Final Results
John Wood Group PLC
Full year results for the year to 31 December 2009
Responding to a more challenging market
John Wood Group PLC (Wood Group or the Group) is a market leader in engineering
design, production enhancement and support, and industrial gas turbine services
for customers in the oil & gas and power generation industries around the
world. Operating in 50 countries, Wood Group businesses employ approximately
28,200 people1.
Financial Highlights
Revenue of $4,927.1m (2008: $5,243.1m) down 6%
EBITA2 of $358.4m (2008: $441.0m) down 19%
Profit before tax of $264.8m (2008: $384.1m) down 31%, after an exceptional
charge of $35.8m
Cash generated from operations of $545.5m (2008: $353.5m) up 54%
Basic earnings per ordinary share of 32.1 cents (2008: 49.6 cents) down 35%
Adjusted diluted earnings per ordinary share3 of 41.8 cents (2008: 52.1 cents)
down 20%
Declared second interim dividend of 6.9 cents, making a full year dividend of
10.0 cents (2008: 9.0 cents) up 11%
Operating Highlights
Group
Robust performance from production related activities offset by reduced volumes
and margins in development related businesses
Excellent cash generation used to fund acquisitions and capex to support our
longer term strategy
Cost reduction initiatives implemented to minimise profit erosion in
challenging markets
Engineering & Production Facilities
Strong revenue growth in constant currency4 reflected good growth in our
Production Facilities activities, offset by reduced activity in our development
related Engineering businesses
Engineering
Ongoing project delays in upstream, downstream, process & industrial markets,
offset to some extent by the strong performance of our subsea and pipeline
business
Growing operations in the Middle East, Africa and Asia Pacific
Production Facilities
Strong growth in North Sea business
Acquisition of Baker Energy established market leadership in the US Gulf of
Mexico; strengthened position in the growing deepwater market and added a
further 500 people in Africa
Significantly enhanced capability and market position in Australia
Well Support
Revenues impacted by weaker US natural gas market; effective action taken to
reduce cost base
Continued to develop technology to enhance our position in higher growth
markets, including offshore, US shale and SAGD applications
Extended involvement in a number of newer markets in Latin America and the
Middle East
Gas Turbine Services
Revenues impacted by deferred spending and disposals; continuing margin
improvement from internal restructuring and increasing work under longer term
contract
Strengthened Eastern Hemisphere Power Solutions execution capability with the
acquisition of Shanahan Engineering
Outlook
Expect lower volumes in Engineering with activity beginning to recover in the
second half of the year
Production related activities, which now account for 56% of Group revenue,
should provide a further robust performance in 2010
Improving US rig count should support Well Support activity levels, although
pricing is likely to be slow to recover
Project awards in Power Solutions anticipated to begin in 2010
Strong balance sheet provides a platform to take advantage of opportunities for
further acquisitions and organic investment
Sir Ian Wood, Chairman, and Allister Langlands, Chief Executive, of Wood Group,
state:
"Wood Group's focus on production support, the increasing differentiation of
our services, our market leading positions and our good international spread
will continue to stand us in good stead in 2010. Beyond that, we believe the
fundamentals for oil and gas services and gas fired power generation remain
strong and we are well positioned to deliver good longer term growth."
Information:
Wood Group
01224 851000
Alan Semple
Nick Gilman
Carolyn Smith
Brunswick
020 7404 5959
Patrick Handley
Notes
1.Number of employees and contractors at 31 December 2009.
2.EBITA represents operating profit of $298.5m (2008: $415.8m) for 2009 before
adjusting for exceptional items of $35.8m (2008:$nil), and amortisation of
$24.1m (2008: $25.2m). This financial term is provided as it is a key unit of
measurement used by the Group in the management of its business.
3.Shares held by the Group's employee share trusts are excluded from the number
of shares in calculating earnings per ordinary share. Adjusted diluted earnings
per ordinary share is based on the diluted number of shares, taking account of
share options where the effect of these is dilutive.Adjusted diluted earnings
per ordinary share is calculated on profit for the year excluding the post tax
effect of amortisation and exceptional items.
4.2008 results have been retranslated at 2009 average rates to provide
comparative financial information on a constant currency basis.
Chairman's Statement
In 2009, we responded to the more challenging market and continued to develop
our services, products and geographic reach to enable us to emerge stronger
from the downturn.
2009 Group 2009 2008 % %
performance
$m $m Change Change4
Constant
Currency
Revenue 4,927.1 5,243.1 (6%) -
EBITA 1 358.4 441.0 (19%) (14%)
EBITA margin 7.3% 8.4% (1.1%pts) (1.2%pts)
Profit before 264.8 384.1 (31%)
tax
Basic EPS 32.1c 49.6c (35%)
Adjusted 41.8c 52.1c (20%)
diluted EPS 2
Total dividend 10.0c 9.0c 11%
ROCE 3 26.3% 33.3% (7%pts)
Cash generated 545.5 353.5 54%
from
operations
Group revenue decreased by 6% to $4.9bn and EBITA decreased by 19% to $358m.
The Group benefitted from a robust performance in our production support
related businesses but was impacted by reduced volumes and pricing in our
development related activities and the translation effect of the stronger US
dollar.
The Group generated $546m cash flow from operations, a 54% increase over 2008.
We continue to invest in our longer term strategy with $179m in capex and
acquisitions in key growth areas. Reflecting the strength of our balance sheet
and continuing confidence in our long term growth, we are declaring a second
interim dividend of 6.9c. As there will be no further dividend in relation to
2009, the full year dividend will be 10.0c (2008: 9.0c), up 11% on last year.
We expect to continue with a progressive dividend policy and, as such, to grow
the dividend in 2010.
Markets
World recession, volatile financial markets and lower oil and gas prices
contributed to a reduction in global E&P expenditure of around 15% in 2009.
However, oil prices began to recover, and many customers now appear to expect
an oil price in the $65 - 85 range over the next 1 or 2 years, with surplus
OPEC capacity likely to temper any upside to the oil price as global economies
recover and energy demand begins to grow again. More recently, we have also
seen the US gas price begin to recover and this, together with the potential in
non conventional gas deposits, should encourage increased investment in the US
gas market. In the medium term, new oil and gas developments will be
increasingly focused on harsher environments - deeper water, subsea, arctic
regions and oil sands. With our differentiated know-how and range of services
and products in these sectors, we should be in a good position to benefit.
There is also increasing investment by operators to maximise the recovery of
hydrocarbons from their existing fields, an area in which we have a strong
track record of cost effective and innovative production enhancement on longer
term contracts globally.
We are also going to see increasing investment in clean energy solutions to
complement oil and gas resources. We intend to use our growing knowledge and
expertise in this area, including carbon capture and storage and renewables, to
help our wide range of customers meet increasing environmental and climate
change objectives. Our offshore engineering skills and know-how will contribute
to the offshore wind, wave and tidal power developments whilst our significant
CO2 handling experience in West Texas and our recent contract for Masdar, in
the Middle East positions us well in the carbon capture and storage sector.
With the increasing recognition of gas as the most environmentally friendly of
the hydrocarbons, the growth in the installed base of gas turbines should
continue and we are well positioned to benefit from the increased aftermarket
service revenue that will arise.
Strategy
Our industry sectors are oil & gas, power & industrial and, increasingly, clean
energy. Our strategy is to achieve long term sustainable growth by adding value
to our customers' operations with world leading, highly differentiated products
and services. Our strategy has four strands:
to maintain a balance between oil & gas development and later cycle production
support
to grow and maintain market leading positions based on differentiated know-how
to develop long term customer relationships, often through performance based
contracts, and
to extend our services and broaden our international presence.
We believe this strategy positions us well through the oil & gas cycle, with
defensive qualities balanced with opportunities for growth. Our strong balance
sheet and excellent cash flow generation should allow us to make further value
enhancing acquisitions alongside organic investments to enable us to emerge
stronger from the downturn.
The Board and People
Roberto Monti retired from the board with effect from 31 December 2009 after 8
years as a non executive director, serving on the remuneration and nominations
committees. I would like to thank Roberto for his invaluable contributions and
wise counsel and wish him the very best for the future.
Michel Contie joined the board with effect from 24 February 2010, after a
distinguished and successful career with Total, most recently with
responsibility for Total's upstream operations in Northern Europe.
In the Chief Executive's statement, Allister Langlands pays tribute to the
outstanding commitment and dedication of all our employees in what has been a
very difficult year and I would wish to add the Board's endorsement and thanks
to all Wood Group people throughout the world.
Outlook
Wood Group's focus on production support, the increasing differentiation of our
services, our market leading positions and our good international spread will
continue to stand us in good stead in 2010. Beyond that, we believe the
fundamentals for oil and gas services and gas fired power generation remain
strong and we are well positioned to deliver good longer term growth.
Chief Executive's Statement
2009 2009 2008 % %
Divisional
performance $m $m Change Change
Constant
Currency
Revenue 4,927.1 5,243.1 (6%) -
Engineering 3,241.9 3,244.7 - 8%
&
Production
Facilities
Well 813.7 1,008.6 (19%) (18%)
Support
Gas Turbine 825.6 956.6 (14%) (10%)
Services
EBITA 358.4 441.0 (19%) (14%)
Engineering 266.0 316.1 (16%) (11%)
&
Production
Facilities
Well 75.1 105.0 (28%) (27%)
Support
Gas Turbine 65.7 72.6 (10%) (2%)
Services
EBITA 7.3% 8.4% (1.1 (1.2%
margin %pts) pts)
Engineering 8.2% 9.7% (1.5 (1.8%
& %pts) pts)
Production
Facilities
Well 9.2% 10.4% (1.2 (1.1%
Support %pts) pts)
Gas Turbine 8.0% 7.6% 0.4% 0.7% pts
Services pts
Operational and financial highlights
Overall, the Group benefited from a robust performance from our production
support related activities (Production Facilities, Electric Submersible Pumps
"ESP" and the Gas Turbine Services aftermarket activities) offset by reduced
volumes and margins in our development related businesses (Engineering,
Pressure Control, Logging Services and Power Solutions) and the translation
effect of the stronger US dollar.
Group revenue decreased by 6% to $4.9bn but was unchanged in constant currency
terms. The revenue movement reflects strong growth in our Production Facilities
activities, offset by a reduction in Engineering revenue, lower Well Support
revenue principally in the US natural gas market, and lower revenue in Gas
Turbine Services.
Group EBITA decreased by 19%, or 14% in constant currency terms, and Group
EBITA margin reduced from 8.4% to 7.3%. The Engineering & Production Facilities
("E&PF") margin decreased due to a reduction in the underlying Engineering
margin and the change in mix towards lower margin Production Facilities
activity which represented 57% of E&PF revenue in 2009 (2008: 52%). In Well
Support, the margin reduction reflected significantly lower volumes and pricing
in our US natural gas related activities. The relatively small margin reduction
reflects a good performance from ESP and early and effective action taken to
reduce our cost base. In Gas Turbine Services, we continued the trend of margin
improvement and achieved an 8.0% margin.
Strategy Implementation
During 2009 we continued to progress our strategic objectives.
In Engineering, we expanded our operations in the Middle East and believe we
will double our number of people in the region to 500 during 2010. We are also
taking steps to grow our engineering activities in Africa and in Asia Pacific.
The acquisition of Baker Energy in Production Facilities established a market
leadership position in the US Gulf of Mexico, expanding our deepwater presence
and added a further 500 people in Africa. Our acquisitions in Australia
significantly enhanced our capability and market position, and we also won an
important contract with Statoil in Brazil.
In Well Support, we continue to develop our technology to enhance our position
in higher growth markets including offshore, US shale and SAGD applications. We
have also continued to extend our involvement in Latin America and the Middle
East.
In Gas Turbine Services, we have formed two new industry segment groups, one
focused on oil & gas and the other on power & industrial. Our differentiation
is helping us to grow the proportion of our revenues from longer term
contracts. In Power Solutions, we have strengthened our Eastern Hemisphere
execution capability with the acquisition of Shanahan Engineering.
We are developing our capabilities in both renewables and CO2 handling and
storage, and this should provide a small but increasing contribution over the
coming years.
We are active on a range of operational and engineering excellence initiatives
to deliver continuous improvement in our business. Additionally cost reduction
measures were implemented successfully, across the Group, to minimise the
profit reduction in this challenging market.
During 2009, we have taken action to reduce our activities in Venezuela. The
sale of our interest in a Venezuelan engineering company, the termination of
our Simco water injection contract, and the sale or closure of certain other
activities, together with the devaluation of the local currency has resulted in
an exceptional charge of $35.8m. Our continuing operations in Venezuela
primarily relate to Well Support.
People5
2009 has seen a 2% overall decline in our people numbers worldwide.In some of
our development related businesses there was a reduction of around 3,300
people, but this was offset by the net impact of acquired and disposed
businesses of around 2,600 people. Throughout the period, we continued to
invest in training, developing and retaining our key talent and continued to
welcome some high calibre additions.
I would like to take this opportunity to extend my thanks and that of my
Executive Team to all our people for their outstanding commitment and
dedication in 2009 to satisfying our customers' needs by applying their skills
and expertise throughout what has been a very challenging year.
Safety
Since 2004 we have seen year on year improvements in our key safety statistics
and in 2009 maintained this encouraging trend with a further reduction in our
total recordable case frequency6. Our lost work case frequency improved by 13%
representing a significant decline in more severe injuries. This improvement
was achieved through a series of proactive initiatives with a focus on the
higher risk areas of our operations. Our commitment to achieving the highest
standards of safety in everything we do has been recognised with various awards
around the world. Continuous improvement is a key measure of our success and is
given the highest priority.
Looking into 2010
We expect that our production related activities, which now account for 56% of
Group revenue, should provide a further robust performance in 2010. Within our
development related activities, the improving US rig count should help Well
Support, although pricing is likely to be slow to recover. Within Engineering,
we expect lower volumes with activity beginning to recover in the second half
of the year. We expect project awards in Power Solutions to begin in 2010 which
should provide good growth in 2011.
We will continue to carefully control costs and manage our working capital, and
with our strong balance sheet are well positioned to take advantage of
opportunities in pursuit of our strategy. We remain confident in the
fundamentals of our key markets and believe we are well positioned to deliver
good longer term growth.
Engineering & Production Facilities
2009 2008 % %
$m $m Change Change
Constant
Currency
Revenue 3,241.9 3,244.7 - 8%
EBITA 266.0 316.1 (16%) (11%)
EBITA 8.2% 9.7% (1.5%pts) (1.8%
margin pts)
People 20,800 20,000 4%
Operating and financial highlights
Revenue for the year was flat but up 8% in constant currency terms. The good
revenue growth in constant currency reflected strong growth in our Production
Facilities activities, offset by reduced activity in our development related
Engineering business. The revenue split in the period was 57% Production
Facilities to 43% Engineering (2008: 52% to 48%).
The 10% reduction in Engineering revenue reflected ongoing project delays in
upstream, downstream and the process & industrial markets offset to some extent
by a strong performance in our subsea and pipeline activities. The 10% growth
in Production Facilities revenue resulted from a very strong performance in the
North Sea which accounts for about 60% of Production Facilities revenue. The
proportion of division revenue from outside Europe and North America increased
from 20% to 22%.
EBITA margin decreased from 9.7% to 8.2% due to a reduction in the underlying
Engineering margin and the change in mix towards lower margin Production
Facilities. The reduction in Engineering margin was due to lower pricing, a
decrease in manpower utilisation and the loss of some scale efficiencies as
volumes decreased. Margins in Production Facilities improved slightly due to
growth in higher margin activities and an active cost reduction programme.
Divisional headcount at the year end, including contractors, was approximately
20,800 people, an increase of 4% since last year. Engineering headcount was
6,400 people, a decrease of 26%, reflecting adjustments in line with lower
volumes and the sale of the Group's interest in an engineering business in
Venezuela. Production Facilities, with 14,400 people, rose 27%, with the bulk
of the increase arising from the acquisition of Baker Energy and several
acquisitions in Australia.
Engineering
Upstream activities represent around 40% of Engineering revenue and 11% of
Group revenue. We hold market leading positions in deepwater engineering,
including lightweight topsides, and engineering for in situ oil sands markets.
The developments on which we work are typically longer term complex projects,
predominantly for International Oil Companies "IOCs", National Oil Companies
"NOCs" and large independents. During 2009, we saw a reduction in engineering
volumes on large projects, while remaining active on projects for BP (Valhall),
Chevron (Jack/St Malo), ConocoPhillips (Ekofisk), EnCana (Foster Creek),
ExxonMobil (Scarborough), Modec (Ghana) and Shell (Perdido).
Subsea & pipeline engineering represents around 35% of Engineering and 10% of
Group revenue. We are the largest subsea & pipeline engineering consultancy in
the world, with leading positions in riser & mooring design, and advanced
engineering and software solutions to the subsea and pipeline sectors. Activity
levels remained strong in the period and we were engaged with a range of
customers, including BP (various projects under our global framework
agreement), Chevron (Gorgon), Gazprom/Total/Statoil (Shtokman), Inpex (Icthys),
Woodside (Pluto) and onshore with Williams and Kinder Morgan.
Downstream, process and industrial represents around 25% of Engineering and 7%
of Group revenue. During 2009, we have seen a significant reduction in volumes
as downstream and chemical customers reduced their capital spending. Our
automation group remained active for ExxonMobil in Singapore and on various
projects for Chevron and ConocoPhillips.
Within Engineering, a key strategic priority is to continue our geographic
expansion focused on growth markets in Asia Pacific, the Middle East and
Africa. In Asia Pacific, we entered a joint venture with Petronas in Malaysia
to develop integrated floating LNG solutions, using our proprietary
liquefaction technologies. In the Middle East, we agreed to acquire a
controlling interest in Al-Hejailan Consulting, a Saudi Arabian engineering
company, to give us an engineering and project management services presence in
the oil, gas, chemical and power industries in the Kingdom of Saudi Arabia. We
have also expanded our presence in Abu Dhabi, where we have been engaged on one
of the world's leading carbon capture projects for Masdar. In clean energy, we
are also developing our offshore renewables capability in both wind and wave
projects in Europe and Australia.
Production Facilities
Our activities in the North Sea, where we are the leading maintenance,
modifications and operations contractor, represent around 60% of Production
Facilities revenue and 22% of Group revenue. We provide ongoing engineering,
operations support, production enhancement and asset integrity services under
longer term contracts. With continued customer focus on maintaining production,
lowering unit costs and ensuring asset integrity, we extended our North Sea
contract, with Total, and were awarded two new contracts with Chevron to
support engineering & construction and operations & maintenance on their UK
North Sea assets. In addition we had a successful year in our duty holder
business providing support to Centrica, Ithaca, Premier and TAQA, and, as
planned, successfully transferred duty holder responsibilities to TAQA on 1
September 2009.
Our international activities, which make up around 40% of Production Facilities
and 15% of Group revenue, continued to perform well. We enhanced our position
in the US, establishing a market leading position in operations and maintenance
services in the Gulf of Mexico,including deepwater, with the acquisition of
Baker Energy in October 2009. Outside of the US, we made good progress in some
of our newer markets such as Brazil, Colombia, Equatorial Guinea,Trinidad and
Brunei, where we recently secured an important contract extension. In addition,
Baker Energy's international activities are an excellent strategic fit with our
existing operations, extending our position in markets such as Nigeria, Angola
and Algeria.
In 2009, we completed several acquisitions in Australia that enhance our
capability to deliver engineering and production support services to national
and international customers in this important and growing market. Our
capabilities were recognised in the award of a multi-year maintenance services
contract for ENI and an upgrade contract from Woodside for the Otway gas plant.
We have also continued to invest in our training business with additional
facilities being added in the Caspian, North Africa and the US.
Engineering & Production Facilities outlook
In Engineering, we enter 2010 with headcount 27% lower than at the start of
2009 and, as a result, we expect volumes will be lower than 2009. In upstream,
we are beginning to see some signs of higher activity in oil sands but offshore
many of our target projects remain at an early stage, with lower volumes of
engineering. We expect our subsea and pipeline activities to again see good
volumes in 2010. The downstream, process and industrial market is expected to
remain soft in 2010 although we are seeing some interesting prospects in Latin
America. Overall, we continue to have a good prospect list and believe activity
should begin to recover in the second half of the year. We expect the effects
of lower volumes and somewhat lower pricing to reduce margins further in 2010,
but anticipate that margins will begin to recover in 2011. Within Engineering,
we continue to focus on building our international infrastructure to deliver
local engineering solutions and we expect further progress in the next six
months on our initiatives covering Africa, Asia Pacific and the Middle East.
We expect Production Facilities revenues to be more stable, with around 75% of
revenue under longer term contracts. Overall activity should be around 2009
levels with higher revenue in North America (following the Baker acquisition),
West Africa and Asia Pacific offsetting reduced volumes in the North Sea. We
have a strong international prospect list and see good scope for growth over
the next few years.
Well Support
2009 2008 % % Change
Change
$m $m Constant
Currency
Revenue 813.7 1,008.6 (19%) (18%)
EBITA 75.1 105.0 (28%) (27%)
EBITA 9.2% 10.4% (1.2% (1.1%
margin pts) pts)
People 3,500 4,300 (19)%
Operating and financial highlights
Well Support revenue was down 19% in 2009, principally due to the impact of the
weaker US natural gas market (total US rig count fell 55% in the 8 months to
June) on our Pressure Control and Logging Services businesses. ESP revenues
were also lower, reflecting reduced volumes in North America and Russia. We
continued to increase the proportion of our business outside the US and this
now represents 55% of total Well Support revenue.
The EBITA margin decreased from 10.4% to 9.2%, reflecting the significantly
lower volumes and pricing in our US natural gas related activities. The
relatively small margin reduction included a good performance from ESP and the
impact of early and effective actions to reduce our cost base.
Electric Submersible Pumps
Our ESP business represents just over 50% of Well Support and around 9% of
Group revenue. Approximately 29% of our business comes from the US, where we
have a market leading position in the sale, operation and service of ESPs.
International activity represents 71% of activity, and is typically
characterised by longer term contracts with IOCs and NOCs. In the year, we made
good progress in newer markets in South America and delivered a strong
performance in Africa. Continued work on a range of initiatives including cost
control and a mix change towards higher margin regions, resulted in higher
margins.
Pressure Control
Our Pressure Control business represents around 35% of Well Support and around
6% of Group revenue. Our business is driven primarily by the gas development
drilling activity of our customers. In the US (around 62% of our revenue in
2009) we believe we maintained our market leading position in surface wellheads
due to continuing focus on customer service and efficient delivery. We have
established a strong position in the major shale regions, where we expect to
see continuing growth. Internationally, where around 38% of revenue is
generated, we continue to expand our business under longer term contracts with
IOCs and NOCs. During 2009 we enhanced our manufacturing capability in Mexico
where we won a number of contracts with Pemex and IPC.
Logging Services
Our Logging Services business represents under 15% of Well Support and under 2%
of Group revenue. Our production focused US slickline services performed
relatively well, while our development focused US electric wireline activities
were significantly impacted by the lower rig count. Our business in Argentina,
where we hold a market leading position, had another good performance.
Well Support outlook
Overall, we expect to see modest revenue growth in 2010. The US rig count has
significantly improved since June 2009 and this should lead to improved volumes
for Pressure Control and Logging Services. The revenue growth in 2010 will be
held back by comparison with the strong first quarter 2009 revenue in the US
natural gas market and the substantially lower pricing.
Internationally, Pressure Control should continue to benefit from our
competitive manufacturing facilities and, during 2010, we will open our new
facility in Saudi Arabia to provide an in-Kingdom capability for Saudi Aramco.
ESP's oil production and longer term contract focus should help sustain good
activity in existing markets and our growing product range should provide
increased revenue. Our ongoing focus on cost reduction through our supply chain
initiatives should allow ESP to continue its margin improvement trend.
Gas Turbine Services (GTS)
2009 2008 % %
$m $m Change Change
Constant
Currency
Revenue 825.6 956.6 (14%) (10%)
EBITA 65.7 72.6 (10%) (2%)
EBITA 8.0% 7.6% 0.4 0.7 %pts
margin %pts
People 3,500 4,100 (15%)
Operating and financial highlights
GTS revenue was down 14%, or 10% in constant currency terms. The reduction in
constant currency revenue was principally driven by lower Power Solutions
revenue, the disposal of non-core businesses and some maintenance deferrals by
oil & gas and power customers.
EBITA was 10% lower but was only down 2% in constant currency terms. The margin
improvement from 7.6% to 8.0% was driven by benefits from internal
restructuring and cost reduction initiatives, and differentiation leading to
increasing work under longer term contracts and new product and service
capabilities. We continue to focus on longer term contract opportunities and
this is now about 50% of our revenues.
The reduction in headcount from 4,100 to 3,500 primarily reflects the disposal
of non-core businesses and our cost reduction initiatives.
Oil & Gas Services
Our oil & gas activities support the gas turbine train and other rotating
assets used for power generation, gas compression, mechanical drive and
transmission, and represent around 35% of GTS revenue and around 6% of Group
revenue. Including our OEM licensed joint ventures, we have broad technical
capabilities and know how, a strong service culture and a market leading share
in the aftermarket for aero-derivative turbines. We are also the leading
independent in light industrial gas turbines. Most of the installed turbines on
which we work are linked to existing production and therefore have relatively
lower sensitivity to oil and gas prices. Good progress was made in the year in
important markets such as Brazil, Iraq, and Peru, where we have recently
announced the award of an 18-year, $150m major maintenance contract from Peru
LNG, SRL.
Our rotating equipment reliability and availability activities continue to
develop in the North Sea, where, working in conjunction with Production
Facilities, we have been able to provide customers with significantly enhanced
uptime and production across their assets.
Power Plant Services
Our power activities provide support for turbines that are used for power
generation and industrial facilities, and represent around 55% of GTS revenue
and around 9% of Group revenue. Demand for our services is driven by the plant
utilisation and maintenance budgets of our customers. This has generally
remained robust, although market conditions in some regions led to some price
pressure and customers deferring spending. However, operational efficiencies
and a focus on supply chain effectiveness have been successful in mitigating
the impact on margins. There have been significant contract successes in the
Americas and in the Middle East including the award of a five year $27m
contract with Brick Power Holdings LLC for the operations and maintenance of GE
7FA facilities in Maine and Rhode Island with generation capacity of 265MW. We
are now supporting around 17,000 MW in power generation capacity under longer
term contracts.
Power Solutions
Power Solutions activities, which represent about 10% of GTS revenue and less
than 2% of Group revenue, saw lower volumes in the year as projects were
delayed, in part due to funding issues. However, we continue to see excellent
long term prospects, particularly in the Eastern Hemisphere. During the year,
we strengthened our Eastern Hemisphere execution capability through the
acquisition of Shanahan Engineering, a leading provider of power plant
installation, commissioning and maintenance services.
Gas Turbine Services outlook
We anticipate that demand for our oil & gas services will remain robust in
2010, due to high production support content and increasing proportion of
longer term contracts. We have a good spread of business with NOCs, IOCs and
large independents.
In the power market, there may continue to be areas of regional short term
weakness, as some customers defer maintenance but in the longer term the demand
for power, and in particular gas turbine generated power, is expected to
increase, leading to strong ongoing demand for our services. We continue to
focus on initiatives to expand our business and to deliver longer term margin
improvement, and this will include increasing our business under longer term
contracts, expanding our regional and customer portfolio, cost reduction and
efficiency improvements.
In Power Solutions, we expect new project awards to begin in 2010 to provide
good growth in 2011.
Overall, we anticipate modest revenue growth and a further modest improvement
in EBITA margins in 2010.
Financial Review
2009 2008 %
$m $m Change
Revenue 4,927.1 5,243.1 (6%)
EBITA 358.4 441.0 (19%)
EBITA Margin 7.3% 8.4% (1.1%
pts)
Amortisation 24.1 25.2
Exceptional 35.8 -
items
Operating 298.5 415.8 (28%)
profit
Net finance 33.7 31.7
expense
Profit before 264.8 384.1 (31%)
tax
Tax 100.6 128.7
Profit for the 164.2 255.4 (36%)
year
Basic EPS 32.1c 49.6c (35%)
(cents)
Adjusted 41.8c 52.1c (20%)
diluted EPS
(cents)
Dividend per 10.0c 9.0c 11%
share (cents)
2009 saw a decrease in revenue, EBITA and EBITA margin. Revenue decreased by 6%
to $4,927.1m, EBITA by 19% to $358.4m and EBITA margin by 110 basis points to
7.3%.
A detailed review of our trading performance is contained within the Chief
Executive's Statement and the divisional reviews.
The amortisation charge of $24.1m includes $11.0m (2008: $11.9m) of
amortisation relating to other intangible assets arising from acquisitions.
During 2009, we recorded an exceptional charge of $35.8m in relation to our
Venezuelan operations. The charge included (i) a loss on disposal of our
interest in Vepica, an engineering company, (ii) an impairment and
restructuring charge in relation to our long term contract to provide water
injection services which was terminated and subsequently taken over by PDVSA,
and a restructuring charge in relation to certain businesses to be sold or
closed, and (iii) the impact of devaluing Venezuelan Bolivar denominated
monetary assets and liabilities as of the end of the year. Our ongoing
operations in Venezuela now primarily relate to Well Support.
The net finance expense in the period of $33.7m is made up of a finance charge
of $36.2m (2008: $37.7m) and finance income of $2.5m (2008: $6.0m).
The net finance expense increased in 2009 largely due to the amortisation of
the arrangement fees associated with renewing the Group's bank facilities and
higher non utilisation fees associated with the undrawn amounts available under
the facility. The interest charge relating to the Group's borrowings was $22.3m
(2008:$28.7m) and reduced in the period due to a lower average net debt.
The movement in the tax charge is outlined below -
2009 2008
$m $m
Tax charge 100.6 128.7
Tax on exceptional items - -
Adjusted tax charge 100.6 128.7
Profit before tax 264.8 384.1
Exceptional items 35.8 -
Amortisation of other 11.0 11.9
intangible assets
on acquisition
Adjusted profit before 311.6 396.0
tax
Effective tax rate 32.3% 32.5%
The reduction in the Group's effective tax rate from 32.5% to 32.3% included
the impact of a change in the geographical mix of our operations and a range of
tax efficiency measures implemented.
The second interim dividend is 6.9c and no further dividend is proposed in
relation to 2009. This results in a full year dividend of 10.0c, an increase of
11% from last year. Dividend cover 7 for 2009 was 4.2 times (2008: 5.8 times).
Constant Currency Performance
The Group's revenue and EBITA are impacted by movements in foreign exchange
rates, including the effect of retranslating the results of subsidiaries with
various functional currencies into US dollars at different exchange rates.
Given the material strengthening in the US dollar in 2009 compared to 2008, the
table below shows the Group's results for 2009 compared to the 2008 results
restated at the 2009 average rates.
Engineering & Production Facilities constant currency revenue growth reflects
particularly strong growth in the Sterling denominated North Sea business. The
EBITA and EBITA margin constant currency movements reflect the growth of the
relatively lower margin Production Facilities North Sea business.
In Gas Turbine Services, the lower reduction in revenue in terms of constant
currency reflects the portion of revenue in Canadian dollars and Sterling. The
EBITA and EBITA margin constant currency movements reflect the increased
contribution from the relatively higher margin Canadian dollar and Sterling
activities.
Actual 2008 Actual % Change %
at
2008 2009 2009 Change
FX in
$m rates $m constant
currency
$m
Revenue
Engineering & 3,245 3,001 3,242 - 8%
Production
Facilities
Well Support 1,009 993 814 (19%) (18%)
Gas Turbine 956 919 825 (14%) (10%)
Services
Central/ 33 33 46 39% 39%
discontinued
operations
Group 5,243 4,946 4,927 (6%) -
EBITA
Engineering & 316 299 266 (16%) (11%)
Production
Facilities
Well Support 105 102 75 (28%) (27%)
Gas Turbine 73 67 66 (10%) (2%)
Services
Central/ (53) (50) (49) (8%) 2%
discontinued
operations
Group 441 418 358 (19%) (14%)
EBITA Margin
Engineering & 9.7% 10.0% 8.2% (1.5%pts) (1.8%
Production pts)
Facilities
Well Support 10.4% 10.3% 9.2% (1.2%pts) (1.1%
pts)
Gas Turbine 7.6% 7.3% 8.0% 0.4%pts 0.7% pts
Services
Group 8.4% 8.5% 7.3% (1.1%pts) (1.2%
pts)
Summary balance sheet
2009 2008
$m $m
Assets
Non-current 1,003.8 958.0
assets
Current assets 1,850.7 1,844.1
Liabilities
Current 1,137.1 1,061.8
liabilities
Net current 713.6 782.3
assets
Non-current 436.4 593.3
liabilities
Net assets 1,281.0 1,147.0
Total 1,270.2 1,133.9
shareholders'
equity
Minority 10.8 13.1
interest
Total equity 1,281.0 1,147.0
Non-current assets are primarily made up of goodwill and other intangible
assets, and property plant and equipment. The increase of $45.8m in the period
is as a result of acquisitions, which resulted in goodwill and other intangible
assets increasing by $47.1m.
Capital efficiency
The Group's ROCE decreased from 33.3% to 26.3%. The decrease reflects the
reduced EBITA in the period and higher capital as a result of acquisitions,
offset to some extent by more efficient use of operating capital.
The Group's OCER8, a measure of operating capital employed efficiency, improved
from 18.2% to 16.8% in the year.
Net debt and cash generated from operations
2009 2008
$m $m
Opening net (248.8) (277.9)
debt
EBITA 358.4 441.0
Depreciation 68.8 93.5
and other non
cash items
Cash 427.2 534.5
generated
from
operations
before
working
capital
movements
Working 118.3 (181.0)
capital
movements
Cash 545.5 353.5
generated
from
operations
Acquisitions (110.1) (112.2)
Capex and (68.4) (102.6)
intangible
assets
Disposals 10.7 32.5
Sale/ 4.3 (23.7)
(purchase) of
trust shares
Tax paid (113.9) (112.1)
Interest, (73.7) (60.6)
dividends and
other
Exchange (33.5) 54.3
movements on
net debt
Decrease in 160.9 29.1
net debt
Closing net (87.9) (248.8)
debt
Cash and cash 208.6 176.1
equivalents
During the year the Group generated $545.5m (2008: $353.5m) of cash from
operations, which was used to fund acquisitions and capex and intangible assets
of $178.5m (2008: $214.8m) and which contributed to net debt reducing by
$160.9m to $87.9m (2008: $248.8m).
Included in the cash generated from operations was a $118.3m inflow (2008:
$181.0m outflow) from working capital. This inflow reflected the impact of
lower revenue in the period, typical year end seasonality, and a general focus
on working capital.
The acquisition spend of $110.1m included $101.0m in relation to acquisitions
in the year and $9.1m of deferred consideration in relation to acquisitions
from previous years. Capex and intangible assets investment at $68.4m was
$34.2m lower than 2008, principally reflecting capital discipline measures in
response to market conditions.
Credit facilities
At 31 December 2009 the Group had unutilised borrowing facilities of $780.8m
(2008: $632.0m) representing 72% (2008: 60%) of total borrowing facilities.
Total borrowing facilities amount to $1,077.4m. In addition the Group has a
number of facilities covering the issue of bonds, guarantees and letters of
credit amounting to $327.2m (2008: $236.0m). Since 31 December 2009 the Group
has reduced the total level of its principal bilateral borrowing facilities by
$150m.
Gearing 9, Net Debt to EBITDA and Interest Cover10
The Group's gearing ratio has reduced from 21.9% to 6.9% and the ratio of net
debt to EBITDA (earnings before interest, tax, depreciation and amortisation)
fell from 0.5 times to 0.2 times.
Interest cover decreased from 13.9 times to 10.6 times, as a result of the
lower profit in the year.
Pensions
The majority of the Group's pension arrangements are on a defined contribution
basis. The Group operates one UK defined benefit scheme which had 388 active
members and 640 deferred, pensionable deferred or pensionable members at 31
December 2009. At 31 December 2009 the scheme had a deficit of $34.3m (2008:
$23.1m). In assessing the potential liabilities, judgment is required to
determine the assumptions around future salary and pension increases,
inflation, investment returns and member longevity.
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.
Acquisitions and disposals
In January 2009, the Group disposed of two small businesses in the Gas Turbine
Services Division, and in addition acquired various assets and liabilities as
part of the transaction.
In May 2009, the Group acquired a 70% interest in Proteus Global Solutions Pty
"Proteus" with an agreement in place to acquire the remaining interest over a
prescribed period. Proteus provides commissioning, operations support and
engineering services in Australia.
The Group acquired Baker Energy, the energy services business of Michael Baker
Corporation in October 2009. Baker Energy provides a broad range or operations
and maintenance services, both onshore and offshore, in the US and in Africa.
Shanahan Engineering Limited, a provider of power plant installation,
commissioning and maintenance services to the power and industrial sectors, was
acquired in December 2009. The company is active across the Eastern Hemisphere
with offices in Ireland, Italy, the UK, Turkey and Japan.
In December 2009, the Group disposed of its interest in Vepica, a Venezuelan
engineering company.
In addition a number of smaller acquisitions, principally in the Asia Pacific
region, were made during the year.
The cash outflow in relation to acquisitions during the year amounted to $101m.
In addition, $9.1m of deferred consideration payouts were made in respect of
acquisitions made in prior periods. The net cash inflows in respect of
disposals made during the year amounted to $10.7m.
The companies acquired during the period have contributed $108.5m to revenue
and $2.2m to EBITA during 2009.
The acquisitions carried out during the year provide the Group with access to
new markets and strengthen the Group's capabilities in certain areas. The
acquired companies are now able to access the Group's wider client base and use
the Group's existing relationships to further grow and develop their business.
These factors contributed to the goodwill recognised by the Group on
acquisitions during the year.
Footnotes
EBITA represents operating profit of $298.5m (2008: $415.8m) for 2009 before
adjusting for exceptional items of $35.8m (2008:$nil), and amortisation of
$24.1m (2008: $25.2m). This financial term is provided as it is a key unit of
measurement used by the Group in the management of its business.
Shares held by the Group's employee share trusts are excluded from the number
of shares in calculating earnings per ordinary share. Adjusted diluted earnings
per ordinary share is based on the diluted number of shares, taking account of
share options where the effect of these is dilutive. Adjusted diluted earnings
per ordinary share is calculated on profit for the year excluding the post tax
impact of amortisation and exceptional items.
Return on Capital Employed "ROCE" is EBITA divided by average equity plus
average net debt and excludes a business to be disposed.
2008 results have been retranslated at 2009 average rates to provide
comparative financial information on a constant currency basis
Number of employees and contractors at 31 December 2009.
Safety cases are measured by TRCF. TRCF is Total Recordable Case Frequency
(LWC+RWC+MTC) per million man hours.
LWC Lost Work Case
RWC Restricted Work Case
MTC Medical Treatment Case
Dividend cover is adjusted diluted earnings per ordinary share divided by the
total dividend per ordinary share for the period.
Operating Capital Employed to Revenue "OCER" is Average Operating Capital
Employed (property, plant and equipment, intangible assets (excluding
intangibles recognised on acquisition), inventories and trade and other
receivables less trade and other payables) divided by Revenue
Gearing is net debt divided by total shareholders' equity.
Interest cover is EBITA divided by net finance costs.
Important Notice
This document does not constitute or form part of any offer or invitation to
sell, or any solicitation of any offer to purchase any shares in the Company,
nor shall it or any part of it or the fact of its distribution form the basis
of, or be relied on in connection with, any contract or commitment or
investment decisions relating thereto, nor does it constitute a recommendation
regarding the shares of the Company.
Certain statements in this document are forward looking statements. By their
nature, forward looking statements involve a number of risks, uncertainties or
assumptions that could cause actual results or events to differ materially from
those expressed or implied by the forward looking statements. These risks,
uncertainties or assumptions could adversely affect the outcome and financial
effects of the plans and events described herein. Forward looking statements
contained in this document regarding past trends or activities should not be
taken as representation that such trends or activities will continue in the
future. You should not place undue reliance on forward looking statements,
which speak as only of the date of this document.
Consolidated income statement for the year to 31 December 2009
2009 2008
Note $m $m
Revenue 1 4,927.1 5,243.1
Cost of sales (3,870.1) (4,071.7)
Gross profit 1,057.0 1,171.4
Administrative expenses (722.7) (755.6)
Exceptional items 4 (35.8) -
Operating profit 1 298.5 415.8
Finance income 2 2.5 6.0
Finance expense 2 (36.2) (37.7)
Profit before taxation 3 264.8 384.1
Taxation 5 (100.6) (128.7)
Profit for the year 164.2 255.4
Attributable to:
Equity shareholders 163.2 251.6
Minority interest 25 1.0 3.8
164.2 255.4
Earnings per share (expressed in cents per share)
Basic 7 32.1 49.6
Diluted 7 31.2 48.1
The notes on pages 7 to 52 are an integral part of these consolidated financial
statements
Consolidated statement of comprehensive income for the year to 31 December 2009
2009 2008
Note $m $m
Profit for the year 164.2 255.4
Other comprehensive income
Actuarial losses on retirement benefit liabilities 29 (8.4) (18.7)
Movement in deferred tax relating to retirement 2.4 5.2
benefit liabilities
Cash flow hedges 2.4 (7.5)
Net exchange movements on retranslation of foreign 12.6 (46.1)
currency net assets
Total comprehensive income for the year 173.2 188.3
Total comprehensive income for the year is
attributable to:
Equity shareholders 172.0 184.7
Minority interest 1.2 3.6
173.2 188.3
Consolidated balance sheet as at 31 December 2009
2009 2008
Note $m $m
Assets
Non-current assets
Goodwill and other intangible assets 8 679.3 632.2
Property plant and equipment 9 254.2 263.0
Long term receivables 8.0 9.5
Deferred tax assets 19 62.3 53.3
1,003.8 958.0
Current assets
Inventories 11 618.9 591.4
Trade and other receivables 12 987.4 1,034.2
Income tax receivable 29.8 12.3
Derivative financial instruments 17 6.0 7.2
Gross assets held for sale 27 - 22.9
Cash and cash equivalents 13 208.6 176.1
1,850.7 1,844.1
Liabilities
Current liabilities
Borrowings 15 19.0 34.2
Derivative financial instruments 17 3.3 4.1
Trade and other payables 14 1,061.8 965.3
Income tax liabilities 53.0 53.4
Gross liabilities held for sale 27 - 4.8
1,137.1 1,061.8
Net current assets 713.6 782.3
Non-current liabilities
Borrowings 15 277.5 390.7
Derivative financial instruments 17 3.3 8.1
Deferred tax liabilities 19 7.9 4.5
Retirement benefit liabilities 29 34.3 23.1
Other non-current liabilities 16 59.7 121.9
Provisions 18 53.7 45.0
436.4 593.3
Net assets 1,281.0 1,147.0
Shareholders' equity
Share capital 21 26.3 26.2
Share premium 22 315.8 311.8
Retained earnings 23 877.6 760.2
Other reserves 24 50.5 35.7
Total shareholders' equity 1,270.2 1,133.9
Minority interest 25 10.8 13.1
Total equity 1,281.0 1,147.0
The financial statements on pages 2 to 52 were approved by the board of
directors on 1 March 2010.
Allister G Langlands, Director
Alan G Semple, Director
Consolidated statement of changes in equity for the year to 31 December 2009
Note Share Share Retained Other Total Minority Total
Capital$m Premium Earnings Reserves Shareholders' Interest Equity
$m $m $m Equity $m $m
$m
At 1 January 26.0 303.6 555.9 89.1 974.6 11.3 985.9
2008
Profit for - - 251.6 - 251.6 3.8 255.4
the year
Other
comprehensive
income:
Actuarial 29 - - (18.7) - (18.7) - (18.7)
losses on
retirement
benefit
liabilities
Movement in - - 5.2 - 5.2 - 5.2
deferred tax
relating to
retirement
benefit
liabilities
Cash flow - - - (7.5) (7.5) - (7.5)
hedges
Net exchange - - - (45.9) (45.9) (0.2) (46.1)
movements on
retranslation
of foreign
currency
assets
Total - - 238.1 (53.4) 184.7 3.6 188.3
comprehensive
income for
the year
Transactions
with owners:
Dividends - - (40.1) - (40.1) (1.9) (42.0)
paid
Investment by 25 - - - - - 0.1 0.1
minority
shareholders
Credit - - 13.3 - 13.3 - 13.3
relating to
share based
charges
Tax credit - - 6.2 - 6.2 - 6.2
relating to
share option
schemes
Allocation of 0.2 8.2 (8.4) - - - -
shares to
employee
share trusts
Shares - - (34.2) - (34.2) - (34.2)
purchased by
employee
share trusts
Shares - - 10.5 - 10.5 - 10.5
disposed of
by employee
share trusts
Exchange - - 18.9 - 18.9 - 18.9
movements in
respect of
shares held
by employee
share trusts
At 31 26.2 311.8 760.2 35.7 1,133.9 13.1 1,147.0
December 2008
Profit for - - 163.2 - 163.2 1.0 164.2
the year
Other
comprehensive
income:
Actuarial 29 - - (8.4) - (8.4) - (8.4)
losses on
retirement
benefit
liabilities
Movement in - - 2.4 - 2.4 - 2.4
deferred tax
relating to
retirement
benefit
liabilities
Cash flow - - - 2.4 2.4 - 2.4
hedges
Net exchange - - - 12.4 12.4 0.2 12.6
movements on
retranslation
of foreign
currency net
assets
Total - - 157.2 14.8 172.0 1.2 173.2
comprehensive
income for
the year
Transactions
with owners:
Dividends - - (50.3) - (50.3) (0.4) (50.7)
paid
Minority 25 - - - - - 2.7 2.7
interest
acquired
Minority 25 - - - - - (5.8) (5.8)
interest
disposed
Credit - - 11.2 - 11.2 - 11.2
relating to
share based
charges
Tax credit - - 7.0 - 7.0 - 7.0
relating to
share option
schemes
Allocation of 0.1 4.0 (4.1) - - - -
shares to
employee
share trusts
Shares - - (1.3) - (1.3) - (1.3)
purchased by
employee
share trusts
Shares - - 4.3 - 4.3 - 4.3
disposed of
by employee
share trusts
Exchange - - (6.6) - (6.6) - (6.6)
movements in
respect of
shares held
by employee
share trusts
At 31 26.3 315.8 877.6 50.5 1,270.2 10.8 1,281.0
December 2009
Consolidated cash flow statement for the year to 31 December 2009
2009 2008
Note $m $m
Cash generated from operations 26 545.5 353.5
Tax paid (113.9) (112.1)
Net cash from operating activities 431.6 241.4
Cash flows from investing activities
Acquisition of subsidiaries (net of cash and 27 (101.0) (85.4)
borrowings acquired)
Deferred consideration payments 27 (9.1) (26.8)
Proceeds from disposal of businesses (net of cash 27 10.7 32.5
and borrowings disposed)
Purchase of property plant and equipment (54.0) (83.5)
Proceeds from sale of property plant and equipment 6.6 9.9
Purchase of intangible assets (14.4) (19.1)
Proceeds from disposal of other intangible assets 0.6 0.4
Investment by minority shareholders 25 - 0.1
Net cash used in investing activities (160.6) (171.9)
Cash flows from financing activities
(Repayment of)/proceeds from bank loans (155.0) 105.7
Purchase of shares in employee share trusts - (34.2)
Disposal of shares in employee share trusts 4.3 10.5
Interest received 2.5 4.6
Interest paid (32.7) (33.6)
Dividends paid to shareholders 6 (50.3) (40.1)
Dividends paid to minority shareholders 25 (0.4) (1.9)
Net cash (used in)/from financing activities (231.6) 11.0
Effect of exchange rate changes on cash and cash (6.9) (21.5)
equivalents
Net increase in cash and cash equivalents 32.5 59.0
Opening cash and cash equivalents 176.1 117.1
Closing cash and cash equivalents 13 208.6 176.1
Accounting Policies
Basis of preparation
These financial statements have been prepared in accordance with IFRS and IFRIC
interpretations adopted by the European Union (`EU') and with those parts of
the Companies Act 2006 applicable to companies reporting under IFRS. The Group
financial statements have been prepared on a going concern basis under the
historical cost convention as modified by the revaluation of financial assets
and liabilities (including derivative financial instruments) at fair value
through the income statement.
Significant accounting policies
The Group's significant accounting policies adopted in the preparation of these
financial statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
Basis of consolidation
The Group financial statements are the result of the consolidation of the
financial statements of the Group's subsidiary undertakings from the date of
acquisition or up until the date of disposal as appropriate. Subsidiaries are
entities over which the Group has the power to govern the financial and
operating policies and generally accompanies a shareholding of more than one
half of the voting rights. The Group's interests in joint ventures are
accounted for using proportional consolidation. Under this method the Group
includes its share of each joint venture's income, expenses, assets,
liabilities and cash flows on a line by line basis in the consolidated
financial statements. Transactions between Group subsidiaries are eliminated
and transactions between the Group and its joint ventures are eliminated to the
extent of the Group's interest in the joint venture. All Group companies apply
the Group's accounting policies and prepare financial statements to 31
December.
Critical accounting judgments and estimates
The preparation of the financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the year. Although these estimates are based on management's
best knowledge of the amount, event or actions, actual results ultimately may
differ from those estimates. Where significant estimates or assumptions have
been applied in estimating balances in the financial statements, these have
been disclosed in the accounting policies and in the relevant notes to those
balances. Significant judgments and estimates in these financial statements
have been made with regard to goodwill impairment testing (note 8), trade
receivables (note 12), provisions (note 18), deferred tax balances (note 19)
and retirement benefit liabilities (note 29). An explanation of key
uncertainties or assumptions used by management in accounting for these items
is provided where material in the respective notes.
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 these
accounts:
2009 2008
Average rate £1 = $ 1.5679 1.8484
Closing rate £1 = $ 1.6149 1.4378
Foreign currencies
Income statements of entities whose functional currency is not the US dollar
are translated into US dollars at average rates of exchange for the period and
assets and liabilities are translated into US dollars at the rates of exchange
ruling at the balance sheet date. Exchange differences arising on translation
of net assets in such entities held at the beginning of the year, together with
those differences resulting from the restatement of profits and losses from
average to year end rates, are taken to the currency translation reserve.
In each individual entity, transactions in overseas currencies are translated
into the relevant functional currency at the exchange rates ruling at the date
of the transaction. Where more than one exchange rate is available, the
appropriate rate at which assets can be readily realised and liabilities can be
extinguished is used. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the exchange rates ruling at the balance sheet
date. Any exchange differences are taken to the income statement.
Where an entity's functional currency is in a hyperinflationary economy, the
income statement and balance sheet of that entity will be translated into US
dollars using the exchange rate at the reporting date where the impact of the
change in exchange rate due to hyperinflation is material to the Group.
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 is measured at the fair value of the consideration received or
receivable. Revenue is recognised only when it is probable that the economic
benefits associated with a transaction will flow to the Group and the amount of
revenue can be measured reliably. Revenue from services is recognised as the
services are rendered, including where they are based on contractual rates per
man hour in respect of multi-year service contracts. Incentive performance
revenue is recognised upon completion of agreed objectives. Revenue from
product sales is recognised when the significant risks and rewards of ownership
have been transferred to the buyer, which is normally upon delivery of products
and customer acceptance, if any. Where revenue relates to a multi-element
contract, then each element of the contract is accounted for separately.
Revenue is stated net of sales taxes and discounts.
Revenue on lump-sum contracts for services, construction contracts and fixed
price long term service agreements is recognised according to the stage of
completion reached in the contract by reference to the value of work done. An
estimate of the profit attributable to work completed is recognised once the
outcome of the contract can be estimated reliably. Expected losses are
recognised in full as soon as losses are probable. The net amount of costs
incurred to date plus recognised profits less the sum of recognised losses and
progress billings is disclosed as trade receivables/trade payables.
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. Transactions which may give rise to exceptional items
include gains and losses on disposal of investments, write downs or impairments
of assets including goodwill, restructuring provisions, litigation settlements
and one off gains and losses arising from currency devaluations.
Finance expense/income
Interest income and expense is recorded in the income statement in the period
to which it relates. Arrangement fees in respect of the Group's borrowing
facilities are amortised over the period to which the facility relates.
Interest relating to the discounting of deferred consideration liabilities 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 fair
value of the net assets acquired. Goodwill is carried at cost less accumulated
impairment losses.
Other intangible assets
Intangible assets are carried at cost less accumulated amortisation. Intangible
assets are recognised if it is probable that there will be future economic
benefits attributable to the asset, the cost of the asset can be measured
reliably, the asset is separately identifiable and there is control over the
use of the asset. Where the Group acquires a business, other intangible assets
such as customer contracts are identified and evaluated to determine the
carrying value on the acquisition balance sheet. Intangible assets are
amortised over their estimated useful lives, as follows:
Computer software: 3-5 years
Other intangible assets:1-10 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 the
Group takes into account are the durability of the assets, the intensity at
which the assets are expected to be used and the expected rate of technological
developments.
Impairment
The Group performs impairment reviews in respect of PP&E and other intangible
assets whenever events or changes in circumstance indicate that the carrying
amount may not be recoverable. In addition, the Group carries out annual
impairment reviews in respect of goodwill. An impairment loss is recognised
when the recoverable amount of an asset, which is the higher of the asset's
fair value less costs to sell and its value in use, is less than its carrying
amount.
For the purposes of impairment testing, goodwill is allocated to the
appropriate cash generating unit ("CGU"). The CGUs are aligned to the structure
the Group uses to manage its business. Cash flows are discounted in determining
the value in use.
Inventories
Inventories, which include materials, work in progress and finished goods and
goods for resale, are stated at the lower of cost and net realisable value.
Product based companies determine cost by weighted average cost methods using
standard costing to gather material, labour and overhead costs. These costs are
adjusted, where appropriate, to correlate closely the standard costs to the
actual costs incurred based on variance analysis. Service based companies'
inventories consist of spare parts and other consumables. Serialised parts are
costed using the specific identification method and other materials are
generally costed using the first in, first out method.
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 subsequently
measured at amortised cost using the effective interest method, less provision
for impairment. A provision for impairment of trade receivables is established
when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables. The amount of
the provision is the difference between the asset's carrying amount and the
present value of estimated future cash flows, discounted at the effective
interest rate. The provision is determined by reference to previous experience
of 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 consideration
Where it is probable that deferred consideration is payable on the acquisition
of a business based on an earn out arrangement, an estimate of the amount
payable is made at the date of acquisition and reviewed regularly thereafter,
with any change in the estimated liability being reflected in goodwill. Where
deferred consideration is payable after more than one year the estimated
liability is discounted using an appropriate rate of interest.
Taxation
The tax charge represents the sum of tax currently payable and deferred tax.
Tax currently payable is based on the taxable profit for the year. Taxable
profit differs from the profit reported in the income statement due to items
that are not taxable or deductible in any period and also due to items that are
taxable or deductible in a different period. The Group's liability for current
tax is calculated using tax rates enacted or substantively enacted at the
balance sheet date.
Deferred tax is provided, using the full liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. The principal
temporary differences arise from depreciation on PP&E, tax losses carried
forward and, in relation to acquisitions, the difference between the fair
values of the net assets acquired and their tax base. Tax rates enacted, or
substantially enacted, by the balance sheet date are used to determine deferred
tax.
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 is
entered into and are subsequently remeasured at their fair value. The method of
recognising the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being
hedged. The Group designates certain derivatives as either: (1) hedges of the
fair value of recognised assets or liabilities or a firm commitment (fair value
hedge); (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 between
the hedging instrument and the hedged item at the inception of the transaction,
as well as its risk management objective and strategy for undertaking the hedge
transaction. The Group also documents its assessment, both at hedge inception
and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash
flows of the hedged items. The Group performs effectiveness testing on a
quarterly basis.
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.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in the hedging reserve
in equity. The gain or loss relating to the ineffective portion is recognised
immediately in administrative expenses in the income statement. Amounts
accumulated in equity are recycled through the income statement in periods when
the hedged item affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that
was reported in equity is immediately transferred to the income statement.
Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to
cash flow hedges. Any gain or loss on the hedging instrument relating to the
effective portion of the hedge is recognised in the currency translation
reserve in equity; the gain or loss relating to the ineffective portion is
recognised immediately in administrative expenses in the income statement.
Gains and losses accumulated in equity are included in the income statement
when the foreign operation is disposed of.
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 of
their estimated future cash flows. The fair value of forward foreign exchange
contracts is determined using forward foreign exchange market rates at the
balance sheet date. The fair value of currency options is determined using
market rates at the balance sheet date. The carrying values of trade
receivables and payables approximate to their fair values. The fair value of
financial liabilities is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the Group for
similar financial instruments.
Operating leases
As lessee
Payments made under operating leases are charged to the income statement on a
straight line basis over the period of the lease. Benefits received and
receivable as an incentive to enter into an operating lease are also spread on
a 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.
Finance leases
As lessee
Assets held under finance leases are capitalised as PP&E and depreciated over
the shorter of the lease term and the asset's useful life. The capital element
of the future lease obligation is recorded as a liability, with the interest
element charged to the income statement over the period of the lease so as to
produce a constant rate of charge on the capital outstanding.
As lessor
Finance lease rental income arising from leased assets is recognised in the
income statement so as to produce a constant rate of return on the net cash
investment. Amounts receivable under finance leases represent the outstanding
amounts due under these agreements less amounts allocated to future periods.
Retirement benefit liabilities
The Group operates a defined benefit scheme and a number of defined
contribution schemes. The liability recognised in respect of the defined
benefit scheme represents the present value of the defined benefit obligations
less the fair value of the scheme assets. The assets of this scheme are held in
separate trustee administered funds.
The defined benefit scheme's assets are measured using market values. Pension
scheme liabilities are measured annually by an independent actuary using the
projected unit method and discounted at the current rate of return on a high
quality corporate bond of equivalent term and currency to the liability. The
increase in the present value of the liabilities of the Group's defined benefit
scheme expected to arise from employee service in the period is charged to
operating profit. The expected return on the scheme assets and the increase
during the period in the present value of the scheme's liabilities arising from
the passage of time are included in finance income/expense. Actuarial gains and
losses are recognised in the statement of comprehensive income in full in the
period in which they occur. The defined benefit scheme's net assets or net
liabilities are recognised in full and presented on the face of the balance
sheet.
The Group's contributions to defined contribution schemes are charged to the
income statement in the period to which the contributions relate.
Provisions
Provision is made for the estimated liability on all products and services
still under warranty, including claims already received, based on past
experience. Other provisions are recognised where the Group is deemed to have a
legal or constructive obligation, it is probable that a transfer of economic
benefits will be required to settle the obligation, and a reliable estimate of
the obligation can be made. Where amounts provided are payable after more than
one year the estimated liability is discounted using an appropriate rate of
interest.
Share based charges relating to employee share schemes
The Group has a number of employee share schemes:-
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.
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.
The Group has a Long Term Incentive Scheme (`LTIS') and a Long Term Incentive
Plan (`LTIP') for directors and key senior executives. Participants are awarded
shares dependent on the achievement of certain performance targets. The charge
to the income statement for shares awarded under the LTIS and 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.
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 classified
as equity. Dividends on ordinary shares are not recognised as a liability or
charged to equity until they have been approved by shareholders.
The Group is deemed to have control of the assets, liabilities, income and
costs of its employee share trusts, therefore they have been consolidated in
the financial statements of the Group. Shares acquired by and disposed of by
the employee share trusts are recorded at cost. The cost of shares held by the
employee share trusts is deducted from shareholders' equity.
Segmental reporting
The Group has determined that its operating segments are based on management
reports reviewed by the Chief Operating Decision Maker (`CODM'). As a result,
the Group's operating segments are its three operating divisions, namely
Engineering & Production Facilities, Well Support and Gas Turbine Services. The
Group reports central costs and its Gas Turbine Services business to be
disposed separately within its management reports. 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 & Production Facilities offers a wide range of engineering services
to the upstream, midstream, downstream and industrial sectors. These include
conceptual studies, engineering, project and construction management and
control system upgrades. It also offers life of field support to producing
assets through brownfield engineering and modifications, production
enhancement, operations management (including UK dutyholder services),
training, maintenance management and abandonment services.
Well Support provides solutions, products and services to enhance production
rates and efficiency from oil and gas reservoirs.
Gas Turbine Services is an independent provider of integrated maintenance
solutions and repair and overhaul services for industrial gas turbines used for
power generation, compression and transmission in the oil and gas and power
generation industries.
Disclosure of impact of new and future accounting standards
(a) New and amended standards adopted by the Group
The Group has adopted the following new and amended IFRSs as of 1
January 2009:
IFRS 7 `Financial instruments - Disclosures' (amendment). The
amendment requires enhanced disclosures about fair value measurement
and liquidity risk. The amendment has not had a material impact on
the Group's disclosures.
IAS 1 (revised), `Presentation of financial statements'. The revised
standard requires `non-owner changes in equity' to be presented
separately from owner changes in equity in a statement of
comprehensive income. As a result the Group presents in the
consolidated statement of changes in equity all owner changes in
equity, whereas all non-owner changes in equity are presented in the
consolidated statement of comprehensive income. Comparative
information has been re-presented so that it is also in conformity
with the revised standard. The revised standard only impacts
presentational aspects and there is no impact on earnings per share.
IFRS 2 (amendment), `Share-based payment' deals with vesting
conditions and cancellations. The Group has adopted IFRS 2
(amendment) from 1 January 2009. The amendment has not had a
material impact on the Group's financial statements.
IFRS 8 `Operating Segments'. IFRS 8 replaces IAS 14 `Segment
reporting'. The standard defines operating segments as components of
an entity about which separate financial information is evaluated by
the CODM in deciding how to allocate resources and in assessing
performance. It also sets out the required disclosures for operating
segments. On adoption, there was no change to the Group's reportable
segments or financial measures.
IAS 23 (revised) `Borrowing Costs'. The standard requires
capitalisation of borrowing costs directly attributable to
acquisition or construction of an asset. The amendment has not had a
material impact on the Group's financial statements.
IFRIC 14 `The limit on a defined benefit asset, minimum funding
requirements and their interaction'. This amendment has had no
impact on the Group's financial statements.
Notes to the financial statements
for the year to 31 December 2009
Accounting Policies (continued)
(b) Standards, amendments and interpretations to existing standards
that are not yet effective and have not been early adopted by the Group
The following standards and amendments and interpretations to existing
standards have been published and are mandatory for the Group's
accounting period beginning on or after 1 January 2010 or later
periods, but the Group has not early adopted them:
â— IFRIC 17, `Distribution of non-cash assets to owners'.
â— IAS 27 (revised), `Consolidated and separate financial statements'.
â— IFRS 3 (revised), `Business combinations'.
â— IAS 38 (amendment), `Intangible Assets'.
â— IFRS 5 (amendment), `Non-current assets held for sale and
discontinued operations'.
â— IAS 1 (amendment), `Presentation of financial statements'.
The Group will apply these standards from 1 January 2010. It is not
anticipated that the application of these standards and amendments will
have any material impact on the Group financial statements.
1 Segmental reporting
The segment information provided to the CODM for the reportable operating
segments for the year ended 31 December 2009 includes the following:
Reportable Operating Segments
Revenue EBITDA(1) EBITA(1) 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
2009 2008 2009 2008 2009 2008 2009 2008
$m $m $m $m $m $m $m $m
Engineering & 3,241.9 3,244.7 280.3 336.7 266.0 316.1 229.7 297.9
Production Facilities
Well Support 813.7 1,008.6 102.1 135.8 75.1 105.0 60.6 104.9
Gas Turbine Services 825.6 956.6 80.6 89.6 65.7 72.6 56.8 66.0
Central costs (4) - - (45.5) (47.6) (48.0) (48.7) (48.2) (48.8)
4,881.2 5,209.9 417.5 514.5 358.8 445.0 298.9 420.0
Gas Turbine Services 45.9 33.2 - (3.1) (0.4) (4.0) (0.4) (4.2)
- to be disposed (2)
Total 4,927.1 5,243.1 417.5 511.4 358.4 441.0 298.5 415.8
Finance income 2.5 6.0
Finance expense (36.2) (37.7)
Profit before 264.8 384.1
taxation
Taxation (100.6) (128.7)
Profit for the year 164.2 255.4
Notes
EBITDA represents operating profit of $298.5m (2008 : $415.8m) before
depreciation of $59.1m (2008 : $70.4m) amortisation of $24.1m (2008 : $25.2m)
and exceptional items of $35.8m (2008 : nil). 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 Gas Turbine Services business to be disposed is an Aero engine overhaul
company which the Group has decided to divest.
Revenue arising from sales between segments is not material.
Central costs include the costs of certain management personnel in both the UK
and the US, along with an element of Group infrastructure costs.
1 Segmental Reporting (continued)
Segment assets and liabilities
Engineering Well Gas Gas Unallocated Total
& Support Turbine Turbine
Production Services Services
Facilities - to be
disposed
At 31 December 2009 $m $m $m $m $m $m
Segment assets 1,239.9 570.4 891.0 27.1 126.1 2,854.5
Segment liabilities 741.1 204.2 178.4 8.7 441.1 1,573.5
At 31 December 2008
Segment assets 1,184.6 663.1 778.1 26.7 149.6 2,802.1
Segment liabilities 619.9 226.7 228.1 4.3 576.1 1,655.1
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
Other segment items
Engineering Well Gas Gas Unallocated Total
& Support Turbine Turbine
Production Services Services
2009 Facilities - to be
disposed
$m $m $m $m $m $m
Capital expenditure
- Property plant and 19.7 14.4 12.0 0.9 3.4 50.4
equipment
- Intangible assets 6.6 0.1 7.4 - 0.3 14.4
Non-cash expense
- Depreciation 14.3 27.0 14.9 0.3 2.6 59.1
- Amortisation of other 18.7 0.1 5.1 - 0.2 24.1
intangible assets
- Exceptional Items 17.6 14.4 3.0 - - 35.0
(non-cash element)
2008
$m $m $m $m $m $m
Capital expenditure
- Property plant and 20.3 43.7 18.6 1.0 2.6 86.2
equipment
- Intangible assets 12.8 0.1 5.3 - 0.9 19.1
Non-cash expense
- Depreciation 20.6 30.8 17.0 0.9 1.1 70.4
- Amortisation of other 18.2 0.1 6.6 0.2 0.1 25.2
intangible assets
Geographical segments
Segment assets Revenue
2009 2008 2009 2008
$m $m $m Sm
UK 559.4 515.8 1,402.1 1,343.3
USA 1,029.7 1,076.8 1,818.1 2,130.3
Rest of the World 1,265.4 1,209.5 1,706.9 1,769.5
2,854.5 2,802.1 4,927.1 5,243.1
Revenue by geographical segment is based on the geographical location of the
customer.
2009 2008
$m $m
Revenue by category is as follows:
Sale of goods 574.6 688.6
Rendering of services 4,352.5 4,554.5
4,927.1 5,243.1
2 Finance expense/(income)
2009 2008
$m $m
Interest payable on bank borrowings 32.2 33.7
Interest relating to discounting of deferred consideration 3.1 4.0
Other interest expense - retirement benefit liabilities (note 0.9 -
29)
Finance expense 36.2 37.7
Interest receivable on short term deposits (2.5) (4.6)
Other interest income - retirement benefit liabilities (note - (1.4)
29)
Finance income (2.5) (6.0)
Finance expense - net 33.7 31.7
3 Profit before taxation
2009 2008
$m $m
The following items have been charged/(credited) in arriving
at profit before taxation:
Employee benefits expense (note 28) 1,991.7 1,982.5
Cost of inventories recognised as an expense (included in 351.1 518.1
cost of sales)
Impairment of inventories 7.7 11.7
Depreciation of property plant and equipment 59.1 70.4
Amortisation of other intangible assets 24.1 25.2
Loss/(gain) on disposal of property plant and equipment 2.5 (4.6)
Other operating lease rentals payable:
- Plant and machinery 14.0 27.4
- Property 66.6 55.8
Foreign exchange losses/(gains) 4.6 (21.7)
Gain on fair value of unhedged derivative financial (2.0) (3.8)
instruments
Services provided by the Group's auditor and network firms
During the year the Group obtained the following services from its auditor and
network firms at costs as detailed below:
2009 2008
$m $m
Audit services
- Fees payable for audit of parent company and consolidated 0.9 1.0
accounts
- Audit of Group companies pursuant to legislation 1.5 1.7
Non-audit services
Fees payable to the Group's auditor and its network firms for
other services
- Tax services 0.2 0.1
- Other services - 0.1
2.6 2.9
4 Exceptional items
2009 2008
$m $m
Loss on disposal of investment 10.8 -
Impairment and restructuring charge 16.7 -
Exchange rate devaluation 8.3 -
Total exceptional items 35.8 -
During the year the Group recorded the following exceptional items in relation
to its Venezuelan operations: -
Disposal of investment - in December 2009 the Group disposed of its interest in
Vepica, a Venezuelan Engineering company, creating a loss on disposal of
$10.8m. Further details are provided in Note 27 to the financial statements.
Impairment and restructuring charge - in May 2009 the Group terminated its
contract to provide water injection services in Venezuela and this contract was
taken over by PDVSA. Although the Group is generally in a strong
contractual position to recover amounts owed, it may not be in a position to
recover the full value of the assets held and the goodwill carried. The Group
has therefore recognised an impairment charge of $7.1m in the year. The Group
has also decided to exit via sale or closure certain of its Venezuelan
businesses and this has resulted in net asset write downs and closure
provisions of $9.6m being recorded in 2009. Included within the impairment and
restructuring charge is $3.2m of goodwill impairment and $1.8m impairment of
property plant and equipment.
Exchange rate devaluation - taking into account the economic circumstances in
Venezuela at 31 December 2009 the Group believes that the appropriate exchange
rate to translate its Venezuelan assets and liabilities is the Venezuelan
Bolivar Fuerte (BF) parallel rate of BF6 to the US$ rather than the official
rate of BF2.15 to the US$. The Group has therefore used this parallel
exchange rate for conversion of all BF denominated monetary assets and
liabilities at 31 December 2009 and to consolidate its Venezuelan functional
currency entities into the Group results. The impact of this is to realise net
exchange losses of $8.3m in the year. The decision to use this rate is
supported by the announcement on 8 January 2010 from the People's Ministry of
Economy, in accordance with the Central Bank of Venezuela, which set out
several changes to the exchange rate regime which included a devaluation of the
existing official exchange rate and the creation of a second, further devalued,
official rate for non essential purchases. In addition to the charge in the
income statement, the devaluation resulted in a $10.6m exchange loss being
recorded in the currency translation reserve.
5 Taxation
2009 2008
$m $m
Current tax
- Current year 86.0 134.7
- Adjustment in respect of prior years 0.4 (4.4)
86.4 130.3
Deferred tax
Relating to origination and reversal of temporary differences 14.2 (1.6)
Total tax charge 100.6 128.7
2009 2008
Tax on items credited to equity $m $m
Tax movement on retirement benefit liabilities (2.4) (5.2)
Tax relating to share option schemes (7.0) (6.2)
Total credited to equity (9.4) (11.4)
Tax is calculated at the rates prevailing in the respective jurisdictions in
which the Group operates. The expected rate is the weighted average rate taking
into account the Group's profits in these jurisdictions. The expected rate has
decreased in 2009 due to the change in profitability of the Group's
subsidiaries in their respective jurisdictions. The tax charge for the year is
higher (2008 : lower) than the expected tax charge due to the following
factors:
2009 2008
$m $m
Profit before taxation 264.8 384.1
Profit before tax at expected rate of 33.1% (2008: 34.1%) 87.6 131.0
Effects of:
Adjustments in respect of prior years 1.0 (3.2)
Non-recognition of losses and other attributes 4.5 4.4
Other permanent differences 7.5 (3.5)
Total tax charge 100.6 128.7
6 Dividends
2009 2008
$m $m
Dividends on equity shares
Final dividend paid - year ended 31 December 2008 : 6.2 cents 34.4 25.6
(2008: 5.0 cents) per share
Interim dividend paid - year ended 31 December 2009 : 3.1 15.9 14.5
cents (2008: 2.8 cents) per share
50.3 40.1
The directors are proposing a second interim dividend in respect of the
financial year ended 31 December 2009 of 6.9 cents per share. As there will be
no further dividend in relation to 2009, the full year dividend will be 10.0
cents per share (2008 : 9.0 cents). The second interim dividend will be paid on
1 April 2010 to shareholders who are on the register of members on 12 March
2010. The financial statements do not reflect the second interim dividend, the
payment of which will result in an estimated $35.5m reduction in shareholders'
funds.
7 Earnings per share
2009 2008
Earnings Number of Earnings Earnings Number of Earnings
attributable shares per attributable shares per
to equity (millions) share to equity share
shareholders$m (cents) shareholders (millions) (cents)
$m
Basic 163.2 508.0 32.1 251.6 507.6 49.6
Effect of - 15.6 (0.9) - 15.7 (1.5)
dilutive
ordinary
shares
Diluted 163.2 523.6 31.2 251.6 523.3 48.1
Exceptional 35.8 - 6.8 - - -
items, net of
tax
Amortisation, 19.8 - 3.8 20.9 - 4.0
net of tax
Adjusted 218.8 523.6 41.8 272.5 523.3 52.1
diluted
Adjusted 218.8 508.0 43.1 272.5 507.6 53.7
basic
The calculation of basic earnings per share for the year ended 31 December 2009
is based on the earnings attributable to equity shareholders divided by the
weighted average number of ordinary shares in issue during the year excluding
shares held by the Group's employee share trusts. For the calculation of
diluted earnings per share, the weighted average number of ordinary shares in
issue is adjusted to assume conversion of all potentially dilutive ordinary
shares. The Group has two types of dilutive ordinary shares - share options
granted to employees under Executive Share Option Schemes and the Long Term
Retention Plan; and shares issuable under the Group's Long Term Incentive
Scheme and Long Term Incentive Plan. Adjusted basic and adjusted diluted
earnings per share is disclosed to show the results excluding the impact of
exceptional items and amortisation, net of tax.
8 Goodwill and other intangible assets
Goodwill Computer Other Total
software
$m $m $m $m
Cost
At 1 January 2009 569.0 46.2 82.4 697.6
Exchange movements 27.6 3.1 6.3 37.0
Additions - 8.6 5.8 14.4
Acquisitions 75.2 - 7.8 83.0
Adjustment to deferred (43.7) - - (43.7)
consideration estimates
Disposals - (0.5) (0.7) (1.2)
Disposal of businesses (11.5) (0.7) - (12.2)
At 31 December 2009 616.6 56.7 101.6 774.9
Aggregate amortisation and 3.6 28.2 33.6 65.4
impairment
At 1 January 2009
Exchange movements - 2.3 2.5 4.8
Amortisation charge for the year - 9.6 14.5 24.1
Impairment 3.2 - - 3.2
Disposals - (0.4) (0.2) (0.6)
Disposal of businesses (0.7) (0.6) - (1.3)
At 31 December 2009 6.1 39.1 50.4 95.6
Net book value at 31 December 2009 610.5 17.6 51.2 679.3
Cost
At 1 January 2008 516.8 36.0 70.5 623.3
Exchange movements (41.6) (6.6) (9.0) (57.2)
Additions - 15.9 3.2 19.1
Acquisitions 110.0 0.2 18.3 128.5
Disposals - (2.7) (0.6) (3.3)
Disposal of businesses (11.0) - - (11.0)
Reclassification as assets held for (5.2) (0.3) - (5.5)
sale
Reclassification from current - 3.7 - 3.7
assets
At 31 December 2008 569.0 46.2 82.4 697.6
Aggregate amortisation and 2.9 23.3 21.0 47.2
impairment
At 1 January 2008
Exchange movements - (4.3) (3.1) (7.4)
Amortisation charge for the year 0.7 8.2 16.3 25.2
Disposals - (2.3) (0.6) (2.9)
Reclassification as assets held for - (0.2) - (0.2)
sale
Reclassification from current - 3.5 - 3.5
assets
At 31 December 2008 3.6 28.2 33.6 65.4
Net book value at 31 December 2008 565.4 18.0 48.8 632.2
In accordance with IAS 36 `Impairment of assets', goodwill was tested for
impairment during the year. The impairment tests were carried out on a Cash
Generating Unit (`CGU') basis using the 2010-11 budgets. Cash flows for 2012-14
are assumed to grow at a rate of 5% per annum and subsequent cash flows have
been assumed to grow at 3% per annum for a further 15 years reflecting expected
long term growth rates in the countries in which the Group operates. In total,
a 20 year period has been used for the impairment tests reflecting the expected
long term growth in the market. The cash flows have been discounted using a
pre-tax discount rate of 10%. The value in use has been compared to the net
book value of goodwill for each CGU to assess whether an impairment write down
is required. $3.2m of goodwill has been impaired during the year. See note 4
for further details.
A sensitivity analysis has been performed in order to assess the impact of
reasonable possible changes in the key assumptions due to the current economic
environment. This analysis did not identify any further CGUs requiring to be
impaired.
The carrying amounts of goodwill by division at 31 December 2009 are:
Engineering & Production Facilities $455.1m (2008 : $453.4m), Gas Turbine
Services $123.6m (2008 : $78.5m) and Well Support $31.8m (2008 : $33.5m). The
carrying amounts of goodwill attributable to the principal CGUs within the
Engineering & Production Facilities division are Mustang $150.2m, IMV $116.5m,
Production Facilities Americas $83.6m and Wood Group Kenny $54.4m. The carrying
amounts of goodwill attributable to the principal CGUs within the Gas Turbine
Services division are Equipment and Power Solutions $40.7m and Field Service
$57.7m.
The `other' heading in the above table includes development costs, licences and
customer contracts and relationships arising on acquisitions. Development costs
with a net book value of $12.2m (2008 : $10.7m) 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 2009 62.8 24.9 494.1 581.8
Exchange movements 1.9 2.3 10.9 15.1
Additions 8.4 2.7 39.3 50.4
Acquisitions 0.8 0.1 23.0 23.9
Disposals (1.2) (1.8) (21.8) (24.8)
Disposal of businesses (6.6) - (0.2) (6.8)
Reclassification to current - - (78.1) (78.1)
assets
At 31 December 2009 66.1 28.2 467.2 561.5
Accumulated depreciation and
impairment
At 1 January 2009 26.6 13.1 279.1 318.8
Exchange movements 0.3 1.0 7.1 8.4
Charge for the year 4.0 1.8 53.3 59.1
Impairment - - 1.8 1.8
Disposals (0.9) (0.2) (16.2) (17.3)
Disposal of businesses (3.9) - - (3.9)
Reclassification to current - - (59.6) (59.6)
assets
At 31 December 2009 26.1 15.7 265.5 307.3
Net book value at 31 December 40.0 12.5 201.7 254.2
2009
The reclassification to current assets relates mainly to the transfer of plant
and equipment to other receivables on termination of the water injection
contract in Venezuela (see note 4).
Land and Land and Plant and Total
buildings buildings equipment
- Long - Short
leasehold leasehold
and
freehold
$m $m $m $m
Cost
At 1 January 2008 60.9 23.1 505.2 589.2
Exchange movements (5.2) (1.8) (30.3) (37.3)
Additions 7.5 4.4 74.3 86.2
Acquisitions 2.4 - 3.2 5.6
Disposals (2.5) - (28.1) (30.6)
Disposal of businesses (0.7) - (8.8) (9.5)
Reclassification as assets held for (0.3) (0.8) (13.8) (14.9)
sale
Reclassification from/(to) current 0.7 - (7.6) (6.9)
assets
At 31 December 2008 62.8 24.9 494.1 581.8
Accumulated depreciation and
impairment
At 1 January 2008 26.2 11.7 279.0 316.9
Exchange movements (2.1) (0.2) (19.7) (22.0)
Charge for the year 3.8 1.8 64.8 70.4
Disposals (0.5) - (23.4) (23.9)
Disposal of businesses (0.7) - (5.2) (5.9)
Reclassification as assets held for (0.1) (0.2) (8.1) (8.4)
sale
Reclassification to current assets - - (8.3) (8.3)
At 31 December 2008 26.6 13.1 279.1 318.8
Net book value at 31 December 2008 36.2 11.8 215.0 263.0
Plant and equipment includes assets held for lease to customers under operating
leases of $41.0m (2008: $36.8m). Additions during the year amounted to $3.5m
(2008 : $4.5m) and depreciation totalled $11.4m (2008 : $14.6m). The gross cost
of these assets at 31 December 2009 is $65.3m (2008 : $61.8m) and aggregate
depreciation is $24.3m (2008 : $25.0m).
Property plant and equipment includes assets in the course of construction of
$4.9m (2008 : $4.7m).
10 Joint ventures
In relation to the Group's interests in joint ventures, its share of assets,
liabilities, income and expenses is shown below.
2009 2008
$m $m
Non-current assets 39.8 44.3
Current assets 233.7 248.3
Current liabilities (122.9) (169.6)
Non-current liabilities (5.9) (6.3)
Net assets 144.7 116.7
Income 375.3 471.0
Expenses (333.3) (422.4)
Profit before tax 42.0 48.6
Tax (10.6) (12.1)
Share of post tax results from joint ventures 31.4 36.5
The joint ventures have no significant contingent liabilities to which the
Group is exposed, nor has the Group any significant contingent liabilities in
relation to its interest in the joint ventures other than the bank guarantees
described in note 31. The name and principal activity of the most significant
joint ventures is disclosed in note 34.
11 Inventories
2009 2008
$m $m
Materials 56.3 60.7
Work in progress 141.3 137.3
Finished goods and goods for resale 421.3 393.4
618.9 591.4
12 Trade and other receivables
2009 2008
$m $m
Trade receivables 857.5 936.9
Less: provision for impairment of trade receivables (50.2) (62.4)
Trade receivables - net 807.3 874.5
Amounts recoverable on contracts 15.6 14.2
Prepayments and accrued income 78.9 81.8
Other receivables 85.6 63.7
987.4 1,034.2
The Group's trade receivables balance is analysed by division below:-
Trade Provision Trade Receivable
Receivables for Receivables days
- Gross impairment - Net
31 December 2009 $m $m $m
Engineering & Production 518.4 (20.9) 497.5 53
Facilities
Well Support 142.3 (24.1) 118.2 49
Gas Turbine Services 196.8 (5.2) 191.6 57
Total Group 857.5 (50.2) 807.3 53
31 December 2008
Engineering & Production 550.3 (18.6) 531.7 51
Facilities
Well Support 196.6 (32.0) 164.6 52
Gas Turbine Services 190.0 (11.8) 178.2 50
Total Group 936.9 (62.4) 874.5 52
Receivable days are calculated by allocating the closing trade receivables
balance to current and prior period revenue including sales taxes. A receivable
days calculation of 53 indicates that closing trade receivables represent the
most recent 53 days of revenue. A provision for the impairment of trade
receivables is established when there is objective evidence that the Group will
not be able to collect all amounts due according to the terms of the original
receivables.
The ageing of the provision for impairment of trade receivables is as follows:
2009 2008
$m $m
Up to 3 months 22.4 18.6
Over 3 months 27.8 43.8
50.2 62.4
The movement on the provision for impairment of trade receivables by division
is as follows:
2009 Engineering Well Gas Total
& Production Support Turbine
Facilities Services
$m $m $m $m
At 1 January 18.6 32.0 11.8 62.4
Exchange movements (0.1) (7.5) (0.6) (8.2)
Acquisitions 1.0 - 0.3 1.3
Disposal of businesses (0.3) - - (0.3)
Charge/(credit) to income 1.7 (0.4) (6.3) (5.0)
statement
At 31 December 20.9 24.1 5.2 50.2
2008
At 1 January 9.3 27.5 7.4 44.2
Exchange movements (1.1) (0.1) (0.3) (1.5)
Charge to income statement 10.4 4.6 4.7 19.7
At 31 December 18.6 32.0 11.8 62.4
The charge/(credit) to the income statement is included in administrative
expenses.
Non-trade receivables do not contain impaired assets.
Included within gross trade receivables of $857.5m above (2008 : $936.9m) are
receivables of $163.4m (2008: $221.3m) which were past due but not impaired.
These relate to customers for whom there is no recent history or expectation of
default. The ageing analysis of these trade receivables is as follows:
2009 2008
$m $m
Up to 3 months 137.2 203.6
Over 3 months 26.2 17.7
163.4 221.3
13 Cash and cash equivalents
2009 2008
$m $m
Cash at bank and in hand 174.3 149.6
Short-term bank deposits 34.3 26.5
208.6 176.1
The effective interest rate on short-term deposits was 1.0% (2008 : 1.9%) and
these deposits have an average maturity of 32 days (2008 : 32 days).
At 31 December 2009 the Group held $10.8m of cash (2008: $10.5m) as security
for standby letters of credit issued by the Group's insurance captive in
relation to its reinsurance liabilities.
14 Trade and other payables
2009 2008
$m $m
Trade payables 277.9 310.1
Other tax and social security payable 74.4 61.7
Accruals and deferred income 611.7 544.2
Deferred consideration 48.7 9.3
Other payables 49.1 40.0
1,061.8 965.3
15 Borrowings
2009 2008
$m $m
Bank loans and overdrafts due within one year or on demand
Unsecured 19.0 34.2
Non-current bank loans
Unsecured 277.5 390.7
Bank loans are denominated in a number of currencies and bear interest based on
LIBOR 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:
2009 2008
% %
US Dollar 6.18 4.68
Sterling 5.47 4.41
Euro 4.05 3.37
Canadian Dollar 4.46 3.07
The carrying amounts of the Group's borrowings are denominated in the following
currencies:
2009 2008
$m $m
US Dollar 86.5 115.4
Sterling 93.1 81.5
Euro 63.0 71.9
Canadian Dollar 49.9 140.0
Other 4.0 16.1
296.5 424.9
The Group is required to issue trade finance instruments to certain customers.
These include tender bonds, performance bonds, retention bonds and advance
payment bonds. The Group has also issued standby letters of credit as security
for local bank facilities. At 31 December 2009 the Group's bank facilities
relating to the issue of bonds, guarantees and letters of credit amounted to
$327.2m (2008: $236.0m). At 31 December 2009, these facilities were 58%
utilised (2008: 65%).
Borrowing facilities
The Group has the following undrawn borrowing facilities available at 31
December.
2009 2008
$m $m
Expiring within one year 106.5 42.8
Expiring between one and two years 674.3 566.4
Expiring in more than two years but not more than five years - 22.8
780.8 632.0
All undrawn borrowing facilities are floating rate facilities. The facilities
expiring within one year are annual facilities subject to review at various
dates during 2010.
16 Other non-current liabilities
2009 2008
$m $m
Deferred consideration 48.9 112.8
Other payables 10.8 9.1
59.7 121.9
Deferred consideration represents amounts payable on acquisitions made by the
Group and is expected to be paid over the next five years. Details of the
reduction in deferred consideration during the year are provided in note 27.
17 Financial instruments
The Group's activities give rise to a variety of financial risks: market risk
(including currency risk and cash flow interest rate risk), credit risk and
liquidity risk. The Group's overall risk management strategy is to hedge
exposures wherever practicable in order to minimise any potential adverse
impact on the Group's financial performance.
Risk management is carried out by the Group Treasury department in line with
the Group's Treasury policies. Group Treasury, together with the Group's
business units identify, evaluate and where appropriate, hedge financial risks.
The Group's Treasury policies cover specific areas, such as foreign exchange
risk, interest rate risk, use of derivative financial instruments and
investment of excess cash.
Where the Board considers that a material element of the Group's profits and
net assets are exposed to a country in which there is significant geo-political
uncertainty a strategy is agreed to ensure that the risk is minimised.
(a)Market risk
(i)Foreign exchange risk
The Group is exposed to foreign exchange risk arising from various currencies.
The Group also has a number of subsidiary companies whose revenue and expenses
are denominated in currencies other than the US dollar. In order to protect the
Group's balance sheet from movements in exchange rates, wherever practicable,
the Group finances its net investment in non US dollar subsidiaries primarily
by means of borrowings denominated in the appropriate currency. Other
strategies, including the payment of dividends, are used to minimise the amount
of net assets exposed to foreign currency revaluation.
Some of the sales of the Group's businesses are to customers in overseas
locations. Where possible, the Group's policy is to eliminate all significant
currency exposures on sales at the time of the transaction by using financial
instruments such as forward currency contracts. Changes in the forward contract
fair values are booked through the income statement.
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/US
dollar exchange rate. Movements in the sterling/US dollar rate impact the
translation of sterling profit earned in the UK and the translation of sterling
denominated net assets.
If the average sterling/US dollar rate had been 10% higher during 2009,
post-tax profit for the year would have been $8.3m higher (2008: $9.8m higher).
If the average sterling/US dollar rate had been 10% lower during 2009, post-tax
profit for the year would have been $8.3m lower (2008: $7.6m lower). If the
closing sterling/US dollar rate was 10% higher or lower at 31 December 2009,
exchange differences in equity would have been $15.1m (2008: $11.5m) higher or
lower respectively.
(ii)Interest rate risk
The Group finances its operations through a mixture of retained profits and
bank borrowings. The Group borrows in the desired currencies at floating rates
of interest and then uses interest rate swaps into fixed rates to generate the
desired interest profile and to manage the Group's exposure to interest rate
fluctuations. The Group's long-term policy is to maintain approximately 50% of
its borrowings at fixed rates of interest. At 31 December 2009, 77% (2008 :
39%) of the Group's borrowings were at fixed rates after taking account of
interest rate swaps. The increased proportion of fixed rate debt is due mainly
to the reduction in total borrowings during 2009.
The Group is also exposed to interest rate risk on cash held on deposit. The
Group's policy is to maximise the return on cash deposits whilst ensuring that
cash is deposited with a financial institution with a credit rating of `A' or
better, where possible. If average interest rates had been 1% higher or lower
during 2009, post-tax profit for the year would have been $1.4m higher or lower
respectively (2008: $2.0m).
(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's
operations comprise three divisions, Engineering & Production Facilities, Well
Support and Gas Turbine Services each made up of a number of businesses.
Responsibility for managing credit risks lies within the businesses with
support being provided by Group and divisional management where appropriate.
A customer evaluation is typically obtained from an appropriate credit rating
agency. Where required, appropriate trade finance instruments such as letters
of credit, bonds, guarantees and credit insurance will be used to manage credit
risk.
The Group's major customers are typically large companies which have strong
credit ratings assigned by international credit rating agencies. Where a
customer does not have sufficiently strong credit ratings, alternative forms of
security such as the trade finance instruments referred to above may be
obtained. The Group has a broad customer base and management believe that no
further credit risk provision is required in excess of the provision for
impairment of trade receivables. The Group has increased its focus on credit
risk and credit management in light of the current economic environment and
appropriate measures have been implemented to reduce the risk profile where
possible.
Management review trade receivables across the Group based on receivable days
calculations to assess performance. There is significant management focus on
receivables that are overdue. A table showing trade receivables and receivable
days by division is provided in note 12. Receivable days calculations are not
provided on non-trade receivables as management do not believe that this
information is a relevant metric.
The Group also has credit risk in relation to cash held on deposit. The Group's
policy is to deposit cash at institutions with a credit rating of `A' or better
where possible. 100% of cash held on deposit at 31 December 2009 (2008 : 87%)
was held with such institutions.
(c)Liquidity risk
With regard to liquidity, the Group's main priority is to ensure continuity of
funding. At 31 December 2009, 99% (2008 : 97%) of the Group's borrowing
facilities (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 meet
its 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 the
ratio of net debt to EBITDA.
Gearing is calculated by dividing net debt by shareholders' funds. Gearing at
31 December 2009 was 7% (2008: 22%).
Interest cover is calculated by dividing EBITA by net interest expense.
Interest cover for the year to 31 December 2009 was 10.6 times (2008: 13.9
times).
The ratio of net debt to EBITDA at 31 December 2009 was 0.2 (2008: 0.5).
17 Financial instruments (continued)
The table below analyses the Group's financial liabilities which will be
settled on a net basis into relevant maturity groupings based on the remaining
period from the balance sheet to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows.
At 31 December 2009 Less than Between 1 Between 2 Over 5
1 year and 2 and 5 years
years years $m
$m $m
$m
Borrowings 19.0 1.8 275.7 -
Derivative financial instruments 3.3 1.5 1.8 -
Trade and other payables 1,061.8 - - -
Other non-current liabilities - 15.3 44.4 -
At 31 December 2008
Borrowings 34.2 390.7 - -
Derivative financial instruments 4.1 4.8 3.3 -
Trade and other payables 965.3 - - -
Other non-current liabilities - 45.5 43.7 32.7
The table below analyses the Group's derivative financial instruments which
will be settled on a gross basis into relevant maturity groupings based on the
remaining period from the balance sheet date to the contractual maturity date.
The amounts disclosed in the table are the contractual undiscounted cash flows.
At 31 December 2009 Less than Between 1 Between 2 Over 5
1 year and 2 and 5 years
years years
$m $m
$m $m
Forward foreign exchange contracts
Outflow 322.5 9.1 1.5 -
Inflow 324.0 9.0 1.5 -
Interest rate swaps
Outflow 8.0 3.0 3.2 -
Inflow 1.1 0.6 0.7 -
At 31 December 2008
Forward foreign exchange contracts
Outflow 124.3 0.8 - -
Inflow 126.6 0.9 - -
Interest rate swaps
Outflow 6.3 7.7 3.1 -
Inflow 5.6 4.4 1.7 -
All of the Group's forward foreign exchange contracts are categorised as held
for trading. All interest rate swaps are categorised as cash flow hedges.
Fair value of non-derivative financial assets and financial liabilities
The fair value of short-term borrowings, trade and other payables, trade and
other receivables, short-term deposits and cash at bank and in hand
approximates to the carrying amount because of the short maturity of interest
rates in respect of these instruments. Long-term borrowings are generally
rolled over for periods of three months or less and as a result, book value and
fair value are considered to be the same.
2009 2008
Book Fair Book Fair
Value Value Value Value
$m $m $m $m
Fair value of long-term borrowings
Long-term borrowings (note 15) 277.5 277.5 390.7 390.7
Fair value of other financial
assets and financial liabilities
Primary financial instruments held
or issued to finance the Group's
operations:
Trade and other receivables (note 987.4 987.4 1,034.2 1,034.2
12)
Cash at bank and in hand (note 13) 174.3 174.3 149.6 149.6
Short-term bank deposits (note 13) 34.3 34.3 26.5 26.5
Trade and other payables (note 14) 987.4 987.4 903.6 903.6
Short-term borrowings (note 15) 19.0 19.0 34.2 34.2
Other non-current liabilities (note 59.7 59.7 121.9 121.9
16)
Derivative financial instruments
The fair value of the Group's derivative financial instruments at the balance
sheet date were as follows:
2009 2008
Assets Liabilities Assets Liabilities
$m $m $m $m
Interest rate swaps - cash flow - 6.0 - 8.4
hedges
Forward foreign exchange contracts 2.1 0.6 2.1 3.8
Currency options 3.9 - 5.1 -
Total 6.0 6.6 7.2 12.2
Less non-current portion:
Interest rate swaps - cash flow - 3.3 - 8.1
hedges
Current portion 6.0 3.3 7.2 4.1
Derivative financial instruments are classified as a current asset or
liability. The full fair value of a hedging derivative is classified as a
non-current asset or liability if the remaining maturity of the hedged item is
more than 12 months and, as a current asset or liability if the maturity of the
hedged item is less than 12 months.
There was no ineffectiveness recorded in the income statement from fair value
hedges, cash flow hedges or net investment in foreign entity hedges in the
current or preceding period.
The maximum exposure to credit risk at the reporting date is the fair value of
the derivative assets in the balance sheet.
(a)Forward foreign exchange contracts
The notional principal amounts of the outstanding forward foreign exchange
contracts at 31 December 2009 was $322.5m (2008: $124.3m).
(b)Interest rate swaps
The notional principal amount of the Group's outstanding interest rate swap
contracts at 31 December 2009 was $227.3m (2008 : $166.5m).
At 31 December 2009 the fixed interest rates, including margin varied from 4.1%
to 7.3% (2008 : 4.7% to 5.6%) and the floating rates ranged from 2.5% to 2.9%,
also including margin (2008 : 1.5% to 4.1%). The Group's interest rate swaps
are for periods of up to 5 years and they expire between 2010 and 2013. The
bank has a break option on one $25m, 5 year swap. This option is exercisable on
a quarterly basis.
The fair value gains and losses relating to the interest rate swaps which are
deferred in equity at 31 December 2009 will reverse in the income statement
over the term of the swaps.
(c)Hedge of net investment in foreign entities
The table below shows the Group's foreign currency borrowings which it has
designated as a hedge of subsidiary company net assets. The fair value of the
borrowings at 31 December 2009 was $196.0m (2008 : $206.1m). Foreign exchange
losses of $22.9m (2008 : gains $46.8m) on translation of the borrowings into US
dollars have been offset against equivalent gains on retranslation of net
assets in the currency translation reserve.
2009 2008
Foreign $m % of foreign Foreign $m % of foreign
currency currency net currency net
amount assets currency assets hedged
hedged
amount
£55.0m 88.8 37% £55.0m 79.1 42%
C$47.0m 44.8 45% C$67.0m 54.3 63%
- - - A$5.6m 3.9 25%
€43.5m 62.4 56% €49.5m 68.8 97%
196.0 206.1
18 Provisions
Warranty Other Total
provisions
$m $m $m
At 1 January 2009 18.7 26.3 45.0
Exchange movements 1.1 - 1.1
Charge to income statement 12.1 6.4 18.5
Payments during the year (8.2) (4.6) (12.8)
Acquisitions 6.1 - 6.1
Disposal of businesses - (4.2) (4.2)
At 31 December 2009 29.8 23.9 53.7
Warranty provisions
These provisions are recognised in respect of guarantees provided in the normal
course of business relating to contract performance. They are based on previous
claims history and it is expected that most of these costs will be incurred
over the next two years.
Other provisions
At 31 December 2009, other provisions of $23.9m (2008 : $26.3m) have been
recognised. This amount includes provisions for future losses on onerous
contracts, a provision for non-recoverable indirect taxes and a provision for
remedial work at one of our facilities. It is expected that the majority of the
costs in relation to these provisions will be incurred over the next two years.
19 Deferred tax
Deferred tax is calculated in full on temporary differences under the liability
method using the tax rate applicable to the territory in which the asset or
liability has arisen. Deferred tax in relation to UK companies is provided at
28% (2008: 28%).
The movement on the deferred tax account is shown below:
2009 2008
$m $m
At 1 January (48.8) (45.5)
Exchange movements (3.1) 5.0
Charge/(credit) to income statement 14.2 (1.6)
Acquisitions 1.0 -
Disposal of businesses (1.6) -
Deferred tax relating to retirement benefit liabilities (2.4) (5.2)
Deferred tax relating to share option schemes (7.0) -
Reclassification to current tax (6.7) -
Reclassification as liabilities held for sale - (1.5)
At 31 December (54.4) (48.8)
Deferred tax is presented in the financial statements as
follows:
Deferred tax assets (62.3) (53.3)
Deferred tax liabilities 7.9 4.5
(54.4) (48.8)
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 $55.3m (2008 : $68.8m) to carry
forward against future taxable income.
Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the balances
net. The deferred tax balances are analysed below:-
Accelerated Pension Share Short term Total
tax based timing
depreciation charges differences
$m $m $m $m $m
Deferred tax assets 28.5 (9.6) (14.2) (67.0) (62.3)
Deferred tax - - - 7.9 7.9
liabilities
Net deferred tax 28.5 (9.6) (14.2) (59.1) (54.4)
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 Scheme (`LTIS') and the Long
Term Incentive Plan (`LTIP'). The LTIP replaced the LTIS on 1 January 2008.
Details of each of the schemes are given in the Directors' Remuneration Report
and in note 21.
The charge in the Group income statement in 2009 for these schemes amounted to
$11.2m (2008 : $13.3m)
The assumptions made in arriving at the charge for each scheme are detailed
below:
ESOS and LTRP
At 31 December 2009 there were 1,084 employees (2008 : 750) participating in
these schemes. For the purposes of calculating the fair value of the share
options, a Black-Scholes option pricing model has been used. Based on past
experience, it has been assumed that options will be exercised, on average, six
months after the earliest exercise date, which is four years after grant date,
and there will be a lapse rate of between 15% and 20%. The share price
volatility used in the calculation of 35%-40% is based on the actual volatility
of the Group's shares since IPO as well as that of comparable companies. The
risk free rate of return of 2.4%-5.2% is based on the implied yield available
on zero coupon gilts with a term remaining equal to the expected lifetime of
the options at the date of grant. A dividend yield of 1.0%-2.0% has been used
in the calculations.
The fair value of options granted under the ESOS during the year ranged from £
0.65 to £0.87 (2008 : £1.17 to £1.23). The fair value of options granted under
the LTRP during the year ranged from £2.00 to £2.56 (2008 : £3.36 to £3.62).
The weighted average remaining contractual life of share options at 31 December
2009 is 5.3 years (2008: 5.3 years).
LTIS/LTIP
The share based charge for the LTIS was calculated using a fair value of £1.40.
The charge for the LTIP was calculated using a fair value of £4.12 for the
first cycle and £1.89 for the second cycle. The charge for market related
performance targets has been calculated using a Monte Carlo simulation model
using similar assumptions to the ESOS and LTRP calculations.
21 Share capital
2009 2008
Authorised shares $m shares $m
Ordinary shares of 3â…“ pence 900,000,000 44.0 720,000,000 34.9
Issued and fully paid
Ordinary shares of 3â…“ pence each
At 1 January 527,836,720 26.2 524,336,720 26.0
Allocation of new shares to 2,430,000 0.1 3,500,000 0.2
employee share trusts
At 31 December 530,266,720 26.3 527,836,720 26.2
John Wood Group PLC is a public limited company, incorporated and domiciled in
Scotland.
Executive Share Option Schemes
The following options to subscribe for new or existing shares were outstanding
at 31 December:
Year of Number of ordinary Exercise
shares under option price
Grant 2009 2008 (per Exercise
share) period
2000 138,750 213,750 17â…“p 2005-2010
2001 30,000 230,000 93â…“p 2006-2011
2001 612,100 824,380 83â…“p 2006-2011
2002 174,000 228,000 83â…“p 2007-2012
2003 769,215 1,004,715 158p 2007-2013
2004 2,211,287 3,008,942 128½p 2008-2014
2005 1,073,189 1,762,917 145p 2009-2015
2006 852,918 887,000 265¼p 2010-2016
2007 1,106,190 1,186,417 268½p 2011-2017
2008 1,356,418 1,439,500 381¾p 2012-2018
2008 200,937 210,208 354â…“p 2012-2018
2009 4,048,545 - 222p 2013-2019
2009 110,000 - 283â…”p 2013-2019
12,683,549 10,995,829
Details of the Group's Executive Share Option Schemes are set out in the
Directors' Remuneration Report. Share options are granted at an exercise price
equal to the average mid-market price of the shares on the three days prior to
the date of grant.
5,008,541 options (2008 : 5,509,787) were exercisable at 31 December 2009.
4,312,600 options were granted during the year, 2,192,809 options were
exercised during the year and 432,071 options lapsed during the year. The
weighted average share price for ESOS options exercised during the year was £
2.96 (2008 : £4.27).
Options granted to directors under the executive share option scheme are
subject to performance criteria as set out in the Directors' Remuneration
Report. 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 31
December:
Year of Number of ordinary Exercise
shares under option price
Grant 2009 2008 (per Exercise
share) period
2004 - 31,250 3â…“p 2008-2009
2005 66,502 121,502 3â…“p 2009-2010
2006 1,204,360 1,262,393 3â…“p 2010-2011
2007 1,571,189 1,649,063 3â…“p 2011-2012
2008 1,695,309 1,780,944 3â…“p 2012-2013
2009 3,632,819 - 3â…“p 2013-2014
8,170,179 4,845,152
Options are granted under the Group's LTRP at par value (3â…“ pence per share).
There are no performance criteria attached to the exercise of options under the
LTRP. The basis of the scheme is that an overall bonus pool is calculated
annually based on the growth in the Group's adjusted earnings per share in the
prior year. 3,704,150 LTRP options were granted during the year, 120,829 LTRP
options were exercised during the year and 258,294 LTRP options lapsed during
the year. The weighted average share price for LTRP options exercised during
the year was £2.96 (2008 : £4.22). Further details on the LTRP are provided in
the Directors' Remuneration Report.
Long Term Incentive Scheme/Long Term Incentive Plan
The Group's Long Term Incentive Scheme (`LTIS') which had been in place since
2005 was replaced by the Long Term Incentive Plan (`LTIP') in 2008. Under these
Schemes, the executive directors (but not the Chairman) and other key senior
executives are awarded shares dependent upon the achievement of performance
targets established by the Remuneration Committee. The performance measures for
the LTIP are EBITA, return on capital employed, total shareholder return and
adjusted earnings per share. The LTIP awards are in the form of shares and
restricted shares. 20% of any award earned over the three year performance
cycle are deferred for a further two years in the form of forfeitable
restricted shares. At 31 December 2009, 7,759,731 shares were potentially
issuable under these schemes. Further details of the LTIS and LTIP are provided
in the Directors' Remuneration Report.
22 Share premium
2009 2008
$m $m
At 1 January 311.8 303.6
Allocation of shares to employee share trusts 4.0 8.2
At 31 December 315.8 311.8
Expenses of share issue and allocation amounted to $nil (2008 : $0.1m).
23 Retained earnings
2009 2008
$m $m
At 1 January 760.2 555.9
Profit for the year attributable to equity shareholders 163.2 251.6
Dividends paid (50.3) (40.1)
Credit relating to share based charges 11.2 13.3
Actuarial loss on retirement benefit liabilities (8.4) (18.7)
Movement in deferred tax relating to retirement benefit 2.4 5.2
liabilities
Shares allocated to employee share trusts (4.1) (8.4)
Shares purchased by employee share trusts (1.3) (34.2)
Shares disposed of by employee share trusts 4.3 10.5
Tax credit relating to share option schemes 7.0 6.2
Exchange movements in respect of shares held by employee (6.6) 18.9
share trusts
At 31 December 877.6 760.2
Retained earnings are stated after deducting the investment in own shares held
by employee share trusts. Investment in own shares represents the cost of
20,626,241 (2008 : 21,884,982) of the company's ordinary shares totalling
$61.7m (2008 : $54.0m). No options have been granted over shares held by the
employee share trusts (2008 : nil).
Shares acquired by the employee share trusts are purchased in the open market
using funds provided by John Wood Group PLC to meet obligations under the
Employee Share Option Schemes, the LTRP, the LTIS and the LTIP. During 2009,
2,430,000 shares at a value of $4.1m were allocated to the trusts in order to
satisfy the exercise of share options. On 31 December 2009, 270,000 shares were
purchased on the open market at a cost of $1.3m. The cash payment in respect of
this purchase was made on 5 January 2010. 2,313,638 shares were issued during
the year to satisfy the exercise of share options at a value of $4.3m. In
addition, 1,645,103 shares were issued during the year to satisfy share awards
under the LTIS. Exchange adjustments of $6.6m arose during the year relating to
the retranslation of the investment in own shares from sterling to US dollars.
The costs of funding and administering the trusts are charged to the income
statement in the period to which they relate. The market value of the shares at
31 December 2009 was $102.9m (2008 : $59.2m) based on the closing share price
of £3.09 (2008 : £1.88). The employee share trusts have waived their rights to
receipt of dividends except in relation to those shares used to meet
obligations under the LTIS.
24 Other reserves
Capital Currency Hedging Total
reduction translation reserve
reserve reserve
$m $m $m $m
At 1 January 2008 88.1 2.3 (1.3) 89.1
Exchange movements on retranslation of - (45.9) - (45.9)
foreign currency net assets
Cash flow hedges - - (7.5) (7.5)
At 31 December 2008 88.1 (43.6) (8.8) 35.7
Exchange movements on retranslation of - 9.2 - 9.2
foreign currency net assets
Exchange movements recycled to income - 3.2 - 3.2
statement on disposal of businesses
Cash flow hedges - - 2.4 2.4
At 31 December 2009 88.1 (31.2) (6.4) 50.5
A capital redemption reserve was created on the conversion of convertible
redeemable preference shares immediately prior to the Initial Public Offering
in June 2002. The capital redemption reserve was converted to a capital
reduction reserve in December 2002 and is part of distributable reserves.
The currency translation reserve relates to the retranslation of foreign
currency net assets on consolidation. This was reset to zero on transition to
IFRS at 1 January 2004.
The hedging reserve relates to the accounting for derivative financial
instruments under IAS 39. Fair value gains and losses in respect of effective
cash flow hedges are recognised in the hedging reserve.
25 Minority interest
2009 2008
$m $m
At 1 January 13.1 11.3
Exchange movements 0.2 (0.2)
Acquisitions 2.7 -
Investment by minority shareholders - 0.1
Share of profit for the year 1.0 3.8
Dividends paid (0.4) (1.9)
Disposal of businesses (5.8) -
At 31 December 10.8 13.1
26 Cash generated from operations
2009 2008
$m $m
Reconciliation of operating profit to cash generated
from operations:
Operating profit 298.5 415.8
Adjustments for:
Depreciation 59.1 70.4
Loss/(gain) on disposal of property plant and 2.5 (4.6)
equipment
Amortisation of other intangible assets 24.1 25.2
Share based charges 11.2 13.3
Increase in provisions 5.7 9.8
Exceptional items - non cash impact 35.0 -
Changes in working capital (excluding effect of
acquisition and disposal of subsidiaries)
Decrease/(increase) in inventories 9.2 (104.1)
Decrease/(increase) in receivables 154.9 (298.3)
(Decrease)/increase in payables (45.8) 221.4
Exchange movements (8.9) 4.6
Cash generated from operations 545.5 353.5
Analysis of net debt
At 1 Cash flow Exchange At 31
January movements December
2009 2009
$m $m $m $m
Cash and cash equivalents 176.1 39.4 (6.9) 208.6
Short term borrowings (34.2) 14.5 0.7 (19.0)
Long term borrowings (390.7) 140.5 (27.3) (277.5)
Net debt (248.8) 194.4 (33.5) (87.9)
27 Acquisitions and disposals
Acquisitions
The assets and liabilities acquired in respect of the acquisitions during the
year were as follows:
Book value Fair value Fair value
adjustments alue value
$m $m $m
Property plant and equipment 24.2 (0.3) 23.9
Other intangible assets - 7.8 7.8
Trade and other receivables 110.7 (3.2) 107.5
Inventories 7.7 (0.5) 7.2
Borrowings (0.3) - (0.3)
Trade and other payables (78.3) (1.2) (79.5)
Provisions (6.1) - (6.1)
Income tax (2.3) - (2.3)
Deferred tax 0.3 (1.3) (1.0)
Net assets acquired 55.9 1.3 57.2
Goodwill 75.2
Minority interest (2.7)
Consideration 129.7
Consideration satisfied by:
Cash 100.2
Net assets acquired 12.4
Deferred consideration 17.1
129.7
The Group has used acquisition accounting for the purchases and, in accordance
with the Group's accounting policies, the goodwill arising on consolidation of
$75.2m has been capitalised. The table above includes amounts relating to the
acquisitions of Proteus Global Solutions Pty Limited (`Proteus'), Baker Energy
(`Baker'), Bond Personnel Pty Limited (`Bond') and Shanahan Engineering Ltd.
(`Shanahan') which were acquired during the year. The Group acquired 100% of
the share capital of each of these companies other than Proteus, where 70% was
acquired. The acquisitions are not considered to be material to the Group on an
individual basis and therefore have been aggregated in the table above.
Proteus, acquired in May 2009 is a provider of commissioning, operations
support and engineering services in the Asia Pacific region. Baker, acquired in
October 2009 provides a broad range of operations and maintenance services both
onshore and offshore in the US and in Africa. Bond, acquired in November 2009
is a provider of engineering services to the oil and gas and petrochemical
industries in the Asia Pacific region. Shanahan, acquired in December 2009 is a
provider of power plant installation, commissioning and maintenance services to
the power and industrial sector. The Group also made a number of small
acquisitions during the year and the assets and liabilities in respect of these
companies are also included above.
The acquisitions during the year provide the Group with access to new markets
and strengthen the Group's capabilities in certain areas. The acquired
companies will be in a position to access the Group's wider client base and use
the Group's existing relationships to further grow and develop their
businesses. These factors contribute to the goodwill recognised by the Group on
the acquisitions.
Deferred consideration payments of $9.1m were made during the year in respect
of acquisitions made in prior periods. Payments during the year and changes to
previous estimates of deferred consideration have resulted in a reduction of
goodwill of $43.7m. Costs of $0.5m were incurred during the year in respect of
acquisitions made in 2008.
The outflow of cash and cash equivalents on the acquisitions made during the
year is analysed as follows:
$m
Cash consideration 100.2
Borrowings acquired 0.3
100.5
Costs incurred in relation to acquisitions in prior period 0.5
Cash outflow 101.0
The results of the Group, as if the above acquisitions had been made at the
beginning of period, would have been as follows:
$m
Revenue 5,215.7
Profit for the year 167.8
From the date of acquisition to 31 December 2009, the acquisitions contributed
$108.5m to revenue and $0.7m to profit for the year.
Disposals
Details of the assets and liabilities disposed of during the year in respect of
the above were as follows:
$m
Goodwill and other intangible assets 10.9
Property plant and equipment 2.9
Trade and other receivables 33.4
Gross assets held for sale 22.9
Income tax receivable 2.0
Cash and cash equivalents 11.4
Borrowings (0.2)
Trade and other payables (29.0)
Gross liabilities held for sale (4.8)
Provisions (4.2)
Deferred tax (1.6)
Minority interest (5.8)
Net assets disposed of 37.9
Net proceeds received 24.1
Net assets acquired 12.4
Exchange movements recycled from currency translation reserve (3.2)
Provision for disposal costs (6.2)
27.1
Loss on disposals (10.8)
27 Acquisitions and disposals (continued)
Reconciliation of net proceeds to cash inflow from disposals
$m
Net proceeds received 24.1
Cash disposed of (11.4)
Borrowings disposed of 0.2
Disposal costs paid (2.2)
Cash inflow from disposals 10.7
In January 2009, the Group disposed of two small businesses in its Gas Turbine
Services division. The Group acquired net assets of $12.4m as part of the
transaction. There was no gain or loss on this disposal. The assets and
liabilities relating to this disposal were classified as gross assets/
liabilities held for sale in the 2008 consolidated financial statements. During
December 2009, the Group disposed of its interest in Vepica, a Venezuelan
engineering company. Total disposal proceeds received during the year amounted
to $24.1m.
28 Employees and directors
Employee benefits expense 2009 2008
$m $m
Wages and salaries 1,805.2 1,797.9
Social security costs 138.8 137.5
Pension costs - defined benefit schemes (note 29) 4.1 6.7
Pension costs - defined contribution schemes (note 29) 43.6 40.4
1,991.7 1,982.5
Average monthly number of employees (including executive 2009 2008
directors)
No. No.
By geographical area:
Europe 5,670 5,239
North America 9,660 10,035
Rest of the World 7,944 7,495
23,274 22,769
Key management compensation 2009 2008
$m $m
Salaries and short-term employee benefits 18.5 20.8
Amounts receivable under long-term incentive schemes 6.7 14.8
Post employment benefits 1.0 1.1
Share based charges 3.7 6.8
29.9 43.5
The key management figures given above include executive directors.
2009 2008
Directors $m $m
Aggregate emoluments 5.6 6.7
Aggregate amounts receivable under long-term incentive 1.1 1.8
schemes
Aggregate gains made on the exercise of share options 0.9 0.6
7.6 9.1
One director (2008: one) has retirement benefits accruing under a defined
contribution pension scheme. Retirement benefits are accruing to six (2008:
six) 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
2007 by a professionally qualified actuary. On 5 April 2007 there was a change
to the benefits provided under the scheme. From that date benefits are
calculated on a Career Averaged Revalued Earnings ("CARE") basis.
The principal assumptions made by the actuaries at the balance sheet date were:
2009 2008
% %
Rate of increase in pensionable salaries 5.40 4.90
Rate of increase in pensions in payment and deferred 3.40 2.90
pensions
Discount rate 5.80 6.20
Expected return on scheme assets 7.06 7.06
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.
The mortality assumptions used by the actuary take account of standard
actuarial tables compiled from UK wide statistics relating to occupational
pension schemes. At 31 December 2009 the actuary has used the PXA92 (YOB) with
medium cohort improvements and a further improvements reserve of 3% of
liabilities.
The amounts recognised in the balance sheet are determined as follows:
2009 2008
$m $m
Present value of funded obligations (174.4) (124.7)
Fair value of scheme assets 140.1 101.6
Net liabilities (34.3) (23.1)
The major categories of scheme assets as a percentage of total scheme assets
are as follows:
2009 2008
% %
Equity securities 86.0 82.7
Corporate bonds 7.0 8.4
Gilts 6.4 8.7
Cash 0.6 0.2
The amounts recognised in the income statement are as follows:
2009 2008
$m $m
Current service cost included within employee benefits 4.1 6.7
expense
Interest cost 8.8 10.1
Expected return on scheme assets (7.9) (11.5)
Total included within finance expense/(income) 0.9 (1.4)
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:
2009 2008
$m $m
Present value of funded obligations at 1 January 124.7 187.5
Current service cost 4.1 6.7
Interest cost 8.8 10.1
Actuarial losses/(gains) 24.0 (25.6)
Scheme participants contributions 2.4 3.0
Benefits paid (6.0) (8.0)
Exchange movements 16.4 (49.0)
Present value of funded obligations at 31 December 174.4 124.7
Changes in the fair value of scheme assets are as follows:
2009 2008
$m $m
Fair value of scheme assets at 1 January 101.6 176.2
Expected return on scheme assets 7.9 11.5
Contributions 7.7 7.8
Benefits paid (6.0) (8.0)
Actuarial gains/(losses) 15.6 (44.3)
Exchange movements 13.3 (41.6)
Fair value of scheme assets at 31 December 140.1 101.6
Analysis of the movement in the balance sheet liability:
2009 2008
$m $m
At 1 January 23.1 11.3
Current service cost 4.1 6.7
Finance expense/(income) 0.9 (1.4)
Contributions (5.3) (4.8)
Net actuarial losses recognised in the year 8.4 18.7
Exchange movements 3.1 (7.4)
At 31 December 34.3 23.1
Cumulative actuarial losses recognised in equity:
2009 2008
$m $m
At 1 January 43.1 24.4
Net actuarial losses recognised in the year 8.4 18.7
At 31 December 51.5 43.1
The actual return on scheme assets was $23.7m (2008 : $(32.8)m).
History of experience gains and losses:
2009 2008 2007 2006 2005
Difference between the expected and
actual return on scheme assets :
Gain/(loss) ($m) 15.8 (44.3) 10.5 2.9 12.3
Percentage of scheme assets 11% 44% 6% 2% 12%
Experience (losses)/gains on scheme
liabilities:
(Loss)/gain ($m) (24.0) 25.6 (7.9) 5.6 (14.8)
Percentage of the present value of 14% 21% 4% 3% 11%
the scheme liabilities
Present value of scheme liabilities 174.4 124.7 187.5 165.3 137.0
($m)
Fair value of scheme assets ($m) 140.1 101.6 176.2 140.4 103.7
Deficit ($m) 34.3 23.1 11.3 24.9 33.3
The contributions expected to be paid during the financial year ending 31
December 2010 amount to $7.1m.
Pension costs for defined contribution schemes are as follows:
2009 2008
$m $m
Defined contribution schemes 43.6 40.4
Contributions outstanding at 31 December 2009 in respect of defined
contribution schemes amounted to $17.1m (2008 : $21.1m).
30 Operating lease commitments - minimum lease payments
Property 2009 Property 2008
Vehicles, Vehicles,
plant and plant and
equipment equipment
$m $m $m $m
Amounts payable under non-cancellable
operating leases due:
Within one year 64.6 11.0 48.1 7.6
Later than one year and less than five 154.6 13.8 147.8 17.4
years
After five years 42.4 1.8 59.7 3.8
261.6 26.6 255.6 28.8
The Group leases various offices and warehouses under non-cancellable operating
lease agreements. The leases have various terms, escalation clauses and renewal
rights. The Group also leases plant and machinery under non-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. At 31
December 2009, the Group has outstanding guarantees of $1.2m (2008 : $2.7m) in
respect of joint venture banking arrangements.
In February 2010, the Group, and several other parties, were notified of a
legal claim from a customer in respect of some work carried out in 2008. At
this early stage it is not practicable to reliably estimate the financial
impact. However, based on our preliminary discussions, we believe that we are
in a strong position to defend the claim, and do not believe that it is
probable that any material liability will arise as a result.
32 Capital and other financial commitments
2009 2008
$m $m
Contracts placed for future capital expenditure not provided 4.3 5.9
in the financial statements
The capital expenditure above relates to property plant and equipment. There
are no significant joint venture capital commitments included in the figures
above.
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 the
ordinary course of business.
2009 2008
$m $m
Sale of goods and services to joint ventures 103.4 144.9
Purchase of goods and services from joint ventures 29.4 55.1
Receivables from joint ventures 40.7 48.5
Payables to joint ventures 7.7 13.1
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 (2008 : $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 are listed below.
Name of subsidiary or joint Country of Ownership Principal activity
venture incorporation
interest
or %
registration
Engineering & Production
Facilities:
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
Marine Computation Services Ireland 100
Group Limited
Wood Group Engineering (North UK 100 Brownfield engineering
Sea) Limited and modifications,
SIGMA 3 (North Sea) Limited UK 33.3* production enhancement,
operations
Wood Group Production USA 100 management, maintenance
Services, Inc management
Wood Group Colombia S.A Colombia 100 and abandonment services.
Wood Group Equatorial Guinea Cyprus 100
Limited
Deepwater Specialists Inc USA 100
Well Support:
Wood Group ESP, Inc. USA 100
Wood Group Products & Services Argentina 100 Electric submersible
SA pumps
Wood Group ESP (Middle East) Cyprus 100
Ltd
Wood Group Pressure Control, USA 100 Valves and wellhead
L.P. equipment
Wood Group Pressure Control UK 100
Limited
Wood Group Logging Services USA 100 Logging services
Inc.
Gas Turbine Services:
Wood Group Engineering Jersey 100
Services
(Middle East) Limited
Rolls Wood Group (Repair & UK 50*
Overhauls)
Limited
TransCanada Turbines Limited Canada 50* Gas turbine repair and
overhaul
Wood Group Field Services, USA 100
Inc.
Wood Group Gas Turbine UK 100
Services Limited
Wood Group Pratt & Whitney USA 49*
Industrial Turbine Services,
LLC
Wood Group Power Solutions, USA 100 Provision of gas turbine
Inc. packages
Wood Group Advanced Parts Switzerland 100 Provision of gas turbine
Manufacture AG parts
Shanahan Engineering Ltd Ireland 100 Power plant installation
services
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 the
shareholders being mainly UK based, dividends will be paid in sterling, but if
you would like to receive your dividend in US dollars please contact the
Registrars at the address below. All shareholders will receive dividends in
sterling unless requested. If you are a UK based shareholder, the Company
encourages you to have your dividends paid through the BACS (Banker's Automated
Clearing Services) system. The benefit of the BACS payment method is that the
Registrars post the tax vouchers directly to the shareholders, whilst the
dividend is credited on the payment date to the shareholder's Bank or Building
Society account. UK shareholders who have not yet arranged for their dividends
to be paid direct to their Bank or Building Society account and wish to benefit
from this service should contact the Registrars at the address below. Sterling
dividends will be translated at the closing mid-point spot rate on 12 March
2010 as published in the Financial Times on 13 March 2010.
Officers and advisers
Secretary and Registered Office
Registrars
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Tel: 0871 384 2649
I Johnson
John Wood Group PLC
John Wood House
Greenwell Road
ABERDEEN
AB12 3AX
Tel: 01224 851000
Stockbrokers
JPMorgan Cazenove Limited
Credit Suisse
Auditors
PricewaterhouseCoopers LLP
Chartered Accountants
Financial calendar
Results announced 2 March 2010
Ex-dividend date 10 March 2010
Dividend record date 12 March 2010
Dividend payment date 1 April 2010
Annual General Meeting 12 May 2010
The Group's Investor Relations website can be accessed at www.woodgroup.com.
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