Weir to exit oil and gas after £379m loss
Weir Group is to exit its oil and gas business after posting a £379m loss for 2019 today.
While Weir enjoyed a strong performance in its mining business, the company warned the US oil and gas market’s poor 2019 performance forced it to slash costs in the range of £35m a year.
“North American oil and gas market conditions deteriorated significantly through the year and we undertook a major cost reduction programme in response,” boss Jon Stanton said.
Oil and gas revenues slumped 25 per cent year on year, forcing Weir to take a £546m impairment. In contrast, Weir posted margin growth in its minerals and energy services divisions.
The £379m loss before tax for 2019 contrasts with an £18m pre-tax profit for 2018.
Revenue increased nine per cent to £2.66bn from £2.45bn over the same period. But earnings per share slipped seven per cent to 87.9p despite a two per cent dividend hike to just shy of 47p per share.
Investors welcomed Weir’s plans to quit the oil and gas market, sending shares up almost seven per cent to 1,337.5p.
But analysts said Weir must do more to return to profitability.
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“There are opportunities to enhance its aftermarket offering and geographical diversification – bu, perhaps more importantly, Weir needs to move towards higher-margin and recurring sales which should place it on a more secure footing,” said Alasdair Ronald of Brewin Dolphin.
“Regardless, there is more for management to do to reassure investors that Weir is sufficiently protected from the volatility of oil and gas and, more generally, heading in the right direction.”
Weir also warned it could not rule out being affected by the outbreak of the coronavirus in 2020.
Several sectors, from airlines to automotive, have suffered disruptions due to travel restrictions and closures aimed at containing the coronavirus.
Cases have multiplied in the Middle East, Europe and South America this week alone.
Stanton also said the present situation of oil and gas difficulties balancing out strong mining performance is likely to continue.