Full year results for the year ended 31 Dec 2022

Full year results for the year ended 31 December 2022

28 March 2023

Transformative year, started 2023 with good momentum

Built Environment Consulting shown as a discontinued operation. See notes on page 5.

Ken Gilmartin, CEO, said:

"We are pleased to have delivered results in line with expectations for 2022, including a return to revenue growth - with 8% growth at constant currency. This was achieved in a year of major change for the Group, under new leadership, as we addressed legacy issues, transformed our balance sheet and launched a new strategy.

"Our strategy is already delivering. We started 2023 with good momentum - our order book for delivery in 2023 is up 10%, headcount is up 8% and financial guidance for 2023 is in line with our medium-term financial targets of adjusted EBITDA growth at mid to high single digit CAGR, with momentum building as our strategy delivers. We now we look to the future with confidence as a much stronger company".

Delivered results in line with expectations

· Results at the upper end of the ranges given in the January Trading Update

· Revenue of $5.4 billion was up 4% with growth in Consulting (+4%) and Operations (+15%) offset by the expected decline in Projects (-6%). At constant currency, Group revenue was up 8%

· Adjusted EBITDA of $385 million was flat on last year at constant currency. Top end of guidance range given in January Trading Update of $375 million to $385 million

· Adjusted EBITDA margin of 7.1% includes the impact of the previously guided lower margin in Operations, and a lower margin in Consulting, partly reflecting the impact of our decision to exit Russia

· Impairment of goodwill and intangibles of $542 million, as flagged in our January trading update

· Operating loss of $568 million primarily reflects this impairment charge

· Loss for the period of $352 million is after a gain on sale of Built Environment Consulting of $515 million

· Basic EPS was a loss of 52.4c, reflecting the loss for the period

· Adjusted diluted EPS was down 67% to 5.7c, reflecting the lower EBIT, higher interest costs and the disposal of Built Environment Consulting during the year

· Free cash flow of $(730) million reflects:

o  Significant working capital outflow of $367 million, including our decision to exit lump sum turnkey and major lump sum EPC work, and our decision to normalise payables

o  Cash exceptionals of $319 million, reflecting the impact of addressing legacy issues, including settling the Enterprise litigation claim

· Net debt (excl. leases) at 31 December 2022 was $393 million - within our previously guided range. Includes a negative currency impact and the impairment of $6 million of cash balances in Russia

Delivering on our profitable growth strategy

· We transformed the Group in 2022

o  New strategy launched, focusing on energy and materials markets

o  New leadership team in place, seven of nine in our ELT recently appointed

o  Built Environment Consulting sold at an attractive multiple (c.$1.7 billion net cash proceeds) and restored our financial strength

o  Legacy issues addressed including Enterprise litigation settled in November 2022

· Right business model now in place

o  Primarily a services-based, cost reimbursable business (c.80% of revenue, c.85% of order book)

o  Repositioned away from lump sum turnkey (now less than 4% of Group revenue and reducing)

· Well-positioned for growth across energy and materials

o  Around 20% of Group revenue from sustainable solutions based on our strict measure12. This strict measure does not include much of the decarbonisation activity we perform today for our clients

o  Strong growth across our sustainable solutions, including work across hydrogen and carbon capture

o  Pipeline growth in our strategic markets and over 90% of our pipeline now relates to our six focus markets (Oil & Gas, Chemicals, Hydrogen, Carbon Capture, Minerals and Life Sciences)

· Optimising our portfolio

o  Sale of offshore labour supply operations in Gulf of Mexico completed in March 2023 for cash consideration of $17 million, further aligning the Group's portfolio on our focus markets

o  We are currently evaluating our portfolio and have identified underperforming businesses that do not fit with our focused strategy, generate negative margin and represent around 4% of revenue. We are considering options in respect of these businesses

Momentum across our business

· Significant order book of $6 billion, up 4% at constant currency

· Order book for delivery in 2023 of $3.9 billion, up 10% on last year

· Headcount up 8% to more than 35,500 people, a key growth driver for our services-led business model

Outlook

· While mindful of the uncertain economic outlook, our expectations for 2023 remain unchanged

· We expect our performance in FY23 to be line with our medium-term targets:

o  Adjusted EBITDA margins to be flat in the nearer term, partly as we reinvest in the business to secure growth. In the medium term, we continue to see opportunity for margin improvement

o  Adjusted EBITDA to grow at mid to high single digit CAGR over the medium term, with momentum building over time as our strategy delivers

o  As is typical for our business, performance will be weighted to the second half of the year

· We expect a material improvement in cash flow in FY23 with a significant improvement in operating cash flow, reflecting a much-improved working capital performance

· As previously guided, we expect significantly lower exceptional cash flows in FY23 of around $135 million. This, plus the remaining tax payable on the sale of Built Environment Consulting of around $60 million, partially offset by disposal proceeds of around $25 million, will lead to higher net debt in FY23

· The exceptional cash outflows in FY23 are weighted to the first half of the year, and the tax payable on the sale of Built Environment Consulting will be paid in the first half of the year

· The improved operating cash flow performance of the Group, along with a continued reduction in exceptional cash outflows, will enable a return to positive free cash flow (after exceptionals) in FY24

Supporting our medium-term margin growth and free cash flow targets

· We expect to expand our margin in the medium term, supported by:

o  Improved pricing expectations across our markets, reflecting the selectivity of work undertaken and the significant demand for our services

o  The continued shift to our services-led model

o  Addressing the small number of underperforming businesses in our portfolio

· We continue to target costs savings in two key areas to support our targets:

o  As outlined at our Capital Markets Day, continued rationalisation of our property portfolio as our leases expire and reflecting post-Covid working patterns. We anticipate annualised savings of $15 million to $20 million by the end of 2025, with benefits accruing from 2024. EBIT will benefit by $10 million to $15 million per year

o  IT cost savings of $10 million to $15 million from licence rationalisation and other efficiency measures, with material benefit accruing from 2024 onwards

In addition, as at 31 December 2022, and as set out in note 33 of our accounts, our main UK defined benefit scheme (WPP) was 119% funded and had a significant surplus of $432 million on an IAS 19 basis, and is currently expected to be around 105% funded with a surplus of around £100 million ($130 million) on the more prudent Technical Provisions basis at 31 March 2023, consistent with the assumptions used at the last triennial actuarial valuation.

The Group is currently working closely with the Trustee to agree a preferred direction regarding the future of the plan. Options being assessed include moving to a buy-in insured basis and eventual buy-out with a third party as soon as is reasonably practical, or to continue to run the WPP on for a limited number of years which could potentially generate further surplus. Any potential further surplus that might arise from running the scheme on could benefit both the Group and pension members, ensuring that appropriate safeguards for both the funding position and members' interests are taken into account at all times.

Management commitment to delivery

The Board has agreed with management LTIP targets for 2023-2025 consistent with our medium-term targets. These targets are weighted:

· 60% to EBITDA targets, with a threshold of $450 million and a maximum level at $525 million in 2025

· 30% to total shareholder return relative to our peer group

· 10% to ESG metrics relating to carbon emission reductions and leadership gender diversity

Presentation

A meeting for investors and analysts will be held at The London Stock Exchange (10 Paternoster Square, London, EC4M 7LS) at 9:00am. The presentation will be webcast live at https://edge.media-server.com/mmc/p/6mhxtay5.

It will subsequently be made available to watch on demand at www.woodplc.com/investors. A transcript will also be made available on our website.

For further information:

Future events

As part of our expanded investor engagement calendar, we set out below the dates for key events this year:

· 11 May 2023 - Q1 trading update and Annual General Meeting

· June 2023 - Decarbonisation webinar and Milan, Italy site visit

· 13 July 2023 - HY23 trading update

· 22 August 2023 - HY23 results

· 9 November 2023 - Q3 trading update

· November 2023 - Digitalisation webinar and Houston, USA site visit

NOTES

Adjustments between statutory and underlying information

The Group uses various alternative performance measures (APMs) to enable users to better understand the performance of the Group. The Directors believe the APMs provide a consistent measure of business performance year-to-year and they are used by management to measure operating performance and for forecasting and decision-making. The Group believes they are used by investors in analysing business performance. These APMs are not defined by IFRS and there is a level of judgement involved in identifying the adjustments required to calculate them. As the APMs used are not defined under IFRS, they may not be comparable to similar measures used by other companies. They are not a substitute for measures defined under IFRS.

Note 1: The Built Environment Consulting business is shown as discontinued operations. We have adjusted our underlying results to reflect this, including restatement of comparative information. The result of this is there is no contribution from Built Environment Consulting included in revenue or adjusted EBITDA in all periods. There is no change to EPS or cash flows.

Note 2: Growth rates shown at constant currency are calculated by comparing FY22 to FY21 restated at FY22 currency rates. This additional disclosure is made to help users better understand the growth of our businesses.

Note 3: Revenue includes an exceptional item in FY22 of $(8.0) million (FY21 $(25.4) million) related to contract losses in respect of the closure of the Power and Industrials EPC business. In FY21 the exceptional item related to Aegis Poland. Revenue (pre-exceptional items) is an APM that is used throughout this Report as the Group believes it provides a more useful measure of performance. Given the immaterial size of the exceptional item, we refer to revenue throughout the Report as the $5,442 million pre-exceptional figure.

Note 4: A reconciliation of adjusted EBITDA to operating loss is shown in note1 to the financial statements. A reconciliation of adjusted EBIT to operating loss is shown in the Financial Review.

Note 5: Adjusted EBITDA margin is adjusted EBITDA shown as a percentage of revenue. This measure is used by management to measure the performance of businesses, and is one of our medium term targets.

Note 6: Adjusted EBIT is a new measure introduced to show the Group's adjusted EBITDA after depreciation and amortisation. This measures excludes amortisation of acquired intangibles and is therefore aligned with our measure of adjusted EPS.

Note 7: Order book comprises revenue that is supported by a signed contract or written purchase order for work secured under a single contract award or frame agreements. Work under multi-year agreements is recognised in order book according to anticipated activity supported by purchase orders, customer plans or management estimates. Where contracts have optional extension periods, only the confirmed term is included. Order book disclosure is aligned with the IFRS definition of revenue and does not include Wood's proportional share of joint venture order book. Order book is presented as an indicator of the visibility of future revenue.

Note 8: Headcount is a measure of total employees working for Wood, including Wood employees and contractors. This measure excludes employees in our joint ventures.

Note 9: A reconciliation of adjusted diluted EPS to basic EPS is shown in note 9 of the financial statements.

Note 10: Free cash flow is defined as all cash flows before acquisitions, disposals and dividends. It includes all mandatory payments the Group makes such as interest and tax, and all exceptional cash flows. It excludes the impacts of IFRS 16 (Leases) accounting. A reconciliation of free cash flow to our statutory cash flow statement is shown on page 23.

Note 11: The net debt / adjusted EBITDA ratio is calculated on the existing basis prior to the adoption of IFRS 16 in 2019 and is based on net debt excluding leases. These measures are presented as they closely aligned to the measure used in our financing covenants. See calculations on page 28.

Note 12: Estimated share of FY22 revenue as defined by Wood. This figure is referred to across this document. Sustainable solutions consist of activities related to: renewable energy, hydrogen, carbon capture & storage, electrification and electricity transmission & distribution, LNG, waste to energy, sustainable fuels & feedstocks and recycling, processing of energy transition minerals, life sciences, and decarbonisation in oil & gas, refining & chemicals, minerals processing and other industrial processes. In the case of mixed scopes including a decarbonisation element, these are only included in decarbonisation if 75% or more of the scope relates to that element, in which case the total revenue is recorded in decarbonisation.

Note 13: Certain statements in this announcement are classed as profit forecasts for the purposes of the City Code on Takeovers and Mergers (as set out in the separate announcement made by Wood on 28 March 2023).

CEO STATEMENT

2022 was a year where we transformed Wood. We reset the business, strengthened our balance sheet, addressed legacy issues and appointed new leadership. We concluded the year by setting out our strategy at a capital markets day, highlighting how we will deliver value consistently through focused growth across our energy and materials end markets, and drive a return to delivering free cash flow.

Financial performance: delivered results in line with expectations

Return to revenue growth

Our performance in 2022 was in line with the expectations we set mid-way through the year. Revenue of$5.4 billion was 8% higher at constant currency. This reflects good growth in Consulting and Operations and an improving trend in Projects, with a return to growth in the second half.

Profitability in line with expectations

Our adjusted EBITDA in 2022 was $385 million, flat at constant foreign exchange rates and at the upper end of the guidance range we gave in our January trading update. Our adjusted EBITDA margin was 7.1%, lower than the 7.7% in 2021, partly reflecting a normalisation of margins in Operations, which benefited from contract close out benefits in previous years, along with a lower margin in Consulting. The margin in our Projects business was higher in the year as we shifted the business to a service-led model and saw improved overall project performance.

Our adjusted EBIT was $174 million and our adjusted diluted EPS was down 67% to 5.7c. This reflects the lower profitability, high interest costs in the year and the disposal of Built Environment Consulting.

Our statutory loss for the year was $352 million and includes the impairment of goodwill and intangibles. Basic EPS was a loss of 52.4c per share, reflecting this statutory loss.

Cash performance reflects our reset

Free cash outflow for the year was $730 million and reflects a significant working capital outflow, partly reflecting our decision to exit lump sum turnkey ("LSTK") and larger EPC activity, as well as our decision to normalise payables at period ends. In addition to these working capital impacts, we also had large exceptional cash outflows arising from legacy issues, including the settlement of the Enterprise litigation claim for $115 million in the year.

Balance sheet now in a strong position

Our net debt excluding leases at December 2022 was $393 million, with a net debt / adjusted EBITDA of 1.3 times. This reflects a significant improvement on last year (3.3 times) given the impact of the sale of Built Environment Consulting. Through the sale, we reset our balance sheet and this allowed us to address legacy issues and provide a firmer footing for future growth.

Our approach to capital allocation

Our capital allocation policy starts with having a strong balance sheet. We will look to manage our target leverage over the medium term within a range of around 0.5 to 1.5 times net debt (excluding leases) to adjusted EBITDA (pre-IFRS 16). This allows us to invest in our business, people and systems and fund the rundown of our legacy liabilities.

Beyond this, we will consider how best to create value for our shareholders from dividends, share buybacks or attractive acquisitions.

A new chapter for Wood: we transformed the Group in 2022

Wood is built on strong foundations, from our outstanding technical expertise and people, to our long-term client relationships. However, we have not delivered for our shareholders in recent years. While part of that underperformance reflects the challenging market backdrop of lower customer investment and the Covid pandemic, it was also driven by company-specific issues including insufficient discipline in project selection, high levels of restructuring and a series of legacy issues arising from the acquisition of Amec Foster Wheeler in 2017.

We tackled these issues head-on in 2022 and launched a new chapter for the Group with the transformative sale of Built Environment Consulting, reset of our balance sheet and launch of our profitable growth strategy. As we look ahead, we have instilled a structure and discipline into the business which will mitigate against future issues and allow us to grow from these strong foundations.

Sale of Built Environment Consulting transformed the Group

We completed the sale of Built Environment Consulting in September 2022 for an enterprise value of $1.81 billion, representing an attractive EV multiple of 16 times (including expected standalone costs). The net proceeds of around $1.7 billion, after the remaining tax due is paid in 2023, transformed the Group's balance sheet, funded the settlement of the Enterprise litigation and restored our financial flexibility.

We have addressed legacy issues

· We are no longer pursuing LSTK activity or major lump sum EPC activity, with remaining contracts due to complete in 2023

· Our Aegis Poland contract is physically complete with commercial settlement remaining

· The final payment for our SFO settlement is due in early 2024

· Our onerous leases come to an end in 2024

· We settled the Enterprise litigation

Our strengthened balance sheet will allow us to address the defined schedule of cash outflows relating to these legacy liabilities, as well as our asbestos liability, and allow the Group to return to positive free cash flow in 2024.

A new leadership team in place

We have a new leadership team, with seven of nine members of our Executive Leadership Team appointed to their roles in 2022 and 2023. Our wider senior leadership team has also undergone change, and we have added key hires throughout 2022 to strengthen our commercial offering, including recruiting leading subject-matter experts.

Our refreshed strategy: profitable growth

We launched our new strategy in November 2022 following extensive consultation with our employees, clients and investors.

Our strategic pillars

Our strategy is delivered across three pillars:

· Profitable growth - we will focus on priority markets and geographies where we can lead, with an absolute focus on driving operating cash flow, and building a high quality, low risk pipeline with a focus on cost reimbursable work.

· Inspired culture - we will drive improved employee engagement and reduced levels of voluntary turnover, while maintaining our focus on safety, and we aim to maintain a top quartile ESG rating amongst peers. We commit to driving greater diversity in our business, including a target of women comprising 40% of leadership roles before 2030.

· Performance excellence - with a focus on strong leadership, commercial governance and efficient ways of working. We will increase the use of our Global Excellence Centres to differentiate our offer to clients and drive improved margin. We will ensure our core digital solutions become embedded in client delivery, and we expect the proportion of revenue coming from sustainable solutions to grow each year.

Our attractive markets

The energy and materials markets offer significant growth opportunities for Wood. We are now taking a more focused approach to growth, targeting specific priority markets within energy and materials that best match our competitive strengths. This narrower focus will help ensure we can grow both profitably and sustainably.

We are focused on:

· Large markets with solid growth - Oil & Gas and Chemicals

· Small markets today with substantial growth potential - Hydrogen and Carbon Capture

· Large markets where we can significantly grow our share - Minerals and Life Sciences

Our medium-term financial targets

Our strategy will deliver returns for our shareholders and at our Capital Markets Day we set out new financial targets:

· Adjusted EBITDA margins to be flat in the nearer term, partly as we reinvest in the business to secure growth. In the medium term, we see opportunity for margin improvement

· Adjusted EBITDA to grow at mid to high single digit CAGR over the medium term, with momentum building over time as our strategy delivers

· The strong underlying cash flows of our business combined with the reducing legacy liabilities, will result in a return to positive free cash flow (after exceptionals) from FY24 onwards

We expect to expand our margin in the medium term, supported by:

· Improved pricing expectations across our markets, reflecting the selectivity of work undertaken and the significant demand for our services

· The continued shift to our services-led model

· Addressing the small number of underperforming businesses in our portfolio

We continue to target costs savings in two key areas to support our targets:

· As outlined at our Capital Markets Day, continued rationalisation of our property portfolio as our leases expire and reflecting post-Covid working patterns. We anticipate annualised savings of $15 million to $20 million by the end of 2025, with benefits accruing from 2024. EBIT will benefit by $10 million to $15 million per year

· IT cost savings of $10 million to $15 million from licence rationalisation and other efficiency measures, with material benefit accruing from 2024 onwards

Our management team are committed to delivery of these targets. The Board has agreed LTIP targets for 2023-2025 consistent with our medium-term targets. These targets are weighted:

· 60% to EBITDA targets, with a threshold of $450 million and a maximum level at $525 million in 2025

· 30% to total shareholder return relative to our peer group

· 10% to ESG metrics relating to carbon emission reductions and leadership gender diversity

In addition, as at 31 December 2022, and as set out in note 33 of our accounts, our main UK defined benefit scheme (WPP) was 119% funded and had a significant surplus of $432 million on an IAS 19 basis, and is currently expected to be around 105% funded with a surplus of around £100 million ($130 million) on the more prudent Technical Provisions basis at 31 March 2023, consistent with the assumptions used at the last triennial actuarial valuation.

The Group is currently working closely with the Trustee to agree a preferred direction regarding the future of the plan. Options being assessed include moving to a buy-in insured basis and eventual buy-out with a third party as soon as is reasonably practical, or to continue to run the WPP on for a limited number of years which could potentially generate further surplus. Any potential further surplus that might arise from running the scheme on could benefit both the Group and pension members, ensuring that appropriate safeguards for both the funding position and members' interests are taken into account at all times.

Delivering on our profitable growth strategy

Right business model now in place with focus on cost reimbursable work

We have de-risked our contract pipeline by minimising the LSTK activity and major lump sum EPC activity, and today we are predominately a cost reimbursable services business. Across the Group, the proportion of our revenue that came from cost reimbursable work is around 80% (and around 85% of our order book). Only around 4% of revenue in FY22 came from LSTK contracts, with the remainder being fixed price services work.

Well-positioned for growth

In addition to our order book of around $6 billion, we have a pipeline of opportunities many times larger in magnitude. In line with our focused and selective strategy, this pipeline is now aligned with our focus markets.

At December 2022, over 90% of our pipeline related to our six focus markets (Oil & Gas, Chemicals, Hydrogen, Carbon Capture, Minerals and Life Sciences), compared to 73% a year ago. The difference mainly relates to the removal of EPC opportunities across renewables, in line with our new risk appetite and strategy to focus on the complex work where we add the most value for our clients.

Encouragingly, we have a higher pipeline in nearly all our markets compared to a year ago, including a more than doubling of opportunities across hydrogen and carbon capture.

Progress on our people strategy

Our headcount at December 2022 was 35,573 people, up 8% on last year with significant increases in Consulting and Projects. This is an increasingly important metric with our shift to a services-led business model.

We are pleased that in the latter parts of 2022 we saw significant improvements in both employee engagement and employee net promoter score. We have also grown our Global Execution Centres significantly, with more than 3,000 skilled employees now in India and Colombia.

Progress on sustainability

Wood is an enabler of net zero, providing solutions across decarbonisation, energy transition, and materials for a net zero world. In addition, our life sciences solutions are aligned to the UN Sustainable Development goal of ensuring good health and well-being.

Around 20% of our revenue today is from sustainable solutions, with around 30% of revenue in Projects, around 25% of revenue in Consulting, and around 10% in Operations from such solutions. This strict measure does not include much of the decarbonisation activity we perform today for our clients, particularly in our Operations business with work such as reducing methane emissions and flaring.

We have seen strong growth in our pipeline for sustainable solutions in the year, including across hydrogen and carbon capture work.

Our progress on ESG matters is reflected in our MSCI AA rating, awarded for the 8th consecutive year, and the maintenance of our top quartile ranking against peers.

In 2022, we made further progress on many of our other key ESG goals including:

· Reducing scope 1 & 2 carbon emissions by 65% compared to our target of a 40% reduction from our 2019 baseline

· Embedding fair working practices through incorporating 'Building Responsibly' principles into our supply chain pre-qualification stages and supplier code of conduct

Optimising our portfolio

We are currently evaluating our portfolio and have identified underperforming businesses that do not fit with our focused strategy, generate negative margin and represent around 4% of revenue. We are considering options in respect of these businesses.

In addition to this, the sale of our offshore labour supply operations in Gulf of Mexico completed in March 2023 for cash consideration of $17 million. This reflects a proactive step in focusing the Group's portfolio on our focus markets and solutions.

Winning work across markets

Our order book at 31 December 2022 was $6 billion, broadly flat on the position a year ago but up by 4% at constant currency rates. The order book for delivery in the year ahead was up 10% on a year ago and positions us well for 2023, albeit with a more volatile macroeconomic backdrop to win the remaining work for 2023.

Significant contract wins across Energy in the year included:

· 10-year engineering & project support agreement with Chevron that forms a global strategic partnership across offshore and onshore assets

· Major contract extension with Equinor for operation on the Norwegian Continental Shelf to 2026

· 5-year multi-region engineering services contract renewal with bp

· 3-year operations and maintenance contract renewal with Shell in the UK North Sea

· Appointed delivery partner for Centrica Storage in the UK for key gas storage assets

· Contract for the FEED design to deliver a large-scale green hydrogen production facility in Norway

Significant contract wins in the year in Materials included:

· 2-year EPCm contract with Solvay to deliver a new polyvinylidene fluoride (PVDF) site in France

· 4-year EPCm contract with INEOS worth over $100 million for an ethane cracker

· Contracts with Enter Engineering in Uzbekistan worth over $200 million - engineering and procurement services for a gas to chemical complex, and FEED and detailed design for a mineral processing plant

Outlook

While mindful of the uncertain economic outlook, our expectations for 2023 remain unchanged.

We expect our performance in FY23 to be line with our medium-term targets:

· Adjusted EBITDA margins to be flat in the nearer term, partly as we reinvest in the business to secure growth. In the medium term, we continue to see opportunity for margin improvement

· Adjusted EBITDA to grow at mid to high single digit CAGR over the medium term, with momentum building over time as our strategy delivers

· As is typical for our business, performance will be weighted to the second half of the year

We expect a material improvement in cash flow in FY23 with a significant improvement in operating cash flow, reflecting a much-improved working capital performance. As previously guided, we expect significantly lower exceptional cash flows in FY23 of around $135 million. This, plus the remaining tax payable on the sale of Built Environment Consulting of around $60 million, partially offset by disposal proceeds of around $25 million, will lead to higher net debt in FY23.

The exceptional cash outflows in FY23 are weighted to the first half of the year, and the tax payable on the sale of Built Environment will be paid in the first half of the year.

The improved operating cash flow performance of the Group, along with a continued reduction in exceptional cash outflows, will enable a return to positive free cash flow (after exceptionals) in FY24.

BUSINESS REVIEWS

CONSULTING (continuing operations)1

Our Consulting business provides technical consulting, digital consulting, and energy asset and technology solutions. It also provides a range of decarbonisation solutions that sit across Consulting and opens opportunities across Wood's other business units.

Financial review

1. Built Environment Consulting shown as a discontinued operation and comparatives has been restated. See note 1 on page 5

2. Adjusted EBITDA includes $nil from JVs (FY21: $0.1 million). Revenue does not include any contribution from JVs.

3. FY21 order book restated. Previously disclosed figure of $535 million incorrectly included a portion related to Built Environment Consulting

4. FY21 headcount restated.

Revenue of $625 million was 4% higher than last year, and 13% higher on a constant currency basis, with strong growth in our solutions across both energy security and energy transition.

Adjusted EBITDA of $73 million was 5% lower than last year but 5% higher on a constant currency basis. The adjusted EBITDA margin declined from 12.9% to 11.7% due to a weaker performance in Applied Intelligence, the impact of exiting high-margin work in Russia and some employee cost pressures across our business.

The order book at 31 December 2022 was $476 million, down 3% on last year but up 3% at constant currency. This reflects good growth across oil and gas and energy transition solutions. At 31 December 2022, revenue in our order book for delivery in 2023 was $361 million, down 9% on last year, reflecting a change in mix in energy consulting compared to a year ago.

Operational review

Growth in the year was led by our solutions across energy security and transition. Encouragingly, we continue to see significant increases in demand for our consulting offering across hydrogen, carbon capture and other decarbonisation activities. Key contract wins in the year across Consulting included:

· Technology upgrade of a hydrogen steam methane reformer in Equatorial Guinea

· FEED award to modernise controls systems for two key gas plants in the UK

· Feasibility study for chemicals derivative facility in Abu Dhabi

We saw an increase in work across hydrogen and carbon capture in the year. Looking ahead, we expect demand for our work across these areas to grow significantly, helped in part by the Inflation Reduction Act in the USA.

Revenue from sustainable solutions for Consulting was around $160 million in the year, representing around 25% of revenue.

Outlook for 2023

Following the sale of Built Environment Consulting, our Consulting business has refocused. We expect revenue growth for the year given the underlying demand for our services and the growth in headcount. Performance is expected to be weighted to the second half of the year

PROJECTS

Our Projects business mainly provides complex engineering design and project management across energy and materials markets including oil and gas, chemicals, mining and minerals and life sciences.

Financial review

1. Pass-through revenue, for which we earn only a small or nil margin, declined from around $390 million in FY21 to around $290 million in FY22. Revenue shown here is revenue (pre-exceptional), see page 5 for details.

2. Adjusted EBITDA includes $3.9 million from JVs (FY21: $3.5 million). Revenue does not include any contribution from JVs.

Revenue of $2,211 million was 6% lower than last year, and down 2% on a constant currency basis. This included a decline in the first half of the year and a return to growth in the second half of 4%, or 8% at constant currency. The return to growth came from our services-led approach following our strategic decision to move away from riskier LSTK work.

Adjusted EBITDA of $169 million was slightly higher than last year and up 9% on a constant currency basis. The adjusted EBITDA margin increased by 0.4 percentage points to 7.6%, driven by improved project performance and the continued shift to a services-led business model. In addition to these adjusted results, around $25 million of contract losses were recognised as exceptional items, see details in the Financial Review.

The order book at 31 December 2022 was $2,081 million, up 15% on last year driven by growth across the majority of our end markets, particularly oil & gas and chemicals. At 31 December 2022, revenue in our order book for delivery in 2023 was $1,606 million, up 22% on the position a year ago.

Operational review

Business growth in the year was balanced across energy and materials markets, with a significant uptick in work in the Middle East as customer investment increased in the region. Key contracts wins in the year included:

· EPCm contract worth more than $100 million to deliver Europe's lowest carbon ethane cracker for INEOS

· FEED and detailed design contract from Enter Engineering to deliver world's largest copper concentrator

· EPCm contract with Evonik in Alabama to support the production of sustainable animal feed

· Over $300 million of contract wins in the Middle East in the second half of the year

In addition to returning to growth, we made good progress in closing our challenging contracts in 2022 as we finalise our move away from LSTK contracts, including moving to completion on our renewables EPC contracts.

Revenue from sustainable solutions for Projects was around $650 million in the year, representing around 30% of revenue.

Outlook for 2023

We expect strong revenue growth for the year given the underlying demand for our services, the significant growth in order book and the growth in headcount.

OPERATIONS

Our Operations business manages and optimises our customers' assets including decarbonisation, maintenance, modifications, brownfield engineering, asset management through to decommissioning.

Financial review

1. Pass-through revenue, for which we earn only a small margin, increased from around $320 million in FY21 to around $500 million in FY22

2. Excludes results from our two Turbines joint ventures, now included within Investment Services. Adjusted EBITDA from these JVs was $48 million in FY22 and $54 million in FY21.

3. Adjusted EBITDA includes $15.2 million from JVs (FY21: $13.2 million). Revenue does not include any contribution from JVs.

Revenue of $2,407 million was 15% higher than last year, and 17% higher at constant currency, reflecting higher activity levels across our business given the stronger market conditions in conventional energy, especially in Europe and the Middle East. Revenue growth was also helped by an increased level of passthrough revenue.

Adjusted EBITDA of $148 million was 14% lower than last year, and 11% lower at constant currency, and reflects the reduction in margin from 8.2% to 6.1%. This lower margin was expected given increased passthrough revenue and a lower level of contract close-out benefits in the year compared to previous years.

The order book at 31 December 2022 was $3,295 million, 9% lower than last year. This reflects the phasing of large multi-year awards. At 31 December 2022, revenue in our order book for delivery in 2023 was $1,836 million, up 4% on the position a year ago.

Operational review

Business growth in the year reflects higher activity levels across our markets, most notably in Europe and the Middle East. Key contracts wins in the year included:

· 3-year extension to our maintenance, modifications and operations framework agreement with Equinor

· Contract extension with Basra Gas Company in Iraq, including repurposing flare gas to reduce emissions

· Contract renewal for maintenance and operations solutions to Florida Power & Light

Revenue from sustainable solutions for Operations was around $230 million in the year, representing around 10% of revenue.

Outlook for 2023

We expect increased activity for the year given the underlying demand for our services

INVESTMENT SERVICES

Our Investment Services business unit manages a number of legacy activities and liabilities, and includes our Turbines joint ventures. The most notable areas are activities in industrial power and heavy civil engineering. In addition to this, the results of our Aegis Poland contract are reported within Investment Services.

Financial review

1. Now includes results from our two Turbines joint ventures, which were previously included within Operations. Adjusted EBITDA from these JVs was $48 million in FY22 and $54 million in FY21. Revenue does not include any contribution from JVs.

Revenue of $199 million was broadly flat on last year and up 3% at constant currency. Adjusted EBITDA of $69 million was 8% higher than last year. This includes an improved performance across our businesses.

The order book at 31 December 2022 was $164 million, up significantly on last year. At 31 December 2022, revenue in our order book for delivery in 2023 was $126 million, up 27% on the position a year ago.

As is typical, performance in our Turbines joint ventures was weighted to the second half of the year. We expect this weighting to continue in FY23.

CENTRAL COSTS

Central costs, not allocated to business units, decreased to $74 million. The reduction partly reflects our cost reduction programme. FY21 included a $11 million gain on sale of property.

Outlook for 2023

We expect central costs for FY23 to be higher than FY22 due to inflationary pressure on salaries and costs.

Financial Review

Trading performance

Trading performance is presented on the basis used by management to run the business with adjusted EBITDA including the contribution from joint ventures. A reconciliation of operating profit to adjusted EBITDA is included in note 1 to the financial statements. A calculation of adjusted diluted EPS is shown on page 22.

* The comparative information has been restated due to a discontinued operation outlined in note 7 of the financial statements.

In the table above depreciation and amortisation include the contribution from joint ventures.

Revenue for 2022 includes an exceptional item of $(8.0) million (2021: $(25.4) million) related to contract losses in respect of the closure of the Power and Industrials EPC business. In 2021, the exceptional item related to Aegis Poland. Revenue (pre-exceptional items) is an APM that is used throughout this Report as the Group believes it provides a more useful measure of performance.

During the year, Adjusted EBITDA reduced by $19.2 million to $385.1 million primarily due to adverse movements in FX rates. Operating loss of $568.3 million (2021: $62.1 million) has increased due to the large impairment charge recorded against goodwill and intangible assets. The $353.7 million profit from discontinued operations, net of tax includes the gain of disposal of $514.5 million. The final proceeds from the Built Environment Consulting business will be finalised during the first half of 2023 upon agreement of the completion balance sheet between the Group and WSP.

The review of our trading performance is contained within the Chief Executive Review on pages 6 to 10. 

Reconciliation of Adjusted EBIT to Adjusted diluted EPS

See notes on pages 27-29

Reconciliation to GAAP measures

The reconciliation from Adjusted EBIT of $173.9 million (2021: $187.2 million) to Adjusted earnings of $38.8 million (2021: $118.3 million) has been provided to show a clear reconciliation to Adjusted diluted EPS, which is a key performance measure of the Group. The reconciliation to GAAP measures highlights that the adjusted measures remove exceptional items, including impairment charges against goodwill and intangible assets, the exceptional items on discontinued operations and the associated tax charges on the basis that these are disclosed separately due to their size and nature to enable a full understanding of the Group's performance. Please refer to commentary on exceptional items and associated tax charges on pages 18-20. In addition, amortisation on intangible assets from acquisitions and the associated tax credit has been excluded in order to provide a comparison to other groups.

Amortisation, depreciation and other impairments for continuing operations

Total amortisation for 2022 was $153.4 million (2021: $191.7 million), of which $153.4 million (2021: $169.1 million) relates to the continuing Group. The total amortisation charge includes $63.5 million for Amec Foster Wheeler ("AFW") (2021: $75.3 million) and $0.9 million (2021: $3.0 million) of amortisation relating to intangible assets arising from prior year acquisitions. Amortisation in respect of software and development costs was $89.0 million (2021: $90.8 million) and this largely relates to engineering software and ERP system development. Included in the amortisation charge for the year is $1.5 million (2021: $1.8 million) in respect of joint ventures.

The total depreciation charge in 2022 for the continuing group amounted to $119.8 million (2021: $121.0 million) and includes depreciation on right of use assets of $90.5 million (2021: $85.9 million). Included in the depreciation charge for the year is $12.3 million (2021: $12.1 million) in respect of joint ventures.

Other impairments for 2022 were $2.4 million (2021: $5.3 million) mainly related to impairments recorded against joint venture investments.

Net finance expense and debt

Interest on bank borrowings of $47.2 million (2021: $32.8 million) primarily relates to interest charged on borrowings under the $1.2 billion Revolving Credit Facility ('RCF') which matures in October 2026 and the United Kingdom Export Facility ('UKEF') term loan which matures in July 2026. The original $600 million term loan was partially repaid following the disposal of the Built Environment Consulting business, with two separate repayments of $200 million in September and December 2022. The increase in the interest expense is driven by higher levels of debt in the first half of 2022 compared with 2021 and higher interest rates. The interest rate increase is due to a combination of higher margin because net debt to adjusted EBITDA exceeded 3.5 times and higher floating interest rates. 

The interest charge on US Private Placement debt increased by $4.4 million to $40.3 million primarily due to the covenant waiver which led to an additional charge of $7.7 million. As part of the Built Environment Consulting business sales process, the Group agreed lender consent for the sale and a temporary amendment of the net debt to Adjusted EBITDA covenant to 4.5 times in June and December 2022 measurement dates. The increased interest caused by higher margin was offset due to the total repayment of around $450 million to the USPP noteholders, which was comprised of the early settlement of notes following the disposal of the Built Environment Consulting business in 2022 and the $35 million tranche which fell due in July 2022. The Group had $352.0 million (2021: $803.3 million) of unsecured loan notes outstanding at 31 December 2022, maturing between 2024 and 2031.

Other interest, fees and charges amount to $22.4 million (2021: $20.4 million) and principally relates to the amortisation of bank facility costs of $10.5 million (2021: $7.4 million) and interest on bank overdrafts.

In total, the Group had undrawn facilities of $1,265.4 million as at 31 December 2022, of which $1,157.9 million related to the revolving credit facility.

The Group recognised interest costs in relation to lease liabilities of $16.4 million (2021: $17.7 million) which relates to the unwinding of discount on the lease liability.

The unwinding of discount on the asbestos provision is $5.9 million (2021: $6.3 million) and includes the unwinding of discount on long-term asbestos receivables. 

Net debt excluding leases to adjusted EBITDA (excluding the impact of IFRS 16) at 31 December was 1.3 times (2021: 3.3 times) against our covenants of 3.5 times. This is calculated pre-IFRS 16 as our covenants are calculated on a frozen GAAP basis, see note 4 on page 28.

Interest cover (see note 5 on page 28) was 4.1 times (2021: 4.5 times) against our covenant of 3.5 times. 

Exceptional items

Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. 

Power and Industrial EPC losses

The Power and Industrial EPC losses relates to events in 2022 which resulted in a further write down of fixed price contracts in the Power and Industrial EPC business, following the strategic decision to exit this market during 2021. By virtue of its size and nature of these projects being within a sector that the Group no longer operates, this was recorded as an exceptional charge through revenue and cost of sales. The negative revenue of $8.0 million represents the impact of a reduction in total value of the contract, is in relation to revenue recognised in prior years and is unchanged from the half year.

Aegis contract losses

The Aegis contract loss in 2021 of $99.3 million reflected an estimate of the full contract loss at that time.

Impairment charge of goodwill and intangible assets

The impairment charge recognised against goodwill and intangible assets amounts to $542.3 million and is recorded within exceptional items by virtue of its size. The impairment charge was triggered by the disposal of the Built Environment Consulting business, increases in discount rates and lower expectations of profitability during the forecast period. 

The disposal of the Built Environment Consulting business and increasing discount rates increased the risk of an impairment charge being recognised at the year end, as outlined in the Group's interim condensed financial statements. The discount rate increased by 1.35% since the half year which was largely driven by increases to risk free rates and higher market volatility.

Included within the impairment charge of $542.3 million were impairments of $44.9 million and $4.2 million taken against the brand and customer relationships which were recognised on the acquisition of AFW. The Group performed an assessment over the brand asset recognised on acquisition of AFW. The carrying value of the brand was tested by considering its value in use, as it was determined that there is no readily available market to sell the brand as a standalone asset.

Redundancy, restructuring and integration costs

During the year to 31 December 2022, $30.1 million was incurred in relation to redundancy and restructuring activities. During 2022 the Group has continued to progress various initiatives which support the improved efficiency and enhancement of underlying group profitability in the medium to longer term. Included within the $30.1 million were costs of around $11.0 million in developing the new strategy which is expected to further enhance profitability and cash generation in the medium to long term.

Gain on sale of divestment of business

The gain in 2021 of $14.4 million relates to the disposal of the Group's interest in Sulzer Wood Limited.

Enterprise settlement

The Enterprise claim was concluded in November 2022, with the amount settled being in excess of the amount provided for. Overall, the amount paid to Enterprise was higher than our underlying legal assessment of the merits of the case, but further drawn-out litigation was likely to be costly and carried a risk that a court awarded a figure higher than the amount paid. The charge in the year was classed as an exceptional item both by its nature, a historic litigation settlement and by size.

Investigation support costs and provisions

The regulatory investigations were all closed out during the first half of 2021 and the agreed settlements were materially in line with the provision made at 31 December 2020. The $4.2 million credit relates to the release of some provisions made for additional legal and other costs which were ultimately not needed. Certain amounts due to the SFO and COFPS have been deferred in line with agreed payment schedules and the disclosures in the financial statements reflect this.

Asbestos

All asbestos costs have been treated as exceptional on the basis that movements in the provision are non-trading and can be large and driven by market conditions which are out with the Group's control. Excluding these amounts from the trading results improves the understandability of the underlying trading performance of the Group.

The $21.5 million charge (2021: credit $3.1 million) principally comprises a $52.8 million charge in the period and was a result of an updated actuarial review which updated the best estimate for recent claims experience and latest projections. This is offset by a credit of $31.3 million in 2022, which comprises of a $35.6 million yield curve credit as a result of higher discount rates (2021: $5.6 million) and $4.3 million (2021: $2.5 million) of costs in relation to managing the claims. The 30-year US Treasury rate has increased to 3.97%, from 1.90% at the end of December 2021, and led to the income statement credit.

$5.9 million of interest costs which relate to the unwinding of discount on the asbestos provision are also shown as exceptional (2021: $6.3 million).

Russia exit costs and charges

The Group has incurred costs of $7.0 million in relation to the exit of its business in Russia as a result of Government sanctions. The exceptional cost recognised during 2022 relates to early contract exits and associated losses, the closure of an office and other legal costs. In addition, the Group has impaired cash balances held within Russia by $6.2 million. The Group has confidence in being able to utilise the remaining balance of $5 million, disclosed as restricted cash in note 16 to the financial statements, to meet these exit costs.

Tax

An exceptional tax credit of $36.4 million (2021: charge $9.1 million) has been recorded in continuing operations during the period. It consists of a $5.2 million tax charge on exceptional items (2021: $1.2 million credit) and an exceptional credit of $41.6 million recognised due to the actuarial gain in relation to the UK defined benefit pension scheme. As deferred tax liabilities support the recognition of deferred tax assets, the additional $41.6 million of deferred tax assets have been recognised through exceptional items based on its size. In 2021, a $10.3 million tax charge was recognised relating to the change of the UK tax rate impacting on deferred tax balances created in prior years through exceptional items.

Taxation

The effective tax rate on profit before tax, exceptional items and amortisation and including Wood's share of joint venture profit on a proportionally consolidated basis is set out below, together with a reconciliation to the tax charge in the income statement.

The effective tax rate reflects the rate of tax applicable in the jurisdictions in which the Group operates and is adjusted for permanent differences between accounting and taxable profit and the recognition of deferred tax assets. Key adjustments impacting on the rate in 2022 are withholding taxes suffered on which full double tax relief is not available, the impact of the US Base Erosion and Anti Abuse Tax less the release of uncertain tax provisions reflecting the positive outcomes in relation to specific risks.

We anticipate that the tax rate will be 34% to 36% going forward reflecting the tax rates of the countries the Group operates in along with the withholding taxes in excess of double tax relief. There are factors that would impact on this on an annual basis such as actuarial movements on the UK pension scheme impacting on deferred tax asset recognition and changes in uncertain tax provisions.

In addition to the effective tax rate, the total tax charge in the income statement reflects the impact of exceptional items and amortisation which by their nature tend to be expenses that are more likely to be not deductible than those incurred in ongoing trading profits. The income statement tax charge excludes tax in relation to joint ventures.

Earnings per share

The calculation of basic earnings per share is based on the earnings attributable to owners of the parent divided by the weighted average number of ordinary shares in issue during the year excluding shares held by the Group's employee share trusts. For the calculation of adjusted diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares, only when there is a profit per share. Adjusted diluted earnings per share is disclosed to show the results excluding the impact of exceptional items and amortisation related to acquisitions, net of tax.

Basic loss per share for the year was 52.4 cents (2021: 20.6 cents). The increase in loss per share is largely driven by an impairment charge on goodwill and intangible assets of $542.3 million partly offset by a post-tax gain on sale of discontinued operation of $297.1 million. Further details of this impairment charge and discontinued operation are explained within notes 10 and 7 of the financial statements.

Dividend

The Group's capital allocation policy was announced at the Capital Markets Day. The Board is committed to maintaining a strong balance sheet, with medium term target leverage range of around 0.5x to 1.5x, while investing in systems and software and addressing legacy issues. Beyond this, the Board will consider how best to create value for our shareholders from dividends, share buybacks or attractive acquisitions.

Cash flow and net debt

The cash flow for the year is set out below and includes both continuing and discontinued operations:

Closing net debt at 31 December 2022 including leases was $736.1 million (2021: $1,842.8 million). Included within closing net debt is the IFRS 16 lease liability which is the net present value of the lease payments that are not paid at the commencement date of the lease and subsequently increased by the interest cost and reduced by the lease payment made. The lease liability as at 31 December 2022 was $342.9 million (2021: $449.8 million). All covenants on the debt facilities are measured on a frozen GAAP basis and therefore exclude the impact of IFRS 16.

Closing net debt excluding leases as at 31 December 2022 was $393.2 million (2021: $1,393.0 million). The reduction in net debt excluding leases of $999.8 million is mainly due to the proceeds from the divestment of the Built Environment Consulting business offset by higher cash exceptionals and a higher adjusted cash outflow from operations, due to a large working capital outflow. The monthly average net debt excluding leases in 2022 was $1,489.1 million (2021: $1,680.0 million). The cash balance and undrawn portion of the Group's committed banking facilities can fluctuate throughout the year, and the net debt at December is significantly lower than the 2022 average net debt due to the receipt of the disposal proceeds in September 2022. Around the covenant remeasurement dates of 30 June and 31 December the Group's net debt excluding leases is typically lower than the monthly averages due to a combination of factors including a strong focus on collection of receipts from customers.

Cash generated from operations pre-working capital decreased by $43.9 million to $414.0 million primarily as a result of the reduction in EBITDA. The movement in provisions in 2022 includes utilisations of the provision of around $40m and the net non-cash credit to EBITDA and is caused by releases to EBITDA exceeding the EBITDA charge of new provisions recognised. The release in 2022 is driven by the Group concluding on a number of historic litigation and insurance and property provisions which are no longer necessary following resolution of disputes or the underlying risk. 

There was a working capital outflow of $366.7 million (2021: $305.9 million). There was an improvement in activity levels in the final quarter of 2022 compared with 2021, and days sales outstanding ("DSO") has remained broadly similar, leading to a higher trade receivables and gross amounts due from customers, resulting in an outflow during 2022.

The outflow in the year due to payables of $267.6 million is higher than 2021. The large outflow in 2022 was due to quicker payments to suppliers, which led to a large reduction in the year end payables balance. The normalisation of payables was sign-posted as a use of the Built Environment Consulting business proceeds. 

The Group uses a receivables financing facility of $200.0 million. The amount utilised at 31 December 2022 was $200.0 million (2021: $200.0 million). The facility is non-recourse to the Group and so is not included in our net debt. 

Cash exceptionals have increased by $166.1 million to $304.2 million in 2022 and mainly relates to the settlement of known legal claims and asbestos payments, including the Enterprise settlement of $115 million, the investigation payments of around $38 million in respect of the investigation which was provided for in 2020 and asbestos payments of around $40 million. The remaining cash exceptional mainly relates to the legacy Aegis contract of $48 million and restructuring costs of around $35 million, which include the costs of developing the new strategy.

The free cash outflow of $622.7 million (2021: $306.4 million) has increased by $316.3 million, largely due to the $166.1 million and $104.7 million adverse movements in cash exceptionals and cash flow from operations respectively. The remaining adverse movement of $45.5 million in free cash flow is due to:

· Other outflows increased by $52.3 million to $45.9 million and principally comprise of foreign exchange movements of $25.4 million in net debt excluding leases (2021: $5.5 million) and movements on prepaid debt fees and accrued interest charges totalling $21.1 million (2021: inflow of $12.1 million).

· Proceeds from sale on property, plant and equipment decreased by $15.0 million to $7.1 million due to the one-off sale and lease back of a property in 2021 and an increase of $16.7 million related to the purchase of intangible assets, including software and investment in ERP improvements throughout the Group.

· There was an increase in tax payments during 2022 of $8.4 million due to the settlement of uncertain tax provisions ("UTPs"), which had been provided for in previous periods. 

· Net interest paid in the period increased to $93.6 million (2021: $84.4 million) and is due to higher prevailing interest rates and net debt during the period.

· There was an offsetting reduction in lease liabilities of $61.3 million due to disposals of the lease liability following the sale of the Built Environment Consulting business.

Net cash from divestments of $1,729.4 million relates to the disposal of our Built Environment Consulting business in September, and includes taxes paid of around $22 million on the disposal.

Cash conversion, calculated as cash generated from operations as a percentage of adjusted EBITDA (less JV EBITDA) reduced to 11.8% (2021: 30.8%) primarily due to large working capital outflow during 2022.

Sources and uses of cash

The decrease in adjusted cash generated from operations from $152.0 million in 2021 to $47.3 million in 2022 reflects the lower EBITDA in the year and large working capital outflows. 

There are a number of risks associated with net cash flow from operations, including:

· Market risks, such as variability in commodity prices which impacts on activities by our customers;

· Project risks, which include delays and disputes which can influence our ability to collect cash from our customers; and

· Other risks, including the actions of governments and other third parties which can affect our ability to service our increasingly global customer base.

The Group remain committed to a strong balance sheet. Our uses of cash include:

· Servicing of our debt facilities;

· Capital expenditure through investments in systems and software;

· Maintain financial strength to deal with legacy issues;

· Potential returns to our shareholders; and

· Potential acquisitions.

Summary balance sheet

At 31 December 2022, the Group had net current liabilities of $235.0 million (2021: $367.9 million).

Goodwill and intangible assets include $2,523.5 million (2021: $4,228.7 million) of goodwill and intangibles relating to the acquisition of Amec Foster Wheeler. The balance has decreased due to the disposal of the Built Environment Consulting business leading to a reduction in carrying amount of $995.6 million; an impairment charge of $542.3 million, and amortisation of $64.4 million.

Right of use assets and lease liabilities amount to $276.0 million (2021: $356.1 million) and $342.9 million (2021: $449.8 million) respectively. 

The reduction in trade and other receivables is primarily due to the disposal of the Built Environment Consulting business which was partially offset by increased activity levels in the final quarter of the year compared with the same period in 2021. There have been no instances of material default by our customers as a result of the current market conditions.

Trade and other payables have decreased by $311.0 million since December 2021 and this is mainly due to quicker payments to suppliers, which led to a large reduction in the year end payables balance, and the disposal of the Built Environment Consulting business.

Provisions

Total provisions as at 31 December 2022 were $459.7 million (2021: $635.2 million) and comprise of asbestos liabilities of $311.4 million (2021: $342.1 million), litigation related provisions of $12.8 million (2021: $93.3 million), project related provisions of $63.3 million (2021: $112.2 million), insurance provisions of $46.2 million (2021: $55.2 million) and property provisions of $26.0 million (2021: $32.4 million).

Largely as a result of the acquisition of AFW, the Group is subject to claims by individuals who allege that they have suffered personal injury from exposure to asbestos primarily in connection with equipment allegedly manufactured by certain subsidiaries during the 1970s or earlier. The overwhelming majority of claims that have been made and are expected to be made are in the USA. At 31 December 2022, the Group has net asbestos related liabilities including current liabilities and insurance recovery assets of $335.4 million (2021: $349.1 million).

The Group expects to have net cash outflows of around $38 million as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2023. The estimate assumes no additional settlements with insurance companies and no elections to fund additional payments. The Group has worked with its independent asbestos valuation experts to estimate the amount of asbestos related indemnity and defence costs at each year end based on a forecast to 2050.

Litigation related provisions reduced from $93.3 million to $12.8 million in 2022, largely as a result of the settlement the Enterprise case in November 2022.

Full details of provisions are provided in note 21 to the Group financial statements.

Pensions

The Group operates a number of defined benefit pension schemes in the UK and US, alongside a number of defined contribution plans. At 31 December 2022, the UK defined benefit pension plan had a surplus of $432.4 million (2021: $259.6 million) and other schemes had deficits totalling $73.2 million (2021: $74.7 million).

The Group has total pension scheme assets of $2,892.2 million (2021: $4,811.5 million) and pension scheme obligations of $2,533.0 million (2021: $4,626.6 million) and is therefore 114% (2021: 104%) funded on an IAS 19 basis. The reduction in the scheme liabilities is driven by a higher discount rate used in the actuarial assumptions.

In assessing the potential liabilities, judgement is required to determine the assumptions for inflation, discount rate and member longevity. The assumptions at 31 December 2022 showed an increase in the discount rate which results in lower scheme liabilities and higher RPI inflation rates, thereby increasing the surplus compared to 2021. Full details of pension assets and liabilities are provided in note 33 to the Group financial statements.

In addition, our main UK defined benefit scheme (WPP) was 119% funded based on its significant surplus of $432 million on an IAS 19 basis, and is currently expected to be around 105% funded with a surplus of around £100 million ($130 million) on the more prudent Technical Provisions basis at 31 March 2023, consistent with the assumptions used at the last triennial actuarial valuation. The Group is currently working closely with the Trustee to agree a preferred direction regarding the future of the plan. Options being assessed include moving to a buy-in insured basis and eventual buy-out with a third party as soon as is reasonably practical, or to continue to run the WPP on for a limited number of years which could potentially generate further surplus. Any potential further surplus that might arise from running the scheme on could benefit both the Group and pension members, ensuring that appropriate safeguards for both the funding position and members' interests are taken into account at all times.

Contingent liabilities

Details of the Group's contingent liabilities are set out in note 34 to the financial statements.

Divestments

During 2022 the Group disposed of the Built Environment Consulting business for $1,729.4 million, which includes the impact of taxes paid on the disposal. The final proceeds from the Built Environment Consulting business will be finalised during the first half of 2023 upon agreement of the completion balance sheet between the Group and WSP.

Note

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2022 or 2021 but is derived from those accounts. Statutory accounts for 2021 have been delivered to the registrar of companies, and those for 2022 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

There are no changes to the accounting policies since the last published financial statements.

Notes

1. A reconciliation of operating loss to adjusted EBITDA is presented in table below and is a key unit of measurement used by the Group in the management of its business.

2. Adjusted diluted earnings per share ("AEPS") is calculated by dividing earnings attributable to owners before exceptional items and amortisation relating to acquisitions, net of tax, by the weighted average number of ordinary shares in issue during the period, excluding shares held by the Group's employee share ownership trusts. In 2022, AEPS was not adjusted to assume conversion of all potentially dilutive ordinary shares because the unadjusted result is a loss.

3. Number of people includes both employees and contractors at 31 December 2022.

4. Net Debt to Adjusted EBITDA cover on a covenant and reported basis is presented in the table below:

Adjusted EBITDA (covenant basis) excludes Adjusted EBITDA from the discontinued operation and the impact of leases. The covenant adjustment to net debt relates to finance leases which are adjusted for in line with the funding agreements. Note: the covenant basis shown above refers to the measure as calculated for our RCF. The measure used for our USPP and UKEF is not materially different from the reported measure shown above.

5. Interest cover on a covenant and reported basis is presented in the table below:

6. Reconciliation to GAAP measures between consolidated cash flow statement and cash flow and net debt reconciliation

Decreases in provisions and payables, cash generated from operations and tax paid have been adjusted to show exceptional items separately, in order to present significant items separately from the rest of the cash flow either by virtue of size or nature and reflects how the Group evaluates cash performance of the business.

7. Constant currency references. Growth rates shown at constant currency are calculated by comparing FY22 to FY21 restated at FY22 currency rates. This additional disclosure is made to help users better understand the growth of our business.

8. Adjusted EBITDA Margin. Adjusted EBITDA margin is adjusted EBITDA shown as a percentage of revenue. This measure is used by management to measure the performance of businesses, and is one of our medium term targets.

9. Revenue from sustainable solutions. Estimated share of FY22 revenue as defined by Wood. This figure is referred to across this document. Sustainable solutions consist of activities related to: renewable energy, hydrogen, carbon capture & storage, electrification and electricity transmissions & distribution, LNG, waste to energy, sustainable fuels & feedstocks and recycling, processing of energy transition minerals, life sciences, and decarbonisation in oil & gas, refining & chemicals, minerals processing and other industrial processes. On the case of mixed scopes including a decarbonisation element, these are only included in decarbonisation if 75% or more of the scope relates to that element, in which case the total revenue is recorded in decarbonisation

JOHN WOOD GROUP PLC

GROUP FINANCIAL STATEMENTS

FOR THE YEAR TO 31 DECEMBER 2022

Company Registration Number SC036219

Consolidated income statement

for the year to 31 December 2022

The notes on pages 38 to 121 are an integral part of these consolidated financial statements.

* The comparative information has been restated due to a discontinued operation outlined in note 7.

Consolidated statement of comprehensive income/expense

for the year to 31 December 2022

Exchange movements on the retranslation of foreign operations could be subsequently reclassified to profit or loss in the event of the disposal of a business.

* The comparative information has been restated due to a discontinued operation outlined in note 7.

The notes on pages 38 to 121 are an integral part of these consolidated financial statements.

Consolidated balance sheet

as at 31 December 2022

The financial statements on pages 31 to 121 were approved by the board of directors on 27 March 2023 and signed on its behalf by:

The notes on pages 38 to 121 are an integral part of these consolidated financial statements.

Consolidated statement of changes in equity

for the year to 31 December 2022