5th Mar 2013 07:00
WOOD GROUP (JOHN) PLC - Full results for year ended 31 December 2012WOOD GROUP (JOHN) PLC - Full results for year ended 31 December 2012
PR Newswire
London, March 4
Full year results for the year ended 31 December 2012
Strong growth in 2012 led by Wood Group Engineering
John Wood Group PLC ("Wood Group" or the "Group") is an international energyservices company employing around 43,000 people worldwide and operating in 50countries. The Group has three businesses - Wood Group Engineering, Wood GroupPSN and Wood Group GTS - providing a range of engineering, production support,maintenance management and industrial gas turbine overhaul and repair servicesto the oil & gas, and power generation industries worldwide.Financial Summary
Revenue from continuing operations of $6,821.3m (2011: $5,666.8m) up 20%EBITA from continuing operations1 of $461.1m (2011: $341.6m) up 35%Profit from continuing operations before tax and exceptional items of $362.7m(2011: $254.1m) up 43%Adjusted diluted EPS of 85.2 cents (2011: 60.2 cents) up 42%Total dividend of 17 cents per share (2011: 13.5 cents) up 26%Group Highlights
Leadership changes position Wood Group for the next phase of growthIncreasing contribution from oil-producing US shale regionsOverall market conditions expected to remain favourableAnticipate progress in all divisions in 2013
Wood Group EngineeringSecond consecutive year of 30%+ EBITA growthStrength in upstream and subsea & pipelinesRevenue growth and margin improvement anticipated in 2013Wood Group PSNGood performance in North Sea and strong growth in North AmericaProgress in Oman; confident of a significant improvement in 2013Well placed to deliver strong performance in 2013
Wood Group GTSIncreased revenues in Maintenance and EBITA up around 10%Power Solutions EBITA slightly up on 2011Anticipate improvement in Maintenance in 2013Bob Keiller, CEO commented:
"Our 2012 financial results represent another year of strong growth with EBITAup 35%, reflecting the focus and hard work of our people around the world. WoodGroup is a great company and I believe we can be even better if we harness ourcollective strengths more effectively and operate in a more joined-up manner.We are set to make progress in all divisions in 2013, and I look forward toleading our further development in good long term growth markets"
Enquiries: Wood Group Nick Gilman 01224 851 000Andrew RoseCarolyn Smith Brunswick Patrick Handley 020 7404 5959Rosheeka Field There will be an analyst and investor presentation at the Lincoln Centre, 18Lincoln's Inn Fields, WC2A 3ED at 09.00 (GMT). Early registration is advisedfrom 08.30 (GMT)A live webcast of the presentation will be available from www.woodgroup.com/investors. Replay facilities will be available later in the day.
1 See detailed footnotes. Chairman's Statement Introduction The Group delivered strong growth in 2012 and we completed a number of changesin the executive leadership team. In November, Sir Ian Wood retired as Chairmanand from the Board. Sir Ian has been an extraordinary leader, guiding WoodGroup from its roots in the North Sea to its position today as a major globaloil & gas services business. The Group and its shareholders owe a huge debt tohim.On 1 November, I succeeded Sir Ian as Chairman and Bob Keiller became GroupCEO. Bob has taken over a strong business in good long term growth markets andis supported by an excellent management team.
Markets
During the period we benefitted from an increase in global E&P spend, estimatedby commentators to have been around 9%. Looking forward, conditions in our endmarkets are anticipated to remain favourable. We continue to see strong longerterm energy fundamentals, supported on the demand side by developing economies,and on the supply side by increasingly complex field developments and the shaleled pickup in oil & gas and industrial activity in the US. The Group is wellpositioned in end markets with a balance of opex and capex related activitiesacross key geographical areas of industry growth and we have a robust balancesheet. Financial ResultsThe Group's results reflected growth in all three divisions. Revenue fromcontinuing operations increased by 20% and EBITA from continuing operations wasup 35%. EBITA margin increased from 6.0% to 6.8%. Adjusted diluted EPSincreased by 42% to 85.2 cents.
Dividends
Reflecting our confidence in the longer term outlook for the Group, we aredeclaring a final dividend of 11.3 cents which will bring the full yeardividend to 17.0 cents, in line with our stated intention at the half year, andup 26% on 2011.
Board changes In June, Les Thomas, Group Director of Health and Safety, and Mark Papworth,Chief Executive of Wood Group GTS, stepped down from the board and depart withour best wishes for the future. Robin Watson, Chief Executive of Wood Group PSNand Mark Dobler, Chief Executive of Wood Group GTS were appointed to the Boardin January 2013. The Board will benefit from their significant operationalexperience and leadership. As announced last year, two of our longer serving non-executive directors, JohnMorgan and Dr. Christopher Masters, retired at the 2012 AGM and we thank themboth for their considerable contribution. Mary Shafer-Malicki and Tom Bottsjoined the Board as non-executive directors in May 2012 and January 2013respectively.Wood Group is well placed to further develop our leading positions acrossengineering, production facilities support and gas turbine services and I lookforward to the Group's continued success under Bob's leadership and direction.
Allister LanglandsChairman2012 Group Performance and CEO Q&A
2012 Group performance 2012 2011 % $m $m Change Revenue from continuing operations 6,821.3 5,666.8 20.4% EBITA from continuing operations1 461.1 341.6 35.0% EBITA margin from continuing operations % 6.8% 6.0% 0.8pts Profit from continuing operations before tax 362.7 254.1 42.7% and exceptional items Basic EPS 71.4c 530.7c n/m Adjusted diluted EPS2 85.2c 60.2c 41.5% Total dividend 17.0c 13.5c 25.9% ROCE6 19.2% 18.4% 0.8pts Note: Continuing operations revenue and EBITA figures include the results ofPSN since acquisition on 20 April 2011, and exclude the results of Well Supportin the period prior to its disposal on 26 April 2011 and those of the WoodGroup GTS Aero engine overhaul business disposed on 5 April 2012.Bob Keiller discusses the Group's performance in 2012, his role as incoming CEOand thoughts on strategy for the future:
Q: It's been a year of good growth across the group. What are the highlights?
Our 2012 financial results represent another year of strong growth with EBITAup 35%; a fitting tribute to Sir Ian and Allister's leadership and the focusand hard work of our people around the world. Wood Group Engineering delivered very strong growth. Revenue increased by 23%and EBITA increased by 36%, principally reflecting increased activity inupstream and subsea & pipelines. In Wood Group PSN, revenue and EBITA growth of23% and 34% benefitted from good performance in the North Sea, strong growth inNorth America, and the full 12 month contribution from the PSN businessacquired in April 2011. In GTS, revenue and EBITA increased by 12% reflectinggrowth in both Maintenance and Power Solutions.Q: What are your priorities as CEO?
Firstly, I am looking to build on what Sir Ian and Allister have created; aGroup which has achieved significant growth both organically and by acquisitionover many years, and I am pleased that Allister will be able to support me fromhis new position as Chairman. Wood Group is a great company, one I have knownas a customer, a competitor, a divisional CEO and now as a leader. And, basedon what I've seen since joining the Group, I believe we can be even better. I believe that the Group can be stronger if we harness our collective strengthsmore effectively and operate in a more joined-up manner. There are furtheropportunities for cross-selling and pull-through, making better use of thedepth of resources we have. The component parts of the Group have cultures thatfoster pride and entrepreneurship and my task is to protect that whileincreasing collaboration. We have significantly ramped up internalcommunication across the Group. This includes regular messages from theExecutive Committee that now represents all key areas of the business. I'm looking to continue to build the business based around our Core Valueswhich unite the Group. These Core Values - Safety & Assurance, Relationships,Social Responsibility, People, Innovation, Financial Responsibility andIntegrity - define who we are, what we believe in, set out how we act and howwe expect to be treated, and provide a sound basis to make decisions.I will be also be working with my teams to further develop the combined Groupstrategy. This will drive our tactical choices in terms of the range ofservices we provide and the markets and customers that we provide them to.
Q Strategically, what progress did the Group make this year?
We continued to pursue long term and sustainable growth, retaining a balanceacross opex and capex driven markets in oil & gas and power. Looking at some ofthe operational highlights, we made good progress in broadening ourinternational footprint in Wood Group Engineering in Saudi Arabia and the FarEast, and developing relationships with a number of customers including IOCsand EPC contractors. In Wood Group PSN we have been focussing on expansion inthe oil rich shale regions both organically and through the acquisitions ofMitchell's and Duval. In Wood Group GTS we maintained our focus on drivingimproved margins in Maintenance and delivering returns in Power Solutions. I amkeen to ensure that all parts of the business contribute to the Group's longerterm growth ambitions and benefit from being part of the Group.Q What about safety performance in 2012?
We don't want anyone suffering injury or ill health when they work for us or ifthey are affected by the work we do. It could be tempting to cite improvementswe have made in many areas but the stark fact is that one of our team died in2012 in a vehicle incident. We are not complacent and are working hard toassure the safety of our people. Safety & Assurance is our top priority and first Core Value. In our 2011 AnnualReport, we talked about lessons learned from incidents and actions taken toimprove risk management as a result. Our Safety Leadership Programme waslaunched at the end of 2011 with the aim of raising leaders' awareness of therole that they play in delivering and improving the safety performance of theGroup and encouraging them to demonstrate their commitment to safety in realand tangible ways. The programme has been led by the Board and has been rolledout to around 1,200 managers to date. We are continuing to develop theprogramme further and to extend it deeper into the organisation. We recognise that often "near misses" can provide extremely valuable lessonseven if no physical harm was suffered. In 2013, we will be trying even harderto recognise events that have a high loss potential and to ensure that we learnfrom them. Over many years we have reduced the recordable injury rates to ourpeople whilst growing our workforce significantly.Q Any change in the Group's approach to and appetite for risk?
Taking account of our skills, our customer base and our markets, it is clear tome that we need to remain a lower risk, predominantly reimbursable business.
I do, however, want to tighten up our controls around contracts that containfixed-price elements, to ensure that we keep our overall risk profile wellwithin our comfort levels. Typically, these contracts together represent lessthan 10% of revenues. I commissioned a team of senior operations and commercialmanagers from across the Group to analyse, define and categorise differenttypes of contracts with fixed-price elements. We have defined five discretecategories, some being relatively low risk where we have control over everyelement of the contract delivery, and others such as EPC contracts that includesite works and third parties for instance, which represent a higher risk. Weare updating our review and control requirements and have defined contract-sizethresholds for each category.Q What's the outlook for the Group?
Overall, we anticipate progress in all divisions in 2013.
In 2012, Wood Group Engineering delivered a second consecutive year of over 30%EBITA growth as the division recovered from the trough in 2010. Looking aheadto 2013, we anticipate revenue growth and margin improvement to lead to EBITAgrowth of around 15%. This is supported by our current order book, prospects ina number of key regions, including the Gulf of Mexico, the Middle East, theNorwegian North Sea and Asia Pacific, and our view on the overall market whichshould benefit from the forecast increase in E&P capex in 2013 of around 7%. Wood Group PSN is well placed to deliver a strong performance in 2013. In 2012we signed new contracts and renewals worth around $3.6bn in revenue, whichposition us well for the future. Looking ahead, the North Sea should benefitfrom spending on integrity management, operational assurance and productioninitiatives. In North America we expect further growth from our US shaleactivities, and in international markets we expect to see a significantimprovement from the progress we are making in Oman. In GTS we anticipate continued improvement in Maintenance in 2013, principallydue to operational improvement initiatives. The European power relatedMaintenance market is expected to remain soft but we believe that we will seesome improvement in the US. In Power Solutions, we remain on course to completethe Dorad contract in 2013 together with the smaller contracts awarded in 2012.We are pursuing a number of good near term Power Solutions opportunities in theAmericas and elsewhere, although these are smaller in scale. Having experienceddelays in project awards, we anticipate a lower contribution from PowerSolutions in 2013. As I said earlier, Wood Group is a great company and I believe we can be evenbetter. We have a strong business set to make progress in all divisions in2013, and I look forward to leading our further development in good long termgrowth markets. Bob KeillerCEO Operational Review Wood Group EngineeringWe provide a wide range of market-leading engineering services to the upstream,subsea & pipelines, downstream & industrial and clean energy sectors. Theseinclude conceptual studies, engineering, project & construction management(EPCM) and control system upgrades.
2012 2011 % $m $m Change Revenue 1,787.3 1,458.6 22.5% EBITA 220.0 162.0 35.8% EBITA margin 12.3% 11.1% 1.2pts People3 10,200 9,100 12% Wood Group Engineering delivered very strong growth. Revenue increased by 23%and EBITA increased by 36%, principally reflecting increased activity inupstream and subsea & pipelines. EBITA margin increased from 11.1% to 12.3%,largely as a result of higher volumes and improvement in pricing in some areas.Headcount increased by 12% from 9,100 to 10,200. The increase was heavilyweighted to the first half of the year, reflecting the timing of significantcontract awards in upstream.
Our upstream business accounted for just under 40% of divisional revenue.Detailed engineering work continues on the Ichthys and Mafumeira Sul projectsin Australia and Angola, which are scheduled to complete in the second half of2013. Strength in the Gulf of Mexico was driven by FEED and detailedengineering work on projects including Anadarko Lucius, Exxon Hadrian, ChevronJack & St Malo and Williams Partners Tubular Bells. We have visibility onprospects including detailed engineering following from ongoing and executedFEEDs, along with additional projects with existing customers. In Canada wehave seen good growth over the last two years, but experienced a slow down inactivity in the last quarter which is continuing in 2013. Our subsea & pipeline business accounted for almost 45% of revenue. Our subseaactivities remained strong in the North Sea and Australia where we continue towork on projects including BP Quad 204 and Chevron Gorgon. Elsewhere, wecontinue to work on the next phase of ACG in the Caspian and on Block 18 inAngola, and have recently been awarded the subsea FEED work on the Abadi FLNGproject in Indonesia for Inpex. Our onshore pipelines business has performedwell in the US, benefitting from the award of the Shell pipeline and terminalsEPCM contract and general activity levels in the shale regions.Downstream, process & industrial activities accounted for just over 15% ofrevenue. Performance in the second half improved, although the market remainshighly competitive.
Outlook In 2012, Wood Group Engineering delivered a second consecutive year of over 30%EBITA growth as the division recovered from the trough in 2010. Looking aheadto 2013, we anticipate revenue growth and margin improvement to lead to EBITAgrowth of around 15%. This is supported by our current order book, prospects ina number of key regions, including the Gulf of Mexico, the Middle East, theNorwegian North Sea and Asia Pacific, and our view on the overall market whichshould benefit from the forecast increase in E&P capex in 2013 of around 7%.Wood Group PSN
We provide life of field support to producing assets through brownfieldengineering and modifications, production enhancement, operations andmaintenance, training, maintenance management and abandonment services.
2012 2011 % $m $m Change Revenue 3,690.7 3,012.7 22.5% EBITA 205.0 153.2 33.8% EBITA margin 5.6% 5.1% 0.5pts People3 29,200 26,200 11%In Wood Group PSN, revenue and EBITA growth of 23% and 34% respectively,includes a full 12 month contribution from the PSN business acquired in April2011.
Headcount increased by 11% from 26,200 to 29,200 due to increases in Oman, theNorth Sea and the US, together with the impact of acquisitions.
We saw a good performance in the North Sea, which accounted for around 40% ofWood Group PSN revenue. Activity on our operations & maintenance and brownfieldengineering scopes on longer term contracts, including with BP, Shell, Talismanand TAQA, contributed to growth in 2012. During the year we negotiated contractrenewals and extensions worth over $800m. We were also awarded the operations &maintenance contract for Premier Oil's Balmoral FPV, the brownfield engineeringwork on Total's Franklin field and the hook-up and commissioning scope forNexen's Golden Eagle project. The Americas accounted for around 30% of revenue. Growth in North America wasstrong, particularly in the US shale regions where we saw good organic growthand benefitted towards the end of the year from the Duval and Mitchell'sacquisitions in the oil-rich Eagle Ford and Bakken regions respectively. Ouroffshore activities in the Gulf of Mexico also performed well. International markets, outside the North Sea and the Americas, represent around30% of revenue. In Oman, the loss for the year was around $20m. Despite thispoor performance, we made good progress on a number of matters and areincreasingly confident of seeing a significant improvement in 2013, and that2014 will be profitable. Elsewhere in the Middle East we announced our firstcontract award in Kurdistan with DNO for engineering and support services onthe Tawke field. In Australia, we were awarded significant new maintenance workin Melbourne and continue to work for clients including Exxon Mobil andWoodside. In Africa, we remain active in Chad, Equatorial Guinea, Nigeria andAngola. In the Caspian, we are providing facilities engineering andcommissioning services to customers including Tengizchevroil and Agip KCO.Outlook
Wood Group PSN is well placed to deliver a strong performance in 2013. In 2012we signed new contracts and renewals worth around $3.6bn in revenue, whichpositions us well for the future. Looking ahead, the North Sea should benefitfrom spending on integrity management, operational assurance and productioninitiatives. In North America we expect further growth from our US shaleactivities, and in international markets we expect to see a significantimprovement from the progress we are making in Oman.Wood Group GTS
We are a leading independent provider of rotating equipment services andsolutions for clients in the power and oil & gas markets. These servicesinclude: power plant engineering, procurement and construction; facilityoperations & maintenance; and repair, overhaul, optimisation and upgrades ofgas and steam turbines, pumps, compressors and other high-speed rotatingequipment. 2012 2011 % $m $m Change Revenue 1,343.3 1,195.5 12.4% EBITA 88.6 78.8 12.4% EBITA margin 6.6% 6.6% - People3 3,400 3,400 -Revenue and EBITA increased by 12% reflecting growth in both Maintenance andPower Solutions. Headcount was in line with the position at December 2011.
Maintenance revenues were up on 2011 and EBITA increased by around 10%. Ouraero derivative joint ventures, which are predominantly oil & gas related, madea strong contribution. EBITA margins improved, largely due to our increasedfocus on operating efficiency initiatives across our Maintenance activities.During the year, we were also awarded multi-year maintenance contracts coveringSakhalin island for SEIC, the Brent assets in the North Sea for Shell and theSacramento Power Authority's industrial facility in California. Power Solutions delivered EBITA slightly up on 2011. We have now completed ourGWF contract, recognising a profit on the contract overall. The Dorad contracthas progressed largely as anticipated and is due to complete in the fourthquarter of 2013. Towards the end of 2012, we commenced work on our smallercontracts with NRG and Pasadena Water and Power.Outlook
In GTS we anticipate continued improvement in Maintenance in 2013, principallydue to operational improvement initiatives. The European power relatedMaintenance market is expected to remain soft but we believe that we will seesome improvement in the US. In Power Solutions, we remain on course to completethe Dorad contract in 2013 together with the smaller contracts awarded in 2012.We are pursuing a number of good near term Power Solutions opportunities in theAmericas and elsewhere, although these are smaller in scale. Having experienceddelays in project awards, we anticipate a lower contribution from PowerSolutions in 2013. Financial Review Financial performance 2012 2011 $m $m Revenue from continuing operations 6,821.3 5,666.8 EBITA from continuing operations 461.1 341.6 EBITA margin from continuing operations 6.8% 6.0% Amortisation (85.5) (78.7) Operating profit from continuing operations before 375.6 262.9 exceptional items Net finance expense (12.9) (8.8) Profit from continuing operations before tax and 362.7 254.1 exceptional items Taxation on continuing operations before exceptional (103.9) (75.0) items Profit for the period from continuing operations before 258.8 179.1 exceptional items (Loss)/profit from discontinued operations, net of tax (1.2) 36.1 Profit for the period before exceptional items 257.6 215.2 Exceptional items, net of tax 0.6 2,087.6 Profit for the period 258.2 2,302.8 Basic EPS (cents) 71.4c 530.7c Adjusted diluted EPS (cents) 85.2c 60.2cA review of our trading performance is contained within the CEO's Q&A, alongwith the Operational Review.
The performance of the continuing Group on a pro forma basis is set out below.The pro forma includes the pre acquisition results of PSN and otheracquisitions in 2011, and excludes the post acquisition results of Mitchell'sand Duval in 2012. Unaudited 2012 2011 % $m $m Change Wood Group Engineering 1,787.3 1,462.4 22% Wood Group PSN 3,638.6 3,376.0 8% Wood Group GTS 1,343.3 1,225.0 10% Pro forma revenue from 6,769.2 6,063.4 12% continuing operations Wood Group Engineering 220.0 162.7 35% Wood Group PSN 193.5 175.2 10% Wood Group GTS 88.6 80.1 10% Central (52.5) (52.4) Pro forma EBITA from continuing 449.6 365.6 23% operationsThe pro forma result shows underlying growth in revenue of 12% and in EBITA of23%. On a pro forma basis, all divisions delivered growth in revenue and EBITA.
Amortisation
The amortisation charge for the year of $85.5m (2011: $78.7m) includes $57.1m(2011: $56.8m) of amortisation relating to intangible assets arising fromacquisitions, of which $46.0m (2011: $47.4m) is in relation to the PSNacquisition. The total amortisation charge for 2013 is expected to be around$85m of which it is anticipated around $40m will relate to PSN.Net finance expense
Net finance expense from continuing operations is analysed further below.
2012 2011 $m $m Interest on debt 9.8 9.0 Other fees and charges 4.6 4.7 Total finance expense from continuing operations 14.4 13.7 Finance income (1.5) (4.9) Net finance expense from continuing operations 12.9 8.8Interest on debt is driven by the average gross debt balance for the year, asshown below. Interest cover4, based on EBITA from continuing operations,remains strong at 35.7 times (2011: 38.8 times).
Exceptional items 2012 2011 $m $m Businesses divested (27.2) (2,293.7) Integration and restructuring charge 14.6 84.2 Impairment of goodwill 1.9 46.2 Bad debt provision/write off 10.0 13.0 Acquisition costs - 15.8Total exceptional items before tax (0.7) (2,134.5)
Tax on exceptional items 0.1 46.9Total exceptional items after tax (0.6) (2,087.6)
As set out in the table above, a pre-tax exceptional gain of $0.7m wasrecognised in the period, $0.6m after tax.
In May 2012, the Group recorded a pre-tax net exceptional gain of $27.2m inrelation the disposal of the Well Support Middle Eastern business.
The restructuring and integration charge of $14.6m and the goodwill impairmentof $1.9m were mainly in respect of decisions to withdraw from certain markets.
The $10.0m bad debt provision/write off is made up of a charge of $16.8m inrelation to work done for ATP Oil & Gas Corporation, who filed a voluntarypetition for reorganisation under Chapter 11 of the US Bankruptcy Code inAugust 2012, offset by recoveries of $6.8m in relation to receivables due froma Libyan customer which were fully provided in 2011. We will continue to makeevery effort to recover all amounts due. A net tax charge of $0.1m has been recognised in respect of the exceptionalitems in the period. Taxation 2012 2011 $m $m Profit from continuing operations before tax and 362.7 254.1 exceptional items Tax charge per financial statements 103.9 75.0 Effective tax rate on continuing operations 28.6% 29.5% The effective tax rate on continuing operations in 2012 was 28.6% (2011:29.5%). Going forward we expect the effective tax rate to be no more than 27.5%for the foreseeable future, with the reduction including the net impact of anumber of factors such as reducing corporate tax rates in certainjurisdictions, the impact of losses and the changing geographic mix of ourbusiness.Earnings per share
Adjusted diluted EPS for 2012 increased by 42% to 85.2 cents per share (2011:60.2c), due to the increase in underlying profitability and a reduction in theaverage number of fully diluted shares in the period subsequent to our returnof capital in 2011. Dividend Reflecting our confidence in the longer term outlook for the Group, thedirectors have proposed a final dividend of 11.3 cents per share. This resultsin a total dividend for 2012 of 17.0 cents per share, a 26% increase on 2011and an annual compound growth in dividends since IPO in 2002 of 19%. Dividendcover5 for 2012 is 5.0 times (2011: 4.5 times). Reconciliation of number of fully diluted Closing Weighted shares Average 2012 (All figures are in million shares) 2012 Ordinary shares 373.2 371.3 Shares held by employee trusts (11.6) (11.3) Basic shares for EPS purposes 361.6 360.0 Effect of dilutive shares 11.5 12.6 Fully diluted shares for EPS purposes 373.1 372.6 Summary Balance Sheet 2012 2011 $m $m Assets Non-current assets 2,131.8 1,873.9 Current assets 2,029.3 2,007.1 Liabilities Current liabilities (1,335.6) (1,505.2) Net current assets 693.7 501.9 Non-current liabilities (590.2) (401.3) Net assets 2,235.3 1,974.5 Equity attributable to owners of the parent 2,227.1 1,964.5 Non-controlling interests 8.2 10.0 Total equity 2,235.3 1,974.5Non-current assets are primarily made up of goodwill and intangible assets, andproperty, plant and equipment.
The increase in net current assets since December 2011 is primarily due tolower trade and other payables, higher trade receivables and inventory, partlyoffset by lower net cash.
The increase in non-current liabilities is primarily due to the increase inlonger term borrowings since December 2011.
Capital efficiency
The continuing Group's pre tax Return on average Capital Employed6 ("ROCE")increased from 18.4% to 19.3%. This reflects an increase in ROCE in Wood GroupEngineering following higher profitability in the period, offset to some extentby lower ROCE in Wood Group PSN which in 2012 has had the full year impact ofhigher goodwill and intangible assets arising on acquisition. The continuing Group's ratio of average Operating Capital Employed to Revenue7("OCER") worsened from 10.6% to 12.5%. The movement was due principally to ageneral increase in average receivable days in Wood Group Engineering. Cash flow and net debt 2012 2011 $m $m Opening net debt (3.9) (15.1) Cash generated from operations pre 520.6 471.6 working capital Working capital movements (continuing (192.9) (109.5) operations) Working capital movements (discontinued - (77.6) operations) Cash generated from operations 327.7 284.5 Acquisitions, deferred consideration, (315.9) (1,083.8)capex and intangibles Disposals 40.6 2,793.6 Return of cash to shareholders (7.7) (1,725.8) Tax paid (134.7) (118.7) Interest, dividends and other (60.6) (138.6) (Increase)/decrease in net debt (150.6) 11.2 Closing net debt (154.5) (3.9) Throughout the period the Group has maintained a level of debt as set outbelow. 2012 2011 $m $m Average net debt 140.7 * Average gross debt 356.5 295.5 Closing net debt 154.5 3.9 Closing gross debt 326.8 230.5 *Average net debt figures for 2011 do not provide a meaningful comparison as aresult of the cash received from the Well Support disposal and the subsequentreturn of cash to shareholders. Cash generated from operations pre-working capital increased by $49.0m to$520.6m and post-working capital increased by $43.2m to $327.7m. The workingcapital outflow of $192.9m relates primarily to higher trade receivables as aresult of increased activity in the period, along with higher inventory in GTSand the timing of payments and customer receipts on Power Solutions EPCcontracts. Cash paid in relation to acquisitions totalled $158.3m (2011: $964.8m),deferred consideration paid in respect of prior period acquisitions amounted to$30.4m (2011: $14.6m) and payments for capex and intangible assets increased to$127.2m (2011: $104.4m). We anticipate spend on capex and intangible assets tobe around $120m to $140m in 2013.The increase in tax paid in the year was due to higher profitability in theperiod and tax payments arising from the Well Support disposal in 2011.
The reduction in interest, dividend and other largely relates to the 2011purchase of shares for the employee benefits trust and 2011 expenses relatingto the return of cash to shareholders.
In February 2013, the Group renewed and extended its bilateral borrowingfacilities from $800m to $950m with the maturity date being extended toFebruary 2018.
Foreign exchange and constant currency reporting
The Group's revenue and EBITA can be impacted by movements in foreign exchangerates, including the effect of retranslating the results of subsidiaries withvarious functional currencies into US dollars at different exchange rates.Given there were no significant movements in the average US dollar to othermajor currencies in which we operate between 2011 and 2012, our results inconstant currency terms are materially the same as those presented above.Pensions
The majority of the Group's pension arrangements are on a defined contributionbasis. The Group operates one UK defined benefit scheme which had 258 activemembers and 933 deferred, pensionable deferred or pensionable members at 31December 2012. At 31 December 2012 the scheme had a deficit of $55.0m (2011:$45.8m) before recognition of a deferred tax asset of $12.7m (2010: $11.5m). Inassessing the potential liabilities, judgment is required to determine theassumptions around future salary and pension increases, inflation, investmentreturns and member longevity. The increase in the deficit from 2011 was dueprimarily to a reduction in the discount rate used, which is based on corporatebond yields.The scheme is closed to new members and future benefits under the scheme areprovided on a Career Average Revalued Earnings "CARE" basis.
Full details of pension assets and liabilities are provided in note 29 to theGroup financial statements.
Acquisitions During the year the Group completed the acquisitions of Mitchell's and Duvalwhich are providers of maintenance, installation and fabrication services tothe Bakken and Eagle Ford shale regions respectively. The total initialconsideration for these acquisitions was $158.3m, net of cash and borrowingsacquired. Both these acquisitions will now form part of the Wood Group PSNdivision and will significantly strengthen our position in those regions.Footnotes
1 EBITA from continuing operations represents operating profit from continuingoperations pre-exceptional items of $375.6m (2011:$262.9m) before the deductionof amortisation of $85.5m (2011: $78.7m) and is provided as it is a key unit ofmeasurement used by the Group in the management of its business. 2 Adjusted diluted earnings per share is calculated by dividing earnings beforeexceptional items and amortisation, net of tax, by the weighted average numberof ordinary shares in issue during the period, excluding shares held by theGroup's employee ownership trusts and adjusted to assume conversion of allpotentially dilutive ordinary shares.3 Number of people includes both employees and contractors at 31 December 2012.
4 Interest cover is EBITA from continuing operations divided by the net financecharge.
5 Dividend cover is AEPS divided by the total dividend per ordinary share forthe period.
6 Return of Capital Employed (ROCE) is EBITA divided by average capitalemployed.
7 Operating Capital Employed to Revenue (OCER) is the average operating capitalemployed (property, plant and equipment, intangible assets (excludingintangibles recognised on acquisition), inventories and trade and otherreceivables less trade and other payables) divided by revenue.
JOHN WOOD GROUP PLC GROUP FINANCIAL STATEMENTS FOR THE YEAR TO 31ST DECEMBER 2012 Company Registration Number SC 36219Consolidated income statement
for the year to 31 December 2012
2012 2011 Pre- Exceptional Pre- Exceptional Exceptional Items Exceptional Items Items (note 4) Total Items (note 4) Total Note $m $m $m $m $m $m Revenue from continuing 1 6,821.3 - 6,821.3 5,666.8 - 5,666.8operations Cost of sales (5,619.6) - (5,619.6)(4,684.2) (29.7) (4,713.9)
Gross profit 1,201.7 - 1,201.7 982.6 (29.7) 952.9 Administrative expenses (826.1) (26.5) (852.6) (719.7) (125.7) (845.4) Operating profit 1 375.6 (26.5) 349.1 262.9 (155.4) 107.5 Finance income 2 1.5 - 1.5 4.9 - 4.9 Finance expense 2 (14.4) - (14.4) (13.7) (3.8) (17.5) Profit before taxation from 3 362.7 (26.5) 336.2 254.1 (159.2) 94.9continuing operations Taxation 5 (103.9) 4.1 (99.8) (75.0) 26.7 (48.3) Profit for the year from 258.8 (22.4) 236.4 179.1 (132.5) 46.6continuing operations (Loss)/profit from discontinued 1 (1.2) 23.0 21.8 36.1 2,220.1 2,256.2operations, net of tax Profit for the year 257.6 0.6 258.2 215.2 2,087.6 2,302.8 Profit attributable to: Owners of the parent 256.4 0.6 257.0 214.7 2,087.6 2,302.3 Non-controlling interests 25 1.2 - 1.2 0.5 - 0.5 257.6 0.6 258.2 215.2 2,087.6 2,302.8 Earnings per share (expressed in cents per share) Basic 7 71.2 0.2 71.4 49.5 481.2 530.7 Diluted 7 68.8 0.2 69.0 47.8 465.2 513.0The notes on pages 7 to 55 are an integral part of these consolidated financialstatements.
Consolidated statement of comprehensive income
for the year to 31 December 2012
2012 2011 Note $m $m Profit for the year 258.2 2,302.8 Other comprehensive incomeActuarial losses on retirement benefit liabilities 29 (8.5) (22.6)
Movement in deferred tax relating to retirement 5 2.1 6.1benefit liabilities Cash flow hedges 24 3.7 (1.6) Exchange movements on retranslation of foreign 24 41.3 (31.1)currency net assets Exchange movements on retranslation of non-controlling 25 0.1 (0.2)interests Total comprehensive income for the year 296.92,253.4
Total comprehensive income for the year is attributable to: Owners of the parent 295.6 2,253.1 Non-controlling interests 25 1.3 0.3 296.9 2,253.4 The notes on pages 7 to 55 are an integral part of these consolidated financialstatements. Consolidated balance sheet as at 31 December 2012 2012 2011 Note $m $m Assets Non-current assets Goodwill and intangible assets 8 1,839.1 1,621.3 Property plant and equipment 9 198.6 150.0 Long term receivables 12 54.7 42.0 Deferred tax assets 19 39.4 60.6 2,131.8 1,873.9 Current assets Inventories 11 439.5 404.5 Trade and other receivables 12 1,392.5 1,320.9 Income tax receivable 25.0 28.7 Gross assets held for sale 27 - 26.4 Cash and cash equivalents 13 172.3 226.6 2,029.3 2,007.1 Liabilities Current liabilities Borrowings 15 45.3 69.2 Trade and other payables 14 1,188.0 1,286.2 Gross liabilities held for sale 27 - 10.6 Income tax liabilities 102.3 139.2 1,335.6 1,505.2 Net current assets 693.7 501.9 Non-current liabilities Borrowings 15 281.5 161.3 Deferred tax liabilities 19 9.4 5.7 Retirement benefit liabilities 29 55.045.8
Other non-current liabilities 16 163.7 98.7 Provisions 18 80.6 89.8 590.2 401.3 Net assets 2,235.3 1,974.5 Equity attributable to owners of the parent Share capital 21 23.5 23.4 Share premium 22 54.3 7.7 Retained earnings 23 1,640.7 1,469.8 Other reserves 24 508.6 463.6 2,227.1 1,964.5 Non-controlling interests 25 8.2 10.0 Total equity 2,235.3 1,974.5The financial statements on pages 2 to 55 were approved by the board ofdirectors on 4 March 2013.
Bob Keiller, Director Alan G Semple, Director
The notes on pages 7 to 55 are an integral part of these consolidated financialstatements.
Consolidated statement of changes in equity
for the year to 31 December 2012
Equity attributable Non- Share Share Retained Other to owners of controlling Total capital premium earnings reserves the parent interests equity Note $m $m $m $m $m $m $m At 1 January 26.3 315.8 1,007.6 56.6 1,406.3 10.9 1,417.22011 Profit for the - - 2,302.3 - 2,302.3 0.5 2,302.8year Othercomprehensiveincome: Actuarial 29 - - (22.6) - (22.6) - (22.6)losses onretirementbenefitliabilities Movement in 5 - - 6.1 - 6.1 - 6.1deferred taxrelating toretirementbenefitliabilities Cash flow 24 - - - (1.6) (1.6) - (1.6)hedges Exchange 24 - - (31.1) (31.1) (0.2) (31.3)movements onretranslationof foreigncurrency netassets Total - - 2,285.8 (32.7) 2,253.1 0.3 2,253.4comprehensiveincome for theyear Transactionswith owners: Dividends paid 6 - - (53.4) - (53.4) (0.3) (53.7)Transactions 25 - - - - - (0.9) (0.9)withnon-controllinginterests Credit relating 20 - - 9.7 - 9.7 - 9.7to share basedcharges Tax credit 5 - - 20.8 - 20.8 - 20.8relating toshare optionschemes Shares issued 21 0.6 - - 114.4 115.0 - 115.0in respect ofthe PSNacquisition Proceeds from 22 - 6.0 (6.0) - - - -Group companiesrelating tooptionsexercised undershare symmetryscheme Purchase of 21 (3.6) - (675.7) 3.6 (675.7) - (675.7)shares undertender offer Issue of `B' 21 436.1 (321.7) - (114.4) - - -shares Redemption of 21 (436.1) - (436.1) 436.1 (436.1) - (436.1)`B' shares Deferred share 23 - - (533.3) - (533.3) - (533.3)dividend Purchase of `C' 23 - - (113.4) - (113.4) - (113.4)shares bycompany Expenses and 23 - - (24.7) - (24.7) - (24.7)foreignexchangerelating toreturn of cash,net of tax Shares 23 - - (42.5) - (42.5) - (42.5)purchased byemployee sharetrusts Shares 23 0.1 7.6 (7.7) - - - -allocated toemployee sharetrusts Shares disposed 23 - - 12.3 - 12.3 - 12.3of by employeeshare trusts Cash received 23 - - 25.0 - 25.0 - 25.0by employeeshare trustsfrom the returnof cash toshareholders Exchange - - 1.4 - 1.4 - 1.4movements inrespect ofshares held byemployee sharetrusts At 31 December 23.4 7.7 1,469.8 463.6 1,964.5 10.0 1,974.52011 Profit for the - - 257.0 - 257.0 1.2 258.2yearOther 29 - - (8.5) - (8.5) - (8.5)comprehensiveincome:Actuariallosses onretirementbenefitliabilities Movement in 5 - - 2.1 - 2.1 - 2.1deferred taxrelating toretirementbenefitliabilities Cash flow 24 - - - 3.7 3.7 - 3.7hedges Exchange 24 - - - 41.3 41.3 0.1 41.4movements onretranslationof foreigncurrency netassets Total 250.6 45.0 295.6 1.3 296.9comprehensiveincome for theyear Transactionswith owners: Dividends paid 6 - - (55.2) - (55.2) (1.2) (56.4) Transactions 25 - - - - - (1.9) (1.9)withnon-controllinginterests Credit relating 20 - - 19.6 - 19.6 - 19.6to share basedcharges Tax credit 5 - - 1.1 - 1.1 - 1.1relating toshare optionschemes Proceeds from 22 - 43.5 (43.5) - - - -Group companiesrelating tooptionsexercised undershare symmetryscheme Shares 23 0.1 3.1 (3.2) - - - -allocated toemployee sharetrusts Shares disposed 23 - - 6.5 - 6.5 - 6.5of by employeeshare trusts Exchange - - (5.0) - (5.0) - (5.0)movements inrespect ofshares held byemployee sharetrusts At 31 December 23.5 54.3 1,640.7 508.6 2,227.1 8.2 2,235.32012The notes on pages 7 to 55 are an integral part of these consolidated financialstatements.
Consolidated cash flow statement
for the year to 31 December 2012
2012 2011 Note $m $m Cash generated from operations 26 327.7 284.5 Tax paid (134.7) (118.7) Net cash generated from operating activities 193.0165.8
Cash flows from investing activities Acquisition of subsidiaries (net of cash and 27 (188.7) (979.4)borrowings acquired) Cash impact of exceptional items (0.5)(16.4)
Proceeds from divestment of subsidiaries (net of cashand borrowings disposed and divestment costs) 27 40.6 2,793.6
Purchase of property plant and equipment 9 (69.4)(72.4)
Proceeds from sale of property plant and equipment 0.43.5
Purchase of intangible assets 8 (57.8)(32.0)
Proceeds from disposal of intangible assets -0.6
Investment by non-controlling interests -0.5
Net cash (used in)/from investing activities (275.4)1,698.0
Cash flows from financing activities Proceeds from bank loans 26 89.0 39.9 Return of cash to shareholders (7.7)(1,725.8)
Expenses relating to return of cash to shareholders -(14.9)
Purchase of shares by employee share trusts -(42.5)
Disposal of shares by employee share trusts 23 6.5 12.3 Interest received 1.5 4.6 Interest paid (11.3) (17.4) Dividends paid to shareholders 6 (55.2)(53.4)
Dividends paid to non-controlling interests 25 (1.2)(0.3)
Net cash from/(used in) financing activities 21.6(1,797.5)
Net (decrease)/increase in cash and cash equivalents 26 (60.8) 66.3
Effect of exchange rate changes on cash and cash 26 6.5 (19.8)equivalents Opening cash and cash equivalents 226.6180.1
Closing cash and cash equivalents 13 172.3226.6
The notes on pages 7 to 55 are an integral part of these consolidated financialstatements.
Notes to the financial statements
for the year to 31 December 2012
General information
John Wood Group PLC, its subsidiaries and joint ventures, provide services tothe oil and gas and power generation industries worldwide. Details of theGroup's activities during the year are detailed in the Operational Review. JohnWood Group PLC is a public limited company, incorporated and domiciled inScotland and listed on the London Stock Exchange.Accounting Policies
Basis of preparation
These financial statements have been prepared in accordance with IFRS and IFRICinterpretations adopted by the European Union (`EU') and with those parts ofthe Companies Act 2006 applicable to companies reporting under IFRS. The Groupfinancial statements have been prepared on a going concern basis under thehistorical cost convention as modified by the revaluation of financial assetsand liabilities at fair value through the income statement.Significant accounting policies
The Group's significant accounting policies adopted in the preparation of thesefinancial statements are set out below. These policies have been consistentlyapplied to all the years presented, unless otherwise stated.Basis of consolidation
The 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 divestment as appropriate. Subsidiaries areentities over which the Group has the power to govern the financial andoperating policies and generally accompanies a shareholding of more than onehalf of the voting rights. The Group's interests in joint ventures areaccounted for using proportional consolidation. Under this method the Groupincludes its share of each joint venture's income, expenses, assets,liabilities and cash flows on a line by line basis in the consolidatedfinancial statements. Transactions between Group subsidiaries are eliminatedand transactions between the Group and its joint ventures are eliminated to theextent of the Group's interest in the joint venture. All Group companies applythe Group's accounting policies and prepare financial statements to 31December.Critical accounting judgments and estimates
The preparation of the financial statements requires the use of estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the financial statements and the reported amounts of revenue andexpenses during the year. These estimates are based on management's bestknowledge of the amount, event or actions and actual results ultimately maydiffer from those estimates. The estimates and assumptions that have asignificant risk of causing a material adjustment to the carrying amounts ofassets and liabilities are addressed below.(a) Impairment of goodwill
The Group carries out impairment reviews whenever events or changes incircumstance indicate that the carrying value of goodwill may not berecoverable. In addition, the Group carries out an annual impairment review. Animpairment loss is recognised when the recoverable amount of goodwill is lessthan the carrying amount. The impairment tests are carried out by CGU ("CashGenerating Unit") and reflect the latest Group budgets. The budgets are basedon various assumptions relating to the Group's businesses including assumptionsrelating to oil prices, resource utilisation, foreign exchange rates, contractawards and contract margins. The outlook for the Group is discussed in theCEO's Q&A section of the Annual Report. Pre-tax discount rates of between 11%and 13% have been used to discount the CGU cash flows and a sensitivityanalysis has also been performed (see note 8).(b) Revenue recognition
Revenue on lump sum contracts for services, construction contracts and fixedprice long-term service agreements is recognised according to the stage ofcompletion reached in the contract by measuring the proportion of costsincurred for work performed to total estimated costs. Estimating the costs tocompletion and therefore the total contract costs is a key judgment in respectof the revenue recognition on these contracts.Notes to the financial statements
for the year to 31 December 2012
Accounting Policies (continued)
(c) Income taxes
The Group is subject to income taxes in numerous jurisdictions. Judgement isrequired in determining the
worldwide provision for income taxes. The Group recognises liabilities foranticipated tax issues based on estimates of whether additional taxes will bedue. Where the final outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the currentand deferred income tax assets and liabilities in the period in which suchdetermination is made.
(d) Retirement benefit liabilities
The value of the Group's retirement benefit liabilities is determined on anactuarial basis using a number of assumptions. Changes in these assumptionswill impact the carrying value of the liability. The Group determines theappropriate discount rate to be used in the actuarial valuation at the end ofeach financial year following consultation with the retirement benefit schemeactuary. In determining the rate used, consideration is given to the interestrates of high quality corporate bonds in the currency in which the benefitswill be paid and that have terms to maturity similar to those of the relatedretirement benefit obligation. See note 29 for further details.Functional currency
The Group's earnings stream is primarily US dollars and the principalfunctional currency is the US dollar, being the most representative currency ofthe Group. The Group's financial statements are therefore prepared in USdollars.
The following exchange rates have been used in the preparation of theseaccounts: 2012 2011 Average rate £1 = $ 1.5845 1.6041 Closing rate £1 = $ 1.6255 1.5541 Foreign currencies Income statements of entities whose functional currency is not the US dollarare translated into US dollars at average rates of exchange for the period andassets and liabilities are translated into US dollars at the rates of exchangeruling at the balance sheet date. Exchange differences arising on translationof net assets in such entities held at the beginning of the year, together withthose differences resulting from the restatement of profits and losses fromaverage to year end rates, are taken to the currency translation reserve. In each individual entity, transactions in overseas currencies are translatedinto the relevant functional currency at the exchange rates ruling at the dateof the transaction. Where more than one exchange rate is available, theappropriate rate at which assets can be readily realised and liabilities can beextinguished is used. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the exchange rates ruling at the balance sheetdate. Any exchange differences are taken to the income statement.Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the exchange rate ruling at the balance sheet date.
The directors consider it appropriate to record sterling denominated equityshare capital in the accounts of John Wood Group PLC at the exchange rateruling on the date it was raised.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivablefor the sale of goods and services in the ordinary course of the Group'sactivities. Revenue is recognised only when it is probable that the economicbenefits associated with a transaction will flow to the Group and the amount ofrevenue can be measured reliably. Revenue from services is recognised as theservices are rendered, including where they are based on contractual rates perman hour in respect of multi-year service contracts. Incentive performancerevenue is recognised upon completion of agreed objectives. Revenue fromproduct sales is recognised when the significant risks andNotes to the financial statements
for the year to 31 December 2012
Accounting Policies (continued)
rewards of ownership have been transferred to the buyer, which is normally upondelivery of products and customer acceptance, if any. Revenue is stated net ofsales taxes (such as VAT) and discounts. Revenue on lump sum contracts for services, construction contracts and fixedprice long-term service agreements is recognised according to the stage ofcompletion reached in the contract by measuring the proportion of costsincurred for work performed to total estimated costs. An estimate of the profitattributable to work completed is recognised, on a basis that the directors consider to be prudent, once theoutcome of the contract can be estimated reliably, which is when a contract isnot less than 20% complete. Expected losses are recognised in full as soon aslosses are probable. The net amount of costs incurred to date plus recognisedprofits less the sum of recognised losses and progress billings is disclosed astrade receivables/trade payables.Exceptional items
Exceptional items are those significant items which are separately disclosed byvirtue of their size or incidence to
enable a full understanding of the Group's financial performance. Transactionswhich may give rise to exceptional items include gains and losses on divestmentof businesses, write downs or impairments of assets including goodwill,restructuring costs or provisions, litigation settlements, acquisition costsand one-off gains and losses arising from currency devaluations.Finance expense/income
Interest income and expense is recorded in the income statement in the periodto which it relates. Arrangement fees in respect of the Group's borrowingfacilities are amortised over the period to which the facility relates.Interest relating to the discounting of deferred and contingent considerationliabilities is included in finance expense.Dividends
Dividends to the Group's shareholders are recognised as a liability in theperiod in which the dividends are approved by shareholders. Interim dividendsare recognised when paid.
Goodwill The Group uses the purchase method of accounting to account for acquisitions.Goodwill represents the excess of the cost of an acquisition over the fairvalue of the net assets acquired. Goodwill is carried at cost less accumulatedimpairment losses. Goodwill is not amortised. Acquisition costs are expensed inthe income statement. Intangible assets Intangible assets are carried at cost less accumulated amortisation. Intangibleassets are recognised if it is probable that there will be future economicbenefits attributable to the asset, the cost of the asset can be measuredreliably, the asset is separately identifiable and there is control over theuse of the asset. Where the Group acquires a business, intangible assets onacquisition such as customer contracts are identified and evaluated todetermine the carrying value on the acquisition balance sheet. Intangibleassets are amortised over their estimated useful lives, as follows:Software and development costs 3-5 years
Intangible assets on acquisition 3-10 years
Property plant and equipment
Property plant and equipment (PP&E) is stated at cost less accumulateddepreciation and impairment. No depreciation is charged with respect tofreehold land and assets in the course of construction.
Depreciation is calculated using the straight line method over the followingestimated useful lives of the assets:
Freehold and long leasehold buildings 25-50 years
Short leasehold buildings period of lease
Notes to the financial statements
for the year to 31 December 2012
Accounting Policies (continued)
Plant 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. Asset lives and residual values are assessed at each balancesheet date.Impairment
The Group performs impairment reviews in respect of PP&E and intangible assetswhenever events or changes in circumstance indicate that the carrying amountmay not be recoverable. In addition, the Group carries out annual impairmentreviews in respect of goodwill. An impairment loss is recognised when therecoverable amount of an asset, which is the higher of the asset's fair valueless costs to sell and its value in use, is less than its carrying amount. For the purposes of impairment testing, goodwill is allocated to theappropriate cash generating unit ("CGU"). The CGUs are aligned to the structurethe Group uses to manage its business. Cash flows are discounted in determiningthe value in use. Inventories Inventories, which include materials, work in progress and finished goods andgoods for resale, are stated at the lower of cost and net realisable value.Service based companies' inventories consist of spare parts and otherconsumables. Serialised parts are costed using the specific identificationmethod and other materials are generally costed using the first in, first outmethod. Product based companies determine cost by weighted average cost methodsusing standard costing to gather material, labour and overhead costs. Thesecosts are adjusted, where appropriate, to correlate closely the standard coststo the actual costs incurred based on variance analysis.Net realisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and estimated sellingexpenses. Allowance is made for obsolete and slow-moving items, based uponannual usage.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and other short-term bankdeposits with maturities of three months or less. Bank overdrafts are includedwithin borrowings in current liabilities. Where the Group uses poolingarrangements with a right of set-off, overdrafts and cash are netted andincluded in the appropriate category depending on the net position of the pool.
Trade receivables
Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables. The amount ofthe provision is the difference between the asset's carrying amount and thepresent value of estimated future cash flows, discounted at the effectiveinterest rate. The provision is determined by reference to previous experienceof recoverability for receivables in each market in which the Group operates.Trade payables
Trade payables are recognised initially at fair value and subsequently measuredat amortised cost.
BorrowingsBorrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost.
Notes to the financial statements
for the year to 31 December 2012
Accounting Policies (continued)
Deferred and contingent consideration
Where it is probable that deferred or contingent consideration is payable onthe acquisition of a business based on an earn out arrangement, an estimate ofthe amount payable is made at the date of acquisition and reviewed regularlythereafter, with any change in the estimated liability being reflected in theincome statement. Changes in the estimated liability in respect of acquisitionscompleted before 31 December 2009 are reflected in goodwill. Where deferredconsideration is payable after more than one year the estimated liability isdiscounted using an appropriate rate of interest.Taxation
The tax charge represents the sum of tax currently payable and deferred tax.Tax currently payable is based on the taxable profit for the year. Taxableprofit differs from the profit reported in the income statement due to itemsthat are not taxable or deductible in any period and also due to items that aretaxable or deductible in a different period. The Group's liability for currenttax is calculated using tax rates enacted or substantively enacted at thebalance sheet date. Deferred tax is provided, using the full liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. The principaltemporary differences arise from depreciation on PP&E, tax losses carriedforward and, in relation to acquisitions, the difference between the fairvalues of the net assets acquired and their tax base. Tax rates enacted, orsubstantially enacted, at the balance sheet date are used to determine deferredtax.Deferred tax assets are recognised to the extent that it is probable thatfuture taxable profits will be available against which the temporarydifferences can be utilised.
Accounting for derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date the contract isentered into and are subsequently remeasured at their fair value. The method ofrecognising the resulting gain or loss depends on whether the derivative isdesignated as a hedging instrument, and if so, the nature of the item beinghedged. The Group designates certain derivatives as either: (1) hedges of thefair value of recognised assets or liabilities or a firm commitment (fair valuehedge); (2) hedges of highly probable forecast transactions (cash flow hedge);or (3) hedges of net investments in foreign operations (net investment hedge). Where hedging is to be undertaken, the Group documents the relationship betweenthe hedging instrument and the hedged item at the inception of the transaction,as well as its risk management objective and strategy for undertaking the hedgetransaction. The Group also documents its assessment, both at hedge inceptionand on an ongoing basis, of whether the derivatives that are used in hedgingtransactions are highly effective in offsetting changes in fair values or cashflows of the hedged items. The Group performs effectiveness testing on aquarterly basis.a. Fair value hedge
Changes in the fair value of derivatives that are designated and qualify asfair value hedges are recorded in administrative expenses in the incomestatement, together with any changes in the fair value of the hedged asset orliability that are attributable to the hedged risk.
b. Cash flow hedge
The effective portion of changes in the fair value of derivatives that aredesignated and qualify as cash flow hedges is recognised in the hedging reservein equity. The gain or loss relating to the ineffective portion is recognisedimmediately in administrative expenses or finance income/expense in the incomestatement. Amounts accumulated in equity are recycled through the incomestatement in periods when the hedged item affects profit or loss.When a hedging instrument expires or is sold, or when a hedge no longer meetsthe criteria for hedge accounting, any cumulative gain or loss existing inequity at that time remains in equity and is recognised when the forecasttransaction is ultimately recognised in the income statement. When a
Notes to the financial statements
for the year to 31 December 2012
Accounting Policies (continued)
forecast transaction is no longer expected to occur, the cumulative gain orloss that was reported in equity is immediately transferred to the incomestatement.
c. Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly tocash flow hedges. Any gain or loss on the hedging instrument relating to theeffective portion of the hedge is recognised in the currency translationreserve in equity; the gain or loss relating to the ineffective portion isrecognised immediately in administrative expenses in the income statement.Gains and losses accumulated in equity are included in the income statementwhen the foreign operation is disposed of.d. Derivatives that are not designated as hedges
Certain derivatives, whilst providing effective economic hedges are notdesignated as hedges. Changes in the fair value of any derivative instrumentsthat are not designated for hedge accounting are recognised immediately inadministrative expenses in the income statement.
Fair value estimation
The fair value of interest rate swaps is calculated as the present value oftheir estimated future cash flows. The fair value of forward foreign exchangecontracts is determined using forward foreign exchange market rates at thebalance sheet date. The fair values of all derivative financial instruments areobtained from valuations provided by financial institutions.The carrying values of trade receivables and payables approximate to their fairvalues.
The fair value of financial liabilities is estimated by discounting the futurecontractual cash flows at the current market interest rate that is available tothe Group for similar financial instruments.Operating leases
As lessee
Payments made under operating leases are charged to the income statement on astraight line basis over the period of the lease. Benefits received andreceivable as an incentive to enter into an operating lease are also spread ona straight line basis over the period of lease.As lessor
Operating lease rental income arising from leased assets is recognised in theincome statement on a straight line basis over the period of the lease.
Retirement benefit liabilities
The Group operates a defined benefit scheme and a number of definedcontribution schemes. The liability recognised in respect of the definedbenefit scheme represents the present value of the defined benefit obligationsless the fair value of the scheme assets. The assets of this scheme are held inseparate trustee administered funds. The defined benefit scheme's assets are measured using fair values. Pensionscheme liabilities are measured annually by an independent actuary using theprojected unit method and discounted at the current rate of return on a highquality corporate bond of equivalent term and currency to the liability. Theincrease in the present value of the liabilities of the Group's defined benefitscheme expected to arise from employee service in the period is charged tooperating profit. The expected return on the scheme assets and the increaseduring the period in the present value of the scheme's liabilities arising fromthe passage of time are included in finance income/expense. Actuarial gains andlosses are recognised in the statement of comprehensive income in full in theperiod in which they occur. The defined benefit scheme's net assets or netliabilities are recognised in full and presented on the face of the balancesheet.The Group's contributions to defined contribution schemes are charged to theincome statement in the period to which the contributions relate.
Notes to the financial statements
for the year to 31 December 2012
Accounting Policies (continued)
Provisions
Provision is made for the estimated liability on all products and servicesstill under warranty, including claims already received, based on pastexperience. Other provisions are recognised where the Group is deemed to have alegal or constructive obligation, it is probable that a transfer of economicbenefits will be required to settle the obligation, and a reliable estimate ofthe obligation can be made. Where amounts provided are payable after more thanone year the estimated liability is discounted using an appropriate rate ofinterest.Share based charges relating to employee share schemes
The Group has a number of employee share schemes:-
i. Share options granted under Executive Share Option Schemes (`ESOS') are
granted at market value. A charge is booked to the income statement as an
employee benefit expense for the fair value of share options expected to be
exercised, accrued over the vesting period. The corresponding credit is
taken to retained earnings. The fair value is calculated using an option
pricing model.
ii. Share options granted under the Long Term Retention Plan (`LTRP') are
granted at par value. The charge to the income statement for LTRP shares is
also calculated using an option pricing model and, as with ESOS grants, the
fair value of the share options expected to be exercised is accrued over
the vesting period. The corresponding credit is also taken to retained
earnings.
iii. The Group has a Long Term Incentive Plan (`LTIP') for executive directors
and certain senior executives. Participants are awarded shares dependent on
the achievement of performance targets. The charge to the income statement
for shares awarded under the LTIP is based on the fair value of those
shares at the grant date, spread over the vesting period. The corresponding
credit is taken to retained earnings. For those awards that have a market
related performance measure, the fair value of the market related element
is calculated using a Monte Carlo simulation model.
iv. The Group has a Long Term Cash Incentive Plan (`LTCIP') for senior
management. Participants are paid a cash bonus dependent on the achievement
of performance targets. The charge to the income statement is based on the
fair value of the awards and is linked to movements in the Group's share
price. The charge is spread over the vesting period with the corresponding
credit being recorded in liabilities.
Proceeds received on the exercise of share options are credited to sharecapital and share premium.
Share capital
John Wood Group PLC has one class of ordinary shares and these are classifiedas equity. Dividends on ordinary shares are not recognised as a liability orcharged to equity until they have been approved by shareholders. The Group is deemed to have control of the assets, liabilities, income andcosts of its employee share trusts, therefore they have been consolidated inthe financial statements of the Group. Shares acquired by and disposed of bythe employee share trusts are recorded at cost. The cost of shares held by theemployee share trusts is deducted from equity.Segmental reporting
The Group has determined that its operating segments are based on managementreports reviewed by the Chief Operating Decision Maker (`CODM'), the Group'sChief Executive. The Group's reportable segments are Wood Group Engineering,Wood Group PSN and Wood Group GTS.The CODM measures the operating performance of these segments using `EBITA'(Earnings before interest, tax and amortisation). Operating segments arereported in a manner consistent with the internal management reports
provided to the CODM who is responsible for allocating resources and assessingperformance of the operating
segments.Notes to the financial statements
for the year to 31 December 2012
Accounting Policies (continued)
Wood Group Engineering offers a wide range of engineering services to theupstream, subsea and pipelines, downstream and industrial, and clean energysectors. These include conceptual studies, engineering, project andconstruction management (`EPCM') and control system upgrades. Wood Group PSNoffers life of field support to producing assets through brownfield engineeringand modifications, production enhancement, operations and management, training,maintenance management and abandonment services. Wood Group GTS is anindependent provider of rotating equipment services and solutions for clientsin the power and oil and gas markets. These services include power plantengineering, procurement and construction; facility operations and maintenance;and repair, overhaul, optimisation and upgrades of gas and steam turbines,pumps, compressors and other high speed rotating equipment.Disclosure of impact of new and future accounting standards
(a) Amended standards and interpretations not relevant to the GroupThe following revisions and amendments to standards and interpretations aremandatory as of 1 January 2012 but are currently not relevant to the Group andhave no impact to the Group's financial statements:
* Amendment to IFRS 7, `Financial instruments: Transfers of financial assets'
* Amendment to IFRS 1 on hyperinflation and fixed dates * Amendment to IAS 12, 'Income taxes' on deferred tax'(b) Standards, amendments and interpretations to existing standards that arenot yet effective and have not been early adopted by the Group
The following relevant standards and amendments and interpretations to existingstandards have been published and are mandatory for the Group's accountingperiods beginning on or after 1 January 2013 or later periods, but the Grouphas not early adopted them: * IFRS 10, `Consolidated financial statements' * IFRS 11, `Joint arrangements' * IFRS 12, `Disclosures of interests in other entities' * IFRS 13, `Fair value measurement' * IAS 19 (revised 2011) `Employee benefits' * IAS 27 (revised 2011) `Separate financial statements' * IAS 28 (revised 2011) `Associates and joint ventures' * Amendment to IFRS 1, `Presentation of financial statements on Other Comprehensive Income'* Amendment to IFRS 7 on Financial instruments asset and liability offsetting
The Group currently accounts for its interests in joint ventures usingproportional consolidation. Under IFRS 11, proportional consolidation willnot be permitted and therefore from 1st January 2014 the Group will account forits interests in joint ventures using equity accounting. The use of equityaccounting will have no impact on Group profit for the year or earnings pershare, but will impact the presentation of the Group's interests in jointventures in the income statement and in the balance sheet.The revision to IAS 19 will not have a material impact on the financialstatements although it is expected that the net finance cost in the incomestatement will increase in future periods (see note 29 for further details).
The Group has yet to assess the full impact of the other new standards andamendments but does not expect them to have a material impact on the financialstatements.
1 Segmental reportingThe segment information provided to the CODM for the reportable operatingsegments for the year ended 31 December 2012 includes the following:
Reportable Operating Segments (1)
Revenue EBITDA(2) EBITA(2) Operating profit Year Year Year Year Year Year Year Year ended ended ended ended ended ended ended ended 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2012 2011 2012 2011 2012 2011 2012 2011 $m $m $m $m $m $m $m $m Wood Group Engineering 1,787.3 1,458.6 231.2 170.6 220.0 162.0 187.8 128.3 Wood Group PSN (see 3,690.7 3,012.7 219.9 165.8 205.0 153.2 146.1 42.0note 3) Wood Group GTS 1,343.3 1,195.5 102.4 91.8 88.6 78.8 69.5 (8.9) Central costs (see - - (48.9) (49.4) (52.5) (52.4) (54.3) (53.9)note 4) Well Support - - 347.8 - 69.5 - 57.6 27.2 57.6divested (see note 5) Wood Group GTS - 6.8 37.7 (1.7) (0.5) (2.0) (0.5) (2.0) (12.5)divested (see note 6) Total (7) 6,828.1 6,052.3 502.9 447.8 459.1 398.7 374.3 152.6 Remove divested (6.8) (385.5) 1.7 (69.0) 2.0 (57.1) (25.2) (45.1)operations Total continuing 6,821.3 5,666.8 504.6 378.8 461.1 341.6 349.1 107.5operations Finance income 1.5 4.9 Finance expense (14.4) (17.5) Profit before taxation 336.2 94.9from continuingoperations Taxation (99.8) (48.3) Profit for the year 236.4 46.6from continuingoperations Profit from 21.8 2,256.2discontinuedoperations, net of tax(8) Profit for the year 258.2 2,302.81 Segmental reporting (continued)
Notes
* The Group's reportable segments are Wood Group Engineering, Wood Group PSN
and Wood Group GTS.
* Total continuing EBITDA represents operating profit of $349.1m (2011 :
$107.5m) before continuing depreciation of property plant and equipment of
$43.5m (2011 : $37.2m), amortisation of $85.5m (2011 : $78.7m) and
continuing exceptional items of $26.5m (2011 : $155.4m). EBITA represents
EBITDA less depreciation. EBITA and EBITDA are provided as they are units
of measurement used by the Group in the management of its business.* The 2011 results of Wood Group PSN include the trading activity of PSN from
the date of acquisition, 20th April 2011, to 31st December 2011.
* Central costs include the costs of certain management personnel in both the
UK and the US, along with an element of Group infrastructure costs.
* The results of the Well Support division represent the trading activity of
that division from 1st January 2011 to 26th April 2011, the date the
division was divested.
* The Wood Group GTS business divested is an Aero engine overhaul business
which the Group sold in April 2012. The results of the Aero engine overhaul
business represent the trading from 1 January 2012 to 4 April 2012. * The figures on the total row are the sum of continuing and discontinued activity. * Profit from discontinued operations, net of tax, comprises loss before exceptional items of $1.2m (2011: profit $36.1m) and profit fromexceptional items of $23.0m (2011 : $2,220.1m). The loss before exceptional
items is net of a tax credit of $0.8m. The profit from exceptional items is
net of a tax charge of $4.2m.
* Revenue arising from sales between segments is not material.
1 Segmental Reporting (continued)
Segment assets and liabilities
Wood Group Wood Wood Well Wood Engineering Group Group Support Group Unallocated Total PSN GTS divested GTS divested At 31 December 2012 $m $m $m $m $m $m $m Segment assets 807.2 2,203.9 1,034.2 - - 115.8 4,161.1 Segment liabilities 360.6 693.3 271.5 - - 600.4 1,925.8 At 31 December 2011 Segment assets 724.9 1,897.8 1,059.3 7.7 18.7 172.6 3,881.0 Segment liabilities 328.9 615.4 373.6 1.0 9.6 578.0 1,906.5 The Well Support segment assets and liabilities at 31 December 2011 representthe assets and liabilities of the Middle Eastern business, the sale of whichwas completed in May 2012 (note 27). Unallocated assets and liabilitiesincludes income tax, deferred tax and cash and cash equivalents and borrowingswhere this relates to the financing of the Group's operations.1 Segmental Reporting (continued)
Other segment items
2012 Wood Group Wood Wood Well Wood Engineering Group Group Support Group Unallocated Total PSN GTS divested GTS divested $m $m $m $m $m $m $m Capital expenditure - Property plant and 25.7 17.9 18.2 - - 7.6 69.4equipment - Intangible assets 43.1 6.2 7.3 - - 1.2 57.8 Non-cash expense - Depreciation of 11.2 14.9 13.8 - 0.3 3.6 43.8property plant andequipment - Amortisation of 18.4 55.8 9.5 - - 1.8 85.5intangible assets - Continuing 13.3 3.1 9.6 - - - 26.0exceptional items(non-cash element) 2011 $m $m $m $m $m $m $m Capital expenditure - Property plant and 16.1 18.0 18.9 15.0 0.8 2.7 71.5equipment - Intangible assets 10.2 2.5 12.8 - 1.3 5.2 32.0 Non-cash expense - Depreciation of 8.6 12.6 13.0 10.0 - 3.0 47.2property plant andequipment - Depreciation of - - - 1.9 - - 1.9rental inventory - Amortisation of 15.5 54.9 6.8 - - 1.5 78.7intangible assets - Continuing 17.9 41.7 79.4 - - - 139.0exceptional items(non-cash element)1 Segmental Reporting (continued)
Geographical segments Segment assets Continuing revenue 2012 2011 2012 2011 $m $m $m $m UK 1,066.1 1,017.1 1,823.2 1,586.3 US 1,526.2 1,308.2 1,946.2 1,517.9 Rest of the World 1,568.8 1,555.7 3,051.9 2,562.6 4,161.1 3,881.0 6,821.3 5,666.8 Revenue by geographical segment is based on the geographical location of thecustomer. 2012 2011 $m $m Revenue by category is as follows: Sale of goods 108.2 100.2 Rendering of services 6,713.1 5,566.6 Revenue from continuing operations 6,821.3 5,666.8 2 Finance expense/(income) 2012 2011 $m $m Interest payable on bank borrowings 11.2 11.3 Bank facility fees expensed 1.4 1.1 Interest relating to discounting of deferred and contingent 1.8 1.3consideration Finance expense pre-exceptional items 14.413.7
Bank facility fees relating to PSN acquisition -3.8
Finance expense - continuing operations 14.417.5
Interest receivable on short-term deposits (1.4)(4.4)
Other interest income - retirement benefit liabilities (note (0.1) (0.5)29) Finance income (1.5) (4.9) Finance expense - continuing operations - net 12.9 12.6 3 Profit before taxation 2012 2011 $m $m The following items have been charged/(credited) in arriving at profit before taxation: Employee benefits expense (note 28) 3,064.0 2,626.4 Impairment of inventories 3.1 14.2 Depreciation of property plant and equipment (note 9) 43.847.2
Amortisation of intangible assets (note 8) 85.578.7
Loss/(gain) on disposal of property plant and equipment 1.3(0.1)
Other operating lease rentals payable: - Plant and machinery 27.2 21.6 - Property 93.0 84.3 Foreign exchange losses 5.1 7.3 Impairment of inventories is included in cost of sales in the income statement.Depreciation of property plant and equipment is included in cost of sales andadministrative expenses in the income statement. Amortisation of intangibleassets is included in administrative expenses in the income statement.Services provided by the Group's auditors and associate firms
During the year the Group obtained the following services from its auditors andassociate firms at costs as detailed below:
2012 2011 $m $mFees payable to the Group's auditors and its associate firms 0.8 0.8for the audit of parent company and consolidated financial
statements Fees payable to the Group's auditors and its associate firms for other services - Audit of Group companies pursuant to legislation 1.7 1.6 - Other services - 1.2 - Tax services 0.2 0.2 2.7 3.8 Other services in 2011 relates to due diligence and other transactional work inrespect of the PSN acquisition, the divestment of the Well Support division andthe return of cash to shareholders. 4 Exceptional items 2012 2011 $m $m Exceptional items included in continuing operations Integration and restructuring charges 14.684.2
Impairment of goodwill (note 8) 1.9 46.2 Bad debt write offs 10.0 13.0 Acquisition costs - 12.0 26.5 155.4 Bank facility fees relating to PSN acquisition - 3.8 26.5 159.2 Taxation (4.1) (26.7) Continuing operations exceptional items, net of tax 22.4132.5
Exceptional items included in discontinued operations Gain on divestment - Well Support (note 27) (27.2)(2,305.7)
Write down of assets in relation to aero engine overhaul - 12.0business (27.2) (2,293.7) Taxation 4.2 73.6Discontinued operations exceptional items, net of tax (23.0) (2,220.1)
Total exceptional items, net of tax (0.6)(2,087.6)
Integration and restructuring charges of $14.6m, mainly relating to decisionsto withdraw from certain markets, were expensed during the year. Integrationand restructuring charges of $84.2m, relating mainly to the PSN integration andthe decision to exit from certain markets, were expensed in 2011.Goodwill of $1.9m was impaired during the year as a result of the decision toexit from certain markets referred to above. Goodwill of $46.2m, mainlyrelating to a Wood Group GTS power related business was impaired in 2011.
A net bad debt write off of $10.0m was recorded in 2012. A charge of $16.8m wasrecorded in respect of engineering work carried out for ATP Oil and GasCorporation (`ATP'). ATP filed a voluntary petition for reorganisation underChapter 11 of the US Bankruptcy Code in August 2012. This write off was partlyoffset by a credit of $6.8m in respect of cash recovered against the overdueLibyan receivables provision made in 2011 following political disruption in thecountry.Acquisition costs of $12.0m and bank facility fees of $3.8m, relating mainly tothe purchase of PSN were expensed in 2011.
The gain on divestment of Well Support arose primarily from the disposal of theGroup's interest in a Middle Eastern business. There was no gain nor loss onthe divestment of the Group's aero engine overhaul business, the assets havingbeen written down in 2011.In 2011 the gain on divestment of Well Support amounted to $2,305.7m, and acharge of $12.0m was made in relation to the write down of the assets of theGroup's aero engine overhaul business.
A tax credit of $4.1m (2011: $26.7m) was recorded in 2012 in relation toexceptional items on continuing operations. A tax charge of $4.2m (2011:$73.6m) was recorded in relation to the net gain on discontinued exceptionalitems. 5 Taxation 2012 2011 $m $m Current tax - Current year 107.5 117.9 - Adjustment in respect of prior years 4.7 (4.8) 112.2 113.1 Deferred tax - Current year (15.7) (33.0) - Adjustment in respect of prior years 7.4(5.1)
Tax charge - pre-exceptional items 103.975.0
Tax on continuing exceptional items (note 4) (4.1)(26.7)
Tax charge - continuing operations 99.8 48.3 2012 2011 Tax (credited)/charged to equity $m$m
Deferred tax movement on retirement benefit liabilities (2.1) (6.1)
Deferred tax relating to share option schemes 8.6(13.9)
Current tax relating to share option schemes (9.7)(6.9)
Current tax relating to foreign exchange on return of cash to - (3.6)shareholders Total credited to equity (3.2) (30.5) Tax is calculated at the rates prevailing in the respective jurisdictions inwhich the Group operates. The expected rate is the weighted average rate takinginto account the Group's profits in these jurisdictions. The expected rate hasdecreased in 2012 due to the change in mix of the tax jurisdictions in whichthe Group operates. The tax charge for the year is higher (2011 : higher) thanthe expected tax charge due to the following factors: 2012 2011 $m $m Profit before taxation from continuing operations 362.7 254.1pre-exceptional items Profit before tax at expected rate of 27.35 % (2011: 28.6%) 99.2 72.7 Effects of: Adjustments in respect of prior years 12.1(9.9)
Non-recognition of losses and other attributes 12.05.7
Effect of tax on dividends and other foreign taxes 4.2 5.6 Other permanent differences (23.6) 0.9 Tax charge pre-exceptional items 103.975.0
Other permanent differences include adjustments for share based charges,research and development allowances and changes in unrecognised tax attributes. 6 Dividends 2012 2011 $m $m Dividends on ordinary shares Final dividend paid - year ended 31 December 2011: 9.6 cents 34.6 39.3(2011: 7.6 cents) per shareInterim dividend paid - year ended 31 December 2012: 5.7 20.6 14.1cents (2011: 3.9 cents) per share
55.2 53.4 The directors are proposing a final dividend in respect of the financial yearended 31 December 2012 of 11.3 cents per share. The final dividend will be paidon 22 May 2013 to shareholders who are on the register of members on 19 April2013. The financial statements do not reflect the final dividend, the paymentof which will result in an estimated $40.9m reduction in equity attributable toowners of the parent. 7 Earnings per share 2012 2011 Earnings Earnings attributable Earnings attributable Earnings to owners of Number per to owners of Number per the parent of shares share the parent of shares share $m (millions) (cents) $m (millions) (cents) Basic pre-exceptional 256.4 360.0 71.2 214.7 433.8 49.5 Exceptional items, net of 0.6 360.0 0.2 2,087.6 433.8 481.2tax Basic 257.0 360.0 71.4 2,302.3 433.8 530.7 Effect of dilutive - 12.6 (2.4) - 15.0 (17.7)ordinary shares Diluted 257.0 372.6 69.0 2,302.3 448.8 513.0 Exceptional items, net of (0.6) 372.6 (0.2) (2,087.6) 448.8 (465.2)tax Diluted pre-exceptional 256.4 372.6 68.8 214.7 448.8 47.8items Amortisation, net of tax 61.0 - 16.4 55.5 - 12.4 Adjusted diluted 317.4 372.6 85.2 270.2 448.8 60.2 Adjusted basic 317.4 360.0 88.2 270.2 433.8 62.3 Basic discontinued earnings per share for the year is 6.1 cents (2011: 520.0cents) and diluted discontinued earnings per share is 5.9 cents (2011: 502.7cents). The calculation of basic earnings per share is based on the earningsattributable to owners of the parent divided by the weighted average number ofordinary shares in issue during the year excluding shares held by the Group'semployee share trusts. For the calculation of diluted earnings per share, theweighted average number of ordinary shares in issue is adjusted to assumeconversion of all potentially dilutive ordinary shares. The Group has two typesof dilutive ordinary shares - share options granted to employees underExecutive Share Option Schemes and the Long Term Retention Plan; and sharesissuable under the Group's Long Term Incentive Plan. Adjusted basic andadjusted diluted earnings per share are disclosed to show the results excludingthe impact of exceptional items and amortisation, net of tax.8 Goodwill and intangible assets
Software and Intangibles development arising on Goodwill costs acquisition Total $m $m $m $m Cost At 1 January 2012 1,465.0 140.0 252.2 1,857.2 Exchange movements 28.6 3.6 5.6 37.8 Additions - 57.8 - 57.8 Acquisitions (note 27) 156.7 - 57.6 214.3 Disposals - (8.9) - (8.9) At 31 December 2012 1,650.3 192.5 315.4 2,158.2 Aggregate amortisation and 54.3 86.8 94.8 235.9impairment At 1 January 2012 Exchange movements - 2.1 2.3 4.4 Amortisation charge for the year - 28.4 57.1 85.5 Impairment 1.9 - - 1.9 Disposals - (8.6) - (8.6) At 31 December 2012 56.2 108.7 154.2 319.1 Net book value at 31 December 2012 1,594.1 83.8 161.2 1,839.1 Cost At 1 January 2011 626.5 109.5 71.1 807.1 Exchange movements (23.3) (2.6) (13.4) (39.3) Additions - 32.0 - 32.0 Acquisitions 895.3 16.4 194.5 1,106.2 Disposals - (10.4) - (10.4) Divestment of business (33.5) (1.2) - (34.7) Reclassification as assets held for - (3.7) - (3.7)sale At 31 December 2011 1,465.0 140.0 252.2 1,857.2 Aggregate amortisation andimpairment 9.7 79.6 40.3 129.6 At 1 January 2011 Exchange movements 0.1 (1.5) (2.3) (3.7) Amortisation charge for the year - 21.9 56.8 78.7 Impairment 46.2 - - 46.2 Disposals - (9.8) - (9.8) Divestment of business (1.7) (1.1) - (2.8) Reclassification as assets held for - (2.3) - (2.3)sale At 31 December 2011 54.3 86.8 94.8 235.9Net book value at 31 December 2011 1,410.7 53.2 157.4 1,621.3
In accordance with IAS 36 `Impairment of assets', goodwill was tested forimpairment during the year. The impairment tests were carried out against theGroup's Cash Generating Units (`CGU'), being the key Strategic Business Units(`SBUs') within the three operating divisions, which are aligned with how theGroup manages and monitors performance.8 Goodwill and intangible assets (continued)
Value-in-use calculations have been prepared for each CGU using the cash flowprojections included in the financial budgets approved by management for 2013/2014. Cash flows beyond this period are extrapolated using a growth rate of 3%per annum for a further three year period. A terminal value is appliedthereafter in order to calculate long term estimated cash flows using the sameanticipated long term growth rate of 3% across all CGUs. The growth rate useddoes not exceed the long-term average growth rates for the regions in which theCGUs operate. The cash flows have been discounted using pre-tax discount ratesappropriate for each CGU. Division Cash Generating Unit Goodwill Average carrying pre-tax value discount ($m) rate used IMV 128.4Wood Group Wood Group Mustang 219.8 13%Engineering Wood Group Kenny 60.0 WG PSN International (Australia) 183.4 WG PSN International (Africa) 117.3Wood Group WG PSN International (Other) 13.7 11%PSN WG PSN Americas 295.1 WG PSN UK 434.5 WG PSN Services 45.1 Aero Derivative 12.1Wood Group Oil & Gas and Industrial Services 18.0GTS Power Plant Services 18.9 12% Equipment and Project Solutions 38.2 Other Wood Group GTS 9.6Details of the key assumptions underlying the cash flows are included incritical accounting judgements and estimates in the Accounting Policies on page7.
The value-in-use has been compared to the carrying value for each CGU. $1.9m ofgoodwill, which relates to a market from which the Group is exiting, has beenwritten off during the year. $46.2m of goodwill was impaired during 2011.A sensitivity analysis has been performed on the basis that the expectedlong-term growth rate falls to 2% and that the discount rates are 1% higherthan those above in order to assess the impact of reasonable possible changesto the assumptions used in the impairment review. This analysis did notidentify any further impairment.
In 2011, the goodwill impairment test was performed using budgeted andextrapolated cash flows for a 20 year period. In addition, the 2011 impairmenttest utilised a single discount rate of 10% for all CGUs.
Intangibles arising on acquisition include the valuation of customer contractsand customer relationships recognised on business combinations.
Development costs with a net book value of $20.8m (2011: $22.9m) are internallygenerated intangible assets.
9 Property plant and equipment
Land and Buildings Long leasehold and Short Plant and freehold leasehold equipment Total $m $m $m $m Cost At 1 January 2012 55.5 30.3 280.2 366.0 Exchange movements 0.7 0.4 4.1 5.2 Additions 5.6 6.9 56.9 69.4 Acquisitions 2.2 0.2 28.1 30.5 Disposals (0.1) (3.9) (14.7) (18.7) Divestment of business (note 27) (4.8) - (7.9) (12.7) Reclassifications 17.8 (4.4) (13.4) - At 31 December 2012 76.9 29.5 333.3 439.7 Accumulated depreciation andimpairment At 1 January 2012 19.3 18.3 178.4 216.0 Exchange movements 0.3 0.3 4.2 4.8 Charge for the year 3.5 3.1 37.2 43.8 Impairment - - 4.9 4.9 Disposals (0.1) (3.8) (13.1) (17.0) Divestment of business (note 27) (4.2) - (7.2) (11.4) Reclassifications 5.7 (3.1) (2.6) - At 31 December 2012 24.5 14.8 201.8 241.1Net book value at 31 December 2012 52.4 14.7 131.5 198.6
The assets of businesses divested during the year were reclassified as grossassets held for sale in the Group balance sheet at 31st December 2011.Property, plant and equipment with a book value of $1.3m that was part of oneof those divestments was not reclassified as held for sale at that time as itwas anticipated that the Group would retain ownership of those assets. Theseassets are shown on the divestment of business line in the above table.9 Property plant and equipment (continued)
Land and Buildings Long leasehold and Short Plant and freehold leasehold equipment Total $m $m $m $m Cost At 1 January 2011 68.4 29.4 482.5 580.3 Exchange movements (0.4) (0.2) (2.7) (3.3) Additions 8.2 5.8 57.5 71.5 Acquisitions 16.4 - 13.0 29.4 Disposals (4.4) (0.9) (31.7) (37.0) Divestment of business (29.7) (3.8) (234.1) (267.6) Reclassification as assets held for (3.0) - (3.8) (6.8)sale Reclassification to current assets - - (0.5) (0.5) At 31 December 2011 55.5 30.3 280.2 366.0 Accumulated depreciation andimpairment At 1 January 2011 28.0 18.1 296.0 342.1 Exchange movements (0.3) (0.2) (2.2) (2.7) Charge for the year 4.7 2.5 40.0 47.2 Impairment 1.7 - 3.6 5.3 Disposals (3.0) (0.8) (29.8) (33.6) Divestment of business (11.7) (1.3) (126.8) (139.8) Reclassification as assets held for (0.1) - (0.3) (0.4)sale Reclassification to current assets - - (2.1) (2.1) At 31 December 2011 19.3 18.3 178.4 216.0Net book value at 31 December 2011 36.2 12.0 101.8 150.0
There were no assets in the course of construction at 31st December 2012 (2011:$17.3m).
10 Joint venturesIn relation to the Group's interests in joint ventures, its share of assets,liabilities, income and expenses is shown below.
2012 2011 $m $m Non-current assets 65.2 58.7 Current assets 312.8 268.4 Current liabilities (192.9) (175.8) Non-current liabilities (26.1) (5.0) Net assets 159.0 146.3 Income 532.3 445.4 Expenses (497.5) (412.2) Profit before tax 34.8 33.2 Tax (12.2) (11.2) Share of post-tax results from joint ventures 22.622.0
The joint ventures have no significant contingent liabilities to which theGroup is exposed, nor has the Group any significant contingent liabilities inrelation to its interest in the joint ventures. The name and principalactivities of the most significant joint ventures is disclosed in note 34.
11 Inventories 2012 2011 $m $m Materials 53.6 46.9 Work in progress 115.3 103.1 Finished goods and goods for resale 270.6 254.5 439.5 404.512 Trade and other receivables
2012 2011 $m $m Trade receivables 1,150.1 1,010.6 Less: provision for impairment of trade receivables (43.3) (50.9) Trade receivables - net 1,106.8 959.7 Amounts recoverable on contracts 105.9171.2
Prepayments and accrued income 87.0 104.9 Other receivables 92.8 85.1 Trade and other receivables - current 1,392.5 1,320.9 Long term receivables 54.7 42.0 Total receivables 1,447.2 1,362.9The Group's trade receivables balance is analysed by division below:-
Trade Provision Trade receivables for receivables Receivable - Gross impairment - Net days 31 December 2012 $m $m $m Wood Group Engineering 299.7 (21.7) 278.0 56 Wood Group PSN 651.5 (14.0) 637.5 53 Wood Group GTS 198.9 (7.6) 191.3 33 Total Group 1,150.1 (43.3) 1,106.8 51 31 December 2011 Wood Group Engineering 276.3 (27.2) 249.1 59 Wood Group PSN 546.7 (15.4) 531.3 56 Wood Group GTS 187.6 (8.3) 179.3 29 Total Group 1,010.6 (50.9) 959.7 50 Receivable days are calculated by allocating the closing trade receivablesbalance to current and prior period revenue including sales taxes. A receivabledays calculation of 51 indicates that closing trade receivables represent themost recent 51 days of revenue. A provision for the impairment of tradereceivables is established when there is objective evidence that the Group willnot be able to collect all amounts due according to the terms of the originalreceivables. The ageing of the provision for impairment of trade receivables is as follows: 2012 2011 $m $m Up to 3 months 10.4 14.0 Over 3 months 32.9 36.9 43.3 50.912 Trade and other receivables (continued)
The movement on the provision for impairment of trade receivables by divisionis as follows: Wood Group Wood Group Wood Group Well Total Engineering PSN GTS Support 2012 $m $m $m $m $m At 1 January 27.2 15.4 8.3 - 50.9 Exchange movements 0.5 0.2 - - 0.7 Credit to income (6.0) (1.8) (0.7) - (8.5)statement Acquisitions - 0.2 - - 0.2 At 31 December 21.7 14.0 7.6 - 43.3 2011 At 1 January 17.9 6.3 5.2 27.1 56.5 Exchange movements (0.6) (0.2) - - (0.8) Charge to income 9.9 2.2 3.1 4.6 19.8statement Acquisitions - 7.1 - - 7.1 Divestment of businesses - - (31.7) (31.7) At 31 December 27.2 15.4 8.3 - 50.9The charge/(credit) to the income statement is included in administrativeexpenses.
The other classes within trade and other receivables do not contain impairedassets.
Included within gross trade receivables of $1,150.1m above (2011: $1,010.6m)are receivables of $214.3m (2011: 209.6m) which were past due but not impaired.These relate to customers for whom there is no recent history or expectation ofdefault. The ageing analysis of these trade receivables is as follows: 2012 2011 $m $m Up to 3 months overdue 158.6 183.0 Over 3 months overdue 55.7 26.6 214.3 209.6 Construction contractsFinancial information in respect of Engineering, Procurement and Construction(`EPC') contracts carried out by Wood Group GTS is presented below -
2012 2011 $m $m Contract costs incurred and recognised profit for projects to 867.4 409.3date Contract revenue recognised in the year 458.1366.1
Receivables for work done under these contracts at the 90.3 145.4balance sheet date 13 Cash and cash equivalents 2012 2011 $m $m Cash at bank and in hand 157.9 171.6 Short-term bank deposits 14.4 55.0 172.3 226.6The effective interest rate on short-term deposits was 1.6% (2011: 3.5%) andthese deposits have an average maturity of 31 days (2011 : 8 days).
At 31 December 2012 the Group held $10.0m of cash (2011: $9.9m) in itsinsurance captive subsidiary to comply with local regulatory requirements.
14 Trade and other payables
2012 2011 $m $m Trade payables 447.4 520.8 Other tax and social security payable 83.386.9
Accruals and deferred income 534.6576.4
Deferred and contingent consideration 14.1 27.0 Other payables 108.6 75.1 1,188.0 1,286.2 15 Borrowings 2012 2011 $m $m Bank loans and overdrafts due within one year or on demand Unsecured 45.3 69.2 Non-current bank loans Unsecured 281.5 161.3 Bank loans are denominated in a number of currencies and bear interest based onLIBOR or foreign equivalents appropriate to the country in which the borrowingis incurred. The effective interest rates on the Group's borrowings at the balance sheetdate were as follows: 2012 2011 % % US Dollar 1.11 2.06 Sterling 2.36 2.83 Euro 1.45 2.28 Canadian Dollar 2.40 2.30 The carrying amounts of the Group's borrowings are denominated in the followingcurrencies: 2012 2011 $m $m US Dollar 131.1 36.5 Sterling 68.4 68.1 Euro 63.1 57.8 Canadian Dollar 57.3 54.0 Other 6.9 14.1 326.8 230.5 The Group is required to issue trade finance instruments to certain customers.These include tender bonds, performance bonds, retention bonds, advance paymentbonds and standby letters of credit. At 31 December 2012 the Group's bankfacilities relating to the issue of bonds, guarantees and letters of creditamounted to $702.3m (2011: $797.1m). At 31 December 2012, these facilities were51% utilised (2011: 51%). 15 Borrowings (continued) Borrowing facilities The Group has the following undrawn borrowing facilities available at 31December: 2012 2011 $m $m Expiring within one year 101.8 101.2 Expiring between one and two years 518.5-
Expiring between two and five years - 638.7 620.3 739.9 All undrawn borrowing facilities are floating rate facilities. The facilitiesexpiring within one year are annual facilities subject to review at variousdates during 2013. In February 2013, the Group increased its bilateralfacilities from $800m to $950m, with the maturity date being extended toFebruary 2018. The Group was in compliance with its bank covenants throughoutthe year.16 Other non-current liabilities
2012 2011 $m $m Deferred and contingent consideration 76.5 37.9 Other payables 87.2 60.8 163.7 98.7Deferred and contingent consideration represents amounts payable onacquisitions made by the Group and is expected to be paid over the next fiveyears.
17 Financial instruments The Group's activities give rise to a variety of financial risks: market risk(including foreign exchange risk and cash flow interest rate risk), credit riskand liquidity risk. The Group's overall risk management strategy is to hedgeexposures wherever practicable in order to minimise any potential adverseimpact on the Group's financial performance. Risk management is carried out by the Group Treasury department in line withthe Group's Treasury policies. Group Treasury, together with the Group'sbusiness units identify, evaluate and where appropriate, hedge financial risks.The Group's Treasury policies cover specific areas, such as foreign exchangerisk, interest rate risk, use of derivative financial instruments andinvestment of excess cash. Where the Board considers that a material element of the Group's profits andnet assets are exposed to a country in which there is significant geo-politicaluncertainty a strategy is agreed to ensure that the risk is minimised.17 Financial instruments (continued)
(a) Market risk
(i) Foreign exchange risk
The Group is exposed to foreign exchange risk arising from various currencies.The Group has a number of subsidiary companies whose revenue and expenses aredenominated in currencies other than the US dollar. Where practical, the Grouphedges part of its net investment in non-US dollar subsidiaries by usingforeign currency bank loans. Other strategies, including the payment ofdividends, are used to minimise the amount of net assets exposed to foreigncurrency revaluation. Some of the revenues of the Group's businesses are to customers in overseaslocations. Where possible, the Group's policy is to eliminate all significantcurrency exposures on revenues at the time of the transaction by usingfinancial instruments such as forward currency contracts. Changes in theforward contract fair values are booked through the income statement, exceptwhere hedge accounting is used in which case the change in fair value isrecorded in equity.The Group carefully monitors the economic and political situation in thecountries in which it operates to ensure appropriate action is taken tominimise any foreign currency exposure.
The Group's main foreign exchange risk relates to movements in the sterling/USdollar exchange rate. Movements in the sterling/US dollar rate impact thetranslation of sterling profit earned in the UK and the translation of sterlingdenominated net assets. If the average sterling/US dollar rate had been 10% higher or lower during 2012(2011:10%), post-tax profit for the year would have been $10.6m higher or lower(2011: $10.6m). If the closing sterling/US dollar rate was 10% higher or lowerat 31 December 2012 (2011:10%), exchange differences in equity would have been$48.0m (2011: $28.8m) higher or lower respectively. 10% has been used in thesecalculations as it represents a reasonable possible change in the sterling/USdollar exchange rate. (ii) Interest rate risk The Group finances its operations through a mixture of retained profits andbank borrowings. The Group borrows in the desired currencies at floating ratesof interest and then uses interest rate swaps into fixed rates to generate thedesired interest profile and to manage the Group's exposure to interest ratefluctuations. At 31 December 2012, 19% (2011 : 47%) of the Group's borrowingswere at fixed rates after taking account of interest rate swaps. The Group is also exposed to interest rate risk on cash held on deposit. TheGroup's policy is to maximise the return on cash deposits whilst ensuring thatcash is deposited with a financial institution with a credit rating of `A' orbetter, where possible. If average interest rates had been 1% higher or lowerduring 2012 (2011:1%), post-tax profit for the year would have been $1.9mhigher or lower respectively (2011: $1.3m). 1% has been used in thiscalculation as it represents a reasonable possible change in interest rates.(iii) Price risk
The Group is not exposed to any significant price risk in relation to itsfinancial instruments.
17 Financial instruments (continued)
(b) Credit risk
The Group's credit risk primarily relates to its trade receivables. The Group'soperations comprise three divisions, Wood Group Engineering, Wood Group PSN andWood Group GTS each made up of a number of businesses. Responsibility formanaging credit risks lies within the businesses with support being provided byGroup and divisional management where appropriate. A customer evaluation is typically obtained from an appropriate credit ratingagency. Where required, appropriate trade finance instruments such as lettersof credit, bonds, guarantees and credit insurance will be used to manage creditrisk. The Group's major customers are typically large companies which have strongcredit ratings assigned by international credit rating agencies. Where acustomer does not have sufficiently strong credit ratings, alternative forms ofsecurity such as the trade finance instruments referred to above may beobtained. The Group has a broad customer base and management believe that nofurther credit risk provision is required in excess of the provision forimpairment of trade receivables. Management review trade receivables across the Group based on receivable dayscalculations to assess performance. There is significant management focus onreceivables that are overdue. A table showing trade receivables and receivabledays by division is provided in note 12. Receivable days calculations are notprovided on non-trade receivables as management do not believe that thisinformation is a relevant metric. The Group also has credit risk in relation to cash held on deposit. The Group'spolicy is to deposit cash at institutions with a credit rating of `A' or betterwhere possible. 100% of cash held on deposit at 31 December 2012 (2011 : 74%)was held with such institutions.(c) Liquidity risk
With regard to liquidity, the Group's main priority is to ensure continuity offunding. At 31 December 2012, 96% (2011 : 91%) of the Group's borrowingfacilities (excluding joint ventures) were due to mature in more than one year.Based on the current outlook the Group has sufficient funding in place to meetits future obligations.In February 2013, the Group increased its bilateral facilities from $800m to$950m, with the maturity date being extended to February 2018.
(d) Capital risk
The Group seeks to maintain an optimal capital structure. The Group monitorsits capital structure on the basis of its gearing ratio, interest cover andwhen applicable, the ratio of net debt to EBITDA.
Gearing is calculated by dividing net debt by equity attributable to owners ofthe parent. Gearing at 31 December 2012 was 6.9% (2011: 0.2%).
Interest cover is calculated by dividing EBITA from continuing operations bynet finance expense from continuing operations before exceptional items.Interest cover for the year to 31 December 2012 was 35.7 times (2011: 38.8times).
The ratio of net debt to continuing EBITDA at 31 December 2012 was 0.31 (2011:0.01).
17 Financial instruments (continued)
The table below analyses the Group's financial liabilities into relevantmaturity groupings based on the remaining period from the balance sheet date tothe contractual maturity date. The amounts disclosed in the table are thecontractual undiscounted cash flows. Drawdowns under long term bank facilitiesare for periods of three months or less and are not therefore discounted andloan interest payable is excluded from the amounts below. At 31 December 2012 Less than Between 1 Between 2 Over 5 1 year and 2 and 5 years years years $m $m $m $m Borrowings 45.3 281.5 - - Trade and other payables 1,104.7 - - - Other non-current liabilities - 62.1 107.1 - At 31 December 2011 Borrowings 69.2 - 161.3 - Trade and other payables 1,199.3 - - - Other non-current liabilities - 28.5 70.2 -Fair value of non-derivative financial assets and financial liabilities
The fair value of short-term borrowings, trade and other payables, trade andother receivables, short-term deposits and cash at bank and in handapproximates to the carrying amount because of the short maturity of interestrates in respect of these instruments. Drawdowns under long-term bankfacilities are for periods of three months or less and as a result, book valueand fair value are considered to be the same.Details of derivative financial instruments are not disclosed in the financialstatements as they are not material.
18 Provisions Warranty Other provisions provisions Total $m $m $m At 1 January 2012 14.2 75.6 89.8 Exchange movements 0.3 - 0.3 Charge/(credit) to income statement 4.8 (12.2) (7.4) Acquisitions - 1.6 1.6 Payments during the year (3.7) - (3.7) At 31 December 2012 15.6 65.0 80.6 Warranty provisions These provisions are recognised in respect of guarantees provided in the normalcourse of business relating to contract performance. They are based on previousclaims history and it is expected that most of the costs in respect of theseprovisions will be incurred over the next two years.Other provisions
At 31 December 2012, other provisions of $65.0m (2011: $75.6m) have beenrecognised. This amount includes provisions for future losses on onerouscontracts, a provision for non-recoverable indirect taxes and provisionsrelating to the divestment of businesses. It is expected that any paymentrequired in respect of these provisions would be made within the next twoyears.
19 Deferred tax
Deferred tax is calculated in full on temporary differences under the liabilitymethod using the tax rate applicable to the territory in which the asset orliability has arisen. Deferred tax in relation to UK companies is provided at23% (2011: 25%).The movement on the deferred tax account is shown below:
2012 2011 $m $m At 1 January (54.9) (97.9) Exchange movements (4.3) 2.3 Credit to income statement (8.3) (33.9) Acquisitions (note 27) 31.0 69.5 Divestment of business - 25.1Deferred tax relating to retirement benefit liabilities (2.1) (6.1)
Deferred tax relating to share option schemes 8.6 (13.9) At 31 December (30.0) (54.9) Deferred tax is presented in the financial statements as follows: Deferred tax assets (39.4) (60.6) Deferred tax liabilities 9.4 5.7 (30.0) (54.9) 19 Deferred tax (continued)There is no deferred tax relating to discontinued activities included withinthe credit to the income statement shown in the above table (2011: credit$4.2m).
No deferred tax is recognised on the unremitted earnings of overseassubsidiaries and joint ventures. As these earnings are continually reinvestedby the Group, no tax is expected to be payable on them in the foreseeablefuture.
The Group has unrecognised tax losses of $192.7m (2011: $147.6m) to carryforward against future taxable income.
Deferred tax assets and liabilities are only offset where there is a legallyenforceable right of offset and there is an intention to settle the balancesnet. The deferred tax balances are analysed below:- Accelerated Share Short term tax based timing depreciation Pension charges differences Losses Total 2012 $m $m $m $m $m $m Deferred tax assets 71.5 (12.7) (31.3) (64.9) (2.0) (39.4) Deferred tax - - - 9.4 - 9.4liabilities Net deferred tax 71.5 (12.7) (31.3) (55.5) (2.0) (30.0)liability/(asset) Accelerated Share Short term tax based timing depreciation Pension charges differences Losses Total 2011 $m $m $m $m $m $m Deferred tax assets 59.8 (11.5) (33.4) (71.5) (4.0) (60.6) Deferred tax - - - 5.7 - 5.7liabilities Net deferred tax 59.8 (11.5) (33.4) (65.8) (4.0) (54.9)liability/(asset) 20 Share based chargesThe Group currently has four share schemes that give rise to share basedcharges. These are the Executive Share Option Scheme (`ESOS'), the Long TermRetention Plan (`LTRP'), the Long Term Incentive Plan (`LTIP') and the LongTerm Cash Incentive Plan (`LTCIP'). Further details of these schemes isprovided in the Directors' Remuneration Report.
The charge to operating profit in 2012 for these schemes amounted to $26.2m(2011 : $19.2m). $19.6m (2011: $16.0m) of the total charge is credited toretained earnings and $6.6m (2011: $3.2m), relating to the LTCIP, is includedin other non-current liabilities as the LTCIP is a cash settled scheme.
The assumptions made in arriving at the charge for each scheme are detailedbelow:
ESOS and LTRP
Around 1,200 employees participate in these schemes. For the purposes ofcalculating the fair value of the share options, a Black-Scholes option pricingmodel has been used. Based on past experience, it has been assumed that optionswill be exercised, on average, six months after the earliest exercise date,which is four years after grant date, and there will be a lapse rate of between15% and 20%. The share price volatility used in the calculation of 35%-40% isbased on the actual volatility of the Group's shares since IPO as well as thatof comparable companies. The risk free rate of return is based on the impliedyield available on zero coupon gilts with a term remaining equal to theexpected lifetime of the options at the date of grant. The rate used rangesfrom 0.5% to 4.4%. A dividend yield of between 1.0% and 2.0% has been used inthe calculations. The fair value of options granted under the ESOS during the year was £2.09(2011 : £1.62). The fair value of options granted under the LTRP during theyear was £6.43 (2011 : £4.94 to £6.38). The weighted average remainingcontractual life of share options at 31 December 2012 is 5.6 years (2011: 5.7years). LTIP The share based charge for the LTIP was calculated using a fair value of £4.12for the first cycle, £1.81 for the second cycle, £3.01 for the third cycle, £5.10 for the fourth cycle and £6.18 for the fifth cycle. The charge for marketrelated performance targets has been calculated using a Monte Carlo simulationmodel taking account of share price volatility against peer group companies,risk free rate of return, dividend yield and the expected lifetime of theaward.LTCIP
The share based charge for the LTCIP was calculated using a fair value of £7.01(2011: £6.18). The fair value is calculated using a Black-Scholes optionpricing model using similar assumptions to those used for ESOS and LTRP above.Payments under the LTCIP are linked to movements in the Group's share price.20 Share based charges (continued)
Executive Share Option Schemes
The following options to subscribe for new or existing shares were outstandingat 31 December: Year of Number of ordinary Exercise shares under option price Grant 2012 2011 (per Exercise share) period 2003 72,500 162,500 158p 2007-2013 2004 160,000 455,584 128½p 2008-2014 2005 20,000 30,000 145p 2009-2015 2006 48,500 109,500 265¼p 2010-2016 2007 102,290 231,660 268½p 2011-2017 2008 254,346 937,111 381¾p 2012-2018 2008 29,850 81,460 354⅓p 2012-2018 2009 2,498,791 2,818,105 222p 2013-2019 2009 50,000 55,836 283⅔p 2013-2019 2010 2,556,687 2,805,667 377½p 2014-2020 2011 1,938,166 2,031,500 529½p 2015-2021 2012 1,919,865 - 680½p 2016-2022 2012 5,000 - 802p 2016-2022 9,655,995 9,718,923 Details of the Group's Executive Share Option Schemes are set out in theDirectors' Remuneration Report. Share options are granted at an exercise priceequal to the average mid-market price of the shares on the three days prior tothe date of grant.687,486 options (2011 : 989,244) were exercisable at 31 December 2012.1,964,000 options were granted during the year, 1,438,477 options wereexercised during the year and 588,451 options lapsed during the year. Theweighted average share price for ESOS options exercised during the year was £7.59 (2011 : £6.49).
Options granted to directors under the executive share option scheme aresubject to performance criteria as set out in the Directors' RemunerationReport. No options have been granted to executive directors since 2009. Thereare no performance criteria under this scheme for options granted to employees.
Long Term Retention Plan
The following options granted under the Group's LTRP were outstanding at 31December: Year of Number of ordinary Exercise shares under option price Grant 2012 2011 (per Exercise share) period 2007 - 106,500 3⅓p 2011-2012 2008 145,000 1,159,959 3⅓p 2012-2013 2009 2,201,000 2,502,932 3⅓p 2013-2014 2010 1,029,042 1,160,270 3⅓p 2014-2015 2011 75,000 75,000 3⅓p 2015-2016 2011 569,500 588,000 42/7p 2015-2016 2012 896,334 - 42/7p 2016-2017 4,915,876 5,592,66120 Share based charges (continued)
Options are granted under the Group's LTRP at par value. The basis of thescheme is that an overall bonus pool is calculated annually based onperformance criteria that consider the growth in the Group's adjusted earningsper share in the prior year. There are no performance criteria attached to theexercise of options under the LTRP. 145,000 options (2011 : 106,500) wereexercisable at 31 December 2012. 928,500 LTRP options were granted during theyear, 1,279,681 LTRP options were exercised during the year and 325,604 LTRPoptions lapsed during the year. The weighted average share price for LTRPoptions exercised during the year was £7.51 (2011 : £6.52). Further details onthe LTRP are provided in the Directors' Remuneration Report.Long Term Incentive Plan
The Group's Long Term Incentive Plan (`LTIP') has been in place since 2008.Under this Scheme, the executive directors and certain senior executives areawarded shares dependent upon the achievement of performance targetsestablished by the Remuneration Committee. The performance measures for theLTIP are EBITA, OCER (ratio of operating capital employed to revenue), totalshareholder return and adjusted diluted earnings per share. The LTIP awards arein the form of shares and forfeitable restricted shares. 20% of any awardearned over the three year performance cycle are deferred for a further twoyears in the form of forfeitable restricted shares. At 31 December 2012,4,448,914 shares were potentially issuable under this scheme. Further detailsof the LTIP are provided in the Directors' Remuneration Report.21 Share capital
Ordinary shares of 42/7 pence each 2012 2011(2011: 42/7 pence) Issued and fully paid shares $m shares $m At 1 January 371,275,384 23.4 530,266,720 26.3 Shares issued to satisfy option - - 45,000 -awards Shares issued relating to PSN - - 10,511,413 0.6acquisition Purchase of shares under tender - - (65,911,929) (3.6)offer New shares issued in advance of - - 4 -share reorganisation Share reorganisation - - (105,535,824) -Allocation of new shares to employee 1,900,000 0.1 1,900,000
0.1share trusts At 31 December 373,175,384 23.5 371,275,384 23.4On 20 December 2012, 1,900,000 new shares of 42/7 pence were issued to theemployee share trusts at prices ranging from 42/7 pence to 222 pence.
During 2011, the Company purchased 65,911,929 shares at a cost of $675.7m underthe tender offer that formed the first part of the return of cash toshareholders. $3.6m, representing the par value of these shares was deductedfrom share capital and a corresponding amount credited to a capital redemptionreserve (note 24). The total cost of $675.7m was deducted from retainedearnings (note 23). In addition, 4 new shares were issued prior to thereorganisation of the Company's share capital. The reorganisation of theCompany's share capital resulted in seven 42/7 pence shares being issued foreach existing nine 3⅓ pence shares. During 2011, 1,900,000 new shares wereissued to the employee share trusts. 22 Share premium 2012 2011 $m $m At 1 January 7.7 315.8Proceeds from Group companies relating to options exercised 43.5 6.0under share symmetry scheme
Issue of `B' shares - (321.7) Allocation of new shares to employee share trusts 3.1 7.6 At 31 December 54.3 7.7 During the year, the company received $43.5m (2011: $6.0m) proceeds from Groupcompanies relating to the exercise of employee share options under the sharesymmetry scheme. This amount was credited to share premium. Under the sharesymmetry scheme, subsidiary companies remit share proceeds to the parentcompany in respect of employee share options granted before the IPO in 2002On 20 December 2012, 1,900,000 new shares of 42/7 pence were issued to theemployee share trusts at prices ranging from 42/7 pence to 222 pence and $3.1mwas credited to the share premium account.
During 2011, 191,250,234 `B' shares were issued at £1.40 each resulting in atotal of $436.1m being credited to the `B' share capital account. At the sametime, $321.7m was deducted from share premium and $114.4m was deducted from themerger reserve (note 24). 1,900,000 new shares were issued to the employeeshare trusts with $7.6m being credited to the share premium account. 23 Retained earnings 2012 2011 $m $m At 1 January 1,469.8 1,007.6 Profit for the year attributable to owners of the parent 257.0 2,302.3 Dividends paid (note 6) (55.2) (53.4) Credit relating to share based charges (note 20) 19.69.7
Actuarial loss on retirement benefit liabilities (note 29) (8.5) (22.6)
Movement in deferred tax relating to retirement benefit 2.1 6.1liabilities Proceeds from Group companies relating to options exercised (43.5) (6.0)under share symmetry scheme Purchase of shares under tender offer - (675.7) Redemption of `B' shares - (436.1) Deferred share dividend - (533.3) Purchase of `C' shares by company -(113.4)
Foreign exchange relating to return of cash to shareholders, - (9.8)net of tax Expenses relating to return of cash to shareholders -(14.9)
Shares allocated to employee share trusts (3.2)(7.7)
Shares purchased by employee share trusts -(42.5)
Shares disposed of by employee share trusts 6.512.3
Cash received by employee share trusts from the return of - 25.0cash to shareholders Tax credit relating to share option schemes 1.120.8
Exchange movements in respect of shares held by employee (5.0) 1.4share trusts At 31 December 1,640.7 1,469.823 Retained earnings (continued)
During 2012, the parent company received $43.5m (2011: $6.0m) of proceeds fromGroup companies relating to the exercise of employee share options under theshare symmetry scheme. This amount was credited to share premium in the parentcompany and an equivalent amount deducted from retained earnings onconsolidation. In 2011, the return of cash to shareholders via the purchase and redemption ofshares and a deferred share dividend resulted in a deduction of $1,758.5m fromretained earnings. Full details are provided in the 2011 Annual Report andAccounts. Retained earnings are stated after deducting the investment in own shares heldby employee share trusts. Investment in own shares represents the cost of11,599,912 (2011: 14,696,669) of the company's ordinary shares totalling$112.7m (2011: $111.0m). No options have been granted over shares held by theemployee share trusts (2011: nil). Shares acquired by the employee share trusts are purchased in the open marketusing funds provided by John Wood Group PLC to meet obligations under theEmployee Share Option Schemes, the LTRP and the LTIP. During 2012, 1,900,000new shares were allocated to the employee share trust at a value of $3.2m.2,718,158 shares were issued during the year to satisfy the exercise of shareoptions at a value of $6.5m. 2,278,599 shares were issued during the year tosatisfy share awards under the Long Term Incentive Plan. Exchange adjustments of $5.0m (2011: $1.4m) arose during the year relating tothe retranslation of the investment in own shares from sterling to US dollars.The costs of funding and administering the trusts are charged to the incomestatement in the period to which they relate. The market value of the shares at31 December 2012 was $137.0m (2011: $146.4m) based on the closing share priceof £7.27 (2011: £6.41). The employee share trusts have waived their rights toreceipt of dividends on ordinary shares.24 Other reserves
Capital Capital Currency reduction redemption Merger translation Hedging reserve reserve reserve reserve reserve Total $m $m $m $m $m $m At 1 January 2011 88.1 (28.4) (3.1) 56.6 - - Shares issued - - 114.4 - - 114.4relating to PSNacquisition Purchase of shares - 3.6 - - - 3.6under tender offer Issue of `B' shares - - (114.4) (114.4) Redemption of `B' - 436.1 - - - 436.1shares Exchange movements - - - (31.1) - (31.1)on retranslation offoreign currency netassets Cash flow hedges - - - - (1.6) (1.6) At 31 December 2011 88.1 439.7 - (59.5) (4.7) 463.6Exchange movementson retranslation offoreign currency net - - - 41.3 - 41.3assets Cash flow hedges - - - - 3.7 3.7 At 31 December 2012 88.1 439.7 - (18.2) (1.0) 508.6 The currency translation reserve relates to the retranslation of foreigncurrency net assets on consolidation. This was reset to zero on transition toIFRS at 1 January 2004. The movement during the year relates to theretranslation of foreign currency net assets, including goodwill and intangibleassets recognised on acquisition. The hedging reserve relates to the accountingfor derivative financial instruments under IAS 39. Fair value gains and lossesin respect of effective cash flow hedges are recognised in the hedging reserve. 25 Non-controlling interests 2012 2011 $m $m At 1 January 10.0 10.9 Exchange movements 0.1 (0.2) Share of profit for the year 1.2 0.5 Dividends paid to non-controlling interests (1.2)(0.3)
Non-controlling interests arising on business combinations (0.3) 0.4
Disposal of non-controlling interests (1.2)-
Other transactions with non-controlling interests (0.4) (1.3) At 31 December 8.2 10.026 Cash generated from operations
2012 2011 $m $m Reconciliation of operating profit to cash generated from operations: Operating profit from continuing operations before 375.6 262.9exceptional items Operating (loss)/profit from discontinued operations (2.0) 57.1before exceptional items Adjustments for: Depreciation 43.8 47.2 Loss/(gain) on disposal of property plant and 1.3 (0.1)equipment Amortisation of intangible assets 85.5 78.7 Share based charges 26.2 19.2 Decrease in provisions (8.1) (3.1) Changes in working capital (excluding effect ofacquisition and divestment of subsidiaries) Increase in inventories (43.7) (51.4) Increase in receivables (50.1) (232.1) (Decrease)/increase in payables (99.1) 96.4 Exchange movements (1.7) 9.7 Cash generated from operations 327.7 284.5 Analysis of net debt At 1 Exchange At 31 January Cash flow movements December 2012 2012 $m $m $m $m Cash and cash equivalents 226.6 (60.8) 6.5 172.3 Short-term borrowings (69.2) 26.5 (2.6) (45.3) Long-term borrowings (161.3) (115.5) (4.7) (281.5) Net debt (3.9) (149.8) (0.8) (154.5)27 Acquisitions and divestments
Acquisitions
The assets and liabilities acquired in respect of the business combinationsduring the year were as follows:
Total $m Property plant and equipment 30.5 Intangible assets recognised on acquisition57.6
Trade and other receivables 22.3 Cash 5.9 Bank borrowings (18.7) Trade and other payables (21.0) Income tax liabilities (0.5) Deferred tax liabilities (31.0) Provisions (1.6) Total identifiable net assets acquired 43.5 Goodwill 156.7 Non-controlling interests 0.3 Consideration 200.5 Consideration satisfied by: Cash 175.9 Deferred and contingent consideration 24.6 200.5 The Group has used acquisition accounting for the purchases and, in accordancewith the Group's accounting policies, the goodwill arising on consolidation of$156.7m has been capitalised.During the year the Group acquired 100% of the share capital of Mitchell'sOilfield Services Inc (`Mitchell's') and 100% of the share capital of Duval.The acquisitions are not considered to be material to the Group on anindividual basis and therefore have been aggregated in the table above.
The acquisitions of Mitchell's and Duval provide the Group with access to theoil rich Eagle Ford and Bakken shale regions in the US, strengthening theGroup's capabilities in the US onshore market. The acquired companies will bein a position to access the Group's wider client base and use the Group'sresources to further grow and develop their businesses. These factorscontribute to the goodwill recognised on the acquisitions. Provisional fair value adjustments of $57.6m, representing the fair value ofcustomer contracts, have been recorded in relation to the acquisitions made inthe year. Adjustments of $7.6m have been made in respect of the provisional fair valueadjustments recorded in 2011 and consequently goodwill has increased by thisamount. These adjustments made are not considered material to the financialstatements and the comparative balance sheet has therefore not been restated.27 Acquisitions and disposals (continued)
The outflow of cash and cash equivalents on the acquisitions made during theyear is analysed as follows: $m Cash consideration 175.9 Cash acquired (5.9) Borrowings acquired 18.7 Cash outflow 188.7Included in the cash outflow above are deferred and contingent considerationpayments of $30.4m made during the year in respect of acquisitions made inprior periods.
The results of the Group, as if the above acquisitions had been made at thebeginning of period, would have been as follows:
$m Continuing revenue 6,921.2 Continuing EBITA 483.0From the date of acquisition to 31 December 2012, the acquisitions contributed$52.1m to revenue and $11.5m to EBITA.
27 Acquisitions and disposals (continued)
Divestments
On 4 April 2012, the Group divested its Aero Engine overhaul business and inMay 2012, the Group completed the disposal of a Well Support business in theMiddle East, the sale of which was agreed at the time of the Well Supportdivestment in April 2011. In total, proceeds of $43.0m were received for thesetwo businesses. The assets and liabilities disposed of were reclassified as gross assets andliabilities held for sale in the Group balance sheet at 31st December 2011.Property, plant and equipment with a book value of $1.3m that was part of oneof these divestments was not reclassified as held for sale at that time as itwas anticipated that the Group would retain ownership of those assets.Details of the assets and liabilities divested were as follows:
$m Property plant and equipment 7.6 Goodwill and intangible assets 1.4 Inventories 14.1 Trade and other receivables 10.6 Cash and cash equivalents 0.4 Borrowings (0.2) Trade and other payables (16.9) 17.0 Non-controlling interests (1.2) Net assets divested 15.8 Gross proceeds received 43.0 Gain on divestment before tax 27.2 Tax (4.2) Net gain on divestment after tax (see note 4)23.0
The inflow of cash and cash equivalents in relation to the divestments isanalysed as follows: $m Gross proceeds received 43.0 Divestment costs paid (2.2) Cash divested (0.4) Borrowings divested 0.2 Net cash inflow from divestment40.6
In 2011, the Group divested its Well Support division to GE. Proceeds lesscosts of disposal amounted to $2,781.5m and the net assets divested were$475.8m. The resulting gain on sale of $2,305.7m was shown as an exceptionalitem in the 2011 income statement.
28 Employees and directors Employee benefits expense 2012 2011 $m $m Wages and salaries 2,758.8 2,355.2 Social security costs 184.1 170.9 Pension costs - defined benefit schemes (note 29) 7.47.8
Pension costs - defined contribution schemes (note 29) 87.5 73.3 Share based charges 26.2 19.2 3,064.0 2,626.4 Average monthly number of employees (including executive 2012 2011directors) No. No. By geographical area: UK 7,791 6,909 US 9,896 9,211 Rest of the World 15,792 11,728 33,479 27,848 Key management compensation 2012 2011 $m $m Salaries and short-term employee benefits 20.225.8
Amounts receivable under long-term incentive schemes 4.8 4.1 Social security costs 3.0 3.3 Post-employment benefits 1.1 1.2 Share based charges 9.4 7.5 38.5 41.9 Key management compensation represents the charge to the income statement inrespect of the remuneration of the executive directors and certain seniorexecutives. 2012 2011 Directors $m $m Aggregate emoluments 6.2 11.4 Aggregate amounts receivable under long-term incentive 1.6 2.1schemes Aggregate gains made on the exercise of share options 4.1 2.8 Share based charges 2.7 2.6 14.6 18.9Aggregate emoluments in 2011 included a special incentive payment to the WellSupport executive director, J Renfroe, on completion of the disposal of thebusiness in April 2011.
Two directors (2011: one) have retirement benefits accruing under a definedcontribution pension scheme. Retirement benefits are accruing to two (2011:four) directors under the company's defined benefit pension scheme. Furtherdetails of director's emoluments are provided in the Directors' RemunerationReport.
29 Retirement benefit liabilities
One of the Group's pension schemes in the UK, the John Wood Group PLCRetirement Benefits Scheme, is a defined benefit scheme, which is contractedout of the State Scheme. The assets of the scheme are held separately fromthose of the Group, being invested with independent investment companies intrustee administered funds.
The most recent actuarial valuation of the scheme was carried out at 5 April2010 by a professionally qualified actuary.
The principal assumptions made by the actuaries at the balance sheet date were: 2012 2011 % % Rate of increase in pensionable salaries 5.004.90
Rate of increase in pensions in payment and deferred 3.00 2.90pensions Discount rate 4.50 4.80 Expected return on scheme assets 6.277.00
The expected return on scheme assets for 2012 is based on market expectation atthe beginning of the period for returns over the entire life of the benefitobligation. From 1 January 2013, the expected return on scheme assets will beset at a rate equivalent to the discount rate. The impact of this change willbe to reduce the expected return and thus increase the net finance cost in theincome statement in future periods. The impact in 2013 is estimated to be$2.4m. At 31 December 2012 the actuary has determined pension liabilities by referenceto a standard actuarial mortality table which considered UK wide mortality datarelevant to the Group's pension scheme. Those observed mortality rates havebeen projected to improve at a specific rate into the future to allow forestablished trends and expectations in line with normal actuarial practice.Specifically, the actuarial table used was PXA00 and improvements were in linewith the long cohort approach with an annual underpin of 1% p.a.The amounts recognised in the balance sheet are determined as follows:
2012 2011 $m $m Present value of funded obligations (246.1) (206.7) Fair value of scheme assets 191.1 160.9 Net liabilities (55.0) (45.8) The major categories of scheme assets as a percentage of total scheme assetsare as follows: 2012 2011 % % Equity securities 82.9 83.4 Corporate bonds 8.4 7.7 Gilts 8.3 8.6 Cash 0.4 0.329 Retirement benefit liabilities (continued)
The amounts recognised in the income statement are as follows:
2012 2011 $m $m Current service cost included within employee benefits 7.4 7.8expense Interest cost 10.4 10.8 Expected return on scheme assets (10.5)(11.3)
Total included within finance income (0.1)(0.5)
The employee benefits expense is included within administrative expenses in theincome statement.
Changes in the present value of the defined benefit liability are as follows: 2012 2011 $m $m Present value of funded obligations at 1 January 206.7 188.3 Current service cost 7.4 7.8 Interest cost 10.4 10.8 Actuarial losses 17.0 7.7 Benefits paid (5.7) (5.3) Plan curtailment - (0.5) Exchange movements 10.3 (2.1) Present value of funded obligations at 31 December 246.1206.7
Changes in the fair value of scheme assets are as follows:
2012 2011 $m $m Fair value of scheme assets at 1 January 160.9155.0
Expected return on scheme assets 10.5 11.3 Contributions 8.9 16.1 Benefits paid (5.7) (5.3) Actuarial gains/(losses) 8.5 (14.9) Exchange movements 8.0 (1.3) Fair value of scheme assets at 31 December 191.1160.9
Included in the 2011 contributions above was a one-off payment of £5.0m ($8.0m)made during the year to reduce the scheme deficit.
29 Retirement benefit liabilities (continued)
Analysis of the movement in the balance sheet liability:
2012 2011 $m $m At 1 January 45.8 33.3 Current service cost 7.4 7.8 Finance income (0.1) (0.5) Contributions (8.9) (16.1) Plan curtailment - (0.5) Net actuarial losses recognised in the year 8.5 22.6 Exchange movements 2.3 (0.8) At 31 December 55.0 45.8Cumulative actuarial losses recognised in equity:
2012 2011 $m $m At 1 January 73.1 50.5 Net actuarial losses recognised in the year 8.5 22.6 At 31 December 81.6 73.1The actual return on scheme assets was $19.0m (2011 : $(3.6)m).
History of experience gains and losses:
2012 2011 2010 20092008
Difference between the expected andactual return on scheme assets : Gain/(loss) ($m) 8.5 (14.9) 7.5 15.6 (44.3) Percentage of scheme assets 4% 9% 5% 11% 44% Experience losses on schemeliabilities: (Loss)/gain ($m) (17.0) (7.7) (6.5) (24.0) 25.6Percentage of the present value of 7% 4% 4% 14%
21%the scheme liabilities Present value of scheme liabilities 246.1 206.7 188.3 174.4 124.7($m) Fair value of scheme assets ($m) 191.1 160.9 155.0 140.1 101.6 Deficit ($m) 55.0 45.8 33.3 34.3 23.1The contributions expected to be paid during the financial year ending 31December 2013 amount to $8.3m.
Pension costs for defined contribution schemes are as follows:
2012 2011 $m $m Defined contribution schemes 87.5 73.3There were no contributions outstanding at 31 December 2012 in respect ofdefined contribution schemes (2011 : $21.5m).
30 Operating lease commitments - minimum lease payments
2012 2011 Vehicles, Vehicles, plant and plant and Property equipment Property equipment $m $m $m $m Amounts payable under non-cancellable operating leases due: Within one year 85.4 20.4 72.6 10.3 Later than one year and less than five 248.0 21.4 190.3 20.3years After five years 140.8 0.1 91.0 0.3 474.2 41.9 353.9 30.9 The Group leases various offices and facilities under non-cancellable operatinglease agreements. The leases have various terms, escalation clauses and renewalrights. The Group also leases vehicles, plant and equipment undernon-cancellable operating lease agreements.31 Contingent liabilities
At the balance sheet date the Group had cross guarantees without limit extendedto its principal bankers in respect of sums advanced to subsidiaries.
In February 2010, the Group and several other parties were notified of a legalclaim from a customer in respect of work carried out in 2008. Managementbelieve that the Group is in a strong position to defend the claim. Inaddition, the Group is currently cooperating with an investigation in relationto a facility where it previously provided services. Management do notbelieve that it is probable that a material liability will arise from either ofthese matters. There has been no material change to the position on thesematters during the year.32 Capital and other financial commitments
2012 2011 $m $mContracts placed for future capital expenditure not provided 12.5 17.3in the financial statements
The capital expenditure above relates to property plant and equipment. $1.7m ofthe above amount relates to commitments made by the Group's joint venturecompanies.
33 Related party transactions
The following transactions were carried out with the Group's joint ventures.These transactions comprise sales and purchases of goods and services andfunding provided in the ordinary course of business.
2012 2011 $m $m 35.5 44.0 Sale of goods and services to joint ventures Purchase of goods and services from joint ventures 33.324.6
Receivables from joint ventures 83.1 36.8 Payables to joint ventures 20.8 5.5In addition to the above, the Group charged JW Holdings Limited, a company inwhich Sir Ian Wood has an interest, an amount of $0.1m (2011 : $0.1m) formanagement services provided under normal commercial terms.
Key management compensation is disclosed in note 28.
34 Principal subsidiaries and joint ventures
The Group's principal subsidiaries and joint ventures at 31 December 2012 arelisted below. Country of incorporation Ownership Name of subsidiary or joint or interest Principal activity venture registration % Wood Group Engineering Wood Group Mustang Holdings, USA 100 Conceptual studies, Inc engineering, project J P Kenny Engineering Limited UK 100 and construction management and control IMV Projects Inc Canada 100 system upgrades. Wood Group PSN Wood Group Engineering (North UK 100 Brownfield engineeringSea) Limited and modifications, Wood Group PSN, Inc USA 100 production enhancement, operations and Wood Group PAC, Inc USA 100 management, training, maintenance Wood Group PSN Limited UK 100 management and abandonment services. Production Services Network UK 100 (UK) Limited Wood Group PSN Australia Pty Australia 100 Limited Production Services Network Russia 100 Sakhalin LLC Mitchells Oilfield Services USA 100 Inc Cyprus 50*Wood Group CCC Limited Wood Group GTS Rolls Wood Group (Repair & UK 50* Gas turbine repair andOverhauls) overhaulLimited TransCanada Turbines Limited Canada 50* Wood Group Pratt & Whitney USA 49* Industrial Turbine Services, LLC UK 100Wood Group Gas TurbineServices Limited Wood Group Power Solutions, USA 100 Power plant engineering,Inc procurement and constructionThe proportion of voting power held equates to the ownership interest, otherthan for joint ventures (marked *) which are jointly controlled.
Shareholder information
Payment of dividends
The Company declares its dividends in US dollars. As a result of theshareholders being mainly UK based, dividends will be paid in sterling, but ifyou would like to receive your dividend in US dollars please contact theRegistrars at the address below. All shareholders will receive dividends insterling unless requested. If you are a UK based shareholder, the Companyencourages you to have your dividends paid through the BACS (Banker's AutomatedClearing Services) system. The benefit of the BACS payment method is that theRegistrars post the tax vouchers directly to the shareholders, whilst thedividend is credited on the payment date to the shareholder's Bank or BuildingSociety account. UK shareholders who have not yet arranged for their dividendsto be paid direct to their Bank or Building Society account and wish to benefitfrom this service should contact the Registrars at the address below. Sterlingdividends will be translated at the closing mid-point spot rate on 19 April2013 as published in the Financial Times on 20 April 2013.Officers and advisers
Secretary and Registered Office Registrars
R M B Brown Equiniti LimitedJohn Wood Group PLC Aspect HouseJohn Wood House Spencer RoadGreenwell Road LancingAberdeen West SussexAB12 3AX BN99 6DA Tel: 01224 851000 Tel: 0871 384 2649 Stockbrokers Independent Auditors JPMorgan Cazenove Limited PricewaterhouseCoopers LLPCredit Suisse Chartered Accountants and Statutory Auditors 32 Albyn Place Aberdeen AB10 IYL Company Solicitors Slaughter and May Financial calendar Results announced 5 March 2013Ex-dividend date 17 April 2013Dividend record date 19 April 2013Annual General Meeting 15 May 2013Dividend payment date 22 May 2013The Group's Investor Relations website can be accessed at www.woodgroup.com.
Related Shares:
Wood Group (J)