Glasgow engineer Weir Group sees virus pain intensifying in second quarter

Weir Group, the Glasgow-headquartered global engineer, is bracing for a greater impact in its second quarter from Covid-19 after a “relatively resilient” opening three months.

Weir Group said there had been a deep downturn in oil and gas markets since the start of the year. Picture: Weir Group

The firm, which has already suspended its dividend payment amid the coronavirus pandemic, said it was benefiting from the resilience of its aftermarket-focused mining operations, representing 80 per cent of group orders.

However, its first-quarter results revealed that orders from the oil and gas industry had slumped 34 per cent in the three months to 31 March.

Weir said there had been a “deep downturn” in oil and gas markets since the start of the year with exploration and production capital expenditure now expected to fall by about 50 per cent in North America, compared to previous estimates of 30 per cent. An additional £12 million cost-savings programme has been announced.

Nonetheless, the oil and gas division was “slightly above breakeven” in the first quarter and is expected to be cash positive for the full year.

Bosses stressed that the group had the financial firepower to withstand “a range of downside scenarios” as governments around the world attempt to kick-start their economies post-lockdown.

Updating on trading for April, the firm said there had been no impact on its ability to meet customer demand, but cautioned that it was still too early to assess the full impact of Covid-19 on the balance of the year.

“After a resilient first quarter, we expect Covid-19 to have a greater impact in the second quarter,” it noted.

Chief executive Jon Stanton told investors: “I am very proud of the way the global Weir family has responded to the Covid-19 pandemic. This is a unique time and a unique challenge, and we have been led by our values, with our incredibly strong culture shining through. While there remains a high degree of uncertainty over the full impact of Covid-19, we are taking a prudent approach to managing costs and conserving cash and are ready with a range of further actions should market conditions require them.

“More broadly, our recent portfolio changes have positioned Weir to benefit from long-term structural trends, including carbon transition, as a key technology provider making mining smarter, more efficient and sustainable.”

The group has some £500m immediately available through committed facilities and cash balances. It also has access to up to £300m under the UK government’s Covid Corporate Finance Facility alongside a further £100m of uncommitted facilities.

Analysts at Shore Capital noted: “Given the current circumstances, we believe in the short to near term it would be difficult to crystallise any value from the oil and gas disposal until the market backdrop has improved. We see the share price struggle to appreciate in the near term.”

Meanwhile, new BP boss Bernard Looney's first three months in charge did not turn out as badly as some feared, as the producer weathered an oil price storm to hold on to its dividend and beat expectations.

Looney was able to reassure investors on Tuesday that he would pay out a dividend for the last quarter, even raising it by 0.25 US cents to 10.5 cents (8.5p) per share.

The news came as BP revealed that underlying replacement cost profit, the most closely watched figure used by the oil major, reached $800 million (£644m). Analysts had expected to see $710m.

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