Financial engineering: Keith Cochrane, FD, Weir

Photography: Alex Griffiths

“Rock solid.” Two words every FD and chief executive would pay good money to hear said of their business ­ and the two words one analyst used to describe Glaswegian FTSE-250 engineering group Weir following its interim statement mid-May. “A high quality, exceptionally well-managed business, with a healthy balance sheet,” says another. “Not the cheapest engineering stock but one of the safest ­ long-term profile is very attractive.”

In March, Weir reported 2008 pre-tax profits of £176.2m, up 53% year-on-year, and delivered a 12% rise in annual dividends per share. It was, in chief executive Mark Selway’s words, “the best operating year in Weir’s history.” It seems the gods look favourably on the 139-year-old maker of industrial pumps and valves for the international oil and gas, mineral mining and power generation industries.

In the past two years, much was made by commentators of a £300m ‘war chest’ Weir CEO Selway had been happy to talk to the press about, which has been used (alongside the proceeds from some disposals) to make some very clever acquisitions.

With what, in retrospect, seems impeccable timing, finance director Keith Cochrane has been fundamental in setting out keenly conservative finances, spending most of his tenure since summer 2006 orchestrating deals that reduced its exposure to volatility in its pension liabilities and the potential for instability arising from the banking crisis. He spent most of 2007 working on a partial buyout of the group’s pension schemes, moving £250m of £600m in pension liabilities to Legal & General. He centralised Weir’s treasury operations to keep a closer grip on costs and, more crucially as it turned out, risk.

“I quite like all that sort of stuff handled in the centre, because with the best will in the world, there’s some great finance directors in our operating companies ­ but it’s a specialist area and it’s getting ever more specialist,” he says. In the months after Northern Rock, rather than waiting until their expiry in July this year, Cochrane wasted no time renegotiating the group’s financing agreements with its roster of banks, saving money by keeping the syndication work in-house. The improved terms, which extended credit lines to 2011, put him in a position to bring calming news to investors when markets were in a mess.

All in the timing
“We got lucky with our timing to a degree and that meant that when the financial world came crashing down in September 2008, we didn’t have any immediate worries from a financing perspective,” says Cochrane. “Events in the past six months certainly forced me to focus on things I never thought I would need to focus on. Investors have been asking questions they’ve not had to worry about before, such as funding ­ are your funding lines committed, which banks are involved, how much liquidity have you got, have you got access to your funds? ­ and we’ve been able to demonstrate that we’re in a good position.”

Whereas many FDs have been biting their fingernails to the quick this year ­ and last ­ Cochrane’s has been more of a caretaker role for a business that can’t seem to do much wrong. Its May interims confirmed the earlier forecast for full-year pre-tax profit to come in between £140m to £169m, with most analysts choosing the mid-to-upper reaches as their own prediction. The only news is that orders across its business declined 4% in Q1, though they were still up 33% in its oil and gas business and up 6% in its power and industrial business. It must help that Weir gives realistic-sounding guidance on where it thinks business will dip in the next 12 months, rather than aiming for improvement in every area.

It warns that capex deferrals in all its markets, inventory reduction in the minerals business, and reduced appetite for new equipment will impact H2 2009 and has built into its full-year forecasts the expectation of a 30% drop in revenue in its upstream oil and gas business, its fastest-growing division in 2008 ­ but even then, this merely represents a downgrade from ‘excellent’ to ‘re ally good’.

Consequently, Cochrane is enjoying himself, not unduly concerned with a lack of meaty challenges. Given his background, that’s understandable. He is most noted in the business community for having been CEO of Stagecoach in 2000 ­ to which he was promoted after being FD for four years ­ presiding over a torrid two years of losses and the woes of its American business, Coach USA. Cochrane spent half his time in Houston on cost-cutting and reorganising there, while the parent group struggled back at home.