6th Mar 2012 07:00
Full year results for the year ended 31 December 2011
Successful strategic repositioning and strong growth
John Wood Group PLC ("Wood Group" or the "Group") is an international energyservices company employing more than 39,000 people worldwide and operating in50 countries. The Group has three businesses - Engineering, Wood Group PSN andWood 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 Highlights
Total revenue1 of $6,052.3m (2010: $5,063.1) up 19.5%
Total EBITA1 of $398.7m (2010: $344.8m) up 15.6%
Revenue from continuing operations2 of $5,666.8m (2010: $4,085.1m) up 38.7%
EBITA from continuing operations2 of $341.6m (2010: $218.7m) up 56.2%
Profit from continuing operations before tax and exceptional items of $254.1m (2010: $156.2m) up 62.7%
Adjusted diluted EPS3 of 60.2 cents (2010: 39.8 cents) up 51.3%
Total dividend of 13.5 cents (2010: 11.0 cents) up 22.7%
Strategic and Operating Highlights
Successful strategic repositioning
Acquisition of PSN, which performed ahead of expectations
Disposal of Well Support
Return of cash to shareholders of £1.1bn
Engineering
Strong revenue growth and margin improvement in 2011
Increased activity in upstream and subsea & pipelines
Downstream activity in line with 2010
Recent awards support expectation of further revenue growth and margin improvement in 2012
Wood Group PSN
Strong activity levels in North Sea and North America
Integration programme largely complete and on track to deliver expected synergies
Performance held back by previously announced losses on Wood Group Production Facilities contracts in Oman and Colombia
2012 performance improvement from underlying growth and reduced contract losses
Wood Group GTS
Strong recovery in Maintenance, with EBITA up over 20%
Successful progression of Dorad and GWF projects
Pursuing a number of additional Power Solutions prospects
Further Maintenance growth and good visibility in Power Solutions into 2012
Sir Ian Wood, Chairman, and Allister Langlands, Chief Executive said:
"We anticipate good progress in all divisions in 2012. In our activitiessupporting clients' development capex, we are forecasting strong growth inEngineering driven by increased E&P capex spend and have good visibility in ourWood Group GTS Power Solutions business into 2012. In our activities supportingclients' production opex activities, we see performance improvement in WoodGroup PSN and further growth in Wood Group GTS Maintenance.
"Through our market leading positions in engineering, production facilities support and gas turbine services, we are well positioned to take advantage of strong growth trends in energy markets and we continue to anticipate good growth in the longer term."
Enquiries:Wood GroupNick Gilman 01224 851 000Andrew RoseCarolyn SmithBrunswick
Patrick Handley 020 7404 5959
Nina Coad
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.
1,2 See detailed footnotes. Continuing operations includes PSN since acquisition but excludes the Well Support division.
Chairman's and Chief Executive's statement
Introduction
2011 was a year of successful strategic repositioning for the Group as wecompleted the acquisition of PSN and the disposal of the Well Support divisionto focus on our market leading positions in engineering, production facilitiessupport and gas turbine services.Overall, it has been a year of strong growth. In Engineering, increasedactivity in upstream and subsea & pipelines led to higher revenues and improvedmargins. We have largely completed the integration of the PSN acquisition withWood Group's Production Facilities business, to create Wood Group PSN, and areon track to deliver expected synergies. The PSN acquisition has performed aheadof expectations. Overall, Wood Group PSN performance benefited from strength inthe North Sea and North America, but was held back by previously announcedlosses on Wood Group Production Facilities contracts in Oman and Colombia. InWood Group GTS, we saw strong revenue growth and margin improvement in ourMaintenance business and good progress in Power Solutions, which recognisedsignificant levels of profit in the second half.In support of our continued development, we formalised the common values andculture which unite the Group. These Core Values - Safety & Assurance,Relationships, Social Responsibility, People, Innovation, FinancialResponsibility and Integrity - define who we are, what we believe in, set outhow we act and how we expect to be treated, and provide a sound basis to makedecisions.2011 Group performance 2011 2010 % $m $m Change Total revenue1 6,052.3 5,063.1 19.5%
Revenue from continuing operations2 5,666.8 4,085.1 38.7%
Total EBITA1 398.7 344.8 15.6% 3.8%)
EBITA from continuing operations2 341.6 218.7 56.2%
Total EBITA margin % 6.6% 6.8% (0.2%pts) EBITA margin from continuing 6.0% 5.4% 0.6%pts operations %
Profit from continuing operations 254.1 156.2 62.7% before tax and exceptional items
Basic EPS 530.7c 32.4c n/m Adjusted diluted EPS3 60.2c 39.8c 51.3% Total dividend 13.5c 11.0c 22.7% ROCE4 18.4% 19.5% (1.1%pts)
Note: Total revenue and EBITA figures represent the sum of the Group's continuing operations and Well Support activity up to the date of disposal. Continuing operations revenue and EBITA figures include the results of PSN since acquisition, and exclude the results of Well Support in the period prior to its disposal and those of the Wood Group GTS Aero engine overhaul business.
Total revenue increased by 20% and total EBITA was up 16%. Revenue increasedstrongly in all divisions, including the impact of PSN results from 20 April.Revenue from continuing operations increased by 39% and EBITA from continuingoperations increased by 56% to $341.6m. Continuing operations EBITA margin("margins") increased by 0.6 percentage points due to improved margins in alldivisions.
Adjusted diluted EPS increased by 51% to 60.2c, reflecting the increased EBITA in the period, lower finance expense, the lower effective tax rate and the favourable impact of the share reduction related to the return of cash.
Reflecting our confidence in the longer term outlook for the Group, we are declaring a final dividend of 9.6 cents which will bring the full year dividend to 13.5 cents, up 23% on 2010. This takes the annual compound growth in dividends since our IPO in 2002 to 18%.
Markets
Conditions in oil & gas markets remained strong. Some uncertainty around theglobal economic outlook remains, but we believe that energy market fundamentalswill continue to be driven by supply side challenges coupled with rising globalenergy demand over the longer term. In 2011, there was good growth in global E&P spend and this is forecast to increase by around 5% - 10% in 2012. E&P spendhas a particular benefit for our Engineering activities focused on clients'development related capex and we remain encouraged by our order book &prospects list. For Wood Group PSN, we believe the market for our brownfieldproduction support services will expand as the number of assets increases andages, and operators increasingly focus on asset integrity, process safety,performance assurance and production enhancement.Economic conditions for our power customers in Europe and North Americaremained challenging, although our Wood Group GTS maintenance business secureda number of new awards, and levels of interest in our fast track powersolutions offering remain strong, particularly in emerging economies. Thegrowth in global electricity demand over the longer term, relatively favourablegas prices and environmental considerations continue to support the futureprospects for gas fired power generation.
Strategy
In 2011, we completed the acquisition of PSN for a consideration of around $1bnand the disposal of the Well Support division for $2.8bn and these stepsenhanced the Group's strategic focus and market leading positions. Followingcompletion of the transactions, we returned £1.1bn in cash to shareholdersthrough a tender offer and B/C share scheme.
The strategy of the refocused group has four strands:
To maintain a balance between development and later cycle production support
To grow and maintain our market leading positions, based on differentiated know how, innovation and technical capabilities
To develop long term customer relationships often through performance based contracts
To extend our services within our three core businesses and broaden our international presence
In pursuit of this strategy, and in addition to the PSN acquisition, wecompleted the acquisitions of Dar E&C and Pi-Consult to enhance our Engineeringcapability in Saudi Arabia. We also established a joint venture in Kuala Lumpurand acquired ISI Solutions in Argentina to provide engineering and consultingservices to markets in South East Asia and Latin America. In Angola, weestablished the Wood Group Kianda joint venture to provide engineering andproduction facilities support services. In Wood Group GTS we took a number ofsteps to improve our differentiation, including the acquisitions of IMS and GasTurbine Efficiency, and the formation of a strategic alliance with Pratt &Whitney Power Systems to service the important frame 7 FA aftermarket.
The Board
Bob Keiller joined the Board on 20 April 2011 as Group Director, Wood GroupPSN, following the completion of the PSN acquisition. Jim Renfroe, GroupDirector, Well Support, resigned from the Board on 26 April following the saleof the division. We thank Jim for his considerable achievements in leading theWell Support division during his tenure with the Group. John Ogren resigned asa non-executive director after 10 years on the Board at the 2011 AGM. We areimmensely grateful for John's contribution, in particular his broad industryknowledge, both as an operator and a contractor, and insight into events andmarket trends in North America. Jeremy Wilson was appointed as a newnon-executive director on 1 August 2011.
Risks and Uncertainties
Risks and uncertainties are inherent features of the oil & gas and power services industries and provide challenges that cannot be completely eliminated. However, we assess risk carefully and mitigate where we can to ensure that we keep our people safe, serve our customers well and, at the same time, achieve acceptable returns for our shareholders.
The Board has overall responsibility for ensuring that, where possible, risk ismanaged effectively as part of the established governance structure. In 2010,the Board prepared a statement of its attitude to risk which has been updatedin 2011 following the sale of Well Support and the acquisition of PSN.
Safety & Assurance
Safety & Assurance is our top priority and first Core Value. Over many years wehave reduced injury rates to our people whilst growing our workforcesignificantly. This continued in 2011 with a 31% reduction in lost time injuryrate and an 11% reduction in total recordable injury rate, compared to 2010.However, two incidents provided a stark reminder of the need for a continuedfocus on safety improvement; two engineers died in a road traffic accident inSaudi Arabia and one technician died following the collapse of a customer cranein the Gulf of Mexico. Lessons have been learned and actions taken to improverisk management as a result. Management remain committed to a relentless focuson safety & assurance improvement and continue to invest in appropriateleadership and technical safety training.
Outlook
We anticipate good progress in all divisions in 2012.
In our activities supporting clients' development capex, we are forecastingstrong growth in Engineering driven by increased E&P capex spend and have goodvisibility in our Wood Group GTS Power Solutions business into 2012. In ouractivities supporting clients' production opex activities, we see performanceimprovement in Wood Group PSN and further growth in Wood Group GTS Maintenance.Through our market leading positions in engineering, production facilitiessupport and gas turbine services, we are well positioned to take advantage ofstrong growth trends in energy markets and we continue to anticipate goodgrowth in the longer term.Operational ReviewEngineeringWe provide a wide range of engineering services to the upstream, subsea &pipelines, downstream & industrial and clean energy sectors. These includeconceptual studies, engineering, project & construction management (EPCM) andcontrol system upgrades. 2011 2010 % $m $m Change Revenue 1,458.6 1,239.1 17.7% EBITA 162.0 122.0 32.8% EBITA margin 11.1% 9.8% 1.3pts People5 9,100 6,900 29% Engineering revenue increased by 18% reflecting increased activity in upstreamand subsea & pipelines, with downstream, process & industrial activityremaining broadly in line with the prior year. EBITA increased 33% with marginincreasing from 9.8% to 11.1%, generally reflecting higher volumes and someimprovements in utilisation and pricing.Headcount increased from 6,900 to 9,100 in response to increased demand for ourservices in upstream and subsea & pipelines, together with the impact of theacquisitions of Dar E&C and Pi-Consult in Saudi Arabia and ISI Solutions inArgentina, which together added around 500 people.Our upstream business accounted for around 40% of Engineering revenue. Wedelivered good growth in the US where we remain active on projects includingthe detailed engineering scope for the Anadarko Lucius and Chevron Jack & StMalo projects in the Gulf of Mexico, the Noble Alen project in EquatorialGuinea and the onshore Hess Tioga gas plant expansion in the US. In Canada, wesecured a two year framework agreement with Shell covering Western Canada andoffshore Alaska, and our activities in support of developments in the oil sandsmarket performed strongly. We made further progress in Saudi Arabia, where wewere awarded a multi-year engineering services framework agreement by SaudiAramco, following the acquisitions of Dar E&C and Pi-Consult. In Malaysia, ournewly established joint venture was awarded its first contracts. During theperiod we also announced the acquisition of ISI Solutions in Argentina, tosupport the provision of engineering and consulting services to the LatinAmerica market.Our subsea & pipeline business accounted for around 40% of Engineering revenueand continues to perform strongly. We are currently working on over 20 majorsubsea projects globally, including key projects for BP in Azerbaijan andAngola, and Shell in Malaysia. Activity remains high in Australia where we wererecently awarded the FEED work for the Equus project by Hess and where wecontinue to work for Chevron on the Gorgon project and Woodside on the Browsedevelopment. We also experienced notable growth in the UK where we secured theengineering design and project management work for BP's Quad 204 project. Ouronshore pipelines business performed well, benefitting from liquids focusedactivity in the US shale regions.Our downstream, process & industrial activities accounted for around 20% ofrevenues and performance in 2011 was broadly in line with 2010. The downstreamrefining market in North America remains flat, although we are beginning to seeearly signs of improvement in the process & industrial market.
Outlook
Our current order book represents around 8 months of forecast revenue followinga good increase in the first two months of the year, and we have a strongprospects list. Recent contract awards, including the Ichthys detailedengineering scope for Samsung, the Tubular Bells topsides work for WilliamsPartners and our subsea engineering framework agreements with Shell, supportour expectation of further growth in upstream and subsea & pipelines in 2012.In downstream, process & industrial, we anticipate that performance in 2012will be largely in line with 2011, due to ongoing weakness in the market inNorth America.Forecasts of growing global E&P capex spend underpin our confidence in thelonger term prospects for Engineering. We see good opportunities for furthergrowth and will continue to broaden our international presence and serviceoffering as customers seek to replace and grow reserves in increasingly complexdevelopments.Wood Group PSN
We provide life of field support to producing assets through brownfield engineering and modifications, production enhancement, operations and maintenance (including UK duty holder status), training, maintenance management and abandonment services.
2011 2010 % $m $m Change Revenue 3,012.7 2,041.1 47.6% EBITA 153.2 101.4 51.1% EBITA margin 5.1% 5.0% 0.1pts People5 26,200 14,500 80.7% Revenue and EBITA include the results of PSN from the date of acquisition on 20April 2011 to 31 December 2011, amounting to revenue of $992.5m and EBITA of$92.8m.
Wood Group PSN was formed through the merger of Wood Group Production Facilities with PSN, to create the global market leader in brownfield production facilities support, which now employs over 26,000 people. The integration programme is largely complete and we are on track to deliver expected synergies.
Revenue increased by 48% and EBITA increased by 51% in the period, due to thecontribution of the acquired PSN business which performed ahead of ourexpectations. Overall performance benefited from strength in the North Sea andNorth America, but was held back by losses of around $30m on Wood GroupProduction Facilities work in Oman and Colombia. Losses in Oman will continueto impact in 2012, although we anticipate that this will be at a reduced levelcompared to 2011.We experienced strong demand in the North Sea, which remains our largest marketand accounted for around 40% of revenue compared to 54% for the ProductionFacilities business in 2010. During 2011 we secured a number of major contractextensions, including the operations & maintenance contract with Talisman, andour operations, maintenance and engineering contract with Taqa Bratani, bothfor five years. We also recently extended an onshore contract with Shell andhave been awarded a new contract with Premier Oil to support the Balmoralfloating production vessel. These contracts provide good earnings visibilityand we believe demonstrate the strong level of customer support for the mergedbusiness.The Americas accounted for around 30% of revenue. Our offshore activities inthe Gulf of Mexico performed well and we were also awarded the projectcommissioning work for the Jack & St. Malo development for Chevron. Demand forour US onshore services, including in the shale regions, strengthened throughthe year and we see good growth prospects for our operations support,consultancy and training services. In Latin America, we have fully provided foranticipated losses to completion on a fixed price downstream project forEcopetrol in Colombia. We have strengthened the management team in Colombia andexpect to complete the project in the second half of 2012, in line with ourcost estimates.International markets, outside the North Sea and the Americas, represent around30% of revenue. In Oman, difficulties in the start up and mobilisation of ourseven year engineering and maintenance services contract with PDO resulted inlower than anticipated utilisation and this contributed to losses. We havecontinued to strengthen the management team in Oman and have now fully takenover responsibility from the previous contractor. We currently anticipatereduced losses in Oman in 2012 and that the contract will become profitablefrom 2013. In Australia, we delivered good profits from work with customersincluding Exxon in the Bass Strait. In Africa, we continue to be active oncontracts in Cameroon, Chad, Equatorial Guinea, Nigeria and Angola, where ourWood Group Kianda joint venture has recently secured the topsides maintenancescope for BP for Block 31. In Russia, we extended our contract with SEIC inSakhalin for a further five years and in Kazakhstan, we are working forTengizChevroil and AGIP KCO.
Outlook
The integration of PSN is largely complete and we are on track to deliverexpected synergies. Recent contract wins and extensions demonstrate the stronglevel of customer support for the merged business which we believe is unique inits international reach. Improved performance in 2012 will be led by theelimination of losses in Colombia, reduced losses in Oman and continuedstrength in the North Sea, North America and Africa.
Looking further ahead, we believe there are significant opportunities to deliver our high quality, high integrity services in good long term growth markets as the industry increasingly focuses on operational assurance, competency, reliability and asset integrity.
Wood Group GTS
We are a leading independent provider of rotating equipment services and solutions for clients in the power, oil & gas and clean energy markets. Our aftermarket Maintenance activities include facility operations & maintenance and repair & overhaul of gas, wind and steam turbines, pumps and other high-speed rotating equipment. Our Power Solutions business provides power plant engineering, procurement & construction and construction management services to the owners of power-generation facilities.
2011 2010 % $m $m Change Revenue 1,195.5 804.9 48.5% EBITA 78.8 46.1 70.9% EBITA margin 6.6% 5.7% 0.9pts People5 3,400 3,300 3% Revenue increased by 49% and EBITA increased by 71%, reflecting strong revenuegrowth and margin improvement in Maintenance and the successful progression ofour ongoing EPC projects with Dorad and GWF in Power Solutions.
Headcount increased due to higher activity in Power Solutions, offset to some extent by a net reduction in Maintenance headcount as a result of operating efficiency initiatives.
Maintenance revenues increased by 10% to $784m and EBITA increased by over 20%,primarily due to improved performance in our oil & gas related activities,which benefitted from steps taken to enhance our operating efficiency andproduct capability, together with a good contribution from our activities inIraq.In our power related activities, we made a number of strategic moves to enhanceour differentiation. We formed a strategic alliance with Pratt & Whitney PowerSolutions to better service the GE 7FA turbine aftermarket and alsosignificantly enhanced our combustion technology capability. Overall, themarket remained challenging, but we saw good performance on some longer termcontracts and secured a number of new awards including the AssociatedElectrical Cooperative in the US for 7FA equipment maintenance, the MunicipalUtility District Financing Authority in Sacramento California, EGASA in Peruand PlusPetrol in Argentina.In Power Solutions, good progress on the Dorad and GWF contracts resulted inthe recognition of significant levels of EBITA in the second half. We arepursuing a number of additional prospects in Power Solutions, and Dorad and GWFprovide good visibility into 2012.
Outlook
2011 saw a strong recovery in our Maintenance activities and, despite achallenging power market, we anticipate further growth in 2012. In PowerSolutions, we have good visibility on work and anticipate strong EBITA growthin 2012 as the Dorad and GWF projects progress. There is good demand for ourfast track EPC Power Solutions offering and, despite constraints in the projectfinancing market, we are pursuing a number of additional prospects.In the longer term, forecast growth in global electricity demand, relativelyfavourable gas prices and environmental considerations all continue to underpinan excellent long term market for gas fired power generation.Financial ReviewFinancial Performance Full Full % Year Year Dec 2011 Dec 2010 Change $m $m Total revenue 6,052.3 5,063.1 19.5%
Revenue from discontinued operations6 (385.5) (978.0) Revenue from continuing operations 5,666.8 4,085.1 38.7%
Total EBITA 398.7 344.8 15.6%
EBITA from discontinued operations (57.1) (126.1) EBITA from continuing operations 341.6 218.7 56.2%
Total EBITA margin 6.6% 6.8% (0.2%pts)
EBITA margin from continuing operations 6.0% 5.4% 0.6%pts
Amortisation (78.7) (29.0)
Operating profit from continuing operations pre 262.9 189.7 38.5%
exceptional items
Net finance expense from continuing operations (8.8) (33.5) Profit from continuing operations before tax and 254.1 156.2 62.7%
exceptional items
Taxation on continuing operations before (75.0) (57.9)
exceptional items
Profit for the period from continuing operations 179.1 98.3 82.2%
before exceptional items
Profit from discontinued operations, net of tax 36.1 89.4 14.7% Profit for the period before exceptional items 215.2 187.7 Exceptional items, net of tax 2,087.6 (21.9)
Profit for the year 2,302.8 165.8 n/m Basic EPS (cents) 530.7c 32.4c
Adjusted diluted EPS (cents) 60.2c 39.8c 51.3%
Dividend per share (cents) 13.5c 11.0c 22.7%
The results for the year have been impacted by the acquisition of PSN on 20 April 2011 and the disposal of the Well Support division on 26 April 2011.
A review of our trading performance is contained within the Chairman's and Chief Executive's Statement, along with the Operational Review.
On a pro forma basis, which includes PSN revenue and EBITA for the full year,including the pre-acquisition period, and excludes the results of Well Support,the performance for the continuing Group in 2011 would have been as set out
below.Unaudited Full Year Full Year % Dec 2011 Dec 2010 Change $m $m Engineering 1,458.6 1,239.1 17.7% Wood Group PSN 3,376.0 3,215.3 5.0% Wood Group GTS 1,195.5 804.9 48.5%
Pro forma Revenue from continuing operations 6,030.1 5,259.3 14.7%
Engineering 162.0 122.0 32.8% Wood Group PSN 175.2 198.1 (11.6%) Wood Group GTS 78.8 46.1 70.9% Central (52.4) (50.8) 3.1%
Pro forma EBITA from continuing operations 363.6 315.4 15.3%
The pro forma result highlights underlying growth in revenue and EBITA of around 15%. On a pro forma basis Wood Group PSN EBITA has reduced by 11.6%, primarily due to the losses recognised in Colombia and Oman as previously announced and noted in the Operational Review.
Commentary on other items relevant in arriving at the Group's financial performance for the year is set out below.
Amortisation
The amortisation charge of $78.7m includes $56.8m (2010: $10.5m) ofamortisation relating to intangible assets arising from acquisitions, of which$47.4m relates specifically to the PSN acquisition. The total intangible assetrecognised in relation to the acquisition of PSN was $194.5m and will beamortised over a period of five years. The total amortisation charge onintangible assets arising from acquisitions for 2012 is expected to be around$55.0m, of which it is anticipated that around $49.0m will relate to PSN. Weregard the amortisation charge relating to intangible assets arising onacquisitions to be a relatively subjective measure, and as a result continue tobelieve that performance is best measured excluding this figure. This is one ofthe primary reasons for our key reporting measures for profit and earnings pershare excluding the impact of amortisation.
Net finance expense
The net finance expense from continuing operations of $8.8m is analysed furtherbelow: Full year Full year Dec 2011 Dec 2010 $m $m Interest on debt 9.0 20.0 Non utilisation fees 2.3 5.1
Non cash charges on pension and deferred 1.3 1.8 consideration Bank fees and charges 1.1 8.4 Total finance charge from continuing operations 13.7 35.3 Finance income (4.9) (1.8) Net finance expense from continuing operations 8.8 33.5 Interest cover7, based on EBITA from continuing operations was 38.8 times(2010: 6.5 times).Exceptional Items Full year Dec 2011 $m
Business divested or to be divested (2,293.7)
Acquisition costs 15.8 Integration and restructuring 84.2 charge Political disruption 13.0 Impairment of goodwill 46.2
Total exceptional items before tax (2,134.5)
Tax on exceptional items 46.9
Total exceptional items after tax (2,087.6)
As set out in the table above we recorded a net exceptional gain of over $2bnin the year, primarily in relation to the gain on divestment of our WellSupport division. During the year we also recorded exceptional costs inrelation to the strategic repositioning of the Group. The majority of thesecosts were directly related to the acquisition of PSN, the integration of theresulting Wood Group PSN division, and decisions made to withdraw from certaingeographical markets.
As a result of the political disruption earlier in 2011 we also recorded an exceptional charge in relation to some overdue Libyan receivables, and we wrote down the goodwill associated with a GTS power related business.
Further details are provided in Note 4 to the Group financial statements.
Costs in relation to the return of cash to shareholders of $14.9m were incurredand a foreign exchange loss of $13.4m ($9.8m net of tax) arose on the sterlingbalances held in anticipation of the return of cash and these have been takendirectly to retained earnings.
Taxation
The effective tax rate on continuing operations pre exceptional items was 29.5%(2010: 34.7%). Full year Full year Dec 2011 Dec 2010 $m $m
Profit from continuing operations before tax 254.1 156.2 Add amortisation of intangibles arising on - 10.5 acquisition Adjusted Profit 254.1 166.7 Underlying tax charge 91.8 57.9
Credit in relation to deferred tax on amortisation of intangibles arising on acquisition (16.8) - Tax charge per financial statements 75.0 57.9 Effective tax rate on Continuing Operations 29.5% 34.7% The higher rate in 2010 relates primarily to unrecognised tax losses and thebooking of further provisions in overseas jurisdictions. Following the sale ofWell Support and acquisition of PSN, we expect the typical rate to be no morethan 29.0% with the reduction including the change in geographic mix of theGroup, reduced rates in certain jurisdictions and certain management actionstaken.Earnings per share
Adjusted diluted EPS for the year to 31 December increased by 51% to 60.2c, largely as a result of the increased EBITA in the period, lower net finance charges, a lower effective tax rate and a reduction in the weighted average number of fully diluted shares following the return of cash.
Dividends
The proposed final dividend is 9.6c. This results in a full year dividend of13.5c, an increase of 23% from last year, and an annual compound growth individends since our IPO in 2002 of 18%. Dividend cover8 for 2011 was 4.5 times(2010: 3.6 times).Summary Balance Sheet 2011 2010 $m $m Assets Non-current assets 1,873.9 1,059.4 Current assets 2,007.1 1,921.1 Liabilities Current liabilities (1,505.2) (1,230.7) Net current assets 501.9 690.4 Non-current liabilities (401.3) (332.6) Net assets 1,974.5 1,417.2 Total shareholders' equity 1,964.5 1,406.3 Minority interest 10.0 10.9 Total equity 1,974.5 1,417.2
Non-current assets are primarily made up of goodwill and intangible assets, andproperty, plant and equipment. The increase from December 2010 is primarily dueto the acquisition of PSN during the year.
Capital Efficiency
The Continuing Group's Return on Capital Employed4 ("ROCE") decreased from 19.5% to 18.4%. The decrease reflects the higher total capital employed following the acquisition of PSN, partially offset by higher EBITA in the period.
The Group's ratio of Operating Capital Employed to Revenue9 ("OCER") has improved from 14.0% to 10.6% at 31 December 2011, reflecting the less operating capital intensive nature of the restructured Group.
Return of cash and share consolidation
In February 2011, we announced that following the completion of the acquisitionof PSN and the disposal of our Well Support division to GE, we intended to makea return of cash to shareholders of not less than $1.7bn. In May 2011 weannounced that the Board had decided that the most appropriate process foreffecting the return of cash was, in the first instance, a Tender Offer of upto £1.1bn, followed by a subsequent B/C Share Scheme.At the close of the Tender Offer on 2 June 2011, 65.9m Wood Group shares,representing approximately 12.2% of the issued ordinary share capital, had beentendered and were purchased by the Group at a price of 625 pence per share, fora total value of £411.9m ($675.7m). Following completion of the Tender Offer,the Company announced that it would complete the return of cash through areturn of 140 pence per share to all shareholders on the register on 1 July2011. The return was made through a B/C Share Scheme, which was substantiallycompleted on 8 July 2011.At the date of this report we have successfully completed the return of £1,071.4m ($1,750.8m), with a further £4.7m ($7.7m) expected to be returned whenthe B shares issued pursuant to the deferred capital option under the B/C ShareScheme are redeemed in April 2012. This will take the total expected return to£1,076.1m ($1,758.5m).
The net cash impact on the Group of the return of cash in 2011 was $1,725.8m reflecting the receipt of $25.0m by the employee share trusts.
Concurrent with the B/C Share Scheme, the Company undertook a share capitalconsolidation. The purpose of the share capital consolidation was to seek toensure that, subject to market fluctuations, the market price of Wood Groupordinary shares immediately following the B/C share issue was approximately thesame as the market price immediately beforehand. The share capitalconsolidation also allows historical and future financial information inrelation to the Company to be compared on a per share basis before and afterthe B/C Share Scheme.The amount returned under the B/C Share Scheme represented approximately 21.9%of the Company's market capitalisation on 10 June 2011. As a result of theshare capital consolidation, the number of ordinary shares in issue has beenreduced by a broadly equivalent percentage, shareholders having received 7 newordinary shares for every 9 existing ordinary shares held. Following thecancellation of the ordinary shares purchased under the Tender Offer, therewere 474.9 million ordinary shares in issue. On 4 July 2011, following thecompletion of the share capital consolidation, there were approximately 369.4million new ordinary shares in issue.The weighted average number of fully diluted shares in the year to 31 December2011 was 448.8m. The table below sets out the impact of these transactions onthe weighted average and closing number of shares in 2011.Reconciliation of number of fully diluted Closing Weighted shares 31 December 2011 Average All figures are in million shares FY 2011 Ordinary shares - opening balance 530.3 530.3
PSN acquisition 10.5 7.3 Tender Offer (65.9) (38.5)
B/C share issue and share capital (105.5) (52.6)
consolidation
Allocation of shares to Employee Share 1.9 0.1
Trust
Ordinary shares - closing balance 371.3 446.6 Shares held by employee share trusts (14.8) (12.8) Basic shares for EPS purposes 356.5 433.8
Effect of dilutive shares 12.3 15.0
Fully diluted shares for EPS purposes 368.8 448.8
Cash flow and Net debt Full year Full year Dec 2011 Dec 2010 $m $m Opening net debt (15.1) (87.9)
Cash generated from operations 471.6 421.9
pre working capital
Working capital movements (continuing operations) (109.5) 23.5 Working capital movements (discontinued operations) (77.6) (42.9) Cash generated from operations 284.5 402.5
Acquisitions and capex (1,083.8) (138.6) Disposals 2,793.6 -
Return of cash to shareholders (1,725.8) -
Tax paid (118.7) (99.3)
Interest, dividends and other (123.4) (97.9) Exchange movements on net debt (15.2) 6.1
Decrease in net debt 11.2 72.8 Closing net debt (3.9) (15.1) The funding position of the Group during the year has been impactedsignificantly by the acquisition of PSN, the disposal of Well Support and thereturn of cash to shareholders. Throughout the period the Group has maintaineda level of debt as set out below. Full Year Full Year Dec 2011 Dec 2010 $m $m Average gross debt 295.5 364.3 Closing gross debt 230.5 195.2 Closing net debt 3.9 15.1
Average net debt since the completion of the return of cash to shareholders hasbeen $128.0m. We have disclosed this average since the return of cash, as theproceeds held following the disposal of Well Support would significantlydistort the average net debt for the full year.Cash generated from operations pre working capital increased by $49.7m to$471.6m and working capital outflows from continuing operations were $109.5m(2010: inflow of $23.5m). The increase in net working capital reflectedincreased revenues, together with the impact of lower advance payments on GTSfixed price contracts and slightly reduced working capital efficiency.Cash paid in relation to acquisitions, primarily the PSN acquisition, totalled$964.8m (2010: $20.9m), deferred consideration paid in respect of prior periodacquisitions decreased to $14.6m (2010: $47.7m) and payments for capex andintangible assets increased to $104.4m (2010: $70.0m). We anticipate anincrease in capex and intangible spend in 2012 to around $130-$150m to includeexpenditure on GTS turbine test cells and business system investment.
The increase in tax paid in the year was due to higher profitability in the period, partially offset by a lower rate on continuing operations.
The increase in interest, dividend and other relates primarily to the purchase of shares for the employee benefit trust.
In February 2011, the Group extended (to April 2014) and renegotiated its $800m bilateral borrowing facilities which resulted in lower pricing.
Foreign exchange and constant currency reporting
The Group's results can be impacted by movements in foreign exchange rates,including the effect of retranslating the results of subsidiaries with variousfunctional currencies into US dollars at different exchange rates. Thecontinuing Group's 2010 EBITA of $218.7m retranslated at 2011 average exchangerates would have been $225.4m resulting in a constant currency growth rate of51.6% compared to a 56.2% increase in the reported numbers.
Pensions
The majority of the Group's pension arrangements are on a defined contributionbasis. The Group operates one UK defined benefit scheme which had 284 activemembers and 909 deferred, pensionable deferred or pensionable members at 31December 2011. At 31 December 2011 the scheme had a deficit of $45.8m (2010:$33.3m) before recognition of a deferred tax asset of $11.5m (2010: $9.0m). Inassessing the potential liabilities, judgment is required to determine theassumptions around future salary and pension increases, inflation, investmentreturns and member longevity. The increase from 2010 was due in part to lowerthan expected returns on scheme assets and partly to a reduction in thediscount rate used which is based on corporate bond yields. During the year aone off contribution of £5.0m ($8.0m) was made to the scheme.
The scheme is closed to new members and future benefits under the scheme are provided on a Career Average Revalued Earnings ("CARE") basis.
Full details of pension assets and liabilities are provided in note 29 to the Group financial statements.
AcquisitionsThe Group acquired 100% of the share capital of PSN on 20 April 2011 for atotal consideration of $684.9m, of which $569.9m was paid in cash and $115.0mof shares were issued. The Group repaid PSN's borrowings of $370.2m as part ofthe transaction. The acquisition of PSN advances Wood Group's strategy ofmaintaining a balance between oil & gas development and later cycle productionsupport, growing and maintaining our market leading positions, developing longterm customer relationships, extending services and broadening internationalpresence. PSN has been merged with Wood Group's Production Facilities businessto create Wood Group PSN. Wood Group PSN is a global leader in brownfieldproduction facilities support and is well positioned for growth across the oil& gas industry.The Group also made a number of other acquisitions during the year includingthe acquisition of Dar E&C, Pi-Consult and ISI in the Engineering division andIMS and GTE in the Wood Group GTS division. These other acquisitions providethe Group with access to new markets and strengthen the Group's capabilities incertain areas. The acquired companies will be in a position to access theGroup's wider client base and use the Group's existing relationships to furthergrow and develop their businesses.
***********************
Footnotes
1 Total Revenue and total EBITA are the sum of activity from continuing operations, the activity of the Well Support division up to the date of disposal and the activity of the Aero engine overhaul business for the year ended 31 December 2011. This is a non-GAAP measure.
2 EBITA from continuing operations represents operating profit from continuingoperations pre-exceptional items of $262.9m (2010: $189.7m) before thededuction of amortisation of $78.7m (2010: $29.0m) and is provided as it is akey unit of measurement used by the Group in the management of its business.3 Adjusted diluted earnings per share ("AEPS") is calculated by dividingearnings before exceptional items and amortisation, net of tax, by the weightedaverage number of ordinary shares in issue during the period, excluding sharesheld by the Group's employee share ownership trusts and adjusted to assumeconversion of all potentially dilutive ordinary shares.
4 Return of Capital Employed ("ROCE") is EBITA divided by average capital employed.
5 Number of people includes both employees and contractors at 31 December 2011.
6 Discontinued operations include the Well Support division and the Wood Group GTS Aero engine overhaul business.
7 Interest cover is EBITA from continuing operations divided by the net finance charge from continuing operations.
8 Dividend cover is AEPS divided by the total dividend per ordinary share for the period.
9 Operating Capital Employed to Revenue ("OCER") is the average operating capital employed divided by revenue. Operating capital employed comprises property, plant and equipment, intangible assets (excluding intangibles recognised on acquisition), inventories and trade and other receivables, less trade and other payables.
JOHN WOOD GROUP PLC
GROUP FINANCIAL STATEMENTS
FOR THE YEAR TO 31ST DECEMBER 2011
Company Registration Number 36219
Consolidated income statement
for the year to 31 December 2011
2011 2010 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 5,666.8 - 5,666.8 4,085.1 - 4,085.1operations Cost of sales (4,684.2) (29.7) (4,713.9) (3,332.5) - (3,332.5) Gross profit 982.6 (29.7) 952.9 752.6 - 752.6 Administrative expenses (719.7) (125.7) (845.4)
(562.9) (27.6) (590.5) Operating profit 1 262.9 (155.4) 107.5 189.7 (27.6) 162.1 Finance income 2 4.9 - 4.9 1.8 - 1.8 Finance expense 2 (13.7) (3.8) (17.5) (35.3) (0.5) (35.8) Profit before taxation from 3 254.1 (159.2) 94.9 156.2 (28.1) 128.1continuing operations Taxation 5 (75.0) 26.7 (48.3) (57.9) 6.2 (51.7)
Profit for the year from 179.1 (132.5) 46.6 98.3 (21.9) 76.4continuing operations Profit from discontinued 1 36.1 2,220.1 2,256.2 89.4 - 89.4operations, net of tax Profit for the year 215.2 2,087.6 2,302.8 187.7 (21.9) 165.8 Profit attributable to: Owners of the parent 214.7 2,087.6 2,302.3 187.9 (21.9) 166.0 Non-controlling interests 25 0.5 - 0.5 (0.2) - (0.2) 215.2 2,087.6 2,302.8 187.7 (21.9) 165.8 Earnings per share (expressed in cents per share) Basic 7 49.5 481.2 530.7 36.7 (4.3) 32.4 Diluted 7 47.8 465.2 513.0 35.5 (4.2) 31.3
The notes on pages 7 to 56 are an integral part of these consolidated financial statements.
Consolidated statement of comprehensive income
for the year to 31 December 2011
2011 2010 Note $m $m Profit for the year 2,302.8 165.8 Other comprehensive income Actuarial (losses)/gains on retirement benefit 29 (22.6) 1.0liabilities Movement in deferred tax relating to retirement 6.1 (0.3)benefit liabilities Cash flow hedges 24 (1.6) 3.3 Net exchange movements on retranslation of foreign 24 (31.1) 2.8currency net assets
Net exchange movements on retranslation of 25 (0.2)
0.3non-controlling interests Total comprehensive income for the year 2,253.4
172.9
Total comprehensive income for the year is
attributable to: Owners of the parent 2,253.1 172.8 Non-controlling interests 25 0.3 0.1 2,253.4 172.9The notes on pages 7 to 56 are an integral part of these consolidated financialstatements.Consolidated balance sheetas at 31 December 2011 2011 2010 Note $m $m Assets Non-current assets Goodwill and other intangible assets 8 1,621.3 677.5 Property plant and equipment 9 150.0 238.2 Long term receivables 12 42.0 43.5 Deferred tax assets 19 60.6 100.2 1,873.9 1,059.4 Current assets Inventories 11 404.5 663.8 Trade and other receivables 12 1,320.9 1,052.0 Income tax receivable 28.7 25.2 Gross assets held for sale 27 26.4 - Cash and cash equivalents 13 226.6 180.1 2,007.1 1,921.1 Liabilities Current liabilities Borrowings 15 69.2 30.1 Trade and other payables 14 1,286.2 1,139.8 Gross liabilities held for sale 27 10.6 - Income tax liabilities 139.2 60.8 1,505.2 1,230.7 Net current assets 501.9 690.4 Non-current liabilities Borrowings 15 161.3 165.1 Deferred tax liabilities 19 5.7 2.3 Retirement benefit liabilities 29 45.8 33.3 Other non-current liabilities 16 98.7 84.7 Provisions 18 89.8 47.2 401.3 332.6 Net assets 1,974.5 1,417.2 Equity attributable to owners of the parent Share capital 21 23.4 26.3 Share premium 22 7.7 315.8 Retained earnings 23 1,469.8 1,007.6 Other reserves 24 463.6 56.6 1,964.5 1,406.3 Non-controlling interests 25 10.0 10.9 Total equity 1,974.5 1,417.2
The financial statements on pages 2 to 56 were approved by the board of directors on 5 March 2012.
Allister G Langlands, Director Alan G Semple, Director
The notes on pages 7 to 56 are an integral part of these consolidated financial statements.
Consolidated statement of changes in equity
for the year to 31 December 2011
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 26.3 315.8 877.6 50.5 1,270.2 10.8 1,281.02010 Profit for the year - - 166.0 - 166.0 (0.2) 165.8 Other comprehensive income: Actuarial gains 29 - - 1.0 - 1.0 - 1.0on retirement benefit liabilities Movement in - - (0.3) - (0.3) - (0.3)deferred tax relating to retirement benefit liabilities Cash flow 24 - - - 3.3 3.3 - 3.3hedges Net exchange - - - 2.8 2.8 0.3 3.1movements on retranslation of foreign currency net assets Total - - 166.7 6.1 172.8 0.1 172.9comprehensive income for the year Transactions with owners: Dividends paid - - (53.1) - (53.1) (1.1) (54.2) Non-controlling 25 - - - - - 0.3 0.3interests arising on business combinations Investment by 25 - - - - - 0.8 0.8non-controlling interests Credit relating 20 - - 16.7 - 16.7 - 16.7to share based charges Tax credit - - 12.5 - 12.5 - 12.5relating to share option schemes Shares - - (20.8) - (20.8) - (20.8)purchased by employee share trusts Shares disposed - - 6.3 - 6.3 - 6.3of by employee share trusts Exchange - - 1.7 - 1.7 - 1.7movements in respect of shares held by employee share trusts At 31 December 26.3 315.8 1,007.6 56.6 1.406.3 10.9 1,417.22010 Profit for the - - 2,302.3 - 2,302.3 0.5 2,302.8year Other comprehensive income: Actuarial 29 - - (22.6) - (22.6) - (22.6)losses on retirement benefit liabilities Movement in - - 6.1 - 6.1 - 6.1deferred tax relating to retirement benefit liabilities Cash flow 24 - - - (1.6) (1.6) - (1.6)hedges Net exchange - - (31.1) (31.1) (0.2) (31.3)movements on retranslation of foreign currency net assets Total - - 2,285.8 (32.7) 2,253.1 0.3 2,253.4comprehensive income for the year Transactions with owners: Dividends paid - - (53.4) - (53.4) (0.3) (53.7) Non-controlling 25 - - - - - 0.4 0.4interests arising on business combinations Purchase of 25 - - - - - (1.8) (1.8)non-controlling interests Investment by 25 - - - - - 0.5 0.5non-controlling interests Credit relating 20 - - 9.7 - 9.7 - 9.7to share based charges Tax credit - - 20.8 - 20.8 - 20.8relating to share option schemes Shares issued 21 0.6 - - 114.4 115.0 - 115.0in respect of the PSN acquisition Adjustments 22 - 6.0 (6.0) - - - -relating to options exercised under share symmetry scheme Purchase of 21 (3.6) - (675.7) 3.6 (675.7) - (675.7)shares under tender 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 by company Expenses and 23 - - (24.7) - (24.7) - (24.7)foreign exchange relating to return of cash, net of tax Shares 23 - - (42.5) - (42.5) - (42.5)purchased by employee share trusts Shares 23 0.1 7.6 (7.7) - - - -allocated to employee share trusts Shares disposed 23 - - 12.3 - 12.3 - 12.3of by employee share trusts Cash received 23 - - 25.0 - 25.0 - 25.0by employee share trusts from the return of cash to shareholders Exchange 23 - - 1.4 - 1.4 - 1.4movements in respect of shares held by employee share trusts At 31 December 23.4 7.7 1,469.8 463.6 1,964.5 10.0 1,974.52011
The notes on pages 7 to 56 are an integral part of these consolidated financial statements.
Consolidated cash flow statement
for the year to 31 December 2011
2011 2010 Note $m $m Cash generated from operations 26 284.5 402.5 Tax paid (118.7) (99.3) Net cash from operating activities 165.8
303.2
Cash flows from investing activities Acquisition of subsidiaries (net of cash and 27 (979.4) (68.6)borrowings acquired) Cash impact of exceptional items (16.4)
(8.0)
Proceeds from divestment of subsidiaries (net of
cash and borrowings disposed and divestment costs) 27 2,793.6
-
Purchase of property plant and equipment (72.4)
(54.4)
Proceeds from sale of property plant and equipment 3.5
5.6
Purchase of intangible assets (32.0)
(15.6)
Proceeds from disposal of intangible assets 0.6
-
Investment by non-controlling interests 25 0.5
0.8
Net cash from/(used in) investing activities 1,698.0
(140.2)
Cash flows from financing activities Proceeds from/(repayment of) bank loans 39.9
(97.3)
Return of cash to shareholders 23 (1,725.8)
-
Expenses relating to return of cash to shareholders (14.9)
-
Purchase of shares by employee share trusts 23 (42.5)
(22.1)
Disposal of shares by employee share trusts 23 12.3
6.3 Interest received 4.6 2.3 Interest paid (17.4) (28.6) Dividends paid to shareholders 6 (53.4)
(53.1)
Dividends paid to non-controlling interests 25 (0.3)
(1.1)
Net cash used in financing activities (1,797.5)
(193.6)
Net increase/(decrease) in cash and cash 66.3 (30.6)equivalents
Effect of exchange rate changes on cash and cash (19.8)
2.1equivalents Opening cash and cash equivalents 180.1
208.6
Closing cash and cash equivalents 13 226.6
180.1
The notes on pages 7 to 56 are an integral part of these consolidated financial statements.
Notes to the financial statements
for the year to 31 December 2011
General information
John Wood Group PLC, its subsidiaries and joint ventures provide services tothe oil and gas and power generation industries around the world. Details ofthe Group's activities during the year are detailed in the Operational Review.John Wood 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. Prior yearcomparatives have been restated to reflect the reclassification of discontinuedoperations and their presentation in 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 oil and gasprices, resource utilisation, foreign exchange rates, contract awards andcontract margins.
(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. Use of the percentage ofcompletion method requires the use of estimates in assessing the stage ofcompletion reached.
(c) Income taxes
The Group is subject to income taxes in numerous jurisdictions. Judgement is required in determining the
worldwide provision for income taxes. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the
Notes to the financial statements
for the year to 31 December 2011
Accounting Policies (continued)
amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
Functional currency
The Group's earnings stream is primarily US dollars and the principal functional currency is the US dollar, being the most representative currency of the Group. The Group's financial statements are therefore prepared in US dollars.
The following exchange rates have been used in the preparation of theseaccounts: 2011 2010 Average rate £1 = $ 1.6041 1.5459 Closing rate £1 = $ 1.5541 1.5657Foreign currenciesIncome 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 foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rate ruling at the balance sheet date.
The directors consider it appropriate to record sterling denominated equity share capital in the accounts of John Wood Group PLC at the exchange rate ruling 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 and rewards of ownershiphave been transferred to the buyer, which is normally upon delivery of productsand customer acceptance, if any. Revenue is stated net of sales taxes (such asVAT) 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 once the outcome of the contractcan be estimated reliably. 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.
Notes to the financial statements
for the year to 31 December 2011
Accounting Policies (continued)
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. 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 recorded as finance expense.
Dividends
Dividends to the Group's shareholders are recognised as a liability in the period in which the dividends are approved by shareholders.
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 relating to business combinations prior to 31 December 2009were treated as part of the cost of the acquisition and capitalised asgoodwill. In accordance with IFRS 3 (revised), acquisition costs relating tobusiness combinations completed on or after 1 January 2010 are expensed in
theincome statement.Intangible assetsIntangible 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 accumulated depreciation and impairment. No depreciation is charged with respect to freehold land and assets in the course of construction. Transfers from PP&E to current assets are undertaken at the lower of cost and net realisable value.
Depreciation is calculated using the straight line method over the following estimated useful lives of the assets:
Freehold and long leasehold buildings 25-50 years
Short leasehold buildings period of lease
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.
Notes to the financial statements
for the year to 31 December 2011
Accounting Policies (continued)
Impairment
The Group performs impairment reviews in respect of PP&E and other intangibleassets whenever events or changes in circumstance indicate that the carryingamount may not be recoverable. In addition, the Group carries out annualimpairment reviews in respect of goodwill. An impairment loss is recognisedwhen the recoverable amount of an asset, which is the higher of the asset'sfair value less costs to sell and its value in use, is less than its carryingamount.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.InventoriesInventories, 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 of business, less the estimated costs of completion and estimated selling expenses. Allowance is made for obsolete and slow-moving items, based upon annual usage.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and other short-term bank deposits with maturities of three months or less and bank overdrafts where there is a right of set-off. Bank overdrafts are included within borrowings in current liabilities where there is no right of set-off.
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 measured at amortised cost.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost.
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. Changes in theestimated liability in respect of acquisitions completed after 31 December 2009are expensed in the income statement. Where deferred consideration is payableafter more than one year the estimated liability is discounted using anappropriate rate of interest.
Notes to the financial statements
for the year to 31 December 2011
Accounting Policies (continued)
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 that future taxable profits will be available against which the temporary differences 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 as fair value hedges are recorded in administrative expenses in the income statement, together with any changes in the fair value of the hedged asset or liability 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 in the income statement. Amountsaccumulated in equity are recycled through the income statement in periods whenthe 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 forecasttransaction is no longer expected to occur, the cumulative gain or loss thatwas reported in equity is immediately transferred to the income statement.
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.
Notes to the financial statements
for the year to 31 December 2011
Accounting Policies (continued)
d. Derivatives that are not designated as hedges
Certain derivatives, whilst providing effective economic hedges are not designated as hedges. Changes in the fair value of any derivative instruments that are not designated for hedge accounting are recognised immediately in administrative 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 fair values.
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 the income 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 market 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 the income statement in the period to which the contributions relate.
Notes to the financial statements
for the year to 31 December 2011
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. Particpants 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 at the balance sheet date. 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 share capital 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. Following the acquisition of PSN and the divestment of theWell Support division the Group's reportable segments are now Engineering, WoodGroup PSN and Wood Group GTS. Management considers these segments to be themost appropriate in light of the change in the structure of the Group.Comparative figures have been restated to reflect the change to operatingsegments.
Notes to the financial statements
for the year to 31 December 2011
Accounting Policies (continued)
The CODM measures the operating performance of these segments using `EBITA' (Earnings before interest, tax and amortisation). Operating segments are reported in a manner consistent with the internal management reports provided to the CODM who is responsible for allocating resources and assessing performance of the operating segments.
Engineering offers a wide range of services to the upstream, subsea andpipelines, downstream and industrial, and clean energy sectors. These includeconceptual studies, engineering, project and construction management (`EPCM')and control system upgrades.
Wood Group PSN offers life of field support to producing assets through brownfield engineering and modifications, production enhancement, operations and management (including UK dutyholder services), training, maintenance management and abandonment services.
Wood Group GTS is an independent provider of rotating equipment services and solutions for clients in the power, oil and gas and clean energy markets. Aftermarket maintenance activities include facility operations and
maintenance, repair and overhaul of gas, wind and steam turbines, pumps and other high speed rotating equipment. The Power Solutions business includes power plant engineering, procurement and construction and construction management services to the owners of power generation facilities.
Disclosure of impact of new and future accounting standards
New and amended standards adopted by the Group
There are no IFRSs or IFRIC interpretations that are effective for the firsttime for the financial year beginning on 1 January 2011 that have a materialimpact on the Group.
New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2011 and not early adopted
* IAS 19 `Employee benefits' (amended standard) * IFRS 9 `Financial instruments' * IFRS 10 `Consolidated financial statements' * IFRS 11 `Joint arrangements' * IFRS 12 `Disclosures of interests in other entities' * IFRS 13 `Fair value measurement'
The Group has yet to assess the full impact of these new standards and amendments but does not expect them to have a material impact on the financial statements.
1 Segmental reporting
The segment information provided to the CODM for the reportable operating segments for the year ended 31 December 2011 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 2011 2010 2011 2010 2011 2010 2011 2010 $m $m $m $m $m $m $m $m Engineering 1,458.6 1,239.1 170.6 130.2 162.0 122.0 128.3 106.0 Wood Group PSN (3) 3,012.7 2,041.1 165.8 112.2 153.2 101.4 42.0 88.6 Wood Group GTS 1,195.5 804.9 91.8 60.0 78.8 46.1 (8.9) 18.8 Central costs (4) - - (49.4) (48.1) (52.4) (50.8) (53.9) (51.3) Well Support - divested 347.8 947.1 69.5 165.9 57.6 128.1 57.6 128.1(5) Wood Group GTS - to be 37.7 30.9 (0.5) (1.6) (0.5) (2.0) (12.5) (2.0)divested (6) Total (7) 6,052.3 5,063.1 447.8 418.6 398.7 344.8 152.6 288.2 Remove divested and to (385.5) (978.0) (69.0) (164.3) (57.1) (126.1) (45.1) (126.1)be divested operations Total continuing 5,666.8 4,085.1 378.8 254.3 341.6 218.7 107.5 162.1operations Finance income 4.9 1.8 Finance expense (17.5) (35.8) Profit before taxation 94.9 128.1from continuing operations Taxation (48.3) (51.7) Profit for the year 46.6 76.4from continuing operations Profit from 2,256.2 89.4discontinued operations, net of tax (8) Profit for the year 2,302.8 165.8
1 Segmental reporting (continued)
Notes
* Following the acquisition of PSN and the divestment of the Well Support
division the Group's reportable segments are now Engineering, Wood Group
PSN and Wood Group GTS. Comparative figures have been restated accordingly.
* Total continuing EBITDA represents operating profit of $107.5m (2010 :
$162.1m) before continuing depreciation of property plant and equipment of
$37.2m (2010 : $35.6m), amortisation of $78.7m (2010 : $29.0m) and
continuing exceptional items of $155.4m (2010 : $27.6m). 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 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 to be divested is an Aero engine overhaul
business which the Group is in the process of divesting. The results of the
Aero engine overhaul business represent the trading activity for the year
ended 31 December 2011. * The figures on the total row are the sum of continuing activity, Well Support activity up to the date of disposal excluding the gain on
divestment, and the activity of the Aero engine overhaul business referred
to at note 6 above. * Profit from discontinued operations, net of tax comprises profit before exceptional items of $36.1m (2010 : $89.4m) and profit from exceptional
items of $2,220.1m (2010 : $nil). Profit before exceptional items comprises
EBITA of $57.1m (2010: $126.1m), net finance expense of $0.2m (2010: income
$0.4m) and tax of $20.8m ($37.1m).
* Revenue arising from sales between segments is not material.
1 Segmental Reporting (continued)
Segment assets and liabilities
Wood Group GTS- Wood Group Wood Group Well Support to be Engineering PSN GTS - divested divested Unallocated Total At 31 December 2011 $m $m $m $m $m $m $m 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 At 31 December 2010 Segment assets 604.9 740.8 857.1 636.1 23.0 118.6 2,980.5 Segment liabilities 275.6 451.7 212.3 210.9 5.0 407.8 1,563.3The Well Support segment assets and liabilities at 31 December 2011 representthe assets and liabilities of the Middle Eastern business, the sale of which isexpected to be completed in the first half of 2012 (note 27).
Unallocated assets and liabilities includes income tax, deferred tax and cash and borrowings where this relates to the financing of the Group's operations.
1 Segmental Reporting (continued)
Other segment items Wood Group GTS - 2011 Wood Group Wood Group Well Support to be Engineering PSN GTS - divested divested Unallocated Total $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 - Rental inventory - - - 2.1 - - 2.1 - 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 and equipment - 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) 2010 $m $m $m $m $m $m $m Capital expenditure - Property plant and 5.1 13.5 10.9 22.4 0.9 2.3 55.1equipment - Rental inventory - - - 9.0 - - 9.0 - Intangible assets 6.3 4.3 4.4 - - 0.6 15.6 Non-cash expense - Depreciation of 8.2 10.8 13.9 30.3 0.4 2.7 66.3property plant and equipment - Depreciation of - - - 7.5 - - 7.5rental inventory - Amortisation of 16.0 6.6 5.9 - - 0.5 29.0intangible assets - Continuing - 6.2 13.4 - - - 19.6exceptional items (non-cash element)
1 Segmental Reporting (continued)
Geographical segments Segment Continuing assets revenue 2011 2010 2011 2010 $m $m $m $m UK 1,017.1 604.1 1,586.3 1,364.1 US 1,308.2 1,079.4 1,517.9 1,263.4 Rest of the World 1,555.7 1,297.0 2,562.6 1,457.6 3,881.0 2,980.5 5,666.8 4,085.1Revenue by geographical segment is based on the geographical location of thecustomer. 2011 2010 $m $m
Revenue by category is as follows:
Sale of goods 100.2 75.1 Rendering of services 5,566.6 4,010.0 Revenue from continuing operations 5,666.8 4,085.12 Finance expense/(income) 2011 2010 $m $m
Interest payable on bank borrowings 11.3
25.1 Bank facility fees expensed 1.1 8.4 Interest relating to discounting of deferred and contingent 1.3 1.7consideration Other interest expense - retirement benefit liabilities (note - 0.129)
Finance expense pre-exceptional items 13.7
35.3
Bank facility fees relating to PSN acquisition 3.8
0.5
Finance expense - continuing operations 17.5
35.8
Interest receivable on short-term deposits (4.4)
(1.8)
Other interest income - retirement benefit liabilities (note (0.5)
-29) Finance income (4.9) (1.8)
Finance expense - continuing operations - net 12.6
34.03 Profit before taxation 2011 2010 $m $m
The following items have been charged/(credited) in arriving
at profit before taxation: Employee benefits expense (note 28) 2,626.4
2,002.4
Cost of inventories recognised as an expense 78.0
64.5 Impairment of inventories 14.2 21.8
Depreciation of property plant and equipment (note 9) 47.2
66.3
Amortisation of intangible assets (note 8) 78.7
29.0
(Gain)/loss on disposal of property plant and equipment (0.1) 3.4
Other operating lease rentals payable:
- Plant and machinery 21.6 16.7 - Property 84.3 69.8 Foreign exchange losses 7.3 3.2Impairment 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. Theamounts disclosed in the above table include both continuing and discontinuedoperations with the exception of cost of inventories recognised as an expensewhich is for continuing operations only.
Services provided by the Group's auditors and network firms
During the year the Group obtained the following services from its auditors and network firms at costs as detailed below:
2011 2010 $m $m
Fees payable to the Group's auditors and its network firms for the audit of parent company and consolidated financial 0.8 0.9statements
Fees payable to the Group's auditors and its network firms
for other services
- Audit of Group companies pursuant to legislation 1.6
1.6 - Other services 1.2 1.4 - Tax services 0.2 0.2 3.8 4.1Other services relates to due diligence and other transactional work in respectof the PSN acquisition (see note 27), the divestment of the Well Supportdivision (see note 27) and the return of cash to shareholders (see notes 21
to24).4 Exceptional items 2011 2010 $m $m
Exceptional items included in continuing operations
Acquisition costs 12.0 6.6
Integration and restructuring charges 84.2
17.4 Political disruption 13.0 -
Impairment of goodwill (note 8) 46.2
3.6 155.4 27.6
Bank facility fees relating to PSN acquisition 3.8
0.5 159.2 28.1 Taxation (26.7) (6.2)
Continuing operations exceptional items, net of tax 132.5
21.9
Exceptional items included in discontinued operations Gain on divestment of Well Support (note 27) (2,305.7)
-
Write down of assets in relation to aero engine overhaul 12.0
-business to be divested (2,293.7) - Taxation 73.6 -
Discontinued operations exceptional items, net of tax (2,220.1)
-
Total exceptional items, net of tax (2,087.6)
21.9
Acquisition costs of $12.0m were expensed in the year, including $9.8m relatingto the purchase of PSN, $1.6m in respect of acquisitions in the Wood Group GTSdivision and $0.6m in respect of Engineering acquisitions. The cash impact ofacquisition costs in the period was $9.6m. In 2010, $6.6m of costs, mainlyrelating to PSN, were expensed.Integration and restructuring charges of $84.2m have been expensed in theyear. The majority of these costs, $79.6m, resulted from the integration ofthe PSN acquisition into the Wood Group PSN division, and decisions made towithdraw from certain geographical markets in the Wood Group PSN and Wood GroupGTS divisions. Further restructuring costs of $4.6m have been recorded in theEngineering division. The cash impact of the integration and restructuringcosts in the year was $6.8m. The integration and restructuring charge in 2010related to the closure of a US repair facility in the Wood Group GTS division.As a result of the political disruption earlier in 2011 the Group recorded anexceptional charge of $13.0m in relation to some overdue Libyan receivables.Due to continued doubts about their recoverability, the outstanding balance hasbeen provided in full.Goodwill impairment of $45.1m was charged to the income statement in respect ofa Wood Group GTS power related business. The goodwill has been written downbased on the Group's estimate of current value. A further goodwill impairmentcharge of $1.1m was made in relation to the Wood Group PSN restructuringreferred to above. The 2010 impairment charge related to the closure of the USrepair facility in the Wood Group GTS division.
A tax credit of $26.7m was recorded in relation to exceptional items on continuing operations in the year.
Included in exceptional items from discontinued operations was the gain ondivestment of Well Support of $2,305.7m (note 27), and a charge of $12.0m inrelation to the write down of the assets of the aero engine overhaul businessto their anticipated selling price. The divestment is expected to be completedin the first half of 2012. A tax charge of $73.6m has been recorded inrelation to the net gain on discontinued exceptional items. 5 Taxation 2011 2010 $m $m Current tax - Current year 117.9 76.2
- Adjustment in respect of prior years (4.8)
6.2 113.1 82.4 Deferred tax - Current year (33.0) (27.1)
- Adjustment in respect of prior years (5.1)
2.6
Tax charge - pre-exceptional items 75.0
57.9 Tax on exceptional items (26.7) (6.2)
Tax charge - continuing operations 48.3
51.7 2011 2010
Tax on items (credited)/charged to equity $m
$m
Deferred tax movement on retirement benefit liabilities (6.1) 0.3
Deferred tax relating to share option schemes (13.9)
(8.6)
Current tax relating to share option schemes (6.9)
(3.9)
Current tax relating to foreign exchange on return of cash to (3.6)
-shareholders Total credited to equity (30.5) (12.2)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 2011 due to the change in mix of the tax jurisdictions of theGroup's subsidiaries following the change in structure of the Group. The taxcharge for the year is higher (2010 : higher) than the expected tax charge
dueto the following factors: 2011 2010 $m $m Profit before taxation from continuing operations pre- 254.1 156.2exceptional items Profit before tax at expected rate of 28.6% (2010: 29.8%) 72.7 46.5 Effects of:
Adjustments in respect of prior years (9.9)
8.8
Non-recognition of losses and other attributes 5.7
2.5
Effect of tax on dividends and other foreign taxes 5.6
2.0 Other permanent differences 0.9 (1.9)
Tax charge pre-exceptional items 75.0
57.96 Dividends 2011 2010 $m $m Dividends on ordinary shares Final dividend paid - year ended 31 December 2010 : 7.6 cents 39.3 35.7(2010: 6.9 cents) per share
Interim dividend paid - year ended 31 December 2011 : 3.9 14.1 17.4 cents (2010: 3.4 cents) per share
53.4 53.1The directors are proposing a final dividend in respect of the financial yearended 31 December 2011 of 9.6 cents per share. The final dividend will be paidon 16 May 2012 to shareholders who are on the register of members on 13 April2012. The financial statements do not reflect the final dividend, the paymentof which will result in an estimated $34.3m reduction in equity attributable toowners of the parent.7 Earnings per share 2011 2010 Earnings Number of Earnings Earnings Number of Earnings attributable shares per attributable shares per to owners of (millions) share to owners of (millions) share the parent (cents) the parent (cents) $m $m Basic pre-exceptional 214.7 433.8 49.5 187.9 512.6 36.7 Exceptional items, net 2,087.6 433.8 481.2 (21.9) 512.6 (4.3)of tax Basic 2,302.3 433.8 530.7 166.0 512.6 32.4 Effect of dilutive - 15.0 (17.7) - 17.0 (1.1)ordinary shares Diluted 2,302.3 448.8 513.0 166.0 529.6 31.3 Exceptional items, net (2,087.6) 448.8 (465.2) 21.9 529.6 4.2of tax Diluted pre-exceptional 214.7 448.8 47.8 187.9 529.6 35.5items Amortisation, net of 55.5 - 12.4 23.0 - 4.3tax Adjusted diluted 270.2 448.8 60.2 210.9 529.6 39.8 Adjusted basic 270.2 433.8 62.3 210.9 512.6 41.1The 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 is disclosed to show the results excludingthe impact of exceptional items and amortisation, net of tax.
8 Goodwill and other intangible assets
Software and Intangibles development arising on Goodwill costs acquisition Total $m $m $m $m 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 and 9.7 79.6 40.3 129.6impairment 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 94.8 235.9 Net book value at 31 December 2011 1,410.7 53.2 157.4 1,621.3 Cost At 1 January 2010 616.6 91.6 66.7 774.9 Exchange movements 2.3 0.6 1.4 4.3 Additions - 12.6 3.0 15.6 Acquisitions 7.6 3.0 - 10.6 Disposals - (0.7) - (0.7)
Reclassification from property - 1.6 -
1.6plant and equipment
Reclassification from current - 0.8 -
0.8assets At 31 December 2010 626.5 109.5 71.1 807.1
Aggregate amortisation and 6.1 60.7 28.8
95.6impairment At 1 January 2010 Exchange movements - 0.6 1.0 1.6
Amortisation charge for the year - 18.5 10.5
29.0 Impairment 3.6 - - 3.6 Disposals - (0.5) - (0.5)
Reclassification from current - 0.3 -
0.3assets At 31 December 2010 9.7 79.6 40.3 129.6
Net book value at 31 December 2010 616.8 29.9 30.8 677.5
In accordance with IAS 36 `Impairment of assets', goodwill was tested forimpairment during the year. The impairment tests were carried out on a CashGenerating Unit (`CGU') basis using the 2012-13 budgets. Cash flows for 2014-16are assumed to grow at a rate of 5% per annum and subsequent cash flows havebeen assumed to grow at 3% per annum for a further 15 years reflecting expectedlong-term growth rates in the countries in which the Group operates. Managementbelieve that 5% is an appropriate growth rate to use for the markets in whichthe Group operates. Details of other key assumptions used are included incritical accounting judgements and estimates in the Accounting Policies. Intotal, a 20 year period has been used for the impairment tests reflecting theexpected long-term growth in the market. The cash flows have been discountedusing a pre-tax discount rate of 10%.
8 Goodwill and other intangible assets (continued)
The value in use has been compared to the net book value of goodwill for eachCGU to assess whether an impairment write down is required. $46.2m of goodwillhas been impaired during the year. See note 4 for further details.A sensitivity analysis has been performed on the basis that the expectedlong-term growth rate falls to 2% and that the pre-tax discount rate increasesto 12% in order to assess the impact of reasonable possible changes to theassumptions used in the impairment review. This analysis did not identify anyfurther CGUs requiring to be impaired. The carrying amounts of goodwill bydivision at 31 December 2011 are: Engineering $386.9m (2010 : $346.3m), WoodGroup PSN $928.7m (2010 : $122.2m), Wood Group GTS $95.1m (2010 : $116.5m) andWell Support $nil (2010 : $31.8m). The carrying amounts of goodwillattributable to the principal CGUs within the Engineering division are WoodGroup Mustang $199.3m, IMV $126.8m and Wood Group Kenny $55.5m. The carryingamounts of goodwill attributable to the principal CGUs within Wood Group PSNare PSN $801.0m, US Onshore $56.3m and WG PSN Services $44.7m. The carryingamounts of goodwill attributable to the principal CGUs within the Wood GroupGTS division are Equipment and Project Solutions $37.7m, Power Plant Services$18.8m and Oil & Gas and Industrial Services $17.1m.
Intangibles arising on acquisition includes the valuation of customer contracts and customer relationships recognised on business combinations.
Development costs with a net book value of $22.9m (2010 : $11.7m) are internally generated intangible assets.
9 Property plant and equipment
Land and Land and Plant and Total buildings buildings equipment - Long - Short leasehold leasehold and freehold $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 and impairment 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 18.3 178.4 216.0
Net book value at 31 December 2011 36.2 12.0 101.8 150.0
9 Property plant and equipment (continued)
Land and Land and Plant and Total buildings buildings equipment - Long - Short leasehold leasehold and freehold $m $m $m $m Cost At 1 January 2010 66.1 28.2 467.2 561.5 Exchange movements 0.7 0.5 1.8 3.0 Additions 6.1 1.4 47.6 55.1 Acquisitions - - 0.7 0.7 Disposals (4.5) (0.7) (32.5) (37.7) Reclassification to intangible - - (1.6) (1.6)assets Reclassification to current assets - - (0.7) (0.7) At 31 December 2010 68.4 29.4 482.5 580.3 Accumulated depreciation and impairment At 1 January 2010 26.1 15.7 265.5 307.3 Exchange movements (0.3) 0.4 1.9 2.0 Charge for the year 2.1 2.7 61.5 66.3 Impairment 3.5 - - 3.5 Disposals (3.4) (0.7) (24.7) (28.8) Reclassification to current assets - - (8.2) (8.2) At 31 December 2010 28.0 18.1 296.0 342.1
Net book value at 31 December 2010 40.4 11.3 186.5 238.2
Plant and equipment includes assets held for lease to customers under operatingleases of $nil (2010: $42.3m). Property plant and equipment includes assets inthe course of construction of $17.3m (2010 : $9.6m).
10 Joint ventures
In relation to the Group's interests in joint ventures, its share of assets, liabilities, income and expenses is shown below.
2011 2010 $m $m Non-current assets 58.7 40.4 Current assets 268.4 233.1 Current liabilities (175.8) (120.8) Non-current liabilities (5.0) (4.9) Net assets 146.3 147.8 Income 445.4 417.5 Expenses (412.2) (374.9) Profit before tax 33.2 42.6 Tax (11.2) (8.1)
Share of post tax results from joint ventures 22.0
34.5
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 principal activityof the most significant joint ventures is disclosed in note 34.11 Inventories 2011 2010 $m $m Materials 46.9 66.5 Work in progress 103.1 122.4 Finished goods and goods for resale 254.5 474.9 404.5 663.8
12 Trade and other receivables
2011 2010 $m $m Trade receivables 1,010.6 891.3 Less: provision for impairment of trade receivables (50.9) (56.5) Trade receivables - net 959.7 834.8
Amounts recoverable on contracts 171.2
21.9
Prepayments and accrued income 104.9
91.1 Other receivables 85.1 104.2 Trade and other receivables - current 1,320.9 1,052.0 Long term receivables 42.0 43.5 Total receivables 1,362.9 1,095.5
The Group's trade receivables balance is analysed by division below:-
Trade Provision Trade Receivable Receivables for Receivables days - Gross impairment - Net 31 December 2011 $m $m $m 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 31 December 2010 Engineering 203.5 (17.9) 185.6 51 Wood Group PSN 367.2 (6.3) 360.9 51 Wood Group GTS 150.9 (5.2) 145.7 37 Well Support 169.7 (27.1) 142.6 50 Total Group 891.3 (56.5) 834.8 49
Receivable days are calculated by allocating the closing trade receivablesbalance to current and prior period revenue including sales taxes. A receivabledays calculation of 50 indicates that closing trade receivables represent themost recent 50 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: 2011 2010 $m $m Up to 3 months 14.0 26.1 Over 3 months 36.9 30.4 50.9 56.5
12 Trade and other receivables (continued)
The movement on the provision for impairment of trade receivables by divisionis as follows: Engineering Wood Group Well Wood Total PSN Support Group GTS 2011 $m $m $m $m $m At 1 January 17.9 6.3 27.1 5.2 56.5 Exchange movements (0.6) (0.2) - - (0.8) Charge to income statement 9.9 2.2 4.6 3.1 19.8 Acquisitions - 7.1 - - 7.1 Divestment of business - - (31.7) - (31.7) At 31 December 27.2 15.4 - 8.3 50.9 2010 At 1 January 13.6 7.3 24.1 5.2 50.2 Exchange movements (0.2) (0.1) (0.1) - (0.4) Charge/(credit) to income 4.5 (0.9) 3.1 - 6.7statement At 31 December 17.9 6.3 27.1 5.2 56.5
The charge/(credit) to the income statement is included in administrative expenses.
The other classes within trade and other receivables do not contain impaired assets.
Included within gross trade receivables of $1,010.6m above (2010 : $891.3m) arereceivables of $209.6m (2010: $176.5m) 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: 2011 2010 $m $m Up to 3 months overdue 183.0 147.8 Over 3 months overdue 26.6 28.7 209.6 176.5Construction contractsFinancial information in respect of EPC contracts carried out by Wood Group GTSis presented below - 2011 2010 $m $m Contract costs incurred and recognised profit for projects to 409.3 43.2date
Contract revenue recognised in the year 366.1
42.7
Amounts due from customers for work done under these 145.4
-
contracts at the balance sheet date Amounts received from customers in excess of revenue earned - 6.3at the balance sheet date 13 Cash and cash equivalents 2011 2010 $m $m Cash at bank and in hand 171.6 163.2 Short-term bank deposits 55.0 16.9 226.6 180.1The effective interest rate on short-term deposits was 3.5% (2010 : 1.3%) andthese deposits have an average maturity of 8 days (2010 : 20 days). At 31December 2011, the Group held $8.1m (2010 : $14.8m) in subsidiaries which haveregulatory restrictions and the cash may not therefore be immediately availablefor general use by the Group.
At 31 December 2011 the Group held $9.9m of cash (2010: $10.1m) in its insurance captive subsidiary to comply with local regulatory requirements.
14 Trade and other payables
2011 2010 $m $m Trade payables 520.8 357.7
Other tax and social security payable 86.9
84.6
Accruals and deferred income 576.4
642.0
Deferred and contingent consideration 27.0
10.7 Other payables 75.1 44.8 1,286.2 1,139.815 Borrowings 2011 2010 $m $m
Bank loans and overdrafts due within one year or on demand
Unsecured 69.2 30.1 Non-current bank loans Unsecured 161.3 165.1 Bank loans are denominated in a number of currencies and bear interest based onLIBOR or foreign equivalents appropriate to the country in which the borrowing is incurred.
The effective interest rates on the Group's borrowings at the balance sheet
date were as follows: 2011 2010 % % US Dollar 2.06 3.50 Sterling 2.83 4.25 Euro 2.28 4.14 Canadian Dollar 2.30 4.49 The carrying amounts of the Group's borrowings are denominated in the followingcurrencies: 2011 2010 $m $m US Dollar 36.5 17.0 Sterling 68.1 60.1 Euro 57.8 58.9 Canadian Dollar 54.0 56.4 Other 14.1 2.8 230.5 195.2The Group is required to issue trade finance instruments to certain customers.These include tender bonds, performance bonds, retention bonds and advancepayment bonds. The Group has also issued standby letters of credit as securityfor local bank facilities. At 31 December 2011 the Group's bank facilitiesrelating to the issue of bonds, guarantees and letters of credit amounted to$797.1m (2010: $665.2m). At 31 December 2011, these facilities were 51%utilised (2010: 61%).15 Borrowings (continued)Borrowing facilitiesThe Group has the following undrawn borrowing facilities available at 31December. 2011 2010 $m $m Expiring within one year 101.2 113.9 Expiring between one and two years -
634.9
Expiring between two and five years 638.7
- 739.9 748.8
All undrawn borrowing facilities are floating rate facilities. The facilities expiring within one year are annual facilities subject to review at various dates during 2012. In April 2011, the Group extended its $800m bilateral facilities to March 2014 .
16 Other non-current liabilities
2011 2010 $m $m
Deferred and contingent consideration 37.9
33.2 Other payables 60.8 51.5 98.7 84.7
Deferred and contingent consideration represents amounts payable on acquisitions made by the Group and is expected to be paid over the next five years.
17 Financial instrumentsThe 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 the countries in which it operates to ensure appropriate action is taken to minimise 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 2011(2010:10%), post-tax profit for the year would have been $10.6m higher or lower(2010: $6.9m). If the closing sterling/US dollar rate was 10% higher or lowerat 31 December 2011 (2010:10%), exchange differences in equity would have been$28.8m (2010: $18.3m) 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. The Group's long-term policy is to maintain approximately 50% ofits borrowings at fixed rates of interest. At 31 December 2011, 47% (2010 :57%) of the Group's borrowings were at fixed rates after taking account ofinterest 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 2011 (2010:1%), post-tax profit for the year would have been $1.3mhigher or lower respectively (2010: $1.2m). 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 its financial 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, Engineering, Wood Group PSN and Wood GroupGTS each made up of a number of businesses. Responsibility for managing creditrisks lies within the businesses with support being provided by Group anddivisional 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. 74% of cash held on deposit at 31 December 2011 (2010 : 100%)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 2011, 91% (2010 : 94%) 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.(d) Capital risk
The Group seeks to maintain an optimal capital structure. The Group monitors its capital structure on the basis of its gearing ratio, interest cover and when applicable, the ratio of net debt to EBITDA.
Gearing is calculated by dividing net debt by equity attributable to owners of the parent. Gearing at 31 December 2011 was 0.2% (2010: 1.1%).
Interest cover is calculated by dividing EBITA from continuing operations by net finance expense from continuing operations before exceptional items. Interest cover for the year to 31 December 2011 was 38.8 times (2010: 6.5 times).
The ratio of net debt to continuing EBITDA at 31 December 2011 was 0.01 times (2010: 0.04 times).
17 Financial instruments (continued)
The table below analyses the Group's financial liabilities which will besettled on a net basis into relevant maturity groupings based on the remainingperiod from the balance sheet to the contractual maturity date. The amountsdisclosed in the table are the contractual undiscounted cash flows. Drawdownsunder long-term bank facilities are for periods of three months or less and
arenot therefore discounted.At 31 December 2011 Less than Between 1 Between 2 Over 5 1 year and 2 and 5 years $m years years $m $m $m Borrowings 69.2 - 161.3 - Trade and other payables 1,199.3 - - - Other non-current liabilities - 28.5 70.2 - At 31 December 2010 Borrowings 30.1 165.1 - - Trade and other payables 1,055.2 - - - Other non-current liabilities - 27.9 56.8 -
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 financial statements as they are not material.
18 Provisions Warranty Other provisions provisions Total $m $m $m At 1 January 2011 26.7 20.5 47.2 Exchange movements (0.2) - (0.2) Charge to income statement 4.6 57.7 62.3 Acquisitions 1.2 6.5 7.7 Divestment of business (10.4) (9.1) (19.5) Payments during the year (7.7) - (7.7) At 31 December 2011 14.2 75.6 89.8Warranty provisionsThese 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 2011, other provisions of $75.6m (2010 : $20.5m) have been recognised. This amount includes provisions for future losses on onerous contracts, a provision for non-recoverable indirect taxes and provisions relating to the divestment of businesses. It is expected that any payment required in respect of these provisions would be made within the next two years.
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 at25% (2010: 27%).
The movement on the deferred tax account is shown below:
2011 2010 $m $m At 1 January (97.9) (54.4) Exchange movements 2.3 (1.0) Credit to income statement (33.9) (32.5) Acquisitions 69.5 - Divestment of business 25.1 -
Deferred tax relating to retirement benefit liabilities (6.1) 0.3
Deferred tax relating to share option schemes (13.9)
(8.6)
Reclassification to current tax - (1.7) At 31 December (54.9) (97.9)
Deferred tax is presented in the financial statements as
follows: Deferred tax assets (60.6) (100.2)
Deferred tax liabilities 5.7
2.3 (54.9) (97.9)
19 Deferred tax (continued)
A deferred tax charge of $4.2m (2010: credit $8.0m) relating to discontinuedactivities is included within the credit to the income statement shown in theabove table.
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and joint ventures. As these earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future.
The Group has unrecognised tax losses of $147.6m (2010: $56.2m) to carry forward 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 $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 charges
The Group currently has four share schemes that give rise to share based charges. These are the Executive Share Option Scheme (`ESOS'), the Long Term Retention Plan (`LTRP'), the Long Term Incentive Plan (`LTIP') and the Long Term Cash Incentive Plan (`LTCIP'). Further details of these schemes is provided in the Directors' Remuneration Report and in note 21.
The charge to operating profit in 2011 for these schemes amounted to $19.2m(2010 : $16.7m). $16.0m of the total charge is credited to retained earningsand $3.2m, relating to the LTCIP is included in other long term liabilities asthe LTCIP is a cash settled scheme. The total credit to retained earningsrelating to share based charges in 2011 is $9.7m which comprises the $16.0mmentioned above, $3.6m of accelerated charges relating to the Well Supportdisposal that have been recorded against the gain on divestment less the fairvalue of payments made to Well Support employees on the disposal amounting to$9.9m.
The assumptions made in arriving at the charge for each scheme are detailed below:
ESOS and LTRP
At 31 December 2011 there were 1,158 employees (2010 : 1,138) participating inthese schemes. For the purposes of calculating the fair value of the shareoptions, a Black-Scholes option pricing model has been used. Based on pastexperience, it has been assumed that options will be exercised, on average, sixmonths after the earliest exercise date, which is four years after grant date,and there will be a lapse rate of between 15% and 20%. The share pricevolatility used in the calculation of 35%-40% is based on the actual volatilityof the Group's shares since IPO as well as that of comparable companies. Therisk free rate of return of 1.1%-5.2% is based on the implied yield availableon zero coupon gilts with a term remaining equal to the expected lifetime ofthe options at the date of grant. A dividend yield of 1.0%-2.0% has been usedin the calculations.The fair value of options granted under the ESOS during the year was £1.62(2010 : £1.16). The fair value of options granted under the LTRP during theyear ranged from £4.94 to £6.38 (2010 : £2.79 to £3.57). The weighted averageremaining contractual life of share options at 31 December 2011 is 5.7 years(2010: 5.5 years).LTIPThe 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 and£5.10 for the fourth cycle. The charge for market related performance targetshas been calculated using a Monte Carlo simulation model taking account ofshare price volatility against peer group companies, risk free rate of return,dividend yield and the expected lifetime of the award.
LTCIP
The share based charge for the LTCIP was calculated using a fair value of £6.18. The fair value is calculated using a Black-Scholes option pricing modelusing similar assumptions to those used for ESOS and LTRP above.
21 Share capital
Ordinary shares of 42/7 pence each 2011
2010 (2010 : 3â..." pence) Issued and fully paid shares $m shares $m At 1 January 530,266,720 26.3 530,266,720 26.3
Shares issued to satisfy option 45,000 - -
-awards Shares issued relating to PSN 10,511,413 0.6 - -acquisition
Purchase of shares under tender offer (65,911,929) (3.6) -
-
New shares issued in advance of share 4 - -
-reorganisation Share reorganisation (105,535,824) - - -
Allocation of new shares to employee 1,900,000 0.1 -
-share trusts At 31 December 371,275,384 23.4 530,266,720 26.3
On 5 April 2011, 30,000 shares of 3â..." pence were issued at 93â..." pence on exercise of options granted under the 1996 Unapproved Executive Share Option Scheme.
On 20 April 2011, 10,511,413 shares of 3â..." pence were issued as part of theconsideration for the purchase of PSN (note 27). The share price used to recordthis transaction was £6.67, resulting in a consideration of $115.0m, $0.6m ofwhich was credited to share capital and $114.4m to a newly created mergerreserve (note 24).
On 31 May 2011, 15,000 shares of 3â..." pence were issued at 83â..." pence on exercise of options granted under the 1994 Approved Executive Share Option Scheme.
On 1 June 2011, the Company purchased 65,911,929 shares at a cost of $675.7munder the 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).On 21 June 2011, 4 new shares were issued prior to the reorganisation of theCompany's share capital. The reorganisation of the Company's share capital tookplace on 2 July 2011, when seven 42/7 pence shares were issued for eachexisting nine 3â..." pence shares. As a result, the number of shares in issuereduced from 474,911,208 to 369,375,384.
On 19 December 2011, 1,900,000 new shares of 42/7 pence were issued to the employee share trusts at prices ranging from 42/7 pence to 381¾ pence.
`B' shares 2011 2010 shares $m shares $m At 1 January - - - - Issue of `B' shares 191,250,234 436.1 - - Redemption of `B' shares (187,883,662) (428.4) - -
Liability in respect of deferred `B' (3,366,572) (7.7) -
-shares At 31 December - - - -On 4 July 2011, 191,250,234 `B' shares were issued at £1.40 each, resulting ina total of $436.1m being credited to the `B' share capital account. On 8 July2011, 187,883,662 `B' shares were redeemed at £1.40 each and an amount of$428.4m was deducted from the `B' share capital account. The balance of3,366,572 shares will be redeemed in April 2012 at £1.40 per share. $7.7m hasbeen deducted from the `B' share capital account and a liability for theoutstanding payment is included in other payables (note 14).21 Share capital (continued)`C' shares 2011 2010 shares $m shares $m At 1 January - - - - Issue of `C' shares 283,660,974 - - -
Reclassification to deferred shares (233,924,818) - -
- Purchase of `C' shares (49,736,156) - - - At 31 December - - - -`C' shares
On 4 July 2011, 283,660,974 `C' shares were issued at 0.001 pence each. Anamount of $4,620 was credited to the `C' share capital account. On 8 July 2011,233,924,818 `C' shares were reclassified automatically as deferred shares andpurchased by the Company for an aggregate consideration of one penny. On thesame date, a dividend of £1.40 per deferred share was paid at a total cost of$533.3m. This amount has been recorded as a reduction in retained earnings(note 23). The employee share trusts irrevocably waived their entitlement toreceive a dividend in respect of 17,000 `C' shares.
On 8 July 2011, 49,736,156 `C' shares were purchased by the company at £1.40 per share at a total cost of $113.4m and this amount has also been deducted from retained earnings.
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 2011 2010 (per Exercise share) period 2001 - 30,000 93â..."p 2006-2011 2001 - 307,000 83â..."p 2006-2011 2002 - 117,000 83â..."p 2007-2012 2003 162,500 519,179 158p 2007-2013 2004 455,584 1,223,084 128½p 2008-2014 2005 30,000 505,689 145p 2009-2015 2006 109,500 424,000 265¼p 2010-2016 2007 231,660 994,000 268½p 2011-2017 2008 937,111 1,255,896 381¾p 2012-2018 2008 81,460 175,729 354â..."p 2012-2018 2009 2,818,105 3,784,767 222p 2013-2019 2009 55,836 100,000 283â..."p 2013-2019 2010 2,805,667 3,789,958 377½p 2014-2020 2011 2,031,500 - 529½p 2015-2021 9,718,923 13,226,302 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.
989,244 options (2010 : 3,125,952) were exercisable at 31 December 2011. 2,047,500 options were granted during the year, 3,799,708 options were exercised during the year and 1,755,171 options lapsed during the year. The weighted average share price for ESOS options exercised during the year was £ 6.49 (2010 : £4.03).
21 Share capital (continued)
Options granted to directors under the executive share option scheme are subject to performance criteria as set out in the Directors' Remuneration Report. No options have been granted to executive directors since 2009. There are 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 2011 2010 (per Exercise share) period 2006 - 114,177 3â..."p 2010-2011 2007 106,500 1,450,647 3â..."p 2011-2012 2008 1,159,959 1,563,236 3â..."p 2012-2013 2009 2,502,932 3,368,090 3â..."p 2013-2014 2010 1,160,270 1,576,875 3â..."p 2014-2015 2011 75,000 - 3â..."p 2015-2016 2011 588,000 - 42/7p 2015-2016 5,592,661 8,073,025 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. 106,500 options (2010 : 114,177) wereexercisable at 31 December 2011. 675,000 LTRP options were granted during theyear, 2,199,413 LTRP options were exercised during the year and 955,951 LTRPoptions lapsed during the year. The weighted average share price for LTRPoptions exercised during the year was £6.52 (2010 : £3.87). 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 (but not the Chairman) and certainother senior executives are awarded shares dependent upon the achievement ofperformance targets established by the Remuneration Committee. The performancemeasures for the LTIP are EBITA, OCER (ratio of operating capital employed torevenue), total shareholder return and adjusted diluted earnings per share. TheLTIP awards are in the form of shares and 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 2011,5,556,856 shares were potentially issuable under this scheme. Further detailsof the LTIP are provided in the Directors' Remuneration Report.22 Share premium 2011 2010 $m $m At 1 January 315.8 315.8
Adjustment relating to options exercised under share symmetry 6.0
-scheme Issue of `B' shares (321.7) -
Allocation of new shares to employee share trusts 7.6
- At 31 December 7.7 315.8
In April 2011, the company received $6.0m proceeds from Group companies relating to the exercise of employee share options under the share symmetry scheme. This amount was credited to share premium. Under the share symmetry scheme subsidiary companies remit share proceeds to the parent company in respect of employee share options granted before the IPO in 2002
On 4 July 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).
On 19 December 2011, 1,900,000 new shares of 42/7 pence were issued to the employee share trusts at prices ranging from 42/7 pence to 381¾ pence and $7.6m was credited to the share premium account.
23 Retained earnings 2011 2010 $m $m At 1 January 1,007.6 877.6 Profit for the year attributable to owners of the parent 2,302.3 166.0 Dividends paid (note 6) (53.4) (53.1)
Credit relating to share based charges (note 20) 9.7
16.7
Actuarial (loss)/gain on retirement benefit liabilities (note (22.6) 1.029) Movement in deferred tax relating to retirement benefit 6.1 (0.3)liabilities
Adjustment relating to options exercised under share symmetry (6.0)
-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 (7.7)
-
Shares purchased by employee share trusts (42.5)
(20.8)
Shares disposed of by employee share trusts 12.3
6.3
Cash received by employee share trusts from the return of 25.0
-cash to shareholders
Tax credit relating to share option schemes 20.8
12.5
Exchange movements in respect of shares held by employee 1.4
1.7share trusts At 31 December 1,469.8 1,007.6
In April 2011, the company received $6.0m of proceeds from Group companies relating to the exercise of employee share options under share symmetry schemes. This amount was credited to share premium and an equivalent amount deducted from retained earnings.
On 1 June 2011, the company purchased 65,911,929 shares at a cost of $675.7m under the tender offer that formed the first part of the return of cash to shareholders. This amount was deducted from retained earnings.
23 Retained earnings (continued)
On 8 July 2011, the second part of the return of cash to shareholders wascompleted and resulted in the redemption of `B' shares totalling $436.1m($428.4m being paid on that date and $7.7m being deferred until April 2012). Onthe same day, a dividend on deferred shares totalling $533.3m was paid and thecompany purchased `C' shares amounting to $113.4m. The total return of cash toshareholders amounted to $1,758.5m. The net cash impact in 2011 was $1,725.8mreflecting the receipt of $25.0m by the employee share trusts and the $7.7m `B'share redemption deferred to 2012.Foreign exchange losses of $13.4m were incurred in relation to the return ofcash and have been booked to retained earnings net of $3.6m of tax relief.Expenses of $14.9m incurred in relation to the return of cash have also beenbooked against retained earnings.Retained earnings are stated after deducting the investment in own shares heldby employee share trusts. Investment in own shares represents the cost of14,696,669 (2010 : 16,543,702) of the company's ordinary shares totalling$111.0m (2010 : $74.5m). No options have been granted over shares held by theemployee share trusts (2010 : 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 2011, 5,000,000shares were purchased on the open market at a cost of $42.5m. 1,900,000 newshares were allocated to the employee share trust at a value of $7.7m.5,954,121 shares were issued during the year to satisfy the exercise of shareoptions at a value of $12.3m. 285,906 shares were issued during the year tosatisfy share awards under the Long Term Incentive Plan and the number ofshares held by the trusts reduced by 2,507,006 following the sharereorganisation.Exchange adjustments of $1.4m (2010: $1.7m) 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 2011 was $146.4m (2010 : $144.8m) based on the closing share priceof £6.41 (2010 : £5.59). 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 2010 88.1 - - (31.2) (6.4) 50.5 Exchange movements on retranslation of - - - 2.8 - 2.8foreign currency net assets Cash flow hedges - - - - 3.3 3.3 (28.4) (3.1) 56.6At 31 December 2010 88.1 - - Shares issued - - 114.4 - - 114.4relating to PSN acquisition 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 of foreign currency net assets Cash flow hedges - - - - (1.6) (1.6) At 31 December 2011 88.1 439.7 - (59.5) (4.7) 463.6On 20 April 2011, 10,511,413 shares of 3â..." pence were issued as part of theconsideration for the purchase of PSN (note 27) with $0.6m being credited toshare capital and $114.4m credited to a newly created merger reserve. On 1 June2011, the Company purchased 65,911,929 of its own shares at a cost of $675.7munder the tender offer that formed the first part of the return of cash toshareholders with $3.6m, representing the par value of these shares beingdeducted from share capital and a corresponding amount credited to a capitalredemption reserve. On 4 July 2011, 191,250,234 `B' shares were issued at £1.40each, $436.1m being credited to the `B' share capital account, $321.7m beingdeducted from share premium and $114.4m deducted from the merger reserve. Onthe redemption of the `B' shares referred to in note 21, $436.1m was creditedto the capital redemption reserve.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 largely relates to theretranslation of PSN's foreign currency net assets, including goodwill andintangible assets recognised on acquisition. The hedging reserve relates to theaccounting for derivative financial instruments under IAS 39. Fair value gainsand losses in respect of effective cash flow hedges are recognised in thehedging reserve.25 Non-controlling interests 2011 2010 $m $m At 1 January 10.9 10.8 Exchange movements (0.2) 0.3
Non-controlling interests arising on business combinations 0.4 0.3
Investment by non-controlling interests 0.5
0.8
Purchase of non-controlling interests (1.8)
-
Share of profit/(loss) for the year 0.5
(0.2)
Dividends paid to non-controlling interests (0.3) (1.1) At 31 December 10.0 10.9
26 Cash generated from operations
2011 2010 $m $m
Reconciliation of operating profit to cash generated
from operations: Operating profit from continuing operations before 262.9 189.7exceptional items Operating profit from discontinued operations before 57.1 126.1exceptional items Adjustments for: Depreciation 47.2 66.3
(Gain)/loss on disposal of property plant and (0.1)
3.4equipment
Amortisation of other intangible assets 78.7
29.0 Share based charges 19.2 16.7 Decrease in provisions (3.1) (6.2)
Changes in working capital (excluding effect of acquisition and divestment of subsidiaries)
Increase in inventories (51.4) (53.9) Increase in receivables (232.1) (33.8) Increase in payables 96.4 68.3 Exchange movements 9.7 (3.1) Cash generated from operations 284.5 402.5Analysis of net debt At 1 Exchange At 31 January Cash flow movements December 2011 2011 $m $m $m $m Cash and cash equivalents 180.1 66.3 (19.8) 226.6 Short-term borrowings (30.1) (39.9) 0.8 (69.2) Long-term borrowings (165.1) - 3.8 (161.3) Net debt (15.1) 26.4 (15.2) (3.9)
27 Acquisitions and divestments
Acquisitions
The assets and liabilities acquired in respect of the acquisitions during theyear were as follows: PSN Other Total $m $m $m Property plant and equipment 22.2 7.2 29.4
Software and development costs 2.2 14.2
16.4
Intangible assets recognised on acquisition 194.5 - 194.5 Inventories - 18.3 18.3 Trade and other receivables 289.4 34.5 323.9 Cash 40.0 9.9 49.9 Bank borrowings (370.2) (2.7) (372.9) Trade and other payables (201.5) (41.3) (242.8) Income tax liabilities (42.4) (2.1) (44.5) Deferred tax liabilities (60.4) (9.1) (69.5) Provisions (6.3) (1.4) (7.7) Total identifiable net (liabilities)/assets (132.5) 27.5 (105.0)acquired Goodwill 817.8 77.5 895.3 Non-controlling interests (0.4) 1.8 1.4 Consideration 684.9 106.8 791.7 Consideration satisfied by: Cash 569.9 86.5 656.4 Issue of shares 115.0 - 115.0
Deferred and contingent consideration - 20.3
20.3 684.9 106.8 791.7The Group has used acquisition accounting for the purchases and, in accordancewith the Group's accounting policies, the goodwill arising on consolidation of$895.3m has been capitalised. The table above includes amounts relating to theacquisition of 100% of the share capital of Production Services Network Limited(`PSN') on 20 April 2011 for a total consideration of $684.9m. $569.9m was paidin cash, $115.0m of shares were issued and PSN's borrowings of $370.2m wererepaid as part of the transaction. $194.5m of intangible assets were recognisedon acquisition. The total identifiable net liabilities of PSN are stated afterrecording provisional fair value adjustments of $25.1m. The fair valueadjustments relate mainly to tax issues.The acquisition of PSN advances Wood Group's strategy of maintaining anappropriate balance between oil & gas development and later cycle productionsupport, creating global market leading positions, developing long-termcustomer relationships, extending services and broadening international reach.Wood Group PSN is a global leader in brownfield production services and is wellpositioned for growth across the oil & gas industry.The Group also made a number of other acquisitions during the year includingthe acquisition of 100% of the share capital of Integrated Maintenance Servicesin the UK, ISI Solutions in Argentina and Gas Turbine Efficiency in the US. Inaddition, the Group also acquired the businesses of PI Consult and Dar E&C inSaudi Arabia. The acquisitions are not considered to be material to the Groupon an individual basis and therefore have been aggregated in the table above.Provisional fair value adjustments of $9.8m have been booked in relation to theother acquisitions made in the year.
27 Acquisitions and disposals (continued)
The other acquisitions during the year provide the Group with access to newmarkets and strengthen the Group's capabilities in certain areas. The acquiredcompanies will be in a position to access the Group's wider client base and usethe Group's existing relationships to further grow and develop theirbusinesses. These factors contribute to the goodwill recognised by the Group onthe acquisitions.The outflow of cash and cash equivalents on the acquisitions made during theyear is analysed as follows: $m Cash consideration 656.4 Cash acquired (49.9) Borrowings acquired 372.9 Cash outflow 979.4
Included in the cash outflow above are deferred and contingent consideration payments of $14.6m made during the year in respect of acquisitions made in prior periods and payments of $4.9m to acquire non-controlling interests.
The results of the Group, as if the above acquisitions had been made at the beginning of period, would have been as follows:
$m Continuing revenue 6,063.4 Continuing EBITA 365.6The profit presented above does not include the losses incurred by GTE in theperiod prior to acquisition, as this would not be representative of thebusiness acquired by the Group. There have been significant changes to the GTEbusiness during the year and the company has been profitable since acquisition.Post acquisition profits are included in the EBITA figure below.
From the date of acquisition to 31 December 2011, the acquisitions contributed $1,019.4m to revenue and $96.4m to EBITA.
27 Acquisitions and disposals (continued)DivestmentsOn 26 April 2011, the Group divested its Well Support division to GE for aconsideration of $2,850.0m. $28.2m of this amount related to the disposal ofthe Group's interest in a business in the Middle East, the sale of which isexpected to be completed in the first half of 2012. Approximately $2.0m of theagreed proceeds will be paid directly to the minority shareholder in thatbusiness. A further $81.0m of proceeds were received from GE in October 2011 aspart of the working capital adjustment. Details of the assets and liabilitiesdivested were as follows: $m Property plant and equipment
127.8
Goodwill and other intangible assets
31.9 Inventories 291.4 Trade and other receivables 238.8 Deferred tax assets 25.1
Cash and cash equivalents
44.4 Borrowings (3.5) Trade and other payables
(245.7)
Net income tax liabilities (14.9) Provisions (19.5) Net assets divested 475.8 Gross proceeds received 2,902.8 Divestment costs (121.3) Gain on divestment 2,305.7
The inflow of cash and cash equivalents in relation to the divestment of the Well Support division is analysed as follows:
$m Gross proceeds received 2,902.8 Divestment costs paid (68.3) Cash divested (44.4) Borrowings divested 3.5 Net cash inflow from divestment
2,793.6
Assets and liabilities held for sale
The assets and liabilities relating to the Middle Eastern business referred toabove are disclosed as assets and liabilities held for sale on the face of thebalance sheet. Also included in this category are the assets and liabilities ofthe aero engine overhaul business which the Group expects to divest in the
first half of 2012.28 Employees and directorsEmployee benefits expense 2011 2010 $m $m Wages and salaries 2,355.2 1,798.8 Social security costs 170.9 129.9
Pension costs - defined benefit schemes (note 29) 7.8
6.5
Pension costs - defined contribution schemes (note 29) 73.3
50.5 Share based charges 19.2 16.7 2,626.4 2,002.4Average monthly number of employees (including executive 2011 2010directors) No. No. By geographical area: Europe 7,163 5,880 North America 10,090 9,460 Rest of the World 10,595 8,516 27,848 23,856Key management compensation 2011 2010 $m $m
Salaries and short-term employee benefits 25.8
18.4
Amounts receivable under long-term incentive schemes 4.1
9.9 Social security costs 3.3 2.4 Post employment benefits 1.2 1.0 Share based charges 7.5 7.4 41.9 39.1Key management compensation represents the charge to the income statement inrespect of the remuneration of the executive directors and certain seniorexecutives. 2011 2010 Directors $m $m Aggregate emoluments 11.4 5.8
Aggregate amounts receivable under long-term incentive 2.1
1.4schemes
Aggregate gains made on the exercise of share options 2.8
0.6 16.3 7.8Aggregate emoluments include a special incentive payment to the Well Supportexecutive director, J Renfroe, on completion of the disposal of the business inApril 2011. Under this arrangement Mr Renfroe gave up entitlement to awardsunder the second and third cycles of the LTIP scheme (see the Directors'Remuneration Report for further details).
One director (2010: one) has retirement benefits accruing under a defined contribution pension scheme. Retirement benefits are accruing to four (2010: four) directors under the company's defined benefit pension scheme. Further details of directors emoluments are provided in the Directors' Remuneration Report.
29 Retirement benefit liabilities
One of the Group's pension schemes in the UK, the John Wood Group PLC Retirement Benefits Scheme, is a defined benefit scheme, which is contracted out of the State Scheme. The assets of the scheme are held separately from those of the Group, being invested with independent investment companies in trustee administered funds.
The most recent actuarial valuation of the scheme was carried out at 5 April 2010 by a professionally qualified actuary.
The principal assumptions made by the actuaries at the balance sheet date were: 2011 2010 % %
Rate of increase in pensionable salaries 4.90
5.30
Rate of increase in pensions in payment and deferred 2.90
3.30pensions Discount rate 4.80 5.40
Expected return on scheme assets 7.00
7.24
The expected return on scheme assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation.
At 31 December 2011 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:
2011 2010 $m $m Present value of funded obligations (206.7) (188.3) Fair value of scheme assets 160.9 155.0 Net liabilities (45.8) (33.3)The major categories of scheme assets as a percentage of total scheme assetsare as follows: 2011 2010 % % Equity securities 83.4 84.4 Corporate bonds 7.7 9.5 Gilts 8.6 5.1 Cash 0.3 1.0
29 Retirement benefit liabilities (continued)
The amounts recognised in the income statement are as follows:
2011 2010 $m $m
Current service cost included within employee benefits 7.8
6.5expense Interest cost 10.8 10.0 Expected return on scheme assets (11.3) (9.9)
Total included within finance (income)/expense (0.5)
0.1
The employee benefits expense is included within administrative expenses in the income statement.
Changes in the present value of the defined benefit liability are as follows: 2011 2010 $m $m Present value of funded obligations at 1 January 188.3 174.4 Current service cost 7.8 6.5 Interest cost 10.8 10.0 Actuarial losses 7.7 6.5
Scheme participants contributions -
0.7 Benefits paid (5.3) (4.8) Plan curtailment (0.5) - Exchange movements (2.1) (5.0) Present value of funded obligations at 31 December 206.7
188.3
Changes in the fair value of scheme assets are as follows:
2011 2010 $m $m Fair value of scheme assets at 1 January 155.0
140.1
Expected return on scheme assets 11.3
9.9 Contributions 16.1 6.3 Benefits paid (5.3) (4.8) Actuarial (losses)/gains (14.9) 7.5 Exchange movements (1.3) (4.0) Fair value of scheme assets at 31 December 160.9
155.0
Included in the contributions above was a one-off payment of £5.0m ($8.0m) made during the year (2010: nil) to reduce the scheme deficit.
29 Retirement benefit liabilities (continued)
Analysis of the movement in the balance sheet liability:
2011 2010 $m $m At 1 January 33.3 34.3 Current service cost 7.8 6.5 Finance (income)/expense (0.5) 0.1 Contributions (16.1) (5.6) Plan curtailment (0.5) - Net actuarial losses/(gains) recognised in the year 22.6 (1.0) Exchange movements (0.8) (1.0) At 31 December 45.8 33.3
Cumulative actuarial losses recognised in equity:
2011 2010 $m $m At 1 January 50.5 51.5 Net actuarial losses/(gains) recognised in the year 22.6 (1.0) At 31 December 73.1 50.5
The actual return on scheme assets was $(3.6)m (2010 : $17.4m).
History of experience gains and losses:
2011 2010 2009 2008 2007
Difference between the expected and actual return on scheme assets :
(Loss)/gain ($m) (14.9) 7.5 15.6 (44.3) 10.5
Percentage of scheme assets 9% 5% 11% 44%
6%
Experience (losses)/gains on scheme
liabilities: (Loss)/gain ($m) (7.7) (6.5) (24.0) 25.6 (7.9)
Percentage of the present value of 4% 4% 14% 21%
4%the scheme liabilities Present value of scheme liabilities 206.7 188.3 174.4 124.7 187.5($m) Fair value of scheme assets ($m) 160.9 155.0 140.1 101.6 176.2 Deficit ($m) 45.8 33.3 34.3 23.1 11.3
The contributions expected to be paid during the financial year ending 31 December 2012 amount to $8.8m.
Pension costs for defined contribution schemes are as follows:
2011 2010 $m $m Defined contribution schemes 73.3 50.5
Contributions outstanding at 31 December 2011 in respect of defined contribution schemes amounted to $21.5m (2010 : $19.4m).
30 Operating lease commitments - minimum lease payments
2011 2010 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 72.6 10.3 63.1 12.0 Later than one year and less than five 190.3 20.3 159.6 14.8years After five years 91.0 0.3 69.1 0.6 353.9 30.9 291.8 27.4The 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 extended to 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.
32 Capital and other financial commitments
2011 2010 $m $m
Contracts placed for future capital expenditure not provided in the financial statements 17.3
13.5
The capital expenditure above relates to property plant and equipment. $3.8m of the above amount relates to commitments made by one of the Group's joint venture companies.
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 in theordinary course of business. 2011 2010 $m $m Sale of goods and services to joint ventures 44.0
102.2
Purchase of goods and services from joint ventures 24.6
49.3
Receivables from joint ventures 36.8
43.0 Payables to joint ventures 5.5 5.7
In addition to the above, the Group charged JW Holdings Limited, a company in which Sir Ian Wood has an interest, an amount of $0.1m (2010 : $0.1m) for management 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 2011 arelisted below. Country of incorporation Ownership Name of subsidiary or joint or interest Principal activity venture registration % Engineering
Mustang Engineering Holdings, USA 100 Conceptual studies,
Inc engineering, project Alliance Wood Group USA 100 and construction Engineering L.P. management and control
J P Kenny Engineering Limited UK 100 system upgrades.
IMV Projects Inc Canada 100 Wood Group PSN Wood Group Engineering (North UK 100 Brownfield engineering Sea) Limited and modifications, Wood Group Production USA 100 production enhancement, Services, Inc operations Wood Group Colombia S.A. Colombia 100 management, maintenance management Hexagon S.A Equatorial 65 and abandonment services. Guinea
Wood Group E&PF Australia Pty Australia 100
Limited
Bond Personnel Pty Limited Australia 100 Neal and Massy Wood Group Trinidad & 50
Limited Tobago Producers Assistance USA 100 Corporation
Production Services Network UK 100
(Aberdeen) Ltd
Production Services Network UK 100
(UK) Ltd
Production Services Network US USA 100
Inc
Production Services Network Canada 100
Canada Ltd
Production Services Network Australia 100
Pty Ltd PSN Kastroy JSC Kazakhstan 50
Production Services Network Russia 100
Sakhalin LLC
Sakhalin Technical Services Russia 80 Network LLC
34 Principal subsidiaries and joint ventures (continued)
Country of incorporation Ownership Name of subsidiary or joint or interest Principal activity
venture registration % Wood Group GTS: Rolls Wood Group (Repair & UK 50* Gas turbine repair and Overhauls) overhaul Limited
TransCanada Turbines Limited Canada 50* Wood Group Field Services, Inc USA 100
Wood Group Gas Turbine UK 100 Services Limited Wood Group Pratt & Whitney USA 49* Industrial Turbine Services, LLC Wood Group Power Solutions, USA 100 Power plant engineering, Inc procurement and construction Wood Group Advanced Parts Switzerland 100 Provision of gas turbine Manufacture AG parts Shanahan Engineering Ltd Ireland 100 Power plant installation services Wood Group Power Plant USA 100 Operations and Services Inc maintenance
The proportion of voting power held equates to the ownership interest, other than 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 13 April2012 as published in the Financial Times on 14 April 2012.
Officers and advisers
Secretary and Registered Office Registrars
R M B Brown Equiniti Limited
John Wood Group PLC Aspect House
John Wood House Spencer RoadGreenwell Road LancingABERDEEN West SussexAB12 3AX BN99 6DA
Tel: 01224 851000 Tel: 0871 384 2649
Stockbrokers Independent Auditors
JPMorgan Cazenove PricewaterhouseCoopers LLP
Credit Suisse Chartered Accountants and Statutory Auditors
Company SolicitorsSlaughter and MayFinancial calendarResults announced 6 March 2012 Ex-dividend date 11 April 2012 Dividend record date 13 April 2012 Annual General Meeting 10 May 2012 Dividend payment date 16 May 2012
The Group's Investor Relations website can be accessed at www.woodgroup.com.
PINXRelated Shares:
Wood Group (J)