8th Mar 2005 07:00
Wood Group (John) PLC08 March 2005 John Wood Group PLC Final results for the year ended 31 December 2004 John Wood Group PLC ("Wood Group") is a market leader in the provision ofengineering design, production support and industrial gas turbine services tocustomers in the oil & gas and power generation industries around the world.Operating in 36 countries, Wood Group's businesses employ over 14,000 people. Performance and outlook in line with January trading update Financial highlights • Revenues up 15% to US$2,288.1 million (2003: US$1,992.6 million)• EBITA 1 decreased 15% to $117.1 million (2003: US$137.2 million)• Profit before tax US$53.7 million (2003: US$83.0 million), after exceptional charges of US$26.2 million (2003: $20.0 million)• Adjusted diluted earnings per share2 13.1 cents (2003: 15.4 cents)• Investment and capital spend of US$131.7 million (2002: US$99.6 million)• Final dividend of 2.4 cents per ordinary share (2003: 2.2 cents); total for the year 3.6 cents (2003: 3.3 cents) Operating highlights • Engineering and Production Facilities: as previously indicated, lower volumes in the deepwater engineering market reduced our profitability - Production Facilities: good revenue growth, contract renewals in North Sea, and continued expansion into new territories - Engineering: steps taken to broaden engineering services & extend international reach from UK and Australia • Well Support: strong performance across all three businesses; increase in revenue, EBITA and operating margin; solid growth in North and South America; good progress in increasing international reach, including Russia and China; significant contract win in Chad with ExxonMobil. • Gas Turbine Services: a difficult year with disappointing overall financial performance; but cost reductions and efficiency improvements delivering anticipated benefits. Steps taken to enhance differentiation, focusing on higher tech component repair, extending range of re-engineered parts & growing proportion of business under long-term maintenance agreements. Sir Ian Wood, Chairman, Wood Group, commented: "We believe that we are well positioned to exploit key growth segments in thestrong worldwide oil and gas markets and, after the challenges we faced in 2004,we are confident of a return to acceptable growth in 2005." - Ends - Information: Wood Group Sir Ian Wood Chairman & Chief Executive 020 7404 5959 on 8th MarchAllister Langlands Deputy Chief Executive Thereafter 01224 851000Alan Semple Finance DirectorNick Gilman Investor Relations ManagerCarolyn Smith Corporate Communications 01224 851099 Brunswick Patrick Handley 020 7404 5959Nina Coad Chairman's Statement Although revenue grew to US$2,288.1 million (2003: US$1,992.6m), the overallfinancial performance for the year was disappointing with EBITA down toUS$117.1m (2003: US$137.2m) and our adjusted earnings per share down to 13.1cents (2003: 15.4 cents). Reflecting confidence in our long-term strategy, theBoard is recommending a final dividend of 2.4 cents per ordinary share whichtakes the total for the year to 3.6 cents (2003: 3.3 cents). As we reported during the year, our financial performance was impacted by theslower than anticipated release of deepwater engineering contracts and thecontinuing difficulties in the US power market. We have taken steps to improveour strategic positioning and financial performance in these areas. Inengineering, we are broadening our service offering and extending ourinternational reach. In our power related businesses, we have carried out asignificant programme of restructuring, continued our development spend inhigher technology areas and focused on increasing our presence throughout theEastern hemisphere. We have also maintained our Group investment programme, with total capital andacquisition spend of US$131.7 million (2003: US$99.6 million). This includesfive new acquisitions and the cost of acquiring a further 6.63% share ofMustang. A Challenging Year In Engineering & Production Facilities, revenues were up 10% to US$1,199.6million (2003: US$1,095.2 million), however EBITA fell 24% to US$73.1 million(2003: US$95.8 million), as a result of low volumes in the deepwater engineeringmarket reducing our revenues and margins. The economics of deepwaterdevelopments remain compelling and the market will grow again. In the meantime, we are successfully broadening our engineering capabilities andextending our international reach. Our upstream projects included the shallowand deepwater sections of Amerada Hess's Elon development in Equatorial Guinea,and Kerr McGee's Constitution, ChevronTexaco's Tahiti and GulfTerra'sIndependence Hub developments in the Gulf of Mexico. In midstream, we havecontinued to strengthen our team and develop technology in Liquefied Natural Gas(LNG) re-gasification and storage. In downstream, we are working on a number ofclean fuel modifications and refinery upgrade projects. Internationally, we areextending Mustang's activities and presence in the UK and Australia. Production Facilities had another good year from its established operations andmade good progress in developing new territories. The North Sea continues to beour largest market, and in 2004 we were re-awarded major contracts by BP andShell, as well as developing our relationships with a range of new operators. Inthe rest of the world, we are now one of the largest operations and maintenancecontractors in the Gulf of Mexico, we continue to develop our business inColombia and Venezuela, and we are providing support to Marathon and ExxonMobilin Equatorial Guinea. We have also extended our service offering with theacquisition of Deepwater Specialists Inc (DSI), a New Orleans based provider offacilities commissioning services and start-up support to upstream developments. Well Support had a very good year with revenues up 25% to US$513.9 million(2003: US$412.6 million), and EBITA up 32% to US$41.3 million (2003: US$31.4million). Our electric submersible pumps (ESP) business performed well in Northand South America and achieved good growth in the rest of the world, includingRussia where we opened a repair facility in 2004. Since the year-end, we havewon a significant contract in Chad to supply ESP systems and services to EssoExploration & Production Chad Inc. We are continuing to enhance our ESP productoffering with a number of improvements to extend equipment life and lowerlifetime operating costs. Pressure Control continues to target growing marketshare outside North America, and to improve performance internationally, withnew contracts in Russia and Mexico. The focus on cost-efficient manufacturingcontinued and we are developing new facilities in China. Logging Services showedgood revenue and EBITA improvement in 2004, particularly driven by slicklineservices in the US, electric wireline services in Argentina and Venezuela, andour permanent well monitoring business. In contrast, Gas Turbine Services' overall performance was very disappointing.Although revenues were up 18% to US$537.9 million (2003: US$455.4 million),EBITA was down 25% to US$24.0 million (2003: US$31.9 million). Ouraero-derivative activities in the oil & gas industry performed well. However, aswe reported during the year, our power related activities were impacted by theaftermarket weakness. We have undertaken a significant programme of costreductions and efficiency improvements, which are now delivering the anticipatedbenefits and contributed to an improved second half performance. We have alsotaken steps to enhance our heavy industrial turbine differentiation, focusing onhigher technology component repair, and extending our range of re-engineeredparts. We are growing our activities in the Eastern Hemisphere and theproportion of our business under long-term maintenance agreements worldwide,following contract wins with BP in the Gulf of Mexico, the GLOW Group inThailand, Dhofar Power in Oman and Termonorte Energia LTDA, partially owned byEl Paso Energy, in Brazil. Our People This year we were pleased to welcome three new Directors to the Board. TrevorNoble and Les Thomas settled in well to the task of leading the growth inEngineering and Production Facilities, and Neil H. Smith, who has valuable powergeneration experience as COO of InterGen, an international power producer, is anew Non-Executive Board colleague. My sincere thanks to our Board, bothExecutive and Non-Executive, for their continuing advice and support. WoodGroup's principal and most valued asset continues to be our people and mywarmest thanks go to all our employees (now more than 14,000 in 36 countries)for their dedication to service and customer care, their skill and theircommitment. Returning to growth We are currently in what appears to be a stable high oil and gas priceenvironment and worldwide exploration and production spend should grow by 5% to10% in the year ahead. Engineering should enjoy a healthy upstream engineeringmarket and see progress in developing its mid and downstream activities, andProduction Facilities should continue its strong performance in its establishedareas. The extension of our services and international presence in both theseactivities will incur higher business development costs. In Well Support weexpect our product enhancements, efficiency improvements and increased marketshare in a number of new territories to contribute to improving results. GasTurbine Services should continue its recovery with the benefit of the costreductions and efficiency improvements, the shift to higher technology componentrepair, the growth in new part sales and success in winning longer-term serviceagreements. We believe that we are well positioned to exploit key growth segments in thestrong worldwide oil and gas markets and, after the challenges we faced in 2004,are confident of a return to acceptable growth in 2005. Engineering & Production Facilities Engineering & Production Facilities provides a broad range of engineeringdesign, project management, modifications, and operations & maintenance supportto oil & gas customers worldwide. Although our Production Facilities activities showed good revenue growth, theDivision was impacted by the reduced activity levels in the deepwaterengineering market and the ongoing cost of investment to broaden our capabilityand expand our international presence. Revenues rose to US$1,199.6m (2003:US$1,095.2m) and EBITA was US$73.1m (2003: US$95.8m). Engineering We offer a broad range of engineering services in the design of oil & gasproduction, transportation and processing facilities, with particular expertisein: - Upstream engineering: including deepwater & lightweight topsides; subsea engineering and onshore processing facilities - Midstream engineering: including offshore & onshore pipeline engineering; compression and LNG (liquefied natural gas)/ GTL (gas to liquids) - Downstream engineering: including clean fuel modifications, refinery upgrades and pharmaceuticals In 2004, we continued to be involved in a large number of upstream projects andwon a range of important contracts. However, revenues in our engineeringactivities were lower as a result of industry-wide delays in the award ofdeepwater contracts. The economics of major deepwater developments remainscompelling and we hope to maintain a high market share as the market grows. Tobalance our deepwater activities, we are broadening our service offering andextending our international reach. Mustang has established new centres in the UKand Australia, to improve our positioning to grow our engineering business inthe Eastern hemisphere. In London, we have acquired Woodhill EngineeringConsultants and are beginning to build up an experienced senior management team,and in Perth we are increasing our presence in the Australian and wider AsiaPacific market. In the Gulf of Mexico we continued to work for BP on their deepwater developmentprogramme. The first two platforms - Holstein and Mad Dog - have now moved intoproduction, with Thunder Horse and Atlantis scheduled to commence productionover the next 24 months. Following on from our previous work on their Nansen,Gunnison and Boomvang developments, we have begun to provide engineering,project management and procurement services for the topsides facility on a trussspar for Kerr McGee's Constitution development. We are also providing Front EndEngineering Design (FEED) services for ChevronTexaco's Tahiti topsides oil andgas processing facilities and detailed engineering to GulfTerra's IndependenceHub (formerly known as the Atwater Valley project). In the North Sea, we carried out the engineering and project management for theBP Clair development West of Shetland that successfully achieved first oil inFebruary 2005. In West Africa, we worked on detailed engineering for a compliantpiled tower in support of ChevronTexaco's Benguela-Belize development and,towards the end of the year, we began work on the detailed engineering forAmerada Hess's Elon development in Equatorial Guinea. In Asia Pacific, weprovided subsea FEED services, including subsea pipeline expertise, to Murphy'sKikeh discovery, and, in Venezuela, we provided engineering and projectmanagement services to ConocoPhillips' offshore CoroCoro development. InTrinidad, NM Wood Group was awarded a contract to provide engineering andrelated services for BG's ECMA (East Coast Marine Area) Beachfield OnshoreFacilities project. Our pipeline engineering activities delivered good growth in the year, includingwork from Enagas for the design of the proposed pipeline from Spain to theBalearic Islands and from Zadco for the design of the potential replacementZakum Main Oil Line in Abu Dhabi. In addition, Multiphase Solutions Inc (MSI) -a specialist provider of engineering and consulting services and of applicationsfor use in the design, operation and optimisation of oil and gas pipelines andproduction facilities - has performed well since acquisition and added to oursubsea engineering and pipeline activities. An important focus for the Group is to expand our presence in the midstream anddownstream areas. In order to accelerate our growth in the important LNG market,we have sought to develop some proprietary technologies that we believe willbring cost and efficiency advantages to our clients. In 2004, we completed thesuccessful demonstration of the proprietary air exchange vaporiser for the LNGSmartTM Vaporisation process. In addition, following on from the successfulcompletion of Syntroleum's GTL demonstration facility in Oklahoma, Mustangentered into an agreement to become an authorised provider of engineeringsupport to Syntroleum's GTL technology around the world. In the downstream area, activity levels were strong in North America in theyear. Examples of some of the work we have undertaken include engineeringservices for Tesoro in relation to low sulphur gas and low sulphur dieselmodifications to their Anacordes refinery and to Amerada Hess for low sulphurmodifications to their Port Reding refinery. In addition, in Qatar, we areworking on a FEED study for an ammonia/ methanol plant. To support our WestCoast clients we opened a new office in California in the year. Our automationbusiness, providing engineering services and consultancy, was strengthened bythe addition of Ellipsys, and performed well in the period. Production Facilities We offer a broad range of production facilities support to our clients aroundthe world, with particular expertise in: - Production enhancement services: water injection; gas injection and gas compression; debottlenecking and maintaining high operational uptime of facilities - Maintenance management: maintenance system design; life-of field modifications engineering; planning & execution; operations and maintenance support; and gas turbine and rotating equipment repair & maintenance It was another strong year in the North Sea. We were reappointed as one of BP'stwo main engineering, modifications and maintenance providers to its North Seaassets. The contract is initially for three years and involves the provision ofservices to around half of BP's UK North Sea assets located East and West ofShetland, Central North Sea and the Sullom Voe Terminal. The Sigma 3 jointventure (one third Wood Group) is continuing to provide support to Shell'sassets in the northern North Sea. Wood Group was also reappointed by Shell toprovide engineering design, maintenance support and construction services to itsonshore assets at St Fergus Gas Plant, Fife Gas Plant at Mosmorran, FifeBraefoot Bay Terminal plus offshore support for the Goldeneye platform.Elsewhere in the North Sea we continue to work for a number of other importantclients, including Apache, Nexen, Talisman and TOTAL. Production Facilities in the Gulf of Mexico had a good performance in the year.We carry out field management for in excess of 220 offshore manned platforms andfor 180 offshore unmanned platforms for a wide range of operators, includingForest, Pogo and Unocal. In April, we acquired Deepwater Specialists Inc (DSI),a New Orleans based provider of facilities commissioning services and start-upsupport to the upstream industry. DSI is an excellent fit between our activitiesin the design and project management of new upstream facilities and ouroperations and maintenance capabilities. The company has performed well sinceacquisition, including good progress on its important contract in West Africa,commissioning Shell's Bonga facility. In Colombia, we increased our activity with BP on their Florena and Recetorfields and, in Venezuela, Simco, a Wood Group-managed consortium, continued toprovide water injection services to PDVSA on Lake Maracaibo. In EquatorialGuinea, we are providing operations support to Marathon's offshore productionand its onshore gas processing and export facilities and commenced offshoreoperations and maintenance support, along with onshore training and developmentsupport for ExxonMobil. In Brunei, the Wood Group led SKS Wood joint venturebegan its five-year $160million contract with Brunei Shell Petroleum formaintenance services, and the management and execution of engineeringfabrication and offshore construction to upgrade some of its offshore facilitiesin Brunei Darussalam. Well Support Well Support provides solutions, products and services to increase productionrates and recovery from oil and & gas reservoirs. It is among the market leadersinternationally in artificial lift using electric submersible pumps (ESP's) andin the provision of surface wellheads and valves. In the Gulf of Mexico and inparts of South America, it has a strong market share in the provision ofelectric wireline and slickline services. Against a favourable market backdrop, Well Support performed well and achievedsignificant growth in 2004. Revenues were US$513.9m (2003: US$412.6m) and EBITAwas US$41.3m (2003: US$31.4m). Electric Submersible Pumps (ESPs) The demand for ESPs to provide artificial lift to drive production continues togrow. We are the third largest ESP supplier in the world and gained market sharein a number of key regions. Firstly, ESP has continued its growth in its established North and SouthAmerican markets. In North America, there has been strong performance from boththe US and Canadian operations and, in South America, work with PDVSA and otheroperators in Venezuela continues to expand. Likewise, we made good progress inArgentina, where we are increasing the local manufacturing content.Historically, we have been under represented in Russia, the world's largest ESPmarket. During the year we have increased the Group's presence in the market,including opening a repair facility in Nizhnevartovsk, in Western Siberia. Sincethe year-end, building on our existing operations in North and West Africa, wehave been awarded a 10-year performance-based contract to supply ESP systems andservices to Esso Exploration and Production Chad Inc, the operator for aconsortium working in the Doba region of Southern Chad. The contract includesthe maintenance and repair of existing pumps, along with the installation,maintenance and repair of new equipment. We are continually looking to enhance and improve our product offering. Duringthe year we introduced a new low pressure, minimal vibration surface pumpingsystem, which has been successful in reducing maintenance requirements andlowering lifetime operating costs. In 2004, we also enhanced the vibration andleak monitoring capabilities of our pumps which should contribute to longer runlives. Pressure Control Wood Group Pressure Control strengthened its number two market position in theUS, and maintained its position as the fourth largest worldwide supplier ofsurface wellheads and valves. In North America we delivered another year of good growth, with increasedrevenues in Canada following the acquisition of Barber Industries in 2003. Wecontinue to provide equipment to both independent and major oil companies, andduring the period won important new contracts from Pure Resources and EnCana,together with contract extensions from a number of important customers,including EOG ReSources, Inc, Dominion Exploration & Production, Newfield andMarathon. During 2004, we successfully refocused our sales and serviceorganisations to serve the very active gas drilling market in Texas, themid-Continent and Rocky Mountains. Outside North America, we continued to make good progress. During the year wewon new contracts in Russia and Mexico and continued to build on our presence inMexico, Australia, Egypt, Indonesia, Kazakhstan, Oman, the North Sea, SaudiArabia, and Venezuela. Customers in the Middle East included Saudi Aramco andMerlon, while in Asia we provided services to BP, Burlington, Caltex, Kufpec,Santos and Oil Search. Our North Sea business generated revenues from a widerange of clients, including Apache, BP, Nexen, Shell and Talisman, while inVenezuela we continue to carry out a significant amount of work for PDVSA. We maintained our ongoing efforts to improve manufacturing efficiency, includingcommencing operation at a new manufacturing centre in Tianjin in China, whichshould help drive further cost improvements. Logging Services Wood Group Logging Services provides services and products focused on dataacquisition and downhole operations. This includes cased hole electric wirelineand slickline well logging and the supply of permanent well monitoring gauges.During the year we enjoyed good growth in revenues and EBITA, and continued tobroaden our service offering. Our slickline operations continued to grow as we expanded market share in theGulf of Mexico and established new land based operations in Texas. We believe weare now the number two slickline company in the Gulf of Mexico. We alsointroduced several innovative pieces of technology, including the SmartCableHead, which provides low-cost depth-calibrated pressure and temperature data,and the PowerHammer, which provides an improved method of removing downholeobstructions. Our electric wireline operations continued to grow in the US and South America.Our RapidResponse Pipe Recovery systems and expanded rigless completion servicesoffering contributed positively. In Argentina we believe we are now the numberone cased hole electric wireline company. Our permanent well monitoring gauge business performed well, achieving marketshare gains in the Middle East, Australia, and Africa. Notable contract winsinclude the supply of permanent gauges to ENI for the Gulf of Mexico, and toSaudi Aramco to certain of its Saudi Arabian fields. Gas Turbine Services Gas Turbine Services is the world-leading independent provider of maintenance,repair and overhaul services for industrial gas turbines, used for powergeneration, compression and transmission in the oil & gas and power generationindustries. We seek to differentiate ourselves through our investment intechnology and repair and overhaul processes, and the broad range of servicesthat we provide, enabling us to win contracts across multiple engine types andacross a wide range of activities. Gas Turbine Services faced a difficult industrial gas turbines aftermarket,particularly for our US power related businesses. We believe the US power marketwill remain challenging for some time and have taken steps to improve ourfinancial performance, including a programme of cost reductions and efficiencyimprovements. These measures delivered the anticipated benefits and contributedto an improved second half performance. 2004 revenues increased toUS$537.9million (2003: US$455.4million), but EBITA decreased to US$24.0million(2003: US$31.9million).5 Aero-derivative There are three businesses in aero-derivative gas turbines: Rolls Wood Group -our joint venture with Rolls-Royce; Wood Group Pratt & Whitney - our jointventure with Pratt & Whitney and; TransCanada Turbines - our joint venture withTransCanada Pipelines, which is both GE LM and Rolls-Royce approved. During the year Rolls Wood Group delivered a good performance. The new componentrepair facility was brought fully on line, following the fire in 2002. There wasa successful focus on increasing the number of long-term agreements, and recentwins include contracts with Gaz de France and Energobaltic in Poland. Wood GroupPratt & Whitney continued to perform satisfactorily, despite the difficult USpower market. TransCanada Turbines was awarded a long-term contract with BP toprovide maintenance services to its fleet of GE LM turbines on three deepwaterplatforms in the Gulf of Mexico. Both Rolls Wood Group and TransCanada Turbinesincreased their activity levels in Venezuela. Light Industrial Turbines (LIT) Our LIT activities include the repair and overhaul of the Siemens and Solarlight industrial turbine ranges. In 2004, partly due to the deferral ofmaintenance, our financial performance was reduced. During the year we continuedto extend the range of services that we provide, and to expand our presence innew regions around the world with new business in China, Venezuela and theMiddle East. Heavy Industrial Turbines (HIT) The Group's HIT activities focus on industrial gas turbines used primarily inpower generation. Our HIT activities delivered a disappointing financial performance in the year,although there was some improvement in the second half following the programmeof cost reductions and efficiency improvements. The difficult US power marketconditions appear to have stabilised, while the power market in the rest of theworld will continue to provide opportunities for growth. We continued our focus on increasing the number of turbines under long-termcontract. This included two contracts, worth approximately US$90 million inaggregate over up to 18 years from the GLOW Group in Thailand. These contractsinvolve the provision of packaged maintenance services, covering componentrepair, spare parts supply, and onsite services for twelve GE Frame 6B turbinesoperated at two power stations on Thailand's Eastern seaboard. We were alsoawarded a US$12 million long-term contract to supply spare parts and to providecomponent repair and onsite services for six GE turbines owned by Dhofar PowerCompany in the Sultanate of Oman. Since the year-end, we have been awarded a12-year contract valued at approximately US$2.9 million per annum by TermonorteEnergia LTDA, partially owned by EL Paso Energy, to support three GE Frame 7EAturbines in Brazil. Our investment in extending and enhancing our range of re-engineered parts,under the APM (R) brand, led to a number of contract wins over the last twelvemonths, including in Saudi Arabia and in Thailand. We are also continuing ourfocus on higher technology component repair and during the year won orders forthe repair of parts for the advanced F-Tech range of turbines. Ancillary Power Services Our power plant operations & maintenance activities made good progress. We woneight operations & maintenance contracts in North and South America and believewe are well positioned to win further contracts in 2005. During the year we enhanced our steam turbine capability through an alliancewith The Elliott Company, a market leading steam turbine OEM serving bothprocess and power generation customers. Our Turbine Controls business showed good growth in the year and PowerSolutions, a business that provides gas turbine packages, enjoyed a strong year.However, our Generator Services business, which provides electrical generatormaintenance services to power plant operators, delivered a very disappointingperformance and incurred significant losses. Since the year-end, we havestrengthened the management team of this business and anticipate an improvedperformance in 2005. Our Accessories and Components business performed satisfactorily in a difficultmarket, with lower revenues from civil aviation customers, but good progress inthe heavy industrial turbine fuel nozzle market. Financial Review Trading Performance Details of Group-wide developments and the market conditions in the year are setout in the Chairman's statement and the operating reviews. Total revenues increased by 15% from US$1,992.6 million in 2003 to US$2,288.1million. However, EBITA fell by 15% from US$137.2 million to $117.1 million withincreased EBITA in Well Support being offset by lower EBITA in both Engineering& Production Facilities and Gas Turbine Services. In 2004 there was a 12% weakening in the average US dollar to UK sterlingexchange rate. This increased the US dollar value of our UK sterling denominatedrevenues, which in turn increased overall revenues by around 4%. The impact onour EBITA was considerably less significant, largely because the majority of ourcentral costs are UK sterling denominated. The overall EBITA margin ("margin") fell from 6.9% in 2003 to 5.1%. Margins inour Well Support business increased from 7.6% to 8.0% in the year. Margins inEngineering & Production Facilities fell from 8.7% to 6.1% reflecting a changein mix, with lower Engineering and higher Production Facilities revenues,combined with higher business development costs for the division. Margins in ourGas Turbine Services business fell from 7.0% in 2003 to 4.5% in 2004. However,margins in the second half showed a small recovery, with slight improvementcompared to the second half of 2003 and the first half of 2004 reflecting thebenefit of the programme of cost reductions and efficiency improvements. Amortisation, including our share of joint venture amortisation, increased fromUS$15.6 million in 2003 to US$17.8 million in 2004 as a result of theacquisitions made during both 2003 and 2004. Total operating profit decreased toUS$73.1 million (2003: US$122.9 million). Exceptional items - Impairment and restructuring charges There were exceptional impairment and restructuring charges of US$26.2 million(2003: Nil). US$23.4 million of this relates to the Gas Turbine Servicesdivision and represents the cost of rationalisation of businesses andfacilities, severance costs and fixed asset impairment; the balance of US$2.8million represents severance costs and fixed asset impairment in the WellSupport division. There were no non-operating exceptional charges in 2004 (2003:US$20.0 million). Interest and Taxation Net interest payable by the Group and joint ventures was US$19.4 millioncompared to US$15.1 million in 2003. The increase in interest costs reflectsboth the increased level of sterling borrowings to fund purchases of shares byemployee share trusts and the increased level of borrowings generally, togetherwith increased interest rates. The Group had interest cover4 of 6.0 times (2003:9.1 times). There was no interest charge in relation to associates in 2004(2003: US$4.8 million). The tax charge of US$24.9 million, which includes a credit of US$7.7 million inrespect of exceptional items, reflects an effective tax rate of 33.4% on profitbefore tax, amortisation, impairments and exceptional items and compares to arate of 33.0% in 2003. Earnings Per Share and Dividends Diluted earnings per share was 5.6 cents compared to 8.4 cents in 2003 and wasimpacted by lower profits in the current year. The adjusted diluted earnings pershare before amortisation and exceptional items decreased to 13.1 cents (2003:15.4 cents). The final recommended dividend of 2.4 cents per share (2003: 2.2cents) represents a 9% increase in the total dividend for the year of 3.6 cents(2003: 3.3 cents). Shareholders' Funds Shareholders' funds fell to US$506.5 million from US$521.5 million. The movementlargely reflects the purchase of our own shares of US$22.5 million offset byretained profits for the year of US$10.1 million. Other movements of $2.6mincluded the actuarial loss on the pension scheme and the impact of foreignexchange movements. Operating Cash Flow The cash flow from operating activities and joint ventures was US$72.1 millionin 2004 compared to US$156.6 million in 2003. The operating profit after adding back non-cash items was US$113.1 million(2003: US$141.4 million). This was offset by an increase in working capital ofUS$56.4 million (2003: reduction of $4.0 million). Capital Investment There was continued investment in acquisitions and capital expenditure in 2004.Capital expenditure net of disposals was US$56.0 million compared to US$51.5million in 2003. The investment of US$32.5 million in acquisitions in 2004(2003: US$18.5 million) included the acquisitions of Z.TEC GmbH Energy Service,Deepwater Specialists, Inc, Multiphase Solutions, Inc, Ellipsys, Inc andWoodhill Engineering Consultants. Net Debt and Financial Instruments Net debt increased by US$133.8 million to US$308.8 million at December 2004 fromUS$175.0 million at December 2003 as a result of the operating cash flows andcapital investment outlined above. In addition, an amount of US$22.5 million wasinvested in Group shares by employee share trusts at an average price of £1.24in order to satisfy the future exercise of options. The Group's gearing3 ratiohas increased from 33.6% at December 2003 to 61.0% at December 2004. Group borrowings are primarily US dollar denominated. Of the total long-termborrowings of US$345.0 million, US$125.0 million are at a fixed rate of interestaveraging 4.4%, excluding margin. The Group's policies in respect of financialinstruments are set out in note 17 to the financial statements. International Financial Reporting Standards (IFRS) The Group will be preparing its financial statements in accordance withInternational Financial Reporting Standards (IFRS) for periods commencing from1st January 2005. The transition to IFRS is well advanced and we are on track tocomply with the reporting requirements. The main measurement differencesidentified to date between UK GAAP and IFRS are likely to be: •Share based payments, where IFRS requires the economic cost of all sharebased payments to employees of the Group to be recognised by reference tofair value on the grant date;•The annual amortisation of goodwill will cease under IFRS and be replacedwith annual impairment reviews. The amortisation of other intangibles willcontinue to be applied;•Joint ventures will be proportionately consolidated under IFRS;•Dividends will be recognised in the period that they are approved byshareholders and hence proposed dividends will not be accrued;•The treatment of financial instruments will be different under IFRS,although there is not expected to be a material impact from the changes. Thenew standards will be applied prospectively from 1 January 2005;•The rules for accounting for deferred tax under IFRS differ from UK GAAP,although no material impact on the group's effective tax rate isanticipated. There will also be changes to the naming of some of the line items in theGroup's financial statements and in some of the key performance measures used bythe Group. 1 EBITA is Earnings Before Interest Tax and Amortisation and representsoperating profit before exceptional items, amortisation and share of associates.This financial term is provided as it is the key unit of measurement used by thecompany in the management of its business (see note 1 of the financialstatements).2 Shares held by the Group's employee share ownership trusts are excluded fromthe number of shares in calculating adjusted diluted and basic earnings perordinary share. Adjusted diluted earnings per ordinary share are calculated onearnings before amortisation and exceptional items, net of tax. Adjusted dilutedearnings per ordinary share is based on the diluted number of shares, takingaccount of share options where the effect of these is dilutive.3 Gearing represents net debt over shareholders' funds. In accordance with theprovisions of UITF 38, shareholders' funds are stated after deducting own sharesheld by employee share trusts. Opening shareholders' funds are stated accordingto the provisions of UITF 38.4 Interest cover is EBITA divided by net interest payable, excluding share ofassociates.5 Figures exclude discontinuing activities. John Wood Group PLCGroup profit and loss accountfor the year to 31 December 2004 Note 2004 2003 US$m US$mRevenues (including share of joint ventures) Continuing operations 2,246.5 1,980.1Acquisitions 41.6 12.5 ------ ------ Revenues (including share of joint ventures) 1 2,288.1 1,992.6Less: share of revenues of joint ventures (285.6) (287.6) ------ ------ Group revenues 2,002.5 1,705.0 Cost of sales (1,592.2) (1,317.7) ------ ------Gross profit 410.3 387.3 ------ ------ Administrative expenses pre-exceptional items andamortisation (321.9) (286.3)Exceptional items - impairment and restructuringcharges 5 (26.2) -Goodwill amortisation (16.4) (14.3) ------ ------Administrative expenses 2 (364.5) (300.6) ------ ------ Operating profit of Group undertakings 45.8 86.7Share of operating profit in joint ventures (afterUS$1.4m (2003 : US$1.3m) goodwill amortisation) 27.3 34.9Share of operating profit in associates - 1.3 ------ ------Total operating profit: Group and share of jointventures and associates 2 73.1 122.9 Total operating profit comprises: ------ ------Continuing operations 65.3 122.6Acquisitions 7.8 0.3 ------ ------ 73.1 122.9 ------ ------ Exceptional itemsLoss on sale of fixed assets 5 - (3.5)Loss on termination of discontinued operations 5 - (2.7) ------ ------ Profit on ordinary activities before interest 73.1 116.7Amounts written off investments 5 - (13.8)Net interest payable - Group 6 (16.6) (12.6)- joint ventures 6 (2.8) (2.5)- associates 6 - (4.8) ------ ------ Profit on ordinary activities before taxation 53.7 83.0Taxation on profit on ordinary activities 7 (24.9) (37.8) ------ ------ Profit on ordinary activities after taxation 28.8 45.2Equity minority interests 23 (2.1) (3.9) ------ ------ Profit for the financial year 26.7 41.3Dividends 8 (16.6) (15.6) ------ ------ Retained profit for the financial year 22 10.1 25.7 ------ ------ Basic earnings per ordinary share 9 5.7c 8.7cDiluted earnings per ordinary share 9 5.6c 8.4cAdjusted earnings per ordinary share 9 13.1c 15.4c Group Balance sheetas at 31 December 2004 2004 2003 (Restated) Note US$m US$mFixed assetsIntangible fixed assets 10 268.8 220.4Tangible fixed assets 11 168.8 174.2Investments in joint ventures 12 ------- -------Share of gross assets 286.6 274.4Share of gross liabilities (191.8) (180.8)Goodwill arising on acquisition 9.7 10.0 ------- ------- 104.5 103.6 ------- ------- 542.1 498.2 ------- -------Current assetsStocks 13 264.4 180.5Debtors 14 550.1 433.1Cash at bank and in hand 54.4 69.8 ------- ------- 868.9 683.4 ------- -------Creditors: amounts falling due within one yearBank loans and overdrafts 15 (18.2) (13.9)Other creditors 15 (465.7) (344.8) ------- ------- (483.9) (358.7) ------- -------Net current assets 385.0 324.7 ------- ------- Total assets less current liabilities 927.1 822.9 Creditors: amounts falling due after one yearBank loans 16 (345.0) (230.9)Other creditors 16 (18.7) (7.5) ------- ------- (363.7) (238.4) ------- -------Provisions for liabilities and charges 18 (21.2) (25.0) ------- ------- Net assets excluding pension liability 542.2 559.5Pension liability 25 (23.7) (19.3) ------- -------Net assets including pension liability 518.5 540.2 ------- ------- Capital and reservesCalled up share capital 19 23.5 23.4Share premium account 20 200.9 200.8Capital reduction reserve 21 88.1 88.1Profit and loss account 22 194.0 209.2 ------- ------- Total shareholders' funds 506.5 521.5 Equity minority interests 23 12.0 18.7 ------- ------- 518.5 540.2 ------- ------- Statement of total recognised gains and lossesfor the year to 31 December 2004 Note 2004 2003 US$m US$m Profit for the financial year 26.7 41.3Actuarial loss recognised in the pension scheme 25 (4.8) (1.2)Movement in deferred tax relating to pension liability 25 1.4 0.4Exchange movement on retranslation of foreign currencynet assets 1.7 7.3 ------- -------Total recognised gains for the year 25.0 47.8 ------- ------- Included in the above are total recognised gains of US$17.9m (2003: US$32.3m) inrespect of joint ventures and losses of US$nil (2003 : losses of US$2.6m) inrespect of associates. There is no material difference between the profit on ordinary activities beforetaxation, the retained profit for the year stated above and their historicalcost equivalents. Reconciliation of movement in shareholders' fundsfor the year to 31 December 2004 Note 2004 2003 US$m (Restated) US$m Profit for the financial year 26.7 41.3Dividends 8 (16.6) (15.6) ------- ------- 10.1 25.7Issue of new shares 19 0.2 0.6Actuarial loss recognised in the pension scheme netof deferred tax 25 (3.4) (0.8) Credit in respect of employee share awards 1.2 0.6Consideration paid in respect of purchase of ownshares held in ESOP trusts (22.5) (17.3)Consideration received in respect of sale of ownshares held in ESOP trusts 0.2 0.4Foreign exchange in respect of own shares held inESOP trusts (2.5) (1.7)Exchange movement on retranslation of foreigncurrency net assets 1.7 7.3 ------- ------- Net (decrease)/increase in shareholders' funds (15.0) 14.8 Shareholders' funds at 1 January (originallyUS$541.3m before prior year adjustment of US$(19.8)m) 521.5 506.7 ------- -------Shareholders' funds at 31 December 506.5 521.5 ------- ------- Group cash flow statementfor the year to 31 December 2004 Note 2004 2003 US$m US$m Operating activities Net cash inflow from operating activities 30 55.7 144.9Dividends from joint ventures 16.4 11.7 ------- ------- 72.1 156.6 ------- ------- Returns on investments and servicing of financeInterest received 1.3 2.6Interest paid (17.5) (13.9) ------- ------- (16.2) (11.3) ------- ------- TaxationUK corporation tax paid (7.9) (6.0)Overseas tax paid (19.2) (32.6) ------- ------- (27.1) (38.6) ------- ------- Capital expenditure and financial investmentPurchase of tangible fixed assets (68.4) (74.5)Sale of tangible fixed assets 12.4 23.0Repayment of loans from joint ventures 0.8 3.3 ------- ------- (55.2) (48.2) ------- -------Acquisitions and disposalsAcquisition of minority interests 23 (24.2) (0.2)Purchase of subsidiary undertakings, net of cash 24 (32.5) (18.5)acquiredDisposal of subsidiary undertakings, net of cash - 7.3disposedInvestment in joint ventures 12 (0.4) (2.8)Purchase of other intangibles 10 (1.5) (3.2)Deferred consideration 24 (4.7) (0.4)Additional paid in capital from minority shareholders 23 - 0.3 ------- ------- (63.3) (17.5) ------- -------Equity dividends paid (15.9) (14.7) ------- ------- ------- -------Net cash (outflow)/inflow before management of liquidresources and financing (105.6) 26.3 ------- ------- Management of liquid resources(Increase)/decrease in cash placed on deposit 32 (5.3) 3.3 ------- ------- FinancingIncrease in bank loans 32 111.2 2.2Issue of ordinary shares 0.2 0.6Purchase of own shares held in ESOP trusts (22.5) (17.3)Disposal of own shares held in ESOP trusts 0.2 0.4 ------- -------Net cash inflow/(outflow) from financing 89.1 (14.1) ------- -------(Decrease)/increase in cash 32 (21.8) 15.5 ------- ------- Accounting policiesfor the year to 31 December 2004 The financial statements are prepared under the historical cost convention andin accordance with the Companies Act 1985 and applicable Accounting Standards inthe United Kingdom. A summary of the more important Group accounting policieswhich have been consistently applied, is set out below. Basis of consolidationThe Group financial statements are the result of the consolidation of thefinancial statements of the Group's subsidiary undertakings from the date ofacquisition or up until the date of disposal as appropriate. All Group companiesprepare accounts to 31 December. Changes in accounting policiesThe Group has adopted UITF 38 "Accounting for ESOP Trusts" in these financialstatements. The adoption of this abstract represents a change in accountingpolicy and the comparative figures have been restated accordingly. Details ofthe effect of the prior year adjustment is given in note 22. Reporting currency The Group's earnings stream is primarily US dollars and the principal functionalcurrency is the US dollar, being the most representative currency of the Group.The Group financial information is therefore prepared in US dollars. The following sterling to US dollar exchange rates have been used in thepreparation of these accounts:- Average rate Closing rate-------------------------------- ----------- ----------- £1 = US$ £1 = US$Year ended 31 December 2003 1.6406 1.7901Year ended 31 December 2004 1.8310 1.9199-------------------------------- ----------- ----------- Revenue recognitionRevenue is recognised only when it is probable that the economic benefitsassociated with a transaction will flow to the Group and the amount of revenuecan be measured reliably. Revenue from product sales is recognised when thesignificant risks and rewards of ownership have been transferred to the buyer,which is normally upon delivery of products and customer acceptance, if any.Revenue from services is recognised as the services are rendered, includingrevenues based on contractual rates per man hour in respect of multi-yearservice contracts. Incentive performance revenues are recognised upon completionof agreed objectives. Revenues are stated net of sales taxes and discounts. Joint ventures and associatesThe Group's share of profits less losses of joint ventures and associates isincluded in the Group profit and loss account and the Group's share of their netassets is included in the Group balance sheet. In addition, the Group's share ofrevenues, operating profit, interest and tax of joint ventures and operatingprofit, interest and tax of associates is separately disclosed. GoodwillGoodwill arising on consolidation represents the excess of the cost of anacquisition over the fair value of the Group's share of the net assets of theacquired subsidiary, joint venture, or associate at the date of acquisition. Goodwill is amortised using the straight line method over its estimated life, notto exceed 20 years. When estimating the life of goodwill for each acquisitionthe principal factors that the Group takes into account are the nature andforeseeable life of the acquired business, the stability and foreseeable life ofthe industry to which the goodwill relates and the effects of productobsolescence and changes in demand for the acquired business. Tangible fixed assetsTangible fixed assets are stated at historical cost less aggregate depreciation.No depreciation is charged with respect to freehold land and assets in course ofconstruction. Transfers from fixed assets to current assets are undertaken atthe lower of cost and net realisable value. Depreciation is calculated on the straight line method over the estimated usefullife of the asset, as follows: Freehold buildings 25-50 yearsLong leasehold buildings 25-50 yearsShort leasehold buildings period of leasePlant and equipment 3-10 years When estimating the useful life of an asset group, the principal factors theGroup takes into account are the durability of the assets, the intensity atwhich the assets are expected to be used and the expected rate of technologicaldevelopments. ImpairmentThe Group performs impairment reviews in respect of fixed assets and goodwillwhenever events or changes in circumstance indicate that the carrying amount maynot be recoverable. An impairment loss is recognised when the recoverable amountof an asset, which is the higher of the asset's net realisable value and itsvalue in use, is less than its carrying amount. StocksStocks, which include raw materials, work in progress and finished goods, arestated at the lower of cost and net realisable value. Product based companiesdetermine cost by weighted average methods using standard costing to gather rawmaterial, labour and overhead costs. These costs are adjusted, whereappropriate, to correlate closely the standard costs to the actual costsincurred based on variance analysis. Service based companies' stocks consist ofspare parts and other consumables. Serialised parts are costed using thespecific identification method and other materials are generally costed usingthe first in, first out method. Net realisable value is the estimated selling price in the ordinary course ofbusiness, less the costs of completion and selling expenses. Allowance is madefor obsolete and slow-moving items, based upon annual usage by part. Long-term contractsRevenue on long-term contracts is recognised according to the stage reached inthe contract by reference to the value of work done. A prudent estimate of theprofit attributable to work completed is recognised once the outcome of thecontract can be assessed with reasonable certainty. Provision is made for allforeseeable losses. The amount by which the revenue exceeds payments on accountis shown under debtors as amounts recoverable on contracts. Any excess ofpayments on account over revenue recorded on contracts are classified undercreditors due within one year. Deferred taxationDeferred tax is recognised in respect of all timing differences that haveRelated Shares:
Wood Group (J)