Weir Plc’s 38.7% YoY drop in EBITDA elevates net leverage to 2.5x

Weir Group Plc, the United Kingdom based designer and manufacturer of high-end engineering products and services in FY15 reported 21.3% YoY decline in its revenue to GBP 1.98bn, as order input declined across all its segments.  During the period overall order input were down 24.3% YoY to GBP 1.87bn; with cuts seen in its oil and gas segment which was down 48% YoY, while the power and industrial, and minerals segment reported a decline of 11% YoY and 9% YoY respectively. Following this company stated EBITDA dropped 38.7% YoY to GBP 330m, which pushed net leverage up to 2.5x in FY15 as compared to 1.6x in FY14. Giving the weak trading conditions and deteriorating financial matrices, Moody’s on 29 February 2016 downgraded Weir to Baa3 from Baa1 with outlook negative.

Covenant summary:

  • Net debt/EBITDA < 3.5x (Actual FY15: 2.5x; FY14: 1.6x; FY13:1.5x) FY6 net debt/EBITDA in-line with FY15 is based on the following assumptions: dividend payout same as FY15, successful asset disposal of GBP 100m.
  • Interest cover >3.5x (Actual FY15: 7.3x; FY14: 12x; FY13:10.4x)

OCF reduced 40.5% YoY to GBP 309m due aforementioned decline in EBITDA. As a result of this FCF declined 48.5% YoY to GBP 180m, which was despite 14.7% YoY deduction in capex spend. Management has guided capex for FY16 to be capped at c.GBP 65m.

During the period total liquidity comprised of cash and cash equivalent which stood at GBP 184m. In addition to this Weir also had access to GBP 800m in revolving credit facilities; however the company has not disclosed the actual availability under the RCF. The company has no significant debt maturing until 2018 and 2019.

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2016 Outlook:

  • The Company expect further decline in capital expenditure from its customers across all its segments, with revenue in its minerals and, oil and gas segment expected to decline slightly on a constant currency basis, while likely to remain flat in its power and industrial segment. Moreover margins may be supported through the a GBP 40m in identified cost-saving, which are in addition to GBP 45m (c. GBP 25m expected in FY16) due to the cost-saving activities done in FY15.
  • Weir expects to realize GBP 100m through disposal of non-core assets.
  • Capped CAPEX at c. GBP 65m (1.0x depreciation)

Wier



Categories: Earnings, European Earnings

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