Weir Group hit by oil price decline woes

25th Feb 2015 07:28

Shares in British engineering giant Weir Group plummeted to the bottom of the FTSE100 index, falling as much as 10.6% to 1666p, after warning that the sharp decline in the price of oil will have a "significant reduction" in constant currency group revenues this year.The weakening price of oil led the group to cut 22% of its North American workforce in its Oil & Gas division, or about 650 staff, to in-source production and reduce operating costs.The surprise cut to staff comes after the group's strategic review in November 2014 which signalled cost cutting initiatives across the business."It is clear that the group's strategic progress and cost initiatives will only partly offset the impact of a substantial reduction in demand and the associated pricing pressure (in oil and gas). As a result we are planning for a significant reduction in constant currency group revenues and lower operating margins in 2015," said chief executive, Keith Cochrane.As a result, Weir, who makes pumps and valves for industrial mining and oil companies, reported flat full-year revenues on £2.44b and full-year pre-tax profits falling 2% to £409m in 2014 from £418m in the previous year.The group said that in what was a challenging year, both order input and revenue on a constant currency basis increased by 9% but on a reported basis, revenues were flat given a £185m foreign exchange headwind.Cochrane added that Weir the group remains on track to consolidate five smaller manufacturing facilities into larger units and reduce headcount by 350 posts across all three of its divisions, targeting £35m of annualised savings with £20m of which to be delivered in 2015. "When complete, (the cost-cutting initiatives) will see a reduction in total workforce of approximately 1,200 or 8%," he added.Investec Securities put their earnings forecasts for this year under review following Weir's report. "The 2015 outcome is very difficult to call but given the negative commentary we can see scope for consensus FY'15 EPS to reduce by around 10% towards 110p (consensus currently 128p and Investec at 125p)," said the broker.Despite the fall in headline profit, Weir reported that its order book was up 9% to £2.47b and that Aftermarket order and revenues rose 14%.