ENGINEERING firm Weir Group shocked investors yesterday with a stark warning over revenues and profits as the collapse in oil prices forces it to scale up its planned job cuts.
The Glasgow-headquartered firm, which provides components to the drilling and mining industries, now expects to slash its headcount by about 8 per cent this year with the loss of 1,200 jobs.
But the firm said that revenues and margins will both see a “significant reduction” despite the savings, although it was unable to put a figure on the shortfall at this stage.
Chief executive Keith Cochrane said: “While visibility in oil and gas remains limited, 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.
“As a result we are planning for a significant reduction in constant currency group revenues and lower operating margins in 2015. However, we will continue to invest in extending the group’s global leadership positions and increasing market share, supported by a strong balance sheet and the cash generative nature of the group.”
Only a handful of the global company’s 600 Scottish-based staff are at risk.
The warning came even as Weir Group reported a solid set of numbers for 2014, with revenue up 9 per cent on a constant currency basis. In sterling terms it was flat at about £2.4 billion.
Pre-tax profits were down slightly at £409m, although they would have been in line with last year had currency effects not cost the firm £35m. The results for last year were in line with City expectations.
Cochrane said: “2014 demonstrated the strength of Weir’s strategy and aftermarket-focused business model as we captured good growth opportunities in fast changing markets.
“Significant progress was made in developing new products, working in partnership with customers, expanding into new markets through the acquisition of Trio, and streamlining our operations to maintain cost competitiveness.”
“In terms of outlook for 2015, we will continue to make progress in delivering our strategy while responding to market conditions as they evolve.”
He added that the group had already acted “following steep price declines in key commodities, particularly oil, taking additional measures to reduce operating costs”.
Weir said in November that it would cut jobs and close some of its smaller bases as the oil price fall started to bite. Since then the plans have been scaled up to include a reduction of about 1,200 roles.
Finance director Jon Stanton told The Scotsman that the biggest impact of the reduced oil price was being felt in the North American shale gas fields, were the rig count is expected to halve compared to its level when crude traded at more than $100 a barrel. Weir Group’s North American business will therefore bear the brunt of the job losses.
Stanton added that the company was facing pressures from its customers to cut prices as they tried to readjust to the lower oil price.
But he said that in the minerals business, where prices have been on the back foot for longer, trade remained resilient as two thirds of revenues came from after-market servicing.
Shares in Weir Group slumped following the update, with the stock closing almost 9 per cent lower at 1,700p.
Analysts at Investec said the outlook for 2015 “highlighted a substantial reduction in demand in oil and gas along with associated pricing pressure”.
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