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The Weir Group PLC ExcellentAnnual Report & Accounts 2004 Engineering

Solutions

Financial Highlights 2004

The Reports

1 2004 Highlights

2 Chairman’s Statement

4 Our products

6 Our geographic markets

8 Chief Executive’s Review

10 Operational Review

20 Financial Review

22 Board of Directors

24 Directors’ Report

25 Corporate GovernanceStatement

28 Audit Committee Report

29 Nomination Committee Report

30 Remuneration Committee Report

36 Corporate Social Responsibility Report

38 Directors’ Responsibilities

39 Independent Auditors’ Report

The Accounts

40 Accounting Policies

42 Consolidated Profit & Loss Account

43 Balance Sheets

44 Cash Flow Statement

Reconciliation of Net Cash Flow to Movement in Net Funds

45 Additional Statements

Statement of Total Recognised Gains & Losses

Reconciliation of Movements in Shareholders’ Funds

46 Notes to the Accounts

69 Principal Companies of the Group

70 Group Five Year Summary

71 Shareholder Information

Contents:

Earnings per share (1)

21.5pUp 0.5%

Dividend

12.8pUp 3.2%

Net funds on hand

£12.3mUp £11.8m

200321.4p

200421.5p

24

18

12

6

200312.4p

200412.8p

16

12

8

4

Group results - continuing operations

Turnover

£847.6mUp 6.8%

Operating profit (1)

£61.2mDown 3.6%

Pre-tax profit (1)

£58.3mUp 2.8%

Order input (2)

£875.9mUp 23.4%

The Weir Group has a strong reputation forengineering excellence in the manufactureof specialist equipment and the delivery ofthrough-life engineering solutions. Weir is recognised as best in class, backed bysuperior design, project management andtechnical expertise applied to customersupport and asset management.

Weir employs almost 8,000 peopleworldwide, focused on our key markets.These range from mining and mineralsprocessing to the defence and nuclearindustry, from oil and gas exploration topower generation and water treatment. In all these areas, we provide solutions that meet the engineering and operationalchallenges facing our customers.

For further information about The Weir Group PLC,visit www.weir.co.uk

(1) Excluding goodwill amortisation & exceptionals

(2) Excluding Joint Ventures and Associates; at constant 2004 exchange rates

2004 Highlights

1

Sir Robert SmithChairman

Mark SelwayChief Executive

2004 Highlights:• Pre-tax profit up 2.8%(1)

• Order input up 23.4%(2)

• Earnings per share increased• Cash generation remains strong• Dividend increase of 3.2% to 12.8p (2003:12.4p)• Board initiates share buy-back of up to £50m

2004 has demonstrated the strength of the WeirGroup strategy, with strongest performances clearlylinked to our world-class engineering expertise,operational improvements, new products and growingmarkets. As we embark on the final stages of ourjourney to sector-best performance, we will continueto revise our portfolio in line with these strengths.

The Weir Group PLC Report and Accounts 2004

2

Chairman’s Statement: 2004 was an important year in the five year programme of transformationlaunched in 2002, during which our strategiccornerstones of leadership, operational excellenceand growth have proved their strength.

“The Group’s strong cash focus and balance sheet provide the ongoing flexibility to pursue new capital investments and availableacquisitions while delivering increasing returns to shareholders.”

Notwithstanding a disappointing year for the UK valve operation, the Group continued to makesignificant performance improvements in 2004. The benefits of our strategies coming on-streamdelivered higher order input, continued operational improvements and strong growth in our core areas of operation.

Financial highlightsTotal Group turnover increased 6.8% to £847.6m (2003: £793.4m).Continued strong growth from our Services and Minerals Divisions wasbolstered by stronger market conditions particularly in the second half for our Clear Liquid and Techna Divisions.

Operating profit before amortisation of goodwill and exceptional items of£61.2m (2003: £63.5m) was 3.6% behind 2003, with Group subsidiariesat £51.2m (2003: £53.2m) and our Joint Venture and Associate companiescontributing £10.0m against £10.3m in 2003.

Group pre-tax profit before amortisation of goodwill and exceptional itemswas up 2.8% on the previous year at £58.3m (2003: £56.7m). This reflectsthe improving position of our pension schemes, offset in part by the cost offunding the Group Long-Term Incentive Plan (L-TIP) which was approvedat the 2004 Annual General Meeting.

With an effective tax rate of 24% on profit before amortisation of goodwill and exceptional items, earnings per share amounted to 21.5p(2003: 21.4p). Cash generation, while being negatively impacted by thestrength of the last quarter factory loading, remained strong with cashflow from operations at £54.9m.

The year ended with an in funds position of £12.3m which reflects thecontinued strong cash generation of the Group when compared to theprevious year (in funds position of £0.5m) and half year 2004 net debtposition of £23.2m.

The Board is recommending a final dividend of 9.35p per share making a total distribution for the year of 12.8p (2003: 12.4p).

Corporate governanceShareholders, community groups, the law and governments have greaterexpectations than ever before of the behaviours required of companiesand their leaders.

The Board is committed to a governance framework which supports ourmission and values – to use our expertise to add value in the eyes of ourcustomers and to create shareholder value through the effective use of our resources.

The integral ingredient for effective operation of a Board is the relationshipbetween directors and how they function as a group, where all membersare provided with timely information and are encouraged to questionand challenge one another, the operational management and the strategy of the Group.

Another essential element in the governance process is a commitment to Board succession where Weir have adopted a collective review of theBoard as a whole and of its various subcommittees as well as individualnon-executive director reviews which are undertaken annually.

James Cox has decided not to seek re-election to the Board at this year’sAnnual General Meeting. Jim has made a significant contribution during his five year tenure with the Weir Group and I am sure shareholders will joinme in thanking Jim for his wise and helpful counsel during his time in office.

On 3 February 2005, Stephen King joined the Board as a non-executivedirector. Stephen is the current finance director of De La Rue and hisfinance and industrial experience at an international level will beparticularly relevant to the Group’s strategic agenda.

ProspectsDespite the disappointing result from our UK valve operation, the Groupachieved significant performance improvements in its core operationsduring the year.

The Group remains in good financial condition with a much improvedorder book and good level of visibility in our most important markets. The positive market conditions experienced in 2004 are expected tocontinue. The actions being taken to put permanent resolution to ourunder-performing activities will deliver a good level of progress beforeexceptionals in 2005.

PeopleOn behalf of the Board, I want to thank the executive and employeesaround the world for their commitment, tireless energy and focus during2004. I will be looking for the same determination in 2005 as we continueto develop market leading products, improve our productivity and forgenew and stronger customer relationships.

Finally, I want to thank our shareholders who continue to demonstratebelief in our potential. I remain convinced that the Weir Group has theright direction, structure and depth of expertise to deliver improvingreturns to our shareholders.

Sir Robert SmithChairman21 March 2005

Chairman’s Statement

3

Strategy & structureSince 2002, the Group has been focused on a five year programme of transformation underpinned by a consistent set of core strategies ofleadership, operational excellence and growth providing the cornerstonesto deliver best in sector customer satisfaction and financial returns.

The key management focus has been to ensure the continuedimplementation of our plans to develop new products, improve ouroperational performance and forge new customer relationships. Whileimprovements were delivered across all areas of the Group, our 2004results were impacted by the poor performance of our UK valve operation,which we propose to restructure significantly.

The 2004 strategic review process also concluded that, while we have madedramatic improvements in productivity, the overhead equation and marketmix at our UK business, Weir Pumps, continue to dampen the results of theClear Liquid Division. To resolve this issue, we are proposing to restructurethis business and concentrate our portfolio on only those sectors where wesee continued growth.

The organic growth of our Engineering Products and Services businesseshas delivered positive results but our expectations of a larger scaleconsolidation of the Clear Liquid market, on terms which represent anacceptable return to our shareholders, remain unrealised.

Whilst we continue to seek acquisitions, the strength of the Group’s cashgeneration and strong balance sheet has led the Board to the decision to implement an on market £50m share buy-back programme which weexpect will provide value to remaining shareholders through enhancedearnings per share and return on equity, while at the same time offering a mechanism for more effective capital structuring of the Group.

The Board believes that the buy-back programme will benefit allshareholders and that the Group’s strong cash focus and balance sheetprovide the ongoing flexibility to pursue new capital investments andavailable acquisitions while delivering increasing returns to shareholders.

Oil For Food in IraqAs many of you will be aware, in July last year, following incorrect informationbeing provided to media enquiries, an announcement was made to theLondon Stock Exchange confirming that, in the course of 2000, tradingterms with Oil For Food programme contracts were amended.

I can only apologise to our shareholders for the events leading up to this announcement. As soon as the Board became aware that there was a potential issue we took immediate action by conducting an internal review and then instructing Herbert Smith to carry out an independentlegal investigation.

The investigations identified a number of areas for improvement within theGroup’s operating policies and in the appointment of agents. A conferencewas held in September 2004, attended by more than 60 senior executivesfrom around the world, where new policies and procedures were endorsed.

I am totally satisfied with the way in which the Board dealt with the Oil For Food problem as soon as it came to light and the actions subsequentlytaken to ensure that the Weir Group is a company with which we should allbe proud to be associated.

We have supplied equipment to Iraq for more than 50 years and,particularly in a time of need, we will continue to ensure that Weir pumps and valves will help that country back to prosperity.


4

Our products: Throughout our history, Weir’s successhas been founded on applying exceptional engineeringsolutions to complex technical challenges. Today, wehave an outstanding portfolio of world-class companiessupplying products with a reputation for reliability,performance and improving the safety and efficiency of our customers’ activities.

The Weir Group portfolio includes many of the world’s leading brandnames. Our core products are the pumps, valves and controls that arecrucial to production and safety in a wide range of industrial environments. These range from high pressure pumps for water and general industrialprocesses, to specialist products for wastewater and industrial slurries,including products capable of withstanding intensely harsh environments,such as sulphuric acid, deep subsea oil wells or nuclear power stations.

We own a continuously expanding portfolio of intellectual property related not only to the original equipment we manufacture, but also to the innovative and specialist materials on which we hold patents. Theseinclude exceptionally resistant steel and rubber formulations that are used in highly corrosive and abrasive applications. Weir products delivercompetitive advantage by bringing down the whole-life cost of ownershipfor customers. They perform at full capacity for longer, require lessmaintenance and less frequent replacement.

Using these materials, we have developed associated products, such as wear-resistant mill linings used in minerals processing, which can bepackaged with our core products. Our engineering know-how also allowsus to enhance and refurbish existing equipment, including non-Weirbrands, which gives us a very strong position in the service, repair andspare parts markets.

Value engineering and world-class design are at the heart of all Weirproducts, which are produced worldwide using the Weir ProductionSystem, a Lean approach that enables us to continuously improveefficiency and quality. Our international procurement and manufacturingcapacity supports our ability to develop products that are both superiorand competitively priced, while a global design team ensures that newproducts meet the needs of global customers.

As we have grown our ability to deliver whole pipeline, whole plant andwhole project solutions, so we have moved up the contractual supplychain to the front end design of plant, processes and systems. Today, Weir engineering design expertise is applied in a wide range of industries, where we work in close partnership with our customers - from submarineweapons handling and discharge systems, to liquid gas storage andtransportation and high integrity solutions for nuclear decommissioning.Wherever quality, absolute reliability and safety are at stake, Weir Groupproducts are specified.

“Our extensive product and service portfolioprovides solutions for a wide range ofindustries and processes.”

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Industries and expertise

Chemicals

Chemicals/highly abrasive/corrosive

Defence

Desalination

Gas storage and handling

Marine engineering

Mining and mineral processing

Nuclear

Oil and gas

Power and renewables

Power: FGD and ash handling

Sand and gravel

Thermal processes

Water treatment: industrial waste

Water treatment: sludge handling

Water treatment: offshore

Product types Services

Weir Divisions

Weir Minerals

Weir Clear Liquid

Weir Valves & Controls

Weir Services

Weir Techna

Our products

5

“We own a continuously expanding portfolio of intellectualproperty related not only to the original equipment wemanufacture, but also to the innovative and specialistmaterials on which we hold patents.”

The new W

arman 600 H

TP developed for the Canadian oil sands is reinforcing

Weir M

inerals position in that market.

Our product portfolio includes:

Pumps

Axially split case pumps

API pumps

End suction pumps

Multistage pumps

Piston diaphragm pumps

Piston pumps

Slurry pumps

Speciality pumps

Submersible slurry pumps

Vertical pumps

Vertical slurry pumps

Mining products

Hydrocyclones

Mill lining systems

Valves & controls

Control products

Isolation products

Process instrumentation

Slurry valves

Other plant & replacement parts

Chillers

Coatings

Desalination plant

Gas storage

Gas turbines inlet air cooling

Heat pumps

Membranes

Spare parts

Turbomachinery


6

Strategy for geographic expansion

Our actions in appointing regional champions with a goodfoothold and understanding of their specific markets provedinvaluable across the Group during 2004. By using the successof our lead operation to provide a conduit for the full range ofWeir products and services, we achieved substantial growth in India, China, the Former Soviet Union, South Africa andSouth America.

The strength of our global sales team has resulted in many newopportunities for the cross-selling and bundling of products andservices from the Weir portfolio. We now have a clearer region-by-region view of operations and opportunities and closerinter-divisional collaboration to exploit those opportunities.

Our global approach to new product introduction hassignificantly strengthened the Weir portfolio, with internationaldesign and sales teams ensuring that new products are designedto be competitive in global markets. We continued to transferour most successful products and services into new markets,aided by an enhanced global capability to measure and identify best performance.

Going forward, we remain committed to investing andsupporting our operations in all regions. We will continue toleverage the procurement advantages of our global reach, withglobal sourcing of materials and components. We will remainflexible in the methods selected to penetrate new markets,using third party distribution agreements, joint ventures or alliances and bolt-on acquisitions where these offer the most advantageous route to gaining market share.

The Middle East remains influential inthe oil, gas and desalination markets.We benefited from the leadershipposition of our Services businessesproviding a platform for growth for theGroup. In North and West Africa, anexpanding offshore oil industry offers good opportunities for a wide range of

Weir products and services, particularly in sulphate removal in which we won theworld’s largest contract, for BP Plutonio,in West Africa. In South Africa, expansionin mining and minerals processing offersa receptive environment for a number ofnew products.

Africa & Middle East

In the North Sea oil industry, theemphasis is on maximising productivityand prolonging the life expectancy of existing assets, although there is also new installation activity in theScandinavian offshore market wherewe are involved. We maintained ourleadership position in the UK fossil fuel,nuclear and hydroelectric powermarkets and opportunities formigrating this expertise regionally

are evidenced by new contracts in theFinnish nuclear power market. The UK defence market remains solid and we continue to progress defenceopportunities in Europe. Goingforward, the April 2005 formation of the UK Nuclear DecommissioningAgency is anticipated to deliver anannual spend of £2bn on nuclear clean-up activities.

UK, Europe & Scandinavia

South America was at the heart of the major upsurge in the minerals and mining industries. Many countries,notably Chile, saw large-scale new plantconstruction, which the Weir Group wasideally placed to benefit from. Threenew service centres were opened inBrazil to support the customer base in

areas of high mining activity. New offshore oil production unitscommissioned by the Brazilian oilcompany Petrobras also provided agood opportunity for the Group, led by Techna Division which securedcontracts for sulphate removal packages in this market.

South America

Against a background of generaleconomic buoyancy, the United Statespower market remains subdued. Themaintenance of coal-fired and nuclearpower plants is becoming increasinglyimportant and owners are also seekingefficiency upgrades for gas-fired plant.The water treatment market offersgood opportunities in California andelsewhere. With a strong presence inHouston, Texas, we were able to

improve sales in the American oilbusiness. In Canada, the developmentof the oil sands continues to expand.We already have a valuable share of this market and expect to extend thatin 2005 and beyond. We also madeinroads into the Canadian miningindustry in 2004 and reinforced our position in the North Americandefence market.

North America & Canada

Our geographic markets: The Weir Group’s strategy to establish and expand our global footprint enabled us to benefit from themost rapidly growing geographic markets in 2004. In oil, gas andminerals particularly, but also in the water and power markets, our largest customers are active worldwide. Our presence in these markets is fundamental to our ability to support them and to achieve our own ambitions.

Geographic Markets

7

2004 was a watershed year in China,which can scarcely be described anylonger as an emerging market. This was the world’s fastest growing energymarket, as the country responded to increasing demand for power byaccelerating the construction of newfossil-fuel and nuclear power plants.The mining and minerals sector alsogrew significantly.

The Weir Group is ideally positioned tobenefit from this growth and we havefurther strengthened our global salesresource in this market considerably.Our Beijing office achieved a 100%increase in business, we have a newregional infrastructure in Shanghai andwe secured our first onshore gas projectin Tianjin.

China

The oil market in Russia and itsneighbouring Former Soviet Unionstates remained robust, boosted byhigh global prices. Similarly, highcommodity prices drove expansion inthe minerals and mining industries ofthe region and the Weir Group’scommitment to this market in 2003

and 2004 is now reaping results. We secured upstream oil contracts inRussia and Azerbaijan, nuclear work inUkraine, opened new offices in thewest of Russia and warehouse facilitiesin Khabarovsk. We will continue toexpand our presence in this growingmarket through 2005 and beyond.

Russia & FSU

Australian minerals and miningoperators increased demand forsolutions to improve plant reliabilityand process efficiency as well as newplant construction. Our MineralsDivision consolidated its leadershipposition with the largest customers in this market. Water and wastewatertreatment opportunities began tocome onstream in 2004, with keyprojects in Western Australia

confirmed and good indications for further growth in 2005. Indiaremains a strategic target for growth,especially given the country’scommitment to new build nuclearpower projects and our Joint Venture in Malaysia provides another goodplatform for expansion in this dynamic region. The Weir Group also made sound progress in the Australian defence market.

Australia & Indo Pacific

Weir ServicesWeir Services is a leading provider of equipmentmaintenance, process support and assetmanagement across a range of specialised sectors.

Facts and figures

No. of people 1,935

No. of countries Global

2004 order input £204.0m

Market size c.£15bn

Market position No. 1 in UK, Middle East & Canada

Weir TechnaWeir Techna is the specialist engineering designand systems integration division, with particularstrength in desalination, water treatment, defenceand nuclear markets.

Facts and figures

No. of people 775

No. of businesses 7


Market size c.£5bn

Market position No. 1in UK nuclear support & weapons handling,sulphate removal and marine LPG transport

No. 3 in desalination

Weir Clear LiquidWeir Clear Liquid has a reputation for engineeringexcellence in the design, manufacture and serviceof engineered pumps and fluid handling systems.

Facts and figures

No. of people 1,640

No. of businesses 6


Market size c.£7.5bn

Market position No.3,4 or5insectors in which we operate

Weir Valves & ControlsWeir Valves & Controls specialises in criticalservice and isolation valves designed to supportregulatory compliance and best practice in powergeneration, oil and gas safety.

Facts and figures

No. of people 730

No. of businesses 4


Market size c.£1.5bn

Market position No. 7 or 8 insectors in which we operate

Our business at a glance: The Weir Group PLC is structured around flow control products, servicesand specialist design and projectmanagement engineering.

Weir MineralsWeir Minerals is the world leader in the designand manufacture of pumps, mill liners, cyclones,and slurry valves for the mining and mineralsprocessing industries.

Facts and figures

No. of people 2,885

No. of businesses 10


Market size c.£820m

Market position No. 1In Slurry Pumps

“The entire Weir organisation is focused on our agenda to improve operational effectiveness and theachievements have been substantial - a change inattitude, global restructuring and a clear strategy focusedon sector-best performance.”


8

In the Clear Liquid Division the performance of our focused group ofniche market pump businesses has confirmed that Weir Group’s strengthlies in highly technical, higher margin products. The division’s investmentsin leading edge products continue to underpin an improving productivityrecord and growing market share.

In our 2001 strategy, I outlined our ambition to consolidate the ClearLiquid engineered pump market as excess capacity offered opportunityto deliver realisable synergies. We acknowledge that to date there is little competitive appetite in the market for such a large-scale consolidation. We have, therefore, principally focused our corporatedevelopment attention on pursuing aligned bolt-on acquisitions thatsupport our strength in niche, high-specification markets, which todayrepresent nearly 60% of the division’s turnover and all of its profit. It is proposed to restructure our UK pumps operation in 2005 focusingon fewer, higher margin, product lines while realigning overheads to amore profitable but reduced level of sales. This programme is currently expected to incur exceptional charges in the order of £15.0m, all of which will be cash costs (See note 27 on page 68).

Weir Techna Division performed well in 2004 delivering healthy orders, sales and improved profits in the year. The division’s investmentsin new product research have spearheaded it to a leadership position in sulphate removal technologies used in offshore oil exploration.

Our liquid gas handling business delivered £62.7m of new orders in the year against £9.4m in 2003. It won every major marine gas ship contract awarded during the year and now has a partially filled orderbook as far out as 2008.

The defence and nuclear business also performed well in 2004, growingturnover, profits and margins when compared to 2003. We have a growing presence in the UK, Australia and Canada delivering higher margin, highly technical products and services which we would ideallylike to extend into the United States. 2005 should bring with it a number of significant new opportunities.

The Group is well placed to execute the next stage of our five year plan.The 2004 launch of the manufacturing intranet affords an improvingtransparency of the operational performances of all our businessesenabling the acceleration of best practice transfer across the Group.

Our operational plans are well developed and the final realignment ofthe Group portfolio is designed to improve margins and the robustnessof future earnings. Restructuring during 2005 is expected to return therespective businesses mentioned previously to profitability in the first full year, with full recoveries of cash outflows expected during the course of 2007.

In the 2001 Annual Report, we first defined our ambition to achieve sector-best performance, by targeting those markets which offered themost attractive prospects and where we had a realistic ability to lead. We restructured accordingly, exiting a number of low margin, lesscompetitive activities. Years one and two of the strategy delivereddramatic improvements in operational efficiency, while investing in new products and geographic expansion.

2004 proved to be a critical point on our Journey to Excellence, with the benefits of these strategies coming on-stream, delivering higher orderinput, continuing operational improvements and strong growth in ourcore areas of operation. The year also placed in clear focus the remainingobstacles to achieving our ambition, which I will outline below, togetherwith the actions being taken to achieve that ambition.

Our Journey to ExcellenceOur Minerals Division had an excellent year, with input, turnover and profit levels increasing significantly. The division was able to capitalise on the growth of mining activity globally, fuelled by strongcommodity prices and the continuing appetite for industrial products in China. Our ongoing investments in China and Russia together withnew product launches underpinned 20% growth in new orders bookedwhen compared to 2003. Going forward, while the market will inevitablysoften over time, I expect the division to continue to benefit from thefavourable economic climate and make further progress in its alreadyadmirable leadership position.

The Services Division made good progress in 2004 in input, turnover andoperating profit when compared to 2003. The division’s margins sufferedin the year due to the cost of establishing the United States greenfields.

We expect to continue to make small but meaningful investments to expand our geographic presence and remain pleased with the performance of our most recent additions in Australia, North Americaand Malaysia.

In 2005, we expect to realise further gains in all of our core markets offsetting a small decline in turnover in the UK due to the end of thelower margin Yorkshire Water service contract at the end of 2004.

The Valves & Controls Division had a good year in the United Statesand France, but was let down in 2004 by significant underperformancewithin the UK business. Legacy issues from historical underinvestmenthave not been resolved so far and a plan has been prepared to permanentlystem this profit drain on the Group. The proposals include relocating anddownsizing activities, outsourcing a number of non-core processes andrationalising the product portfolio with a view to bringing the businessback to profit during the year. This programme is currently expected toincur exceptional charges in the order of £16.0m, all of which will becash costs (See note 27 on page 68).

Chief Executive’s Review: 2004 has demonstrated thestrength of the Weir Group strategy, clearly reflectingour world-class engineering expertise, operationalimprovements, new products and growing markets.Success in these areas dictates the need for similarimprovements in other areas across the Group whichare planned for 2005. We remain on course to realiseour stated ambition for sector-best performance by the end of 2006.

Chief Executive’s Review

9

“Our operational plans are well developed and the finalrealignment of the Group portfolio is designed to improvemargins and the robustness of future earnings.”

Our corporate development strategy is now principally focused on pursuing available acquisitions and sustainable organic growth. Giventhe reduced short-term need for acquisition firepower and the continuedstrong cash generation of the Group, the Board also recognises the need to address the relative inefficiency of the balance sheet. We havetherefore decided to implement a £50m progressive on market sharebuy-back programme which promises to enhance future earnings pershare while comfortably maintaining our key financial ratios.

2005 will prove to be an important year for the Group, in which we intend to recognise fully our key strengths in higher technology,higher margin engineering products while delivering on decisive plans to address the remaining weaknesses in our earnings. I am confident thatthe investment and restructuring actions we are taking will ensure thatthe Weir Group is equipped and positioned to lead in our chosen sectors.Our management structure has never been stronger. We have the rightpeople, products and geographic profile to deliver continuing growthand shareholder value going forward.

Mark SelwayChief Executive21 March 2005


10

Minerals Division: The world leader in thedesign and manufacture of pumps, millliners, cyclones and slurry valves for themining and minerals processing industries.

Operational review

2004 was a year of significant activity for Weir Minerals Division, driven by increasing demand as a result of new mining plant construction in theAmericas, China and Australasia, coupled to strong commodity prices. All our businesses responded well to market conditions, with manyupgrading facilities and expanding capacity to meet growing demand.

The division continued to make good progress along the road to excellence,implementing Lean principles and improving processes. This played a keyrole in our ability to deliver increasing volumes and meet demandingcustomer expectations. The management team was further strengthenedin 2004, not least by the appointment of a number of strong internalcandidates from within the division, demonstrating the success of ourleadership development programme.

Several new products were designed and successfully field-trialled in 2004,increasing the division’s portfolio of intellectual property and providinggood opportunities for gaining further market share in 2005. With a strongpresence in the rapidly emerging markets of Russia, China and India, WeirMinerals Division is well placed for continued success going forward.

Key achievements

• Weir Minerals Division enjoyed considerable success in the Canadian oilsands market in 2004, with sales boosted by a pump product designedspecifically for this market.

• 2004 was a record sales year for the division’s GEHO pump brandproduced in The Netherlands, with strong performance throughout our operating regions, particularly in China.

• Three new service centres were opened in Brazil to support the customerbase in areas of high mining activity.

• A major restructuring exercise was carried out to implement the WeirProduction System at the Hazleton operation in Pennsylvania.

• In Australia, Weir Warman had an excellent year, with increased marketshare, expanded geographic coverage and good uptake of new product.

• In India, the new factory in Bangalore has made strong inroads in bringingWeir Minerals products to that market and provides a bridgehead to localsourcing that will benefit the whole division.

• The division’s mill discharge product, which has a good record in North andSouth America, was successfully introduced into South Africa and Australiawith successful field trials in 2004.

• In order to seize a market opportunity primarily in the sand and gravelmarkets, the XU pump was designed and launched in the United States in 2004. In 2005, the XU will be rolled out to all regions.

• Weir Minerals Division’s global design centre completed its first truly globaldesign project, with design leaders from all regions working together todeliver a product that will be successful in all regions. The Slurrymasterpump will be trialled and launched in 2005.

• All companies within the division achieved ISO 14001 accreditation by the end of 2004.

• Lost time accidents improved by almost 60%.

2003 2004

250

200

150

100

Order input

£264.5mUp 19.6%

Scot Smith Divisional Managing Director

Our brands:ASHCAVEXGaligherGEHOHazletonIsogateSchabaverWarmanWeiresist

New Replacement Pump lowers total cost of ownership

The launch of the new EnviroTechReplacement Pump (ERP) in South Africain 2004 was a model project in terms ofspeed to market.

The result is a new concept that delivers thelowest total cost of ownership to customers.Superior materials mean that the pumpretains its efficiency for longer and improvesplant availability. A smart design allows for only the wearing parts to be replaced.Easy maintenance saves time and money and contributes to workplace safety. In addition the exceptional hydraulic design improves efficiency.

The pump is designed to bolt into industrystandard couplings and pipelines, with noneed to invest in new plant. This means thatpay back periods are short and customersmake real savings in just a few months. The ERP is designed for highly abrasiveenvironments, including diamond, steel,coal, chrome and platinum processingplants. The ERP demonstrates the value ofcross-border collaboration, with hydraulicdesign completed in the United States andindustrial design in South Africa. The pumpuses the new A61-grade high chrome irondeveloped by the Australian business andcast at the UK foundry. The mechanical endwas jointly developed between Santiago,Johannesburg and Artarmon, whileprototypes were manufactured by Weir Vulco in Chile.

Case Study

300

Best product for process

Minimum downtime, minimumdisruption to process

Global supply, local support

Consolidating the supply base

Best people in the right place

Primary input breakdown:Minerals 73%General Industrial 12%Power 10%Oil & Water 5%

Geographic breakdown:Americas 39%Australia 19%Indo Pacific 15%Europe & FSU 14%Middle East & Africa 9%UK 4%

Market review

Weir Minerals Division continued to capitalise on the expansion in coremarkets over the year. Demand from the mineral processing marketincreased in line with key commodity pricing and demand. Growth,particularly as a result of new plant construction in the Americas, China and Australasia was very strong. All of the division’s product linesexperienced growth, with pumps (both rotodynamic and positive-displacement) having an exceptional year. Expansion of the division’sspecialised customer support activities (including on-site maintenance)continued apace.

The division’s pumps, hydrocyclones, valves and mill lining systems hold prominent market positions in mineral beneficiation, coal washing,power generation and industrial processes where tough, wear resistantproducts are required.

Regional manufacturing operations in Australia, Chile, Brazil, France, UK, United States, Netherlands, India and South Africa upgraded facilities to ensure ability to meet the expanding demand. The new Indian operation produced its first pumps from locally manufactured parts. Russian expansion continued with new offices in the west andwarehouse facilities opened in Khabarovsk. Sales offices in China wereexpanded to support increased activity in the power station Flue GasDesulphurisation market.

Due to Weir Minerals unique rubber technology, market share gainscontinued, particularly with large size pumps in Chile, Canada andAustralasia. Especially pleasing has been the response to the new HTP range of pumps for the oil sands market in Canada.

Increased global demand and high prices for alumina, coal, iron ore,copper, gold and nickel continues to generate new project activity,auguring well for the division in the upcoming year.

“Weir Minerals Division has benefited from high market activity in2004, in which our sustained focus on Lean principles and improvedefficiency has enabled us to meet rising demand with increasedvolumes. We continue to meet the needs of global customers with new, exciting and competitive products and an expandinggeographical footprint. The division ended 2004 as a strongorganisation in excellent shape for 2005.”

Scot Smith, Divisional Managing Director

Operational Review: Minerals Division

11

Operational excellenceWeir Minerals facility is in the top 25 of North American plants

Industry Week magazine selected Weir Slurry North America as one of thetop 25 facilities in the United States in the 2004 Best Plants competition.

The competition encompasses manufacturing operations located in theUnited States, Mexico and Canada, which have completed at least threeyears of operation.

A panel of six judges individually reviewed applications and came up withtheir own scoring or ranking list before meeting and choosing the top 25.David Drickhamer, Industry Week's Editorial Research Director, commentedthat the standard of competition among the applicants was excellent andthat levels of improvement and examples have become very compelling.

The division as a whole, and Weir Slurry North America at Madison inparticular, are very proud of this achievement, which is based on thebusiness results from the contributions of all employees over the last threeyears who have worked hard at implementing operational changes andimprovements, Kaizen events, team projects and cost reductions. There isa strong sense that all concerned are unlikely to be content with a top 25place and have ambitions to be in the top ten next year!

Minerals Division is learning from the success of its Madison, Wisconsinplant and is applying the same principles and practices through a majorLean initiative at its Hazleton facility to incorporate best practice anddeliver a consistent performance.

ProductWarman XU product launch - a better pump at a better price

The launch of the new Warman XU pump in 2004 strengthened the pumpproduct portfolio and delivered competitive advantage.

It was recognised that there was room to strengthen the Weir MineralsDivision product portfolio in the specific area of unlined metal pumps. The objective of this new product development project was to close a gap in the division’s offering and gain significant market advantage.

The aim was to deliver a new product that was cost competitive,technically superior and incorporated as many patented features aspractical without compromising cost objectives. A cross-functional teamconsisting of personnel from marketing, engineering, manufacturing, and purchasing directed the project to ensure these objectives were met.

Using the division’s Lean new product introduction process, the teambegan the project in May 2003 and delivered a prototype design forlaboratory and field testing, which took place in the last quarter of 2003and into 2004. The product was launched mid-year 2004.

The resulting XU design employs three existing patents and has threeadditional patents pending. The principal target markets for the XU aresand and aggregate and the coal industry. It is, however, ideally suited forother industrial environments as well and is available in a range of sevensizes to further broaden its potential application, offering customers abetter choice, as well as ‘a better pump at a better price’ – the slogan used at its successful launch.

Weir Specialty Pumps launchesnew Chop-Flow pump

In 2004, Weir Specialty Pumps announcedthe full-line launch of their Wemco® Chop-Flow pumps and their immediate availabilityfor shipment.

The new product line was developed to meetcustomer need for a more advanced design.Chopper pumps are used in sludgeapplications, where materials need to bereduced in size to move through a system.

Weir engineering staff benchmarked whatwas available in the market, to meet the goals

of improved reliability in chopping, consistentperformance, easier maintenance, efficientpower consumption and lowest total cost ofownership. The Chop-Flow has four patentspending and features Wemco® abrasion andcorrosion resistant materials. With a commonfootprint to other chopper pumps, the Chop-Flow will bolt into existing pipelines.

The new product was immediately specifiedby a top 10 United States consultingengineering firm, even as it was beingdemonstrated at the annual WaterEnvironment Federation Technical Exhibition& Conference in New Orleans and several ofthe new pumps have already been sold and delivered to customers.

Case Study

Operational review

From an operational perspective there have been highly commendableperformances in our niche businesses. We now have structure andprocesses in the division which will greatly improve long term planningand translate operational improvements into bottom line results.

The implementation of Lean principles has made considerable progressduring the year, supported by a powerful divisional intranet system. All plants were audited and plans established to develop all companies to best in class in respect of the ten attributes of Lean processes.

Our foundry in the UK saw strong orders from the oil and gas marketswhich are expected to develop further in 2005. Whilst lower technologycastings are being progressively resourced from low cost countries, the UKfoundry strategy is being developed to focus on high integrity, highcomplexity castings which have in-built intellectual propertycompetencies and cannot be readily replicated.

Considerable savings have been made in purchasing by reducing thenumber of suppliers, developing supplier relationships and maximisingsynergies across the division and Group. A purchase office to support boththe division and Weir Group has been established in China during thesecond half of 2004. We now have experienced personnel operating in the territory and will see a considerable resourcing of components fromChina and other low cost territories during 2005.


12

Clear Liquid Division: A world-class providerof end to end pumping solutions for majoroil and gas, power generation, water andhydrocarbon processing projects.

2003 2004

200

150

100

50

Order input

£153.0m Up 8.9%

Laurie West Divisional Managing Director

Our brands:WeirLewisFlowayRoto-Jet®

Wemco®

GirdlestoneBegemannRubber EngineeringZeron 100

We continue to refine our strategic direction to focus on profitable growth.A divisional emphasis on spares generative, niche business will becomeevident at the expense of the more traditional heavy engineered product.A key action during 2005 will be the execution of a planned restructuringat Weir Pumps in Scotland which will ensure the business is robust andable to deliver sustainable long-term profitability.

Key achievements

• Solid progress was made during 2004 with input increasing by 8.9%compared to 2003.

• All Clear Liquid Division businesses achieved ISO14001 environmentalaccreditation in 2004.

• The new variable speed Roto-Jet® VSR 2100 pump won the prestigious British Pump Manufacturers Association Award for Technical Innovation in 2004.

• Two new API process pump ranges, the HOB and HOP, were successfullylaunched for the downstream oil market.

• The division achieved around 60% reduction in lost time accidents, withzero lost time accidents at Weir Specialty Pumps, Weir Lewis and WeirRubber Engineering.

• Municipal water business in the United States has increased by over 50%year on year, including a major contract for protecting water supplies inOrange County, Southern California.

• Building on the Weir Group’s extensive experience in the South Americanminerals market, we won a major contract for BHP Billiton’s Sulphide LeachProcess at the Escondida copper mine in north Chile.

• A major order was received for pumping equipment for Exxon’s Sable Tier-2Gas Project located approximately 200 km off the coast of Nova Scotia inthe North Atlantic, one of the world’s harshest environments.

• Large concrete volute pumps were ordered for the Olkiluoto 3 NuclearPower Plant in Finland.

• Orders were received for boiler feed pumps for the Chinese power sectorwhich will contribute 9000 megawatt of much needed power to theChinese grid.

Customer focus

Innovation and problem solving

New product development

Achieving operational excellence

Global delivery

Primary input breakdown:Oil 30%Water & Wastewater 22%General Industrial 18%Power 18%Minerals 10%Other 2%

Geographic breakdown:Americas 41%Europe & FSU 17%Indo Pacific 17%UK 13%Middle East & Africa 12%

Market review

Weir Clear Liquid Division’s primary markets are oil and gas, powergeneration, water and wastewater and a range of general industrial markets.

Buoyant oil prices in 2004 have meant the upstream oil market hascontinued to be prominent with major wins in Russia and Canada as wellas traditional markets. The division’s strengthened presence in Houston,Texas has also yielded improved sales and this trend is expected tocontinue into 2005. With the formation of a global sales force, significantimprovements have been made in systems, people and market coverage.With global growth predicted at 4% a year, but at higher levels in themarkets where we are strongest, we see excellent potential for growth.

Our new product introduction process (managed on Lean principles) sawa number of products brought to market specifically to grow our presencein the downstream oil/ hydrocarbon processing market. Moving into2005, we have targeted significant growth in the expanding Chinese,Russian and Middle Eastern markets.

While the United States power market remained slow, the most significantgrowth area in the energy market was China. We expect that to remainthe case for 2005, with nuclear energy also becoming more prominent inChina where we have added regional resource. Clear Liquid Division is alsoplaying a lead role in setting up a new purchasing operation in Shanghaito help all Weir Group divisions identify and leverage local sources ofsupply and logistics.

The UK clean water market was relatively buoyant through 2004 and the division had a good year in the municipal water market in the UnitedStates. We have adopted a selective approach: exiting a number ofproducts that did not stand up to analysis of their long-term cost andprofitability, focusing on our most commercially viable offerings andextending the range of products within this portfolio.

Performance during 2004 in the general industrial market has beensteady. With this sector expected to see growth of 3-4%, the division is well poised to exploit this with our product development programmes.Minerals and mining remain a robust and growing market for us andfurther cooperation to exploit the synergies of working with our sisterdivisions will deliver benefits. Our niche businesses at Weir Lewis and Weir Specialty Pumps have seen growth in 2004 and we expect thispattern to continue in 2005.

“2004 saw the achievement of good performances in manygrowing niche markets. We have made significant operationalimprovements through the year and now have the structure, broadglobal footprint, business systems and market leading productportfolio to achieve sustainable, long-term profitable growth.”

Laurie West, Divisional Managing Director

Operational Review: Clear Liquid Division

13

ProductWeir Roto-Jet® VSR 2100 Pump - USA

The award-winning Weir Roto-Jet® VSR 2100 pump has been specified by industrial giant General Electric (GE) for its LX Power Skid.

GE is one of a select number of gas turbine generator manufacturers whoseproducts provide power to their users during brown out periods, powerinterruption and during peak demand periods to reduce utility costs or tocreate revenue by selling excess power into the distribution grid network.

The reliability requirements of these power-generating skids are at a ‘sixnines’ level (i.e. 99.9999%) of performance for many industries, especiallythose where continuous batch processes or communications networkdowntime can mean millions of dollars of revenue loss in minutes.

Gas turbine skids operate very efficiently, but require precise combustioncontrol to reduce NOx emissions to acceptable levels. The preferredmethod of many manufacturers is to maintain the combustion chambertemperature within a tight range by means of water injection.

Weir Specialty Pumps have supplied hundreds of Roto-Jet® pumps for this market over the past decade. Now the new variable speed VSR-2100pump, using switch reluctance drive motor technology, has been selectedby GE for this challenging application. The pumps will be used to providewater injection for NOx control on the new GE LMS100 gas turbine.Additional pumps will be supplied following testing for future productionof LMS100 turbine.

Advantages of the VSR include a 60% footprint reduction and up to 40% reduction in power consumption. The elimination of two couplings,two coupling guards and a large base plate has also provided our OEMcustomers with a skid size reduction opportunity that reduces their totalskid cost, eliminates time consuming field alignment, makes shippingeasier and less expensive and improves maintenance and service time.

In 2004, Weir Specialty Pumps was awarded the coveted TechnicalInnovation of the Year award by the British Pump ManufacturersAssociation for the VSR-2100, acknowledging it as a landmark development in high pressure pumping.

Operational excellenceThe New Hydrotest Facility – Weir Pumps, Scotland

A new test facility has positioned Weir Clear Liquid Division as marketleader in the provision of safe hydrotesting for high pressure pumps.

The hydrotest process applies a very high pressure to the pump to ensuresuperior quality standards. The current pump range demands pressuretesting from 5 bar to 900 bar and this was identified as one of the mostdangerous assembly processes.

The goal was to remove the necessity for specialists to come into contact with the pump during the hydrotest process. The only way to do this was tocreate a fully enclosed hydrotest facility with remote operation and viewing.

Commissioned in September 2004, the new facility has established Weir as market leader in the provision of safe hydrotesting. Both our in-housepersonnel and customer representatives recognise this key step forward in safety as a major improvement in our manufacturing process and ademonstration of how seriously we take a safe and quality-consciousworking environment.

Case Study

X-stream Valve Trim: a break-through in severe service applications

In May 2004, Weir Valves & Controls UKreceived the first order for the new X-Streamvalve trim, from Korea.

The customer had approached us with a recurrent problem on one of their mainboiler feed water valves, responsible for start-up duty, which was suffering fromsevere corrosion and requiring a high level of maintenance. This was causing aconsiderable amount of noise and vibrationwithin the pipework and surroundingenvironment. The problem was endangeringthe integrity of the process and makingworking conditions extremely difficult.

On investigation, we identified a potentialsolution in the new X-Stream valve trim, a product developed through intensiveresearch and development, which signifies a considerable advance in the control ofthese severe service conditions.

The new X-Stream trim was uniquelyspecified to resolve the problems beingexperienced by the customer and a complete

analytical process, including numericalanalysis using computational fluid dynamic(CFD) software, was conducted.

To reduce costs and minimise disruption tothe customer, the new trim was designed tobe retrofitted into the existing valve bodyand control system. The valve trim wasmanufactured in the UK, installed trouble-free by our own engineers and itsperformance closely monitored.

The customer has found that all noticeablenoise and vibration problems have beeneliminated and will be recommending the X-Stream trim for future projects.


14

Valves & Controls Division: Specialists incritical service and isolation valves designedto support regulatory compliance in powergeneration, oil and gas safety.

2003 2004

80

60

40

20

Order input

£75.1mUp 26%

Phil CliftonDivisional Managing Director

Operational review

2004 saw very good performance and profitability in our United Statesbusiness and a smooth and highly successful transition from three to two sites in France, where the restructuring of 2003 has delivered a stable platform for the future. In the nuclear market, the year has seen us establish a strong foothold. Order input across the division was up by 26% over 2003, at £75.1m.

The UK business proved difficult in 2004, with first half losses continuingto a similar level in the second half. In response, we have made a numberof key appointments to strengthen the management team and arecurrently implementing a detailed plan to address the systemicweaknesses in the business. The latter part of the year showed fourconsecutive months of record sales and we have reduced overdue orders by two thirds since August. We are confident that the measures we are taking will bring the business back into shape through 2005.

In 2005, we will radically change the face of the UK business, moving fromthe current site, outsourcing non-essential operations and significantlydownsizing. An increased proportion of the assembly and testing will berelocated to France, the United States and our local build facilities in Dubai and China.

Key achievements

• Order input levels were generally good, with some areas of the businessperforming exceptionally well, notably:

* 17% growth in Indo Pacific with 100% growth in China

* 19% growth in the Americas

* 19% growth in Middle East & Africa

* 51% growth in Europe & FSU

• ISO14001 environmental accreditation was achieved on target in 2004 across all Weir Valves & Controls operations worldwide.

• In nuclear power, building on its experience of French nuclear power plants,the division made good progress in Russia, Lithuania and Bulgaria.

• Awarded an EU-funded contract to upgrade and improve the safety ofnuclear reactors in the Ukraine based on superior technical abilities, theSEBIM product range and previous experience in the region.

• The United States business made significant inroads into the nuclear powergeneration market with retrofitting and refurbishment contracts.

• Awarded a large-scale valve replacement contract by British Energy for theinstallation of 475 valves across four sites under a planned and phasedrefurbishment programme.

• Secured a high profile contract for the major Ormen Lange gas field with the development of a highly innovative new valve solution for deep sea installation.

• 2004 saw significant growth in China, across all valve brands, with over 40 projects (over 30,000 megawatts of generating capacity) - more thanin any previous year.

Our brands:Atwood & MorrillBatley ValveBlakeborough ControlsFlowguardHopkinsonsMAC ValvesSarasin – RSBDSebimTricentric

Whole project, whole processsolutions

State of the art product development

Worldwide customer-focus

Global sales and marketing

Multi-disciplinary teams

Primary input breakdown:Power 63%General Industrial 19%Oil & Water 17%Other 1%

Geographic breakdown:UK, Europe & FSU 47%Americas 28%Indo Pacific 16%Middle East & Africa 8%Other 1%

Operational Review: Valves & Controls Division

15

ProductSafety Critical Nuclear Valves, United States

With a large installed base of valves in United States nuclear power plants,Weir Valves & Controls is continuously developing superior products for this market.

Nuclear power provides 20% of the electricity used in the United States.With more than 100 nuclear powered generation plants, this sectorrepresents a significant opportunity for a company with the know-howand talent to serve it.

Weir Valves & Controls USA has a long involvement with the industry andhas developed close customer relationships and respect. This has allowedthe business to expand its services to include modifications and upgradesbased on customer needs, changing best practice and technologicaladvances in materials.

These upgrades have been developed not only for our own valves but also for those of other manufacturers. Projects include re-engineering andreplacement of valves no longer supported by the original manufacturers.Field measurement, 3D modelling and rapid prototyping are employed to minimise job time, increase reliability and optimise results.

While many manufacturers have ceased to serve the nuclear sector, Weir Valves & Controls has leveraged its reputation and skills to become a major provider of valve solutions to the industry. Withestablished Quality Assurance Programmes for in-house and fieldwork, the company is rapidly winning work from the United States’ largestnuclear plant owners.

CustomerOrmen Lange: ‘Sea Serpent’ Project

Weir Valves & Controls UK has been working closely with Weir Norge(Norway) to secure business on an important new gas field development.

Ormen Lange is the second-largest Norwegian gas field, which is beingdeveloped by Norsk Hydro / Shell and comprises four key areas: theoffshore subsea solution, with templates, manifolds and pipelines; theonshore process and gas export facilities; the gas export transportationsystem between Norway and the UK; and the Easington gas receptionterminal in the UK.

Weir Valves & Controls UK has been working with Weir Norge (Norway)over the past two years to secure contracts for this important new gas fielddevelopment off the coast of Norway. On behalf of the local engineeringcontractors, FMC Kongsberg Subsea AS, we have developed a new valveto control hydrate formation. This represents a quantum leap forward inthe technology and will be applied on the first two templates to beinstalled on the seabed at 1,100 metres in 2005.

The first order is for eight valves, which includes the qualification of theValves and Dantorque Actuators, with a similar order expected in early2005. A larger number could be required over the next three-year period.

In May 2004, Norsk Hydro presented a paper on the project featuring the new dosage valve with Weir Valves & Controls acknowledged as supplier of the equipment. This was an excellent showcase, to anaudience that included most of the world’s major companies involved with deep water gas and oilfield development.

More importantly, the valves supplied on this contract will stand as abenchmark for all future deep subsea development projects worldwidewhere a solution is required to deal with hydrate formation. Already, aspart of a consortium to develop the giant Shtokman gas field in the coldwaters off the Barent Sea, Norsk Hydro has offered the Russian gascompany Gazprom a subsea technical solution based on this technology.Weir Valves & Controls is positioned to become a world leader in thesupply of special service valves for severe applications, whether it is inthe North Sea or off the coast of Mexico.

Market review

The key markets in which Weir Valves & Controls Division operates arepower generation, oil and gas.

The Asian power market continues to grow rapidly, particularly in China,where our Beijing office achieved a 100% growth in business over 2003. Thisreflects increasing demand for power in an undersupplied market as withIndia, which offers good potential for growth through new build projects.Meanwhile, the division has secured two major contracts to improve thesafety systems of installed reactors in the Ukraine, a project funded by the EU.

The transition of our French business from three sites to two and the transferof the UK safety valves business now concentrate our considerable know-how in the design and production of safety relief valves for both nuclear and fossil fuel power plants in one geographic location, which will make it easier and faster to undertake future developments to meet growingcustomer requirements.

New power plant construction in the United States remains quiet, with only around 12 of 100 proposed coal-fired projects expected to beginconstruction by 2007. High gas prices have caused owners to movetowards coal-fired projects, especially Super Critical Steam plants, as their high efficiency reduces costs and greenhouse gases. Clean coaltechnologies such as Circulating Fluidized Bed Boilers (CFB) and IntegratedCoal Gasification Combined Cycle (IGCC) are strong contenders. All ofthese require more valves per megawatt than the Combined Cycle Plantsbuilt in the last few years.

The maintenance and repair of existing coal-fired and nuclear power plantsis becoming increasingly important as owners try to improve the availabilityand output of their best-cost producers. Weir Valves & Controls USA isbuilding a strategy of balancing new construction with the re-engineeringand modification of the large installed capacity.

Both the oil and gas markets have been strong in 2004 and Weir Valves & Controls has continued to take a good share of the niche market inadvanced critical control valves, with a number of key products developedfor topside and subsea applications in offshore production and exploration.

“Despite good performances by the American and Frenchbusinesses, 2004 was an extremely challenging year for the Valves& Controls Division and appropriate actions have been announcedand taken. The end of the year showed signs of improvement andwe are implementing plans to dramatically change the business in2005, in order to create a long-term sustainable and profitablebusiness for the future.”

Phil Clifton, Divisional Managing Director

TotalFinaElf North Sea“Healthcare” Contract

Since 1997, Weir Services has held an assetmanagement, or “healthcare” contract, forTotal’s Elgin/Franklin fields in the North Sea.This maintenance framework includes a varietyof equipment such as all pumps, electricmotors and selected compressor packages.The contract is incentivised so that both partiesbenefit when we achieve better processavailability. We must improve availability whilst also reducing costs and maintainingexcellent quality and safety performance.

Specific requirements within this contractinclude the supply of all insurance andoperational spares; all labour required (both onshore and offshore), all repairs,

refurbishment, re-certification andreplacement of equipment along with the development and implementation of maintenance regimes.

The approach taken by the Services Divisionhas been very successful and has created somesubstantial benefits for the customer. AkerKvaerner, the main engineering contractor for the fields, recognised our achievements in a letter to our staff in Aberdeen,commending us for a “can do” attitude and innovative “out of the box” thinking inpursuit of solutions and recommending us for any future work. This type of positivefeedback shows that Weir Services is on theright track, focusing on a high quality ofservice and customer satisfaction.

Case Study


16

Services Division: A leading provider ofequipment maintenance, engineered solutions, process support and asset management across major industrial sectors.

2003 2004

200

150

100

50

Order input

£204.0m (177.2m)Up 8.5%

Steve Simone Divisional Managing Director

Operational review

The 2004 performance of Weir Services Division reflects the success of our strategy for growth. Turnover in 2004 was £198.7m, an increase of7.8% against 2003 (£184.4m). Operating profit was up by 2.3% at£20.5m (2003 £20.0m).

A cornerstone of the division’s strategy is investment in the core engineering,technical and management talent on which our reputation is based. We have been successful in attracting and securing good people all overthe world. The engineering team within Weir Services, for example, hasbeen significantly strengthened to focus on developing an array of majorupgrade and re-rate opportunities aimed at improving the operationalefficiency of our customers’ assets.

Our business development champions, put in place in 2003, have alreadymade a significant contribution to the business, delivering contracts innew territories such as Russia, Algeria and Azerbaijan, as well as in ourestablished markets, enabling us to support our key global customerswherever they operate.

In line with the division’s strategic commitment to geographic expansion,we plan to grow the Middle East business significantly in both Qatar andSaudi Arabia, while the success of a new joint venture in Malaysia offers amodel for further expansion in Asia and other high growth markets.

Four new service centres in the United States are already making animpact, establishing a footprint over all of North America and ourAustralian operation has made very good progress in delivering the same cohesive Group offerings through the Services Division.

Key achievements

• Health and safety performance improved again in 2004 with a 17%reduction in lost time accidents across the division. An award was receivedfrom the Alberta Government for exceptional performance in workplacehealth and safety.

• Weir Services operations in North America, Australia and Scotland achieved ISO14001 in 2004 and all businesses have now achievedISO14001 accreditation.

• The division opened a new service centre in the Kenaman region inMalaysia, a Joint Venture with local service provider Serba-Dynamik.

• In September, Weir Services won the contract to support the BP-ledconsortium in Azerbaijan. The contract covers maintenance for their oil production facilities and the Baku-Ceyhan Pipeline.

• A major contract for enhanced re-engineered parts and solutions forrotating equipment was secured in Saudi Arabia, establishing Weir as a provider of quality re-engineered parts in this growing market.

• The division completed five hydroelectric refurbishment projects for Scottishand Southern Energy plc with our partners VA Tech. We are firmlyestablished as the UK market leader in this field.

• In Australia, the division secured the BHP Billiton contract for two new water treatment plants for the Ravensthorpe nickel project.

• Weir Services Division was selected as British Energy’s preferred valve andpump partner and has signed a framework agreement for their five yearplant investment programme.

250

Operational Review: Services Division

17

ProductPioneering the development of renewables technology

Renewable Technology Ventures Ltd, RTVL, is a Joint Venture between Weir Services Division and Scottish and Southern Energy, set up to develop innovative ideas in renewable energy.

The venture was born out of the strong relationship between the division andScottish and Southern Energy and the recognition that the key to realising thefull potential of renewables over time is the encouragement of new technologies.

The partnership brings together Weir Group experience of manufacturing,power, material selection, design and project management, with Scottishand Southern Energy ’s expertise in electrical engineering and the powergeneration market. In 2004, the partnership made good progress indeveloping a device for harnessing tidal energy.

The aim is to demonstrate that a tidal stream device can be designed,manufactured, installed and commissioned by a commercially-orientatedorganisation and operated by a mainstream electricity generator anddistributor. To date, the Joint Venture has examined more than 30opportunities for investing in the development of wave and tidaltechnology. The companies and technologies considered have been at various stages of development and at different levels in terms of their potential, with the most promising being selected for investment. A Weir subsidiary based in Scotland is currently working on the design of a horizontal axis subsea turbine system to convert the energy in the tidal flow into electrical energy.

The technical challenges are formidable and the development of acommercially viable solution will take several years, but we are convincedthat this technology will be an important part of the renewable powergeneration mix and will be a real alternative not only to wind power, butalso to conventional power generation. Combined with our establishedtrack record in the hydroelectric market, the project will position thedivision to match the move from traditional fossil fuel power generation to renewable energy in this key market.

CustomerBritish Energy selects Weir Services as preferred partner

Long-term contracting offers opportunity for improved plant reliability,safety and availability.

In 2004, Weir Services was appointed preferred long-term valve and pumppartner to British Energy, the UK’s largest power generator. Weir ServicesDivision is offering a new approach that assures the long-term reliability ofBritish Energy’s operations. This entails a move from transactional call-offcontracts to integrated arrangements where there is long and mediumterm planning and co-ordination. While the new contracting environmentwas being developed and put in place, existing operations continuedsuccessfully. As we go into 2005, Weir Services is positioned to provideBritish Energy with a better, more flexible performance and value basedservice throughout their five year plant improvement programme.

BP relies on Weir Services to maintain all pumps in Azerbaijan

Incentive driven maintenance contract will support rapid growth of Azeri oil production.

In Azerbaijan, we have a new contract with AIOC, the BP led consortium,for the maintenance of all pumps, both for their producing fields and for the BTC pipeline. A critical factor in securing this contract, in directcompetition to the original equipment manufacturers, was the reputationfor excellence we have developed with BP in the North Sea. Weir Servicesare perceived as the market leader in the critical oil and gas maintenancemarket and the ideal partner for supporting the growth of production inthe region from 300,000 bpd to 900,000 bpd. In line with this success weintend to keep growing our share of the oil business in new territories suchas West Africa, North Africa and Russia.

Minimum downtime of essential equipment

Consolidated support for multiple sites

Process and efficiencyimprovements

Extended plant lifespan

Specialist technical expertise

Primary input breakdown:Oil 29%General Industrial 26%Power 18%Water & Wastewater 14%Minerals 8%Naval 5%

Geographic breakdown:Americas 40%UK, FSU & Europe 32%Middle East & Africa 14%Australia 12%Other 2%

Market review

Weir Services Division’s key markets are power, oil and gas, water andwastewater treatment. The division is also active in the marine and mineralssectors, as well as the general industrial market, where steel, sugar andpaper production provide traditional work in pump, valve and turbomachinery repair.

The power market has been strong for Weir Services in 2004. Our businesscomes from the maintenance, refurbishment and enhancement of keyequipment, such as boiler feed pumps and safety valves. The increase ingeneration capacity is a positive trend for our future. We have maintained our leadership position in the UK fossil fuel, nuclear and hydroelectric markets and this position was confirmed in 2004 by the exceptional success of five major turnkey refurbishments of hydroelectric plant.

With oil prices of up to $50 a barrel during the year, the producing fields,pipelines and downstream refineries have all been running at capacity,providing strong demand for the production critical services we provide.Services businesses in the Middle East are strongly positioned to benefit and we remain the major player in this market. The high price of natural gashas also had a positive effect on our business, particularly in North America,where we have invested in upgrade capabilities for natural gas engines.

The emphasis for customers in the North Sea is on maximising productivityand prolonging the life expectancy of aging assets. The division’s abilities here are second to none and we continue to seek other profitable, highgrowth markets. In 2004, we have had major successes in migrating ourexpertise, notably to Russia, Azerbaijan and the Canadian oil sands and we are focusing future plans on South East Asia, West and North Africa.

While the water market remains generally stable, the repair, refurbishmentand maintenance of industrial slurry and wastewater treatment plant is verycompetitive and we are moving to position ourselves in the high value segmentof this market. Mining has been a very strong industrial sector throughout2004 and we have made good inroads into this sector in Canada.

“The Services Division has continued to execute the business strategyestablished over the past two years, focusing clearly on value addedservices at the higher end of the engineering services spectrumthrough a growing geographical footprint. As a result we grew bothmargin and market share in our key markets. We remain committedto this strategy and can look forward with confidence to continuedsuccess in the coming years.”

Steve Simone, Divisional Managing Director

Operational review

Overall turnover of Weir Techna Division was £101.7m in 2004, an increaseof 39% over 2003, improving profits to £3.4m (£0.8m in 2003). Ouractivities across the division are characterised by large-scale, long-lifespancapital projects and strong order input of £179.3m (£100.6m in 2003) is a positive indicator for 2005 and beyond.

While the United States dollar situation and high raw materials prices provedchallenging in 2004, we have developed a stronger business structure, able tomeet such challenges. New technical sales teams in key markets are providingour customers with a closer point of contact and we are also benefiting fromcloser co-operation with other Weir Group companies, notably Weir Servicesin Australia and Weir Minerals in South America.

We have invested considerably in our project management and risk managementcapability. We have also aligned business processes and practices division-wide,enabling engineering and executive teams from all Techna businesses to worktogether more effectively. The way is now clear for these top line operationalimprovements to be reflected in the bottom line improvements.


18

Techna Division: The specialist engineeringdesign division of the Group, responsiblefor the design and management of complexengineering projects.

2003 2004

120

90

60

30

2) Defence & Nuclear

£49.5mUp 23.7%

Order input: 1) Desalination, Water Treatment, Sulphate

Removal and Liquid Gas Storage

£129.8mUp 114.4%

Paul Capell Divisional Managing Director

Joe OatleyDefence & Nuclear ManagingDirector

1

2

1

2

Key achievements

• Weir Techna Division achieved a 78% increase in order input over 2003.Turnover was up by 39% and PBIT increased four fold from 2003.

• Weir Westgarth reinforced its commanding lead in the offshore sulphateremoval market with three major projects awarded in 2004, including the world’s largest contract, for BP Plutonio, in West Africa.

• 2004 was a record year for Weir LGE in terms of order input. We securedevery major LPG vessel contract awarded globally during the year, winninga record number of orders more than three times our previous best year.

• In South America, the Weir Techna design team established in Brazilsecured its first contract to provide a 300,000 barrel/day sulphate removalpackage for Petrobras.

• In Australia, working closely with Weir Services, Weir Entropie secured amajor desalination plant for Ravensthorpe and Weir Envig a wastewaterplant for ERA Ranger. A Weir Techna office will be opened in the country in 2005.

• Weir Strachan & Henshaw delivered the Weapons Handling and DischargeEquipment for the Astute submarine project and has received follow-onorders for additional scope and a further boat set.

• The defence business secured its position as a key supplier on the UK’sFuture Carrier project, working as part of a team to refine the design andachieve affordability criteria.

• In nuclear decommissioning, Weir Strachan & Henshaw completed theconcept design for a major project for the safe removal of Breeder Fuel from the Dounreay Fast Reactor.

Defence & nuclear

Weir Techna Division restructured its defence and nuclear businesses at the beginning of 2004, reducing overheads and creating a number ofcustomer-centric business units. As a result, the defence business showed a strong performance with orders up, sales up and profits up compared to 2003. Within our nuclear business, our dual focus on power generationand nuclear decommissioning allowed us to maintain order intake levelsand profit generation despite the market uncertainty.

2004 also saw us make good progress in defence markets beyond the UK, particularly in Australia and Canada. Our longer term strategy fordiversifying into new areas of the defence market has put us well on track for continuing this growth through 2005 and beyond. In the UK, the Weir Group association with Devonport Management Ltd has openedup a number of good opportunities in the naval support and refit market.

Case Study

Collins class submarine refurbishment, Australia

Weir Strachan & Henshaw supports theWeapons Discharge system for the Collinsclass submarines operated by the Australiannavy. Through our close contacts with theclient, we identified a problem with a criticalitem, the discharge pump, which wasroutinely being returned to its United Statesmanufacturer by the Australian Departmentof Defence for refurbishment. This wasproving very costly and slow.

The Weir team led the technical interfacewith the defence authorities in the UnitedStates and prepared a cost-effective proposalto carry out the work locally in Australia. This contract has now been awarded to us and we plan to establish a dedicated facilityin Adelaide. This facility will provide a servicetwice as fast, at 50% of the cost of theprevious supplier.

Collins class submarine refurbishment, Australia

This solution demonstrates not only innovativethinking and technical capability, but also the business benefits of being close to ourcustomers and of having a global reputationthat enabled the manufacturer to trust uswith this technical task and know-how.

150

Operational Review: Techna Division

19

Desalination & water treatment, sulphate removal & liquid gas storage

The collective turnover of our desalination, water, sulphate removal and liquid gas businesses increased to £59.3m in 2004, from £37.8m in2003. This strong performance, particularly by our sulphate removal andLPG businesses, came despite delays to a number of large desalinationprojects in the Middle East. The division has succeeded in generatingbusiness across a wider geographic catchment, with high quality orders in Algeria, West Africa, Brazil, China and Australia.

Strong top line growth in 2004 reflects the success of a global sales andmarketing effort. During the year, the division pursued a customer-focusedstrategy of delivering more whole-package, whole-systems solutionsoffering greater control of both risk and margins. This will continue to be our strategy going forward.

ProductUltra-filtration process saves £millions

Weir Westgarth has developed a method of reducing substantially theoperational cost of sulphate removal plants offshore.

Sulphate removal allows oil companies to produce “inert” water forinjection into oil bearing rocks without risk of forming damaging scale.This eliminates the need for chemical injection, an alternative solution,which can lead to potentially adverse environmental problems.

New ultrafiltration technology removes the need for cleaning normallyassociated with large and heavy sand / pumice filters traditionally usedoffshore. The effectiveness of the new process is such that the downstreamcartridge filters in the main sulphate removal plant are better protectedfrom marine particles and therefore require substantially less cleaning andreplacement than with traditional pre-filtration. In turn, more efficientperformance from the cartridge filters boosts oil recovery rates.

The technology was developed after listening to customer feedback onseveral plants in operation. Weir process design engineers considered arange of ideas to save cost, before developing the ultrafiltration technology.Our substantial expertise with various membrane technologies helpeddevelop the process and oil companies immediately saw the benefits of the new process in terms of installed weight and operational cost.

The technology has been successfully pilot tested on the Weir SulphateRemoval Plant installed on Amerada Hess’s South Arne platform in theNorth Sea and a full scale commercial plant is being installed offshore on the Buzzard platform for startup in 2006.

CustomerInnovative submarine communications system

Weir Strachan & Henshaw teams up to deliver an innovative communicationssystem to UK Ministry of Defence and the United States Navy.

A team consisting of Weir Strachan & Henshaw, Ultra Electronics andQinetiQ has been selected to provide a technology demonstrator for aRecoverable Tethered Optical Fibre (RTOF) Buoy communications system.The RTOF system is designed to provide a submarine with satellitecommunications capability enabling the submarine commanding officer to communicate with a battlegroup commander from a safe depth.

Our strong links and long serving reputation with the UK Ministry ofDefence allowed us to understand their needs and, by combining with UltraElectronics, provide them with an innovative, cost-effective solution. Thecontract was won in competition with established naval communicationssystems providers by drawing on the respective strengths of Weir S&H andits partners. This new technology is being jointly funded by the UK Ministryof Defence and the United States Navy, giving Weir S&H a significantopportunity worldwide to exploit future sales of the system.

Design of the system is already well advanced and full-scale prototype trials of principal components were carried out during 2004. Workingrelationships within the team and with the customer are excellent andsignificant interest has already been generated in other navies for thisleading edge technology. The demonstrator will be fitted to a United States Navy nuclear submarine and trials will start during 2006.

Desalination

Water Treatment

Gas storage and handling

Thermal processes

Defence and Nuclear

Primary input breakdown: Geographic breakdown:Marine 48% Indo Pacific 38%Oil 28% UK 25%Power 11% Middle East & Africa 20%Minerals 5% Americas 13%Water 4% Australia 2%General Industrial 4% Europe & FSU 2%

Market review

The Middle East, which remains the centre of the market for the largestdesalination projects, has been quieter than anticipated in 2004 due todelays to a number of major projects. Weir Techna Division has continued to expand its geographic footprint to exploit opportunities in other growthregions, including the Americas and Asia, targeting mid-sized projects wherewe can provide a total package of desalination technologies with a betterability to manage risk and secure margin.

The market for offshore sulphate removal plant grew substantially in 2004,boosted by high oil prices incentivising increased production. The divisionemphatically reinforced its leadership of this market, with the introduction of a number of new products that have, in turn, driven more widespreadadoption of the technology. Weir Westgarth won three of the majorcontracts awarded in the year in this market, including the world’s largest.

We continue to be active in industrial wastewater treatment, which is driven both by the need for regulatory compliance in local markets and by the commercial opportunity of recovering materials with a market value. On the whole, this market has remained stable in 2004 and we haveconsolidated our position as a major player in the sector, with indications of awards in Australia due early in 2005.

The division’s defence business has been supplying global defence authoritiesfor 20 years and is active in the UK, Europe, Canada and Australia. The UKdefence market remains solid with real year-on-year increase, despite therecent government spending review. The UK government has recognised the need for a sustained UK naval industry and has established initiativesaimed at securing efficient domestic capability. It is expected that this willresult in further industry consolidation. Overseas markets for our defenceproducts remain buoyant in Australia, the Americas and Europe.

The UK nuclear decommissioning market was slower than expected in 2004in the lead up to the formation of the Nuclear Decommissioning Agency(NDA) in April 2005. Once established, the NDA is expected to provide aboost to the market with an anticipated annual spend of £2bn on UKnuclear clean-up activities.

Weir LGE’s position in the liquid petroleum gas (LPG) shipping market was confirmed as we won all major contracts for gas transportation vesselsthat were awarded globally in 2004. The year also saw LGE secure its firstonshore gas project in China, signalling a strategy aimed at deepening our involvement with producers and end customers and reducing ourreliance on the cyclical marine market.

“Weir Techna Division businesses have done a great job ofpenetrating new markets and achieving top line growth in 2004.Our defence and nuclear businesses have performed extremely well,and we have achieved our goal to be the world’s largest sulphateremoval package supplier, with a particularly fruitful year in the oiland gas market. Looking forward, we are targeting consistency ofdelivery and margins, translating into bottom line improvementsthrough 2005 and after.”

Paul Capell, Divisional Managing Director


Financial Review: The strength of the Group’scash generation and strong balance sheet has ledthe Board to implement an on market £50mshare buy-back programme which we expect willprovide value to remaining shareholders, at thesame time offering a mechanism for moreeffective capital structuring of the Group.

Operating results overviewTurnover from Group Operations increased by 7% in 2004, from £690.7m to £739.4m, notwithstanding £16.9m of adverse foreignexchange translation. At constant exchange rates, all three segmentsachieved higher turnover in 2004 than in 2003, as did the Group’s shareof turnover from its Joint Ventures and Associates which increased by5.4% from £102.7m to £108.2m.

Despite higher turnover, margins declined in the year due, in part, to themuch higher proportion of turnover contributed by the Techna Division(14% of Group turnover in 2004 compared to 11% in 2003, whencompared at constant exchange rates).

The effects of the lower gross profits were partially mitigated by loweroperating expenses which reduced by just over 2% from £151.4m to£147.8m due primarily to lower distribution costs. This was particularlycreditable in view of the higher operating expenses incurred by theEngineering Services division to fund its start up operations in the United States.

The Group’s share of operating profit from its Joint Ventures andAssociates reduced by 3% from 2003.

As a result of the above, operating profit before goodwill amortisationreduced by 3.6% from £63.5m to £61.2m. Of this reduction, £1.9m was due to adverse foreign exchange translation variances and £0.6m to the first time charge to profits for the cost of providing for share based payments under the Long-Term Incentive Plan.

A discussion of the trading highlights of each of the segments is set out below.

Engineering ProductsTurnover from Engineering Products increased by 5.4% to £439.0m in2004 (2003: £416.3m), due to the strong trading performance of ourMinerals Division which continued to build on its leadership positiongrowing order input, turnover and profits across its major operations.

Operating margins for Engineered Products, however, declined to 7.0%(2003: 8.0%). This reduction was due primarily to problems associatedwith our UK valve business. In 2005, the Group has announced plans torestructure this business by outsourcing non-core activities, furtherfocusing its product portfolio and relocating to a smaller, more modern,assembly facility. This proposed restructuring together with the proposedrestructuring of our UK Clear Liquid Pump business is expected to incuran exceptional charge in 2005 of approximately £31m and will producepositive cash returns following the second full year of completion.

Operating resultsThe trading activities of The Weir Group PLC comprise the manufactureof pumps and valves for flow control applications (which constitutes the Group’s Engineering Products business); the provision of equipmentmaintenance, process support and asset management services (whichconstitutes the Engineering Services group) and the specialist design andproject management of complex turnkey engineering solutions, (whichcomprises the Group’s Techna Division). In addition to these activities,the Group also has a number of investments in Joint Ventures and Associates, the most significant of which is the Group’s shareholding in Devonport Management Ltd, the owner and operator of the RoyalDevonport Dockyard, the only UK facility able to service, maintainand repair the UK’s nuclear submarine fleet. The results of these Joint Ventures and Associates are reported separately.

Financial Review

21

Engineering Services DivisionOur Engineering Services businesses realised a 7.8% increase in turnoverto £198.7m against £184.4m achieved in 2003. Operating profit of £20.5mcompared favourably with 2003 (2003: £20.0m) although the operatingmargin declined to 10.3% against 10.9% in 2003 due to the ongoingfunding of the division’s greenfield investments in the United States.

Techna DivisionThe Techna Division includes those businesses where turnover is derivedfrom design and management of large-scale capital project work. Thedivision’s turnover increased 39% to £101.7m in 2004 (2003: £73.1m),while profits grew to £3.4m against £0.8m in 2003. Input in 2004 increased78% to £179.3m (2003: £100.6m), with a number of significant ordersbooked in our oil-related, water treatment and liquid gas businesses.

Joint Ventures & AssociatesThe Group’s share of turnover from our Joint Ventures and Associatesincreased 5.4% to £108.2m in 2004 (2003: £102.7m). The Group’s shareof operating profit was down 3% due to reduced profits from the Group’sshare of its Joint Venture with Smiths Group PLC to service North Sea Oilactivity, which was sold to Smiths in December 2004 and a first timecharge in 2004 of research costs for its Joint Venture with Scottish andSouthern Energy plc in developing renewable energy from tidal flows.

Devonport Management Ltd (DML) manages the dockyard at Devonportand provides support services to the naval base. Our share of DML’sturnover increased 6.7% to £99.8m in 2004 (2003: £93.5m) with profitsimproving due to actions taken by DML management to control costsand improve productivity.

Our Joint Venture Services business in Abu Dhabi grew turnover 9.4% to £5.1m.

Cash & cash flowsPositive cash flow has been a strong feature of the Group this year,particularly in the second half. At 31 December 2004, the Group had net funds of £12.3m (2003: £0.5m) with funds generated by operationsof £67.6m (2003: £67.4m).

Net interest in the profit and loss account of £3.9m in 2004 remained at the same level as 2003. This was positively affected by a £4mimprovement in the income earned on the assets of the pension scheme,reported as other finance income for FRS 17 purposes (£1.0m income in2004 compared to £3.0m expense in 2003). The Group continued itscommitment to make annual contributions into its defined benefitpension schemes with further contributions of £12.1m being made in 2004 compared to £10m in 2003.

Returns on investments saw dividends from Joint Ventures and Associatesincrease to £5.3m (2003: £3.9m) due to a final dividend from WeirHouston Ltd prior to its sale to Smiths Group in December.

Capital expenditure increased from £18.6m in 2003 (1.2 x depreciation)to £25.6m (1.7 x depreciation) in 2004 reflecting the Group’scommitment to significantly improve its capability in product, plant and machinery capability and IT.

Cash flow before corporate activity for the year was £25.4m (2003:£35.3m) which, after taking into account acquisitions and disposals and funding the cash outflow on dividends to shareholders, resulted in a cash inflow for the year of £3.4m (2003: £6.1m).

Following a review of current and anticipated cash flows, the Board hasdecided to implement an on market £50m share buy-back programme.

Borrowing facilities & liquidityThe Group’s operations are financed from shareholders funds (equity andretained profits) and bank facilities. Equity comprises the ordinary sharecapital of the parent company which increased by a further 2.36m shares(1.2%) to satisfy the exercise of share options obligations which aroseduring the course of the year.

In August 2004, the Group replaced its committed bank facilities with a£300m five year syndicated multi-currency revolving credit facility whichwas negotiated with a syndicate of nine banks, with a standard covenant and variable interest rate structure.

At the end of 2004, the Group also had £48m of uncommitted facilitieswith UK and overseas banks for daily working capital requirements. Net cash on hand with these banks at 31 December 2004 amounted to £94.8m.

Treasury management & proceduresThe Group’s treasury policies seek to reduce and minimise financial risk and ensure sufficient liquidity for foreseeable needs. The day to day implementation of these Board approved objectives, policies and authorities is currently delegated largely to the Group subsidiarycompanies with a Group treasury function producing regular reports to monitor exposure and help manage associated risks. Financialinstruments, such as currency forwards, are used for hedging purposesonly, to provide greater certainty on future revenues and costs. Theperiod of the hedge is governed by the underlying transaction exposureswhich can extend for a variety of periods up to four years. Exposure to the translation of foreign currency profits is not hedged. Speculativetransactions are not permitted.

During the year, the Group experienced significant fluctuations inaverage exchange rates for the translation of its overseas operations.Compared to £ sterling, the United States dollar declined 11.6%, andEuro by 1.7%. The Australian dollar strengthened by 0.9%.

PensionsThe Group has 16 pension schemes around the world of which six aredefined benefit schemes, the most significant of which are the two UKschemes. All defined benefit schemes are closed to new members and the net Group pension deficit at 31 December 2004 was £65m (2003:£73m). The Group reviews the level of the deficit on a regular basis and has agreed to make regular contributions, the amount of which is reviewed annually, into the two UK schemes to fund these deficits. In 2004, the Group contributed £12.1m to fund various pension deficits(2003: £10m). During the year, the trustees of the main UK pension fundcommenced the implementation of a plan to reduce the equity contentof the schemes’ assets from 70% to 45% and increasing the bond contentfrom 30% to 55%.

TaxationThe tax charge for the year of £14.0m (2003: £13.1m) on profit beforetax and goodwill amortisation represents a tax rate of 24%.

LitigationThere are 14 asbestos related actions outstanding against Groupcompanies in the United States which is a substantial reduction from2003. We continue to defend the outstanding actions in relation to which legal defence cover is being provided.

Accounting standardsThe implementation of the Group’s Long-Term Incentive Plan during2004 meant that the Group was required, in 2004, to provide an amount in the profit and loss account of £0.6m for the anticipatedcost of funding this award under the provisions of UITF 17.

With effect from 1 January 2005, adoption of International FinancialReporting Standards will introduce a number of important changes to the Group’s accounting policies, by far the most significant of which willbe the way in which the Group hedges its transaction currency positionand accounts for those hedges. As a result, the Group has introduced acommon treasury management system across its worldwide operationsand has completely revised its treasury policies. The principal changes will be to manage currency flows through more extensive use of currencybank accounts as well as currency forwards and take advantage ofanticipated netting opportunities across Group companies. Otheraccounting policies significantly affected by the implementation of IFRSwill arise in the areas of accounting for share based payments, researchand development costs, goodwill amortisation and deferred taxation.

Chris RickardFinance Director21 March 2005


22

Board of Directors: Our responsibility to ourshareholders is taken very seriously. The Boardplays a critical role in the candid and focusedreview of major business issues.

Mark SelwayExecutive Director

Aged 45, was appointed chief executive in June2001. Before his appointment, he was a directorof Britax International plc and managing directorof its automotive components division. Followingthe purchase of that division by SchefenackerInternational AG in 2000, he became a director of that company and executive director ofSchefenacker Vision Systems.

Chris RickardExecutive Director

Aged 48, was appointed a director in January2004 and took over as group finance director in September 2004. He was formerly groupfinance director of Meggitt plc, director ofcorporate finance for Elementis plc and directorof group financial planning for The MorganCrucible Co PLC.

Alan MitchelsonExecutive Director

Aged 55, is a solicitor and joined the Group in March 2000 as secretary. He was appointed a director in December 2001. Before joining thecompany, he was legal director and companysecretary of Highland Distillers plc, following a number of years as a legal advisor withTrafalgar House plc.

Audit Committee

Professor Ian Percy (Chairman)Christopher ClarkeMichael Dearden

Remuneration Committee

James Cox (Chairman)Christopher ClarkeMichael Dearden

Nomination Committee

Sir Robert Smith (Chairman)Michael DeardenProfessor Ian PercyLord RobertsonMark Selway

Stephen KingNon-Executive Director

Aged 44, was appointed a non-executivedirector in February 2005. He has been groupfinance director of De La Rue plc, the securityprinting and papermaking group since 2002. He was formerly group finance director ofMidlands Electricity plc and held senior financialroles with Seeboard plc and Lucas Industries plc.He is also a director of Camelot Group plc inwhich De La Rue has a 20% shareholding.

Board of Directors

23

Sir Robert SmithChairman

Aged 60, was appointed chairman in July 2002.He is a board trustee of the British Council.In 2004 he became chairman of Scottish andSouthern Energy plc. He is a non-executivedirector of 3i Group plc, Standard Bank GroupLimited and Aegon UK plc. He was formerly chief executive of Morgan Grenfell AssetManagement, a member of the Financial Services Authority and of the Financial ReportingCouncil and chairman of Stakis plc.

Michael DeardenNon-Executive Director

Aged 62, was appointed a non-executivedirector in February 2003. A graduate of OxfordUniversity, he was formerly with Burmah Castrolplc, where he was CEO of Castrol International.He is a non-executive director of JohnsonMatthey plc, Travis Perkins plc and chairman of Minova International Ltd.

Christopher ClarkeNon-Executive Director

Aged 59, was appointed a non-executivedirector in 1999. A graduate of CambridgeUniversity and of the London Business School, he was formerly a director of Samuel Montagu & Co. Limited and HSBC Investment Banking. He is deputy chairman of the CompetitionCommission and non-executive director ofOmega Underwriting Holdings plc.

James Cox Non-Executive Director Aged 57, was appointed a non-executivedirector in 2000. A graduate of CambridgeUniversity, he was formerly a director and headof UK Equity Strategy of Schroder InvestmentManagement Limited and prior to that anassistant director of Prudential PortfolioManagers. He is a non-executive director ofInvesco English and International Trust plc.

Professor Ian Percy CBEDeputy Chairman

Aged 63, was appointed a non-executive directorin 1996 and is senior non-executive director. Hewas formerly senior partner of accountants GrantThornton, president of the Institute of CharteredAccountants of Scotland and chairman of TheAccounts Commission for Scotland. He served asa member of the Treasury and DTI Co-ordinatingCommittee on Audit and Auditing in 2003. He ischairman of Companies House and senior non-executive director of Cala Group Limited andRicardo plc.

Lord Robertson of Port Ellen (George) KT, GCMG, FRSE, PC, Non-Executive Director

Aged 58, was appointed a non-executive directorin February 2004. He was Secretary General ofNATO (1999-2003) and before that Secretary ofState for Defence (1997-99). Lord Robertson isdeputy chairman of Cable and Wireless plc. He isa non-executive director of Smiths Group plc,strategic advisor to the Royal Bank of Canada,Europe, on the Advisory Board of EnglefieldCapital, senior counsellor with the Cohen Group(USA) and President of Chatham House.

Operations ExecutivecommitteeFrom left to right

Chris RickardFinance Director

Mark SelwayChief Executive

Alan MitchelsonDirector and Secretary

Phil CliftonValves & Controls Divisional MD

Paul CapellTechna Divisional MD

Steve SimoneServices Divisional MD

Scot SmithMinerals Divisional MD

Laurie WestClear Liquid Divisional MD

The Weir Group PLC Report and Accounts 2004 73Designed by Design MotivePrinted by Royle Corporate Print

The Weir Group PLC149 Newlands Road Glasgow G44 4EXScotland

Telephone: +44 (0)141 637 7111Facsimile: +44 (0)141 637 2221

Email: [email protected]: www.weir.co.uk

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