Final Results

Wood Group (John) PLC 08 March 2005 John Wood Group PLC Final results for the year ended 31 December 2004 John Wood Group PLC ('Wood Group') is a market leader in the provision of engineering design, production support and industrial gas turbine services to customers in the oil & gas and power generation industries around the world. Operating in 36 countries, Wood Group's businesses employ over 14,000 people. Performance and outlook in line with January trading update Financial highlights â€¢ Revenues up 15% to US$2,288.1 million (2003: US$1,992.6 million) â€¢ EBITA 1 decreased 15% to $117.1 million (2003: US$137.2 million) â€¢ Profit before tax US$53.7 million (2003: US$83.0 million), after exceptional charges of US$26.2 million (2003: $20.0 million) â€¢ Adjusted diluted earnings per share2 13.1 cents (2003: 15.4 cents) â€¢ Investment and capital spend of US$131.7 million (2002: US$99.6 million) â€¢ Final dividend of 2.4 cents per ordinary share (2003: 2.2 cents); total for the year 3.6 cents (2003: 3.3 cents) Operating highlights â€¢ Engineering and Production Facilities: as previously indicated, lower volumes in the deepwater engineering market reduced our profitability - Production Facilities: good revenue growth, contract renewals in North Sea, and continued expansion into new territories - Engineering: steps taken to broaden engineering services & extend international reach from UK and Australia â€¢ Well Support: strong performance across all three businesses; increase in revenue, EBITA and operating margin; solid growth in North and South America; good progress in increasing international reach, including Russia and China; significant contract win in Chad with ExxonMobil. â€¢ Gas Turbine Services: a difficult year with disappointing overall financial performance; but cost reductions and efficiency improvements delivering anticipated benefits. Steps taken to enhance differentiation, focusing on higher tech component repair, extending range of re-engineered parts & growing proportion of business under long-term maintenance agreements. Sir Ian Wood, Chairman, Wood Group, commented: 'We believe that we are well positioned to exploit key growth segments in the strong worldwide oil and gas markets and, after the challenges we faced in 2004, we are confident of a return to acceptable growth in 2005.' - Ends - Information: Wood Group Sir Ian Wood Chairman & Chief Executive 020 7404 5959 on 8th March Allister Langlands Deputy Chief Executive Thereafter 01224 851000 Alan Semple Finance Director Nick Gilman Investor Relations Manager Carolyn Smith Corporate Communications 01224 851099 Brunswick Patrick Handley 020 7404 5959 Nina Coad Chairman's Statement Although revenue grew to US$2,288.1 million (2003: US$1,992.6m), the overall financial performance for the year was disappointing with EBITA down to US$117.1m (2003: US$137.2m) and our adjusted earnings per share down to 13.1 cents (2003: 15.4 cents). Reflecting confidence in our long-term strategy, the Board is recommending a final dividend of 2.4 cents per ordinary share which takes the total for the year to 3.6 cents (2003: 3.3 cents). As we reported during the year, our financial performance was impacted by the slower than anticipated release of deepwater engineering contracts and the continuing difficulties in the US power market. We have taken steps to improve our strategic positioning and financial performance in these areas. In engineering, we are broadening our service offering and extending our international reach. In our power related businesses, we have carried out a significant programme of restructuring, continued our development spend in higher technology areas and focused on increasing our presence throughout the Eastern hemisphere. We have also maintained our Group investment programme, with total capital and acquisition spend of US$131.7 million (2003: US$99.6 million). This includes five new acquisitions and the cost of acquiring a further 6.63% share of Mustang. A Challenging Year In Engineering & Production Facilities, revenues were up 10% to US$1,199.6 million (2003: US$1,095.2 million), however EBITA fell 24% to US$73.1 million (2003: US$95.8 million), as a result of low volumes in the deepwater engineering market reducing our revenues and margins. The economics of deepwater developments remain compelling and the market will grow again. In the meantime, we are successfully broadening our engineering capabilities and extending our international reach. Our upstream projects included the shallow and deepwater sections of Amerada Hess's Elon development in Equatorial Guinea, and Kerr McGee's Constitution, ChevronTexaco's Tahiti and GulfTerra's Independence Hub developments in the Gulf of Mexico. In midstream, we have continued to strengthen our team and develop technology in Liquefied Natural Gas (LNG) re-gasification and storage. In downstream, we are working on a number of clean fuel modifications and refinery upgrade projects. Internationally, we are extending Mustang's activities and presence in the UK and Australia. Production Facilities had another good year from its established operations and made good progress in developing new territories. The North Sea continues to be our largest market, and in 2004 we were re-awarded major contracts by BP and Shell, as well as developing our relationships with a range of new operators. In the rest of the world, we are now one of the largest operations and maintenance contractors in the Gulf of Mexico, we continue to develop our business in Colombia and Venezuela, and we are providing support to Marathon and ExxonMobil in Equatorial Guinea. We have also extended our service offering with the acquisition of Deepwater Specialists Inc (DSI), a New Orleans based provider of facilities commissioning services and start-up support to upstream developments. Well Support had a very good year with revenues up 25% to US$513.9 million (2003: US$412.6 million), and EBITA up 32% to US$41.3 million (2003: US$31.4 million). Our electric submersible pumps (ESP) business performed well in North and South America and achieved good growth in the rest of the world, including Russia where we opened a repair facility in 2004. Since the year-end, we have won a significant contract in Chad to supply ESP systems and services to Esso Exploration & Production Chad Inc. We are continuing to enhance our ESP product offering with a number of improvements to extend equipment life and lower lifetime operating costs. Pressure Control continues to target growing market share outside North America, and to improve performance internationally, with new contracts in Russia and Mexico. The focus on cost-efficient manufacturing continued and we are developing new facilities in China. Logging Services showed good revenue and EBITA improvement in 2004, particularly driven by slickline services in the US, electric wireline services in Argentina and Venezuela, and our permanent well monitoring business. In contrast, Gas Turbine Services' overall performance was very disappointing. Although revenues were up 18% to US$537.9 million (2003: US$455.4 million), EBITA was down 25% to US$24.0 million (2003: US$31.9 million). Our aero-derivative activities in the oil & gas industry performed well. However, as we reported during the year, our power related activities were impacted by the aftermarket weakness. We have undertaken a significant programme of cost reductions and efficiency improvements, which are now delivering the anticipated benefits and contributed to an improved second half performance. We have also taken steps to enhance our heavy industrial turbine differentiation, focusing on higher technology component repair, and extending our range of re-engineered parts. We are growing our activities in the Eastern Hemisphere and the proportion of our business under long-term maintenance agreements worldwide, following contract wins with BP in the Gulf of Mexico, the GLOW Group in Thailand, Dhofar Power in Oman and Termonorte Energia LTDA, partially owned by El Paso Energy, in Brazil. Our People This year we were pleased to welcome three new Directors to the Board. Trevor Noble and Les Thomas settled in well to the task of leading the growth in Engineering and Production Facilities, and Neil H. Smith, who has valuable power generation experience as COO of InterGen, an international power producer, is a new Non-Executive Board colleague. My sincere thanks to our Board, both Executive and Non-Executive, for their continuing advice and support. Wood Group's principal and most valued asset continues to be our people and my warmest thanks go to all our employees (now more than 14,000 in 36 countries) for their dedication to service and customer care, their skill and their commitment. Returning to growth We are currently in what appears to be a stable high oil and gas price environment and worldwide exploration and production spend should grow by 5% to 10% in the year ahead. Engineering should enjoy a healthy upstream engineering market and see progress in developing its mid and downstream activities, and Production Facilities should continue its strong performance in its established areas. The extension of our services and international presence in both these activities will incur higher business development costs. In Well Support we expect our product enhancements, efficiency improvements and increased market share in a number of new territories to contribute to improving results. Gas Turbine Services should continue its recovery with the benefit of the cost reductions and efficiency improvements, the shift to higher technology component repair, the growth in new part sales and success in winning longer-term service agreements. We believe that we are well positioned to exploit key growth segments in the strong worldwide oil and gas markets and, after the challenges we faced in 2004, are confident of a return to acceptable growth in 2005. Engineering & Production Facilities Engineering & Production Facilities provides a broad range of engineering design, project management, modifications, and operations & maintenance support to oil & gas customers worldwide. Although our Production Facilities activities showed good revenue growth, the Division was impacted by the reduced activity levels in the deepwater engineering market and the ongoing cost of investment to broaden our capability and expand our international presence. Revenues rose to US$1,199.6m (2003: US$1,095.2m) and EBITA was US$73.1m (2003: US$95.8m). Engineering We offer a broad range of engineering services in the design of oil & gas production, transportation and processing facilities, with particular expertise in: - Upstream engineering: including deepwater & lightweight topsides; subsea engineering and onshore processing facilities - Midstream engineering: including offshore & onshore pipeline engineering; compression and LNG (liquefied natural gas)/ GTL (gas to liquids) - Downstream engineering: including clean fuel modifications, refinery upgrades and pharmaceuticals In 2004, we continued to be involved in a large number of upstream projects and won a range of important contracts. However, revenues in our engineering activities were lower as a result of industry-wide delays in the award of deepwater contracts. The economics of major deepwater developments remains compelling and we hope to maintain a high market share as the market grows. To balance our deepwater activities, we are broadening our service offering and extending our international reach. Mustang has established new centres in the UK and Australia, to improve our positioning to grow our engineering business in the Eastern hemisphere. In London, we have acquired Woodhill Engineering Consultants and are beginning to build up an experienced senior management team, and in Perth we are increasing our presence in the Australian and wider Asia Pacific market. In the Gulf of Mexico we continued to work for BP on their deepwater development programme. The first two platforms - Holstein and Mad Dog - have now moved into production, with Thunder Horse and Atlantis scheduled to commence production over the next 24 months. Following on from our previous work on their Nansen, Gunnison and Boomvang developments, we have begun to provide engineering, project management and procurement services for the topsides facility on a truss spar for Kerr McGee's Constitution development. We are also providing Front End Engineering Design (FEED) services for ChevronTexaco's Tahiti topsides oil and gas processing facilities and detailed engineering to GulfTerra's Independence Hub (formerly known as the Atwater Valley project). In the North Sea, we carried out the engineering and project management for the BP Clair development West of Shetland that successfully achieved first oil in February 2005. In West Africa, we worked on detailed engineering for a compliant piled tower in support of ChevronTexaco's Benguela-Belize development and, towards the end of the year, we began work on the detailed engineering for Amerada Hess's Elon development in Equatorial Guinea. In Asia Pacific, we provided subsea FEED services, including subsea pipeline expertise, to Murphy's Kikeh discovery, and, in Venezuela, we provided engineering and project management services to ConocoPhillips' offshore CoroCoro development. In Trinidad, NM Wood Group was awarded a contract to provide engineering and related services for BG's ECMA (East Coast Marine Area) Beachfield Onshore Facilities project. Our pipeline engineering activities delivered good growth in the year, including work from Enagas for the design of the proposed pipeline from Spain to the Balearic Islands and from Zadco for the design of the potential replacement Zakum Main Oil Line in Abu Dhabi. In addition, Multiphase Solutions Inc (MSI) - a specialist provider of engineering and consulting services and of applications for use in the design, operation and optimisation of oil and gas pipelines and production facilities - has performed well since acquisition and added to our subsea engineering and pipeline activities. An important focus for the Group is to expand our presence in the midstream and downstream areas. In order to accelerate our growth in the important LNG market, we have sought to develop some proprietary technologies that we believe will bring cost and efficiency advantages to our clients. In 2004, we completed the successful demonstration of the proprietary air exchange vaporiser for the LNG SmartTM Vaporisation process. In addition, following on from the successful completion of Syntroleum's GTL demonstration facility in Oklahoma, Mustang entered into an agreement to become an authorised provider of engineering support to Syntroleum's GTL technology around the world. In the downstream area, activity levels were strong in North America in the year. Examples of some of the work we have undertaken include engineering services for Tesoro in relation to low sulphur gas and low sulphur diesel modifications to their Anacordes refinery and to Amerada Hess for low sulphur modifications to their Port Reding refinery. In addition, in Qatar, we are working on a FEED study for an ammonia/ methanol plant. To support our West Coast clients we opened a new office in California in the year. Our automation business, providing engineering services and consultancy, was strengthened by the addition of Ellipsys, and performed well in the period. Production Facilities We offer a broad range of production facilities support to our clients around the world, with particular expertise in: - Production enhancement services: water injection; gas injection and gas compression; debottlenecking and maintaining high operational uptime of facilities - Maintenance management: maintenance system design; life-of field modifications engineering; planning & execution; operations and maintenance support; and gas turbine and rotating equipment repair & maintenance It was another strong year in the North Sea. We were reappointed as one of BP's two main engineering, modifications and maintenance providers to its North Sea assets. The contract is initially for three years and involves the provision of services to around half of BP's UK North Sea assets located East and West of Shetland, Central North Sea and the Sullom Voe Terminal. The Sigma 3 joint venture (one third Wood Group) is continuing to provide support to Shell's assets in the northern North Sea. Wood Group was also reappointed by Shell to provide engineering design, maintenance support and construction services to its onshore assets at St Fergus Gas Plant, Fife Gas Plant at Mosmorran, Fife Braefoot Bay Terminal plus offshore support for the Goldeneye platform. Elsewhere in the North Sea we continue to work for a number of other important clients, including Apache, Nexen, Talisman and TOTAL. Production Facilities in the Gulf of Mexico had a good performance in the year. We carry out field management for in excess of 220 offshore manned platforms and for 180 offshore unmanned platforms for a wide range of operators, including Forest, Pogo and Unocal. In April, we acquired Deepwater Specialists Inc (DSI), a New Orleans based provider of facilities commissioning services and start-up support to the upstream industry. DSI is an excellent fit between our activities in the design and project management of new upstream facilities and our operations and maintenance capabilities. The company has performed well since acquisition, including good progress on its important contract in West Africa, commissioning Shell's Bonga facility. In Colombia, we increased our activity with BP on their Florena and Recetor fields and, in Venezuela, Simco, a Wood Group-managed consortium, continued to provide water injection services to PDVSA on Lake Maracaibo. In Equatorial Guinea, we are providing operations support to Marathon's offshore production and its onshore gas processing and export facilities and commenced offshore operations and maintenance support, along with onshore training and development support for ExxonMobil. In Brunei, the Wood Group led SKS Wood joint venture began its five-year $160million contract with Brunei Shell Petroleum for maintenance services, and the management and execution of engineering fabrication and offshore construction to upgrade some of its offshore facilities in Brunei Darussalam. Well Support Well Support provides solutions, products and services to increase production rates and recovery from oil and & gas reservoirs. It is among the market leaders internationally in artificial lift using electric submersible pumps (ESP's) and in the provision of surface wellheads and valves. In the Gulf of Mexico and in parts of South America, it has a strong market share in the provision of electric wireline and slickline services. Against a favourable market backdrop, Well Support performed well and achieved significant growth in 2004. Revenues were US$513.9m (2003: US$412.6m) and EBITA was US$41.3m (2003: US$31.4m). Electric Submersible Pumps (ESPs) The demand for ESPs to provide artificial lift to drive production continues to grow. We are the third largest ESP supplier in the world and gained market share in a number of key regions. Firstly, ESP has continued its growth in its established North and South American markets. In North America, there has been strong performance from both the US and Canadian operations and, in South America, work with PDVSA and other operators in Venezuela continues to expand. Likewise, we made good progress in Argentina, where we are increasing the local manufacturing content. Historically, we have been under represented in Russia, the world's largest ESP market. During the year we have increased the Group's presence in the market, including opening a repair facility in Nizhnevartovsk, in Western Siberia. Since the year-end, building on our existing operations in North and West Africa, we have been awarded a 10-year performance-based contract to supply ESP systems and services to Esso Exploration and Production Chad Inc, the operator for a consortium working in the Doba region of Southern Chad. The contract includes the maintenance and repair of existing pumps, along with the installation, maintenance and repair of new equipment. We are continually looking to enhance and improve our product offering. During the year we introduced a new low pressure, minimal vibration surface pumping system, which has been successful in reducing maintenance requirements and lowering lifetime operating costs. In 2004, we also enhanced the vibration and leak monitoring capabilities of our pumps which should contribute to longer run lives. Pressure Control Wood Group Pressure Control strengthened its number two market position in the US, and maintained its position as the fourth largest worldwide supplier of surface wellheads and valves. In North America we delivered another year of good growth, with increased revenues in Canada following the acquisition of Barber Industries in 2003. We continue to provide equipment to both independent and major oil companies, and during the period won important new contracts from Pure Resources and EnCana, together with contract extensions from a number of important customers, including EOG ReSources, Inc, Dominion Exploration & Production, Newfield and Marathon. During 2004, we successfully refocused our sales and service organisations to serve the very active gas drilling market in Texas, the mid-Continent and Rocky Mountains. Outside North America, we continued to make good progress. During the year we won new contracts in Russia and Mexico and continued to build on our presence in Mexico, Australia, Egypt, Indonesia, Kazakhstan, Oman, the North Sea, Saudi Arabia, and Venezuela. Customers in the Middle East included Saudi Aramco and Merlon, while in Asia we provided services to BP, Burlington, Caltex, Kufpec, Santos and Oil Search. Our North Sea business generated revenues from a wide range of clients, including Apache, BP, Nexen, Shell and Talisman, while in Venezuela we continue to carry out a significant amount of work for PDVSA. We maintained our ongoing efforts to improve manufacturing efficiency, including commencing operation at a new manufacturing centre in Tianjin in China, which should help drive further cost improvements. Logging Services Wood Group Logging Services provides services and products focused on data acquisition and downhole operations. This includes cased hole electric wireline and slickline well logging and the supply of permanent well monitoring gauges. During the year we enjoyed good growth in revenues and EBITA, and continued to broaden our service offering. Our slickline operations continued to grow as we expanded market share in the Gulf of Mexico and established new land based operations in Texas. We believe we are now the number two slickline company in the Gulf of Mexico. We also introduced several innovative pieces of technology, including the SmartCable Head, which provides low-cost depth-calibrated pressure and temperature data, and the PowerHammer, which provides an improved method of removing downhole obstructions. Our electric wireline operations continued to grow in the US and South America. Our RapidResponse Pipe Recovery systems and expanded rigless completion services offering contributed positively. In Argentina we believe we are now the number one cased hole electric wireline company. Our permanent well monitoring gauge business performed well, achieving market share gains in the Middle East, Australia, and Africa. Notable contract wins include the supply of permanent gauges to ENI for the Gulf of Mexico, and to Saudi Aramco to certain of its Saudi Arabian fields. Gas Turbine Services Gas Turbine Services is the world-leading independent provider of maintenance, repair and overhaul services for industrial gas turbines, used for power generation, compression and transmission in the oil & gas and power generation industries. We seek to differentiate ourselves through our investment in technology and repair and overhaul processes, and the broad range of services that we provide, enabling us to win contracts across multiple engine types and across a wide range of activities. Gas Turbine Services faced a difficult industrial gas turbines aftermarket, particularly for our US power related businesses. We believe the US power market will remain challenging for some time and have taken steps to improve our financial performance, including a programme of cost reductions and efficiency improvements. These measures delivered the anticipated benefits and contributed to an improved second half performance. 2004 revenues increased to US$537.9million (2003: US$455.4million), but EBITA decreased to US$24.0million (2003: US$31.9million).5 Aero-derivative There are three businesses in aero-derivative gas turbines: Rolls Wood Group - our joint venture with Rolls-Royce; Wood Group Pratt & Whitney - our joint venture with Pratt & Whitney and; TransCanada Turbines - our joint venture with TransCanada Pipelines, which is both GE LM and Rolls-Royce approved. During the year Rolls Wood Group delivered a good performance. The new component repair facility was brought fully on line, following the fire in 2002. There was a successful focus on increasing the number of long-term agreements, and recent wins include contracts with Gaz de France and Energobaltic in Poland. Wood Group Pratt & Whitney continued to perform satisfactorily, despite the difficult US power market. TransCanada Turbines was awarded a long-term contract with BP to provide maintenance services to its fleet of GE LM turbines on three deepwater platforms in the Gulf of Mexico. Both Rolls Wood Group and TransCanada Turbines increased their activity levels in Venezuela. Light Industrial Turbines (LIT) Our LIT activities include the repair and overhaul of the Siemens and Solar light industrial turbine ranges. In 2004, partly due to the deferral of maintenance, our financial performance was reduced. During the year we continued to extend the range of services that we provide, and to expand our presence in new regions around the world with new business in China, Venezuela and the Middle East. Heavy Industrial Turbines (HIT) The Group's HIT activities focus on industrial gas turbines used primarily in power generation. Our HIT activities delivered a disappointing financial performance in the year, although there was some improvement in the second half following the programme of cost reductions and efficiency improvements. The difficult US power market conditions appear to have stabilised, while the power market in the rest of the world will continue to provide opportunities for growth. We continued our focus on increasing the number of turbines under long-term contract. This included two contracts, worth approximately US$90 million in aggregate over up to 18 years from the GLOW Group in Thailand. These contracts involve the provision of packaged maintenance services, covering component repair, spare parts supply, and onsite services for twelve GE Frame 6B turbines operated at two power stations on Thailand's Eastern seaboard. We were also awarded a US$12 million long-term contract to supply spare parts and to provide component repair and onsite services for six GE turbines owned by Dhofar Power Company in the Sultanate of Oman. Since the year-end, we have been awarded a 12-year contract valued at approximately US$2.9 million per annum by Termonorte Energia LTDA, partially owned by EL Paso Energy, to support three GE Frame 7EA turbines in Brazil. Our investment in extending and enhancing our range of re-engineered parts, under the APM (R) brand, led to a number of contract wins over the last twelve months, including in Saudi Arabia and in Thailand. We are also continuing our focus on higher technology component repair and during the year won orders for the repair of parts for the advanced F-Tech range of turbines. Ancillary Power Services Our power plant operations & maintenance activities made good progress. We won eight operations & maintenance contracts in North and South America and believe we are well positioned to win further contracts in 2005. During the year we enhanced our steam turbine capability through an alliance with The Elliott Company, a market leading steam turbine OEM serving both process and power generation customers. Our Turbine Controls business showed good growth in the year and Power Solutions, a business that provides gas turbine packages, enjoyed a strong year. However, our Generator Services business, which provides electrical generator maintenance services to power plant operators, delivered a very disappointing performance and incurred significant losses. Since the year-end, we have strengthened the management team of this business and anticipate an improved performance in 2005. Our Accessories and Components business performed satisfactorily in a difficult market, with lower revenues from civil aviation customers, but good progress in the heavy industrial turbine fuel nozzle market. Financial Review Trading Performance Details of Group-wide developments and the market conditions in the year are set out in the Chairman's statement and the operating reviews. Total revenues increased by 15% from US$1,992.6 million in 2003 to US$2,288.1 million. However, EBITA fell by 15% from US$137.2 million to $117.1 million with increased EBITA in Well Support being offset by lower EBITA in both Engineering & Production Facilities and Gas Turbine Services. In 2004 there was a 12% weakening in the average US dollar to UK sterling exchange rate. This increased the US dollar value of our UK sterling denominated revenues, which in turn increased overall revenues by around 4%. The impact on our EBITA was considerably less significant, largely because the majority of our central costs are UK sterling denominated. The overall EBITA margin ('margin') fell from 6.9% in 2003 to 5.1%. Margins in our Well Support business increased from 7.6% to 8.0% in the year. Margins in Engineering & Production Facilities fell from 8.7% to 6.1% reflecting a change in mix, with lower Engineering and higher Production Facilities revenues, combined with higher business development costs for the division. Margins in our Gas Turbine Services business fell from 7.0% in 2003 to 4.5% in 2004. However, margins in the second half showed a small recovery, with slight improvement compared to the second half of 2003 and the first half of 2004 reflecting the benefit of the programme of cost reductions and efficiency improvements. Amortisation, including our share of joint venture amortisation, increased from US$15.6 million in 2003 to US$17.8 million in 2004 as a result of the acquisitions made during both 2003 and 2004. Total operating profit decreased to US$73.1 million (2003: US$122.9 million). Exceptional items - Impairment and restructuring charges There were exceptional impairment and restructuring charges of US$26.2 million (2003: Nil). US$23.4 million of this relates to the Gas Turbine Services division and represents the cost of rationalisation of businesses and facilities, severance costs and fixed asset impairment; the balance of US$2.8 million represents severance costs and fixed asset impairment in the Well Support division. There were no non-operating exceptional charges in 2004 (2003: US$20.0 million). Interest and Taxation Net interest payable by the Group and joint ventures was US$19.4 million compared to US$15.1 million in 2003. The increase in interest costs reflects both the increased level of sterling borrowings to fund purchases of shares by employee share trusts and the increased level of borrowings generally, together with increased interest rates. The Group had interest cover4 of 6.0 times (2003: 9.1 times). There was no interest charge in relation to associates in 2004 (2003: US$4.8 million). The tax charge of US$24.9 million, which includes a credit of US$7.7 million in respect of exceptional items, reflects an effective tax rate of 33.4% on profit before tax, amortisation, impairments and exceptional items and compares to a rate of 33.0% in 2003. Earnings Per Share and Dividends Diluted earnings per share was 5.6 cents compared to 8.4 cents in 2003 and was impacted by lower profits in the current year. The adjusted diluted earnings per share before amortisation and exceptional items decreased to 13.1 cents (2003: 15.4 cents). The final recommended dividend of 2.4 cents per share (2003: 2.2 cents) represents a 9% increase in the total dividend for the year of 3.6 cents (2003: 3.3 cents). Shareholders' Funds Shareholders' funds fell to US$506.5 million from US$521.5 million. The movement largely reflects the purchase of our own shares of US$22.5 million offset by retained profits for the year of US$10.1 million. Other movements of $2.6m included the actuarial loss on the pension scheme and the impact of foreign exchange movements. Operating Cash Flow The cash flow from operating activities and joint ventures was US$72.1 million in 2004 compared to US$156.6 million in 2003. The operating profit after adding back non-cash items was US$113.1 million (2003: US$141.4 million). This was offset by an increase in working capital of US$56.4 million (2003: reduction of $4.0 million). Capital Investment There was continued investment in acquisitions and capital expenditure in 2004. Capital expenditure net of disposals was US$56.0 million compared to US$51.5 million in 2003. The investment of US$32.5 million in acquisitions in 2004 (2003: US$18.5 million) included the acquisitions of Z.TEC GmbH Energy Service, Deepwater Specialists, Inc, Multiphase Solutions, Inc, Ellipsys, Inc and Woodhill Engineering Consultants. Net Debt and Financial Instruments Net debt increased by US$133.8 million to US$308.8 million at December 2004 from US$175.0 million at December 2003 as a result of the operating cash flows and capital investment outlined above. In addition, an amount of US$22.5 million was invested in Group shares by employee share trusts at an average price of Â£1.24 in order to satisfy the future exercise of options. The Group's gearing3 ratio has increased from 33.6% at December 2003 to 61.0% at December 2004. Group borrowings are primarily US dollar denominated. Of the total long-term borrowings of US$345.0 million, US$125.0 million are at a fixed rate of interest averaging 4.4%, excluding margin. The Group's policies in respect of financial instruments are set out in note 17 to the financial statements. International Financial Reporting Standards (IFRS) The Group will be preparing its financial statements in accordance with International Financial Reporting Standards (IFRS) for periods commencing from 1st January 2005. The transition to IFRS is well advanced and we are on track to comply with the reporting requirements. The main measurement differences identified to date between UK GAAP and IFRS are likely to be: â€¢Share based payments, where IFRS requires the economic cost of all share based payments to employees of the Group to be recognised by reference to fair value on the grant date; â€¢The annual amortisation of goodwill will cease under IFRS and be replaced with annual impairment reviews. The amortisation of other intangibles will continue to be applied; â€¢Joint ventures will be proportionately consolidated under IFRS; â€¢Dividends will be recognised in the period that they are approved by shareholders and hence proposed dividends will not be accrued; â€¢The treatment of financial instruments will be different under IFRS, although there is not expected to be a material impact from the changes. The new standards will be applied prospectively from 1 January 2005; â€¢The rules for accounting for deferred tax under IFRS differ from UK GAAP, although no material impact on the group's effective tax rate is anticipated. There will also be changes to the naming of some of the line items in the Group's financial statements and in some of the key performance measures used by the Group. 1 EBITA is Earnings Before Interest Tax and Amortisation and represents operating profit before exceptional items, amortisation and share of associates. This financial term is provided as it is the key unit of measurement used by the company in the management of its business (see note 1 of the financial statements). 2 Shares held by the Group's employee share ownership trusts are excluded from the number of shares in calculating adjusted diluted and basic earnings per ordinary share. Adjusted diluted earnings per ordinary share are calculated on earnings before amortisation and exceptional items, net of tax. Adjusted diluted earnings per ordinary share is based on the diluted number of shares, taking account of share options where the effect of these is dilutive. 3 Gearing represents net debt over shareholders' funds. In accordance with the provisions of UITF 38, shareholders' funds are stated after deducting own shares held by employee share trusts. Opening shareholders' funds are stated according to the provisions of UITF 38. 4 Interest cover is EBITA divided by net interest payable, excluding share of associates. 5 Figures exclude discontinuing activities. John Wood Group PLC Group profit and loss account for the year to 31 December 2004 Note 2004 2003 US$m US$m Revenues (including share of joint ventures) Continuing operations 2,246.5 1,980.1 Acquisitions 41.6 12.5 ------ ------ Revenues (including share of joint ventures) 1 2,288.1 1,992.6 Less: share of revenues of joint ventures (285.6) (287.6) ------ ------ Group revenues 2,002.5 1,705.0 Cost of sales (1,592.2) (1,317.7) ------ ------ Gross profit 410.3 387.3 ------ ------ Administrative expenses pre-exceptional items and amortisation (321.9) (286.3) Exceptional items - impairment and restructuring charges 5 (26.2) - Goodwill amortisation (16.4) (14.3) ------ ------ Administrative expenses 2 (364.5) (300.6) ------ ------ Operating profit of Group undertakings 45.8 86.7 Share of operating profit in joint ventures (after US$1.4m (2003 : US$1.3m) goodwill amortisation) 27.3 34.9 Share of operating profit in associates - 1.3 ------ ------ Total operating profit: Group and share of joint ventures and associates 2 73.1 122.9 Total operating profit comprises: ------ ------ Continuing operations 65.3 122.6 Acquisitions 7.8 0.3 ------ ------ 73.1 122.9 ------ ------ Exceptional items Loss on sale of fixed assets 5 - (3.5) Loss on termination of discontinued operations 5 - (2.7) ------ ------ Profit on ordinary activities before interest 73.1 116.7 Amounts written off investments 5 - (13.8) Net interest payable - Group 6 (16.6) (12.6) - joint ventures 6 (2.8) (2.5) - associates 6 - (4.8) ------ ------ Profit on ordinary activities before taxation 53.7 83.0 Taxation on profit on ordinary activities 7 (24.9) (37.8) ------ ------ Profit on ordinary activities after taxation 28.8 45.2 Equity minority interests 23 (2.1) (3.9) ------ ------ Profit for the financial year 26.7 41.3 Dividends 8 (16.6) (15.6) ------ ------ Retained profit for the financial year 22 10.1 25.7 ------ ------ Basic earnings per ordinary share 9 5.7c 8.7c Diluted earnings per ordinary share 9 5.6c 8.4c Adjusted earnings per ordinary share 9 13.1c 15.4c Group Balance sheet as at 31 December 2004 2004 2003 (Restated) Note US$m US$m Fixed assets Intangible fixed assets 10 268.8 220.4 Tangible fixed assets 11 168.8 174.2 Investments in joint ventures 12 ------- ------- Share of gross assets 286.6 274.4 Share of gross liabilities (191.8) (180.8) Goodwill arising on acquisition 9.7 10.0 ------- ------- 104.5 103.6 ------- ------- 542.1 498.2 ------- ------- Current assets Stocks 13 264.4 180.5 Debtors 14 550.1 433.1 Cash at bank and in hand 54.4 69.8 ------- ------- 868.9 683.4 ------- ------- Creditors: amounts falling due within one year Bank loans and overdrafts 15 (18.2) (13.9) Other creditors 15 (465.7) (344.8) ------- ------- (483.9) (358.7) ------- ------- Net current assets 385.0 324.7 ------- ------- Total assets less current liabilities 927.1 822.9 Creditors: amounts falling due after one year Bank loans 16 (345.0) (230.9) Other creditors 16 (18.7) (7.5) ------- ------- (363.7) (238.4) ------- ------- Provisions for liabilities and charges 18 (21.2) (25.0) ------- ------- Net assets excluding pension liability 542.2 559.5 Pension liability 25 (23.7) (19.3) ------- ------- Net assets including pension liability 518.5 540.2 ------- ------- Capital and reserves Called up share capital 19 23.5 23.4 Share premium account 20 200.9 200.8 Capital reduction reserve 21 88.1 88.1 Profit and loss account 22 194.0 209.2 ------- ------- Total shareholders' funds 506.5 521.5 Equity minority interests 23 12.0 18.7 ------- ------- 518.5 540.2 ------- ------- Statement of total recognised gains and losses for the year to 31 December 2004 Note 2004 2003 US$m US$m Profit for the financial year 26.7 41.3 Actuarial loss recognised in the pension scheme 25 (4.8) (1.2) Movement in deferred tax relating to pension liability 25 1.4 0.4 Exchange movement on retranslation of foreign currency net assets 1.7 7.3 ------- ------- Total recognised gains for the year 25.0 47.8 ------- ------- Included in the above are total recognised gains of US$17.9m (2003: US$32.3m) in respect of joint ventures and losses of US$nil (2003 : losses of US$2.6m) in respect of associates. There is no material difference between the profit on ordinary activities before taxation, the retained profit for the year stated above and their historical cost equivalents. Reconciliation of movement in shareholders' funds for the year to 31 December 2004 Note 2004 2003 US$m (Restated) US$m Profit for the financial year 26.7 41.3 Dividends 8 (16.6) (15.6) ------- ------- 10.1 25.7 Issue of new shares 19 0.2 0.6 Actuarial loss recognised in the pension scheme net of deferred tax 25 (3.4) (0.8) Credit in respect of employee share awards 1.2 0.6 Consideration paid in respect of purchase of own shares held in ESOP trusts (22.5) (17.3) Consideration received in respect of sale of own shares held in ESOP trusts 0.2 0.4 Foreign exchange in respect of own shares held in ESOP trusts (2.5) (1.7) Exchange movement on retranslation of foreign currency net assets 1.7 7.3 ------- ------- Net (decrease)/increase in shareholders' funds (15.0) 14.8 Shareholders' funds at 1 January (originally US$541.3m before prior year adjustment of US$(19.8)m) 521.5 506.7 ------- ------- Shareholders' funds at 31 December 506.5 521.5 ------- ------- Group cash flow statement for the year to 31 December 2004 Note 2004 2003 US$m US$m Operating activities Net cash inflow from operating activities 30 55.7 144.9 Dividends from joint ventures 16.4 11.7 ------- ------- 72.1 156.6 ------- ------- Returns on investments and servicing of finance Interest received 1.3 2.6 Interest paid (17.5) (13.9) ------- ------- (16.2) (11.3) ------- ------- Taxation UK corporation tax paid (7.9) (6.0) Overseas tax paid (19.2) (32.6) ------- ------- (27.1) (38.6) ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (68.4) (74.5) Sale of tangible fixed assets 12.4 23.0 Repayment of loans from joint ventures 0.8 3.3 ------- ------- (55.2) (48.2) ------- ------- Acquisitions and disposals Acquisition of minority interests 23 (24.2) (0.2) Purchase of subsidiary undertakings, net of cash 24 (32.5) (18.5) acquired Disposal of subsidiary undertakings, net of cash - 7.3 disposed Investment in joint ventures 12 (0.4) (2.8) Purchase of other intangibles 10 (1.5) (3.2) Deferred consideration 24 (4.7) (0.4) Additional paid in capital from minority shareholders 23 - 0.3 ------- ------- (63.3) (17.5) ------- ------- Equity dividends paid (15.9) (14.7) ------- ------- ------- ------- Net cash (outflow)/inflow before management of liquid resources and financing (105.6) 26.3 ------- ------- Management of liquid resources (Increase)/decrease in cash placed on deposit 32 (5.3) 3.3 ------- ------- Financing Increase in bank loans 32 111.2 2.2 Issue of ordinary shares 0.2 0.6 Purchase of own shares held in ESOP trusts (22.5) (17.3) Disposal of own shares held in ESOP trusts 0.2 0.4 ------- ------- Net cash inflow/(outflow) from financing 89.1 (14.1) ------- ------- (Decrease)/increase in cash 32 (21.8) 15.5 ------- ------- Accounting policies for the year to 31 December 2004 The financial statements are prepared under the historical cost convention and in accordance with the Companies Act 1985 and applicable Accounting Standards in the United Kingdom. A summary of the more important Group accounting policies which have been consistently applied, is set out below. 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. All Group companies prepare accounts to 31 December. Changes in accounting policies The Group has adopted UITF 38 'Accounting for ESOP Trusts' in these financial statements. The adoption of this abstract represents a change in accounting policy and the comparative figures have been restated accordingly. Details of the effect of the prior year adjustment is given in note 22. Reporting 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 financial information is therefore prepared in US dollars. The following sterling to US dollar exchange rates have been used in the preparation of these accounts:- Average rate Closing rate -------------------------------- ----------- ----------- Â£1 = US$ Â£1 = US$ Year ended 31 December 2003 1.6406 1.7901 Year ended 31 December 2004 1.8310 1.9199 -------------------------------- ----------- ----------- Revenue recognition 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 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. Revenue from services is recognised as the services are rendered, including revenues based on contractual rates per man hour in respect of multi-year service contracts. Incentive performance revenues are recognised upon completion of agreed objectives. Revenues are stated net of sales taxes and discounts. Joint ventures and associates The Group's share of profits less losses of joint ventures and associates is included in the Group profit and loss account and the Group's share of their net assets is included in the Group balance sheet. In addition, the Group's share of revenues, operating profit, interest and tax of joint ventures and operating profit, interest and tax of associates is separately disclosed. Goodwill Goodwill arising on consolidation represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the acquired subsidiary, joint venture, or associate at the date of acquisition. Goodwill is amortised using the straight line method over its estimated life, not to exceed 20 years. When estimating the life of goodwill for each acquisition the principal factors that the Group takes into account are the nature and foreseeable life of the acquired business, the stability and foreseeable life of the industry to which the goodwill relates and the effects of product obsolescence and changes in demand for the acquired business. Tangible fixed assets Tangible fixed assets are stated at historical cost less aggregate depreciation. No depreciation is charged with respect to freehold land and assets in course of construction. Transfers from fixed assets to current assets are undertaken at the lower of cost and net realisable value. Depreciation is calculated on the straight line method over the estimated useful life of the asset, as follows: Freehold buildings 25-50 years 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 fixed assets and goodwill 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 net realisable value and its value in use, is less than its carrying amount. Stocks Stocks, which include raw materials, work in progress and finished goods, are stated at the lower of cost and net realisable value. Product based companies determine cost by weighted average methods using standard costing to gather raw 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' stocks 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 costs of completion and selling expenses. Allowance is made for obsolete and slow-moving items, based upon annual usage by part. Long-term contracts Revenue on long-term contracts is recognised according to the stage reached in the contract by reference to the value of work done. A prudent estimate of the profit attributable to work completed is recognised once the outcome of the contract can be assessed with reasonable certainty. Provision is made for all foreseeable losses. The amount by which the revenue exceeds payments on account is shown under debtors as amounts recoverable on contracts. Any excess of payments on account over revenue recorded on contracts are classified under creditors due within one year. Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date, with the following exceptions:- â€¢provision is made for gains on disposal of fixed assets that have been rolled over into replacement assets only where, at the balance sheet date, there is a commitment to dispose of the replacement assets. â€¢provision is made for the tax that would arise on remittance of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been declared or there is a binding commitment. â€¢on the basis of all available evidence deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on a non-discounted basis at the rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Foreign currencies Profit and loss accounts of entities that prepare their results in a currency other than the US dollar are translated into US dollars at average rates of exchange for the year and assets and liabilities are translated into US dollars at the rates of exchange ruling at 31 December. 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 reserves. Other exchange differences are taken directly to the profit and loss account. Exchange differences arising on non US dollar currency borrowings raised to finance equity investments denominated in a non US dollar currency, and which are designated as hedges of such investments, are taken to reserves on consolidation and offset against the exchange differences arising on these assets. In each individual entity, transactions in overseas currencies are translated at the exchange rates ruling at the date of the transaction or, where forward contracts have been arranged, at the contractual rates. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet dates or at a contractual rate if applicable and any exchange differences are taken to the profit and loss account. 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. Financial instruments 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. Further details are provided in note 17. Operating leases As lessee Payments made under operating leases are charged to the profit and loss account on a straight line basis over the period of the lease. As lessor Operating lease rental income arising from leased assets is recognised in the profit and loss account on a straight line basis over the period of the lease. Finance leases As lessor Finance lease rental income arising from leased assets is recognised in the profit and loss account 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. Pension costs The Group has adopted FRS 17 'Retirement Benefits'. The Group operates a defined benefit scheme and a number of defined contribution schemes. The assets of these schemes are held in separate trustee administered funds. The defined benefit scheme's assets are measured using market values. Pension scheme liabilities are measured by an 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 other finance income/expense. Actuarial gains and losses are recognised in the consolidated statement of total recognised gains and losses. The pension 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 net of the related deferred tax. The Group's contributions to defined contribution schemes are charged to the profit and loss account in the period to which the contributions relate. Use of estimates The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue during the reporting period. Actual results could differ from those estimates. Warranties Provision is made for the estimated liability on all products and services still under warranty, including claims already received, based on past experience. Employee share schemes The Group has a number of share option schemes. Other than for options granted under the Long Term Retention Plan ('LTRP'), the Group grants options at the current market value and as a result there is no charge arising on the grant of these options. For options granted under the LTRP a charge is made to the profit and loss account for the difference between the market value of the options and the exercise price at the grant date, in accordance with the requirements of UITF 17 (revised 2003) 'Employee Share Schemes'. The charge is accrued over the vesting period of the options. Employers' National Insurance Contributions are payable on the exercise of unapproved share options issued after 5 April 1999 on the difference between the market value of the Company's ordinary shares at the date of exercise and the exercise price of the underlying options. Provision for this liability is made based upon the market value of options at the balance sheet date and spread over the vesting period of the options. 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 included in the financial statements of the Group. Under UITF 38 the cost of shares held by the ESOP trusts is deducted from shareholders' funds. Business segments The Group provides services and products to the oil and gas and power industries worldwide. The Group is organised into three business segments: - Engineering & Production Facilities - Well Support - 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 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. Notes to the financial statements for the year to 31 December 2004 1. Segmental reporting Business segments Revenues EBITDA (1) EBITA (1) Operating profit 2004 2003 2004 2003 2004 2003 2004 2003 US$m US$m US$m US$m US$m US$m US$m US$m Engineering & Production Facilities Group 1,071.9 941.0 71.9 91.4 64.3 77.4 55.8 69.9 Joint Ventures 127.7 154.2 11.9 21.4 8.8 18.4 8.2 17.9 ------ ------ ------ ------ ------ ------ ------ ------ 1,199.6 1,095.2 83.8 112.8 73.1 95.8 64.0 87.8 ------ ------ ------ ------ ------ ------ ------ ------ Well Support Group 506.9 408.4 57.1 45.1 39.9 31.3 34.3 28.8 Joint Ventures 7.0 4.2 1.5 0.2 1.4 0.1 1.4 0.1 ------ ------ ------ ------ ------ ------ ------ ------ 513.9 412.6 58.6 45.3 41.3 31.4 35.7 28.9 ------ ------ ------ ------ ------ ------ ------ ------ Gas Turbine Services Group 387.0 326.2 17.5 24.2 5.5 14.2 (22.7) 9.9 Joint Ventures 150.9 129.2 21.5 20.1 18.5 17.7 17.7 16.9 ------ ------ ------ ------ ------ ------ ------ ------ 537.9 455.4 39.0 44.3 24.0 31.9 (5.0) 26.8 ------ ------ ------ ------ ------ ------ ------ ------ Total excluding discontinuing operations 2,251.4 1,963.2 181.4 202.4 138.4 159.1 94.7 143.5 Gas Turbine Services - discontinuing operations (2) 36.7 29.4 (0.7) (1.8) (1.4) (2.6) (1.7) (2.6) ------ ------ ------ ------ ------ ------ ------ ------ Total 2,288.1 1,992.6 180.7 200.6 137.0 156.5 93.0 140.9 Comprising ------ ------ ------ ------ ------ ------ ------ ------ - Group 2,002.5 1,705.0 145.8 158.9 108.3 120.3 65.7 106.0 - Joint Ventures 285.6 287.6 34.9 41.7 28.7 36.2 27.3 34.9 ------ ------ ------ ------ ------ ------ ------ ------ Central - - (19.9) (17.6) (19.9) (19.3) (19.9) (19.3) costs Share of operating profit in associates - - - - - - - 1.3 ------ ------ ------ ------ ------ ------ ------ ------ Total 2,288.1 1,992.6 160.8 183.0 117.1 137.2 73.1 122.9 ====== ====== ====== ====== ====== ====== Non-operating exceptional items (4) - (20.0) Net interest payable (19.4) (19.9) ------ ------ Profit before taxation 53.7 83.0 ====== ====== Note: (1) EBITDA represents operating profit (including the share of joint ventures) before deduction of depreciation (US$43.7m), goodwill amortisation (US$17.8m) and impairment and restructuring charges (US$26.2m). EBITA represents EBITDA less depreciation (including the share of joint venture depreciation). These financial terms are provided as they are the key units of measurement used by the Group in the management of its business. (2) The discontinuing operations in the Gas Turbine Services business relate to an Aero engine overhaul company. (3) Revenues arising from sales between segments are not significant and have been eliminated in the above analysis. (4) The exceptional items in 2003 are split between continuing operations US$3.5m, discontinued operations US$2.7m and amounts written off investments US$13.8m Notes to the financial statements for the year to 31 December 2004 1. Segmental reporting 2004 2003 Net operating assets US$m US$m Engineering & Production Facilities - Group 245.9 189.5 - Joint Ventures 47.2 47.2 ------- ------- 293.1 236.7 ------- ------- Well Support - Group 237.7 208.9 - Joint Ventures 2.7 3.2 ------- ------- 240.4 212.1 ------- ------- Gas Turbine Services - Group 244.4 223.1 - Joint Ventures 100.1 86.8 ------- ------- 344.5 309.9 ------- ------- Total allocated excluding discontinuing operations 878.0 758.7 Gas Turbine Services - discontinuing operations 21.7 20.7 Unallocated (26.9) (30.6) ------- ------- Net operating assets 872.8 748.8 Net debt - Group (308.8) (175.0) Net debt - Joint Ventures (45.5) (33.6) ------- ------- Net assets 518.5 540.2 ======= ======= The impact of acquisitions on Group revenues and operating profit in the year of acquisition is as follows:- 2004 2003 US$m US$m Revenues Engineering & Production Facilities 29.0 2.0 Well Support - 10.5 Gas Turbine Services 12.6 - ------ ------- Total revenues 41.6 12.5 ------ ------- Operating profit Engineering & Production Facilities 7.5 - Well Support - 0.3 Gas Turbine Services 0.3 - ------ ------- Total operating profit 7.8 0.3 ------ ------- Notes to the financial statements for the year to 31 December 2004 1. Segmental reporting Geographical segments Europe North America Rest of World Total 2004 2003 2004 2003 2004 2003 2004 2003 US$m US$m US$m US$m US$m US$m US$m US$m Revenues by destination Group 601.3 450.9 912.2 879.4 489.0 374.7 2,002.5 1,705.0 Joint 125.3 122.3 64.7 84.3 95.6 81.0 285.6 287.6 ventures ------ ------ ------ ------ ------ ------ ------ ------ Total 726.6 573.2 976.9 963.7 584.6 455.7 2,288.1 1,992.6 revenues ------ ------ ------ ------ ------ ------ ------ ------ Revenues by origin Group 672.6 503.0 998.0 941.3 331.9 260.7 2,002.5 1,705.0 Joint 156.6 148.0 71.0 92.5 58.0 47.1 285.6 287.6 ventures ------ ------ ------ ------ ------ ------ ------ ------ Total 829.2 651.0 1,069.0 1,033.8 389.9 307.8 2,288.1 1,992.6 revenues ------ ------ ------ ------ ------ ------ ------ ------ Operating profit Group 13.2 30.5 29.2 31.9 29.6 24.3 72.0 86.7 Joint 18.1 16.8 4.1 6.7 5.1 11.4 27.3 34.9 ventures Associates - 1.5 - (1.0) - 0.8 - 1.3 ------ ------ ------ ------ ------ ------ ------ ------ Operating profit before except ional items 31.3 48.8 33.3 37.6 34.7 36.5 99.3 122.9 Exceptional items (all Group) (12.0) - (14.2) - - - (26.2) - ------ ------ ------ ------ ------ ------ ------ ------ Total operating profit 19.3 48.8 19.1 37.6 34.7 36.5 73.1 122.9 ------ ------ ------ ------ ------ ------ Non-operating exceptional items - (20.0) Net interest payable (19.4) (19.9) ------ ------ Profit before taxation 53.7 83.0 ------ ------ 2004 2003 US$m US$m Net operating assets Europe 137.9 113.5 North America 574.1 502.0 Rest of World 160.8 133.3 ------ ------ Net operating assets 872.8 748.8 Net debt - Group (308.8) (175.0) Net debt - Joint Ventures (45.5) (33.6) ------ ------ Net assets 518.5 540.2 ------ ------ 2. Total operating profit : Group and share of joint ventures and associates Continuing operations Acquisitions Total 2004 2003 2004 2003 2004 2003 US$m US$m US$m US$m US$m US$m Revenues including share of joint ventures 2,246.5 1,980.1 41.6 12.5 2,288.1 1,992.6 Less share of revenues of joint ventures (285.6) (287.6) - - (285.6) (287.6) ------ ------ ------ ------ ------ ------ Group revenues 1,960.9 1,692.5 41.6 12.5 2,002.5 1,705.0 Cost of sales (1,565.2) (1,308.9) (27.0) (8.8) (1,592.2) (1,317.7) ------ ------ ------ ------ ------ ------ Gross profit 395.7 383.6 14.6 3.7 410.3 387.3 Administrative expenses pre-exceptiona l items and amortisation (316.3) (283.1) (5.6) (3.2) (321.9) (286.3) Exceptional items - impairment and restructuring charges (26.2) - - - (26.2) - Goodwill amortisation (15.2) (14.1) (1.2) (0.2) (16.4) (14.3) ------ ------ ------ ------ ------ ------ Administrative expenses (357.7) (297.2) (6.8) (3.4) (364.5) (300.6) ------ ------ ------ ------ ------ ------ Operating profit of Group undertakings 38.0 86.4 7.8 0.3 45.8 86.7 Share of operating profit in joint ventures 27.3 34.9 - - 27.3 34.9 Share of operating profit in associates - 1.3 - - - 1.3 ------ ------ ------ ------ ------ ------ Total operating profit 65.3 122.6 7.8 0.3 73.1 122.9 ------ ------ ------ ------ ------ ------ Total operating profit is stated after charging: 2004 2003 US$m US$m Depreciation of tangible fixed assets Group 37.5 40.3 Joint ventures 6.2 5.5 Impairment of tangible fixed assets 6.7 - Loss on sale of tangible fixed assets 0.9 0.1 Amortisation of intangible fixed assets Group 16.4 14.3 Joint ventures 1.4 1.3 Impairment of intangible fixed assets 0.4 - Hire and operating lease payments Plant and equipment 9.2 10.1 Land and buildings 23.7 23.5 Auditors' remuneration - UK Audit 1.1 0.9 Tax - 0.1 Other services 0.1 - Auditors' remuneration - overseas Audit 0.4 0.3 Tax 0.2 0.2 Other services - - 3. Employee numbers and staff costs Number Number 2004 2003 The average number of persons employed by the Group during the year was as follows: Europe 3,046 2,858 North America 6,379 5,596 Rest of the World 3,424 2,717 ------- ------- 12,849 11,171 ------- ------- Direct production 10,660 9,102 Management and staff 2,189 2,069 ------- ------- 12,849 11,171 ------- ------- US$m US$m Total staff costs in respect of these persons amounted to: Wages and salaries 705.3 611.3 Social security costs 57.6 50.2 Pension costs - defined benefit scheme (note 25) 5.5 4.6 Pension costs - defined contribution schemes (note 25) 13.6 13.3 ------- ------- 782.0 679.4 ------- ------- The above figures exclude employees of joint ventures and contract staff. The average number of employees of the joint ventures in 2004 was 1,789 (2003 : 2,115). 4. Directors' emoluments 2004 2003 US$'000 US$'000 Aggregate emoluments 3,155 2,762 Aggregate gains made on the exercise of share options 472 1,665 Company contributions to defined contribution schemes 18 13 1 director exercised share options in the year (2003 : 3). Retirement benefits are accruing to 1 director under a defined contribution scheme (2003 : 2) and 5 directors under defined benefit schemes (2003 : 3). Aggregate emoluments exclude sums paid to third parties, which are disclosed in the Directors Remuneration Report. Full details of individual directors' remuneration are given in the Directors' Remuneration Report. 5. Exceptional items 2004 2003 US$m US$m Operating Exceptional Items ------------------------------ Impairment and restructuring charges (26.2) - ------- ------- Non-operating exceptional items ---------------------------------- Loss on sale of fixed assets Loss on sale of tangible fixed assets - (3.5) ------- ------- Loss on termination of discontinued operations Closure costs - (2.7) ------- ------- Amounts written off investments Amounts written off investment in ASCO plc - (13.8) ------- ------- (i) Impairment and restructuring charges An impairment and restructuring charge of US$26.2m has been booked in the year. US$23.4m of this charge was booked in the Gas Turbine Services division in respect of rationalisation of business and facilities, severance costs and fixed asset impairment. The balance of the charge, US$2.8m was booked in the Well Support division and relates to severance costs and fixed asset impairment. A tax credit of US$7.7m has been booked in respect of the impairment and restructuring charges. (ii) Loss on sale of fixed assets A net loss of US$3.5m on asset disposals was booked in 2003. A net tax charge of US$0.7m was made in respect of this item. (iii) Loss on termination of discontinued operations A charge of US$2.7m was made during 2003 in respect of fixed assets, stocks and certain liabilities relating to the closure of the Group's aero engine overhaul business in 2002. A tax credit of US$1.0m was booked in respect of this charge. (iv) Amounts written off investments A write off of US$13.8m was made in 2003 in respect of the group's investment in ASCO which the group ceased to account for as an associate with effect from 15 December 2003. A tax credit of US$1.0m was booked in relation to the amounts written off. 6. Net interest payable 2004 2003 US$m US$m Interest receivable on short term deposits 1.3 2.0 Interest payable on bank loans and overdrafts (17.6) (14.0) Other finance expense (note 25) (0.3) (0.6) ------- ------- Total Group (16.6) (12.6) Joint ventures (2.8) (2.5) Associates - (4.8) ------- ------- Net interest payable (19.4) (19.9) ------- ------- 7. Taxation on profit on ordinary activities 2004 2003 US$m US$m Current tax: UK corporation tax at 30% (2003 : 30%) 1.3 9.2 Overseas tax 28.4 26.3 Joint ventures 7.6 6.7 Associates - (0.7) Adjustments in respect of prior years (0.1) (4.0) ------- ------- 37.2 37.5 Deferred tax: Origination and reversal of timing differences (1.3) (2.0) Adjustments in respect of prior years (3.3) 3.6 ------- ------- (4.6) 1.6 ------- ------- Tax on exceptional items (see note 5) (7.7) (1.3) ------- ------- Total tax charge 24.9 37.8 ------- ------- Tax on recognised gains and losses not included in the profit and loss account comprise a US$1.4m (2003 : US$0.4m) deferred tax credit in respect of the movement on the Group's net pension liability. The current tax charge on profit on ordinary activities before exceptional items and goodwill amortisation varied from the rate of corporate tax expected on the basis of the location of the Group's operations due to the following factors: 2004 2003 US$m US$m Profit on ordinary activities before tax, exceptional items and goodwill amortisation 97.7 118.6 ------- ------- Corporate tax at expected rate 33.60% (2003 : 31.78%) 32.8 37.7 Deductible amortisation (2.3) (2.1) Non-recognition of losses 3.5 3.0 Permanent differences 2.0 0.9 Effect of deferred tax 1.3 2.0 Adjustments to current tax charge for prior periods (0.1) (4.0) ------- ------- Current tax charge 37.2 37.5 ------- ------- 8. Dividends 2004 2003 US$m US$m Dividends on equity shares Ordinary shares: Interim paid 1.2 cent per share (2003 : 1.1 cent per share) 5.5 5.2 Final proposed 2.4 cents per share (2003 : 2.2 cents per share) 11.1 10.4 ------- ------- Total dividends 16.6 15.6 ------- ------- 9. Earnings per ordinary share 2004 2003 ------ ------ ------ ------ ------ ------ Number Per- Number Per- of share of share Earnings Shares Amount Earnings Shares Amount US$m Millions Cents US$m Millions Cents Basic EPS 26.7 466.2 5.7 41.3 473.9 8.7 ------ ------ Effect of dilutive securities: Options 13.7 - 16.7 ------ ------ ------ ------ ------ ------ Diluted EPS 26.7 479.9 5.6 41.3 490.6 8.4 ------ ------ Goodwill amortisation 17.8 15.6 Effect of exceptional items, net of tax : Impairment and restructuring charges 18.5 - Loss on sale of fixed assets - 4.2 Loss on termination of discontinued operations - 1.7 Amounts written off investments - 12.8 ------ ------ ------ ------ ------ ------ Adjusted EPS before goodwill amortisation and exceptional items 63.0 479.9 13.1 75.6 490.6 15.4 ------ ------ ------ ------ ------ ------ Shares held by the Group's employee share ownership trusts are excluded from the number of shares in calculating basic, diluted and adjusted EPS. Adjusted EPS is disclosed to show the results excluding the impact of goodwill amortisation and exceptional items, net of tax. 10. Intangible fixed assets - Goodwill Joint ventures Subsidiaries US$m US$m Cost At 1 January 2004 11.5 271.4 Exchange adjustments - 1.9 Additions 0.3 63.6 -------- -------- At 31 December 2004 11.8 336.9 -------- -------- Aggregate amortisation At 1 January 2004 1.5 51.0 Exchange adjustments - 0.3 Charge for the year 0.6 16.4 Impairment - 0.4 -------- -------- At 31 December 2004 2.1 68.1 -------- -------- Net book value At 31 December 2004 9.7 268.8 -------- -------- At 31 December 2003 10.0 220.4 -------- -------- All goodwill relates to the excess of cost of acquisition over the fair value of the Group's share of the net assets acquired. Intangible fixed assets (subsidiaries) includes US$4.1m of other intangibles (2003 : US$3.2m). US$1.5m of this amount was purchased during 2004. In addition to the joint venture amortisation of US$0.6m above, joint venture operating profits are stated after deducting US$0.8m of goodwill amortisation. 11. Tangible fixed assets Land and buildings Leasehold Plant and Freehold Long Short Equipment Total US$m US$m US$m US$m US$m ------- ------- ------ -------- ------- Cost At 1 January 2004 35.6 4.7 29.0 244.9 314.2 Exchange adjustments 0.9 0.1 0.7 5.1 6.8 Additions 0.9 0.8 0.1 57.0 58.8 Disposals (0.6) - (14.9) (7.9) (23.4) Acquisitions - - - 1.0 1.0 Reclassification as current assets - - - (12.0) (12.0) ------- ------- ------ -------- ------- At 31 December 2004 36.8 5.6 14.9 288.1 345.4 ------- ------- ------ -------- ------- Aggregate depreciation At 1 January 2004 9.7 2.3 8.1 119.9 140.0 Exchange adjustment 0.3 0.4 0.1 3.2 4.0 Charge for the year 0.4 0.5 1.4 35.2 37.5 Disposals (0.3) - (2.8) (7.0) (10.1) Impairment - 0.3 0.5 5.9 6.7 Reclassification as current assets - - - (1.5) (1.5) ------- ------- ------ -------- ------- At 31 December 2004 10.1 3.5 7.3 155.7 176.6 ------- ------- ------ -------- ------- Net book value At 31 December 2004 26.7 2.1 7.6 132.4 168.8 ------- ------- ------ -------- ------- At 31 December 2003 25.9 2.4 20.9 125.0 174.2 ------- ------- ------ -------- ------- Plant and equipment includes assets in the course of construction of US$10.3m (2003 : US$7.4m). Freehold land and buildings includes land at cost of US$4.4m (2003 : US$ 3.9m). Plant and equipment includes assets held for lease to customers, under operating leases, of US$26.1m (2003 : US$25.8m). Amounts reclassified as current assets include inventory now held for resale of US$10.5m (2003 : US$12.9m). 12. Investments Joint Ventures US$m -------- Cost At 1 January 2004 105.4 Exchange adjustments 1.0 Additions 0.4 Share of profit retained 0.5 Reclassification as subsidiary (1.0) -------- At 31 December 2004 106.3 -------- Amounts provided At 1 January 2004 and 31 December 2004 1.8 -------- Net book value At 31 December 2004 104.5 -------- At 31 December 2003 103.6 -------- Net book value represents cost less amounts provided, plus the share of post-acquisition profits retained in joint ventures. With effect from 1 January 2004 one of the Group's joint ventures was treated as a subsidiary company. Set out below are additional disclosures required in respect of the Group's share in its joint ventures of the following: 2004 US$m 2003 US$m Goodwill on acquisition (see note 10) 9.7 10.0 Share of: Intangible fixed assets 9.9 10.4 Tangible fixed assets 53.7 54.2 Current assets 223.0 209.8 Liabilities due within one year (176.8) (142.0) Liabilities due after one year (12.9) (35.0) Provisions (2.1) (3.8) -------- -------- Goodwill and share of net assets 104.5 103.6 -------- -------- 12. Investments (continued) The parent company and the Group have investments in the following subsidiary undertakings and joint ventures which principally affect the profits or net assets of the Group. To avoid a list of excessive length investments which are not considered significant have been omitted. Name of subsidiary Country of Ownership Principal activity or joint venture incorporation interest % or registration Engineering & Production Facilities: Wood Group Engineering (North Sea) Limited UK 100 Engineering design, operations maintenance and management SIGMA 3 (North Sea) Limited UK 33.3* Engineering design, operations maintenance and management Mustang Engineering Holdings Inc. USA 93.4 Engineering design Alliance Wood Group Engineering L.P. USA 100 Engineering design J P Kenny Engineering Limited UK 100 Engineering design SIMCO Consortium Venezuela 49.5* Operations maintenance and management Wood Group Production Services, Inc. USA 100 Operations maintenance and management Operators and Consulting Services, Inc. USA 100 Operations maintenance and management Petrosercol S.A. Colombia 100 Operations maintenance and management Deepwater Specialists Inc USA 100 Commissioning services Well Support: Wood Group ESP, Inc. USA 100 Electric submersible pumps Corporacion ESP de Venezuela CA Venezuela 100 Electric submersible pumps Wood Group Products & Services SA Argentina 100 Electric submersible pumps Wood Group Pressure Control, L.P. USA 100 Valves and wellhead equipment Wood Group Logging Services Inc. USA 100 Logging services Gas Turbine Services: Wood Group Light Industrial Turbines Limited UK 100 Gas turbine repair and overhaul Wood Group Engineering Services Jersey 100 Gas turbine repair and (Middle East) overhaul Limited Rolls Wood Group (Repair & Overhauls) UK 50* Gas turbine repair and Limited overhaul Wood Group Heavy Industrial Turbines Ltd UK 100 Gas turbine repair and overhaul TransCanada Turbines Limited Canada 50* Gas turbine repair and overhaul Wood Group HIT AG Switzerland 100 Provision of gas turbine parts Wood Group Accessories and Components Ltd UK 100 Gas turbine repair and overhaul Thomason Mechanical Corporation USA 100 Gas turbine repair and overhaul Wood Group Power Solutions Inc USA 100 Provision of gas turbine packages The proportion of voting power held equates to the ownership interest, other than for joint ventures (marked *) which are jointly controlled. 13. Stocks 2004 2003 US$m US$m Raw materials 34.6 26.6 Work in progress 58.9 31.7 Finished goods and goods for resale 170.9 122.2 -------- -------- 264.4 180.5 -------- -------- 14. Debtors 2004 2003 US$m (Restated) US$m Due within one year: Trade debtors 411.2 306.7 Amounts receivable under finance leases 9.3 11.8 Amounts due by joint ventures 23.2 21.2 Tax recoverable 9.7 8.1 Other debtors 31.6 24.2 Prepayments and accrued income 31.7 23.0 -------- -------- 516.7 395.0 Due after more than one year: Amounts receivable under finance leases 21.3 28.1 Other debtors 0.6 0.3 Deferred taxation (see note 18) 11.5 9.7 -------- -------- 550.1 433.1 -------- -------- Included in amounts due by joint ventures are loans receivable of US$15.2m (2003 : US$9.3m). Total amounts receivable under finance leases, including amounts allocated to future periods of US$8.2m (2003 : US$11.2m) is US$38.8m (2003 : US$51.1m). Rentals receivable during the year under finance leases amounted to US$14.7m (2003 : US$12.1m). The cost of assets acquired during the year for onward finance leasing was US$nil (2003 : US$24.9m). Prior year figures for tax recoverable and deferred tax have been restated to ensure consistency with the current year presentation. 15. Creditors: amounts falling due within one year 2004 2003 (Restated) US$m US$m Bank loans and overdrafts 18.2 13.9 -------- -------- Other creditors comprise: Trade creditors 168.0 113.5 Amounts due to joint ventures 13.6 15.9 Corporation tax 12.1 18.2 Other taxation and social security 17.8 13.5 Other creditors 19.3 19.0 Accruals and deferred income 217.2 149.4 Dividends payable 11.1 10.4 Deferred and contingent consideration 6.6 4.9 -------- -------- 465.7 344.8 -------- -------- 483.9 358.7 -------- -------- The prior year corporation tax creditor has been restated to ensure consistency with the current year presentation. 16. Creditors: amounts falling due after one year 2004 2003 US$m US$m Bank loans 345.0 230.9 Deferred and contingent consideration 16.4 2.6 Other creditors (payable between one and two years) 2.3 4.9 -------- -------- 363.7 238.4 -------- -------- Bank loans comprise: Repayable between two and five years 345.0 230.9 -------- -------- The bank loans are unsecured and interest is charged at between 60 basis points and 75 basis points above LIBOR. At 31 December 2004 the margin payable was 65 basis points based on the level of gearing and interest cover. Deferred and contingent consideration of US$6.4m (2003: US$1.3m) is payable between one and two years and US$10.0m (2003 : US$1.3m) is payable between two and five years. 17. Financial instruments The Group's financial instruments, other than derivatives, comprise borrowings, cash and liquid resources, and various items, such as trade debtors and trade creditors that arise directly from its operations. The Group also enters into derivative transactions (primarily interest rate swaps and forward foreign currency contracts). The purpose of such transactions is to manage the interest rate and currency risks arising from the Group's operations. It is, and has been throughout the period under review, the Group's policy that no trading in financial instruments is undertaken. The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and foreign currency 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 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 2004, approximately 34% (2003 : 51%) 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 its borrowings should mature in more than a year. At 31 December 2004, 95% (2003: 94%) per cent of the Group's borrowings were due to mature in more than two years. Foreign currency risk The Group is exposed to foreign exchange risk arising from various currencies, primarily US dollars and pounds sterling. The Group also has significant overseas subsidiaries which operate in North America and South America and the rest of the world and whose revenues and expenses are denominated predominantly in US dollars. In order to protect the Group's US dollar balance sheet from movements in exchange rates, the Group finances its net investment in non US dollar overseas subsidiaries primarily by means of borrowings denominated in their functional currency. The Group has not hedged all of its investment in companies with a sterling functional currency as these investments were made when the Group reported in sterling. The Group is therefore exposed to exchange movements in reserves on the retranslation of these companies at closing rate. Some of the sales of the Group's businesses are to customers in foreign locations. These sales are priced in local currency but invoiced in the currencies of the customers involved. Where possible, the Group's policy is to eliminate all significant currency exposures on sales at the time of sale through forward currency contracts. The existing exchange controls in Venezuela will result in increased foreign currency exposure whilst they are in place although there has been no material impact to date. Short-term debtors and creditors Short-term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosures. Interest rate risk profile of financial liabilities The interest rate risk profile of the Group's financial liabilities at 31 December 2004, after taking account of the interest rate and currency swaps used to manage the interest and currency profile, was as follows: Total Floating rate Fixed rate financial financial rate financial liabilities liabilities liabilities US$m US$m US$m US 274.8 149.8 125.0 Dollars Canadian Dollars 34.3 34.3 - Australian Dollars 10.0 10.0 - GBP 37.7 37.7 - Sterling Euros 20.4 20.4 - Colombian Peso's 5.2 5.2 - Other currencies 3.8 3.8 - -------- -------- -------- At 31 December 386.2 261.2 125.0 2004 -------- -------- -------- US 166.6 41.6 125.0 Dollars Canadian Dollars 31.3 31.3 - Australian Dollars 11.3 11.3 - GBP 16.1 16.1 - Sterling Euros 15.6 15.6 - Colombian Peso's 10.5 10.5 - Other currencies 0.9 0.9 - -------- -------- -------- At 31 December 252.3 127.3 125.0 2003 -------- -------- -------- All the Group's creditors falling due within one year (other than bank and other borrowings) are excluded from the above tables either due to the exclusion of short-term items or because they do not meet the definition of a financial liability, for example tax balances. 17. Financial instruments (continued) The Group has entered into US$125m of interest rate swaps from floating to fixed rates as at 31 December 2004 (2003 : US$125m). The weighted average interest rate excluding margin (currently 0.65%) for fixed rate financial liabilities was 4.4% (2003 : 4.4%). This rate is fixed for between 2 and 3 years (2003 : between 3 and 4 years). Floating rate financial liabilities bear interest at rates, based on relevant national LIBOR equivalents, which are fixed in advance for periods of between one month and three months. Interest rate risk of financial assets The Group has no significant financial assets, other than short term deposits, cash at bank and short-term loans to joint ventures. 2004 2003 Cash Cash at bank Short- Loans at bank Short- Loans and in term to joint and in term to joint hand deposits ventures Total hand deposits ventures Total ------ ------ ------ ------ ------ ------ ------ ------ US$m US$m US$m US$m US$m US$m US$m US$m Currency Sterling 3.6 11.5 - 15.1 2.8 7.7 - 10.5 US 14.2 17.0 5.6 36.8 26.0 14.8 0.4 41.2 Dollars Other currencies 8.1 - 9.6 17.7 18.5 - 8.9 27.4 ------ ------ ------ ------ ------ ------ ------ ------ At 31 25.9 28.5 15.2 69.6 47.3 22.5 9.3 79.1 December ------ ------ ------ ------ ------ ------ ------ ------ Floating 25.9 - 15.2 41.1 47.3 - 9.3 56.6 rate Fixed - 28.5 - 28.5 - 22.5 - 22.5 rate ------ ------ ------ ------ ------ ------ ------ ------ At 31 25.9 28.5 15.2 69.6 47.3 22.5 9.3 79.1 December ------ ------ ------ ------ ------ ------ ------ ------ Fixed rate short-term sterling deposits have earned interest at between 3.4% and 4.8% in 2004 (3.1% to 4.7% in 2003). Fixed US$ short-term deposits have earned interest at rates between 0.5% and 2.3% in 2004 (2003 : 0.8% to 1.7%). Floating rate sterling cash earns interest at between UK base rate and UK base rate less 10 basis points. US$ cash and cash denominated in other currencies earns interest at varying market rates applicable to each currency. Interest on loans to joint ventures is charged at floating market rates. Maturity of financial liabilities The maturity profile of the carrying amount of the group's financial liabilities other than short-term trade creditors and accruals at 31 December was as follows: 2004 2003 Deferred & Deferred & contingent contingent conside- conside- ration Debt Total ration Debt Total ------- ------- ------- ------- ------- ------- US$m US$m US$m US$m US$m US$m In one year or less, or on demand 6.6 18.2 24.8 4.9 13.9 18.8 In more than one year but not more than two years 6.4 - 6.4 1.3 - 1.3 In more than two years but not more than five years 10.0 345.0 355.0 1.3 230.9 232.2 ------- ------ ------ ------- ------ ------ 23.0 363.2 386.2 7.5 244.8 252.3 ------- ------ ------ ------- ------ ------ 17. Financial instruments (continued) Borrowing facilities The group has undrawn committed borrowing facilities available at 31 December 2004 of US$215.7m (2003 : US$331.1m) in respect of which all conditions precedent had been met at that date. These are floating rate facilities which expire on 9 April 2007. Fair values of financial assets and financial liabilities The following table provides a comparison by category of the carrying amounts and the fair values of the Group's financial assets and financial liabilities at 31 December 2003 and 2004. Fair value is the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties, other than a forced or liquidation sale and excludes accrued interest. Where available, market values have been used to determine fair values. Where market values are not available, fair values have been calculated by discounting expected cash flows at prevailing interest and exchange rates. Set out below the table is a summary of the methods and assumptions used for each category of financial instrument. 2004 2003 Book Fair Book Fair value value value value Primary financial instruments held or issued US$m US$m US$m US$m to finance the group's operations: Short-term borrowings (18.2) (18.2) (13.9) (13.9) Long-term borrowings (345.0) (345.0) (230.9) (230.9) Deferred and contingent consideration (23.0) (23.0) (7.5) (7.5) Loans to joint ventures 15.2 15.2 9.3 9.3 Short-term deposits 28.5 28.5 22.5 22.5 Cash at bank and in hand 25.9 25.9 47.3 47.3 -------- -------- -------- -------- Derivative financial instruments held to manage the interest rate and currency profile: Interest rate swaps - (2.9) - (6.6) Forward foreign currency contracts 0.2 0.2 (1.0) (1.0) -------- -------- -------- -------- Under the Group's accounting policy, forward contracts that are entered into in order to hedge foreign currency assets and liabilities are revalued to balance sheet rates with net unrealised gains/losses being shown as part of the underlying asset or liability being hedged. Changes in the value of the swap as a result of changes in interest rates are not included in the book value of the relevant asset or liability. At 31 December 2004, the Group had entered into forward contracts to the value of US$20.7m (2003: US$65.9m) to hedge foreign currency exposures. 17. Financial instruments (continued) Summary of methods and assumptions Interest rate swaps, currency Fair value is based on market price of comparable swaps and forward foreign instruments at the balance sheet date. Forward currency contracts foreign currency contracts have been valued at spot rate on the balance sheet date as the contracts mature within one year. Short-term deposits, short The fair value of short-term deposits, short and and long-term borrowings, long-term loans and overdrafts, deferred and deferred and contingent contingent consideration and loans to joint consideration and loans to ventures approximates to the carrying amount joint ventures because of the short maturity of interest rates in respect of these instruments. The long term loans are generally rolled over for periods of three months or less. Currency exposures To mitigate the effect of the currency exposures arising from its net investments overseas the Group either borrows in the local currencies of its main operating units or uses financial instruments to hedge its exposures. Gains and losses arising on net investments overseas and the financial instruments used to hedge the currency exposures are recognised in the statement of total recognised gains and losses. The Group has typically not hedged all of its net investment in sterling functional companies. The tables below show the extent to which Group companies have monetary assets and liabilities in currencies other than their functional currency. Foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account of the Group companies and the Group. Net foreign currency monetary assets/(liabilities) Sterling US Other Total dollars currencies US$m US$m US$m US$m 2004 Functional currency of group operation: Sterling - 4.0 3.8 7.8 US Dollars (4.0) - 15.0 11.0 Other currencies (0.4) (11.1) 1.2 (10.3) -------- -------- -------- -------- Total (4.4) (7.1) 20.0 8.5 -------- -------- -------- -------- Net foreign currency monetary assets/(liabilities) Sterling US Other Total dollars currencies US$m US$m US$m US$m 2003 Functional currency of group operation: Sterling - 1.1 0.5 1.6 US Dollars - - 0.8 0.8 Other currencies - 1.4 - 1.4 -------- -------- -------- -------- Total - 2.5 1.3 3.8 -------- -------- -------- -------- Hedges Where possible, the Group enters into forward foreign currency contracts to eliminate the currency exposures that arise on revenues denominated in foreign currencies immediately those revenues are transacted. It also uses interest rate swaps to manage its interest rate profile. Changes in the fair value of instruments used as hedges are not recognised in the financial statements until the hedged position matures. 18. Provisions for liabilities and charges 2004 2003 (Restated) US$m US$m Deferred taxation (note a) 7.3 10.2 Warranty provisions (note b) 10.1 8.7 Other provisions (note c) 3.8 6.1 -------- -------- 21.2 25.0 -------- -------- The movement in the provisions comprises: Deferred Warranty Other Taxation Provisions Provisions US$m US$m US$m ------- ------- ------- At 1 January 2004 (as restated) 10.2 8.7 6.1 Exchange adjustments (0.3) 0.2 - Company acquired 0.2 0.3 - (Credit)/charge for the year (4.6) 7.4 (0.7) Payments during the year - (6.5) (1.6) Transferred to debtors (see note 14) 1.8 - - ------- ------- ------- At 31 December 2004 7.3 10.1 3.8 ------- ------- ------- The opening deferred tax balance has been restated, US$9.7m now being shown as a deferred tax asset (see note 14). a. Deferred taxation Deferred taxation included in these financial statements comprises net corporation tax receivable deferred by:- 2004 2003 US$m US$m Fixed asset timing differences 10.4 9.4 Short term timing differences (14.6) (8.9) -------- -------- (4.2) 0.5 -------- -------- The deferred tax balance is presented in the accounts as follows:- Deferred tax asset (see note 14) (11.5) (9.7) Deferred tax liability 7.3 10.2 -------- -------- (4.2) 0.5 -------- -------- Deferred income tax liabilities have not been established for the withholding and other taxes that would be payable on the unremitted earnings of certain subsidiaries and joint ventures, as such amounts are continually reinvested. The Group has unrecognised tax losses of US$36.9m (2003 : US$32.5m) to carry forward against future taxable income. 18. Provisions for liabilities and charges (continued) b. Warranty provisions At 31 December 2004, a warranty provision of US$10.1m (2003 : US$8.7m) was recognised in respect of guarantees provided in the normal course of business relating to contract performance. The provision is estimated based on past claims history and it is expected that most of these costs will be incurred in the next financial year. c. Other provisions At December 2004 other provisions of US$3.8m (2003 : US$6.1m) have been recognised, and it is expected that most of these costs will be incurred within the next 1 to 2 years. 19. Share capital 2004 2003 US$m US$m Authorised 720,000,000 ordinary shares of 3 1/3p each (2003 : 720,000,000) 34.9 34.9 -------- -------- Allotted, called up and fully paid 483,531,380 ordinary shares of 3 1/3p each (2003 : 482,648,960) 23.5 23.4 -------- -------- During the year, 882,420 ordinary shares of 3 1/3 pence were issued at prices varying from 10 1/2 pence per share to 15 2/3 pence per share, on the exercise of options granted under the John Wood Group 1994 Approved Executive Share Option Scheme and the John Wood Group 1996 Unapproved Executive Share Option Scheme. Share options The following options to subscribe for new or existing ordinary shares were outstanding at 31 December 2004:- Year Number of ordinary shares under option Exercise Exercise period of price Grant 2004 2003 (per From To share) 1995 - 60,000 10 1/2p 20.11.2000 20.11.2005 1997 - 105,000 11 1/3p 05.04.2002 05.04.2007 1997 - 90,000 12 2/3p 24.12.2002 24.12.2007 1998 121,290 1,260,000 15 2/3p 16.10.2003 16.10.2008 2000 7,050,000 7,515,000 17 1/3p 20.06.2005 20.06.2010 2000 210,000 210,000 18 1/3p 13.11.2005 13.11.2010 2001 990,000 1,140,000 93 1/3p 01.06.2006 01.06.2011 2001 315,000 345,000 93 1/3p 13.06.2006 13.06.2011 2001 5,440,500 6,037,500 83 1/3p 31.12.2006 31.12.2011 2002 24,000 24,000 83 1/3p 28.02.2007 28.02.2012 2002 255,000 255,000 83 1/3p 14.03.2007 14.03.2012 2002 1,462,500 1,522,500 83 1/3p 05.04.2007 05.04.2012 2002 60,000 105,000 83 1/3p 12.04.2007 12.04.2012 2003 500,000 500,000 161 1/4p 07.01.2007 07.01.2013 2003 3,802,069 4,067,500 158 p 30.09.2007 30.09.2013 2004 7,341,981 - 128 1/2p 02.04.2008 02.04.2014 2004 60,000 - 143 1/2p 01.11.2008 01.11.2014 --------- --------- 27,632,340 23,236,500 --------- --------- 19. Share capital (continued) Details of the Group's Executive Share Option Schemes are set out in the Directors' Remuneration Report. Share options are granted at the current market value of the underlying shares at the grant date. 7,535,000 options were granted during the year, 1,393,710 options were exercised during the year and 1,745,450 options lapsed during the year. There are no performance criteria attached to the exercise of the options granted prior to 2003. Options granted to directors under the new share option scheme implemented in 2003 are subject to performance criteria as set out in the Directors' Remuneration Report. Long Term Retention Plan The following options granted under the Group's long term retention plan ('LTRP') were outstanding at 31 December 2004:- Year Number of ordinary Exercise Exercise of shares under option price period Grant 2004 2003 (per share) From To 2003 1,793,485 1,880,927 3 1/3p 02.07.2007 02.07.2008 2003 20,772 20,772 3 1/3p 11.08.2007 11.08.2008 2003 41,545 41,545 3 1/3p 08.09.2007 08.09.2008 2004 120,000 - 3 1/3p 01.11.2008 01.11.2009 --------- --------- 1,975,802 1,943,244 --------- --------- Options granted under the group's LTRP are granted at par value (3 1/3 pence per share). There are no performance criteria attached to the exercise of options under the LTRP. 120,000 LTRP options were granted during the year, no LTRP options were exercised during the year and 87,442 LTRP options lapsed during the year. 20. Share premium account 2004 2003 US$m US$m At 1 January 200.8 200.3 Arising on shares issued 0.1 0.5 -------- -------- At 31 December 200.9 200.8 -------- -------- 21. Capital reduction reserve 2004 2003 US$m US$m At 1 January and 31 December 88.1 88.1 -------- -------- John Wood Group PLC Notes to the financial statements for the year to 31 December 2004 22 Profit and loss account Parent and Own shares Subsidiary Joint held in Undertakings Ventures ESOP trusts Group US$m US$m US$m US$m At 1 January 2004 as reported 171.7 57.3 - 229.0 Prior year UITF 38 adjustment - - (19.8) (19.8) --------- ------- -------- -------- At 1 January 2004 as restated 171.7 57.3 (19.8) 209.2 Exchange movement on retranslation of foreign currency net assets 0.7 1.0 - 1.7 Retained profit for the year 9.6 0.5 - 10.1 Consideration paid in respect of purchase of own shares held in ESOP trusts - - (22.5) (22.5) Consideration received in respect of sale of own shares held in ESOP trusts - - 0.2 0.2 Foreign exchange in respect of own shares held in ESOP trusts - - (2.5) (2.5) Credit in respect of employee share awards 1.2 - - 1.2 Actuarial loss recognised in the pension scheme net of deferred tax (3.4) - - (3.4) --------- ------- -------- -------- At 31 December 2004 179.8 58.8 (44.6) 194.0 --------- ------- -------- -------- The opening balance has been restated to reflect the deduction of own shares held in employee share trusts under the provisions of UITF 38. A deduction of US$19.8m has been made to the previously reported profit and loss account reserve of US$229.0m. The adoption of UITF 38 has not resulted in an impact on the profit and loss account in either the current or the prior year. At 31 December 2004 19,892,881 shares (2003 : 10,103,930) were held in employee share trusts, with a cost of US$44.6m (2003 : US$19.8m) and a market value of US$51.2m (2003 : US$24.4m). Options have been granted over 121,290 shares held by the ESOP trusts. Shares held by the ESOP trusts have been acquired at market value over a number of years. The trusts have used funds provided by John Wood Group PLC to meet the Group's obligations under the various share option schemes. The ESOP trusts have waived their rights to receipt of dividends. Exchange adjustments include US$4.7m (2003: US$5.0m) arising from the re-translation of foreign currency loans that have been offset against the re-translation of foreign currency net assets. The profit and loss account includes US$(23.7)m (2003 : US$(19.3)m) stated after deferred taxation of US$10.2m (2003 : US$8.2m) in respect of pension scheme liabilities of the Group's UK defined benefit scheme. 23. Equity minority interests 2004 2003 US$m US$m At 1 January 18.7 14.6 Profit and loss account 2.1 3.9 Acquisition of minority interests (9.3) (0.1) Minority shareholding recognised on conversion from joint venture to subsidiary 0.5 - Additional paid in capital - 0.3 -------- -------- At 31 December 12.0 18.7 -------- -------- Minority interests were acquired during the year for cash of US$24.2m and resulted in additional goodwill of US$14.9m. 24. Acquisitions The assets and liabilities acquired in respect of acquisitions during the year are included below: Book value and fair value US$m Fixed assets Tangible assets 1.0 Current assets Stocks 2.6 Debtors 9.2 Cash 2.7 Liabilities Creditors (7.2) --------- Tangible net assets 8.3 Goodwill 47.2 --------- 55.5 --------- Satisfied by Cash 35.2 Contingent consideration 20.3 --------- 55.5 --------- The Group has used acquisition accounting for all purchases and, in accordance with the Group's accounting policy, the goodwill arising on consolidation of US$47.2m has been capitalised. The Group has acquired the following companies during the year : - Z-tec GmbH Energy Services, Deepwater Specialists Inc., Multiphase Solutions Inc., Ellipsys Inc. and Woodhill Engineering Consultants. Companies acquired during the year contributed US$9.1m to operating cash flows. Deferred consideration payments of US$4.7m were made during the year in respect of acquisitions made in prior periods. Analysis of the net outflow of cash in respect of acquisitions: US$m Cash consideration 35.2 Cash acquired (2.7) -------- Net outflow of cash in respect of acquisitions 32.5 -------- 25. Pension commitments The Group has established a number of pension schemes around the world covering many of its employees. One of the Group's pension schemes in the UK 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 main UK pension scheme was at 5 April 2004. The valuation of the scheme used the projected unit method and was carried out by a professionally qualified actuary. The principal assumptions made by the actuary were: 2004 2003 2002 % % % Rate of increase in pensionable salaries 4.75 4.75 4.35 Rate of increase of pensions in payment 2.75 2.75 2.35 Discount rate 5.30 5.40 5.60 Inflation assumption 2.75 2.75 2.35 The assets of the scheme and the expected rate of return were: Long-term Long-term Long-term rate of rate of rate of return return return expected Value at expected Value at expected Value at 31 December 31 December 31 December 31 December 31 December 31 December 2004 2004 2003 2003 2002 2002 % US$m % US$m % US$m Equities 7.50 74.5 7.50 56.6 7.50 36.7 Bonds 4.90 12.8 5.10 8.2 5.00 7.1 Cash 4.50 1.0 3.75 0.7 - - ------- ------- ------- ------- ------- ------- Total market value of 88.3 65.5 43.8 assets Present value of scheme (122.2) (93.0) (67.1) liabilities ------- ------- ------- Deficit in the scheme (33.9) (27.5) (23.3) Related deferred tax asset 10.2 8.2 7.0 ------- ------- ------- Net pension liability (23.7) (19.3) (16.3) ------- ------- ------- Analysis of amount charged to operating profit in respect of defined benefit scheme 2004 2003 US$m US$m Total operating charge Current service 5.5 4.6 -------- -------- 25. Pension commitments (continued) Movement in deficit during the year 2004 2003 US$m US$m Deficit in the scheme at the beginning of the year (27.5) (23.3) Current service cost (5.5) (4.6) Contributions 6.4 4.9 Exchange adjustments (2.2) (2.7) Other finance expense (0.3) (0.6) Actuarial loss (4.8) (1.2) -------- -------- Deficit in the scheme at the end of the year (33.9) (27.5) -------- -------- Analysis of the amount charged to other finance expense 2004 2003 US$m US$m Expected return on pension scheme assets 5.0 3.4 Interest on pension scheme liabilities (5.3) (4.0) -------- -------- Net finance expense (0.3) (0.6) -------- -------- Analysis of amount recognised in statement of total recognised gains and losses 2004 2003 US$m US$m Actual return less expected return on pension scheme assets 4.9 6.3 Experience gains and losses arising on the scheme liabilities (1.7) 0.5 Changes in the assumptions underlying the present value of the scheme liabilities (8.0) (8.0) -------- -------- Actuarial loss recognised in statement of total recognised gains and losses (4.8) (1.2) -------- -------- Analysis of movement in deferred tax asset 2004 2003 US$m US$m Asset at beginning of the year 8.2 7.0 Movement in deferred tax relating to pension liability 1.4 0.4 Exchange adjustments 0.6 0.8 -------- -------- Asset at end of the year 10.2 8.2 -------- -------- 25. Pension commitments (continued) History of experience gains and losses 2004 2003 2002 2001 2000 Difference between the actual and expected return on scheme assets: Amount (US$m) 4.9 6.3 (11.6) (8.0) (3.3) Percentage of scheme assets 6% 9% 26% 19% 7% Changes in the assumptions underlying the present value of the scheme liabilities: Amount (US$m) (8.0) (8.0) (2.5) (2.3) - Percentage of the present value of the scheme liabilities 7% 9% 4% 5% - Experience gains and losses on scheme liabilities: Amount (US$m) (1.7) 0.5 0.1 0.2 0.4 Percentage of the present value of the scheme liabilities 1% 1% 0% 0% 1% Total amount recognised in statement of total recognised gains and losses: Amount (US$m) (4.8) (1.2) (14.0) (10.1) (2.9) Percentage of the present value of the scheme liabilities 4% 1% 21% 20% 6% The valuation at 31 December 2004 showed an increase in the deficit from US$27.5m to US$33.9m. Company contributions in 2004 were US$6.4m. Company contributions represented 11.3% of pensionable pay until July 2003 when they were increased to 13.8%. Employee contributions represented 6% of pensionable pay until July 2003 when they were increased to 7.5%. The defined benefit scheme was closed to new employees with effect from 6 April 2003 with transitional arrangements for existing employees. The Group also has defined contribution plans in the UK and US and certain UK, US and overseas subsidiaries operate their own defined contribution pension arrangements. Contributions are charged to the profit and loss account as they become payable in accordance with the rules of the schemes. The total pension cost for the Group in respect of these schemes was US$13.6m (2003 : US$13.3m). Contributions outstanding at 31 December 2004 in respect of these schemes amounted to US$6.1m (2003 : US$7.8m). 26. Capital commitments 2004 2003 US$m US$m At the balance sheet date the following capital commitments existed for tangible fixed assets: Contracted for but not provided 3.4 3.9 -------- -------- The Group's share of contracted capital commitments of joint ventures is not significant. There are financial commitments relating to the purchase of shares from certain subsidiary minority shareholders based on the profits of these subsidiaries and the payments extend over a number years. The remaining 6.6% of Mustang Engineering Holdings Inc. is due to be acquired in 2006. 27. Commitments under operating leases -------- -------- -------- -------- Land and Plant and Land and Plant and Buildings Equipment Buildings Equipment -------- -------- -------- -------- 2004 2004 2003 2003 US$m US$m US$m US$m Annual commitments under non-cancellable operating leases expiring: Within one year 4.6 1.4 2.4 1.7 Within two to five years 16.4 5.0 15.8 4.4 Later than five years 7.1 - 7.8 0.3 -------- -------- -------- -------- 28.1 6.4 26.0 6.4 -------- -------- -------- -------- 28. Contingent liabilities At the balance sheet date the Group had cross guarantees without limit extended to the Group's principal bankers in respect of sums advanced to subsidiaries. At 31 December 2004 the Group has outstanding guarantees of US$18.4m (2003 : US$18.5m) in respect of joint venture bank arrangements. 29. Related party transactions Included in the profit and loss account are sales, costs and expenses which arise from transactions between the Group and its joint ventures. Such transactions mainly comprise sales and purchases of goods in the ordinary course of business and in total amounted to: 2004 2003 US$m US$m Sales to joint ventures 73.8 84.0 Charges from joint ventures 16.6 7.7 -------- -------- Details of balances due to and from joint ventures are provided in notes 14 and 15. In addition, Sir Ian Wood holds a controlling interest in J W Holdings Limited. During the year, the Group charged J W Holdings Limited US$0.2m (2003 : US$0.1m) for management services provided under normal commercial terms. 30. Net cash inflow from operating activities 2004 2003 US$m US$m Operating profit of Group undertakings 45.8 86.7 Depreciation on tangible fixed assets 37.5 40.3 Loss on sale of fixed assets 0.9 0.1 Impairment and restructuring charges - non-cash impact 12.5 - Amortisation of goodwill 16.4 14.3 Increase in stocks (74.3) (18.3) Increase in debtors (80.9) (20.4) (Increase)/decrease in amounts due from joint ventures (4.4) 15.0 Increase in creditors 104.3 24.3 (Decrease)/increase in other provisions (1.1) 3.4 Adjustment in respect of employee share awards 1.2 0.6 Exchange adjustments (2.2) (1.1) -------- -------- Net cash inflow from operating activities 55.7 144.9 -------- -------- Operating cash flows include an outflow of US$13.7m in relation to the impairment and restructuring charges referred to in note 5. 31. Reconciliation of net cash flow to movement in net debt 2004 2003 US$m US$m (Decrease)/increase in cash in the period (21.8) 15.5 Cash flow from increase/(decrease) in liquid resources 5.3 (3.3) Cash flow from increase in debt (111.2) (2.2) -------- -------- Change in net debt resulting from cash flows (127.7) 10.0 Other non-cash items Exchange adjustments (6.1) (7.8) -------- -------- Movement in net debt in period (133.8) 2.2 Net debt at beginning of period (175.0) (177.2) -------- -------- Net debt at 31 December (308.8) (175.0) -------- -------- 32. Analysis of net debt At Cash Exchange At 31 1 January Flow Movement December 2004 2004 US$m US$m US$m US$m Cash 47.3 (21.8) 0.4 25.9 Deposits treated as liquid resources 22.5 5.3 0.7 28.5 -------- -------- -------- -------- Cash in hand and at bank 69.8 (16.5) 1.1 54.4 Bank loans and overdrafts (13.9) (3.5) (0.8) (18.2) Bank loans due after 1 year (230.9) (107.7) (6.4) (345.0) -------- -------- -------- -------- Net debt (175.0) (127.7) (6.1) (308.8) -------- -------- -------- -------- 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 dividends in dollars please request the company's Registrar to send you an election form. All shareholders will receive dividends in sterling unless requested in writing. 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 to shareholders of the BACS payment method is that the Registrar posts the tax vouchers directly to them, whilst the dividend is credited on the payment date to the shareholder's Bank or Building Society account. 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 request the Company's Registrar to send them a Dividend/Interest mandate form. Sterling dividends will be translated at the closing mid-point spot rate on 6 May 2005 as published in the Financial Times on 7 May 2005. 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 First Boston Chartered Accountants Financial calendar Results announced 8 March 2005 Ex-dividend date 4 May 2005 Dividend record date 6 May 2005 Annual General Meeting 19 May 2005 Dividend payment date 25 May 2005 Wood Group's Investor Relations website can be accessed at www.woodgroup.com This information is provided by RNS The company news service from the London Stock Exchange

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