Engineer Weir considers moving production to UK after Brexit
Weaker pound a factor in decision whether to make more industrial equipment in Yorkshire
Weir, the engineer, is examining whether to move production of some equipment from overseas to the UK to benefit from the weaker pound.
The UK company’s Todmorden foundry in West Yorkshire casts metal components for heavy-duty pumps found in mines in countries including Chile, Finland and Russia, as well as in Canada’s tar sands.
Before the UK’s EU referendum, the site in the Calder Valley had already benefited from its status as one of the most cost-effective facilities run by the FTSE 250 group, with a significant manufacturing workload transferred there this year.
Jon Stanton, chief executive, said the lower exchange rate following the vote for Brexit would figure in calculations about whether more should follow.
“At the moment, it is all about how the demand profile develops from a European and global perspective. That will dictate how we potentially move some production there,” he told the Financial Times.
“The weakening of sterling makes [the Todmorden] facility potentially more competitive and that will be a consideration as we think about production allocation.”
Weir, which also makes pumps and valves for the energy industry, operates foundries in Australia, Brazil, Chile Malaysia and South Africa as well as the UK.
The prospect of manufacturing being “reshored” to Britain would be a boost from Brexit. While the pound’s devaluation — it is down 10.5 per cent against a basket of trade-weighted currencies since the referendum result — should make British goods more competitive, so far the impact on the sector appears mixed.
Factory order books were at their most full for 20 months in the three months to December, according to a survey by the CBI employers’ organisation. But the Office for National Statistics said there was only limited evidence that currency depreciation had boosted exports.
Mr Stanton said a sustained weaker pound would make Britain a “relatively more attractive” place to invest, balanced against any possible trade tariffs under a final Brexit settlement.
But he stressed this was not immediately shaping Weir’s decisions: “At the moment I’m not saying I need to put more capital into the UK relative to anywhere else”.
In his first formal interview since taking the helm in October after six years as finance director, he said his strategy would be one of “evolution rather than revolution”.
This suggests a continuation of the path set out by Keith Cochrane, his predecessor who continued the company’s expansion in part through a series of acquisitions.
After benefiting from the boom in global energy and mining production, the Scotland-based group has grappled with a downturn in both of its main markets in the past few years, as customers have slashed investment in response to the collapse in commodity prices.
This is particularly pronounced in Weir’s oil and gas division, which is the largest provider of frac pumps to the North American shale industry. Group sales fell by more than a fifth in 2015 to £1.92bn, and the company recently warned profits would be lower than previously expected this year.
The downturn has also hit UK-listed peers such as IMI, Smiths Group and Rotork, which also supply the oil and gas sector.
Even so, Weir’s management has been credited by analysts for navigating the storm with harsh cost-cutting measures, such as reducing its workforce by more than 10 per cent and closing plants.
Mr Stanton said there were “signs of recovery” in Weir’s markets. The US oil rig count has risen, crude prices were “more supportive” and miners’ profit margins had increased with the rebound in commodity prices, he said.
Investors seem to be pricing in an eventual upturn. Weir’s share price has rallied 87 per cent this year, placing it among the top 10 performing stocks in the mid-cap index. But, trading at around £19, the shares remain below a peak of £28 before the crude price crash in 2014.
Some City analysts have queried whether the company’s collection of businesses needs refining. Weir’s third and smallest division provides flow control systems such as valves for industry.
Harry Philips, analyst at Peel Hunt, said: “Can a portfolio contain two businesses [minerals and oil and gas] with such incredibly different cyclical profiles in an efficient manner? People would like to see . . . that core assumption retested”.
Weir said it was on track to meet a target of £100m from disposals this year. Asked whether there would be further sales next year, Mr Stanton said he did not “see anything in the wings”.