring our operational performance. Operating results are for continuing operations before exceptional items and intangibles amortisation as provided in the Consolidated Income Statement. Details of other non-GAAP measures are provided in note 1 of the financial statements. ²Like-for-like excludes the impact of acquisitions and related transaction integration costs. ³Adjusted to exclude exceptional items and intangibles amortisation.

Group financial highlights

Order input at £1,860m decreased by 8% on a constant currency basis primarily due to the significant downturn in oil and gas markets.

Revenue of £1,845m was 11% down on a constant currency basis mainly reflecting the fall in orders in the Oil & Gas division. Reported revenues fell 2%, supported by a foreign exchange benefit of £183m.

Operating profit from continuing operations (before exceptional items and intangibles amortisation) decreased by £44m or 17% to £214m on a reported basis. Minerals showed great resilience to increase operating profits. The overall Group shortfall was largely due to significantly lower revenues and margins in the Oil & Gas division as a result of depressed market conditions, particularly in the first half of the year. The reported operating profit benefited from a £30m foreign exchange gain on the translation of overseas earnings due to the weakening of Sterling against the majority of currencies in the second half of the year. Unallocated costs were £24m (2015: £19m), £5m higher than the prior year predominantly due to the mark to market impact on derivatives used to hedge sale and purchase contracts denominated in foreign currencies. Operating profit (including exceptional items and intangibles amortisation) for the year of £90m was £223m higher than the prior year due to the £267m reduction in exceptional items and intangibles amortisation partly offset by the £44m reduction in underlying operating profit. EBITDA before exceptional items of £270m was 24% lower than 2015 on a constant currency basis.

Operating margin from continuing operations (before exceptional items and intangibles amortisation) was 11.6%, a decrease of 210bps on a reported basis and 240bps on a constant currency basis. On a constant currency basis Minerals resilience supported unchanged margins year on year at 19.5% while Oil & Gas reduced from 9.7% in the prior year to a loss of 2.2%, reflecting the market downturn. Flow Control margins at 9.1%, while slightly lower than the prior year's 9.8%, remained relatively resilient in challenging market conditions.

Total net finance costs, before exceptional items were £43.7m (2015: £38.8m), with the increase primarily due to a £3m negative foreign exchange translation effect on US$ denominated interest payments.

Profit before tax from continuing operations (before exceptional items and intangibles amortisation) decreased by 22% to £170m (2015: £219m). The reported profit before tax from continuing operations (including exceptional items and intangibles amortisation) of £43m compares to a loss before tax of £174m in 2015.

An operating exceptional charge of £74m (2015: £339m) and intangibles amortisation of £50m (2015: £52m) were incurred in the period. The largest component of the exceptional charge is £64m related to programmes to right size operations and realign certain activities in light of the prolonged downturn across the Group's major end markets. Actions include headcount reductions, rationalisation of product lines, and service centre closures, with the main impact on Minerals and Oil & Gas.

In addition, a number of legacy warranty, associated inventory and contract liabilities and other un-provided liabilities were identified within our China business during the period resulting in an exceptional charge of £17m. These liabilities have been finalised after a detailed review. They primarily relate to Trio, which was acquired for $220m in 2014, and relate to pre and post-acquisition liabilities.

Partly offsetting these charges was a £5m gain on the sale and leaseback of a number of properties, together with other net credits of £2m.

The tax charge for the year of £38m (2015: £52m) on profit before tax from continuing operations (before exceptional items and intangibles amortisation) of £170m (2015: £219m) represents an underlying effective tax rate (ETR) of 22.5% (2015: 23.9%).

Earnings per share (before exceptional items and intangibles amortisation) decreased by 21.5% to 61.2p (2015: 78.0p). Reported earnings per share including exceptional items, intangibles amortisation and profit from discontinued operations was 17.8p (2015: loss per share of 83.6p).

The Group delivered strong cash generation in the period with cash from operations of £293m (2015: £396m) representing 108% of EBITDA excluding exceptional items primarily due to a working capital inflow of £32m (2015: £87m). Net capex reduced from £88m to £62m, while cash dividends fell from £94m to £46m as a result of the introduction of the scrip dividend scheme in the period, which had a 49% average take-up. In addition, proceeds from the Group's asset disposal programme totalled £78m in the period, including the sale of non-core businesses (£39m) and properties (£39m).

The above movements resulted in a constant currency reduction in net debt of £123m, but including an adverse foreign exchange translation movement of £133m, mainly on US$ and Euro denominated debt, reported net debt increased by £10m to £835m (2015: £825m). On a lender covenant basis, the ratio of net debt to EBITDA excluding exceptional items was 2.8 times, compared to a covenant level of 3.5 times.

Dividend

The Board is recommending a final dividend of 29.0p resulting in a total dividend of 44.0p for the year, unchanged from 2015. Dividend cover (being the ratio of earnings per share from continuing operations before exceptional items and intangibles amortisation, to dividend per share) is 1.4 times. If approved at the Annual General Meeting on 27 April, the final dividend will be paid on 5 June 2017 to shareholders on the register on 28 April 2017 with a scrip dividend alternative being offered as approved at the 2016 AGM.

Board and management changes

As previously announced, in October 2016 Jon Stanton was appointed Chief Executive Officer and was succeeded as Chief Financial Officer by John Heasley. These appointments were made after Keith Cochrane stepped down as Chief Executive following 10 years' service on the Board. In addition, Dean Jenkins, Chief Operating Officer, also stepped down from the Board at the end of September.

In January 2017, David Paradis joined the Group Executive as Division President of Weir Flow Control and today the Group announced the appointment of Geetha Dabir as Chief Technology Officer. Geetha will join Weir in March. She was most recently Vice President and General Manager of Intel Corporation's IoT Applications Ready Platform group. Her previous experience also includes thirteen years working for Cisco Systems Inc, latterly as Vice President of IoT applications.

Minerals

Weir Minerals is a global leader in the provision of mill circuit technology and services as well as the market leader in slurry handling equipment and associated aftermarket support for abrasive high wear applications. Its differentiated technology is used in mining, oil and gas and general industrial markets around the world.

Constant currency £m	H1¹	H2	2016	2015¹	Growth	LFL³ Growth
Input OE	172	155	327	313	5%	3%
Input aftermarket	391	407	798	780	2%	2%
Input Total	563	562	1,125	1,093	3%	3%
Revenue OE	165	156	321	302	6%	7%
Revenue aftermarket	393	398	791	789	0%	0%
Revenue Total	558	554	1,112	1,091	2%	2%
Operating profit²	109	108	217	213	2%	3%
Operating margin²	19.5%	19.5%	19.5%	19.5%	0bps	20bps
Operating cash flow	105	131	236	231	2%
Book-to-bill	1.01	1.01	1.01	1.00
¹2015 and H1 restated at 2016 average exchange rates.
²Adjusted to exclude exceptional items and intangibles amortisation. ³Like-for-like (LFL) excludes the impact of acquisitions and related transaction integration costs. Delta Industrial Valves was acquired on 8 July 2015.

Consistently outperforming

· Divisional input up 3% like-for-like compared to a mining capex decline of 15%

· Resilient margins and strong cash generation in challenging market conditions

· 2017 outlook: Moderate growth in constant currency revenues, broadly stable margins

2016 Market review

Commodity prices improved as the year progressed supported by supply constraints and improving demand. Copper prices increased 17%, iron ore doubled and gold increased 8%, but largely remained below incentive levels for greenfield projects.

Overall mining sector capital expenditure fell by an estimated 15%, marking a fourth consecutive year of double-digit declines. The year started with an extended shutdown in many regions, with low commodity prices impacting sentiment and leading to destocking and deferral of maintenance. As commodity prices improved through the second half of the year, customers continued to defer decisions on major expansion projects but were willing to invest in brownfield optimisations and started to address deferred maintenance. Global ore production grew slightly and on-going declines in ore grade led to increased processing of rock which supported aftermarket demand for spares and services.

Regionally, South America benefited from a number of large mines reaching full production. There was increased activity in South Africa, particularly in gold, while Central and West Africa were challenging. In Europe and Asia Pacific, production levels were relatively stable although capital expenditure remained subdued. In North America, coal markets continued to decline, although rising prices in the second half supported increased quotation levels in Australia.

Following the impact of wild fires in the second quarter, activity levels in the Canadian oil sands recovered in the second half, supported by oil price increases and the continued underlying trend of production growth.

2016 Divisional financial review

Order input increased by 3% to £1,125m (2015: £1,093m), and 3% up on a like-for-like basis. The division's book-to-bill at 1.01 was stable. Original equipment orders were up 5% year-on-year (3% higher like-for-like), reflecting increased brownfield and replacement capital expenditure by miners.

Aftermarket orders increased by 2% on constant currency and like-for-like basis and represented 71% of total input (2015: 71%). The impact of the extended shut-down in the first quarter reversed and mines returned to more normalised production levels, resulting in strong sequential and year-on-year aftermarket order growth in the second half.

In total, mining end markets accounted for 72% of input (2015: 75%) with orders broadly stable. There was strong growth in the industrial and oil sands sectors, while sand and aggregates markets declined.

Revenue was 2% higher on both a constant currency and like-for-like basis at £1,112m (2015: £1,091m). Original equipment sales were 6% higher (7% higher on a like-for-like basis) and accounted for 29% (2015: 28%) of divisional revenue. Production-driven aftermarket revenues were flat on a constant currency and like-for-like basis.

Strong growth in the Middle East and higher activity levels in Asia-Pacific, Australia and South America offset reduced revenues in North America and Africa. At a product category level there was a strong increase in revenues from our GEHO product line. Slurry pumps also showed good growth reflecting their critical importance to support mine production as miners normalised maintenance schedules and the division secured brownfield orders.

Reported revenues increased by 11%, reflecting a 9% foreign exchange tailwind (2015: £1,001m).

Operating profit increased by 2% on a constant currency basis to £217m (2015: £213m), with higher bonus costs and inflationary pressures offset by efficiency measures and lower one-off costs. Reported operating profit increased by 13% after an 11% foreign exchange tailwind (2015: £192m).

Operating margin was unchanged on a constant currency basis, as anticipated, at 19.5% (2015: 19.5%), and was 19.6% (2015: 19.4%) on a like-for-like basis. Gross margins were broadly stable, as original equipment pricing and inflationary pressures were largely offset by procurement savings. The benefits of restructuring and efficiency measures were partially reinvested in expanding the service and engineering network supporting brownfield growth initiatives.

Capital expenditure of £32m (2015: £41m) included investment in further consolidation of the division's North American manufacturing footprint and facility upgrades in Chile and Malaysia. The division also continued the global roll-out of its standardised ERP system.

Research and development spend increased to £15m (2015: £13m) and was focused on maintaining and expanding the division's product portfolio. Developments included a new range of Trio crushers, materials technology and digital and additive manufacturing capabilities.

2017 Divisional outlook

Assuming commodity prices remain around current levels, we expect mining markets to be relatively stable with miners maintaining normal maintenance schedules and continuing modest ore production growth supporting demand for aftermarket products and services. We expect further modest reductions in overall mining capital expenditure in 2017, with the fifth year of declines in exploration and greenfield spending largely offset by increased investment in sustaining capital expenditure in plant optimisation and maintenance; which is the main focus of the division.

Overall, Minerals is expected to deliver moderately higher constant currency revenues as it maintains its focus on brownfield opportunities. Operating margins are expected to be broadly stable as a higher proportion of revenues from original equipment and further investment in operational capabilities is offset by volume leverage and the full year benefit of restructuring actions.

Oil & Gas

Weir Oil & Gas provides highly engineered and mission-critical solutions to upstream markets. Products include pressure pumping and pressure control equipment and aftermarket spares and services. Equipment repairs, upgrades, certification and asset management, and field services are delivered globally by Weir Oil & Gas Services.

Constant currency £m	H1¹	H2	2016	2015¹	Growth
Input OE	35	39	74	100	-26%
Input aftermarket	153	190	343	468	-27%
Input Total	188	229	417	568	-27%
Revenue OE	37	34	71	117	-39%
Revenue aftermarket	155	175	330	487	-32%
Revenue Total	192	209	401	604	-34%
Operating (loss)/profit²	(1.6)	(7.4)	(9.0)	58.4	-115%
Operating margin²	-0.8%	-3.5%	-2.2%	9.7%	-1190bps
Operating cash flow	18	29	47	160	-71%
Book-to-bill	0.98	1.10	1.04	0.94
¹2015 and H1 restated at 2016 average exchange rates.
²Adjusted to exclude exceptional items and intangibles amortisation.

North American markets improving

· Sequential improvement in orders since Q3, returning to breakeven in Q4

· Strong working capital performance; cash generation of £47m

· 2017 outlook: Strong growth in constant currency revenues from low base, with return to modest profitability

2016 Market review

The average US land rig count fell by 48% year-on-year with the US land rig count falling 80% from the peak in October 2014 to the trough in May 2016. A rebound in US land rig count from the low in Q2 was supported by increased oil prices and the November OPEC agreement to cut production, with WTI increasing by 45%. US natural gas prices also saw a partial recovery, driven by a normalisation in storage levels. International markets also saw a significant reduction in activity with the average rig count in 2016 18% lower than the prior year and drilling levels continuing to decline in the second half.

Oil and gas companies continued to reduce capital spending with an estimated reduction in North America of c.40% in 2016 and c.20% internationally in 2016. The number of wells drilled in the US fell 45% with the number of horizontal wells drilled down by around 41%, substantially reducing demand for pressure control equipment and services.

US oil and gas frack fleet utilisation fell from an average of 59% in 2015 to 36% in 2016. In the second half, as activity levels began to increase, service companies commenced the refurbishment of previously idled frack fleet in anticipation of higher completion activity in 2017. Drilling activity also experienced sharp reductions in line with average rig count declines. Both North American markets experienced strong further downward pricing pressure through the first three-quarters of the year as both E&P's and Service companies sought to reduce costs further, although price points stabilised at these low levels in the fourth quarter.

International markets became increasingly challenged throughout the year, despite Middle East production increasing, with National Oil Companies seeking to reduce capital and operating expenditure. This resulted in increased pricing pressure across the region together with lower drilling related activity. Higher cost production regions such as the North Sea and the Caspian continued to face challenging market conditions.

2016 Divisional financial review

Order input at £417m (2015: £568m) was 27% lower reflecting the reduction in activity as oil prices remained subdued through most of the year. On a sequential basis, orders declined through the first half before seeing a progressive improvement in input throughout the second half. This contributed to a positive book-to-bill ratio for the division of 1.04 for the full year. Aftermarket orders were down 27% year-on year and continued to represent 82% (2015: 82%) of divisional orders. Original equipment input was 26% lower, driven primarily by reduced demand for wellheads as the number of wells drilled fell substantially compared to the prior year.

In North America, Pressure Pumping input benefitted as some customers refurbished equipment in the second half as activity levels rose. Similarly, Pressure Control's drilling related offering was supported by increases in the rig count later in the year. Customers remain focused on achieving efficiency improvements and are actively trialling the division's new products. As a result the division received the first order for its next generation frack pump and its EPIX joint venture is now trading.

Input from International markets also fell significantly, as competition increased. The division saw project delays in the higher-cost regions such as the North Sea and Caspian. However good progress was made in internationalising the Pressure Control product lines, with £18m of orders secured following the opening of the UAE's first wellhead manufacturing facility.

Revenue decreased by 34% to £401m on a constant currency basis (2015: £604m), reflecting order input trends. Original equipment and aftermarket revenues decreased by 39% and 32% respectively, with aftermarket accounting for 82% of total revenues (2015: 81%). Reported revenues fell by 26% after a 12% foreign exchange benefit (2015: £541m).

North American revenues increased sequentially through the second half, reflecting regional input trends. Conversely international revenues declined in the second half as customers delayed routine maintenance activities.

An operating loss including joint ventures of £9.0m (2015: £58.4m profit on a constant currency basis) was recognised in the year. EBITDA of £10m was 87% lower than 2015. The decline was driven by further significant activity reductions and pricing pressure in North America in particular. Pricing and volume declines also impacted international markets and more than offset incremental cost savings arising from the restructuring programmes carried out. The reported operating loss fell 117% on the prior year and included a 12% foreign exchange tailwind. Income of £7.2m (2015: £8.3m) from joint ventures was recognised in the period.

Operating margin was down 1190bps reflecting the impact of market conditions, particularly pricing and negative operating leverage. Divisional gross margins were also down significantly as pricing levels in North America fell through the first nine months of the year, before stabilising in the final quarter. Increased volumes in this region returned the division to breakeven in the fourth quarter, despite continued declines in international market conditions.

Capital expenditure of £8m (2015: £23m) included the facility consolidation programme as well as the upgrading of service centres and capabilities in our Dubai manufacturing facility.

Total R&D expenditure of £6m (2015: £8m) was focused on expanding the division's product offering and included the launch of the new SPM® QEM 3000 continuous duty frack pump.

2017 Divisional outlook

Assuming oil and gas prices remain at or above current levels, E&P and service companies have announced plans to increase capital spending in North America. However, the pricing environment is expected to remain challenging. International markets, which were later to enter the downturn, are expected to be slower to recover.

A strong increase in constant currency divisional revenues from a low base is expected, driven by continued North American rig count growth, with divisional margins expected to return to modest levels. Operating margins will benefit from the higher volumes and the full year benefit of restructuring and cost reduction measures, although pricing benefits are expected to be limited.

Flow Control

Weir Flow Control designs and manufactures valves and pumps as well as providing specialist support services to the global power generation, industrial, oil and gas and other aftermarket-orientated process industries.

Constant currency £m	H1¹	H2	2016	2015¹	Growth
Input OE	91	87	178	202	-12%
Input aftermarket	81	59	140	162	-13%
Input Total	172	146	318	364	-13%
Revenue OE	93	95	188	211	-11%
Revenue aftermarket	73	71	144	157	-8%
Revenue Total	166	166	332	368	-10%
Operating profit²	15	15	30	36	-16%
Operating margin²	9.0%	9.1%	9.1%	9.8%	-70bps
Operating cash flow	18	24	42	26	62%
Book-to-bill	1.04	0.88	0.96	0.99
¹2015 and H1 restated at 2016 average exchange rates.
²Adjusted to exclude exceptional items and intangibles amortisation.

Resilient performance in challenging markets

· Input and revenues reflect declining end market conditions

· Margins supported by operational discipline and best-cost sourcing

· 2017 outlook: moderate constant currency revenue growth driven by OE , lower margins and profits

2016 Market review

Customers remained cautious in the face of continuing economic uncertainty and depressed energy prices. This resulted in increased pricing pressure and project delays in the power and downstream oil and gas markets, despite the recovery in energy prices over the second half.

In conventional power markets, demand was subdued in Europe and the United States with aftermarket demand impacted by reduced maintenance spend. However, the pipeline for nuclear opportunities in China, Korea and the UK was more promising.

Downstream oil and gas customers reduced spending, reducing the demand for both original equipment and aftermarket. Industrial markets continued to be subdued as customers delayed new investment decisions, although wastewater markets were more resilient.

2016 Divisional financial review

Order input decreased by 13% to £318m (2015: £364m) against a strong prior year comparator and was impacted by the significant decline in mid and downstream oil and gas markets. In addition, customer decisions to delay projects across the division's power and industrial markets impacted activity levels. Original equipment orders were down 12%, driven by the decline in pump demand from oil and gas markets in particular. Aftermarket input declined by 13%, with declines across both valves and pumps as customers delayed planned maintenance and power outages.

Power markets represented 41% of orders (2015: 38%). The proportion of orders from oil and gas markets decreased to 30% (2015: 33%). Emerging markets accounted for 37% of input (2015: 42%), with a fall in orders from the Middle East and South America. Orders were also down in North America, but input in Europe and Asia Pacific was more stable.

Revenue decreased by 10% on a constant currency basis to £332m (2015: £368m), with aftermarket revenues down 8% on the prior year. Original equipment revenues were down 11% as customers delayed receipt of project orders. Reported revenues fell by 2% reflecting a 9% foreign exchange tailwind (2015: £338m).

Operating profit was down 16% at £30m on a constant currency basis (2015: £36m), as the impact of lower volumes more than offset the benefits of cost reduction and operational improvement measures. Reported operating profits decreased 7% after a 12% foreign exchange tailwind (2015: £33m).

Operating margin was down 70bps to 9.1% (2015: 9.8%) against the prior year. Gross margins fell slightly as operational improvements, low cost sourcing and procurement savings partially offset pricing pressure across downstream markets.

Capital expenditure of £15m (2015: £17m) was primarily focused on relocating Gabbioneta, the downstream pump business, to a new state-of-the-art manufacturing facility in Milan. Investment in research and development increased to £5m (2015: £4m), with a new range of Screwflow and Roto-Jet® pumps launched and recording first sales in the period.

2017 Divisional outlook

Power, mid and downstream oil and gas markets are expected to remain subdued in 2017, while the outlook for industrial markets is mixed. The division entered the year with a lower order book but expects the benefits of the delayed project orders, combined valve and pump portfolio and sales initiatives to support moderate constant currency revenue growth. However, operating margins and profits are expected to fall as the higher mix of original equipment and continued pricing pressure more than offsets operational leverage effects.

Appendix 1 - 2016 quarterly input trends

	Reported growth					Like for like² growth
Division	Q1	Q2	Q3	Q4	FY	Q1	Q2	Q3	Q4	FY
Original Equipment	15%	13%	-28%	34%	5%	11%	9%	-28%	36%	3%
Aftermarket	-11%	0%	4%	19%	2%	-11%	0%	4%	19%	2%
Minerals	-4%	4%	-7%	23%	3%	-5%	2%	-7%	23%	3%

Original Equipment	-40%	-37%	-24%	13%	-26%	-40%	-37%	-24%	13%	-26%
Aftermarket	-49%	-37%	-6%	0%	-27%	-49%	-37%	-6%	0%	-27%
Oil & Gas	-47%	-37%	-10%	2%	-27%	-47%	-37%	-10%	2%	-27%

Original Equipment	-32%	10%	0%	-17%	-12%	-32%	10%	0%	-17%	-12%
Aftermarket	-17%	-16%	-10%	-8%	-13%	-17%	-16%	-10%	-8%	-13%
Flow Control	-26%	-4%	-4%	-14%	-13%	-26%	-4%	-4%	-14%	-13%

Original Equipment	-12%	3%	-20%	11%	-6%	-14%	1%	-20%	11%	-7%
Aftermarket	-26%	-14%	-1%	10%	-9%	-26%	-14%	-1%	10%	-9%
Continuing Ops¹	-22%	-9%	-7%	10%	-8%	-23%	-9%	-7%	10%	-8%
Book to Bill	1.02	0.99	1.02	0.99	1.01	1.02	0.99	1.02	0.99	1.01

¹Continuing operations (excludes American Hydro Corporation and YES which were disposed of in Q2).

²Like-for-like excludes the impact of acquisitions. Delta Valves was acquired on 8 July 2015.

Appendix 2 - 2016 Foreign Exchange (FX) rates and profit exposure

	2015 FY average FX rates	2016 FY average FX rates	Percentage of 2016 operating profits
US dollar	1.53	1.36	33%
Australian dollar	2.04	1.83	16%
Canadian dollar	1.96	1.80	17%
Euro €	1.38	1.22	12%
Chilean Peso	1,000.85	918.59	17%
United Arab Emirates Dirham	5.61	4.98	3%
Russian Rouble	93.65	91.20	3%
Brazilian Real	5.10	4.75	2%
South African Rand	19.53	20.00	2%

This information includes 'forward-looking statements'. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding The Weir Group's ("the Company") financial position, business strategy, plans (including development plans and objectives relating to the Company's products and services) and objectives of management for future operations, are forward-looking statements. These statements contain the words "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this document. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Past business and financial performance cannot be relied on as an indication of future performance.

AUDITED RESULTS

Consolidated Income Statement
for the period ended 31 December 2016


		Period ended 31 December 2016			Period ended 1 January 2016 Restated (note 1)
		Before exceptional items & intangibles amortisation	Exceptional items & intangibles amortisation (note 3)	Total	Before exceptional items & intangibles amortisation	Exceptional items & intangibles amortisation (note 3)	Total
	Notes	£m	£m	£m	£m	£m	£m
Continuing operations
Revenue	2	1,844.9	-	1,844.9	1,879.8	-	1,879.8
Continuing operations
Operating profit (loss) before share of results of joint ventures		206.8	(123.7)	83.1	249.2	(390.6)	(141.4)
Share of results of joint ventures		7.2	-	7.2	8.3	-	8.3
Operating profit (loss)		214.0	(123.7)	90.3	257.5	(390.6)	(133.1)

Finance costs		(45.1)	(3.8)	(48.9)	(40.2)	(2.4)	(42.6)
Finance income		4.4	-	4.4	4.7	-	4.7
Other finance costs - retirement benefits		(3.0)	-	(3.0)	(3.3)	-	(3.3)
Profit (loss) before tax from continuing operations		170.3	(127.5)	42.8	218.7	(393.0)	(174.3)
Tax (expense) credit	4	(38.4)	38.8	0.4	(52.3)	70.0	17.7
Profit (loss) for the period from continuing operations		131.9	(88.7)	43.2	166.4	(323.0)	(156.6)
Profit (loss) for the period from discontinued operations	5	1.1	(6.1)	(5.0)	0.9	(23.3)	(22.4)
Profit (loss) for the period		133.0	(94.8)	38.2	167.3	(346.3)	(179.0)
Attributable to:
Equity holders of the Company		133.1	(94.8)	38.3	167.6	(346.3)	(178.7)
Non-controlling interests		(0.1)	-	(0.1)	(0.3)	-	(0.3)
		133.0	(94.8)	38.2	167.3	(346.3)	(179.0)
Earnings (loss) per share	6
Basic - total operations				17.8p			(83.6p)
Basic - continuing operations		61.2p		20.1p	78.0p		(73.1p)

Diluted - total operations				17.7p			(83.6p)
Diluted - continuing operations		60.8p		20.0p	78.0p		(73.1p)
Consolidated Statement of Comprehensive Income
for the period ended 31 December 2016

		Period ended		Period ended
		31 December 2016		1 January 2016
		£m		£m
Profit (loss) for the period		38.2		(179.0)
Other comprehensive income (expense)
Losses taken to equity on cash flow hedges		(0.7)		(2.8)
Exchange gains (losses) on translation of foreign operations		377.4		(13.0)
Reclassification of foreign currency translation reserve on discontinued operations		0.8		-
Exchange losses on net investment hedges		(142.0)		(16.5)
Reclassification adjustments on cash flow hedges		1.9		1.6
Tax relating to other comprehensive income (expense) to be reclassified in subsequent periods		0.2		1.2
Items that are or may be reclassified to profit or loss in subsequent periods		237.6		(29.5)

Remeasurements on defined benefit plans		(53.0)		13.5
Tax relating to other comprehensive (expense) income that will not be reclassified in subsequent periods		8.6		(2.1)
Items that will not be reclassified to profit or loss in subsequent periods		(44.4)		11.4

Net other comprehensive income (expense)		193.2		(18.1)

Total net comprehensive income (expense) for the period		231.4		(197.1)

Attributable to:
Equity holders of the Company		228.9		(196.5)
Non-controlling interests		2.5		(0.6)
		231.4		(197.1)

Total net comprehensive income (expense) for the period attributable to equity holders of the Company
Continuing operations		233.0		(173.4)
Discontinued operations		(4.1)		(23.1)
		228.9		(196.5)
Consolidated Balance Sheet
at 31 December 2016
		31 December 2016	Restated (note 1) 1 January 2016
	Notes	£m	£m
ASSETS
Non-current assets
Property, plant & equipment		402.0	388.3
Intangible assets		1,628.8	1,411.8
Investments in joint ventures		40.5	33.4
Deferred tax assets		42.1	20.2
Other receivables		39.2	22.3
Retirement benefit plan assets	11	9.8	8.2
Derivative financial instruments	13	-	8.5
Total non-current assets		2,162.4	1,892.7
Current assets
Inventories		551.6	478.7
Trade & other receivables		481.8	444.7
Construction contracts		23.8	28.5
Derivative financial instruments	13	24.0	14.2
Income tax receivable		21.5	29.1
Cash & short-term deposits		258.6	184.0
Total current assets		1,361.3	1,179.2
Total assets		3,523.7	3,071.9
LIABILITIES
Current liabilities
Interest-bearing loans & borrowings		144.0	195.6
Trade & other payables		548.1	459.8
Construction contracts		4.2	8.9
Derivative financial instruments	13	30.2	14.1
Income tax payable		43.8	31.6
Provisions		83.2	70.3
Total current liabilities		853.5	780.3
Non-current liabilities
Interest-bearing loans & borrowings		949.1	813.4
Other payables		14.9	22.6
Derivative financial instruments	13	14.9	5.8
Provisions		60.2	46.7
Deferred tax liabilities		100.5	115.3
Retirement benefit plan deficits	11	147.0	90.0
Total non-current liabilities		1,286.6	1,093.8
Total liabilities		2,140.1	1,874.1
NET ASSETS		1,383.6	1,197.8
CAPITAL & RESERVES
Share capital		27.3	26.8
Share premium		86.2	38.0
Merger reserve		9.4	9.4
Treasury shares		(5.9)	(5.8)
Capital redemption reserve		0.5	0.5
Foreign currency translation reserve		191.8	(41.8)
Hedge accounting reserve		(0.6)	(2.0)
Retained earnings		1,066.4	1,166.5
Shareholders' equity		1,375.1	1,191.6
Non-controlling interests		8.5	6.2
TOTAL EQUITY		1,383.6	1,197.8

The financial statements were approved by the Board of Directors on 22 February 2017.

Jon Stanton	John Heasley
Director	Director
Consolidated Cash Flow Statement
for the period ended 31 December 2016

			Period ended	Period ended
			31 December 2016	1 January 2016
		Notes	£m	£m

Cash flows from operating activities		12
Cash generated from operations			292.6	396.5
Additional pension contributions paid			(2.8)	(2.6)
Exceptional cash items		3	(58.1)	(33.4)
Income tax paid			(15.7)	(50.4)
Net cash generated from operating activities			216.0	310.1


Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired		12	(10.6)	(14.1)
Purchases of property, plant & equipment			(50.5)	(69.1)
Purchases of intangible assets			(15.4)	(23.0)
Other proceeds from sale of property, plant & equipment and intangible assets			3.5	4.4
Disposals of discontinued operations, net of cash disposed		12	31.4	-
Exceptional items included in asset disposal programme			35.7	-
Interest received			6.5	3.9
Dividends received from joint ventures			7.3	10.0
Net cash generated from (used in) investing activities			7.9	(87.9)


Cash flows from financing activities
Purchase of non-controlling interest			(3.4)	-
Proceeds from borrowings			1,328.1	541.9
Repayments of borrowings			(1,420.5)	(591.2)
Settlement of external debt of subsidiary on acquisition		12	-	(1.2)
Settlement of derivative financial instruments			(3.7)	(1.7)
Interest paid			(46.3)	(41.8)
Dividends paid to equity holders of the Company		7	(45.8)	(94.0)
Purchase of shares for LTIP & other awards			(0.1)	-
Net cash used in financing activities			(191.7)	(188.0)

Net increase in cash & cash equivalents			32.2	34.2
Cash & cash equivalents at the beginning of the period			179.3	166.6
Foreign currency translation differences			45.5	(21.5)
Cash & cash equivalents at the end of the period			257.0	179.3

The cash flows from discontinued operations included above are disclosed separately in note 5.

Consolidated Statement of Changes in Equity

for the period ended 31 December 2016

	Share capital	Share premium	Merger reserve	Treasury shares	Capital redemption reserve	Foreign currency translation reserve	Hedge accounting reserve	Retained earnings	Attributable to equity holders of the Company	Non- controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 2 January 2015	26.8	38.0	-	(5.8)	0.5	(12.6)	(2.0)	1,430.5	1,475.4	6.8	1,482.2
Loss for the period	-	-	-	-	-	-	-	(178.7)	(178.7)	(0.3)	(179.0)
Losses taken to equity on cash flow hedges	-	-	-	-	-	-	(2.8)	-	(2.8)	-	(2.8)
Exchange losses on translation of foreign operations	-	-	-	-	-	(12.7)	-	-	(12.7)	(0.3)	(13.0)
Exchange losses on net investment hedges	-	-	-	-	-	(16.5)	-	-	(16.5)	-	(16.5)
Remeasurements on defined benefit plans	-	-	-	-	-	-	-	13.5	13.5	-	13.5
Reclassification adjustments on cash flow hedges	-	-	-	-	-	-	1.6	-	1.6	-	1.6
Tax relating to other comprehensive income (expense)	-	-	-	-	-	-	1.2	(2.1)	(0.9)	-	(0.9)
Total net comprehensive expense for the period	-	-	-	-	-	(29.2)	-	(167.3)	(196.5)	(0.6)	(197.1)
Issue of shares	-	-	9.4	-	-	-	-	-	9.4	-	9.4
Share-based payments credit inclusive of tax charge	-	-	-	-	-	-	-	(2.7)	(2.7)	-	(2.7)
Dividends	-	-	-	-	-	-	-	(94.0)	(94.0)	-	(94.0)
At 1 January 2016	26.8	38.0	9.4	(5.8)	0.5	(41.8)	(2.0)	1,166.5	1,191.6	6.2	1,197.8
Profit for the period	-	-	-	-	-	-	-	38.3	38.3	(0.1)	38.2
Losses taken to equity on cash flow hedges	-	-	-	-	-	-	(0.7)	-	(0.7)	-	(0.7)
Exchange gains on translation of foreign operations	-	-	-	-	-	374.8	-	-	374.8	2.6	377.4
Reclassification of exchange losses on discontinued operations	-	-	-	-	-	0.8	-	-	0.8	-	0.8
Exchange losses on net investment hedges	-	-	-	-	-	(142.0)	-	-	(142.0)	-	(142.0)
Remeasurements on defined benefit plans	-	-	-	-	-	-	-	(53.0)	(53.0)	-	(53.0)
Reclassification adjustments on cash flow hedges	-	-	-	-	-	-	1.9	-	1.9	-	1.9
Tax relating to other comprehensive income (expense)	-	-	-	-	-	-	0.2	8.6	8.8	-	8.8
Total net comprehensive income for the period	-	-	-	-	-	233.6	1.4	(6.1)	228.9	2.5	231.4
Acquisition of non-controlling interest	-	-	-	-	-	-	-	(3.8)	(3.8)	(0.2)	(4.0)
Issue of shares	0.5	48.2	-	-	-	-	-	-	48.7	-	48.7
Cost of share-based payments inclusive of tax charge	-	-	-	-	-	-	-	4.3	4.3	-	4.3
Dividends	-	-	-	-	-	-	-	(94.5)	(94.5)	-	(94.5)
Purchase of shares*	-	-	-	(0.1)	-	-	-	-	(0.1)	-	(0.1)
At 31 December 2016	27.3	86.2	9.4	(5.9)	0.5	191.8	(0.6)	1,066.4	1,375.1	8.5	1,383.6

* These shares were purchased on the open market and are held by the Estera EBT on behalf of the Group for satisfaction of any future vesting of the deferred bonus plan.

Notes to the Audited Results

1. Accounting policies

Basis of preparation

The audited results for the period ended 31 December 2016 ("2016") have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006.

The financial information set out in the audited results does not constitute the Group's statutory financial statements for the period ended 31 December 2016 within the meaning of section 434 of the Companies Act 2006 and has been extracted from the full financial statements for the period ended 31 December 2016.

Statutory financial statements for the 52 weeks ended 1 January 2016 ("2015"), which received an unqualified audit report, have been delivered to the Registrar of Companies. The reports of the auditors on the financial statements for the 52 weeks ended 1 January 2016 and for the period ended 31 December 2016 were unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The financial statements for the period ended 31 December 2016 will be delivered to the Registrar of Companies and made available to all shareholders in due course.

These financial statements are presented in Sterling. All values are rounded to the nearest 0.1 million pounds (£m) except where otherwise indicated.

The accounting policies which follow are consistent with those of the previous period. Several new amendments apply for the first time in 2016:

· Accounting for acquisitions of interests in joint operations - Amendments to IFRS 11;

· Clarification of acceptable methods of depreciation and amortisation - Amendments to IAS 16 and IAS 38;

· Annual improvements to IFRSs 2012 - 2014 cycle; and

· Disclosure initiative - Amendments to IAS 1.

In addition to the above there are no other new standards or interpretations which are considered to have a material impact on the annual consolidated financial statements of the Group.

Comparative period - restatements

i) Discontinued operations

During the current period, the Group has disposed of its non-core renewable assets which formed part of the Flow Control division. These businesses are therefore treated as discontinued operations. As a result of this, these financial statements have been re-presented and restated where required as if operations discontinued during the current year had been discontinued from the start of the comparative period (note 5).

ii) Business combinations - update to provisional fair values

During the year, the provisional fair values attributed to the 2015 Delta Industrial Valves, Inc. (Delta Valves) acquisition were finalised. In accordance with IFRS 3 'Business Combinations', the net impact of the adjustments to the provisional fair values has been recognised by means of an increase to goodwill and the adjustments to the provisional amounts have been recognised as if the accounting for the business combinations had been completed at the relevant acquisition date. As such, all affected balances and amounts have been restated in the financial statements. The Consolidated Balance Sheet and affected notes present restated comparative information as at 1 January 2016. There was no material impact on the Consolidated Income Statement or Consolidated Statement of Comprehensive Income as a result of the finalisation of the provisional fair values.

The table below reflects the adjustments made to finalise the Delta Valves fair values.

	Provisional	Final
	fair values	fair values	Adjustments
	1 January 2016	1 January 2016	to fair values
	£m	£m	£m
Trade & other payables	(3.1)	(3.3)	(0.2)
Goodwill arising on acquisition	14.8	15.0	0.2
Impact on net assets			-

Exceptional items & intangible amortisation

In order to provide the users of the financial statements with a more relevant presentation of the Group's underlying performance, on a like for like basis, profit for each period has been analysed between:

i) profit before exceptional items and intangibles amortisation; and

ii) the effect of exceptional items and intangibles amortisation.

Exceptional items are items of income and expense which, because of the nature, size and/or infrequency of the events giving rise to them, merit separate presentation. These specific items are presented on the face of the income statement to provide greater clarity and a better understanding of the impact of these items on the Group's financial performance. In doing so, it also facilitates greater comparison of the Group's underlying results with prior periods and assessment of trends in financial performance. This split is consistent with how underlying business performance is measured internally.

Exceptional items may include but are not restricted to: profits or losses arising on disposal or closure of businesses; the cost of significant business restructuring, significant impairments of intangible or tangible assets, adjustments to the fair value of acquisition related items such as contingent consideration and inventory, other items deemed exceptional due to their significance, size or nature; and the related exceptional taxation.

Intangibles amortisation has been shown separately to provide visibility over the on-going impact on the Group's income statement of prior and current year period investment activities.

Further analysis of the items included in the column 'Exceptional items & intangibles amortisation' is provided in note 3 to the financial statements.

Non-GAAP measures

The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that we use include those which have been derived from our reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures. We believe this information, along with comparable GAAP measurements, is useful to investors in providing a basis for measuring our operational performance. Our management uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating our performance and value creation. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information in compliance with GAAP. Non-GAAP financial measures as reported by the Group may not be comparable with similarly titled amounts reported by other companies.

Below we set out our definitions of non-GAAP measures and provide reconciliations to relevant GAAP measures

Free cash flow

Free cash flow (FCF) is defined as cash flow from operating activities adjusted for income taxes, net capital expenditures, net interest payments, dividends paid, settlement of derivatives and pension contributions. FCF reflects an additional way of viewing our liquidity that we believe is useful to investors as it represents cash flows that could be used for repayment of debt or to fund our strategic initiatives, including acquisitions, if any.

The reconciliation of cash flow from operating activities to FCF is as follows.

	2016	2015
	£m	£m
Cash flow from operating activities	292.6	396.5
Income tax paid	(15.7)	(50.4)
Net capital expenditure from purchase & disposal of property, plant & equipment & intangibles	(62.4)	(87.7)
Net interest paid	(39.8)	(37.9)
Dividends paid to equity holders of the Company	(45.8)	(94.0)
Dividends received from joint ventures	7.3	10.0
Settlement of derivative financial instruments	(3.7)	(1.7)
Additional pension contributions paid	(2.8)	(2.6)
	129.7	132.2

EBITDA
EBITDA is operating profit from continuing operations, before exceptional items and intangibles amortisation, excluding depreciation. EBITDA is used in conjunction with other GAAP and non-GAAP financial measures to assess our operating performance. A reconciliation of EBITDA to the closest equivalent GAAP measure, operating profit, is provided.
		Restated (note 1)
	2016	2015
	£m	£m
Continuing operations
Operating profit (loss)	90.3	(133.1)
Adjusted for:
Intangibles amortisation	50.2	51.8
Exceptional items (note 3)	73.5	338.8
Depreciation of property, plant & equipment	55.9	62.0
	269.9	319.5

2. Segment information

For strategic reasons, the Group has re-organised its three operating divisions: Minerals, Oil & Gas and Flow Control (previously Minerals, Oil & Gas and Power & Industrial). The strategic restructuring of the Power & Industrial division led to it being renamed Weir Flow Control and it now incorporates the downstream-orientated pump businesses Floway and Gabbioneta, which were previously in the Minerals and Oil & Gas divisions respectively. This created a division clearly focused on flow control opportunities in power, oil and gas and other process industries. Comparative information has been restated to reflect the change in management structure.

These three divisions are organised and managed separately based on the key markets served and each is treated as an operating segment and a reportable segment under IFRS 8. The operating and reportable segments were determined based on the reports reviewed by the Chief Executive Officer which are used to make operational decisions.

The Minerals segment is the global leader in the provision of slurry handling equipment and associated aftermarket support for abrasive high wear applications used in the mining and oil sands markets. The Oil & Gas segment provides products and service solutions to upstream, production, transportation, refining and related industries. The Flow Control segment designs and manufactures valves and pumps as well as providing specialist support services to the global power generation, industrial and oil and gas sectors.

The Chief Executive Officer assesses the performance of the operating segments based on operating profit from continuing operations before exceptional items (including impairments) and intangibles amortisation ('segment result'). Finance income and expenditure and associated interest-bearing liabilities and derivative financial instruments are not allocated to segments as all treasury activity is managed centrally by the Group treasury function. The amounts provided to the Chief Executive Officer with respect to assets and liabilities are measured in a manner consistent with that of the financial statements. The assets are allocated based on the operations of the segment and the physical location of the asset. The liabilities are allocated based on the operations of the segment.

Transfer prices between business segments are set on an arm's length basis, in a manner similar to transactions with third parties.

2. Segment information (continued)

The segment information for the reportable segments for 2016 and 2015 is disclosed below.

	Minerals		Oil & Gas		Flow Control		Total continuing operations
		Restated (note 1)		Restated (note 1)		Restated (note 1)		Restated (note 1)
	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m
Revenue
Sales to external customers	1,112.0	1,000.8	401.4	541.4	331.5	337.6	1,844.9	1,879.8
Inter-segment sales	6.1	4.4	12.8	13.5	14.7	15.5	33.6	33.4
Segment revenue	1,118.1	1,005.2	414.2	554.9	346.2	353.1	1,878.5	1,913.2
Eliminations							(33.6)	(33.4)
							1,844.9	1,879.8
Sales to external customers - 2015 at 2016 average exchange rates
Sales to external customers	1,112.0	1,091.0	401.4	603.7	331.5	368.5	1,844.9	2,063.2

Segment result
Segment result before share of results of joint ventures	217.0	192.4	(16.2)	43.5	30.1	32.2	230.9	268.1
Share of results of joint ventures	-	-	7.2	8.3	-	-	7.2	8.3
Segment result	217.0	192.4	(9.0)	51.8	30.1	32.2	238.1	276.4
Unallocated expenses							(24.1)	(18.9)
Operating profit before exceptional items & intangibles amortisation							214.0	257.5
Total exceptional items & intangibles amortisation							(127.5)	(393.0)
Net finance costs before exceptional items							(40.7)	(35.5)
Other finance costs - retirement benefits							(3.0)	(3.3)
Profit (loss) before tax from continuing operations							42.8	(174.3)

Segment result - 2015 at 2016 average exchange rates
Segment result before share of results of joint ventures	217.0	212.7	(16.2)	49.1	30.1	36.0	230.9	297.8
Share of results of joint ventures	-	-	7.2	9.3	-	-	7.2	9.3
Segment result	217.0	212.7	(9.0)	58.4	30.1	36.0	238.1	307.1
Unallocated expenses							(24.1)	(19.0)
Operating profit before exceptional items & intangibles amortisation							214.0	288.1

There are no material revenues derived from a single external customer.

2. Segment information (continued)

	Minerals		Oil & Gas		Flow Control		Total Group
		Restated (note 1)		Restated (note 1)		Restated (note 1)		Restated (note 1)
	2016	2015	2016	2015	2016	2015	2016	2015
	£m	£m	£m	£m	£m	£m	£m	£m
Assets & liabilities
Intangible assets	652.4	562.0	815.2	703.9	137.5	130.0	1,605.1	1,395.9
Property, plant & equipment	226.1	191.6	90.9	115.6	75.4	61.5	392.4	368.7
Working capital assets	523.0	422.9	290.2	277.4	248.0	245.8	1,061.2	946.1
	1,401.5	1,176.5	1,196.3	1,096.9	460.9	437.3	3,058.7	2,710.7
Investments in joint ventures	-	-	40.5	33.4	-	-	40.5	33.4
Segment assets	1,401.5	1,176.5	1,236.8	1,130.3	460.9	437.3	3,099.2	2,744.1
Discontinued operations							-	37.3
Unallocated assets							424.5	290.5
Total assets							3,523.7	3,071.9

Working capital liabilities	311.6	254.8	150.6	124.3	169.4	181.5	631.6	560.6
Discontinued operations							-	7.9
Unallocated liabilities							1,508.5	1,305.6
Total liabilities							2,140.1	1,874.1

Other segment information - total Group
Segment additions to non-current assets	33.0	36.2	10.3	23.7	15.6	18.7	58.9	78.6
Discontinued operations							-	1.1
Unallocated additions to non-current assets							18.9	10.2
Total additions to non-current assets							77.8	89.9

Other segment information - total Group
Segment depreciation & amortisation	42.2	42.9	49.1	55.7	12.1	12.2	103.4	110.8
Impairment of property, plant & equipment	2.3	2.9	4.1	32.6	2.0	0.7	8.4	36.2
Impairment of intangible assets	0.4	-	-	225.5	-	-	0.4	225.5
Discontinued operations							0.4	28.0
Unallocated depreciation & amortisation							2.7	3.0
Total depreciation, amortisation & impairment							115.3	403.5

Unallocated assets primarily comprise cash and short-term deposits, derivative financial instruments, income tax receivable and deferred tax assets and retirement benefit surpluses as well as those assets which are used for general head office purposes. Unallocated liabilities primarily comprise interest-bearing loans and borrowings, derivative financial instruments, income tax payable, provisions, deferred tax liabilities and retirement benefit deficits as well as liabilities relating to general head office activities. Segment additions to non-current assets do not include those additions which have arisen from business combinations.

2. Segment information (continued)

Geographical information

Geographical information in respect of revenue and non-current assets for 2016 and 2015 is disclosed below. Revenues are allocated based on the location to which the product is shipped. Assets are allocated based on the location of the assets and operations. Non-current assets consist of property, plant & equipment, intangible assets and investments in joint ventures.

	UK	USA	Canada	Europe & FSU	Asia Pacific	Australia	South America			Middle East & Africa			Total
Period ended 31 December 2016	£m	£m	£m	£m	£m	£m	£m			£m			£m
Revenue from continuing operations
Sales to external customers	74.9	474.5	180.8	153.9	257.7	178.3	261.2			263.6			1,844.9
Non-current assets	366.5	847.7	44.1	168.1	290.1	157.4	63.8			133.6			2,071.3


Period ended 1 January 2016 (Restated note 1)	UK	USA	Canada	Europe & FSU	Asia Pacific	Australia	South America			Middle East & Africa			Total
	£m	£m	£m	£m	£m	£m	£m			£m			£m
Revenue from continuing operations
Sales to external customers	93.5	541.4	181.6	137.6	247.2	146.6	244.1			287.8			1,879.8
Non-current assets	178.8	895.8	48.5	135.0	269.9	155.2	44.6			105.7			1,833.5

The following disclosures are given in relation to continuing operations.
											Restated (note 1)
								2016			2015
								£m			£m
An analysis of the Group's revenue is as follows
Original equipment								523.2			526.6
Aftermarket parts								982.8			939.5
Sales of goods								1,506.0			1,466.1
Aftermarket services								282.1			366.4
Revenue from construction contracts								56.8			47.3
Revenue								1,844.9			1,879.8

3. Exceptional items & intangibles amortisation
												Restated (note 1)
									2016			2015
									£m			£m
Recognised in arriving at operating profit (loss) from continuing operations
Intangibles amortisation									(50.2)			(51.8)
Exceptional item - intangibles impairment									(0.4)			(225.5)
Exceptional item - restructuring and rationalisation charges									(63.8)			(116.4)
Exceptional item - China operations									(17.0)			-
Exceptional item - gain on sale and leaseback of properties									5.1			-
Exceptional item - legal claims									(1.1)			-
Exceptional item - charging of fair value inventory uplift									-			(2.4)
Exceptional item - release of expired indemnity provisions for LGE Process disposal									-			3.8
Exceptional item - fair value adjustment to contingent consideration liability									3.7			1.7
									(123.7)			(390.6)

Recognised in finance costs
Exceptional item - unwind in respect of contingent consideration liability									(3.8)			(2.4)

Restructuring and rationalisation charges represent the committed cost of 2016 programmes to right size operations and realign certain activities in light of the prolonged downturn across the Group's major end markets. Actions included headcount reductions, rationalisation of product lines and service centre closures, with the main impact being on Minerals and Oil & Gas. The total continuing operations exceptional cost of £63.8m comprises £48.7m of cash restructuring costs, an impairment charge of £4.3m relating to inventory, £3.1m relating to receivables and £7.7m in relation to plant & equipment. The cash outflow in respect of restructuring programmes in the period totals £56.7m with £38.6m relating to 2016 and the remainder to costs incurred in prior years.

A number of warranty, associated inventory and contract liabilities and other unprovided liabilities were identified in our China business during the period primarily relating to Trio which was acquired for $220m in 2014. The liabilities which primarily result from poor product performance and inventory management over the periods before and after acquisition total £17.0m. Of this total £9.1m is likely to result in a cash outflow, of which £0.3m was settled in the period, with the balance relating to asset write downs. Consideration has been given to IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' with no prior year restatement required as a consequence of the identified liabilities. Local management changes and engineering enhancements to legacy products have been completed and the business remains an important part of the Minerals strategy going forward.

An exceptional gain of £5.1m has been recognised on the sale of three North American properties disposed and leased back under the 2016 asset disposal programme.

The other exceptional items in the period relate to a fair value adjustment of £3.7m, mainly for Delta Valves and Weir International, £3.8m unwind to contingent consideration liability, being Weir International, £0.4m impairment of intangible assets related to product development and £1.1m of costs associated with the finalisation of prior period legal claims, with the cost being a cash outflow in the year.

Exceptional costs arising on discontinued operations are summarised in note 5.

4. Income tax expense
			Restated
			(note 1)
		2016	2015
		£m	£m
Group - UK		(1.6)	(6.5)
Group - Overseas		2.0	24.2
Total income tax credit (expense) in the Consolidated Income Statement		0.4	17.7

The total income tax credit (expense) is disclosed in the Consolidated Income Statement as follows.

Tax (expense) credit - continuing operations before exceptional items & intangibles amortisation		(38.4)	(52.3)
	- exceptional items	21.0	32.2
	- intangibles amortisation and impairment	17.8	37.8
Total income tax credit in the Consolidated Income Statement		0.4	17.7

The total income tax expense included in the Group's share of results of joint ventures is as follows.
Joint ventures		(1.6)	(1.6)

5. Discontinued operations
On 24 February 2016, the Group announced its intention to sell its non-core renewable assets within the Flow Control division: principally Ynfiniti Engineering Services SL and American Hydro Corporation. The Group initiated an active programme to sell these businesses and the associated assets and liabilities were consequently accounted for as held for sale.
The Group disposed of Ynfiniti Engineering Services SL (31 May 2016), American Hydro Corporation and the trade and assets of the Montreal business of Weir Canada Inc. (30 June 2016) for a combined consideration of £38.4m of which £3.6m will be held in escrow for one year. In addition, there is a maximum contingent consideration of £1.9m and based on expectations at the date of disposal £0.8m was recognised, of which £0.6m was subsequently received during the year, with the remainder being written off. The results of these businesses are presented in the financial statements as discontinued operations.

Financial information relating to the discontinued operations for the period to the date of disposal is set out in the table below. Comparative figures have been restated accordingly. The exceptional items and intangibles amortisation recognised in the 52 weeks ended 1 January 2016 relate to impairment of goodwill of £25.9m and intangibles amortisation of £0.7m.


Exceptional items and intangibles amortisation in the current period relate to intangibles amortisation of £0.1m and a charge of £4.0m for reassessment of liabilities related to previous disposals. There were no disposals of core businesses during the prior period.


Financial performance and cash flow information for discontinued operations
	Period ended 31 December 2016			Period ended 1 January 2016
	Before exceptional items & intangibles amortisation	Exceptional items & intangibles amortisation	Total	Before exceptional items & intangibles amortisation		Exceptional items & intangibles amortisation		Total
	£m	£m	£m	£m		£m		£m
Discontinued operations
Revenue	19.3	-	19.3	37.9		-		37.9

Discontinued operations
Operating profit (loss)	0.3	(4.1)	(3.8)	1.4		(26.6)		(25.2)
Finance costs	-	-	-	(0.3)		-		(0.3)
Profit (loss) before tax from discontinued operations	0.3	(4.1)	(3.8)	1.1		(26.6)		(25.5)
Tax credit (expense)	0.8	0.8	1.6	(0.2)		3.3		3.1
Profit (loss) after tax from discontinued operations	1.1	(3.3)	(2.2)	0.9		(23.3)		(22.4)
Loss on sale of the subsidiaries after income tax (see below)	-	(2.8)	(2.8)	-		-		-
Profit (loss) for the period from discontinued operations	1.1	(6.1)	(5.0)	0.9		(23.3)		(22.4)

Reclassification of foreign currency translation reserve	0.8	-	0.8	-		-		-
Other comprehensive income from discontinued operations	0.8	-	0.8	-		-		-

						Period ended 31 December 2016		Period ended 1 January 2016
						£m		£m
Cash flows from operating activities						(4.4)		2.4
Cash flows from investing activities						(0.4)		(0.4)
Net (decrease) increase in cash and cash equivalents from discontinued operations						(4.8)		2.0



Details of the sale of the subsidiaries
								Period ended 31 December 2016
								£m
Consideration received
Cash received								34.8
Cash in escrow								3.6
Contingent consideration								0.6
Total disposal consideration								39.0
Carrying amount of net assets sold								(46.6)
Costs of disposal								(0.5)
Loss on sale before income tax and reclassification of foreign currency translation reserve								(8.1)
Reclassification of foreign currency translation reserve								(0.8)
Income tax credit on loss								6.1
Loss on sale after income tax								(2.8)

The carrying amount of assets and liabilities as at the date of sale were as follows.
								Period ended 31 December 2016
								£m
Property, plant & equipment								17.2
Intangible assets								21.1
Inventories								0.9
Trade & other receivables								10.9
Cash & short-term deposits								4.0
Trade & other payables								(7.1)
Provisions								(0.4)
Net assets								46.6

Loss per share
Loss per share from discontinued operations were as follows.
						2016		2015
						pence		pence
Basic						(2.3)		(10.5)
Diluted						(2.3)		(10.5)

These earnings per share figures were derived by dividing the net profit attributable to equity holders of the Company from discontinued operations by the weighted average number of ordinary shares, for both basic and diluted amounts, shown in note 6.

6. Earnings (loss) per share
Basic earnings per share amounts are calculated by dividing net profit for the period attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period (adjusted for the effect of dilutive share awards).

The following reflects the earnings and share data used in the calculation of earnings per share.

					2016		2015
Profit (loss) attributable to equity holders of the Company
Total operations* (£m)					38.3		(178.7)
Continuing operations* (£m)					43.3		(156.3)
Continuing operations before exceptional items & intangibles amortisation* (£m)					132.0		166.7
Weighted average share capital
Basic earnings per share (number of shares, million)					215.6		213.7
Diluted earnings per share (number of shares, million)					216.9		213.7

The difference between the weighted average share capital for the purposes of the basic and the diluted earnings per share calculations is analysed as follows.
	2016		2015
	Shares Million		Shares Million
Weighted average number of ordinary shares for basic earnings per share	215.6		213.7
Effect of dilution: LTIP and deferred bonus awards	1.3		-
Adjusted weighted average number of ordinary shares for diluted earnings per share	216.9		213.7
The profit attributable to equity holders of the Company used in the calculation of both basic and diluted earnings per share from continuing operations before exceptional items and intangibles amortisation is calculated as follows.

		2016		2015
		£m		£m
Net profit (loss) attributable to equity holders from continuing operations*		43.3		(156.3)
Exceptional items & intangibles amortisation net of tax		88.7		323.0
Net profit attributable to equity holders from continuing operations before exceptional items & intangibles amortisation		132.0		166.7

	2016		2015
	pence		pence
Basic earnings (loss) per share:
Total operations*	17.8		(83.6)
Continuing operations*	20.1		(73.1)
Continuing operations before exceptional items & intangibles amortisation*	61.2		78.0

Diluted earnings (loss) per share:
Total operations*	17.7		(83.6)
Continuing operations*	20.0		(73.1)
Continuing operations before exceptional items & intangibles amortisation*	60.8		78.0
*Adjusted for a loss of £0.1m (2015: £0.3m) in respect of non-controlling interests.

There have been no share options (2015: nil) exercised between the reporting date and the date of signing of these financial statements.

Earnings per share from discontinued operations are disclosed in note 5.

7. Dividends paid & proposed

	2016	2015
	£m	£m
Declared & paid during the period
Equity dividends on ordinary shares
Final dividend for 2015: 29.0p (2014: 29.0p)	62.0	61.9
Interim dividend for 2016: 15.0p (2015: 15.0p)	32.5	32.1
	94.5	94.0
Proposed for approval by shareholders at the Annual General Meeting
Final dividend for 2016: 29.0p (2015: 29.0p)	63.1	62.1

For the 2015 final and 2016 interim dividends, shareholders on record were provided the opportunity to receive dividends in the form of new fully paid ordinary shares through The Weir Group PLC Scrip Dividend Scheme. Participation in the Scheme resulted in shares with a value of £29.6m being issued and a cash dividend of £32.4m for the 2015 final settlement, and shares with a value of £19.1m being issued and a cash dividend of £13.4m for the 2016 interim settlement.

The proposed dividend is based on the number of shares in issue, excluding treasury shares held, at the date the financial statements were approved and authorised for issue.

The final dividend may differ due to increases or decreases in the number of shares in issue between the date of approval of the annual report and financial statements and the record date for the final dividend.

8. Property, plant & equipment & intangible assets

	2016	2015
	£m	£m
Additions of property, plant & equipment & intangible assets
- land & buildings	19.2	13.1
- plant & equipment	35.1	58.6
- intangible assets	23.5	18.2
	77.8	89.9
The above additions relate to the normal course of business and do not include any additions made by way of business combinations.
9. Interest-bearing loans & borrowings

At 31 December 2016, a total of £142.1m equivalent (2015: £166.4m equivalent) was outstanding under the Group's US$1bn commercial paper programme.

At 31 December 2016, US$40.0m (2015: US$70.0m) was drawn under the revolving credit facility. The US$800m multi-currency revolving credit facility matures in two tranches between September 2020 and September 2021. Total unamortised issue costs at 31 December 2016 were £2.5m (2015: £3.6m).

10. Provisions
	Warranties & onerous sales contracts	Employee related	Exceptional rationalisation	Other	Total
	£m	£m	£m	£m	£m
At 1 January 2016	27.6	50.6	36.3	2.5	117.0
Additions	9.5	18.4	63.0	1.1	92.0
Disposal of business	(0.4)	-	-	-	(0.4)
Utilised	(13.9)	(7.7)	(58.1)	(0.5)	(80.2)
Unwind	-	0.7	-	-	0.7
Unutilised	(3.2)	(2.8)	(0.5)	(0.3)	(6.8)
Exchange adjustment	3.9	10.2	6.4	0.6	21.1
At 31 December 2016	23.5	69.4	47.1	3.4	143.4

Current 2016	18.2	19.8	42.5	2.7	83.2
Non-current 2016	5.3	49.6	4.6	0.7	60.2
At 31 December 2016	23.5	69.4	47.1	3.4	143.4

Current 2015	21.9	10.9	35.8	1.7	70.3
Non-current 2015	5.7	39.7	0.5	0.8	46.7
At 1 January 2016	27.6	50.6	36.3	2.5	117.0

Warranties and onerous sales contracts

Provision has been made in respect of actual warranty and contract penalty claims on goods sold and services provided and allowance has been made for potential warranty claims based on past experience for goods and services sold with a warranty guarantee. It is expected that all costs related to such claims will have been incurred within five years of the balance sheet date.

Provision has been made in respect of sales contracts entered into for the sale of goods in the normal course of business where the unavoidable costs of meeting the obligations under the contracts exceed the economic benefits expected to be received from the contracts. Provision is made immediately when it becomes apparent that expected costs will exceed the expected benefits of the contract. It is expected that the majority of these costs will be incurred within one year of the balance sheet date.

Employee related

Employee related provisions arise from legal obligations, some of which relate to compensation associated with periods of service, while the majority are for asbestos-related claims.

Asbestos-related claims

Certain of the Group's US-based subsidiaries are co-defendants in lawsuits pending in the United States in which plaintiffs are claiming damages arising from alleged exposure to products previously manufactured which contained asbestos. The Group has comprehensive insurance cover for cases of this nature with all claims directly managed by the Group's insurers who also meet associated defence costs. The insurers and their legal advisers agree and execute the defence strategy between them and there are currently no related cash flows to or from the Group. We expect this to continue for the foreseeable future.

A review was completed in 2014, in conjunction with external advisors, to assess the adequacy of the Group's insurance policies to meet future settlement and defence costs. As a result of this review a provision of £28m was recorded in 2014 with an equivalent receivable for insurance proceeds based on an estimate of settlement and defence costs for existing and projected claims received in the subsequent five year period. The cash flows associated with this claim profile were assessed as extending to a period of ten years from the balance sheet date. During the prior period costs were charged against the provision and additional charges were made to the provision to reflect new claims.

During the current period, the estimates underlying the provision have continued to be reassessed and refined as the Group's claims experience has developed. Since the initial review in 2014 the period of claims has been analysed to improve understanding of key drivers, including the originating State of claims, average settlement and defence costs per State and the occurrence of one-off claims and/or settlements. While the overall level of claims experience remains relatively immature, the additional claims history provides the Group with growing confidence around our ability to estimate the level of future claims.

As a result the provision has been updated to reflect ten years of projected future claims. This has increased cash flows in the model to sixteen years from the balance sheet date. On this basis the provision has been increased by £19.4m (including £7.2m adverse FX) to £47.5m at December 2016. The corresponding insurance asset has been increased by an equivalent amount.

The increase to ten years of projected claims reflects our growing confidence in the claims data available but also the inherent uncertainty associated with estimating future costs in respect of asbestos-related diseases. Actuarial estimates of future indemnity and defence costs associated with asbestos-related diseases are subject to significantly greater uncertainty than actuarial estimates for other types of exposures. This uncertainty results from factors that are unique to the asbestos claims litigation and settlement process including but not limited to:

i) The possibility of future state or federal legislation applying to claims for asbestos-related diseases;

ii) The ability of plaintiff's bar to develop and sustain new legal theory and/or develop new populations of claimants;

iii) Changes in focus of plaintiff's bar;

iv) Changes in the Group's defence strategy; and

v) Changes in the financial condition of other co-defendants in suits naming the Group and affiliated businesses.

There can be no guarantee that the assumptions used to estimate the provision will result in an accurate prediction of the actual costs that may be incurred. Sensitivity analysis has been conducted which involved increasing the number of projected future settled claims and estimated settlement value. An increase or decrease of 10% on the settlement value or number of settled claims would not lead to a material change in the provision.

A provision of £47.5m represents the Directors' best estimate of the future liability, although these estimates and the period over which they are assessed will continue to be refined as the claims history develops. A corresponding asset continues to be recognised for insurance proceeds.

In the UK, there are outstanding asbestos-related claims which are not the subject of insurance cover. The extent of the UK asbestos exposure involves a series of legacy employers liability claims which all relate to former UK operations and employment periods in the 1960's and 1970's. In 1989 the Group's employer's liability insurer (Chester Street Employers Association Ltd) was placed into run-off which effectively generated an uninsured liability exposure for all future long tail disease claims with an exposure period pre-dating 1 Jan 1972. All claims with a disease exposure post 1 January 1972 are fully compensated via the Government established Financial Services Compensation Scheme (FSCS). Any settlement to a former employee whose service period straddles 1972 is calculated on a pro rata basis. The Group provides for these claims based on management's best estimate of the likely costs given past experience of the volume and cost of similar claims brought against the Group. An exercise was completed in 2016 which found based on additional claims experience the actual claims cost is lower than the provision previously held. The provision has been adjusted accordingly.

Exceptional rationalisation

In light of the prolonged downturn across the Group's major end markets, the Group has provided an additional £63.0m (2015: £47.6m) during the period. The provision incorporates committed costs for cash restructuring costs. Identification of a number of pre and post-acquisition liabilities, predominantly in Trio China, has resulted in additional provision in 2016. The majority of the provision will be utilised in 2017.

Other

Other provisions relate to dilapidations and various other legal claims and exposures across the Group.

11. Pensions & other post-employment benefit plans

	2016	2015
	£m	£m
Plans in surplus	9.8	8.2
Plans in deficit	(147.0)	(90.0)
Net liability	137.2	81.8

The net Group deficit for retirement benefit obligations at the period end was £137.2m (2015: £81.8m) is due to actuarial assumptions including a reduction in the discount rate reflecting a reduction in high quality corporate bond yields. This combined with the increase in inflation, pensions in payment and change in demographic assumptions led to an increase in the pension liability which is partially offset by actuarial gains on the asset side.

12. Additional cash flow information
		2016		2015
	Notes	£m		£m
Total operations
Net cash generated from operations
Operating profit (loss) - continuing operations		90.3		(133.1)
Operating loss - discontinued operations		(3.8)		(25.2)
Operating profit (loss) - total operations		86.5		(158.3)
Exceptional items	3, 5	77.5		364.7
Amortisation of intangible assets		50.3		52.5
Share of results of joint ventures		(7.2)		(8.3)
Depreciation of property, plant & equipment		56.2		63.4
Impairment of property, plant & equipment		-		0.3
Gains on disposal of property, plant & equipment		(1.1)		(1.6)
Funding of pension & post-retirement costs		(0.6)		-
Employee share schemes		4.0		(2.3)
Transactional foreign exchange		6.6		4.5
Decrease in provisions		(11.2)		(5.7)
Cash generated from operations before working capital cash flows		261.0		309.2
Decrease in inventories		7.1		25.2
Decrease in trade & other receivables and construction contracts		57.5		189.3
Decrease in trade & other payables and construction contracts		(33.0)		(127.2)
Cash generated from operations		292.6		396.5
Additional pension contributions paid		(2.8)		(2.6)
Exceptional cash items	3	(58.1)		(33.4)
Income tax paid		(15.7)		(50.4)
Net cash generated from operating activities		216.0		310.1

Exceptional items are detailed in note 3.
The employee-related provision and associated insurance asset in relation to US asbestos-related claims disclosed in note 10 will not result in any cash flows either to or from the Group and therefore they have been excluded from the table above. The cash flows from discontinued operations included above are disclosed separately in note 5.
12. Additional cash flow information (continued)
The following tables summarise the cash flows arising on acquisitions and disposals.
			2016		2015
			£m		£m
Acquisitions of subsidiaries
Current period acquisitions (see below)			-		(12.9)
Prior period acquisitions contingent consideration paid			(10.6)		(2.8)
Prior period acquisitions completion adjustment			-		1.6
			(10.6)		(14.1)

Acquisition of subsidiaries - cash paid			-		(14.4)
Cash & cash equivalents acquired			-		1.5
Acquisition of subsidiaries - current period acquisitions			-		(12.9)
Settlement of external debt of subsidiary on acquisition			-		(1.2)
Total cash outflow on current period acquisitions			-		(14.1)
Prior period acquisitions contingent consideration paid			(10.6)		(2.8)
Prior period acquisitions completion adjustment			-		1.6
Total cash outflow relating to acquisitions			(10.6)		(15.3)

Net cash inflow arising on disposal
Consideration received in cash & cash equivalents			35.4		-
Less: cash & cash equivalents disposed of			(4.0)		-
Total cash inflow relating to disposals			31.4		-

	2016	2015
	£m	£m
Reconciliation of net increase in cash & cash equivalents to movement in net debt
Net increase in cash & cash equivalents from total operations	32.2	34.2
Net decrease in debt	92.4	49.4
Change in net debt resulting from cash flows	124.6	83.6
Lease inceptions	(1.2)	(0.1)
Loans/leases disposed	0.1	-
Foreign currency translation differences	(133.0)	(47.8)
Change in net debt during the period	(9.5)	35.7
Net debt at the beginning of the period	(825.0)	(860.7)
Net debt at the end of the period	(834.5)	(825.0)
Net debt comprises the following
Cash & short-term deposits	258.6	184.0
Current interest-bearing loans & borrowings	(144.0)	(195.6)
Non-current interest-bearing loans & borrowings	(949.1)	(813.4)
	(834.5)	(825.0)

The Group has a number of cash pooling arrangements whereby individual entities have bank accounts with the same bank under a master pooling facility which are subject to rights of offset. Cash & short-term deposits of £258.6m (2015: £184.0m) and bank overdrafts & short-term borrowings of £1.6m (2015: £4.7m) are presented after elimination of debit and credit balances within individual pools of £2.3m (2015: £405.6m).

13. Derivative financial instruments

The Group enters into derivative financial instruments in the normal course of business in order to hedge its exposure to foreign exchange risk. Derivatives are only used for economic hedging purposes and no speculative positions are taken. Derivatives are recognised as held for trading and at fair value through profit and loss unless they are designated in IAS 39 compliant hedge relationships.

The table below summarises the types of derivative financial instrument included within each balance sheet category.

	2016	2015
	£m	£m
Included in non-current assets
Forward foreign currency contracts designated as cash flow hedges	-	0.1
Cross currency swaps designated as net investment hedges	-	8.3
Other forward foreign currency contracts	-	0.1
	-	8.5

Included in current assets
Forward foreign currency contracts designated as cash flow hedges	-	0.2
Forward foreign currency contracts designated as net investment hedges	-	0.9
Other forward foreign currency contracts	24.0	13.1
	24.0	14.2

Included in current liabilities
Forward foreign currency contracts designated as cash flow hedges	(1.2)	(1.5)
Forward foreign currency contracts designated as net investment hedges	(15.2)	(4.4)
Cross currency swaps designated as net investment hedges	(6.3)	-
Other forward foreign currency contracts	(7.5)	(8.2)
	(30.2)	(14.1)

Included in non-current liabilities
Forward foreign currency contracts designated as cash flow hedges	-	(0.9)
Cross currency swaps designated as net investment hedges	(14.7)	(4.8)
Other forward foreign currency contracts	(0.2)	(0.1)
	(14.9)	(5.8)
Net derivative financial (liabilities) assets	(21.1)	2.8

14. Related party disclosure

The following table provides the total amount of significant transactions which have been entered into with related parties for the relevant financial year and outstanding balances at the period end.

		Sales to related parties - goods	Sales to related parties - services	Purchases from related parties - goods	Purchases from related parties - services	Amounts owed to related parties
Related party		£m	£m	£m	£m	£m
Joint ventures	2016	26.0	0.1	0.2	0.4	-
	2015	18.4	0.4	1.4	0.8	-
Group pension plans	2016	-	-	-	-	4.1
	2015	-	-	-	-	2.1

15. Exchange rates
The principal exchange rates applied in the preparation of these financial statements were as follows.
	2016	2015
Average rate (per £)
US Dollar	1.36	1.53
Australian Dollar	1.83	2.04
Euro	1.22	1.38
Canadian Dollar	1.80	1.96
United Arab Emirates Dirham	4.98	5.61
Chilean Peso	918.59	1,000.85
South African Rand	20.00	19.53
Brazilian Real	4.75	5.10
Russian Rouble	91.20	93.65
Closing rate (per £)
US Dollar	1.22	1.47
Australian Dollar	1.70	2.02
Euro	1.17	1.36
Canadian Dollar	1.65	2.04
United Arab Emirates Dirham	4.49	5.41
Chilean Peso	813.76	1,044.14
South African Rand	16.63	22.81
Brazilian Real	3.97	5.84
Russian Rouble	73.89	107.45

The Group's operating profit from continuing operations before exceptional items and intangibles amortisation was denominated in the following currencies.

		Restated (note1)
	2016	2015
	£m	£m
US Dollar	70.0	112.8
Australian Dollar	33.8	31.6
Euro	26.2	22.3
Canadian Dollar	36.6	30.6
United Arab Emirates Dirham	5.8	21.6
Chilean Peso	35.6	30.6
South African Rand	4.9	1.3
Brazilian Real	3.6	4.3
Russian Rouble	6.9	3.8
UK Sterling	(11.2)	(13.0)
Other	1.8	11.6
Operating profit from continuing operations before exceptional items & intangibles amortisation	214.0	257.5

This information is provided by RNS

The company news service from the London Stock Exchange

END

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