Weir Group to suspend divi and hammer down on costs

● Glasgow group outlines range of actions amid crisis ● Guidance issued last month now being withdrawn

Weir Group, the Glasgowheadquartered global engineer, said it was taking “immediate action” to combat the effects of Covid-19 on its business as it became the latest listed company to suspend its dividend payment.

Releasing a trading update to investors, the group said its three facilities in China were now back to full operating capacity following a forced shut-down in early February.

However, it has seen increasing interruption at some of its other operations and supply chains as governments step up their efforts to control the spread of the virus. The main impact so far has been felt in the US, the UK, South Africa, Peru and Malaysia, Weir added.

“We anticipate further disruptions as we move forward, although the extent and duration remains unknown,” the firm added.

The group noted that trading in January and February had been in line with expectations across each of its divisions. Through March, amid a sharp fall in oil prices and an escalation of the coronavirus pandemic, the external environment has “changed rapidly”, it added.

“Given the level of uncertainty in our main markets due to Covid-19, our 2020 guidance issued on 26 February is now withdrawn and we will update further when visibility improves,” Weir told investors.

The group has taken a number of mitigating actions, including taking an additional $30 million (£25m) of costs out of its oil and gas business, cutting the division’s North American workforce by 25 per cent and “periodic furloughs”.

Across the group, management has implemented cost reduction measures including a recruitment freeze and restrictions on all discretionary spending.

Weir added: “More broadly, given the highly uncertain environment, we are planning for a number of potential downside scenarios of varying severity which consider: widespread disruption to our operations and supply chain; deferment of original equipment orders; and, reduced aftermarket demand.

“Each scenario considers a range of further mitigating actions to reduce costs and conserve cash at both the operational and corporate level.

“Finally, the board believes that it is prudent at this stage to provide maximum flexibility and has therefore taken the decision to withdraw its recommendation to pay a 2019 final dividend.”

Analysts at brokerage Shore Capital noted: “Weir has circa £500m through committed facilities and cash balance, the group’s net debt/ebitda was 2.4x in 2019 with covenant of 3.5x. We would expect given the downturn, the group to continue to generate cash but also benefit from a working capital inflow as it unwinds.”