Final Results
John Wood Group PLC
Final results for the year to 31 December 2005
Strong revenue and EBITA growth across the Group
John Wood Group PLC ('Wood Group', the 'Group') is a market leader in
engineering design, production support and industrial gas turbine services for
customers in the oil & gas and power generation industries around the world.
Operating in 40 countries, Wood Group's businesses employ over 16,000 people.
Financial Highlights
Revenues of $2,761.9m (2004: $2,288.1m) up 21%
EBITA(1) of $149.1m (2004: $117.4m) up 27%
Operating profit of $148.0m (2004: $85.6m) up 73%
Profit before tax of $124.7m (2004: $66.2m) up 88%
ROCE(2) at 17% (2004: 15%)
Adjusted diluted earnings per ordinary share(3) of 16.6 cents (2004: 12.9 cents)
up 29%. Basic earnings per share of 17.0 cents (2004: 8.0 cents) up 113%
Proposed full year dividend of 4.0 cents (2004: 3.6 cents) up 11%
Operating Highlights
Healthy oil and gas market and active business development driving strong
financial performance, with significant increases in divisional EBITA:
Engineering & Production Facilities up 19%
Well Support up 42%(4)
Gas Turbine Services up 39%
Engineering & Production Facilities - growth in exploration & production
spending contributed to a strong financial performance
Engineering - strong upstream activity for a broad spread of clients;
downstream active on refinery upgrade work
Production Facilities - continuing activity from tiebacks, integrity
enhancement and upgrade projects in North Sea; strengthening presence in
Americas, West Africa and Asia
Well Support - demand continued to be strong, with all businesses performing
well. Significant US presence strengthened; progressed international
development
Electric Submersible Pumps (ESP) - important contract win in Argentina;
successful start-up in Chad; Russia activity growing
Pressure Control - strong number two US position; continuing investment in
China
Logging Services - strong growth in US; leading position in wireline services
in Argentina
Gas Turbine Services - US power market more stable; restructuring delivering
enhanced financial performance. Differentiation through higher technology,
re-engineering parts and entering into more long-term contracts
Oil & gas activities benefit from a strong market
Focus on higher tech turbines and long term service agreements delivering
benefits
Sir Ian Wood, Chairman and Chief Executive, Wood Group, said:
'We see a continuing strong oil & gas services market and a somewhat improved
power market for our services. This, along with the ongoing extension of our
range of services and geographical reach, will stand us in good stead and,
overall, we believe we are positioned for strong growth into 2006.'
ENQUIRIES:
Wood Group
Alan Semple Group Finance Director 01224 851000
Nick Gilman / Carolyn Smith
Brunswick
Patrick Handley/ Nina Coad 020 7404 5959
John Wood Group PLC
Final results for the year to 31 December 2005
Chairman's Statement
Introduction
I am pleased to report a year of strong growth across our three divisions.
Key headline financials are:
2005 (US$m) 2004 (US$m) Change
Revenues 2,761.9 2,288.1 +21%
EBITA(1) 149.1 117.4 +27%
EBITA margin(5) 5.4% 5.1%
Profit before tax 124.7 66.2 +88%
ROCE(2) 16.6% 14.6%
Adjusted diluted 16.6c 12.9c +29%
EPS(4)
Total dividend 4.0 cents per 3.6 cents per +11%
ordinary share ordinary share
Reflecting continued confidence in our long-term strategy, the Board is
recommending a final dividend of 2.7 cents per ordinary share (2004: 2.4
cents), which takes the total for the year to 4.0 cents (2004: 3.6 cents).
Markets
Energy demand is growing round the world. Oil & gas prices are strong and our
clients have stepped up their expenditure to bring new developments onstream
and enhance recovery from mature assets.
We expect a further healthy increase in client expenditures in 2006 with the
following continuing trends:
the major international operators looking at larger new developments, many of
which are offshore, and often in harsh environments;
the National Oil Companies developing their significant domestic reserves and
looking at international expansion; and
the larger independents, many North America based, accelerating their
international development, particularly in the Eastern Hemisphere.
All of these should give rise to strong demand for our oil & gas infrastructure
design, and production support and enhancement services in the coming year.
In the power industry, supply and demand in the US is moving towards balance in
some states, leading to somewhat higher gas turbine utilisation. This, along
with the increasing demand for power elsewhere in the world, will lead to an
increase in demand for aftermarket services for industrial gas turbines over
the next several years.
There will continue to be a significant debate on energy policy and
conservation across the world. Nuclear and coal will undoubtedly get more
attention, but we expect that gas, which is by far the most environmentally
friendly fossil fuel, enhanced by the increased volumes of LNG(6), will continue
to be a growing energy source. This will provide opportunities for both our oil
& gas servicing activities and our position as the leading independent in the
industrial gas turbine aftermarket.
Strategic Development
During 2005, we have continued to pursue our strategy of broadening and
enhancing our capabilities, while extending our international reach.
Following the acquisition of Deepwater Specialists Inc (DSI), Engineering &
Production Facilities acquired Offshore Design Limited (ODL) to enhance our
range of commissioning services, pre-operations and start up support for new
developments coming onstream. In Well Support, Pressure Control continued to
develop their manufacturing and assembly capabilities in China to deliver
increased capacity and product cost improvements and, in Russia, we are
expanding our ESP revenues. In Gas Turbine Services, we have successfully added
to our number of long term contracts and enhanced our range of re-engineered
parts.
We are extending our international reach with operations now in over 40
countries. In Engineering & Production Facilities, we enhanced our capability
to serve clients around the world from new Mustang(7) offices in London and Perth,
Australia. Additionally our investment in John Brown E&C Limited (JBEC) in
Russia is helping us gain an important foothold in that market and we have
extended our presence in Equatorial Guinea. In Well Support we successfully
started up our ESP contract with ExxonMobil in Chad.
In the second half of 2005, we raised approximately $90m of new equity to
strengthen our balance sheet and increase our flexibility to pursue our growth
strategy. The steps to broaden our service offering and extend our
international reach will include acquisitions, capital expenditure on new
facilities and investment in projects with our customers.
Divisional highlights
Engineering & Production Facilities
2005 (US$m) 2004 (US$m) Change
Revenues 1,472.3 1,199.6 +23%
EBITA 88.2 73.9 +19%
EBITA margin 6.0% 6.2%
In 2005, the healthy oil & gas market and growth in exploration and production
spending contributed to a strong financial performance. The ongoing business
development programme, and increased level of zero margin pass-through sales in
the North Sea led to a slight fall in margins for the year.
Engineering was engaged in supporting a broad spread of clients and activities.
In upstream, we worked on a large number of new developments and upgrade
projects around the world. These include Tahiti, Blind Faith and Shenzi in the
Gulf of Mexico, East Area Gas, Tombua Landana and Elon in offshore Nigeria,
Angola and Equatorial Guinea respectively, Mangala in India, Gorgon & Jansz in
Australia and Valhall in Norway. In our downstream activities, we completed the
engineering on a number of refinery capacity upgrades and clean fuel
modification projects for a broad range of clients in North and South America.
Production Facilities has been active on a number of tiebacks, integrity
enhancement, upgrade and long-term support projects in the North Sea market
where there continues to be significant focus on extending field life and
enhancing production. In the Americas, we have won new contracts in the Gulf of
Mexico, Venezuela and Colombia, as well as a contract to operate and maintain a
floating production storage and offloading vessel (FPSO) system offshore
Brazil. In West Africa, we are now supporting a number of independents as they
start up new production and LNG operations. Elsewhere, we have won several new
contracts including rotating equipment operations & maintenance activities in
Mexico, Vietnam and Indonesia.
Well Support
2005 (US$m) 2004 (US$m) Change
Revenues(8) 645.7 513.9 +26%
EBITA(8) 58.5 41.2 +42%
EBITA margin(8) 9.1% 8.0%
All three businesses in Well Support performed strongly. We maintained our
significant US market positions while furthering our international business
development. The increased turnover, together with cost reduction and
efficiency improvement initiatives, contributed to the positive margin trend.
ESP performed well in both the US and Canada and we have recently won a
multi-year extension on a major contract in Argentina. In Chad, our ExxonMobil
contract started up successfully and in Russia we are continuing to grow our
market share. Pressure Control has maintained its strong number two position in
the US market and is growing its international presence. The investment in
manufacturing, test and assembly capabilities in China is delivering product
cost improvements and additional manufacturing capacity to supply new markets.
Logging Services enjoyed a good year in the US and, in Argentina we
consolidated our position as the leader in cased hole electric wireline
services. In the fourth quarter we sold our permanent monitoring activities for
approximately US$31.4m including working capital adjustment. This business had
performed well but was non-core and will better achieve its potential as part
of a well completion products specialist.
Gas Turbine Services
2005 (US$m) 2004 (US$m) Change
Revenues 607.8 537.9 +13%
EBITA 32.7 23.5 +39%
EBITA margin 5.4% 4.4%
Our cost reduction and efficiency improvement programmes and a more stable US
power market have contributed to the improved financial performance in the
year, and the positive margin trend.
Our oil & gas aftermarket activities, which represent about 35% of revenues,
are continuing to make good progress and we are increasing our expenditure on
the technology and spare parts related to new turbine types.
The power sector market is now more stable and the anticipated benefits from
our programme of cost reductions and efficiency improvements are being
delivered. We are also developing and enhancing our differentiation in higher
tech Heavy Industrial Turbines, in the reverse engineering of spare parts and
in lower cost component repair. As a result, we are increasing the portion of
our business under long term contract.
People
During the year, we significantly increased our investment in our most valued
resource - our people. We have stepped up our development and training
programmes, with new in-house schemes designed to enhance the strength and
depth of our next generation of business leaders, we have increased our intake
of graduates, and our very active programme of hiring, training and developing
our people around the world has led to a significant increase in our overall
number of employees.
We warmly welcome Mark Papworth to our Board. Mark is our new Chief Executive
for Gas Turbine Services and he is already making a positive contribution.
Allister Langlands has returned to his role as Deputy Chief Executive and is
leading several important Group initiatives. Ewan Brown, who has been a trusted
and wise counsel to the Board over many years, has decided not to stand for
re-election at the next Annual General Meeting and I thank him most warmly on
behalf of all my Board colleagues for his outstanding contribution to the
Group's success. We intend to appoint two additional non executive directors in
the course of this year.
And finally, the Board's warmest thanks again go to all our employees for their
commitment to safe working, quality and customer care, their skills, and their
interest and involvement in the ongoing successful development of the Group.
Continuing growth
We see a continuing strong oil & gas services market and a somewhat improved
power market for our services. This, along with the ongoing extension of our
range of services and geographical reach, will stand us in good stead and,
overall, we believe we are positioned for strong growth into 2006.
Engineering & Production Facilities
Engineering & Production Facilities provides a broad range of services from
concept selection through engineering design, project management, construction
management, facilities modifications and operations & maintenance support to
oil & gas companies worldwide.
2005 (US$m) 2004 (US$m) Change
Revenues 1,472.3 1,199.6 23%
EBITA 88.2 73.9 19%
EBITA margin 6.0% 6.2%
In 2005, the healthy oil & gas market and growth in exploration and production
spending contributed to a strong financial performance. The ongoing
international business development programme, and increased level of zero
margin pass-through sales in the North Sea led to a slight fall in margins for
the year.
In order to continue to develop and grow the division we have been broadening
and enhancing our capabilities and extending our international reach.
Engineering & Broadening Services Extending International
Production Facilities reach
Engineering Project management, Moscow, London and Perth,
construction management Australia offices - to
services, midstream develop our client base in
technology Europe, FSU(9), Africa, the
Middle East and Asia Pacific
Production Facilities Pre-operations support and Building & extending
start-up presence in Equatorial
Guinea, Brazil, Russia,
Training services Indonesia, Mexico, and
(established the Energy Kazakhstan
Training Centre Joint
Venture in Puerta La Cruz,
Venezuela)
Engineering
We offer a broad range of engineering and project management services in oil &
gas production, transportation and processing facilities. We have particular
expertise in:
Services Areas of Expertise
Upstream Engineering, project Deepwater and lightweight
management, construction topsides, onshore processing
management facilities and subsea
engineering
Midstream Offshore and onshore pipelines
engineering, compression and
LNG/gas to liquids (GTL)
technologies
Downstream Clean fuel modifications,
refinery upgrades and
pharmaceuticals
Automation Automation services, including
proprietary software
Engineering was engaged in supporting a broad spread of clients and activities.
2005 was a strong year for our upstream activities. We were busy for a diverse
range of clients on upgrade projects and new developments around the world. In
the Gulf of Mexico we provided engineering services on a range of fast-track
upgrade projects, as well as a number of new developments, including Chevron
Texaco's Tahiti and Blind Faith, along with BHP Billiton's Shenzi. Our South
American operations have provided support to our US activities, were active on
a range of upgrade projects and continued to provide engineering expertise on a
number of important projects, for example Conoco Phillip's Coro Coro in
Venezuela. In Africa, we are providing detailed engineering on ExxonMobil's
East Area Gas development offshore Nigeria and on Amerada Hess's Okume Complex
developments offshore Equatorial Guinea. We have recently begun a contract on
Cairn's Mangala project in India and JP Kenny, our pipeline engineering
specialist, continues to grow and is providing subsea engineering expertise for
the Gorgon & Jansz developments. In Norway we have begun work on the FEED(10) for
the Valhall Redevelopment Project. MSi - the Group's specialist flow assurance
and software provider - has won a number of important contracts including
notable successes in Kazakhstan and Trinidad.
In the midstream area our technology is gaining increasing acceptance and
generating a number of enquiries that we hope will lead to growing revenues in
2006.
In downstream we have been active in North America, Venezuela and Mexico on
clean fuel modification work, including a number of low sulphur diesel
modifications, and refinery upgrades to take advantage of the more favourable
market conditions being enjoyed by our clients.
Production Facilities
We offer a broad range of life of field production facilities support services
to our clients around the world.
Exploration Development Production Enhanced Recovery Abandonment
Pre-operation support
Commissioning
Start-up support
Operations and maintenance
Brownfield Engineering
Facility Modifications
Production enhancement
Life extension
Decommissioning
Production Facilities continued to be very busy in its established regions,
while also increasing its range of services and extending its presence in new
territories for the Group.
To broaden our service offering across the life of field we acquired ODL during
the year, a provider of technical and consulting services, along with
pre-operations and start-up support. Since acquisition, ODL has performed well
and extended its activity into new territories, including Norway, with a new
contract for the Marathon operated Alvheim development.
In the North Sea, we have been active on a number of tiebacks, integrity
enhancement, upgrade and long-term support projects. We are working as one of
the engineering, modifications and maintenance providers to BP's North Sea
assets and, during the year, we supported a number of turnarounds on facilities
and upgrade projects on the Schiehallion and Magnus assets. We are continuing
to support Shell's assets in the Northern North Sea as a one third partner in
the Sigma 3 joint venture, where there was significant focus on engineering
work associated with Shell's integrity upgrade project. Separately, we are
Shell's main support contractor for their onshore gas plants at St Fergus and
Mossmorran and completed significant upgrade projects during the year.
Several other significant projects were completed for key North Sea clients,
including a major upgrade of the gas handling and power generation facilities
on the Forties Field for Apache, topsides modifications on the Alwyn and Dunbar
platforms for the Forvie high pressure, high temperature gas condensate field
development for Total and modifications to the Hess operated Triton FPSO (11) to
accommodate the PetroCanada Pict field development. We have further expanded
our North Sea activities with an important new contract to support ExxonMobil
at their Fife Ethylene Plant and an addition to the Talisman contract for
operations & maintenance support to the Bleoholm FPSO.
In the Americas, we provide production operations and maintenance support
services for a large number of manned and unmanned platforms in the shallow
water Gulf of Mexico for a wide range of operators, including Apache, Pogo,
ERT, El Paso and Dominion, and are expanding into deep water with the award of
a contract from BHP Billiton for pre-operations support for the Neptune
project. In addition, DSI, our commissioning services provider, has been active
throughout the year on a range of projects, including the BP Atlantis and
Thunder Horse developments. In Brazil, we secured a notable new contract to
operate and maintain Sevan Marine's SSP 300 FPSO for the Petrobras Piranema
field. This is anticipated to commence operation in late 2006 and we are
currently providing pre-operations support services during the construction
phase of the project. We increased our presence in the region with our first
offshore operations and maintenance contract in Mexico, managing the Akal GC
gas compression complex on behalf of a joint venture between Duke Energy and
Marubeni.
In West Africa, we have expanded our presence in Equatorial Guinea. We are
continuing to provide operations support to Marathon's Alba offshore production
and onshore gas processing and export facilities, along with training and
development support to ExxonMobil and Amerada Hess. We added a new contract
with ExxonMobil to provide operations and maintenance support to their offshore
Zafiro field. We were also awarded a contract by Amerada Hess to provide
operations and maintenance support to their existing Ceibe FPSO and their
development of the Okume complex, comprising two tension leg platforms and four
fixed platforms. Elsewhere in the region, DSI provided commissioning services
to Shell's Bonga facility.
In Asia Pacific, our contract with Brunei Shell Petroleum, through the SKS Wood
joint venture, is progressing well with significant construction and shutdown
activity in the second year of this long term contract In Indonesia, we were
awarded a project services support contract for the BP Tangguh LNG development
and continue to provide offshore operations and maintenance support to their
West Java assets. We have also been awarded maintenance contracts with Premier
Oil and Star Energy for their offshore assets in Indonesia.
We have continued to invest in developing our presence in new markets that we
believe will be important to the division going forward. This includes the
investment in JBEC in Russia, together with additional contract awards in
Kazakhstan and Vietnam.
Well Support
Well Support provides solutions, products and services to enhance production
rates and efficiency from oil & gas reservoirs. It is among the market leaders
internationally in artificial lift using electric submersible pumps (ESPs) and
in surface wellheads and valves to control reservoir pressure. It also has a
strong market share in the provision of electric wireline and slickline
services in the Gulf of Mexico and parts of South America.
2005 (US$m) 2004 (US$m) Change
Revenues (8) 645.7 513.9 26%
EBITA (8) 58.5 41.2 42%
EBITA margin (8) 9.1% 8.0%
All three businesses in Well Support performed strongly, maintaining our
significant US market positions as well as furthering our international
business development. The increased turnover, together with cost reduction and
efficiency improvement initiatives contributed to the positive margin trend.
We continued to focus on technology enhancement of our products and services
and international expansion to provide continuing growth over the next several
years.
Well Support Technology Development Extending International reach
Expanded manufacturing, ESP - Expansion of our service
assembly and test capacity and repair capabilities in
in China and Canada; Russia; start up of long-term
introduction of high volume ESP contract with ExxonMobil in
/high temperature ESP Chad; established new
products; introduction of operations in Ecuador and
several new logging tools Colombia; growth in Yemen and
Egypt
PC - Mexico and Middle East
breakthroughs
Electric Submersible Pumps (ESPs)
During the year we have strengthened our significant position in the US market
and also seen further progress from our Canadian operations, where we are
building a new facility to support our growth. In South America, we recently
won a multi-year extension to an important 6 year contract in Argentina,
expanded our operations in Ecuador and opened operations in Colombia. In
Brazil, we secured a major contract for Devon Energy, which we hope will
provide a platform for further expansion. Russia is an important market for
ESPs and our Nizhnevartovsk facility in Western Siberia is helping us to add
further repair work and grow our market share. In the Middle East and Africa
region, our 10 year performance contract with ExxonMobil in Chad started up
successfully and we have won contracts in Egypt.
Our engineering and product development efforts remain focused on increasing
the run life of our equipment and reducing the lifetime operating cost for our
customers. To that end, we have introduced a number of product enhancements and
new products that expand our product offering into more difficult downhole
conditions. We have also introduced new, patented technology aimed at the
growing SAGD (12) market in heavy oil regions, such as Northern Alberta in Canada.
Pressure Control
We maintained our strong number two position in the US market and made
significant progress in expanding our international business.
The Americas market was particularly active in the year and we won a number of
new contracts and successfully extended a number of our existing contracts with
several large independent operators. In the US mid-continent and Rocky Mountain
regions we expanded our infrastructure to serve the significantly increased
activity in the area. In Canada our operations enjoyed another year of good
growth and, in Mexico, we won several contracts with Pemex and western
operators.
Pressure Control now has a presence in 20 countries, including those in the
Americas and a number of locations in the Middle East, notably Saudi Arabia and
Egypt.
The investment we have made in our manufacturing, assembly and test
capabilities in China is leading to product cost improvements. We are
continuing to extend our capacity and will source an increasing portion of our
equipment from China in the future. We are continually looking at ways to
enhance the safety of our products and generate cost savings for our customers,
and, during 2005, we introduced a new generation of our low profile wellhead
systems targeted for the land drilling markets. This product line reduces the
amount of rig time required and enhances safety during pipe size changes.
Logging Services
Wood Group Logging Services provides cased hole electric wireline and slickline
mechanical and specialised services focused on well data acquisition and
downhole operations. In 2005, there was a strong market for our services and we
enjoyed good growth in revenues and EBITA and continued to extend our service
offering.
We expanded our slickline market share in the Gulf of Mexico and further
developed our land-based operations in Texas. The focus on extending our
capability and improving the reliability of our equipment continued and we
introduced an expanded product range of smart slickline tools and a new
'PowerHammer' for freeing downhole obstructions.
Our electric wireline operations in the US and South America continued to grow
and we believe we are the cased hole logging market leader in Argentina. We
introduced new technology during the year to expand the range of services and
markets that we can serve, for example:
we introduced a new offshore skid unit for deep water applications. The 30/30
unit is capable of working at well depths below 30,000 feet and includes
downhole tools that will operate at 30,000 psi bottom hole pressures;
we introduced a new, high-resolution, casing inspection tool (ECI - Electronic
Casing Inspection) for improved data acquisition.
After a strategic review, we sold our Permanent Downhole Monitoring business in
the fourth quarter for US$31.4m including a working capital adjustment. This
business had performed well but was non-core and will better achieve its
potential as part of a well completion products specialist.
Gas Turbine Services
Gas Turbine Services is the world-leading independent provider of integrated
maintenance solutions, and repair and overhaul services for industrial gas
turbines, used for power generation, compression and transmission in the oil &
gas and power generation industries.
2005 (US$m) 2004 (US$m) Change
Revenues 607.8 537.9 13%
EBITA 32.7 23.5 39%
EBITA margin 5.4% 4.4%
Our cost reduction and efficiency improvement programmes and a more stable US
power market have contributed to the improved financial performance in the
year, and the positive margin trend.
In order to continue to develop and grow the division we have retained our
focus on broadening and enhancing our capabilities and extending our
international reach.
Gas Turbine Broadening Services Extending International reach
Services
Broader range of Expanded operations in
re-engineered parts; growth Thailand; won new contracts in
in long term service Russia, Poland, China, Mexico
agreements; increasing and Colombia
operations and maintenance
business Sales to customers in over 75
countries
Aero-derivative
We have three aero-derivative gas turbine businesses
Rolls Wood Group - our joint venture with Rolls-Royce, primarily serving
customers in the oil & gas market
Wood Group Pratt & Whitney - our joint venture with Pratt & Whitney, primarily
serving customers in the oil & gas and power markets
TransCanada Turbines - our joint venture with TransCanada Pipelines, which is
both GE LM and Rolls-Royce approved, serving customers in the oil & gas and
power markets.
Rolls Wood Group had another strong year, and we have continued to increase the
share of business that is under long term contracts. TransCanada Turbines
delivered an improved financial performance, driven by increased volumes,
including good growth in its oil & gas activities. Wood Group Pratt & Whitney
successfully expanded its scope to include the provision of spare parts which
contributed to its increased volumes in the year.
Light Industrial Turbines (LIT)
Our LIT activities include the repair and overhaul of the Siemens and Solar
light industrial turbine ranges, which are focused primarily on oil & gas
applications. In 2005, we strengthened the management team and increased our
sales efforts in a number of locations. This helped deliver improved
performance in the North Sea and the Americas. We have also entered a number of
new countries in the year, including the provision of inspection, maintenance
services and supply of spare parts for Surgutneftegaz in Russia. Future growth
will be driven by increasing our range of re-engineered parts and extending the
range of turbines for which we offer aftermarket services.
Heavy Industrial Turbines (HIT)
The Group's HIT activities focus primarily on industrial gas turbines used in
power generation applications.
Our financial performance improved with the anticipated benefits from our
programme of cost reductions and efficiency improvements. The US power market
is more stable and, in the Rest of the World, there are good opportunities for
growth. In the Eastern Hemisphere, we have seen increased price competition
from some component repair providers. As part of our focus on lower cost
component repair, we have increased our presence in Thailand and significantly
reduced our HIT component repair activity in Dundee, Scotland. This action,
together with some further cost reduction actions, has resulted in a $6m
impairment and restructuring charge.
During the year, we increased the portion of our business under long term
contract. We successfully completed the first outages on our GLOW contract in
Thailand and were awarded a range of contracts, including a long-term
maintenance contract with Alliant Energy Corp. to provide maintenance services
to two Frame 7FA turbines.
The focus on re-engineered parts is also an important part of our development.
Our long-term contracts to supply parts to six GE Frame 7EA turbines owned by
the Dhofar Power Company in the Sultanate of Oman and three GE turbines
partially owned by El Paso Energy in Brazil continue to perform well. We were
also awarded a number of new contracts in the year, including a six-year
packaged maintenance services contract, including the supply of re-engineered
parts, for British Nuclear Fuel's Fellside Combined Heat and Power (CHP) plant.
Support Services
The broad range of ancillary turbine services support our Aero-derivative, LIT
and HIT offerings and help us to offer our clients an integrated service.
Our power plant operations & maintenance activities made excellent progress
including securing four new contracts in the year.
Wood Group Power solutions business, which provides complete mid-sized gas
turbine packages, often on an EPC (13) basis, had another good year with over 170MW
of power installed for projects in Colombia, Utah in the US, Sardinia and the
Republic of Georgia.
Our Generator Services business, which provides electrical generator and motor
maintenance services to power plant operators, showed reduced losses, following
the very disappointing results in 2004. The recovery plan is now progressing
and we anticipate a further improvement in performance in 2006.
Our Accessories and Components activities performed satisfactorily in a
relatively flat market, with lower revenues from our military aviation
customers offset by some good progress in industrial markets.
Financial Review
Trading Performance
2005 2004 Change
(US$m) (US$m)
Revenues 2,761.9 2,288.1 21%
EBITA 149.1 117.4 27%
Operating profit 148.0 85.6 73%
Profit before tax 124.7 66.2 88%
Profit for the year 83.6 39.4 112%
Diluted EPS (cents) 16.4 7.8 110%
Adjusted diluted EPS (cents) 16.6 12.9 29%
Revenues & EBITA increased by 21% and 27% respectively in 2005, reflecting
strong growth in all three divisions. The overall EBITA margin (`margin')
increased from 5.1% in 2004 to 5.4% in 2005. The increased margin reflects
improvement in Gas Turbine Services, including the benefits from cost reduction
and efficiency improvement programmes and a more stable US power market, and
Well Support, including the benefits from cost reduction and efficiency
improvements. Margins in Engineering and Production Facilities reduced slightly
due to higher business development costs and an increased level of zero margin
pass-through revenues in the North Sea.
Impairment and restructuring charges of US$6.0m (2004: US$26.2m) were booked in
the year. These represent the costs of rationalisation and severance costs in
our Gas Turbine Services division as we continue to review the structure of the
business and increase its competitiveness. Specifically, the charge included
the impact of increasing our Thailand component repair presence and reducing
our activity in Dundee, Scotland. There was also a one-off gain on sale of our
Protech business of US$9.7m, which was sold in December 2005 for $31.4m
including a working capital adjustment.
Net interest payable by the Group was US$23.3m (2004: US$19.4m). The increase
of 20% was due to a higher level of average borrowings, particularly during the
first half of the year as a result of the strong sales and working capital
growth, as well as the increase in floating US dollar interest rates against
which we were partially hedged. Interest cover of 6.4 times for 2005 compared
to 6.1 times in 2004.
The tax charge for the period of US$41.1m (2004: US$26.8m) represents a tax
rate for the year of 33.0% (2004: 40.5%) on profit before tax. Measured against
profit before tax, impairment and restructuring charges and profit on disposal
of subsidiaries, the rate was 33.9% (2004: 37.3%), which compares to the
theoretical expected tax rate of 34.2% (2004: 33.6%).
Adjusted diluted earnings per ordinary share for the period increased by 29% to
16.6 cents (2004: 12.9 cents) and basic earnings per ordinary share increased
to 17.0 cents (2004: 8.0 cents). The final recommended dividend of 2.7 cents
(2004: 2.4 cents) represents an increase of 13%, and an increase of 11% in the
total dividend for the year of 4.0 cents (2004: 3.6 cents).
Cash Flow
2005 2004
(US$m) (US$m)
Opening net debt (354.3) (208.6)
Cash generated from operations before 195.0 145.2
working capital movements
Working capital movements (33.7) (66.8)
Cash generated from operations 161.3 78.4
Capex and acquisitions (94.8) (124.5)
Disposal of subsidiaries 22.8 -
Sale/(purchase) of own shares 1.7 (22.3)
Issue of new shares 90.8 0.2
Interest, tax, dividends and other (73.3) (77.5)
Decrease/(increase) in net debt 108.5 (145.7)
Closing net debt (245.8) (354.3)
Cash flow generation was significantly improved over 2004, with cash generated
from operations before working capital increasing US$49.8m or 34%. The working
capital outflows during the year reflect the strong sales growth discussed
above. The outflow includes an increase in inventories and receivables of
US$44.1m and US$35.5m respectively less an increase in payables and provisions
of US$45.9m.
The Group continued to invest in acquisitions and capital expenditure in 2005.
Total investment in acquisitions in 2005, including acquisitions of minorities
and deferred consideration payments, was US$33.4m (2004: US$61.8m) and included
the acquisition of ODL and an investment in JBEC in Russia. Capital expenditure
(net of disposals) amounted to US$61.4m (2004: US$62.7m). Disposal of
subsidiaries relates to the Protech business as described above, for which an
element of the proceeds was received in 2006.
In September 2005, the Group carried out a cash placing of 5% of its ordinary
shares, to increase our flexibility to pursue our growth strategy, raising
US$90.8m, net of expenses.
Net debt at 31 December 2005 was US$245.8m, a reduction of US$108.5m during the
year (December 2004: US$354.3m). The Group's gearing ratio fell from 67% at
December 2004 to 36% at December 2005.
Treasury and Risk
The Group's debt is primarily US dollar denominated in line with the currency
of the bulk of the Group's net assets. Long-term borrowings amounted to
US$347.8m (2004: US$355.0m), of which US$180.0m (2004: US$130.0m), or 52%
(2004: 37%), was at a weighted average fixed rate of interest, including margin
of 4.8% (2004: 5.0%). US$50.0m of new interest rate swaps were entered into
during the year.
The Group renewed its bilateral banking facilities during 2005, two years ahead
of schedule, to take advantage of favourable market conditions. The new
facilities are increased from $560m to $750m at lower margins and provide
secured funding until 2010.
Pensions
The Group's net pension liability at December 2005 was US$33.3m compared to
US$33.9m at December 2004. These figures are before taking into account the
related deferred tax asset of US$10.0m (2004 : US$10.2m). The underlying
liability, which is sterling denominated, was significantly impacted by the
reduction in the assumed discount rate of 50 basis points, which more than
offset strong growth in the value of the scheme assets.
International Financial Reporting Standards (`IFRS')
The Group has prepared its financial statements in accordance with IFRS and the
2004 figures have been restated accordingly. The main measurement differences
for the Group were as follows:
Under IFRS 2, share based payments have been booked in relation to all share
options granted after 7 November 2002 and all potential share awards under the
Group's new long term incentive scheme.
Goodwill is no longer amortised under IFRS but is subject to an annual
impairment review. Goodwill amortisation previously booked in our 2004
financial statements, and now reversed for reporting under IFRS, amounted to
US$16.9m.
The Group has a number of joint ventures. Under IFRS, these have been
proportionally consolidated and our share of each line item is therefore
included in the financial statements.
Proposed dividends are no longer accrued as dividends and are only recognised
in the period that they are approved by shareholders. The dividends of US$11.1m
provided at December 2004 and US$10.4m provided at December 2003 under UK GAAP
have been reversed under IFRS.
The treatment of financial instruments under IAS 39 differs considerably to UK
GAAP although there has been no material impact on the Group's income
statement.
Alan G Semple
Group Finance Director
3 March 2006
End notes:
(1)EBITA represents operating profit of $148.0m (2004: $85.6m), before adjusting
for impairment and restructuring charges of $6.0m (2004: $26.2m), profit on
disposal of subsidiaries of $9.7m (2004: Nil) and amortisation of $4.8m (2004:
$5.6m). This financial term is provided as it is a key unit of measurement used
by the Group in the management of its business
(2)ROCE is Return on Capital Employed and is calculated as Group EBITA, before
discontinuing activities, divided by average equity plus average net debt
(3)Shares held by the Group's employee share ownership 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 employee share schemes where the effect of these is dilutive.
(4)EBITA growth for Well Support includes the results for Protech a business sold
in December 2005. EBITA growth excluding Protech would have been 33%.
(5)EBITA margin is EBITA divided by revenues
(6)Liquefied Natural Gas
(7)Mustang is a Wood Group subsidiary and a global leader in the Engineering
market
(8)Revenue includes $37.5m (2004: $22.0m) and EBITA includes $5.0m (2004: $1.0m)
for Protech. EBITA margin excluding Protech would have been 8.8% (2004: 8.2%)
(9)Former Soviet Union
(10)Front End Engineering Design
(11)Floating Production Storage and Offloading vessel
(12)Steam Assisted Gravity Drain
(13)Engineering, Procurement and Construction
JOHN WOOD GROUP PLC
GROUP FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2005
Group income statement for the year to 31 December 2005
Note 2005 2004
US$m US$m
Revenues 1 2,761.9 2,288.1
Cost of sales (2,209.7) (1,818.5)
Gross profit 552.2 469.6
Administrative expenses:
Profit on disposal of subsidiaries 4 9.7 -
Impairment and restructuring charges 5 (6.0) (26.2)
Other administrative expenses (407.9) (357.8)
Administrative expenses (404.2) (384.0)
Operating profit 1 148.0 85.6
Finance income 2 2.5 1.8
Finance expense 2 (25.8) (21.2)
Profit before taxation 3 124.7 66.2
Taxation 6 (41.1) (26.8)
Profit for the year 83.6 39.4
Attributable to:
Equity shareholders 80.5 37.3
Minority interest 26 3.1 2.1
83.6 39.4
Earnings per share (expressed in cents per share)
Basic 8 17.0 8.0
Diluted 8 16.4 7.8
All items dealt with in arriving at the profits stated above relate to
continuing operations.
Group statement of recognised income and expense for the year to 31 December 2005
Note 2005 2004
US$m US$m
Profit for the year 83.6 39.4
Actuarial losses on retirement benefit liabilities 30 (2.5) (4.8)
Movement in deferred tax relating to retirement 0.7 1.4
benefit liabilities
Cash flow hedges - fair value gains 2.4 -
- reported in profit for the year 1.4 -
Exchange differences on retranslation of foreign (15.5) 1.7
currency net assets
Total recognised income for the year 70.1 37.7
Adoption of IAS 32 and IAS 39
- Retained earnings (0.9) -
- Hedging reserve (2.4) -
Total recognised income since last annual report 66.8 37.7
Total recognised income for the year is attributable
to:
Equity shareholders 67.0 35.6
Minority interest 3.1 2.1
70.1 37.7
Group balance sheet as at 31 December 2005
Note 2005 2004
US$m US$m
Assets
Non-current assets
Goodwill and other intangible assets 9 328.6 308.9
Property plant and equipment 10 219.5 216.2
Long term receivables 13.5 22.6
Financial assets - derivative financial instruments 18 1.3 -
Deferred tax assets 20 19.3 20.9
582.2 568.6
Current assets
Inventories 12 362.9 329.9
Trade and other receivables 13 610.7 579.3
Income tax receivable 5.4 6.8
Financial assets - derivative financial instruments 18 1.7 -
Cash and cash equivalents 14 149.9 71.4
1,130.6 987.4
Liabilities
Current liabilities
Financial liabilities
- Borrowings 16 47.9 70.7
- Derivative financial instruments 18 0.6 -
Trade and other payables 15 526.7 496.7
Income tax liabilities 14.8 11.8
590.0 579.2
Net current assets 540.6 408.2
Non-current liabilities
Financial liabilities - borrowings 16 347.8 355.0
Deferred tax liabilities 20 7.0 8.6
Retirement benefit liabilities 30 33.3 33.9
Other non-current liabilities 17 18.7 21.7
Provisions 19 15.1 15.7
421.9 434.9
Net assets 700.9 541.9
Shareholders' equity
Share capital 22 25.4 23.5
Share premium 23 292.1 200.9
Retained earnings 24 288.1 215.7
Other reserves 25 75.7 89.8
Total shareholders' equity 681.3 529.9
Minority interest 26 19.6 12.0
Total equity 700.9 541.9
The financial statements on pages 2 to 50 were approved by the board of directors on 3 March 2006.
Sir Ian Wood, Director Allister G Langlands, Director
Group cash flow statement for the year to 31 December 2005
Note 2005 2004
US$m US$m
Cash generated from operations 27 161.3 78.4
Tax paid (37.2) (34.7)
Net cash from operating activities 124.1 43.7
Cash flows from investing activities
Acquisitions (net of cash acquired) 28 (24.2) (57.1)
Deferred consideration payments 28 (9.2) (4.7)
Disposal of subsidiaries (net of cash disposed) 28 22.8 -
Purchase of property plant and equipment (56.4) (68.4)
Proceeds from sale of property plant and equipment 4.2 12.7
Purchase of intangible assets (9.2) (7.0)
Net cash used in investing activities (72.0) (124.5)
Cash flows from financing activities
Proceeds from issue of ordinary shares (net of 90.8 0.2
expenses)
(Repayment of)/proceeds from bank loans (18.6) 118.0
Purchase of shares in employee share trusts - (22.5)
Disposal of shares in employee share trusts 1.7 0.2
Interest received 2.5 1.8
Interest paid (25.3) (20.8)
Dividends paid to shareholders 7 (17.5) (15.9)
Dividends paid to minority interest 26 (1.3) -
Net cash from financing activities 32.3 61.0
Effect of exchange rate changes on cash and cash (5.9) 0.4
equivalents
Net increase/(decrease) in cash and cash equivalents 78.5 (19.4)
Opening cash and cash equivalents 71.4 90.8
Closing cash and cash equivalents 14 149.9 71.4
Notes to the financial statements for the year to 31 December 2005
Accounting Policies
Preparation of accounts
Introduction
Following the adoption of IAS Regulation EC 1606/2002 by the European
Parliament, John Wood Group PLC is required to prepare consolidated financial
statements in accordance with International Financial Reporting Standards
(`IFRS') for periods beginning on or after 1 January 2005.
The Group has applied IFRS for the year ended 31 December 2005, and has
prepared 2004 comparative figures on the same basis. The Group's date of
transition to IFRS is 1 January 2004. This report contains the consolidated
financial results for these periods under the basis of preparation set out
below.
To assist with the understanding of the impact of transition from United
Kingdom Generally Accepted Accounting Principles (`UK GAAP') to IFRS, the Group
has presented the reconciliations of UK GAAP to IFRS as required by IFRS 1
`First time adoption of International Financial Reporting Standards' for 1
January 2004 and 31 December 2004 in note 36.
Basis of preparation
These financial statements have been prepared in accordance with IFRS and IFRIC
interpretations endorsed by the European Union (`EU') and with those parts of
the Companies Act, 1985 applicable to companies reporting under IFRS. The
financial statements have been prepared under the historical cost convention as
modified by the revaluation of financial assets and liabilities held for
trading. A summary of the more important Group accounting policies is set out
below, together with an explanation of where changes have been made to previous
policies on the adoption of new accounting standards in the year.
The preparation of financial statements requires the use of estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amount of income 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.
Significant accounting policies
The Group's key 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.
In respect of financial instruments, the Group's policy has been to adopt IAS
32 `Financial Instruments: Disclosure and Presentation' and IAS 39 `Financial
Instruments: Recognition and Measurement' from 1 January 2005. Comparatives for
2004 have not been restated and, as permitted by IFRS 1, financial instruments
are accounted for under UK GAAP in accordance with the accounting policies set
out in the financial statements for the year ended 31 December 2004. If 2004
comparatives had been restated adjustments would be required to record the fair
values of the financial instruments and the respective movements in the fair
values during the year.
Transitional arrangements
On transition to IFRS, an entity is generally required to apply IFRS
retrospectively, except where an exemption is available under IFRS 1. The
following is a summary of the key elections from IFRS 1 that were made by the
Group:
* The Group has elected to apply IFRS 3 `Business Combinations' prospectively
from 1 January 2004. The Group carried out an impairment test as at that
date and no further impairment of goodwill was required. As a result, the
balance of goodwill under UK GAAP as at 31 December 2003 was carried
forward as the carrying value of goodwill at 1 January 2004.
* The Group has elected to reset the currency translation reserve to zero on
transition to IFRS.
* The Group has elected to apply IFRS 2 `Share-based payment' to all share
option grants made after 7 November 2002, but which had not vested at 1
January 2005.
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. All Group companies apply the Groups' accounting policies
and prepare financial statements to 31 December.
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.
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. Other
exchange differences are taken directly to the income statement.
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. 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.
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
revenues are 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.
Revenues are stated net of sales taxes and discounts.
Revenue on lump-sum contracts for services, or construction contracts, 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.
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. Other intangible assets are
amortised on a straight line basis 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, goodwill and other
intangible assets whenever events or changes in circumstance indicate that the
carrying amount may not be recoverable. 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. Where impairment is identified, it is initially applied to goodwill and
then spread over the remaining assets.
For the purposes of impairment testing, goodwill is allocated to the
appropriate `CGU' (cash generating unit). The CGUs are aligned to the business
unit and sub-business unit 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. Bank
overdrafts are included within borrowings in current liabilities.
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.
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 income 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
income 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
Pre 1 January 2005
The Group uses derivative financial instruments to hedge its exposures to
fluctuations in interest and foreign exchange rates. Instruments accounted for
as a hedge are designated as a hedge at the inception of contracts. Receipts
and payments on interest rate instruments are recognised as adjustments to
interest expense over the life of the instrument. Gains and losses on foreign
currency hedges are recognised on maturity of the underlying transaction.
Post 1 January 2005
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 hedges);
or (3) hedges of net investments in foreign operations (net investment hedge).
Where hedging is to be undertaken, the Group documents at the inception of the
transactions the relationship between the hedging instrument and hedged item,
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 hedged items. The Group performs effectiveness testing on a quarterly
basis.
a. Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as
fair value hedges are recorded in the income statement, together with any
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk.
b. Cash flow hedge
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in equity. The gain or
loss relating to the ineffective portion is recognised immediately in the
income statement.
Amounts accumulated in equity are recycled through the income statement in
periods when the hedged item affects profit or loss. However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset
or liability, the cost of the asset or liability is adjusted by the gains or
losses previously held in equity.
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.
c. 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 equity; the gain or loss
relating to the ineffective portion is recognised immediately in the income
statement.
Gains and losses accumulated in equity are included in the income statement
when the foreign operation is disposed of.
d. Derivatives that do not qualify for hedge accounting
Certain derivatives, whilst providing effective economic hedges under the
Group's treasury policy 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 the income statement.
Fair value estimation
The fair value of financial instruments traded in active markets is based on
quoted market prices at the balance sheet date. 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 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 and these are accounted for under IAS 19 `Employee
Benefits'. 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 pension 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 Group
statement of recognised income and expense in full in the period in which they
occur.
The defined benefit scheme's surpluses, to the extent that they are considered
recoverable, or deficits 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
constructive liability. Provisions are not discounted.
Share based charges relating to employee share schemes
The Group has a number of employee share schemes:-
i. Share options granted under Executive Share Option Schemes (`ESOS') are
granted at market value. A charge is booked to the income statement as an
employee benefit expense for the fair value of share options expected to be
exercised, accrued over the vesting period. The corresponding credit is
taken to retained earnings. The fair value is calculated using an option
pricing model.
ii. Share options granted under the Long Term Retention Plan (`LTRP') are
granted at par value. The charge to the income statement for LTRP shares is
also calculated using an option pricing model and as with ESOS grants, the
fair value of the share options expected to be exercised is accrued over
the vesting period. The corresponding credit is also taken to retained
earnings.
iii. The Group also has a Long Term Incentive Scheme (`LTIS') 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 expected to be awarded under the LTIS 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
shares 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 declared.
The Group is deemed to have control of the assets, liabilities, income and
costs of its employee share ownership trusts (`ESOP trusts'). They have
therefore been consolidated in the financial statements of the Group. Shares
acquired by and disposed of by the ESOP trusts are recorded at cost. The cost
of shares held by the ESOP trusts is deducted from shareholders' equity.
Segmental reporting
The Group's primary reporting segments are its three operating divisions,
namely Engineering & Production Facilities, Well Support and Gas Turbine
Services.
Engineering & Production Facilities provides a broad range of life-of-field
engineering, modifications, maintenance and operations services to oil and gas
customers worldwide. Well Support supplies solutions, products and services to
increase production rates and recovery from oil and gas reservoirs. It is among
the market leaders worldwide in artificial lift using electric submersible
pumps, in the provision of surface wellheads and valves and, in the Gulf of
Mexico and in South America, in the provision of electric wireline and
slickline services. Gas Turbine Services is a world leading independent
provider of maintenance, repair and overhaul services for industrial gas
turbines and related high speed rotating equipment used for compression,
transmission and power generation in the oil and gas and power generation
industries.
Disclosure of impact of future accounting standards
Amendment to IAS 19 `Employee Benefits'
The Group adopted this amendment early, which allows the recognition of defined
actuarial gains and losses through the statement of recognised income and
expense. This treatment is similar to that previously adopted by the Group
under FRS 17.
The Group has not yet adopted the following standards which are only effective
for periods commencing on or after 1 January 2006 or 2007.
FRS 7 `Financial Instruments: Disclosures'
This standard consolidates IAS 30 and the disclosure requirements of IAS 32
relating to financial instruments. We do not anticipate that this standard will
have any material impact on the Group's financial statements.
IFRIC 4 `Determining whether an arrangement contains a lease'
IFRIC 4 contains guidance on determining whether arrangements that do not take
the legal form of a lease should nonetheless be accounted for in accordance
with IAS 17 `Leases'. We do not anticipate that this will have any material
impact on the Group's financial statements.
1 Segmental reporting
Primary reporting format - business segments
Revenues 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
2005 2004 2005 2004 2005 2004 2005 2004
US$m US$m US$m US$m US$m US$m US$m US$m
Engineering & 1,472.3 1,199.6 98.7 83.1 88.2 73.9 86.0 69.7
Production Facilities
Well Support (2) 645.7 513.9 76.3 58.4 58.5 41.2 68.0 38.3
Gas Turbine Services 607.8 537.9 47.8 38.4 32.7 23.5 24.9 (0.6)
Central costs (5) - - (28.8) (20.1) (29.5) (19.8) (29.8) (20.1)
Total excluding 2,725.8 2.251.4 194.0 159.8 149.9 118.8 149.1 87.3
discontinuing
operations
Gas Turbine Services - 36.1 36.7 (0.1) (0.7) (0.8) (1.4) (1.1) (1.7)
discontinuing
operations (3)
2,761.9 2,288.1 193.9 159.1 149.1 117.4 148.0 85.6
Finance income 2.5 1.8
Finance expense (25.8) (21.2)
Profit before taxation 124.7 66.2
Taxation (41.1) (26.8)
Profit for the year 83.6 39.4
Notes
1 EBITDA represents operating profit of US$148.0m (2004 : US$85.6m) before
profit on disposal of subsidiaries of US$9.7m (2004 : US$nil), impairment
and restructuring charges of US$6.0m (2004 : US$26.2m), depreciation of
US$44.8m (2004 : US$41.7m) and amortisation of US$4.8m (2004 : US$5.6m).
EBITA represents EBITDA less depreciation. EBITA and EBITDA are provided as
they are units of measurement used by the Group in the management of its
business.
2 Well Support's results include revenues of US$37.5m (2004 : US$22.0m) and
operating profit of US$5.0m (2004 : US$1.0m) earned by the Production
Technology business prior to its disposal in December 2005.
3 The discontinuing operations relate to an Aero engine overhaul company
which the Group has decided to divest.
4 Revenues arising from sales between segments are not material.
5 Central costs includes the costs of certain management personnel in both the
UK and the US, along with an element of Group infrastructure costs.
Segment assets and liabilities
Engineering Well Gas Discontinuing Unallocated Total
& Support Turbine Operations
Production Services
At 31 December 2005 Facilities
US$m US$m US$m US$m US$m US$m
Segment assets 568.2 432.2 518.7 34.7 159.0 1,712.8
Segment liabilities 264.5 132.8 145.2 7.8 461.6 1,011.9
At 31 December 2004
Segment assets 568.7 371.9 501.1 35.1 79.2 1,556.0
Segment liabilities 244.0 118.4 148.1 9.8 493.8 1,014.1
Segment assets and liabilities are presented before the elimination of
inter-segment trading balances. Unallocated assets and liabilities includes
income tax, deferred tax and cash and borrowings where this relates to the
financing of the Group's operations.
Other segment items
As at 31 December Engineering Well Gas Discontinuing Unallocated Total
2005 & Support Turbine Operations
Production Services
Facilities
US$m US$m US$m US$m US$m US$m
Capital expenditure
- Property plant & 10.2 28.1 15.2 2.5 0.5 56.5
equipment
- Intangible assets 3.9 0.1 5.2 - - 9.2
Depreciation 10.5 17.8 15.1 0.7 0.7 44.8
Amortisation of 2.2 0.2 1.8 0.3 0.3 4.8
other intangible
assets
Impairment - - - 1.7 - - 1.7
property plant and
equipment
Impairment of trade 1.5 0.7 1.4 - - 3.6
receivables
As at 31 December 2004
US$m US$m US$m US$m US$m US$m
Capital expenditure
- Property plant and 7.5 29.4 18.9 2.4 - 58.2
equipment
- Intangible assets 8.1 - 2.0 - 0.7 10.8
Depreciation 9.2 17.2 14.9 0.7 (0.3) 41.7
Amortisation of other 4.2 0.1 0.7 0.3 0.3 5.6
intangible assets
Impairment - property - 0.3 6.4 - - 6.7
plant and equipment
- - 0.4 - - 0.4
- goodwill
Impairment of trade (0.8) 1.4 - - - 0.6
receivables
Secondary format - geographical segments
Revenues Segment assets Capital
expenditure
2005 2004 2005 2004 2005 2004
US$m US$m US$m US$m US$m US$m
Europe 885.4 726.6 391.7 359.5 16.1 11.8
North America 1,103.9 976.9 878.1 822.0 29.2 30.8
Rest of the World 772.6 584.6 443.0 374.5 20.4 26.4
2,761.9 2,288.1 1,712.8 1,556.0 65.7 69.0
2005 2004
US$m US$m
Revenues by category are as follows:
Sale of goods 485.0 372.7
Rendering of services 2,276.9 1,915.4
2,761.9 2,288.1
2 Finance income/expense
2005 2004
US$m US$m
Interest payable on bank borrowings 25.7 20.9
Other interest payable (note 30) 0.1 0.3
Finance expense 25.8 21.2
Finance income - interest receivable on short term deposits 2.5 1.8
Finance expense - net 23.3 19.4
3 Profit before taxation
2005 2004
US$m US$m
The following items have been included in arriving at
operating profit:
Employee benefits expense (note 29) 966.3 829.1
Cost of inventory recognised as an expense (included in cost 208.4 206.6
of sales)
Impairment of inventory 7.6 9.7
Depreciation of property plant and equipment 44.8 41.7
Amortisation of other intangible assets 4.8 5.6
Loss on disposal of property plant and equipment 0.5 0.9
Other operating lease rentals payable:
- Plant and machinery 11.0 10.1
- Property 29.6 27.7
Net exchange gain/(loss) on foreign currency borrowings less 5.5 (7.9)
deposits
The gain on the fair value of unhedged derivative financial instruments
credited to the income statement during the year was US$0.9m.
Services provided by the Group's auditor and network firms
During the year the Group obtained the following services from its auditor at
costs as detailed below:
2005 2004
US$m US$m
Audit services
- UK audit 1.4 1.1
- Overseas audit 0.5 0.4
Tax services 0.2 0.2
Other services 0.1 0.1
2.2 1.8
4 Profit on disposal of subsidiaries
2005 2004
US$m US$m
Profit on disposal of subsidiaries 9.7 -
In December 2005, the Group disposed of its Production Technology business
which was part of the Well Support division. Further details are provided in
note 28.
5 Impairment and restructuring charges
2005 2004
US$m US$m
Impairment and restructuring charges 6.0 26.2
The 2005 impairment and restructuring charge of US$6.0m was in respect of
rationalisation of businesses and facilities, severance costs and impairment of
property plant and equipment in the Gas Turbine Services division. In 2004, an
impairment and restructuring charge of US$23.4m was booked in relation to the
Gas Turbine Services division and a charge of US$2.8m was booked in the Well
Support division in respect of severance costs and impairment of property plant
and equipment.
6 Taxation
2005 2004
US$m US$m
Current tax
- Current year 46.5 29.8
- Adjustment in respect of prior years (5.1) (0.7)
41.4 29.1
Deferred tax
- Current year 0.1 0.9
- Adjustment in respect of prior years (0.4) (3.2)
(0.3) (2.3)
Total tax charge 41.1 26.8
Tax on items charged to equity 2005 2004
US$m US$m
Deferred tax on retirement benefit liabilities 0.7 1.4
Tax is calculated at the rates prevailing in the respective jurisdictions in
which the Group operates. The tax for the year is lower (2004 : higher) than
the rate of corporate tax expected due to the following factors:
2005 2004
US$m US$m
Profit before taxation 124.7 66.2
Profit before tax at expected rate of 34.2% (2004: 33.6%) 42.6 22.2
Effects of:
Adjustments in respect of prior years (5.5) (3.9)
Non-recognition of losses and other attributes 5.4 3.5
Other permanent differences (1.4) 5.0
Total tax charge 41.1 26.8
7 Dividends
2005 2004
US$m US$m
Dividends on equity shares
Final dividend paid - year ended 31 December 2004 : 2.4 cents 11.1 10.4
(2004: 2.2 cents) per share
Interim dividend paid - year ended 31 December 2005 : 1.3 6.4 5.5
cents (2004: 1.2 cents) per share
17.5 15.9
In addition, the directors are proposing a final dividend in respect of the
financial year ended 31 December 2005 of 2.7 cents per share which will absorb
an estimated US$13.3m of shareholders' funds. The final dividend will be paid
on 25 May 2006 to shareholders who are on the register of members on 5 May
2006.
8 Earnings per share
2005 2004
Earnings Number of Earnings Earnings Number of Earnings
attributable shares per attributable shares per
to equity (millions) share to equity share
shareholders (cents)shareholders (millions) (cents)
US$m US$m
Basic 80.5 473.4 17.0 37.3 466.2 8.0
Effect of dilutive 17.8 10.4
ordinary shares
Diluted 80.5 491.2 16.4 37.3 476.6 7.8
Amortisation 4.8 5.6
Profit on disposal of (7.9) -
subsidiaries, net of
tax
Impairment and 4.2 18.5
restructuring charges,
net of tax
Adjusted diluted 81.6 491.2 16.6 61.4 476.6 12.9
Adjusted basic 81.6 473.4 17.2 61.4 466.2 13.2
The calculation of basic earnings per share for the year ended 31 December 2005
is based on the earnings attributable to equity shareholders divided by the
weighted average number of ordinary shares in issue during the year excluding
shares held by the Group's employee share ownership trusts. Adjusted EPS is
disclosed to show the results excluding the impact of amortisation, impairment
and restructuring charges, net of tax and profit on disposal of subsidiaries,
net of tax. For the calculation of diluted EPS, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all potentially
dilutive ordinary shares. The Group has two types of dilutive ordinary shares -
share options granted to employees under Executive Share Option Schemes and the
Long Term Retention Plan; and shares issuable under the Group's Long Term
Incentive Scheme.
9 Goodwill and other intangible assets
Computer Other Total
Goodwill software
US$m US$m S$m US$m
Cost
At 1 January 2005 297.5 16.9 13.8 328.2
Exchange differences (3.7) (1.5) (0.5) (5.7)
Additions - 6.7 2.5 9.2
Acquisitions 18.7 - 0.9 19.6
At 31 December 2005 312.5 22.1 16.7 351.3
Aggregate amortisation and
impairment
At 1 January 2005 0.4 10.6 8.3 19.3
Exchange differences - (1.0) (0.4) (1.4)
Charge for the year - 3.5 1.3 4.8
At 31 December 2005 0.4 13.1 9.2 22.7
Net book value at 31 December 2005 312.1 9.0 7.5 328.6
Cost
At 1 January 2004 236.0 10.5 9.1 255.6
Exchange differences 1.8 0.3 0.5 2.6
Additions - 6.6 4.2 10.8
Acquisitions 59.7 - - 59.7
Disposals - (0.5) - (0.5)
At 31 December 2004 297.5 16.9 13.8 328.2
Aggregate amortisation and
impairment
At 1 January 2004 - 8.4 4.3 12.7
Exchange differences - 0.5 0.4 0.9
Charge for the year - 2.0 3.6 5.6
Impairment 0.4 - - 0.4
Disposals - (0.3) - (0.3)
At 31 December 2004 0.4 10.6 8.3 19.3
Net book value at 31 December 2004 297.1 6.3 5.5 308.9
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 budgeted cash flows for 2006/7. Cash
flows for 2008-10 are assumed to grow at a rate of 5% per annum. Subsequent
cash flows have been assumed to grow in line with the historic growth in global
GDP. The cash flows have been discounted using a pre-tax discount rate of 10%.
No impairment of goodwill is required in 2005. An impairment charge of US$0.4m
was booked in 2004 in relation to the restructuring carried out in the Gas
Turbine Services division. Impairment is included in the `impairment and
restructuring charges' line in the income statement.
The carrying amounts of goodwill by division are: Engineering & Production
Facilities US$191.9m (2004 : US$181.5m), Gas Turbine Services US$86.7m (2004 :
US$88.3m) and Well Support US$33.5m (2004 : US$27.3m).
Other includes development costs, licences and customer contracts. Development
costs with a net book value of US$3.1m (2004 : US$1.2m) are internally
generated intangible assets.
10 Property plant and equipment
Land and Land and Plant and Total
buildings - buildings equipment
Long - Short
leasehold leasehold
and freehold
US$m US$m US$m US$m
Cost
At 1 January 2005 49.8 15.9 350.7 416.4
Exchange differences (0.7) (0.6) (9.1) (10.4)
Additions 4.6 1.0 50.9 56.5
Acquisitions 1.7 - 1.8 3.5
Disposals (3.3) (0.4) (13.2) (16.9)
Company sold - - (2.1) (2.1)
Reclassification as current - - (6.8) (6.8)
assets
At 31 December 2005 52.1 15.9 372.2 440.2
Accumulated depreciation and
impairment
At 1 January 2005 16.8 7.9 175.5 200.2
Exchange differences (0.8) (0.2) (5.5) (6.5)
Charge for the year 3.1 1.1 40.6 44.8
Acquisitions 0.2 - 0.4 0.6
Impairment - 0.3 1.4 1.7
Disposals (0.7) (0.4) (10.1) (11.2)
Company sold - - (1.1) (1.1)
Reclassification as current assets - - (7.8) (7.8)
At 31 December 2005 18.6 8.7 193.4 220.7
Net book value at 31 December 2005 33.5 7.2 178.8 219.5
Cost
At 1 January 2004 47.8 29.8 308.0 385.6
Exchange differences 0.6 0.8 6.4 7.8
Additions 2.0 0.2 56.0 58.2
Acquisitions - - 1.0 1.0
Disposals (0.6) (14.9) (8.7) (24.2)
Reclassification as current assets - - (12.0) (12.0)
At 31 December 2004 49.8 15.9 350.7 416.4
Accumulated depreciation and
impairment
At 1 January 2004 14.9 8.6 136.6 160.1
Exchange differences 0.7 0.2 2.9 3.8
Charge for the year 1.2 1.4 39.1 41.7
Impairment 0.3 0.5 5.9 6.7
Disposals (0.3) (2.8) (7.5) (10.6)
Reclassification as current assets - - (1.5) (1.5)
At 31 December 2004 16.8 7.9 175.5 200.2
Net book value at 31 December 2004 33.0 8.0 175.2 216.2
Plant and equipment includes assets held for lease to customers under operating
leases of US$33.0m (2004: US$26.1m). Additions during the year amounted to
US$12.0m (2004 : US$15.9m) and depreciation totalled US$7.0m (2004 : US$7.3m).
The gross cost of these assets at 31 December 2005 is US$41.9m (2004 :
US$34.0m) and aggregate depreciation is US$9.0m (2004 : US$7.9m).
In accordance with IFRS 1, `First time adoption of International Financial
Reporting Standards', and IAS 17, `Leases', the Group has reviewed the
classification of all leases on transition to IFRS. The Group did not have any
operating leases that required to be reclassified as finance leases at the
transition date.
Impairment is included in the `impairment and restructuring' line in the income
statement (see note 5).
Property plant and equipment includes assets in the course of construction of
US$10.8m (2004 : US$10.9m).
11 Joint ventures
In relation to the Group's interests in joint ventures, its share of assets,
liabilities, income and expenses is shown below.
2005 2004
US$m US$m
Non-current assets 56.2 73.3
Current assets 200.2 223.0
Non-current liabilities (15.6) (15.0)
Current liabilities (150.4) (176.8)
Net assets 90.4 104.5
Income 315.8 285.6
Expenses (286.9) (261.2)
Profit before tax 28.9 24.4
Tax (7.6) (7.6)
Share of post tax results from joint ventures 21.3 16.8
The joint ventures have no significant contingent liabilities to which the
Group is exposed, nor has the Group any significant contingent liabilities in
relation to its interest in the joint ventures other than the bank guarantees
described in note 32.
12 Inventories
2005 2004
US$m US$m
Materials 76.3 72.7
Work in progress 58.9 71.1
Finished goods and goods for resale 227.7 186.1
362.9 329.9
13 Trade and other receivables
2005 2004
US$m US$m
Trade receivables 514.7 511.9
Less: provision for impairment (11.4) (8.6)
Trade receivables - net 503.3 503.3
Amounts recoverable on contracts 11.2 2.6
Amounts receivable under finance leases 9.9 9.3
Prepayments and accrued income 36.7 35.9
Other receivables 49.6 28.2
610.7 579.3
Total amounts receivable under finance leases, including amounts allocated to
future periods of US$3.9m (2004 : US$8.2m) is US$21.3m (2004 : US$38.8m).
Rentals receivable during the year under finance leases amounted to US$13.6m
(2004 : US$14.7m). Amounts receivable under finance leases of US$11.4m (2004 :
US$21.3m) are included in long term receivables.
14 Cash and cash equivalents
2005 2004
US$m US$m
Cash at bank and in hand 75.7 42.9
Short-term bank deposits 74.2 28.5
149.9 71.4
The effective interest rate on short-term deposits was 4.3% (2004 : 3.2%) and
these deposits have an average maturity of 32 days (2004 : 91 days).
15 Trade and other payables
2005 2004
US$m US$m
Trade payables 192.8 195.2
Other tax and social security payable 27.9 20.1
Accruals and deferred income 277.1 255.0
Deferred consideration 3.9 6.6
Other payables 25.0 19.8
526.7 496.7
16 Financial liabilities - borrowings
2005 2004
US$m US$m
Bank loans and overdrafts due within one year or on demand
Unsecured 47.9 70.7
Non-current bank loans
Unsecured 347.8 355.0
Bank loans are denominated in a number of currencies and bear interest based on
LIBOR or foreign equivalents appropriate to the country in which the borrowing
is incurred.
The effective interest rates on the Group's borrowings at the balance sheet
date were as follows:
2005 2004
% %
US Dollar 4.76 2.87
Sterling 5.17 5.55
Euro 2.75 2.80
Australian Dollar 6.03 5.98
Canadian Dollar 4.02 3.37
The carrying amounts of the Group's borrowings are denominated in the following
currencies:
2005 2004
US$m US$m
US Dollar 246.2 289.3
Sterling 61.3 39.5
Euro 17.1 19.1
Australian Dollar 7.3 10.1
Canadian Dollar 48.8 54.1
Other 15.0 13.6
395.7 425.7
17 Other non-current liabilities
2005 2004
US$m US$m
Deferred consideration 13.2 16.4
Other payables 5.5 5.3
18.7 21.7
Deferred consideration represents amounts payable on acquisitions made by the
Group and is expected to be paid over the next four years.
18 Financial instruments
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk, foreign currency risk and credit risk. The Board reviews
and agrees policies for managing each of these risks and these are summarised
below.
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 as cash flow hedges 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 2005,
approximately 45% (2004 : 31%) of the Group's borrowings were at fixed rates
after taking account of interest rate swaps.
Liquidity risk
As regards liquidity, the Group's policy has throughout the year been that, to
ensure continuity of funding, at least 90% of the Group borrowing facilities
(excluding joint ventures) should mature in more than one year. At 31 December
2005, 96% (2004 : 95%) of the Group borrowing facilities were due to mature in
more than one year.
Foreign currency risk
The Group is exposed to foreign exchange risk arising from various currencies.
The Group also has significant overseas subsidiaries whose revenues and
expenses are denominated in other currencies. In order to protect the Group's
balance sheet from movements in exchange rates, the Group finances its net
investment in non US dollar subsidiaries primarily by means of borrowings
denominated in the appropriate currency.
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 through forward
currency contracts. The Group does not tend to hedge account for these forward
contracts and thus 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.
Credit risk
The Group's credit risk primarily relates to its trade receivables. The Group's
major customers are typically large companies which have strong credit ratings
assigned by international credit rating agencies. 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 receivables.
Price risk
The Group is not exposed to any significant price risk in relation to its
financial instruments.
Numerical financial instrument disclosures are set out
below.
The book value and net fair value of the Group's derivative financial
instruments at the balance sheet date were as follows:
2005 2004
US$m US$m
Contracts with positive fair values:
Interest rate swaps 1.5 -
Forward foreign currency contracts 1.5 0.2
3.0 0.2
Contracts with negative fair values:
Interest rate swaps (0.1) (2.9)
Forward foreign currency contracts (0.5) (0.1)
Currency options - (0.9)
(0.6) (3.9)
The comparative figures at 31 December 2004 are fair values only as the Group
did not adopt IAS 39 until 1 January 2005, as permitted by IFRS 1. US$1.3m of
the interest rate swap asset is disclosed in non-current assets.
Interest rate swaps
The notional principal amount of the Group's outstanding interest rate swap
contracts at 31 December 2005 was US$180.0m (2004 : US$130.0m).
At 31 December 2005 the fixed interest rates varied from 2.7% to 5.0% (2004 :
2.7% to 5.0%) and the floating rate was 5.0% including margin (2004 : 3.3%).
The Group interest rate swaps are for periods of 5 years and they expire
between 2006 and 2010 with the exception of one US$25m swap which is a 10 year
swap expiring in 2012. The bank has a break option on this swap after five
years.
The fair value gains relating to the interest rate swaps and which are deferred
in equity at 31 December will reverse in the income statement over the term of
the swaps.
Net investment in foreign entities
The Group has foreign currency borrowings which it has designated as a hedge of
subsidiary company net assets. The fair value of the borrowings at 31 December
2005 was US$78.3m. The foreign exchange gain of US$2.1m on translation of the
borrowings into US dollars has been recognised in the currency translation
reserve (note 25). The Group has also entered into forward contracts to hedge
subsidiary company net assets. The nominal value of these contracts at 31
December 2005 was US$42.9m. The fair value movement of US$1.2m is
also recognised in the currency translation reserve.
Fair value of non-derivative financial assets and financial liabilities
Where market values are not available, fair values of non-derivative financial
assets and financial liabilities have been calculated by discounting expected
future cash flows at prevailing interest rates and by applying year end
exchange rates.
The fair value of short-term borrowings, trade and other payables, trade and
other receivables, short-term deposits and cash at bank and in hand
approximates to the carrying amount because of the short maturity of interest
rates in respect of these instruments. Long-term borrowings are generally
rolled over for periods of three months or less.
Fair value of long-term borrowings
2005 2004
Book value Fair value Book value Fair value
US$m US$m US$m US$m
Long-term borrowings (note 16) (347.8) (347.8) (355.0) (355.0)
Fair value of other financial
assets and financial liabilities
Primary financial instruments held
or issued to finance the Group's
operations:
Trade and other receivables (note 610.7 610.7 579.3 579.3
13)
Cash at bank and in hand (note 14) 75.7 75.7 42.9 42.9
Short-term deposits (note 14) 74.2 74.2 28.5 28.5
Trade and other payables (note 15) (526.7) (526.7) (496.7) (496.7)
Short-term borrowings (note 16) (47.9) (47.9) (70.7) (70.7)
Other non-current liabilities (note (18.7) (18.7) (21.7) (21.7)
17)
Maturity of financial liabilities
The maturity profile of the carrying amount of the Group's non-current
liabilities at 31 December was as follows:
Borrowings Other 2005 Borrowings Other 2004
Total Total
US$m US$m US$m US$m US$m US$m
In more than one year
but not more than two 1.6 13.9 15.5 10.7 11.7 22.4
years
In more than two
years but not more 346.2 4.8 351.0 344.3 10.0 354.3
than five years
347.8 18.7 366.5 355.0 21.7 376.7
Borrowing facilities
The Group has the following undrawn committed borrowing facilities available at
31 December in respect of which all conditions precedent had been met at that
date:
2005 2004
US$m US$m
Expiring within one year 8.3 20.9
Expiring in more than two years but not more than five 421.1 215.7
years
429.4 236.6
All undrawn borrowing facilities are floating rate facilities. The facilities
expiring within one year are annual facilities subject to review at various
dates during 2006. The other facilities have been arranged to help finance the
Group's activities. All these facilities incur commitment fees at market rates.
19 Provisions
Warranty Other Total
provisions
US$m US$m US$m
At 1 January 2005 11.0 4.7 15.7
Exchange differences (0.3) (0.1) (0.4)
Charge to income statement 6.9 0.4 7.3
Payments during the year (5.9) (1.6) (7.5)
Acquisitions - 0.2 0.2
Company sold (0.2) - (0.2)
At 31 December 2005 11.5 3.6 15.1
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 2005, other provisions of US$3.6m (2004 : US$4.7m) have been recognised.
The provisions consist of various claims made against the Group, the largest of
which relates to overseas indirect taxes. It is expected that costs in relation to
these provisions will be incurred over the next two years.
20 Deferred tax
Deferred tax is calculated in full on temporary differences under the liability
method using the tax rate applicable to the territory in which the asset or
liability has arisen.
The movement on the deferred tax account is shown below:
2005 2004
US$m US$m
At 1 January (12.3) (7.6)
Exchange differences 1.0 (1.2)
Acquisitions - 0.2
Credit to income statement (0.3) (2.3)
Deferred tax relating to retirement benefit liabilities (0.7) (1.4)
At 31 December (12.3) (12.3)
The deferred tax account is presented in the financial
statements as follows:
Deferred tax assets (19.3) (20.9)
Deferred tax liabilities 7.0 8.6
(12.3) (12.3)
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. If the earnings were remitted, tax of US$17.3m (2004 : US$12.2m) would
be payable.
The Group has unrecognised tax losses of US$39.3m (2004 : US$29.1m) to carry
forward against future taxable income.
The movement in deferred tax during the year is shown below. Deferred tax
assets and liabilities are only offset where there is a legally enforceable
right of offset and there is an intention to settle the balances net.
Deferred tax (asset)/liability Accelerated Other Total
tax
depreciation
US$m US$m US$m
At 1 January 2005 10.4 (22.7) (12.3)
Exchange differences - 1.0 1.0
Charge/(credit) to income statement 4.4 (4.7) (0.3)
Deferred tax relating to retirement benefit - (0.7) (0.7)
liabilities
At 31 December 2005 14.8 (27.1) (12.3)
21 Share based charges
The Group currently has three types of share based payment schemes, namely
Executive Share Option Schemes (`ESOS'), Long Term Retention Plans (`LTRP') and
the Long Term Incentive Scheme (`LTIS'). Details of each of the schemes are
given in the Directors' Remuneration Report and in note 22.
The charge in the Group income statement for these schemes is US$7.9M (2004 :
US$2.9M)
The assumptions made in arriving at the charge for each scheme are given below:
ESOS and LTRP
There are currently 432 employees participating in these schemes. For the
purposes of calculating the fair value of the options a Black-Scholes option
pricing model has been used. Based on past experience, it has been assumed that
options will be exercised, on average, six months after the earliest exercise
date, which is four years after grant date, and there will be a lapse rate of
20%-25%. The share price volatility used of 35%-40% is based on the actual
volatility of the Group's shares since IPO as well as that of comparable
companies. The risk free rate of return of 4%-5% is based on the implied yield
available on zero coupon gilts with a term remaining equal to the expected
lifetime of the options at the date of grant. A dividend yield of 1.4% is used
in the calculation.
The fair value of options granted under the ESOS during the year was £0.45
(2004 : £0.46). The fair value of options granted under the LTRP during the
year ranged from £1.37 to £1.72 (2004 : £1.33). The weighted average remaining
contractual life of share options at 31 December 2005 is 6.7 years.
LTIS
The actual performance for 2005 on the two non-market related performance
targets has been assumed to continue for the remainder of the three year cycle
and the share based charge is calculated using a fair value of £1.40. The
charge for the market related performance target has been calculated using a
Monte Carlo simulation model using similar assumptions to the ESOS and LTRP
calculations.
22 Share capital
2005 2004
Authorised US$m US$m
720,000,000 (2004: 720,000,000) ordinary shares 34.9 34.9
of 3â…“ pence
2005 2004
shares US$m shares US$m
Issued and fully paid
Ordinary shares of 3â…“ pence each
At 1 January 483,531,380 23.5 482,648,960 23.4
Issue of new shares 24,356,550 1.5 882,420 0.1
Allocation of shares to employee 7,350,000 0.4 - -
share trusts
At 31 December 515,237,930 25.4 483,531,380 23.5
On 13 September 2005, the Group issued 24,176,550 new shares, representing 5%
of the issued share capital, at a share price of £2.10. The proceeds after
deduction of expenses amounted to US$90.8m. The share placing was carried out
in order to increase the Group's flexibility to pursue its growth strategy.
During the year 180,000 ordinary shares of 3â…“ pence were issued at prices
varying from 17â…“ pence per share to 18â…“ pence per share, on the exercise of
options granted under the John Wood Group PLC 1994 Approved Executive Share
Option Scheme and the John Wood Group 1996 Unapproved Executive Share Option
Scheme.
Executive Share Option Schemes
The following options to subscribe for new or existing shares were outstanding
at 31 December:
Year of Grant Number of ordinary Exercise
shares under option price
2005 2004 (per Exercise
share) period
1998 121,290 121,290 15â…”p 2003-2008
2000 1,965,864 7,050,000 17â…“p 2005-2010
2000 90,000 210,000 18â…“p 2005-2010
2001 1,335,000 1,305,000 93â…“p 2006-2011
2001 5,164,500 5,440,500 83â…“p 2006-2011
2002 1,726,500 1,801,500 83â…“p 2007-2012
2003 500,000 500,000 161¼p 2007-2013
2003 3,635,001 3,802,069 158p 2007-2013
2004 6,901,328 7,341,981 128½p 2008-2014
2004 60,000 60,000 143½p 2008-2014
2005 1,985,000 - 145p 2009-2015
23,484,483 27,632,340
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.
2,177,154 options (2004 : 121,290) were exercisable at 31 December 2005.
2,015,000 options were granted during the year, 5,328,616 options were
exercised during the year and 834,241 options lapsed during the year. The
weighted average share price during the period for options exercised over the
year was £1.82 (2004 : £1.33).
There are no performance criteria attached to the exercise of the options
granted prior to 2003. Options granted to directors under the share option
scheme adopted during 2002, and implemented in 2003, 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 Grant Number of ordinary Exercise
shares under option price
2005 2004 (per Exercise
share) period
2003 1,793,489 1,855,802 3â…“p 2007-2008
2004 120,000 120,000 3â…“p 2008-2009
2005 138,003 - 3â…“p 2009-2010
2,051,492 1,975,802
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. However, no LTRP options are granted unless the Group achieves a minimum
level of EPS growth of RPI plus 3%. The level of grant varies between RPI plus
3% and the maximum grant of RPI plus 10%. 138,003 LTRP options were granted
during the year, 2,885 LTRP options were exercised during the year and 59,428
LTRP options lapsed during the year.
Long Term Incentive Scheme
The Group introduced a Long Term Incentive Scheme (`LTIS') during the year.
Under this Scheme, 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 first cycle are operating profit, return on capital employed
and growth in the company's share price. The awards are in the form of
restricted shares and are deferred for two years from the award date. On the
assumption that 2005 actual performance levels are repeated in each of the next
two years, 6,378,346 shares are potentially issuable under the scheme. Further
details of the LTIS are provided in the Directors' Remuneration Report.
John Wood Group PLC is a public limited company, incorporated and domiciled in
Scotland.
23 Share premium
2005 2004
US$m US$m
At 1 January 200.9 200.8
Arising on issue of new shares, net of expenses 89.3 0.1
Allocation of shares to employee share trusts 1.9 -
At 31 December 292.1 200.9
Expenses of share issue amounted to US$1.4m (2004 : nil).
24 Retained earnings
2005 2004
US$m US$m
At 1 January - before adoption of IAS 32 and IAS 39 215.7 219.6
Adoption of IAS 32 and IAS 39 (0.9) -
At 1 January 214.8 219.6
Profit for the year attributable to equity shareholders 80.5 37.3
Dividends paid (17.5) (15.9)
Credit relating to share based charges 7.9 2.9
Actuarial losses on retirement benefit liabilities (2.5) (4.8)
Movement in deferred tax relating to retirement benefit 0.7 1.4
liabilities
Shares acquired by ESOP trusts - (22.5)
Shares allocated to ESOP trusts (2.3) -
Shares disposed of by ESOP trusts 1.7 0.2
Exchange differences in respect of shares held by ESOP trusts 4.8 (2.5)
At 31 December 288.1 215.7
Retained earnings are stated after deducting the investment in own shares held
by employee share trusts. Investment in own shares represents the cost of
22,031,380 (2004 : 19,892,881) of the company's ordinary shares totalling
US$40.4m (2004 : US$44.6m). Options have been granted over 121,290 shares held
by the ESOP trusts.
Shares acquired by the trusts are purchased in the open market using funds
provided by John Wood Group PLC to meet obligations under the Employee Share
Option Schemes and the LTRP. During 2005, 7,350,000 shares at a value of
US$2.3m were allocated to the trust in order to satisfy the exercise of share
options. 5,211,501 shares were issued during the year to satisfy the exercise
of share options at a value of US$1.7m. Exchange adjustments of US$4.8m 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 schemes
are charged to the income statement in the period to which they relate. The
market value of the shares at 31 December 2005 was US$77.2m (2004 : US$51.2m)
based on the closing share price of £2.04 (2004 : £1.34). The ESOP trusts have
waived their rights to receipt of dividends.
25 Other reserves
Capital Currency Hedging Total
reduction translation reserve
reserve reserve
US$m US$m US$m US$m
At 1 January 2004 88.1 - - 88.1
Exchange differences on retranslation - 1.7 - 1.7
of foreign currency net assets
At 31 December 2004 88.1 1.7 - 89.8
Adoption of IAS 32 and IAS 39 - - (2.4) (2.4)
At 1 January 2005 88.1 1.7 (2.4) 87.4
Exchange differences on retranslation - (15.5) - (15.5)
of foreign currency net assets
Fair value gains - - 3.8 3.8
At 31 December 2005 88.1 (13.8) 1.4 75.7
The capital reduction reserve was created on the conversion of convertible
redeemable preference shares immediately prior to the IPO 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 respective of
effective cash flow hedges are recognised in the hedging reserve.
The adoption of IAS 32 and IAS 39 at 1 January 2005 resulted in the recognition
of financial assets of US$0.2m, financial liabilities of US$3.9m and a
reduction in accruals and deferred income of US$0.4m at that date. A reduction
in retained earnings of US$0.9m and a reduction in the hedging reserve of
US$2.4m was also recorded. The movement in the fair value of financial assets
and financial liabilities during the year resulted in a credit of US$0.9m to
the income statement and a credit of US$3.8m to the hedging reserve.
26 Minority interest
2005 2004
US$m US$m
At 1 January 12.0 18.7
Acquisition of minority interest - (9.3)
Share of profit for the year 3.1 2.1
Dividends paid (1.3) -
Minority interest recognised on conversion of joint venture to 5.8 0.5
subsidiary
At 31 December 19.6 12.0
27 Cash generated from operations
2005 2004
US$m US$m
Reconciliation of operating profit to cash generated
from operations:
Operating profit 148.0 85.6
Adjustments for:
Depreciation 44.8 41.7
Loss on disposal of property plant and equipment 0.5 0.9
Amortisation of other intangible assets 4.8 5.6
Share based charges 7.9 2.9
Impairment and restructuring charges - non-cash 5.3 12.5
impact
Profit on disposal of subsidiaries (9.7) -
Changes in working capital (excluding effect of
acquisition and disposal of subsidiaries)
Increase in inventories (44.1) (74.5)
Increase in receivables (35.5) (90.4)
Increase in payables 46.1 99.6
Decrease in provisions (0.2) (1.5)
Exchange differences (6.6) (4.0)
Cash generated from operations 161.3 78.4
28 Acquisitions and disposals
The assets and liabilities acquired in respect of acquisitions during the year
were as follows:
Book
value and
fair
value
US$m
Property plant and equipment 2.9
Other intangible assets 0.9
Inventories 6.9
Trade and other receivables 9.8
Cash and cash equivalents 4.8
Trade and other payables (5.8)
Provisions (0.2)
Minority interest (5.8)
Net assets acquired 13.5
Goodwill 15.5
Consideration 29.0
Consideration satisfied by:
Cash 29.0
The Group has used acquisition accounting for all purchases and, in accordance
with the Group's accounting policies the goodwill arising on consolidation of
US$15.5m has been capitalised. Acquisitions during the year include the
purchase of John Brown E&C Limited in January and Offshore Design Limited in
April. In July, the Group increased its shareholding in one of its Engineering
and Production Facilities joint venture companies. In September, one of the
Group's joint venture companies in the Gas Turbine Services division acquired a
repair and overhaul business.
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 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 during the year.
Deferred consideration payments of US$9.2m were made during the year in respect
of acquisitions made in prior periods and resulted in additional goodwill of
US$3.2m.
The outflow of cash and cash equivalents on the acquisitions made during the
year is analysed as follows:
US$m
Cash consideration 29.0
Cash acquired (4.8)
24.2
The results of the Group, as if the above acquisitions had been made at the
beginning of period, would have been as follows:
US$m
Revenues 2,771.3
Profit for the year 84.3
The acquired businesses earned cumulative revenues of US$9.4m from the
beginning of the year to their respective acquisition dates. From the dates of
acquisition to 31 December 2005, the acquisitions contributed US$18.9m to
revenues and US$0.3m to profit for the year.
Disposals
Details of the assets and liabilities disposed of during the year were as
follows:
US$m
Property plant and equipment 1.0
Inventories 11.2
Trade and other receivables 9.8
Cash and cash equivalents 1.0
Trade and other payables (2.7)
Income tax liabilities (0.4)
Provisions (0.2)
Net assets disposed of 19.7
Net proceeds received and receivable 31.4
Other disposal costs (2.0)
Profit on disposal of subsidiaries 9.7
Reconciliation of net proceeds to cash inflow from disposal of subsidiaries
US$m
Net proceeds received and receivable 31.4
Cash disposed of (1.0)
Deferred consideration (7.6)
Cash inflow from disposal of subsidiaries 22.8
29 Employees and directors
Employee benefits expense 2005 2004
US$m US$m
Wages and salaries 869.0 747.5
Social security costs 73.2 61.1
Pension costs - defined benefit schemes (note 30) 7.0 5.5
Pension costs - defined contribution schemes (note 30) 17.1 15.0
966.3 829.1
Average monthly number of employees (including executive 2005 2004
directors)
No. No.
By geographical area:
Europe 3,952 3,484
North America 7,576 6,878
Rest of the World 5,059 4,276
16,587 14,638
Key management compensation 2005 2004
US$m US$m
Salaries and short-term employee benefits 13.7 10.1
Amounts receivable under long-term incentive schemes 4.5 0.8
Post employment benefits 0.9 0.7
Share based charges 5.4 0.8
24.5 12.4
The key management figures given above include executive directors.
2005 2004
Directors US$m US$m
Aggregate emoluments 4.4 3.1
Aggregate gains made on the exercise of share options 2.1 0.5
Aggregate amounts receivable under long-term incentive 1.1 -
schemes
Company contributions to defined contribution pension 0.1 -
schemes
7.7 3.6
One director (2004: one) has retirement benefits accruing under a deferred
contribution pension scheme. Retirement benefits are accruing to five (2004:
five) directors under the company's defined benefit pension scheme. Further
details of directors emoluments are provided in the Directors' Remuneration
Report.
30 Retirement benefit liabilities
One of the Group's pension schemes in the UK, the John Wood Group PLC
Retirement Benefits Scheme, is a defined benefit scheme, which is contracted
out of the State Scheme and provides benefits based on final pensionable
salary. The assets of the scheme are held separately from those of the Group,
being invested with independent investment companies in trustee administered
funds.
The most recent actuarial valuation of the scheme was carried out at 5 April
2004 by a professionally qualified actuary.
The principal assumptions made by the actuaries at the balance sheet date were:
2005 2004
% %
Rate of increase in pensionable salaries 4.75 4.75
Rate of increase in pensions in payment and deferred 2.75 2.75
pensions
Discount rate 4.80 5.30
Inflation assumption 2.75 2.75
Expected return on scheme assets 7.09 7.16
The expected return on scheme assets is based on market expectation at the
beginning of the period for returns over the entire life of the benefit
obligation.
The exchange rates used to retranslate the pension disclosures into US$ are as
follows:
2005 2004
Average rate £1 = US$ 1.8170 1.8310
Closing rate £1 = US$ 1.7168 1.9199
Pension
The amounts recognised in the balance sheet are determined as follows:
2005 2004
US$m US$m
Present value of funded obligations (137.0) (122.2)
Fair value of scheme assets 103.7 88.3
Net liabilities (33.3) (33.9)
The major categories of scheme assets as a percentage of total scheme assets
are as follows:
2005 2004
% %
Equity securities 84.7 85.1
Corporate bonds 7.5 7.3
Gilts 7.7 7.3
Cash 0.1 0.3
The amounts recognised in the income statement are as follows:
2005 2004
US$m US$m
Current service cost included within employee benefits
expense 7.0 5.5
Interest cost 6.3 5.3
Expected return on scheme assets (6.2) (5.0)
Total included within net finance expense 0.1 0.3
The employee benefits expense is included within administrative expenses.
Changes in the present value of the defined benefit liability are as follows:
2005 2004
US$m US$m
Present value of obligation at 1 January 122.2 93.0
Current cost 7.0 5.5
Interest cost 6.3 5.3
Actuarial losses 14.8 9.7
Scheme participants contributions 3.2 3.5
Benefits paid (2.1) (2.6)
Exchange differences (14.4) 7.8
Present value of obligation at 31 December 137.0 122.2
Changes in the fair value of scheme assets are as follows:
2005 2004
US$m US$m
Fair value of scheme assets at 1 January 88.3 65.5
Expected return on scheme assets 6.2 5.0
Contributions 9.7 9.9
Benefits paid (2.1) (2.6)
Actuarial gains 12.3 4.9
Exchange differences (10.7) 5.6
Fair value of scheme assets at 31 December 103.7 88.3
Analysis of the movement in the balance sheet liability:
2005 2004
US$m US$m
At 1 January 33.9 27.5
Current service cost 7.0 5.5
Finance costs 0.1 0.3
Contributions (6.5) (6.4)
Net actuarial losses recognised in the year 2.5 4.8
Exchange differences (3.7) 2.2
At 31 December 33.3 33.9
Cumulative actuarial gains and losses recognised in equity:
2005 2004
US$m US$m
At 1 January 33.0 28.2
Net actuarial losses recognised in the year 2.5 4.8
At 31 December 35.5 33.0
The actual return on scheme assets was US$18.5m (2004 : US$9.9m).
History of experience gains and losses:
2005 2004 2003 2002 2001
Difference between the expected and
actual return on scheme assets :
Amount (US$m) 12.3 4.9 6.3 (11.6) (8.0)
Percentage of scheme assets 12% 6% 10% 26% 19%
Experience losses on scheme
liabilities:
Amount (US$m) (14.8) (9.7) (7.5) (2.4) (2.1)
Percentage of the present value of the 11% 8% 8% 4% 4%
scheme liabilities
Present value of scheme liabilities 137.0 122.2 93.0 67.1 50.8
Fair value of scheme assets 103.7 88.3 65.5 43.8 43.2
Deficit 33.3 33.9 27.5 23.3 7.6
The contribution expected to be paid during the financial year ending 31
December 2006 amounts to US$5.5m.
Pension costs for defined contribution schemes are as follows:
2005 2004
US$m US$m
Defined contribution schemes 17.1 15.0
31 Operating lease commitments - minimum lease payments
2005 2004
Vehicles, Vehicles,
plant and plant and
equipment equipment
Property Property
US$m US$m US$m US$m
Commitments under non-cancellable
operating leases expiring:
Within one year 5.5 1.4 5.6 1.4
Later than one year and less than five 23.5 8.9 18.0 5.4
years
After five years 11.0 0.4 14.5 0.1
40.0 10.7 38.1 6.9
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.
32 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 2005, the Group has outstanding guarantees of US$14.0m (2004 :
US$18.4m) in respect of joint venture banking arrangements.
33 Capital and other financial commitments
2005 2004
US$m US$m
Contracts placed for future capital expenditure not
provided in the financial statements 4.4 4.5
The capital expenditure above relates to property plant and equipment. There
are no significant joint venture capital commitments included in the figures
above.
There are financial commitments relating to the purchase of shares from certain
subsidiary minority shareholders based on the profits of these subsidiaries and
the payments extend over a number of years. The remaining 6.6% of Mustang
Engineering Holdings Inc. is due to be acquired in the first half of 2006.
34 Related party transactions
The following transactions were carried out with the Group's joint ventures.
These transactions comprise sales and purchases of goods and services in the
ordinary course of business.
2005 2004
US$m US$m
Sale of goods and services to joint ventures 95.2 75.0
Purchase of goods and services from joint ventures 6.7 19.9
Receivables from joint ventures 12.7 22.4
Payables to joint ventures 5.8 17.7
In addition to the above, the Group charged JW Holdings Limited, a company in
which Sir Ian Wood holds a controlling interest, an amount of US$0.1m (2004 :
US$0.2m) for management services provided under normal commercial terms.
Key management compensation is disclosed in note 29.
35 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:
Wood Group Engineering (North UK 100 Engineering design,
Sea) Limited operations maintenance and
management
SIGMA 3 (North Sea) Limited UK 33.3* Engineering design,
operations maintenance and
management
Mustang Engineering Holdings USA 93.4 Engineering design
Inc.
Alliance Wood Group USA 100 Engineering design
Engineering L.P.
J P Kenny Engineering Limited UK 100 Engineering design
SIMCO Consortium Venezuela 49.5* Operations maintenance and
management
Wood Group Production USA 100 Operations maintenance and
Services, Inc. management
Wood Group Colombia S.A. Colombia 100 Operations maintenance and
management
Deepwater Specialists Inc USA 100 Commissioning services
Wood Group Equatorial Guinea Cyprus 100 Operations maintenance and
Limited management
Well Support:
Wood Group ESP, Inc. USA 100 Electric submersible pumps
Corporacion ESP de Venezuela Venezuela 100 Electric submersible pumps
CA
Wood Group Products & Argentina 100 Electric submersible pumps
Services SA
Wood Group Pressure Control, USA 100 Valves and wellhead
L.P. equipment
Wood Group Pressure Control UK 100 Valves and wellhead
Limited equipment
Wood Group Logging Services USA 100 Logging services
Inc.
Gas Turbine Services:
Wood Group Light Industrial UK 100 Gas turbine repair and
Turbines Limited overhaul
Wood Group Engineering Jersey 100 Gas turbine repair and
Services (Middle East) overhaul
Limited
Rolls Wood Group (Repair & UK 50* Gas turbine repair and
Overhauls)Limited overhaul
TransCanada Turbines Limited Canada 50* Gas turbine repair and
overhaul
Wood Group HIT AG Switzerland 100 Provision of gas turbine
parts
Wood Group Gas Turbine UK 100 Gas turbine repair and
Services Limited overhaul
Wood Group Field Services, USA 100 Gas turbine repair and
Inc. overhaul
Wood Group Power Solutions, USA 100 Provision of gas turbine
Inc. packages
The proportion of voting power held equates to the ownership interest, other
than for joint ventures (marked *) which are jointly controlled.
36 Reconciliation of net assets and profit under UK GAAP to IFRS
(i) Reconciliation of income statement - year ended 31 December 2004
As Proportional As
reported Consolidation IFRS reported
of Joint Adjustments under
under Ventures IFRS
UK GAAP Note (a)
Note US$m US$m US$m US$m
Revenues 2,288.1 - - 2,288.1
Share of joint venture (285.6) 285.6 - -
revenues
Group revenues 2,002.5 285.6 - 2,288.1
Cost of Sales (1,592.2) (226.3) - (1,818.5)
Gross profit 410.3 59.3 - 469.6
Administrative expenses (b) (338.3) (32.0) 12.5 (357.8)
(c)
(d)
Impairment and restructuring (26.2) - - (26.2)
charges
Share of joint venture 27.3 (27.3) - -
operating profit
Operating profit 73.1 - 12.5 85.6
Finance income 1.8 - - 1.8
Finance expense (21.2) - - (21.2)
Profit before taxation 53.7 - 12.5 66.2
Taxation (e) (24.9) - (1.9) (26.8)
Profit for the year 28.8 - 10.6 39.4
Attributable to:
Equity shareholders 26.7 - 10.6 37.3
Minority interest 2.1 - - 2.1
28.8 - 10.6 39.4
An explanation of the IFRS adjustments is given on page 49.
36 Reconciliation of net assets and profit under UK GAAP to IFRS (continued)
(ii) Reconciliation of equity at 1 January 2004 (date of transition to IFRS)
As
As Proportional reported
reported Consolidation IFRS under
of Joint Adjustments IFRS
under Ventures
UK GAAP Note (a)
Note US$m US$m US$m US$m
Assets
Non-current assets
Goodwill 217.2 18.8 - 236.0
Intangible assets (c) 3.2 1.6 2.1 6.9
Property plant and equipment (c) 174.2 53.4 (2.1) 225.5
Investment in joint ventures 103.6 (103.6) - -
Long term receivables 28.4 - - 28.4
Deferred tax assets (f) 9.7 1.0 8.2 18.9
536.3 (28.8) 8.2 515.7
Current assets
Inventories 180.5 62.1 - 242.6
Trade and other receivables 386.9 66.8 - 453.7
Income tax receivable 8.1 1.3 - 9.4
Cash and cash equivalents 69.8 21.0 - 90.8
645.3 151.2 - 796.5
Liabilities
Current liabilities
Borrowings 13.9 24.3 - 38.2
Trade and other payables (g) 326.6 61.0 (10.4) 377.2
Income tax liabilities 18.2 2.0 - 20.2
358.7 87.3 (10.4) 435.6
Net current assets 286.6 63.9 10.4 360.9
Non-current liabilities
Borrowings 230.9 30.3 - 261.2
Deferred tax liabilities 10.2 1.1 - 11.3
Retirement benefit liabilities (f) 19.3 - 8.2 27.5
Other non-current liabilities 7.5 1.4 - 8.9
Provisions 14.8 2.3 - 17.1
282.7 35.1 8.2 326.0
Net assets 540.2 - 10.4 550.6
Shareholders' equity
Ordinary shares 23.4 - - 23.4
Share premium 200.8 - - 200.8
Retained earnings (g) 209.2 - 10.4 219.6
Other reserves 88.1 - - 88.1
Total shareholders' equity 521.5 - 10.4 531.9
Minority interest 18.7 - - 18.7
Total equity 540.2 - 10.4 550.6
(iii) Reconciliation of equity at 31 December 2004
As Proportional As
reported Consolidation IFRS reported
of Joint Adjustments under
under Ventures IFRS
UK GAAP Note (a)
Note US$m US$m US$m US$m
Assets
Non-current assets
Goodwill (c) (d) 264.7 18.2 14.2 297.1
Intangible assets (c) 4.1 1.4 6.3 11.8
Property plant and (c) 168.8 53.7 (6.3) 216.2
equipment
Investment in joint 104.5 (104.5) - -
ventures
Long term receivables 21.9 0.7 - 22.6
Deferred tax assets (e) (f) 11.5 1.1 8.3 20.9
575.5 (29.4) 22.5 568.6
Current assets
Inventories 264.4 65.5 - 329.9
Trade and other receivables 507.0 72.3 - 579.3
Income tax receivable 9.7 (2.9) - 6.8
Cash and cash equivalents 54.4 17.0 - 71.4
835.5 151.9 - 987.4
Liabilities
Current liabilities
Borrowings 18.2 52.5 - 70.7
Trade and other payables (g) 453.6 54.2 (11.1) 496.7
Income tax liabilities 12.1 (0.3) - 11.8
483.9 106.4 (11.1) 579.2
Net current assets 351.6 45.5 11.1 408.2
Non-current liabilities
Borrowings 345.0 10.0 - 355.0
Deferred tax liabilities 7.3 1.3 - 8.6
Retirement benefit (f) 23.7 - 10.2 33.9
liabilities
Other non-current 18.7 3.0 - 21.7
liabilities
Provisions 13.9 1.8 - 15.7
408.6 16.1 10.2 434.9
Net assets 518.5 - 23.4 541.9
Shareholders' equity
Ordinary shares 23.5 - - 23.5
Share premium 200.9 - - 200.9
Retained earnings (c)(d) 192.3 - 23.4 215.7
(e)(g)
Other reserves 89.8 - - 89.8
Total shareholders' equity 506.5 - 23.4 529.9
Minority interest 12.0 - - 12.0
Total equity 518.5 - 23.4 541.9
Explanatory notes to the UK GAAP to IFRS reconciliations
(a) Joint ventures
Under UK GAAP, joint ventures are accounted for using equity accounting with
the Group's share of profits being shown in the consolidated income statement
and the Group's share of net assets included in the consolidated balance sheet.
As permitted under IFRS, the Group has used proportional consolidation to
consolidate its joint ventures. 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. The Group has
presented the proportional consolidation of the joint ventures as a separate
column in the UK GAAP to IFRS reconciliations. Shareholders' equity is not
impacted by the adoption of proportional consolidation.
(b) Share based charges
Under UK GAAP, charges for share based payments are based on the intrinsic
value of share options awarded at the grant date. Under IFRS, the charge is
based on the fair value of the share options awarded at the grant date. The
fair value is calculated using option pricing models and applies to all options
granted after 7 November 2002 and not vested at 1 January 2005. The adjustment
for the year ended 31 December 2004 is US$1.7m.
(c) Other intangible assets
Purchased intangible assets other than goodwill are recognised on acquisition
and amortised over their useful life. On the acquisition of a business, any
intangible asset that may exist separately from goodwill and that meets the
recognition criteria under IFRS should be recognised and amortised over its
useful economic life. Under IFRS, the recognition criteria for intangible
assets may result in the recognition of more intangible assets than under UK
GAAP. On transition to IFRS, US$2.7m of intangible assets have been recognised
on acquisitions made in 2004. These intangible assets had a useful economic
life of less than one year and as a result were fully amortised during 2004. A
charge of US$2.7m was booked for the year ended 31 December 2004.
Additionally, computer software, which was previously included in property
plant and equipment under UK GAAP, has been reclassified under other intangible
assets as required by IFRS. US$2.1m was reclassified in the opening balance
sheet (note that this adjustment was not made in the opening balance sheet
provided with the interim accounts). US$6.3m was reclassified in the balance
sheet at 31 December 2004. Amortisation on this software is added back to
operating profit for the calculation of EBITA. There is no impact on EBITDA as
the amortisation was previously treated as depreciation. Software amortisation
for the year to December 2004 was US$2.0m.
(d) Goodwill
Under UK GAAP, goodwill is amortised on a straight line basis over its
estimated useful life. Under IFRS 3, goodwill is not amortised but subject to
an annual impairment review. Goodwill amortisation of US$16.9m booked in 2004
under UK GAAP has been reversed and goodwill is carried at 1 January 2004
levels.
(e) Tax
Under UK GAAP, the provision for deferred tax is based on a timing difference
approach, whereas under IFRS a temporary difference approach is used.
Consequently, accounting under IFRS may result in the provision of additional
deferred tax. Due to the reversal of the goodwill amortisation charge for 2004
mentioned at (d) above, the book value of goodwill has increased. There has
been no change in the underyling tax basis of the goodwill in those countries
where amortisation is tax deductible and therefore additional deferred tax
arises on the increase in the temporary difference. Additional deferred tax of
US$1.9m has been provided for the year ended December 2004.
(f) Deferred tax relating to retirement benefit liabilities
Under UK GAAP, the deferred tax assets in respect of retirement benefit
liabilities are netted against the liabilities. Under IFRS the deferred tax
relating to retirement benefit liabilities is split out and shown separately on
the face of the balance sheet. The deferred tax asset at 1 January 2004
amounted to US$8.2m and at 31 December 2004 US$10.2m.
(g) Dividends
Under UK GAAP, proposed dividends are recognised at the balance sheet date.
IFRS requires that dividends should not be recognised as a liability or charged
to equity until they have been declared. As a result, the dividends accrued at
31 December 2003 (US$10.4m) and 31 December 2004 (US$11.1m) under UK GAAP have
been reversed and only dividends paid in the year recognised in the financial
statements.
(h) Cash flow statement
The Group cash flow statement has been prepared in accordance with IFRS. The
changes to the Group's cash flows that were previously presented under UK GAAP
are mainly presentational although the proportional consolidation of joint
ventures results in the Group's share of its joint venture cash flows being
included on a line by line basis. Under IFRS, the cash flow statement presents
'cash and cash equivalents' which includes short-term deposits. In the UK GAAP
cash flow statement the movement in short-term deposits was shown separately
from the movement in cash.
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 5 May 2006
as published in the Financial Times on 6 May 2006.
Officers and advisers
Secretary and Registered Office Registrars
I Johnson Lloyds TSB Registrars Scotland
John Wood Group PLC PO Box 28448
John Wood House Finance House
Greenwell Road Orchard Brae
ABERDEEN EDINBURGH
AB12 3AX EH4 1WQ
Tel: 01224 851000 Tel: 0870 601 5366
Stockbrokers Auditors
JPMorgan Cazenove Limited PricewaterhouseCoopers LLP
Credit Suisse Chartered Accountants
Financial calendar
Results announced 6 March 2006
Ex-dividend date 3 May 2006
Dividend record date 5 May 2006
Annual General Meeting 18 May 2006
Dividend payment date 25 May 2006
The Group's Investor Relations website can be accessed at www.woodgroup.com.
END
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