Final Results

Strong performance in 2008 More challenging outlook in 2009 John Wood Group PLC ("Wood Group", the "Group") is a market leader in engineering design, production support and industrial gas turbine services for customers in the oil & gas and power generation industries around the world. Operating in 46 countries, Wood Group's businesses employ 28,800 people1. 2008 Financial Highlights Revenue of $5,243.1m (2007: $4,432.7m) up 18% EBITA2 of $441.0m (2007: $318.4m) up 39% Profit before tax of $384.1m (2007: $259.9m) up 48% Basic earnings per ordinary share of 49.6 cents (2007: 33.0 cents) up 50% Adjusted diluted earnings per ordinary share3 of 52.1 cents (2007: 36.9 cents) up 41% Proposed full year dividend of 9.0 cents (2007: 7.0 cents) up 29%, reflecting the strength of the Group's performance and confidence in future prospects Significant cash generated from operations; strong balance sheet; bank facilities extended to 2012 2008 Operating Highlights Strong EBITA growth across all three divisions Engineering & Production Facilities - up 47% Well Support - up 21% Gas Turbine Services - up 13% Group EBITA margin of 8.4% (2007: 7.2%), with margin improvement in all three divisions Engineering & Production Facilities - strong revenue and EBITA growth; margin improvement in both Engineering and in Production Facilities Engineering -high activity across all business areas -expanded our range of services and geographic footprint -completed strategic acquisition in subsea (MCS) Production Facilities reinforced market leading position in the North Sea; significant contract wins with new entrants continuing to make good progress in international markets completed strategic acquisition in training (M&O) Well Support - good revenue and EBITA growth in all businesses; new products and services Electric Submersible Pumps -delivering margin improvement -continuing international expansion Pressure Control -expansion of business outside the US with IOCs and NOCs -increased capacity in lower cost manufacturing centres Gas Turbine Services - strong EBITA growth, good increase in underlying revenue; continuing focus on cost reduction and efficiency leading to improving margins Oil & gas - activity supports existing production with lower sensitivity to oil & gas prices; increasing NOC content Power & industrial - demand driven by ongoing maintenance budgets of customers; activity and enquiry levels remain good Fast track power packages - demand driven by power shortages in developed and developing world; enquiry levels remain good but financing delaying projects Increased order book during the year Outlook Current market conditions provide challenges and opportunities; working with customers on cost reduction and efficiency improvements to meet the challenge of lower commodity prices The Group is experienced in managing cycles; has a flexible cost base; management action being taken where necessary Strong order book in Engineering & Production Facilities; significant prospects in Engineering; Production Facilities is operating expenditure "opex" focused, with around 70% of revenue under longer term reimbursable contracts with large stable customers Challenging outlook for US gas market within Well Support; decisive management action already taken to address Anticipate a resilient aftermarket performance from Gas Turbine Services in 2009 Strong balance sheet; bank facilities extended to 2012; well positioned to take advantage of acquisition and organic investment opportunities Sir Ian Wood, Chairman, Wood Group, said: "2008 was a very successful year for Wood Group with record revenue and EBITA. Looking into 2009, Wood Group's strong order book, focus on production support, our good international spread and our high quality customer base all stand us in good stead in these more challenging markets. The current market provides opportunities as well as challenges and we are focused on delivering innovative and creative solutions to achieve cost reduction and efficiency improvements for our customers. Longer term, we believe the fundamentals for oil & gas services remain strong and we are well positioned to capitalise on our high differentiation and market leading positions to deliver good growth." ENQUIRIES: Wood Group 01224 851000 Allister Langlands, Chief Executive, Alan Semple, Finance Director Nick Gilman / Carolyn Smith Brunswick, 020 7404 5959 Patrick Handley / Nina Coad Notes 1 Number of employees and contractors at 31 December 2008. 2 EBITA represents operating profit of $415.8m (2007: $285.2m) for 2008 before adjusting for profit on disposal of interest in joint venture of $nil (2007: $3.6m), impairment and restructuring charges of $nil (2006: $26.2m), and amortisation of $25.2m (2006: $10.6m). This financial term is provided as it is a key unit of measurement used by the Group in the management of its business. 3 Shares held by the Group's employee share ownership trusts are excluded from the number of shares in calculating earnings per ordinary share. Adjusted diluted earnings per ordinary share is based on the diluted number of shares, taking account of share options where the effect of these is dilutive. Adjusted diluted earnings per ordinary share is calculated on earnings before amortisation, impairment and restructuring charges and profit on disposal of interest in joint venture, net of tax. Chairman's Statement 2008 was a very successful year for Wood Group with record revenue of $5.2bn and record EBITA1 of $441.0m. This excellent performance means that over the last four years we have delivered compound annual growth in adjusted diluted earnings per share2 in excess of 40%. 2008 Group performance 2008 2007 change $m $m Revenue 5,243.1 4,432.7 +18% EBITA1 441.0 318.4 +39% EBITA margin 8.4% 7.2% Profit before tax 384.1 259.9 +48% Basic EPS 49.6c 33.0c +50% Adjusted diluted 52.1c 36.9c +41% EPS2 Total dividend 9.0c 7.0c +29% ROCE 3 33.3% 28.3% Reflecting the strength of our performance and continuing confidence in our long term growth, we are proposing a final dividend of 6.2c, taking the total dividend for the year to 9.0c, up 29% on last year. Markets We used the strength of our Oil & Gas and Power markets in 2008 to enhance our differentiation and further develop and internationalise our activities, and won a number of important new contracts. Engineering & Production Facilities strengthened its position in both its traditional markets, and in some new international markets. Well Support continued to increase revenue and margins in a competitive marketplace, develop new products and services, and increase the efficiency of its manufacturing operations. Gas Turbine Services continued its programme of developing the technology and engineering of new spare parts for the overhaul and repair of additional engine types, thus enhancing our differentiation and developing our market positions in both the Oil & Gas and Power markets. The world recession, volatile financial markets and exchange rates, and much lower oil and gas prices are expected to lead to a 10-15% reduction in global E &P expenditure and a decrease in service company activity. This, along with the impact of the stronger dollar on our non US dollar earning stream, will affect our shorter term reported performance to some extent. However, there are opportunities and we are working with a number of customers on cost reduction and efficiency improvements, areas in which Wood Group has great experience and strength. Larger customers appear to be continuing to make major project investment decisions based on the strongly prevailing view that oil and gas prices will increase significantly in the medium term. Operators around the world are finding it difficult to grow their reserves with ageing reservoirs, high depletion rates and the growing complexity and cost of new developments. These reserves are often located in countries with higher levels of political and economic uncertainty and we have a long track record of managing operations in such countries. The International Energy Agency (IEA) is forecasting $8 trillion in oil and gas exploration investment between now and 2030. A significant proportion of this will be in large deepwater and subsea developments, areas in which Wood Group is a world leader. We also believe we can use our growing knowledge and expertise in both carbon capture and storage and renewables to help our customers meet their growing environmental and climate change objectives. Overall, around 55% of our business4 is linked to supporting production and operations which is less sensitive to lower oil prices. The current market provides opportunities as well as challenges. Through innovative and creative solutions, we are working with our customers to meet the challenge of much lower commodity prices in the short term and, at the same time, will be very well placed to support the significant investment that will be applied as commodity prices strengthen. Strategy Our strategy is to achieve long term sustainable growth by adding value to our customers' operations with world-leading, highly differentiated products and services. Our strategy has four strands which are: to maintain a good balance between field developments and later cycle production support to grow and maintain market leading positions based on differentiated know-how to develop longer term customer relationships, often on performance based contracts, and to extend our services and broaden our international presence. We believe this strategy positions us well through the oil and gas cycle, with good defensive qualities well balanced with opportunities for growth. Our strong balance sheet position and recently extended bank facilities will enable us to continue to make value enhancing acquisitions and organic investments in order to emerge stronger from the downturn. People We continue to make real progress in our objective of being an employer of choice for quality people, providing them with a challenging and interesting work environment in which no-one will be hurt. We are a global company with a global employment strategy and policies, and our focus is on employing, encouraging, training, developing and supporting the best quality people, working in a safe environment, around the world. I believe we significantly achieve this and would like to thank, on behalf of the Board, all our people whose skills, commitment and enthusiasm continue to drive our success and give us confidence in our future. I would also like to extend my personal thanks to my Board, and to Allister Langlands and his executive management team who have led the company very successfully in 2008 and have the skills, commitment and expertise to ensure we continue to perform in the current more challenging environment. Outlook Wood Group's strong order book, our focus on production support, our good international spread and our high quality customer base all stand us in good stead in these more challenging markets. The current market provides opportunities as well as challenges and we are focused on delivering innovative and creative solutions to achieve cost reduction and efficiency improvements for our customers. Longer term, we believe the fundamentals for oil & gas services remain strong and we are well positioned to capitalise on our high differentiation and market leading positions to deliver good growth. Sir Ian Wood Chairman 2 March 2009 Chief Executive's report 2008 2007 change $m $m Revenue 5,243.1 4,432.7 +18% Engineering & 3,244.7 2,582.8 +26% Production Facilities Well Support 1,008.6 862.1 +17% Gas Turbine 956.6 955.7 +0% Services 2008 2007 change $m $m EBITA 441.0 318.4 39% Engineering & 316.1 214.5 +47% Production Facilities Well Support 105.0 87.1 +21% Gas Turbine 72.6 64.3 +13% Services 2008 2007 EBITA margin 8.4% 7.2% Engineering & 9.7% 8.3% Production Facilities Well Support 10.4% 10.1% Gas Turbine Services 7.6% 6.7% Operating and financial highlights Review of 2008 Group revenue grew 18% to $5.2bn, reflecting strong growth in Engineering & Production Facilities and Well Support, and relatively flat revenue in Gas Turbine Services. The strong growth in Engineering & Production Facilities was driven by increased activity across all sectors in Engineering, and by the continuing strong demand for our Production Facilities activities in the North Sea and in international markets. In Well Support, activity levels were good through 2008 in all three businesses and we continued to grow our international revenue outside the US. In Gas Turbine Services, a good increase in underlying operations and maintenance revenue was offset by the divestment of non core businesses and lower revenue from fast track power package contracts. Group EBITA increased from 7.2% to 8.4%, reflecting the strengthening of margins in all divisions. The Engineering & Production Facilities margin increased due to improvements in the underlying margins for both Engineering and for Production Facilities activities, combined with the mix benefit of our higher margin Engineering activities now representing 48% (2007: 44%) of division revenue. In Well Support we saw a continuing increase in overall margin, benefiting from revenue growth and our investment in higher margin products and services. In Gas Turbine Services our ongoing initiatives to increase the amount of work performed under longer term contracts, changes in the mix towards higher margin activities, the divestment of non core activities and a focus on cost reduction and efficiency all contributed to the improvement in margin. People 2008 has seen a tremendous year of growth in the number of people working at Wood Group. Total headcount5 increased by 17% to 28,800 people worldwide. We remain focused on striving to become the employer of choice across all of our businesses. We recognise that attracting, developing, and retaining the best talent enables us to provide world class services and products to our customers and growth for our shareholders. Safety In 2008 we saw a 15% improvement in the frequency of all injuries6 to 3.3 cases per million man hours. This was achieved through a series of pro active initiatives with a focus on leading performance indicators. Our lost work case frequency6 also improved by 27% to 1.1 cases per million man hours, reflecting a decrease in severity of injuries. We are committed to achieving the highest standards of safety in everything that we do and around the world we have won recognition for the performance that we have achieved. Continuous improvement is a key measure of our success and is given the highest priority. We believe we will be successful when no one is hurt. Looking into 2009 Engineering & Production Facilities has entered 2009 with a strong order book. In Engineering, we believe that our differentiated capabilities, order book and prospects, market leading positions and high quality customer base help position us well. Production Facilities activity is largely driven by customers' operating expenditure, with around 70% of revenue based on longer term contracts. A number of our new contracts began in the last quarter of 2008 and this will provide a good contribution in 2009. In Well Support we have already taken decisive management action in light of the challenging outlook in the US gas market. International activities outside the US are over 50% of Well Support's revenue, which will also provide support in 2009. Gas Turbine Services continues to be the leading independent maintenance provider for industrial gas turbines, with around 85% of revenue derived from operational support activity, and we anticipate a resilient aftermarket performance in 2009. 2009 will be a more challenging year for our industry due to the weakness in oil & gas prices and global economies. In light of this, we remain flexible, carefully controlling costs and managing our working capital. We have a strong balance sheet, have extended our bank facilities to 2012 and are well positioned to take advantage of opportunities for acquisitions and organic investment which are likely to emerge in this more challenging market. Our 2009 reported earnings are likely to be impacted by the strength of the US dollar reducing our reported non US dollar earnings stream. However, in overall terms, the majority of the Group's profit is in US dollars, therefore this has a net benefit to shareholders in our currency of listing. We remain confident in the longer term fundamentals of our key markets and are continuing to execute our long term growth strategy. Allister Langlands Chief Executive 2 March 2009 Operational review Engineering & Production Facilities We deliver a wide range of market leading engineering services to the upstream, midstream, downstream and industrial sectors. These include conceptual studies, engineering, project and construction management "EPCM" and control systems upgrades. We provide life of field support to producing assets, through brownfield engineering and modifications, production enhancement, operations management (including UK duty holder services), training, maintenance management and abandonment services. 2008 2007 Change $m $m Revenue 3,244.7 2,582.8 +26% EBITA 316.1 214.5 +47% EBITA margin 9.7% 8.3% People 20,000 16,800 +19% Operating and financial highlights Throughout the year we have benefited from strong demand across the Engineering & Production Facilities division. The revenue split in the period between Engineering and Production Facilities was 48% to 52% (2007: 44% to 56%). Engineering was active across all sectors, and continues to expand its range of services and geographic footprint. Production Facilities continues to be active in the North Sea and a number of international markets. EBITA margin increased from 8.3% to 9.7%, due to increases in the underlying margins in both Engineering and in Production Facilities, along with an increased proportion of higher margin Engineering work. Divisional headcount, including contractors, is approximately 20,000 people, an increase of 19% since last year. Engineering now has 8,700 people, an increase of 20% on 2007, while Production Facilities, with 11,300 people, rose 19%. Engineering Upstream activities represent around 40% of Engineering revenue and 12% of Group revenue. We continue to develop our market leading positions in deepwater engineering and lightweight topsides and in engineering for the in situ oil sands market. The developments on which we work are typically longer term, complex projects and have the potential to add meaningfully to our customers' reserve bases. We work predominantly with International Oil Companies "IOCs", National Oil Companies "NOCs" and large independents and during the period worked on upstream projects for Shell (Perdido), ConocoPhillips (Ekofisk), BP (Valhall and Thunderhorse), ENI (Nitaitchuq, Alaska), Hess Corporation (Pony), Statoil (Perigrino, Brazil and Leismer, Canada), Encana (Foster Creek), Tullow (Uganda) and Modec (Ghana). Subsea engineering, pipelines and midstream represents around 30% of engineering and 9% of Group revenue. We consolidated our market leading position with the acquisition of MCS during the year, a global subsea engineering consultancy with a market leading position in riser & mooring design, and a leading offering of advanced engineering and software solutions to the subsea industry. Along with other Group companies JP Kenny, Multiphase Solutions Inc. and Ionik Consulting, MCS is now part of the Subsea & Pipelines Technology business group, which is the largest of its kind in the world. Our customer base includes NOCs, IOCs and large independents and we are working with customers such as BP (various projects under a global framework agreement), Chevron (Gorgon), Shell (Gumusut-Kakap, Malaysia), Total/Statoil/ Gazprom (Shtokman) and Woodside (Pluto) to develop large longer term projects with meaningful reserves. The onshore pipeline group has been busy connecting new oil and gas developments to consumers, working with Williams (various compressor stations), Cairn (Rajasthan, India), Kinder Morgan (various pipelines) and Rocky Mountain Express. During the year we were awarded the Front End Engineering Design (FEED) contract for Masdar's Carbon Capture and Storage "CCS" project in the United Arab Emirates, which are areas where we see good future growth. We have also been involved in a number of floating LNG studies for Petronas, Teekay and BW Offshore. Downstream, process and industrial represents around 30% of Engineering and 9% of Group revenue. Environmental legislation, upgrades and heavy oil modifications have meant that our refining business had a successful year, performing work for CCRL (Saskatchewan project), Tesoro, Valero and Citgo. The automation group has been active on work for ExxonMobil in Singapore and various projects for Chevron and ConocoPhillips. Production Facilities Our activities in the North Sea, where we are the largest maintenance, modifications and operations contractor, represent 60% of Production Facilities revenue (2007: 66%) and 19% of Group revenue. We operate under longer term contracts with customers such as Apache, BP, Hess, Shell, Talisman and Total providing them with ongoing engineering, operations support, production enhancement and asset integrity services. In addition we have grown a significant duty holder business during the year, providing support to the newer entrants to the region. Our duty holder installations now include the Beatrice offshore complex and wind farm, the onshore terminal at Nigg, Venture's Hummingbird FPSO and the four TAQA platforms - Tern, Eider, North Cormorant and Cormorant Alpha. Looking ahead, we will continue to adapt and develop our service provision as the market evolves. Our international activities, which make up 40% of Production Facilities (2007: 34%) and 12% of Group revenue, continued to perform well. We continue to be active under longer term contracts in Algeria, Brunei, Colombia, Equatorial Guinea, Indonesia, Peru and Trinidad. We enhanced our position in the US with the acquisition of PAC in January 2008, extending our significant Gulf of Mexico presence into the support of the US onshore production market. In August 2008, we acquired M&O Global, a provider of industrial safety and emergency response training. M&O Global will help us to further support a broad range of international customers, especially NOCs, in training and developing their local workforces. In the Middle East, we entered into a joint venture with Consolidated Contractors Company "CCC", an international construction company with a market leading position in the region, in order to provide operations and maintenance services in the region. Engineering & Production Facilities outlook In Engineering & Production Facilities, we entered 2009 with a strong order book. We believe that in upstream the deepwater sector will remain active, although some delays are expected in oil sands developments. Subsea & offshore pipeline spending is expected to be robust and onshore pipeline demand is anticipated to remain high. In our downstream activities the levels of regulatory work are expected to remain strong in 2009, with significant activity required by customers to meet MSAT2 clean air regulations by 2011. Automation, which focuses on efficiency benefits for customers, continues to be very active. We have a high quality flexible resource across Engineering and have already taken action to keep utilisation levels high. Current markets will also provide opportunities for quality FEED work and fit for purpose engineering, as our clients look for efficiency improvements. Production Facilities, with around 70% of revenue under longer term contracts and a focus on the support of ongoing production, has relatively lower sensitivity to the oil price. We have consolidated our market leading position in the North Sea and expanded our scope with new entrants, which will provide an important contribution in 2009. Internationally, we continue to see good scope for growth and expansion into new markets, particularly where there is limited local capability. We continue to offer performance contracting solutions to add value to our customers and have recently taken a number of steps to respond to cost challenges. Operational review Well Support We provide solutions, products and services to enhance production rates and efficiency from oil & gas reservoirs. We are among the market leaders in artificial lift using electric submersible pumps "ESPs", in the provision of surface wellheads and valves, and in the provision of electric and slickline services in the Gulf of Mexico. 2008 2007 Change $m $m Revenue 1,008.6 862.1 17% EBITA 105.0 87.1 21% EBITA margin 10.4% 10.1% People 4,300 3,900 10% Operating and financial highlights 2008 was a good year for the Well Support division with revenue growth in all three businesses contributing to an overall increase of 17%. The percentage of business performed outside the US continues to increase and is now over 50%. Specific areas of strength in 2008 were Latin America and Middle East & Africa. Activity levels throughout 2008 remained high despite a falling US rig count at the end of the year. The EBITA margin increased from 10.1% to 10.4% benefiting from revenue growth and our investment in higher margin products and services. Electric Submersible Pumps "ESPs" Our ESP business represents around 50% of Well Support and around 9% of Group revenue. Our business is mainly driven by the operating expenditure of customers and the need for artificial lift in new and mature oil reservoirs. Approximately 25% of our revenue comes from the US where we have a market leading position in the sale, operation and service of ESPs used for production enhancement through artificial lift. The remaining 75% of our revenue comes from outside the US where we typically have longer term contracts and a strong IOC and NOC customer base. Examples of projects worked on in 2008 include pay for performance contracts in Africa and the Middle East. Pressure Control Our Pressure Control business represents around 35% of Well Support and around 7% of Group revenue. Our business is driven primarily by the gas drilling activity of our customers. In the US, where we generated around 60% of our revenue in 2008, we believe we are now the largest provider of surface valves and wellheads. Increasing levels of rig activity for most of 2008 and high depletion rates in unconventional gas developments contributed to strong activity levels and demand for our services. Internationally, where around 40% of revenue is generated, we continue to expand our business under longer term contracts with IOC and NOC customers. Examples of key projects worked on in 2008 include for Sinopec in China, Aramco in Saudi Arabia and Pemex in Mexico. Logging Services Our Logging Services business represents around 15% of Well Support and around 2% of Group revenue. Our development focused electric wireline services and production focused slickline services both performed well. In recent years we have expanded our capacity and opened new bases which have helped us develop a strong position in value added services. During the year we worked on projects for various operators in the deepwater Gulf of Mexico, Pan American in Argentina and several US based independents on onshore shale developments. Well Support outlook 2009 will be a challenging year for Well Support, with the number of active rigs operating in the US significantly reduced. In Pressure Control, which is primarily focused on gas developments, the reduction in drilling activity means the outlook is more demanding and we expect significant volume decreases and pricing pressure. In Logging Services, the market outlook is similarly challenging, although we have an element of production related revenue. In ESP, our strong production related content, good international exposure and flexible approach to market should lead to a robust performance. We have already taken decisive management action to reduce SG&A, achieve supply chain efficiencies and to reduce US headcount significantly in Pressure Control and Logging Services. Operational review Gas Turbine Services We are the world leading independent provider of integrated maintenance solutions, and repair & overhaul services for industrial gas turbines, used for power generation, compression and transmission in the oil & gas and power generation industries. 2008 2007 Change $m $m Revenue 956.6 955.7 0% EBITA 72.6 64.3 13% EBITA margin 7.6% 6.7% People 4,100 3,700 11% Operating and financial highlights Gas Turbine Services revenue was unchanged in the period, with a 14% increase in underlying revenue being offset by the divestment of non core businesses and lower fast track power solutions revenue. The increase in EBITA margin from 6.7% to 7.6% was as a result of ongoing initiatives to increase the amount of work performed under longer term contracts, changes in the mix towards higher margin activities, the divestment of non core activities and a focus on cost reduction and efficiency. We have increased the amount of revenue generated under longer term contracts from 39% to 41%. We continue to focus on increasing the breadth of our core activities, adding further new product capability and providing customer focused solutions. We now have over 4,100 people, serving customers in over 100 countries. Oil & Gas Our oil & gas activities support turbines that are used for power generation, gas compression and transmission and represent around one third of Gas Turbine Services revenue. Through our OEM licensed joint ventures we have broad technical capabilities and know how, a strong service culture and a market leading share of the aftermarket for aero-derivative gas turbines. Most of the installed turbines on which we work are linked to existing production and therefore have relatively lower sensitivity to oil and gas prices. During 2008, we were active on an increasing number of turbines for NOCs including Petrobras, Pemex and Petronas, and our newly formed Asset Management Solutions "AMS" group secured longer term rotating equipment contracts with TAQA in the North Sea and Total in the Netherlands. Our light industrial turbine activities continued to grow and increased market share through success in developing new products and penetrating new regions. Power Our power activities provide support for turbines that are used for power generation and industrial applications, and represent around two thirds of Gas Turbine Services revenue. Demand for our services is driven by the maintenance budgets of customers. Recent reductions in the gas price have made gas a more cost effective input for power generation and in the longer term the environmental benefits of gas relative to other fossil fuels mean that it is forecast to gain an increasing share of generating capacity. During 2008, we were active on a large number of projects including those for NYPA, Suez, and Duke. There are power shortages in the developing world and in parts of the developed world where distribution networks are insufficient to take power to where it is needed. This has led to demand for fast track power solutions where we have a competitive advantage in our ability to locate, refurbish, install, warrant, operate and maintain equipment. During 2008 we made equipment sales into the Middle East and South America and we successfully completed the fast track power projects for American Electric Power "AEP" which commenced in 2007. We also secured three relocation projects in Texas, one for El Paso Electric and two for East Texas Electric Co-operative "ETEC" which will be executed in 2009. Gas Turbine Services outlook We anticipate that demand for our oil & gas related maintenance, repair & overhaul services will remain robust in 2009, due to its production focused nature and the longer term contracts we have in place. We have a good spread of business with NOCs, IOCs and large independents. In the power market there may be some regional short term weakness, as certain customers look to defer maintenance but in the longer term, demand for power, and in particular gas turbine generated power, is expected to increase, leading to strong ongoing demand for our services. We continue to focus on initiatives to increase the amount of business under longer term contacts, expand our regional and customer portfolio, divest of non core businesses and reduce costs. Overall we anticipate a resilient aftermarket performance. The outlook for our fast track power package activities is being impacted by the continuing tight credit markets, although we currently see strong enquiry levels. Operational review Financial review Financial performance 2008 2007 Change $m $m Revenue 5,243.1 4,432.7 +18% EBITA 441.0 318.4 +39% EBITA Margin 8.4% 7.2% Amortisation 25.2 10.6 Impairment and restructuring charges - 22.6 and profit on disposal of interest in joint venture Operating profit 415.8 285.2 +46% Net finance expense 31.7 25.3 Profit before tax 384.1 259.9 +48% Tax 128.7 91.0 Profit for the year 255.4 168.9 +51% Basic EPS (cents) 49.6c 33.0c +50% Adjusted diluted EPS (cents) 52.1c 36.9c +41% Dividend per share (cents) 9.0c 7.0c +29% 2008 saw another year of strong growth in Revenue, EBITA and EBITA margin. Revenue increased by 18% to $5,243.1m, EBITA by 39% to $441.0m and EBITA margin by 120 basis points to 8.4%. A detailed review of our trading performance is contained within the divisional reviews. Amortisation The amortisation charge of $25.2m includes $11.9m (2007: $2.0m) of amortisation relating to other intangible assets arising from acquisitions, most notably $8.1m from the purchase of IMV in November 2007. There was a full year of IMV amortisation in 2008 compared to only one month in 2007. Finance expense The net finance expense in the period of $31.7m is made up of interest expense of $37.7m (2007: $32.7m) (including deemed interest) and interest income of $6.0m (2007: $7.4m). The net finance expense is higher than 2007 due to higher average levels of net debt in the period, combined with a charge of $4.0m (2007: $1.4m) relating to the accounting treatment of deferred consideration payments. Taxation The movement in the tax charge is outlined below. 2008 2007 $m $m Tax charge 128.7 91.0 Tax on impairment and restructuring charges and profit on disposal of interest in joint - 3.5 venture Adjusted tax charge 128.7 94.5 Profit before tax 384.1 259.9 Impairment and restructuring charges and profit on disposal of interest in joint - 22.6 venture Amortisation of other intangible assets on acquisition 11.9 2.0 Adjusted profit before tax 396.0 284.5 Effective tax rate 32.5% 33.2% The reduction in the Group's effective tax rate from 33.2% to 32.5% reflects a change in the geographical mix of our operations and a range of tax efficiency measures implemented. Dividend The final dividend of 6.2c results in a full year dividend of 9.0c, an increase of 29% from last year. Dividend cover 7 for 2008 was 5.8 times (2007: 5.3 times). Returns on investment The Group's ROCE increased from 28.3% to 33.3%. The overall improvement reflects improved performance in all divisions combined with the impact of higher growth in areas of relatively lower capital intensity. 4 28 Foreign exchange The Group's EBITA is impacted in a number of ways by movements in foreign exchange rates, including the effect of retranslating foreign currency results at different average rates year to year. Given the material strengthening in the US dollar over recent months, a number of current foreign exchange rates are significantly different from the average rates for 2008. The table below sets out the impact on 2008 EBITA had current exchange rates applied. Also set out below is the impact of the movement of exchange rates on our Sterling equivalent earnings, as this is the currency in which our shares are traded. 2008 - translated at 2008 - translated at actual average rates current rates8 Revenue EBITA Revenue EBITA $m $m $m $m Engineering & Production 3,244.7 316.1 2,872.2 289.1 Facilities Well Support 1,008.6 105.0 983.1 100.6 Gas Turbine Services 956.6 72.6 898.0 63.8 Central / to be disposed 33.2 (52.7) 33.2 (49.0) Total 5,243.1 441.0 4,786.5 404.5 Sterling equivalent9 £2,836.6 £238.6 £3,301.0 £279.0 As the majority of the Group's profit is generated in US dollars, a stronger US dollar has a net benefit for shareholders in our currency of listing. The impact of retranslating the 2008 reported EBITA at current rates would be to reduce reported EBITA by 8%, but in Sterling equivalent terms EBITA would have increased by 17%. Financial Position, including Cash Flow and Liquidity Summary Balance Sheet 2008 2007 $m $m Assets Non-current assets 958.0 903.1 Current assets 1,844.1 1,567.4 Liabilities Current liabilities 1,061.8 984.6 Net current assets 782.3 582.8 Non-current liabilities 593.3 500.0 Net assets 1,147.0 985.9 Total equity 1,147.0 985.9 The Group balance sheet is strong with net assets of $1,147.0m and net current assets of $782.3m. Non-current assets is primarily made up of goodwill and other intangible assets, and property plant and equipment. The increase of $54.9m in the period is as a result of acquisitions and capital expenditure in the period, offset by amortisation and depreciation. The principal movements in current assets and liabilities are discussed in the cash generated from operations section below. Cash generated from operations 2008 2007 $m $m Opening net debt (277.9) (257.9) EBITA 441.0 318.4 Depreciation and other non cash 93.5 75.9 items Cash generated from operations 534.5 394.3 before working capital movements Working capital movements (181.0) (55.3) Cash generated from operations 353.5 339.0 Acquisitions (112.2) (125.8) Capex and intangible assets (102.6) (92.6) Disposals 32.5 9.0 (Purchase)/issue of shares, net of (23.7) 16.4 sale of trust shares Tax paid (112.1) (105.9) Interest, dividends and other (60.6) (49.5) Exchange movements on net debt 54.3 (10.6) Decrease/(increase) in net debt 29.1 (20.0) Closing net debt (248.8) (277.9) The group had strong cash flow generation in 2008, with cash generated from operations before working capital increasing by $140.2m, or 36%, to $534.5m. The strong overall revenue growth of $810.4m contributed to working capital outflows during the year of $181.0m (2007:$55.3m) made up of an increase of $104.1m in inventories and of $298.3m in trade and other receivables, partly offset by an increase of $221.4m in trade and other payables. The inventory figure includes a planned increase in Gas Turbine Services turbine parts of around $45m and the increase in trade receivables takes into account lower advance payments from customers of around $20m. The Group's OCER10, a measure used in the Group's incentive schemes to drive operating capital employed efficiency, improved from 19.0% to 18.2% in the year. Net debt Net debt at 31 December 2008 decreased by $29.1m to $248.8m. This represents strong cash flow from operations and the positive impact of the retranslation of foreign currency borrowings, offset by the investment in capex, intangible assets and acquisitions. Long term borrowings amounted to $390.7m (2007: $349.9m) with interest payable at variable rates. Interest rate swaps have been entered into in respect of $166.5m (2007: $175.0m), or 43% (2007: 50%) of total long term borrowings, and these have the effect of converting the borrowings to fixed rates of interest with maturities ranging from 2009 to 2013. The Group's borrowings are predominantly denominated in US dollars, Sterling, Euros and Canadian dollars. Whenever practical, foreign currency borrowings are used to hedge the Group's net investment in non US dollar entities. Credit facilities At 31 December 2008 the Group had unutilised borrowing facilities of $632.0m (2007: $474.4m) representing 60% (2007: 55%) of total borrowing facilities. Since the year end, our bilateral facilities have been extended to 2012 with the potential for two, one year extensions. This results in total borrowing facilities of $1,056.9m. In addition, the Group has a number of facilities covering the issue of bonds, guarantees and letters of credit amounting to $236.0m (2007: $257.7m). Gearing 11 The Group's gearing ratio has reduced from 28.5% to 21.9% and the ratio of net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) fell from 0.7 times to 0.5 times. Interest Cover 12 Interest cover increased from 12.6 times to 13.9 times, reflecting the strong profit in the period. Financial risk management The Group Treasury department is responsible for managing debt, cash balances and the risks arising from interest rate and currency movements within an approved policy framework. The Group's overall risk management strategy is to hedge exposures wherever practical in order to minimise any potential impact on the Group's financial performance. The policy does not allow speculative transactions to be undertaken. Credit risk The Group's credit risk primarily relates to its trade receivables which are generally with customers who have strong credit ratings assigned by international credit rating agencies. Reflecting in part higher levels of political and economic uncertainty in certain markets and in part the risk that the downturn in the global economy could lead to a slowing of payments from customers and a risk of non payment in the event of an insolvency, the Group has increased its focus on credit risk and credit management and appropriate measures have been implemented to reduce our risk profile where possible. Further details on receivables and credit risk are provided in notes 13 and 18 to the Group financial statements. Pensions The majority of the Group's pension arrangements are on a defined contribution basis. The Group operates one UK defined benefit scheme which had 404 active members and 828 deferred, pensionable deferred or pensionable members at 31 December 2008. At 31 December 2008 the scheme had a deficit of $23.1m (2007: $11.3m). In assessing the potential liabilities, judgement is required to determine the assumptions around future salary and pension increases, inflation, investment returns and member longevity. Future benefits under the scheme are provided on a Career Average Revalued Earnings "CARE" basis. Acquisitions and disposals In January 2008, the Group acquired Producers Assistance Corporation "PAC". The acquisition of PAC provides the Group with a wider presence in the support of onshore US production. The Group completed the acquisition of M&O Global in August 2008, expanding our capability in safety and emergency response training. In September 2008, the Group acquired MCS, a global subsea engineering consultancy with a market leading position in riser & mooring design, and a leading offering of advanced engineering and software solutions to the subsea industry. The acquisition of MCS is part of our ongoing strategy to expand and enhance our capabilities in subsea and deepwater. The Group also made small disposals during the year. Further details of the acquisitions and disposals are provided in note 28 of the Group Financial Statements. Footnotes 1. EBITA represents operating profit of $415.8m (2007: $285.2m) for 2008 before adjusting for profit on disposal of interest in joint venture of $nil (2007: $3.6m), impairment and restructuring charges of $nil (2007: $26.2m) and amortisation of $25.2m (2007: $10.6m). This financial term is provided as it is a key unit of measurement used by the Group in the management of its business. 2. Shares held by the Group's employee share ownership trusts are excluded from the number of shares in calculating earnings per ordinary share. Adjusted diluted earnings per ordinary share is based on the diluted number of shares, taking account of share options where the effect of these is dilutive. Adjusted diluted earnings per ordinary share is calculated on earnings before amortisation, impairment and restructuring charges and profit on disposal of interest in joint venture, net of tax. 3. Return on Capital Employed is EBITA divided by average equity plus average net debt and excludes businesses to be disposed. 4. The split of the groups revenue between customer capital expenditure `capex' and operating expenditure `opex' is based on management estimates and assumptions. The estimates are subject to variations from year to year dependent on the activity in the periods. 5. Number of employees and contractors at 31 December 2008. 6. `Cases' refers to TRCF Total recordable case frequency (LWC+RWC+MTC) per million manhours LWC Lost work case RWC Restricted work case MTC Medical treatment case 7. Dividend cover is adjusted diluted earnings per ordinary share divided by the total dividend for the period. 8. 2008 US dollar results translated at current exchange rates are calculated by translating the underlying local currency amounts to US dollars at current exchange rates. The exchange rate used for Sterling was £1=$1.45 and other currencies were translated using rates applying in February 2009. 9. The Sterling equivalent of the 2008 actual results is calculated by translating the US dollar results at the average Sterling to US dollar exchange rate for the year of £1=$1.85. The Sterling equivalent of the retranslated 2008 results is calculated by translating the amounts to Sterling at the exchange rate of £1=$1.45. 10. Operating Capital Employed to Revenue `OCER' is Operating Capital Employed (property, plant and equipment, intangible assets (excluding intangibles recognised on acquisition), inventory and trade and other receivables less trade and other payables) divided by Revenue. 11. Gearing is net debt divided by total shareholders' equity. 12. Interest cover is EBITA divided by net finance costs. Forward looking statements This statement contains forward looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries and sectors in which the Group operates. It is believed that the expectations reflected in this statement are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materiality from those currently anticipated. Consolidated income statement for the year to 31 December 2008 2008 2007 Note $m $m Revenue 1 5,243.1 4,432.7 Cost of sales (4,071.7) (3,506.4) Gross profit 1,171.4 926.3 Administrative expenses (755.6) (618.5) Profit on disposal of interest in joint venture 4 - - 3.6 Impairment and restructuring charges 5 - (26.2) Operating profit 1 415.8 285.2 Finance income 2 6.0 7.4 Finance expense 2 (37.7) (32.7) Profit before taxation 3 384.1 259.9 Taxation 6 (128.7) (91.0) Profit for the year 255.4 168.9 Attributable to: Equity shareholders 251.6 165.0 Minority interest 26 3.8 3.9 255.4 168.9 Earnings per share (expressed in cents per share) Basic 8 49.6 33.0 Diluted 8 48.1 31.7 The notes on pages 6 to 50 are an integral part of these consolidated financial statements Consolidated statement of recognised income and expense for the year to 31 December 2008 2008 2007 Note $m $m Profit for the year 255.4 168.9 Actuarial (losses)/gains on retirement benefit 30 (18.7) 2.6 liabilities Movement in deferred tax relating to retirement 5.2 (0.8) benefit liabilities Cash flow hedges (7.5) (3.5) Tax on foreign exchange losses recorded in reserves - 0.3 Tax credit relating to share option schemes 6.2 - Exchange movements on retranslation of foreign (45.9) 7.0 currency net assets Total recognised income for the year 194.7 174.5 Total recognised income for the year is attributable to: Equity shareholders 190.9 170.6 Minority interest 3.8 3.9 194.7 174.5 The notes on pages 6 to 50 are an integral part of these consolidated financial statements Consolidated balance sheet as at 31 December 2008 2008 2007 Note $m $m Assets Non-current assets Goodwill and other intangible assets 9 632.2 576.1 Property plant and equipment 10 263.0 272.3 Long term receivables 9.5 2.8 Derivative financial instruments 18 - 0.8 Deferred tax assets 20 53.3 51.1 958.0 903.1 Current assets Inventories 12 591.4 539.2 Trade and other receivables 13 1,034.2 894.9 Income tax receivable 12.3 15.5 Derivative financial instruments 18 7.2 0.7 Gross assets held for sale 28 22.9 - Cash and cash equivalents 14 176.1 117.1 1,844.1 1,567.4 Liabilities Current liabilities Borrowings 16 34.2 45.1 Derivative financial instruments 18 4.1 1.5 Trade and other payables 15 965.3 891.6 Income tax liabilities 53.4 46.4 Gross liabilities held for sale 28 4.8 - 1,061.8 984.6 Net current assets 782.3 582.8 Non-current liabilities Borrowings 16 390.7 349.9 Derivative financial instruments 18 8.1 1.2 Deferred tax liabilities 20 4.5 5.6 Retirement benefit liabilities 30 23.1 11.3 Other non-current liabilities 17 121.9 95.3 Provisions 19 45.0 36.7 593.3 500.0 Net assets 1,147.0 985.9 Shareholders' equity Share capital 22 26.2 26.0 Share premium 23 311.8 303.6 Retained earnings 24 760.2 555.9 Other reserves 25 35.7 89.1 Total shareholders' equity 1,133.9 974.6 Minority interest 26 13.1 11.3 Total equity 1,147.0 985.9 The financial statements on pages 2 to 50 were approved by the board of directors on 2 March 2009. Allister G Langlands, Director Alan G Semple, Director The notes on pages 6 to 50 are an integral part of these consolidated financial statements Consolidated cash flow statement for the year to 31 December 2008 2008 2007 Note $m $m Cash generated from operations 27 353.5 339.0 Tax paid (112.1) (105.9) Net cash from operating activities 241.4 233.1 Cash flows from investing activities Acquisition of subsidiaries (net of cash and 28 (85.4) (112.0) borrowings acquired) Acquisition of minority interests - (0.2) Deferred consideration payments 28 (26.8) (13.6) Proceeds from disposal of businesses (net of cash 28 32.5 9.0 and borrowings disposed) Purchase of property plant and equipment (83.5) (80.8) Proceeds from sale of property plant and 9.9 4.2 equipment Purchase of intangible assets (19.1) (11.8) Proceeds from disposal of other intangible assets 0.4 0.2 Investment by minority shareholders 26 0.1 1.4 Net cash used in investing activities (171.9) (203.6) Cash flows from financing activities Proceeds from issue of ordinary shares (net of - 0.2 expenses) Proceeds from/(repayment of) bank loans 105.7 (18.1) Purchase of shares in employee share trusts (34.2) - Disposal of shares in employee share trusts 10.5 16.2 Interest received 4.6 5.8 Interest paid (33.6) (32.0) Dividends paid to shareholders 7 (40.1) (27.6) Dividends paid to minority shareholders 26 (1.9) (1.5) Net cash from/(used in) financing activities 11.0 (57.0) Effect of exchange rate changes on cash and cash (21.5) 4.3 equivalents Net increase/(decrease) in cash and cash 59.0 (23.2) equivalents Opening cash and cash equivalents 117.1 140.3 Closing cash and cash equivalents 14 176.1 117.1 The notes on pages 6 to 50 are an integral part of these consolidated financial statements Notes to the financial statements for the year to 31 December 2008 Accounting Policies Basis of preparation These financial statements have been prepared in accordance with IFRS and IFRIC interpretations adopted by the European Union (`EU') and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The Group financial statements have been prepared on a going concern basis under the historical cost convention as modified by the revaluation of financial assets and liabilities held for trading. Significant accounting policies The Group's significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of consolidation The Group financial statements are the result of the consolidation of the financial statements of the Group's subsidiary undertakings from the date of acquisition or up until the date of disposal as appropriate. Subsidiaries are entities over which the Group has the power to govern the financial and operating policies and generally accompanies a shareholding of more than one half of the voting rights. The Group's interests in joint ventures are accounted for using proportional consolidation. Under this method the Group includes its share of each joint venture's income, expenses, assets, liabilities and cash flows on a line by line basis in the consolidated financial statements. Transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint venture. All Group companies apply the Group's accounting policies and prepare financial statements to 31 December. Critical accounting judgments and estimates The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Where significant estimates or assumptions have been applied in estimating balances in the financial statements, these have been disclosed in the relevant notes to those balances. Significant judgments and estimates in these financial statements have been made with regard to goodwill impairment testing (note 9), trade receivables (note 13), provisions (note 19), deferred tax balances (note 20), share based charges (note 21) and retirement benefit liabilities (note 30). An explanation of key uncertainties or assumptions used by management in accounting for these items is explained where material in the respective notes. Functional currency The Group's earnings stream is primarily US dollars and the principal functional currency is the US dollar, being the most representative currency of the Group. The Group's financial statements are therefore prepared in US dollars. The following exchange rates have been used in the preparation of these accounts: 2008 2007 Average rate £1 = $ 1.8484 1.9995 Closing rate £1 = $ 1.4378 1.9906 Foreign currencies Income statements of entities whose functional currency is not the US dollar are translated into US dollars at average rates of exchange for the period and assets and liabilities are translated into US dollars at the rates of exchange ruling at the balance sheet date. Exchange differences arising on translation of net assets in such entities held at the beginning of the year, together with those differences resulting from the restatement of profits and losses from average to year end rates, are taken to the currency translation reserve. In each individual entity, transactions in overseas currencies are translated into the relevant functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet date. Any exchange differences are taken to the income statement. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rate ruling at the balance sheet date. The directors consider it appropriate to record sterling denominated equity share capital in the accounts of John Wood Group PLC at the exchange rate ruling on the date it was raised. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised only when it is probable that the economic benefits associated with a transaction will flow to the Group and the amount of revenue can be measured reliably. Revenue from services is recognised as the services are rendered, including where they are based on contractual rates per man hour in respect of multi-year service contracts. Incentive performance revenue is recognised upon completion of agreed objectives. Revenue from product sales is recognised when the significant risks and rewards of ownership have been transferred to the buyer, which is normally upon delivery of products and customer acceptance, if any. Where revenue relates to a multi-element contract, then each element of the contract is accounted for separately. Revenue is stated net of sales taxes and discounts. Revenue on lump-sum contracts for services, construction contracts and fixed price long term service agreements is recognised according to the stage of completion reached in the contract by reference to the value of work done. An estimate of the profit attributable to work completed is recognised once the outcome of the contract can be estimated reliably. Expected losses are recognised in full as soon as losses are probable. The net amount of costs incurred to date plus recognised profits less the sum of recognised losses and progress billings is disclosed as trade receivables/trade payables. Goodwill The Group uses the purchase method of accounting to account for acquisitions. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is carried at cost less accumulated impairment losses. Other intangible assets Intangible assets are carried at cost less accumulated amortisation. Intangible assets are recognised if it is probable that there will be future economic benefits attributable to the asset, the cost of the asset can be measured reliably, the asset is separately identifiable and there is control over the use of the asset. Where the Group acquires a business, other intangible assets such as customer contracts are identified and evaluated to determine the carrying value on the acquisition balance sheet. Intangible assets are amortised over their estimated useful lives, as follows: Computer software 3-5 years Other intangible assets 1-10 years Property plant and equipment Property plant and equipment (PP&E) is stated at cost less accumulated depreciation and impairment. No depreciation is charged with respect to freehold land and assets in the course of construction. Transfers from PP&E to current assets are undertaken at the lower of cost and net realisable value. Depreciation is calculated using the straight line method over the following estimated useful lives of the assets: Freehold and long leasehold buildings: 25-50 years Short leasehold buildings: period of lease Plant and equipment: 3-10 years When estimating the useful life of an asset group, the principal factors the Group takes into account are the durability of the assets, the intensity at which the assets are expected to be used and the expected rate of technological developments. Impairment The Group performs impairment reviews in respect of PP&E and other intangible assets whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. In addition, the Group carries out annual impairment reviews in respect of goodwill. An impairment loss is recognised when the recoverable amount of an asset, which is the higher of the asset's fair value less costs to sell and its value in use, is less than its carrying amount. For the purposes of impairment testing, goodwill is allocated to the appropriate cash generating unit ("CGU"). The CGUs are aligned to the structure the Group uses to manage its business. Cash flows are discounted in determining the value in use. Inventories Inventories, which include materials, work in progress and finished goods and goods for resale, are stated at the lower of cost and net realisable value. Product based companies determine cost by weighted average cost methods using standard costing to gather material, labour and overhead costs. These costs are adjusted, where appropriate, to correlate closely the standard costs to the actual costs incurred based on variance analysis. Service based companies' inventories consist of spare parts and other consumables. Serialised parts are costed using the specific identification method and other materials are generally costed using the first in, first out method. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated selling expenses. Allowance is made for obsolete and slow-moving items, based upon annual usage. Cash and cash equivalents Cash and cash equivalents include cash in hand and other short-term bank deposits with maturities of three months or less and bank overdrafts where there is a right of set-off. Bank overdrafts are included within borrowings in current liabilities where there is no right of set-off. Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The provision is determined by reference to previous experience of recoverability for receivables in each market in which the Group operates. Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Deferred consideration Where it is probable that deferred consideration is payable on the acquisition of a business based on an earn out arrangement, an estimate of the amount payable is made at the date of acquisition and reviewed regularly thereafter, with any change in the estimated liability being reflected in goodwill. Where deferred consideration is payable after more than one year the estimated liability is discounted using an appropriate rate of interest. Taxation The tax charge represents the sum of tax currently payable and deferred tax. Tax currently payable is based on the taxable profit for the year. Taxable profit differs from the profit reported in the income statement due to items that are not taxable or deductible in any period and also due to items that are taxable or deductible in a different period. The Group's liability for current tax is calculated using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax is provided, using the full liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The principal temporary differences arise from depreciation on PP&E, tax losses carried forward and, in relation to acquisitions, the difference between the fair values of the net assets acquired and their tax base. Tax rates enacted, or substantially enacted, by the balance sheet date are used to determine deferred tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Accounting for derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); (2) hedges of highly probable forecast transactions (cash flow hedge); or (3) hedges of net investments in foreign operations (net investment hedge). Where hedging is to be undertaken, the Group documents the relationship between the hedging instrument and the hedged item at the inception of the transaction, as well as its risk management objective and strategy for undertaking the hedge transaction. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Group performs effectiveness testing on a quarterly basis. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in administrative expenses in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in administrative expenses in the income statement. Amounts accumulated in equity are recycled through the income statement in periods when the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the currency translation reserve in equity; the gain or loss relating to the ineffective portion is recognised immediately in administrative expenses in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of. Derivatives that are not designated as hedges Certain derivatives, whilst providing effective economic hedges are not designated as hedges. Changes in the fair value of any derivative instruments that are not designated for hedge accounting are recognised immediately in administrative expenses in the income statement. Fair value estimation The fair value of interest rate swaps is calculated as the present value of their estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at the balance sheet date. The carrying values of trade receivables and payables approximate to their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. Operating leases As lessee Payments made under operating leases are charged to the income statement on a straight line basis over the period of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the period of lease. As lessor Operating lease rental income arising from leased assets is recognised in the income statement on a straight line basis over the period of the lease. Finance leases As lessee Assets held under finance leases are capitalised as PP&E and depreciated over the shorter of the lease term and the asset's useful life. The capital element of the future lease obligation is recorded as a liability, with the interest element charged to the income statement over the period of the lease so as to produce a constant rate of charge on the capital outstanding. As lessor Finance lease rental income arising from leased assets is recognised in the income statement so as to produce a constant rate of return on the net cash investment. Amounts receivable under finance leases represent the outstanding amounts due under these agreements less amounts allocated to future periods. Retirement benefit liabilities The Group operates a defined benefit scheme and a number of defined contribution schemes. The liability recognised in respect of the defined benefit scheme represents the present value of the defined benefit obligations less the fair value of the scheme assets. The assets of this scheme are held in separate trustee administered funds. The defined benefit scheme's assets are measured using market values. Pension scheme liabilities are measured annually by an independent actuary using the projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The increase in the present value of the liabilities of the Group's defined benefit scheme expected to arise from employee service in the period is charged to operating profit. The expected return on the scheme assets and the increase during the period in the present value of the scheme's liabilities arising from the passage of time are included in finance income/expense. Actuarial gains and losses are recognised in the statement of recognised income and expense in full in the period in which they occur. The defined benefit scheme's net assets or net liabilities are recognised in full and presented on the face of the balance sheet. The Group's contributions to defined contribution schemes are charged to the income statement in the period to which the contributions relate. Provisions Provision is made for the estimated liability on all products and services still under warranty, including claims already received, based on past experience. Other provisions are recognised where the Group is deemed to have a legal or constructive obligation, it is probable that a transfer of economic benefits will be required to settle the obligation, and a reliable estimate of the obligation can be made. Where amounts provided are payable after more than one year the estimated liability is discounted using an appropriate rate of interest. Share based charges relating to employee share schemes The Group has a number of employee share schemes:- Share options granted under Executive Share Option Schemes (`ESOS') are granted at market value. A charge is booked to the income statement as an employee benefit expense for the fair value of share options expected to be exercised, accrued over the vesting period. The corresponding credit is taken to retained earnings. The fair value is calculated using an option pricing model. Share options granted under the Long Term Retention Plan (`LTRP') are granted at par value. The charge to the income statement for LTRP shares is also calculated using an option pricing model and, as with ESOS grants, the fair value of the share options expected to be exercised is accrued over the vesting period. The corresponding credit is also taken to retained earnings. The Group has a Long Term Incentive Scheme (`LTIS') and a Long Term Incentive Plan (`LTIP') for directors and key senior executives. Participants are awarded shares dependent on the achievement of certain performance targets. The charge to the income statement for shares awarded under the LTIS and LTIP is based on the fair value of those shares at the grant date, spread over the vesting period. The corresponding credit is taken to retained earnings. For those awards that have a market related performance measure, the fair value of the market related element is calculated using a Monte Carlo simulation model. Proceeds received on the exercise of share options are credited to share capital and share premium. Share capital John Wood Group PLC has one class of ordinary shares and these are classified as equity. Dividends on ordinary shares are not recognised as a liability or charged to equity until they have been approved by shareholders. The Group is deemed to have control of the assets, liabilities, income and costs of its employee share ownership trusts (`ESOP trusts'). They have therefore been consolidated in the financial statements of the Group. Shares acquired by and disposed of by the ESOP trusts are recorded at cost. The cost of shares held by the ESOP trusts is deducted from shareholders' equity. Segmental reporting The Group's primary reporting segments are its three operating divisions, namely Engineering & Production Facilities, Well Support and Gas Turbine Services. The Group measures the operating performance of these segments using `EBITDA' (Earnings before interest, tax, depreciation and amortisation) and `EBITA' (Earnings before interest, tax and amortisation). Engineering & Production Facilities offers a wide range of engineering services to the upstream, midstream, downstream and industrial sectors. These include conceptual studies, engineering, project and construction management and control system upgrades. It also offers life of field support to producing assets through brownfield engineering and modifications, production enhancement, operations management, maintenance management and abandonment services. Well Support provides solutions, products and services to enhance production rates and efficiency from oil and gas reservoirs. Gas Turbine Services is an independent provider of integrated maintenance solutions and repair and overhaul services for industrial gas turbines used for power generation, compression and transmission in the oil and gas and power generation industries. Disclosure of impact of new and future accounting standards (a) Interpretations effective and relevant in 2008 The following interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2008. IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction' IFRIC 11, 'IFRS 2 - Group and treasury share transactions' (b) Interpretations effective in 2008 but not relevant The following interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2008 but are not relevant to the Group's operations: IFRIC 12, 'Service concession arrangements'; and IFRIC 13, 'Customer loyalty programmes'. (c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group The following standards and amendments to existing standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2009 or later periods, but the Group has not early adopted them: IAS 23 (amendment), 'Borrowing costs' (effective from 1 January 2009) IAS 1 (revised), 'Presentation of financial statements' (effective from 1 January 2009) IFRS 2 (amendment), 'Share-based payment' (effective from 1 January 2009) IAS 32 (amendment), 'Financial instruments: Presentation', and IAS 1 (amendment), 'Presentation of financial statements' - 'Puttable financial instruments and obligations arising on liquidation' (effective from 1 January 2009) IAS 27 (revised), 'Consolidated and separate financial statements' (effective from 1 July 2009) IFRS 3 (revised), 'Business combinations' (applies to accounting periods beginning on or after 1 July 2009). This standard will impact on any acquisitions the Group undertakes from 1 January 2010. IFRS 5 (amendment), 'Non-current assets held-for-sale and discontinued operations', (and consequential amendment to IFRS 1, 'First-time adoption') (effective from 1 July 2009) IAS 28 (amendment), 'Investments in associates' (and consequential amendments to IAS 32, 'Financial Instruments: Presentation', and IFRS 7, 'Financial instruments: Disclosures') (effective from 1 January 2009) IAS 36 (amendment), 'Impairment of assets' (effective from 1 January 2009) IAS 38 (amendment), 'Intangible assets' (effective from 1 January 2009) IAS 19 (amendment), 'Employee benefits' (effective from 1 January 2009) IAS 39 (amendment), 'Financial instruments: Recognition and measurement' (effective from 1 January 2009) IFRS 8 `Operating Segments' (effective from 1 January 2009) It is not anticipated that the application of these standards and amendments will have any material impact on the Group financial statements. 1 Segmental reporting Primary reporting format - business segments Revenue EBITDA(1) EBITA(1) Operating profit Year Year Year Year Year Year Year Year ended ended ended ended ended ended ended ended 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 2008 2007 2008 2007 2008 2007 2008 2007 $m $m $m $m $m $m $m $m Engineering & 3,244.7 2,582.8 336.7 229.3 316.1 214.5 297.9 209.1 Production Facilities Well Support 1,008.6 862.1 135.8 113.0 105.0 87.1 104.9 87.0 Gas Turbine Services 956.6 955.7 89.6 82.5 72.6 64.3 66.0 44.1 Central costs (4) - - (47.6) (44.8) (48.7) (45.5) (48.8) (45.5) 5,209.9 4,400.6 514.5 380.0 445.0 320.4 420.0 294.7 Gas Turbine Services 33.2 32.1 (3.1) (1.3) (4.0) (2.0) (4.2) (9.5) - to be disposed (2) Total 5,243.1 4,432.7 511.4 378.7 441.0 318.4 415.8 285.2 Finance income 6.0 7.4 Finance expense (37.7) (32.7) Profit before 384.1 259.9 taxation Taxation (128.7) (91.0) Profit for the year 255.4 168.9 Notes EBITDA represents operating profit of $415.8m (2007 : $285.2m) before profit on disposal of interest in joint venture of $nil (2007 : $3.6m), impairment and restructuring charges of $nil (2007 : $26.2m), depreciation of $70.4m (2007 : $60.3m) and amortisation of $25.2m (2007 : $10.6m). EBITA represents EBITDA less depreciation. EBITA and EBITDA are provided as they are units of measurement used by the Group in the management of its business. The Gas Turbine Services business to be disposed is an Aero engine overhaul company which the Group has decided to divest. Revenue arising from sales between segments is not material. Central costs include the costs of certain management personnel in both the UK and the US, along with an element of Group infrastructure costs. Segment assets and liabilities Engineering Well Gas Gas Unallocated Total & Support Turbine Turbine Production Services Services Facilities - to be disposed At 31 December 2008 $m $m $m $m $m $m Segment assets 1,184.6 663.1 778.1 26.7 149.6 2,802.1 Segment liabilities 619.9 226.7 228.1 4.3 576.1 1,655.1 At 31 December 2007 Segment assets 1,057.6 586.5 645.2 32.9 148.3 2,470.5 Segment liabilities 590.3 181.6 233.8 7.5 471.4 1,484.6 Unallocated assets and liabilities includes income tax, deferred tax and cash and borrowings where this relates to the financing of the Group's operations. Other segment items 2008 Engineering Well Gas Gas Unallocated Total & Support Turbine Turbine Production Services Services Facilities - to be disposed $m $m $m $m $m $m Capital expenditure - Property plant and 20.3 43.7 18.6 1.0 2.6 86.2 equipment - Intangible assets 12.8 0.1 5.3 - 0.9 19.1 Non-cash expense - Depreciation 20.6 30.8 17.0 0.9 1.1 70.4 - Amortisation of 18.2 0.1 6.6 0.2 0.1 25.2 other intangible assets 2007 $m $m $m $m $m $m Capital expenditure - Property plant and 21.4 43.0 14.9 2.5 0.3 82.1 equipment - Intangible assets 4.8 - 7.0 - - 11.8 Non-cash expense/(income) - Depreciation 14.8 25.9 18.2 0.7 0.7 60.3 - Amortisation of other 6.5 0.1 3.7 0.3 - 10.6 intangible assets - Profit on disposal of (3.6) - - - - (3.6) interest in joint venture - Impairment and 2.5 - 15.3 7.2 - 25.0 restructuring charges The cash impact of the impairment and restructuring charges in 2007 was $1.2m and related to the charge in the Gas Turbine Services division. Secondary format - geographical segments Revenue Segment assets Capital expenditure 2008 2007 2008 2007 2008 2007 $m $m $m $m $m $m Europe 1,480.4 1,324.0 713.8 546.2 16.9 17.1 North America 2,345.1 1,950.6 1,333.1 1,270.0 56.7 50.0 Rest of the World 1,417.6 1,158.1 755.2 654.3 31.7 26.8 5,243.1 4,432.7 2,802.1 2,470.5 105.3 93.9 Revenue by geographical segment is based on the geographical location of the customer. Segment assets and capital expenditure is based on the location of the relevant Group business. 2008 2007 $m $m Revenue by category is as follows: Sale of goods 688.6 643.4 Rendering of services 4,554.5 3,789.3 5,243.1 4,432.7 2 Finance expense/(income) 2008 2007 $m $m Interest payable on bank borrowings 33.7 31.3 Interest relating to discounting of deferred consideration 4.0 1.4 Finance expense 37.7 32.7 Interest receivable on short term deposits (4.6) (5.8) Other interest income (note 30) (1.4) (1.6) Finance income (6.0) (7.4) Finance expense - net 31.7 25.3 3 Profit before taxation 2008 2007 $m $m The following items have been charged/(credited) in arriving at profit before taxation: Employee benefits expense (note 29) 1,982.5 1,618.0 Cost of inventory recognised as an expense (included in 518.1 413.8 cost of sales) Impairment of inventory 11.7 19.0 Depreciation of property plant and equipment 70.4 60.3 Amortisation of other intangible assets 25.2 10.6 Gain on disposal of property plant and equipment (4.6) (1.2) Other operating lease rentals payable: - Plant and machinery 27.4 23.3 - Property 55.8 46.1 Foreign exchange gains (21.7) (3.9) (Gain)/loss on fair value of unhedged derivative financial (3.8) 0.7 instruments Services provided by the Group's auditor and network firms During the year the Group obtained the following services from its auditor and network firms at costs as detailed below: 2008 2007 $m $m Audit services - Fees payable for audit of parent company and 1.0 0.9 consolidated accounts - Audit of Group companies pursuant to legislation 1.7 1.4 Non-audit services Fees payable to the Group's auditor and its network firms for other services - Tax services 0.1 0.3 - Other services 0.1 0.1 2.9 2.7 4 Profit on disposal of interest in joint venture 2008 2007 $m $m Profit on disposal of interest in joint venture - 3.6 In July 2007, the Group disposed of its shareholding in one of its joint ventures in the Engineering & Production Facilities division. A gain of $3.6m was booked in respect of this transaction and tax of $1.1m was provided. 5 Impairment and restructuring charges 2008 2007 $m $m Impairment and restructuring charges - 26.2 In 2007, the Group recorded impairment and restructuring charges of $16.5m in the Gas Turbine Services division in respect of rationalisation of businesses and facilities, severance costs and impairment of property plant and equipment. In addition, an impairment charge of $7.2m was booked in the Gas Turbine Services division - to be disposed in respect of property plant and equipment and other intangible assets. The Group also impaired goodwill of $2.5m in the Engineering & Production Facilities division. The 2007 tax charge (see note 6) included a tax credit of $4.6m in relation to the impairment and restructuring charges. 6 Taxation 2008 2007 $m $m Current tax - Current year 134.7 115.8 - Adjustment in respect of prior years (4.4) (8.4) 130.3 107.4 Deferred tax Relating to origination and reversal of temporary (1.6) (16.4) differences Total tax charge 128.7 91.0 2008 2007 Tax on items (credited)/charged to equity $m $m Deferred tax movement on retirement benefit liabilities (5.2) 0.8 Current tax credit on exchange movements offset in - (0.3) reserves Current tax relating to share option schemes (6.2) - Total (credited)/charged to equity (11.4) 0.5 Tax is calculated at the rates prevailing in the respective jurisdictions in which the Group operates. The expected rate is the weighted average rate taking into account the Group's profits in these jurisdictions. The expected rate has decreased in 2008 due to the change in profitability of the Group's subsidiaries in their respective jurisdictions. The tax charge for the year is lower (2007 : lower) than the expected tax charge due to the following factors: 2008 2007 $m $m Profit before taxation 384.1 259.9 Profit before tax at expected rate of 34.1% (2007: 35.3%) 131.0 91.7 Effects of: Adjustments in respect of prior years (3.2) (8.4) Non-recognition of losses and other attributes 4.4 1.9 Other permanent differences (3.5) 5.8 Total tax charge 128.7 91.0 7 Dividends 2008 2007 $m $m Dividends on equity shares Final dividend paid - year ended 31 December 2007 : 5.0 25.6 17.6 cents (2007: 3.5 cents) per share Interim dividend paid - year ended 31 December 2008 : 2.8 14.5 10.0 cents (2007: 2.0 cents) per share 40.1 27.6 The directors are proposing a final dividend in respect of the financial year ended 31 December 2008 of 6.2 cents per share. The final dividend will be paid on 18 May 2009 to shareholders who are on the register of members on 17 April 2009. The financial statements do not reflect the final dividend, the payment of which will result in an estimated $32.0m reduction in shareholders' funds. 8 Earnings per share 2008 Earnings Number of Earnings attributable shares per share to equity (millions) (cents) shareholders$m Basic 251.6 507.6 49.6 Effect of dilutive ordinary shares - 15.7 (1.5) Diluted 251.6 523.3 48.1 Amortisation, net of tax 20.9 - 4.0 Profit on disposal of interest in joint - - - venture, net of tax Impairment and restructuring charges, - - - net of tax Adjusted diluted 272.5 523.3 52.1 Adjusted basic 272.5 507.6 53.7 2007 Earnings Number of Earnings per attributable shares share to equity (cents) shareholders (millions) $m Basic 165.0 500.6 33.0 Effect of dilutive ordinary shares - 19.2 (1.3) Diluted 165.0 519.8 31.7 Amortisation, net of tax 7.7 - 1.5 Profit on disposal of interest in joint (2.5) - (0.5) venture, net of tax Impairment and restructuring charges, net 21.6 - 4.2 of tax Adjusted diluted 191.8 519.8 36.9 Adjusted basic 191.8 500.6 38.3 The calculation of basic earnings per share for the year ended 31 December 2008 is based on the earnings attributable to equity shareholders divided by the weighted average number of ordinary shares in issue during the year excluding shares held by the Group's employee share ownership trusts. For the calculation of diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. The Group has two types of dilutive ordinary shares - share options granted to employees under Executive Share Option Schemes and the Long Term Retention Plan; and shares issuable under the Group's Long Term Incentive Scheme and Long Term Incentive Plan. Adjusted basic and adjusted diluted earnings per share is disclosed to show the results excluding the impact of amortisation, impairment and restructuring charges and profit on disposal of interest in joint venture, net of tax. 9 Goodwill and other intangible assets Goodwill Computer Other Total software $m $m $m $m Cost At 1 January 2008 516.8 36.0 70.5 623.3 Exchange movements (41.6) (6.6) (9.0) (57.2) Additions - 15.9 3.2 19.1 Acquisitions 110.0 0.2 18.3 128.5 Disposals - (2.7) (0.6) (3.3) Disposal of businesses (11.0) - - (11.0) Reclassification as assets held (5.2) (0.3) - (5.5) for sale Reclassification from current - 3.7 - 3.7 assets At 31 December 2008 569.0 46.2 82.4 697.6 Aggregate amortisation and 2.9 23.3 21.0 47.2 impairment At 1 January 2008 Exchange movements - (4.3) (3.1) (7.4) Amortisation charge for the year 0.7 8.2 16.3 25.2 Disposals - (2.3) (0.6) (2.9) Reclassification as assets held - (0.2) - (0.2) for sale Reclassification from current - 3.5 - 3.5 assets At 31 December 2008 3.6 28.2 33.6 65.4 Net book value at 31 December 565.4 18.0 48.8 632.2 2008 Cost At 1 January 2007 355.7 29.1 32.8 417.6 Exchange movements 14.8 0.5 3.3 18.6 Additions - 6.7 5.1 11.8 Acquisitions 146.5 0.5 28.7 175.7 Reclassification from property (0.2) (0.8) (0.2) (1.2) plant and equipment Reclassification from current - - 0.8 0.8 assets At 31 December 2007 516.8 36.0 70.5 623.3 Aggregate amortisation and 0.4 18.3 13.4 32.1 impairment At 1 January 2007 Exchange movements - 0.3 0.6 0.9 Amortisation charge for the year - 5.3 5.3 10.6 Impairment charge for the year 2.5 - 1.9 4.4 Disposals - (0.6) (0.2) (0.8) At 31 December 2007 2.9 23.3 21.0 47.2 Net book value at 31 December 513.9 12.7 49.5 576.1 2007 In accordance with IAS 36 `Impairment of assets', goodwill was tested for impairment during the year. The impairment tests were carried out on a Cash Generating Unit (`CGU') basis using the 2009-10 budgets. Cash flows for 2011-13 are assumed to grow at a rate of 5% per annum and subsequent cash flows have been assumed to grow at 3% per annum for a further 15 years. In total, a 20 year period has been used for the impairment tests reflecting the expected long term growth in the market. The cash flows have been discounted using a pre-tax discount rate of 10%. The value in use has been compared to the net book value of goodwill for each CGU and no impairment write down is required. A sensitivity analysis has been performed in order to assess the impact of reasonable possible changes in the key assumptions due to the current economic environment. This analysis did not identify any impaired CGUs. The impairment charge for 2007 is included in the `impairment and restructuring charges' line in the income statement. The carrying amounts of goodwill by division are: Engineering & Production Facilities $453.4m (2007 : $392.0m), Gas Turbine Services $78.5m (2007 : $88.4m) and Well Support $33.5m (2007 : $33.5m). At 31 December 2008, the carrying amounts of goodwill attributable to the principal CGUs within the Engineering & Production Facilities division are Mustang $148.7m, IMV $132.0m, Production Facilities Americas $71.5m and Subsea & Pipeline $57.3m. The other heading in the above table includes development costs, licences and customer contracts and relationships arising on acquisitions. Development costs with a net book value of $10.7m (2007 : $11.6m) are internally generated intangible assets. 10 Property plant and equipment Land and Land and Plant and Total buildings buildings equipment - Long - Short leasehold leasehold and freehold $m $m $m $m Cost At 1 January 2008 60.9 23.1 505.2 589.2 Exchange movements (5.2) (1.8) (30.3) (37.3) Additions 7.5 4.4 74.3 86.2 Acquisitions 2.4 - 3.2 5.6 Disposals (2.5) - (28.1) (30.6) Disposal of businesses (0.7) - (8.8) (9.5) Reclassification as assets held (0.3) (0.8) (13.8) (14.9) for sale Reclassification from/(to) 0.7 - (7.6) (6.9) current assets At 31 December 2008 62.8 24.9 494.1 581.8 Accumulated depreciation and impairment At 1 January 2008 26.2 11.7 279.0 316.9 Exchange movements (2.1) (0.2) (19.7) (22.0) Charge for the year 3.8 1.8 64.8 70.4 Disposals (0.5) - (23.4) (23.9) Disposal of businesses (0.7) - (5.2) (5.9) Reclassification as assets held (0.1) (0.2) (8.1) (8.4) for sale Reclassification to current - - (8.3) (8.3) assets At 31 December 2008 26.6 13.1 279.1 318.8 Net book value at 31 December 36.2 11.8 215.0 263.0 2008 10 Property plant and equipment (continued) Land and Land and Plant and Total buildings buildings equipment - Long - Short leasehold leasehold and freehold $m $m $m $m Cost At 1 January 2007 53.3 18.3 443.7 515.3 Exchange movements 1.5 0.3 6.2 8.0 Additions 6.6 2.4 73.1 82.1 Acquisitions 0.2 2.4 2.8 5.4 Disposals (0.7) (0.3) (18.3) (19.3) Disposal of interest in joint - - (0.8) (0.8) venture Reclassification as current - - (1.5) (1.5) assets At 31 December 2007 60.9 23.1 505.2 589.2 Accumulated depreciation and impairment At 1 January 2007 21.1 10.6 235.7 267.4 Exchange movements 0.3 0.1 3.1 3.5 Charge for the year 3.3 1.2 55.8 60.3 Impairment 1.8 - 7.7 9.5 Disposals (0.3) (0.2) (15.8) (16.3) Disposal of interest in joint - - (0.3) (0.3) venture Reclassification as current - - (7.2) (7.2) assets At 31 December 2007 26.2 11.7 279.0 316.9 Net book value at 31 December 34.7 11.4 226.2 272.3 2007 Plant and equipment includes assets held for lease to customers under operating leases of $36.8m (2007: $40.0m). Additions during the year amounted to $4.5m (2007 : $9.7m) and depreciation totalled $14.6m (2007 : $13.2m). The gross cost of these assets at 31 December 2008 is $61.8m (2007 : $62.0m) and aggregate depreciation is $25.0m (2007 : $22.0m). Impairment of property plant and equipment in 2007 was included in the `impairment and restructuring charges' line in the income statement (see note 5). Property plant and equipment includes assets in the course of construction of $4.7m (2007 : $12.3m). 11 Joint ventures In relation to the Group's interests in joint ventures, its share of assets, liabilities, income and expenses is shown below. 2008 2007 $m $m Non-current assets 44.3 53.5 Current assets 248.3 222.7 Current liabilities (169.6) (139.5) Non-current liabilities (6.3) (15.3) Net assets 116.7 121.4 Income 471.0 422.8 Expenses (422.4) (379.8) Profit before tax 48.6 43.0 Tax (12.1) (11.9) Share of post tax results from joint ventures 36.5 31.1 The joint ventures have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interest in the joint ventures other than the bank guarantees described in note 32. The name and principal activity of the most significant joint ventures is disclosed in note 35. 12 Inventories 2008 2007 $m $m Materials 60.7 71.5 Work in progress 137.3 130.7 Finished goods and goods for resale 393.4 337.0 591.4 539.2 13 Trade and other receivables 2008 2007 $m $m Trade receivables 936.9 799.7 Less: provision for impairment of trade receivables (62.4) (44.2) Trade receivables - net 874.5 755.5 Amounts recoverable on contracts 14.2 14.9 Prepayments and accrued income 81.8 59.5 Other receivables 63.7 65.0 1,034.2 894.9 The Group's trade receivables balance is analysed by division below:- Trade Provision Trade Receivable Receivables for Receivables days - Gross impairment - Net 31 December 2008 $m $m $m Engineering & Production 550.3 (18.6) 531.7 51 Facilities Well Support 196.6 (32.0) 164.6 52 Gas Turbine Services 190.0 (11.8) 178.2 50 Total Group 936.9 (62.4) 874.5 52 31 December 2007 Engineering & Production 462.7 (9.3) 453.4 55 Facilities Well Support 165.5 (27.5) 138.0 54 Gas Turbine Services 171.5 (7.4) 164.1 42 Total Group 799.7 (44.2) 755.5 53 Receivable days are calculated by allocating the closing trade receivables balance to current and prior period revenue including sales taxes. A receivable days calculation of 52 indicates that closing trade receivables represent the most recent 52 days of revenue. A provision for the impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the original receivables. The change in the economic environment has contributed to the increase in the provision for impairment during the year. The ageing of the provision for impairment of trade receivables is as follows: 2008 2007 $m $m Up to 3 months 18.6 6.1 Over 3 months 43.8 38.1 62.4 44.2 The movement on the provision for impairment of trade receivables by division is as follows: 2008 Engineering Well Gas Total & Production Support Turbine Facilities Services $m $m $m $m At 1 January 9.3 27.5 7.4 44.2 Exchange movements (1.1) (0.1) (0.3) (1.5) Charge to income statement 10.4 4.6 4.7 19.7 At 31 December 18.6 32.0 11.8 62.4 2007 At 1 January 7.0 11.1 5.5 23.6 Exchange movements 0.5 0.1 - 0.6 Charge to income statement 1.8 16.3 1.9 20.0 At 31 December 9.3 27.5 7.4 44.2 The charge to the income statement is included in administrative expenses. The change in the economic environment during the year has contributed to the increase in the provision for impairment of trade receivables. Non-trade receivables do not contain impaired assets. Included within gross trade receivables of $936.9m above (2007 : $799.7m) are receivables of $221.3m (2007: $199.6m) which were past due but not impaired. These relate to customers for whom there is no recent history or expectation of default. The ageing analysis of these trade receivables is as follows: 2008 2007 $m $m Up to 3 months 203.6 174.6 Over 3 months 17.7 25.0 221.3 199.6 14 Cash and cash equivalents 2008 2007 $m $m Cash at bank and in hand 149.6 98.8 Short-term bank deposits 26.5 18.3 176.1 117.1 The effective interest rate on short-term deposits was 1.9% (2007 : 6.2%) and these deposits have an average maturity of 32 days (2007 : 12 days). At 31 December 2008 the Group held $10.5m of cash (2007: $10.7m) as security for standby letters of credit issued by the Group's insurance captive in relation to its reinsurance liabilities. 15 Trade and other payables 2008 2007 $m $m Trade payables 310.1 325.0 Other tax and social security payable 61.7 50.7 Accruals and deferred income 544.2 454.6 Deferred consideration 9.3 17.7 Other payables 40.0 43.6 965.3 891.6 16 Borrowings 2008 2007 $m $m Bank loans and overdrafts due within one year or on demand Unsecured 34.2 45.1 Non-current bank loans Unsecured 390.7 349.9 Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the country in which the borrowing is incurred. The effective interest rates on the Group's borrowings at the balance sheet date were as follows: 2008 2007 % % US Dollar 4.68 5.35 Sterling 4.41 6.40 Euro 3.37 5.08 Canadian Dollar 3.07 5.26 The carrying amounts of the Group's borrowings are denominated in the following currencies: 2008 2007 $m $m US Dollar 115.4 116.0 Sterling 81.5 78.6 Euro 71.9 21.9 Canadian Dollar 140.0 151.5 Other 16.1 27.0 424.9 395.0 The Group is required to issue trade finance instruments to certain customers. These include tender bonds, performance bonds, retention bonds and advance payment bonds. The Group has also issued standby letters of credit as security for local bank facilities. At 31 December 2008 the Group's bank facilities relating to the issue of bonds, guarantees and letters of credit amounted to $236.0m (2007: $257.7m). At 31 December 2008, these facilities were 65% utilised (2007: 66%). Borrowing facilities The Group has the following undrawn borrowing facilities available at 31 December. 2008 2007 $m $m Expiring within one year 42.8 38.1 Expiring between one and two years 566.4 - Expiring in more than two years but not more than five 22.8 436.3 years 632.0 474.4 All undrawn borrowing facilities are floating rate facilities. The facilities expiring within one year are annual facilities subject to review at various dates during 2009. The financial covenants applicable to the bilateral borrowing facilities are the ratio of net debt to EBITDA, which must not exceed 3.5:1, and the interest cover ratio, which must not be less than 3.5:1. The measurement of the Group's performance against these covenants is provided in note 18 under the capital risk heading. In February 2009, the Group renewed its bilateral borrowing facilities for a further 3 years. The bank facilities have been arranged to finance the Group's activities. 17 Other non-current liabilities 2008 2007 $m $m Deferred consideration 112.8 85.4 Other payables 9.1 9.9 121.9 95.3 Deferred consideration represents amounts payable on acquisitions made by the Group and is expected to be paid over the next six years. Financial instruments The Group's activities give rise to a variety of financial risks: market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk. The Group's overall risk management strategy is to hedge exposures wherever practicable in order to minimise any potential adverse impact on the Group's financial performance. Risk management is carried out by the Group Treasury department in line with the Group's Treasury policies. Group Treasury together with the Group's business units identify, evaluate and where appropriate, hedge financial risks. The Group's Treasury policies cover specific areas, such as foreign exchange risk, interest rate risk, use of derivative financial instruments and investment of excess cash. Where the Board considers that a material element of the Group's profits and net assets are exposed to a country in which there is significant geo-political uncertainty a report is prepared for the Board and a strategy agreed to ensure that the risk is minimised. (a)Market risk (i)Foreign exchange risk The Group is exposed to foreign exchange risk arising from various currencies. The Group also has a number of subsidiary companies whose revenue and expenses are denominated in currencies other than the US dollar. In order to protect the Group's balance sheet from movements in exchange rates, wherever practicable, the Group finances its net investment in non US dollar subsidiaries primarily by means of borrowings denominated in the appropriate currency. Other strategies, including the payment of dividends, are used to minimise the amount of net assets exposed to foreign currency revaluation. Some of the sales of the Group's businesses are to customers in overseas locations. Where possible, the Group's policy is to eliminate all significant currency exposures on sales at the time of the transaction by using financial instruments such as forward currency contracts. Changes in the forward contract fair values are booked through the income statement. The Group carefully monitors the economic and political situation in the countries in which it operates to ensure appropriate action is taken to minimise any foreign currency exposure. The Group's main foreign exchange risk relates to movements in the sterling/US dollar exchange rate. Movements in the sterling/US dollar rate impact the translation of sterling profit earned in the UK and the translation of sterling denominated net assets. If the average sterling/US dollar rate had been 10% higher during 2008, post-tax profit for the year would have been $9.8m higher (2007: $2.4m higher). If the average sterling/US dollar rate had been 10% lower during 2008, post-tax profit for the year would have been $7.6m lower (2007: $5.4m lower). If the closing sterling/US dollar rate was 10% higher or lower at 31 December 2008, exchange differences in equity would have been $11.5m (2007: $10.9m) higher or lower respectively. (ii)Interest rate risk The Group finances its operations through a mixture of retained profits and bank borrowings. The Group borrows in the desired currencies at floating rates of interest and then uses interest rate swaps into fixed rates to generate the desired interest profile and to manage the Group's exposure to interest rate fluctuations. The Group's long-term policy is to maintain approximately 50% of its borrowings at fixed rates of interest. At 31 December 2008, 39% (2007 : 44%) of the Group's borrowings were at fixed rates after taking account of interest rate swaps. The Group is also exposed to interest rate risk on cash held on deposit. The Group's policy is to maximise the return on cash deposits whilst ensuring that cash is deposited with a financial institution with a credit rating of `AA' or better, where possible. If average interest rates had been 1% higher or lower during 2008, post-tax profit for the year would have been $2.0m higher or lower respectively (2007: $1.5m). (iii)Price risk The Group is not exposed to any significant price risk in relation to its financial instruments. (b)Credit risk The Group's credit risk primarily relates to its trade receivables. The Group's operations comprise three divisions, Engineering & Production Facilities, Well Support and Gas Turbine Services each made up of a number of businesses. Responsibility for managing credit risks lies within the businesses with support being provided by Group and divisional management where appropriate. A customer evaluation is typically obtained from an appropriate credit rating agency. Where required, appropriate trade finance instruments such as letters of credit, bonds, guarantees and credit insurance will be used to manage credit risk. The Group's major customers are typically large companies which have strong credit ratings assigned by international credit rating agencies. Where a customer does not have sufficiently strong credit ratings, alternative forms of security such as the trade finance instruments referred to above may be obtained. The Group has a broad customer base and management believe that no further credit risk provision is required in excess of the provision for impairment of trade receivables. The Group has increased its focus on credit risk and credit management in light of the current economic environment and appropriate measures have been implemented to reduce the risk profile where possible. The change in the economic environment has contributed to the increase in the provision for impaired receivables as disclosed in note 13. Management review trade receivables across the Group based on receivable days calculations to assess performance. There is significant management focus on receivables that are overdue. A table showing trade receivables and receivable days by division is provided in note 13. Receivable days calculations are not provided on non-trade receivables as management do not believe that this information is relevant. The Group also has credit risk in relation to cash held on deposit. The Group's policy is to deposit cash at institutions with a `AA' rating or better where possible. 41% of cash held on deposit at 31 December 2008 (2007 : 100%) was held with such institutions, the reduced percentage being due, in part, to the downgrading in ratings of certain institutions. (c)Liquidity risk With regard to liquidity, the Group's policy is to ensure continuity of funding. At 31 December 2008, 97% (2007 : 93%) of the Group's borrowing facilities (excluding joint ventures) were due to mature in more than one year. In February 2009, the Group renewed its bilateral borrowing facilities for a further 3 years. Based on the current outlook the Group has sufficient funding in place to meet its future obligations. (d)Capital risk The Group seeks to maintain an optimal capital structure. The Group monitors its capital structure on the basis of its gearing ratio, interest cover and the ratio of net debt to EBITDA. Gearing is calculated by dividing net debt by shareholders' funds. Gearing at 31 December 2008 was 22% (2007: 29%). Interest cover is calculated by dividing EBITA by net interest expense. Interest cover for the year to 31 December 2008 was 13.9 times (2007: 12.6 times). The ratio of net debt to EBITDA at 31 December 2008 was 0.5 (2007: 0.7). The table below analyses the Group's financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period from the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. At 31 December 2008 Less than Between 1 Between 2 Over 5 1 year and 2 and 5 years years years $m $m $m $m Borrowings 34.2 390.7 - - Derivative financial instruments 4.1 4.8 3.3 - Trade and other payables 965.3 - - - Other non-current liabilities - 45.5 43.7 32.7 The Group's bilateral borrowing facilities which are included in the `between 1 and 2 years' category above were renewed for a further 3 years in February 2009. At 31 December 2007 Borrowings 45.1 - 349.9 - Derivative financial instruments 1.5 0.4 0.8 - Trade and other payables 891.6 - - - Other non-current liabilities - 15.0 54.5 25.8 The table below analyses the Group's derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. At 31 December 2008 Less than Between 1 Between 2 Over 5 1 year and 2 and 5 years years years $m $m $m $m Forward foreign exchange contracts Outflow 124.3 0.8 - - Inflow 126.6 0.9 - - Interest rate swaps Outflow 6.3 7.7 3.1 - Inflow 5.6 4.4 1.7 - At 31 December 2007 Forward foreign exchange contracts Outflow 162.5 1.2 - - Inflow 163.1 1.2 - - Interest rate swaps Outflow 4.7 2.0 14.8 - Inflow 3.0 1.7 14.0 - All of the Group's forward foreign exchange contracts are categorised as held for trading. All interest rate swaps are categorised as cash flow hedges. Fair value of non-derivative financial assets and financial liabilities The fair value of short-term borrowings, trade and other payables, trade and other receivables, short-term deposits and cash at bank and in hand approximates to the carrying amount because of the short maturity of interest rates in respect of these instruments. Long-term borrowings are generally rolled over for periods of three months or less and as a result, book value and fair value are considered to be the same. 2008 2007 Book Fair Book Fair Value Value Value Value $m $m $m $m Fair value of long-term borrowings Long-term borrowings (note 16) 390.7 390.7 349.9 349.9 Fair value of other financial assets and financial liabilities Primary financial instruments held or issued to finance the Group's operations: Trade and other receivables (note 1,034.2 1,034.2 894.9 894.9 13) Cash at bank and in hand (note 14) 149.6 149.6 98.8 98.8 Short-term deposits (note 14) 26.5 26.5 18.3 18.3 Trade and other payables (note 15) 965.3 965.3 891.6 891.6 Short-term borrowings (note 16) 34.2 34.2 45.1 45.1 Other non-current liabilities (note 121.9 121.9 95.3 95.3 17) Derivative financial instruments The fair value of the Group's derivative financial instruments at the balance sheet date were as follows: 2008 2007 Assets Liabilities Assets Liabilities $m $m $m $m Interest rate swaps - cash flow - 8.4 0.8 1.6 hedges Forward foreign exchange contracts 2.1 3.8 0.7 0.5 Currency options 5.1 - - 0.6 Total 7.2 12.2 1.5 2.7 Less non-current portion: Interest rate swaps - cash flow - 8.1 0.8 1.2 hedges Current portion 7.2 4.1 0.7 1.5 Trading derivatives are classified as a current asset or liability. The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability if the maturity of the hedged item is less than 12 months. There was no ineffectiveness recorded in the income statement from fair value hedges in the current or preceding period. There was no ineffectiveness recorded in the income statement from cash flow hedges in the current or preceding period. There was no ineffectiveness recorded in the income statement from net investment in foreign entity hedges in the current or preceding period. The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet. (a)Forward foreign exchange contracts The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2008 was $120.5m (2007: $163.7m). (b)Interest rate swaps The notional principal amount of the Group's outstanding interest rate swap contracts at 31 December 2008 was $166.5m (2007 : $175.0m). At 31 December 2008 the fixed interest rates excluding margin varied from 4.3% to 5.2% (2007 : 2.7% to 5.2%) and the floating rate was 2.9% also excluding margin (2007 : 5.3%). The Group interest rate swaps are for periods of up to 5 years and they expire between 2009 and 2013. The bank has a break option on one $25m 5 year swap. This option is exercisable on a quarterly basis. The fair value gains and losses relating to the interest rate swaps which are deferred in equity at 31 December 2008 will reverse in the income statement over the term of the swaps. (c)Hedge of net investment in foreign entities The table below shows the Group's foreign currency borrowings which it has designated as a hedge of subsidiary company net assets. The fair value of the borrowings at 31 December 2008 was $206.1m (2007 : $158.4m). Foreign exchange gains of $46.8m (2007 : losses $7.6m) on translation of the borrowings into US dollars have been recognised in the currency translation reserve. 2008 2007 Foreign $m % of foreign Foreign $m % of foreign currency currency net currency currency net amount assets amount assets hedged hedged £55.0m 79.1 42% £35.0m 69.7 42% C$67.0m 54.3 63% C$63.0m 63.8 67% A$5.6m 3.9 25% A$5.6m 4.9 34% €49.5m 68.8 97% €13.7m 20.0 74% 206.1 158.4 19 Provisions Warranty Other Total provisions $m $m $m At 1 January 2008 17.7 19.0 36.7 Exchange movements (1.4) (0.1) (1.5) Charge to income statement 12.0 10.7 22.7 Payments during the year (9.6) (3.3) (12.9) At 31 December 2008 18.7 26.3 45.0 Warranty provisions These provisions are recognised in respect of guarantees provided in the normal course of business relating to contract performance. They are based on previous claims history and it is expected that most of these costs will be incurred over the next two years. Other provisions At 31 December 2008, other provisions of $26.3m (2007 : $19.0m) have been recognised. This amount includes provisions for future losses on onerous contracts, a provision for non-recoverable indirect taxes and a provision for remedial work at one of our facilities. It is expected that the majority of the costs in relation to these provisions will be incurred over the next two years. 20 Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using the tax rate applicable to the territory in which the asset or liability has arisen. Deferred tax in relation to UK companies is provided at 28% (2007: 28%). The movement on the deferred tax account is shown below: 2008 2007 $m $m At 1 January (45.5) (29.3) Exchange movements 5.0 (0.6) Credit to income statement (1.6) (16.4) Deferred tax relating to retirement benefit liabilities (5.2) 0.8 Reclassification as liabilities held for sale (1.5) - At 31 December (48.8) (45.5) Deferred tax is presented in the financial statements as follows: Deferred tax assets (53.3) (51.1) Deferred tax liabilities 4.5 5.6 (48.8) (45.5) No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and joint ventures. As these earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future. If the earnings were remitted, tax of $22.1m (2007 : $20.0m) would be payable. The Group has unrecognised tax losses of $68.8m (2007 : $39.8m) to carry forward against future taxable income. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. The deferred tax balances are analysed below:- Accelerated Pension Share Short term Total tax based timing depreciation charges differences $m $m $m $m $m Deferred tax assets 9.2 (6.5) (8.0) (48.0) (53.3) Deferred tax - - - 4.5 4.5 liabilities Net deferred tax 9.2 (6.5) (8.0) (43.5) (48.8) liability/(asset) 21 Share based charges The Group currently has four share schemes that give rise to share based charges. These are the Executive Share Option Scheme (`ESOS'), the Long Term Retention Plan (`LTRP'), the Long Term Incentive Scheme (`LTIS') and the Long Term Incentive Plan (`LTIP'). The LTIP replaced the LTIS on 1 January 2008. Details of each of the schemes are given in the Directors' Remuneration Report and in note 22. The charge in the Group income statement in 2008 for these schemes amounted to $13.3m (2007 : $13.7m) The assumptions made in arriving at the charge for each scheme are detailed below: ESOS and LTRP At 31 December 2008 there were 750 employees (2007 : 618) participating in these schemes. For the purposes of calculating the fair value of the share options, a Black-Scholes option pricing model has been used. Based on past experience, it has been assumed that options will be exercised, on average, six months after the earliest exercise date, which is four years after grant date, and there will be a lapse rate of between 15% and 20%. The share price volatility used in the calculation of 35%-40% is based on the actual volatility of the Group's shares since IPO as well as that of comparable companies. The risk free rate of return of 4.0%-5.2% is based on the implied yield available on zero coupon gilts with a term remaining equal to the expected lifetime of the options at the date of grant. A dividend yield of approximately 1.0% has been used in the calculations. The fair value of options granted under the ESOS during the year ranged from £ 1.17 to £1.23 (2007 : £0.91). The fair value of options granted under the LTRP during the year ranged from £3.36 to £3.62 (2007 : £2.54 to £3.92). The weighted average remaining contractual life of share options at 31 December 2008 is 5.3 years (2007: 5.7 years). LTIS/LTIP The share based charge for the LTIS was calculated using a fair value of £1.40. The charge for the LTIP was calculated using a fair value of £4.12. The charge for market related performance targets has been calculated using a Monte Carlo simulation model using similar assumptions to the ESOS and LTRP calculations. 22 Share capital 2008 2007 Authorised $m $m 720,000,000 (2007: 720,000,000) ordinary 34.9 34.9 shares of 3⅓ pence 2008 2007 Issued and fully paid shares $m shares $m Ordinary shares of 3⅓ pence each At 1 January 524,336,720 26.0 516,632,930 25.5 Issue of new shares - - 203,790 - Allocation of new shares to 3,500,000 0.2 7,500,000 0.5 employee share trusts At 31 December 527,836,720 26.2 524,336,720 26.0 John Wood Group PLC is a public limited company, incorporated and domiciled in Scotland. Executive Share Option Schemes The following options to subscribe for new or existing shares were outstanding at 31 December: Year of Number of ordinary Exercise shares under option price Grant 2008 2007 (per Exercise share) period 2000 213,750 326,250 17⅓p 2005-2010 2001 230,000 315,000 93⅓p 2006-2011 2001 824,380 1,260,070 83⅓p 2006-2011 2002 228,000 327,000 83⅓p 2007-2012 2003 1,004,715 1,645,413 158p 2007-2013 2004 3,008,942 6,269,517 128½p 2008-2014 2005 1,762,917 1,807,917 145p 2009-2015 2006 887,000 919,667 265¼p 2010-2016 2007 1,186,417 1,215,500 268½p 2011-2017 2008 1,439,500 - 381¾p 2012-2018 2008 210,208 - 354⅓p 2012-2018 10,995,829 14,086,334 Details of the Group's Executive Share Option Schemes are set out in the Directors' Remuneration Report. Share options are granted at an exercise price equal to the average mid-market price of the shares on the three days prior to the date of grant. 5,509,787 options (2007 : 3,873,733) were exercisable at 31 December 2008. 1,692,500 options were granted during the year, 4,553,985 options were exercised during the year and 229,020 options lapsed during the year. The weighted average share price for ESOS options exercised during the year was £ 4.27 (2007 : £3.27). Options granted to directors under the executive share option scheme are subject to performance criteria as set out in the Directors' Remuneration Report. There are no performance criteria under this scheme for options granted to employees. Long Term Retention Plan The following options granted under the Group's LTRP were outstanding at 31 December: Year of Number of ordinary Exercise shares under option price Grant 2008 2007 (per Exercise share) period 2003 - 390,520 3⅓p 2007-2008 2004 31,250 81,250 3⅓p 2008-2009 2005 121,502 121,502 3⅓p 2009-2010 2006 1,262,393 1,317,104 3⅓p 2010-2011 2007 1,649,063 1,684,938 3⅓p 2011-2012 2008 1,780,944 - 3⅓p 2012-2013 4,845,152 3,595,314 Options are granted under the Group's LTRP at par value (3⅓ pence per share). There are no performance criteria attached to the exercise of options under the LTRP, however no LTRP options are granted unless the Group achieves a minimum level of EPS growth of RPI plus 3%. The level of grant varies between RPI plus 3% and RPI plus 10%. 1,806,944 LTRP options were granted during the year, 442,615 LTRP options were exercised during the year and 114,491 LTRP options lapsed during the year. The weighted average share price for LTRP options exercised during the year was £4.22 (2007 : £3.59). Further details on the LTRP are provided in the Directors' Remuneration Report. Long Term Incentive Scheme/Long Term Incentive Plan The Group's Long Term Incentive Scheme (`LTIS') which had been in place since 2005 was replaced by the Long Term Incentive Plan (`LTIP') in 2008. Under these Schemes, the executive directors (but not the Chairman) and other key senior executives are awarded shares dependent upon the achievement of performance targets established by the Remuneration Committee. The performance measures for the LTIP are EBITA, return on capital employed, total shareholder return and adjusted earnings per share. The total shareholder return and adjusted earnings per share performance measures apply to the executive directors only. The LTIP awards are in the form of shares and restricted shares. 20% of any award earned over the three year performance cycle are deferred for a further two years in the form of forfeitable restricted shares. At 31 December 2008, 7,035,534 shares were potentially issuable under these schemes. Further details of the LTIS and LTIP are provided in the Directors' Remuneration Report. 23 Share premium 2008 2007 $m $m At 1 January 303.6 294.1 Arising on issue of new shares, net of expenses - 0.2 Allocation of shares to employee share trusts 8.2 9.3 At 31 December 311.8 303.6 Expenses of share issue and allocation amounted to $0.1m (2007 : $0.1m). 24 Retained earnings 2008 2007 $m $m At 1 January 555.9 397.4 Profit for the year attributable to equity shareholders 251.6 165.0 Dividends paid (40.1) (27.6) Credit relating to share based charges 13.3 13.7 Actuarial (loss)/gain on retirement benefit liabilities (18.7) 2.6 Movement in deferred tax relating to retirement benefit 5.2 (0.8) liabilities Shares allocated to ESOP trusts (8.4) (9.8) Shares purchased by ESOP trusts (34.2) - Shares disposed of by ESOP trusts 10.5 16.2 Tax credit relating to share option schemes 6.2 - Exchange movements in respect of shares held by ESOP 18.9 (0.8) trusts At 31 December 760.2 555.9 Retained earnings are stated after deducting the investment in own shares held by ESOP trusts. Investment in own shares represents the cost of 21,884,982 (2007 : 19,518,329) of the company's ordinary shares totalling $54.0m (2007 : $40.8m). No options have been granted over shares held by the ESOP trusts (2007 : nil). Shares acquired by the ESOP trusts are purchased in the open market using funds provided by John Wood Group PLC to meet obligations under the Employee Share Option Schemes, the LTRP, the LTIS and the LTIP. During 2008, 3,500,000 shares at a value of $8.4m were allocated to the trusts in order to satisfy the exercise of share options. 5,000,000 shares were purchased during the year on the open market at a cost of $34.2m. 4,996,600 shares were issued during the year to satisfy the exercise of share options at a value of $10.5m. In addition, 1,136,747 shares were issued during the year to satisfy share awards under the LTIS. Exchange adjustments of $18.9m arose during the year relating to the retranslation of the investment in own shares from sterling to US dollars. The costs of funding and administering the trusts are charged to the income statement in the period to which they relate. The market value of the shares at 31 December 2008 was $59.2m (2007 : $168.2m) based on the closing share price of £1.88 (2007 : £4.33). The ESOP trusts have waived their rights to receipt of dividends except in relation to those shares used to meet obligations under the LTIS. 25 Other reserves Capital Currency Hedging Total reduction translation reserve reserve reserve $m $m $m $m At 1 January 2007 88.1 (5.0) 2.2 85.3 Exchange movements on retranslation of - 7.0 - 7.0 foreign currency net assets Tax on foreign exchange losses - 0.3 - 0.3 recorded in reserves Cash flow hedges - - (3.5) (3.5) At 31 December 2007 88.1 2.3 (1.3) 89.1 Exchange movements on retranslation of - (45.9) - (45.9) foreign currency net assets Cash flow hedges - - (7.5) (7.5) At 31 December 2008 88.1 (43.6) (8.8) 35.7 A capital redemption reserve was created on the conversion of convertible redeemable preference shares immediately prior to the Initial Public Offering in June 2002. The capital redemption reserve was converted to a capital reduction reserve in December 2002 and is part of distributable reserves. The currency translation reserve relates to the retranslation of foreign currency net assets on consolidation. This was reset to zero on transition to IFRS at 1 January 2004. The hedging reserve relates to the accounting for derivative financial instruments under IAS 39. Fair value gains and losses in respect of effective cash flow hedges are recognised in the hedging reserve. 26 Minority interest 2008 2007 $m $m At 1 January 11.3 7.7 Exchange movements (0.2) - Acquisition of minority interest - (0.2) Investment by minority shareholders 0.1 1.4 Share of profit for the year 3.8 3.9 Dividends paid (1.9) (1.5) At 31 December 13.1 11.3 27 Cash generated from operations 2008 2007 $m $m Reconciliation of operating profit to cash generated from operations: Operating profit 415.8 285.2 Adjustments for: Depreciation 70.4 60.3 Gain on disposal of property plant and equipment (4.6) (1.2) Amortisation of other intangible assets 25.2 10.6 Share based charges 13.3 13.7 Impairment and restructuring charges - non-cash - 25.0 impact Profit on disposal of interest in joint venture - (3.6) Increase in provisions 9.8 12.8 Changes in working capital (excluding effect of acquisition and disposal of subsidiaries) Increase in inventories (104.1) (112.7) Increase in receivables (298.3) (74.4) Increase in payables 221.4 131.8 Exchange movements 4.6 (8.5) Cash generated from operations 353.5 339.0 Analysis of net debt At 1 Cash flow Exchange At 31 January movements December 2008 2008 $m $m $m $m Cash and cash equivalents 117.1 80.5 (21.5) 176.1 Short term borrowings (45.1) - 10.9 (34.2) Long term borrowings (349.9) (105.7) 64.9 (390.7) Net debt (277.9) (25.2) 54.3 (248.8) 28 Acquisitions and disposals Acquisitions The assets and liabilities acquired in respect of the acquisitions during the year were as follows: Fair value $m Property plant and equipment 5.6 Other intangible assets 18.5 Trade and other receivables 17.7 Cash 7.8 Trade and other payables (11.1) Net assets acquired 38.5 Goodwill 88.4 Consideration 126.9 Consideration satisfied by: Cash 91.8 Deferred consideration 35.1 126.9 The Group has used acquisition accounting for the purchases and, in accordance with the Group's accounting policies, the goodwill arising on consolidation of $88.4m has been capitalised. The amounts disclosed in the table above relate to the acquisitions of Producers Assistance Corporation (`PAC'), Netlink Inspection Pty (`Netlink'), Marine & Offshore Group (`M&O') and Marine Computation Services Group (`MCS'), which were acquired during the year. The fair values in the above table are equivalent to the book values with the exception of goodwill and other intangible assets. The acquisitions are not considered to be material to the Group on an individual basis and therefore have been aggregated in the table above. PAC, acquired in January 2008, provides technical operations and maintenance support services to the US onshore oil and gas industry. Netlink, acquired in May 2008, provides customised software products and services relating to asset integrity management. M&O, acquired in August 2008, provides safety and emergency response training services to the international offshore, maritime and mining industries. MCS, acquired in September 2008, is a global subsea engineering consultancy and provides riser and mooring design services and advanced engineering and software solutions to the subsea industry. The Group acquired 100% of the share capital of all four companies acquired during the year. The acquisitions during the year provide the Group with access to new markets and strengthen the Group's capabilities in certain areas. The acquired companies will be in a position to access the Group's wider client base and use the Group's existing relationships to further grow and develop their businesses. These factors contribute to the goodwill recognised by the Group on the acquisitions. Deferred consideration payments of $26.8m were made during the year in respect of acquisitions made in prior periods. Payments during the year and changes to previous estimates of deferred consideration have resulted in additional goodwill of $21.6m. Costs of $1.4m were incurred during the year in respect of acquisitions made in 2007. The outflow of cash and cash equivalents on the acquisition made during the year is analysed as follows: $m Cash consideration 91.8 Cash acquired (7.8) 84.0 Costs incurred in relation to acquisitions in prior period 1.4 Cash outflow 85.4 The results of the Group, as if the above acquisitions had been made at the beginning of period, would have been as follows: $m Revenue 5,272.5 Profit for the year 258.8 The acquired businesses earned cumulative revenue of $29.4m from the beginning of the year to the acquisition date. From the date of acquisition to 31 December 2008, the acquisitions contributed $65.6m to revenue and $3.7m to profit for the year. Disposals Details of the assets and liabilities disposed of during the year were as follows: $m Goodwill and other intangible assets 11.0 Property plant and equipment 3.6 Inventories 11.0 Trade and other receivables 20.1 Cash and cash equivalents 6.8 Borrowings (0.6) Trade and other payables (18.3) Net assets disposed of 33.6 Net proceeds received 38.7 Provision for disposal costs (5.1) Profit/(loss) on disposals - Reconciliation of net proceeds to cash inflow from disposals $m Net proceeds received 38.7 Cash disposed of (6.8) Borrowings disposed of 0.6 Cash inflow from disposals 32.5 During 2008, the Group disposed of an Engineering & Production Facilities business in Europe, a small Gas Turbine Services business in North America and partly disposed of a Well Support business in South America. In January 2009, the Group disposed of two small businesses in its Gas Turbine Services division. The assets and liabilities relating to these businesses have been reclassified as assets/liabilities held for sale in the Group balance sheet. Initial proceeds received in January 2009 amounted to $11.6m. In addition, the Group acquired various assets and liabilities as part of the transaction. It is not anticipated that there will be a material gain or loss on the disposals. 29 Employees and directors Employee benefits expense 2008 2007 $m $m Wages and salaries 1,797.9 1,467.1 Social security costs 137.5 111.4 Pension costs - defined benefit schemes (note 30) 6.7 6.5 Pension costs - defined contribution schemes (note 30) 40.4 33.0 1,982.5 1,618.0 Average monthly number of employees (including 2008 2007 executive directors) No. No. By geographical area: Europe 5,239 4,739 North America 10,035 9,001 Rest of the World 7,495 6,964 22,769 20,704 The average number of employees for 2007 have been restated to exclude contractors which were included in the figure originally reported. Key management compensation 2008 2007 $m $m Salaries and short-term employee benefits 20.8 19.3 Amounts receivable under long-term incentive schemes 14.8 12.2 Post employment benefits 1.1 1.1 Share based charges 6.8 7.6 43.5 40.2 The key management figures given above include executive directors. 2008 2007 Directors $m $m Aggregate emoluments 6.7 6.6 Aggregate amounts receivable under long-term incentive 1.8 1.8 schemes Aggregate gains made on the exercise of share options 0.6 2.3 Company contributions to defined contribution pension - 0.1 schemes 9.1 10.8 One director (2007: one) has retirement benefits accruing under a defined contribution pension scheme. Retirement benefits are accruing to six (2007: six) directors under the company's defined benefit pension scheme. Further details of directors emoluments are provided in the Directors' Remuneration Report. 30 Retirement benefit liabilities One of the Group's pension schemes in the UK, the John Wood Group PLC Retirement Benefits Scheme, is a defined benefit scheme, which is contracted out of the State Scheme. The assets of the scheme are held separately from those of the Group, being invested with independent investment companies in trustee administered funds. The most recent actuarial valuation of the scheme was carried out at 5 April 2007 by a professionally qualified actuary. On 5 April 2007 there was a change to the benefits provided under the scheme. From that date benefits are calculated on a Career Averaged Revalued Earnings ("CARE") basis. The principal assumptions made by the actuaries at the balance sheet date were: 2008 2007 % % Rate of increase in pensionable salaries 4.90 5.40 Rate of increase in pensions in payment and deferred 2.90 3.40 pensions Discount rate 6.20 5.60 Expected return on scheme assets 7.06 7.00 The expected return on scheme assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation. The mortality assumptions used by the actuary take account of standard actuarial tables compiled from UK wide statistics relating to occupational pension schemes. At 31 December 2008 the actuary has used the PXA92 (YOB) with medium cohort improvements and a further improvements reserve of 3% of liabilities. The amounts recognised in the balance sheet are determined as follows: 2008 2007 $m $m Present value of funded obligations (124.7) (187.5) Fair value of scheme assets 101.6 176.2 Net liabilities (23.1) (11.3) The major categories of scheme assets as a percentage of total scheme assets are as follows: 2008 2007 % % Equity securities 82.7 85.4 Corporate bonds 8.4 2.6 Gilts 8.7 11.2 Cash 0.2 0.8 30 Retirement benefit liabilities (continued) The amounts recognised in the income statement are as follows: 2008 2007 $m $m Current service cost included within employee benefits 6.7 6.5 expense Interest cost 10.1 8.9 Expected return on scheme assets (11.5) (10.5) Total included within finance income (1.4) (1.6) The employee benefits expense is included within administrative expenses in the income statement. Changes in the present value of the defined benefit liability are as follows: 2008 2007 $m $m Present value of funded obligations at 1 January 187.5 165.3 Current service cost 6.7 6.5 Interest cost 10.1 8.9 Actuarial (gains)/losses (25.6) 7.9 Scheme participants contributions 3.0 3.3 Benefits paid (8.0) (2.1) Plan curtailment - (5.0) Exchange movements (49.0) 2.7 Present value of funded obligations at 31 December 124.7 187.5 Changes in the fair value of scheme assets are as follows: 2008 2007 $m $m Fair value of scheme assets at 1 January 176.2 140.4 Expected return on scheme assets 11.5 10.5 Contributions 7.8 14.6 Benefits paid (8.0) (2.1) Actuarial (losses)/gains (44.3) 10.5 Exchange movements (41.6) 2.3 Fair value of scheme assets at 31 December 101.6 176.2 Analysis of the movement in the balance sheet liability: 2008 2007 $m $m At 1 January 11.3 24.9 Current service cost 6.7 6.5 Finance income (1.4) (1.6) Contributions (4.8) (11.3) Plan curtailment - (5.0) Net actuarial losses/(gains) recognised in the year 18.7 (2.6) Exchange movements (7.4) 0.4 At 31 December 23.1 11.3 2007 contributions include a one-off payment of $4m made by the Group in April 2007 as part of the CARE transition arrangements. Cumulative actuarial (gains) and losses recognised in equity: 2008 2007 $m $m At 1 January 24.4 27.0 Net actuarial losses/(gains) recognised in the year 18.7 (2.6) At 31 December 43.1 24.4 The actual return on scheme assets was $(32.8)m (2007 : $21.0m). History of experience gains and losses: 2008 2007 2006 2005 2004 Difference between the expected and actual return on scheme assets : (Loss)/gain ($m) (44.3) 10.5 2.9 12.3 4.9 Percentage of scheme assets 44% 6% 2% 12% 6% Experience gains/(losses) on scheme liabilities: Gain/(loss) ($m) 25.6 (7.9) 5.6 (14.8) (9.7) Percentage of the present value of 21% 4% 3% 11% 8% the scheme liabilities Present value of scheme liabilities 124.7 187.5 165.3 137.0 122.2 ($m) Fair value of scheme assets ($m) 101.6 176.2 140.4 103.7 88.3 Deficit ($m) 23.1 11.3 24.9 33.3 33.9 The contributions expected to be paid during the financial year ending 31 December 2009 amount to $4.3m. Pension costs for defined contribution schemes are as follows: 2008 2007 $m $m Defined contribution schemes 40.4 33.0 Contributions outstanding at 31 December 2008 in respect of defined contribution schemes amounted to $21.1m (2007 : $15.0m). 31 Operating lease commitments - minimum lease payments Property 2008 Property 2007 Vehicles, Vehicles, plant and plant and equipment equipment $m $m $m $m Amounts payable under non-cancellable operating leases due: Within one year 48.1 7.6 40.4 13.3 Later than one year and less than five 147.8 17.4 110.9 14.5 years After five years 59.7 3.8 59.3 0.7 255.6 28.8 210.6 28.5 The Group leases various offices and warehouses under non-cancellable operating lease agreements. The leases have various terms, escalation clauses and renewal rights. The Group also leases plant and machinery under non-cancellable operating lease agreements. The allocation of the property lease commitments reported for 2007 has been restated. 32 Contingent liabilities At the balance sheet date the Group had cross guarantees without limit extended to its principal bankers in respect of sums advanced to subsidiaries. At 31 December 2008, the Group has outstanding guarantees of $2.7m (2007 : $1.7m) in respect of joint venture banking arrangements. 33 Capital and other financial commitments 2008 2007 $m $m Contracts placed for future capital expenditure not 5.9 7.1 provided in the financial statements The capital expenditure above relates to property plant and equipment. There are no significant joint venture capital commitments included in the figures above. 34 Related party transactions The following transactions were carried out with the Group's joint ventures. These transactions comprise sales and purchases of goods and services in the ordinary course of business. 2008 2007 $m $m Sale of goods and services to joint ventures 144.9 143.5 Purchase of goods and services from joint ventures 55.1 16.5 Receivables from joint ventures 48.5 14.7 Payables to joint ventures 13.1 10.5 In addition to the above, the Group charged JW Holdings Limited, a company in which Sir Ian Wood has an interest, an amount of $0.1m (2007 : $0.1m) for management services provided under normal commercial terms. Key management compensation is disclosed in note 29. 35 Principal subsidiaries and joint ventures The Group's principal subsidiaries and joint ventures are listed below. Name of subsidiary or joint Country of Ownership Principal activity venture incorporation interest or % registration Engineering & Production Facilities: Mustang Engineering Holdings, USA 100 Conceptual studies, Inc engineering, project Alliance Wood Group USA 100 and construction Engineering L.P. management and control J P Kenny Engineering Limited UK 100 system upgrades. IMV Projects Inc Canada 100 Marine Computation Services Ireland 100 Group Limited Wood Group Engineering (North UK Brownfield engineering Sea) Limited 100 and modifications, SIGMA 3 (North Sea) Limited UK 33.3* production enhancement, operations Wood Group Production USA 100 management, maintenance Services, Inc management Wood Group Colombia S.A Colombia 100 and abandonment services. Wood Group Equatorial Guinea Cyprus 100 Limited Deepwater Specialists Inc USA 100 Well Support: Wood Group ESP, Inc. USA 100 Wood Group Products & Services Argentina 100 Electric submersible SA pumps Wood Group ESP (Middle East) Cyprus 100 Ltd Wood Group Pressure Control, USA Valves and wellhead L.P. 100 equipment Wood Group Pressure Control UK 100 Limited Wood Group Logging Services USA 100 Logging services Inc. Gas Turbine Services: Wood Group Engineering Jersey Services 100 (Middle East) Limited Rolls Wood Group (Repair & UK 50* Overhauls)Limited TransCanada Turbines Limited Canada 50* Gas turbine repair and overhaul Wood Group Field Services, USA 100 Inc. Wood Group Gas Turbine UK 100 Services Limited Wood Group Pratt & Whitney USA 49* Industrial Turbine Services, LLC Wood Group Power Solutions, USA 100 Provision of gas turbine Inc. packages Wood Group Advanced Parts Switzerland 100 Provision of gas turbine Manufacture AG parts The proportion of voting power held equates to the ownership interest, other than for joint ventures (marked *) which are jointly controlled. Shareholder information Payment of dividends The Company declares its dividends in US dollars. As a result of the shareholders being mainly UK based, dividends will be paid in sterling, but if you would like to receive your dividend in US dollars please contact the Registrars at the address below. All shareholders will receive dividends in sterling unless requested. If you are a UK based shareholder, the Company encourages you to have your dividends paid through the BACS (Banker's Automated Clearing Services) system. The benefit of the BACS payment method is that the Registrars post the tax vouchers directly to the shareholders, whilst the dividend is credited on the payment date to the shareholder's Bank or Building Society account. UK shareholders who have not yet arranged for their dividends to be paid direct to their Bank or Building Society account and wish to benefit from this service should contact the Registrars at the address below. Sterling dividends will be translated at the closing mid-point spot rate on 17 April 2009 as published in the Financial Times on 18 April 2009. Officers and advisers Secretary and Registered Office I Johnson John Wood Group PLC John Wood House Greenwell Road ABERDEEN AB12 3AX Tel: 01224 851000 Registrars Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Tel: 0871 384 2649 Stockbrokers JPMorgan Cazenove Limited Credit Suisse Auditors PricewaterhouseCoopers LLP Chartered Accountants Financial calendar Results announced 03 March 2009 Ex-dividend date 15 April 2009 Dividend record date 17 April 2009 Annual General Meeting 13 May 2009 Dividend payment date 18 May 2009 The Group's Investor Relations website can be accessed at www.woodgroup.com.

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