Emerging markets and oil shale lead growth for Weir Group

GLASGOW engineer Weir Group produced robust profits and a 29 per cent dividend hike in 2010 as it yesterday also flagged up confidence on prospects for its mining and burgeoning oil and gas shale drilling business.

Growing demand for commodities in China and other emerging markets was boosting the group's mining-related activities, Keith Cochrane, group chief executive said.

He said Weir was now making nearly 40 per cent of its revenues from emerging markets, double the figure of five years ago, and would look for further opportunities to extend this area. "These markets have higher growth prospects," he said.

Unveiling a 58 per cent leap in pre-tax profit to 295 million from 187m the previous year, Cochrane said the group remained on track to double its 2009 profits by 2014.

He said Weir should benefit in 2011 from the increasing international interest in unconventional drilling methods in the likes of Australia, China and North America.

Weir's pumps, most which are now made overseas as part of a wide-flung business model, are used by gas shale producers to force sand and chemicals into the ground to fracture the rocks where the gas and oil is trapped.

Cochrane said he had high hopes for oil shale drilling in North America as it had exhausted much of its conventional energy resources. The rig count had risen 80 per cent in that region in the past year, he said.

Mining companies use the Scottish company's heavy-duty pumps to extract commodities. "We anticipate the mining industry are looking to increase their spending on new mines by 50 per cent over the next two years," Cochrane added.

Weir's revenues jumped 18 per cent to 1.6 billion last year, while its order book rose 39 per cent to 1.9bn by end-2010.

Operating profit margins increased 4 per cent to a shade under 19 per cent, The board is recommending a final dividend of 21p, up from 16.2p last time, making a total of 27p for the year, against 21p for 2009.

Cochrane said 2010 had proved to be an "exceptional" year, but the sharp increase in shareholder payout was not meant to indicate a one-off dividend rebalancing. "That becomes the base rate for future years and reflects our confidence," he said.

Aftermarket repair and maintenance sales of components has been an increasing support for Weir, accounting for up to 58 per cent of revenues compared with 54 per cent the year before.

Weir made five acquisitions in the year, and said it was on the lookout for more. However, the chief executive said he was unconcerned about speculation that Weir would be a bid target. "We don't lose sleep over market rumours, as we know the group has shown it can execute (strategy] flawlessly," Cochrane said.

The shares, which have enjoyed a good run, closed down 84p at 1,695p.