The Weir Group has reported it is currently winding down its business in Russia, with an estimate that this could impact overall operating profit by up to £20m.
The Glasgow-based engineering company's first quarter trading update explained that its Russian divisions comprise a sales and a service organisation employing 267 people, the majority of which work in its minerals division.
Russian assets are made up of inventory and receivables and represent around 2% of overall net assets. A review is currently being undertaken into the “recoverability” of these, but that it is expected to result in an exceptional write-off during 2022.
Despite the impact from Russia's invasion of Ukraine, Weir reported that its orders had increased by 15% during the first three months of this year, with "very strong demand" in the aftermarket and "good progress" on strategic growth initiatives.
Aftermarket orders increased by 28%, but the company experienced a decrease in its original equipment orders of 17%.
The group was “successfully managing the impact of Covid-19 shutdowns, supply chain disruption and inflation”, with growth in constant currency revenue and profit expected during 2022, while operating margins and cash conversion is "back on track".
It reported that divisional orders increased 9% against a strong prior year comparator, while aftermarket orders remained close to all-time highs.
“Global demand for aftermarket spares remained strong, supported by a general trend towards lower ore grades and increased equipment utilisation," the update stated. "Demand was particularly strong within the oil sands market in Canada, supported by high oil prices through the period."
Demand for original equipment continued to be supported by a high volume of smaller orders for equipment for the de-bottlenecking of existing assets, and for small brownfield expansions.
“While supply chains continued to be disrupted by Covid-19, our vertically integrated regional model meant the division continued to execute well," the report added.
Meanwhile, ESCO division orders increased by 32% against the prior year. Adjusting for the impact of the acquisition of Motion Metrics, on a like-for-like basis, orders increased 27% against the prior year. The integration of Motion Metrics into the division has “progressed well” and the functional integration phase is now complete.
Charles Berry, chairman of the group for eight years steps down today, succeeded by Barbara Jeremiah, who is currently a senior independent director.
Chief executive Jon Stanton commented: “The group has had an excellent start to the year, generating record orders and executing strongly in a complex global environment.
“Conditions in mining markets are highly favourable as high commodity prices ensure miners remain incentivised to maximise ore production, which is driving demand for recurring aftermarket and de-bottlenecking solutions.
“Looking ahead to the full year, we remain confident in the outlook and expect to deliver strong growth in constant currency revenue and profit in 2022 and anticipate progress towards our medium-term margin and cash targets.”
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