Full year results for the year ended 31 Decembe...
18 February 2014
Full year results for the year ended 31 December 2013
Wood Group delivers good growth with EBITA up 16%
Financial summary
* Total Revenue of $7,064.2m (2012: $6,828.1m) up 3%
* Total EBITA1 of $533.0m (2012: $459.1m) up 16%
* Profit before tax of $412.8m (2012: $361.4m) up 14%
* Adjusted diluted EPS of 98.6 cents (2012: 85.2 cents) up 16%
* Total dividend of 22.0 cents per share (2012: 17.0 cents) up 29%
Group highlights
* Another year of good growth in 2013; performance in line with expectations
* $276m invested in strategic acquisitions, including Elkhorn in US shale
market
* Enhanced differentiation in gas turbine activities through joint venture
with Siemens
* Wood Group Engineering
+ Growth in all three segments in 2013: Upstream, Subsea & Pipeline and
Downstream
+ Scope on Mafumeira Sul and Ichthys substantially complete
+ Slower pace of significant offshore awards; anticipated growth in
subsea & pipeline to be more than offset by reduction in Upstream in
2014
* Wood Group PSN
+ Growth in North Sea; significant renewals maintain leading position and
provide visibility
+ Strong growth in the Americas led by US onshore shale related business
+ Reduced losses in Oman; agreeing transition plan with customer to exit
+ US onshore shale to benefit from contribution of Elkhorn; well
positioned to deliver good growth in 2014
* Wood Group GTS
+ Maintenance performance up on 2012; lower contribution from Power
Solutions
+ Completion of Siemens joint venture anticipated in H1 2014; all gas
turbine activities reported in Wood Group PSN thereafter
+ Performance of gas turbine activities in 2014 expected to be in line
with 2013
Bob Keiller, CEO commented:
"2013 represents another year of good growth for Wood Group. In my first full
year as CEO, the leadership team and I have considered the Group's strategy
which remains sound and positions us well for the longer term. We are
predominantly an upstream oil and gas services business and our intention is to
broaden and deepen the services we can offer in this sector. We have reviewed
all parts of the Group from three perspectives: risk profile, current and
future financial performance and strategic fit with the Group overall, and this
has resulted in a number of actions including the acquisition of Elkhorn and
the joint venture with Siemens. Looking to 2014, our mix of opex and capex
activities and the contribution of completed acquisitions is expected to lead
to growth overall."
Enquiries:
Wood Group
Andrew Rose 01224 851 000
Carolyn Smith
Brunswick
Patrick Handley 020 7404 5959
Nina Coad
There will be an analyst and investor presentation at the Lincoln Centre, 18
Lincoln's Inn Fields, WC2A 3ED at 09.00 (GMT). Early registration is advised
from 08.30 (GMT)
A live webcast of the presentation will be available from www.woodgroup.com/
investors. Replay facilities will be available later in the day.
1 See detailed footnotes.
Chairman's Statement
Introduction
2013 has been a year of good growth and important strategic development for the
Group under Bob Keiller's leadership in his first full year as CEO, having
taken over in November 2012. My appointment as Chairman at that time reflected
the need for continuity amongst the senior team. Since his appointment in 2012,
Bob has shown excellent leadership as he further develops the Group's strategy
and direction.
Having supported Bob through this planned period of transition I will retire
from the Board at the AGM in May. I am delighted that Ian Marchant will take
over as Chairman of Wood Group. Ian knows the Group well, having served as a
non-executive director on the Board since 2006, latterly as senior independent
director. Ian was Chief Executive of SSE plc for over 10 years, is
non-executive chairman of Infinis Energy PLC and a non-executive director of
Aggreko plc. His appointment represents a natural evolution in the Group's
stewardship and provides important continuity. I am confident that Ian will be
an excellent leader of the Board and ensure its continued effectiveness.
Markets
Energy markets generally remained favourable during the year with analysts
typically estimating an increase in E&P spend of around 10%. For 2014, analysts
estimate some reduction in that growth rate reflecting a greater focus on
capital budgets by our customers. The Group continues to have a good balance of
opex and capex activities which should help underpin growth in the medium term.
Financial performance and dividends
In 2013, Total Revenue was up 3% and Total EBITA was up 16% to $533.0m, with
EBITA margin increasing from 6.7% to 7.5%. Adjusted diluted EPS increased from
85.2 cents to 98.6 cents. We are declaring a final dividend of 14.9 cents which
will bring the full year dividend to 22.0 cents, an increase of 29% on 2012.
Board changes
In September, we announced that Mike Straughen, Group Director for Wood Group
Engineering intends to retire from the Board during 2014. Mike has stepped away
from his Wood Group Engineering role and now oversees the Group's HSE
activities and sits on the Safety & Assurance committee. The committee is
chaired by Tom Botts, formerly of Shell, who was appointed as non-executive
director in January 2013.
In October we entered an agreement to form a joint venture between elements of
Wood Group GTS and Siemens' TurboCare business, at which point Mark Dobler,
Group Director for Wood Group GTS stepped down from the Board. Mark will
transfer to the new joint venture on formation as its CEO.
Neil H. Smith retired from the Board in December. Neil was a non-executive
director from 2004 and served on the Remuneration and Nomination committees
during his time on the Board. His knowledge of the power generation industry
greatly assisted Board discussions on the strategic development of our gas
turbine activities.
I have enjoyed leading Wood Group during an exciting period of organic growth
and strategic development including, most recently, the acquisition of PSN and
the sale of the Group's Well Support business. I am leaving the Group well
positioned for growth in good long term markets and in the hands of a strong
Board and management team. I will continue to follow the Group's ongoing
development with keen interest. Finally, I would like to thank our management
and employees for their enormous and continuing contribution in making Wood
Group a great company.
Allister Langlands, Chairman
CEO Review
Safety & assurance
The safety of our people, and those affected by what we do, is our top
priority. Tragically we had a fatality during the year in our Pyeroy business
in Wood Group PSN. We have assessed, and are acting on, the lessons learned. In
2013, we saw some improvement in our total recordable case frequency (TRCF) and
our lost work case frequency (LWCF) remained relatively flat. During 2013 we
established a Board-level Safety & Assurance committee to provide enhanced
visibility and awareness of our performance, and we extended our Safety
Leadership Programme to a wider audience.
Financial performance
2013 Group performance 2013 2012 %
$m $m Change
Total Revenue 7,064.2 6,828.1 3%
Total EBITA 1 533.0 459.1 16%
EBITA margin % 7.5% 6.7% 0.8pts
Profit before tax 412.8 361.4 14%
Basic EPS 81.4c 71.4c 14%
Adjusted diluted EPS2 98.6c 85.2c 16%
Total dividend 22.0c 17.0c 29%
ROCE6 19.4% 19.3% 0.1pts
Note: The analysis above includes revenue and EBITA related to the Wood Group
GTS businesses which will transfer to the gas turbine joint venture with
Siemens. As required by accounting standards, the results from these businesses
have been included in discontinued operations in the Group Financial Statements
for 2013.
2013 represents another year of good growth for the Group with Total EBITA up
16%. In Wood Group Engineering, revenue increased by 11% and EBITA increased by
12% reflecting growth in all three segments; Upstream, Subsea & Pipeline and
Downstream. In Wood Group PSN, strong EBITA growth of 28% included a full year
contribution from the Duval and Mitchells acquisitions in the US completed
during 2012, although performance overall was impacted by continuing losses in
Oman where we are now agreeing a transition plan to exit. In Wood Group GTS,
revenue fell 19% and EBITA fell 9%, with Maintenance up slightly on 2012 and a
lower contribution from Power Solutions. Net debt at the end of December was
$310m and average net debt during the year was $258m. Net debt excludes a
receipt in January in respect of a recovery in relation to a previously
terminated contract in Venezuela which after costs, payments to non-controlling
interests and taxation is expected to be around $40m.
Group review
Since my appointment as CEO I have focused on a number of key issues. I have
delivered a consistent message to our people that our Core Values are vital for
our future success and that we can be even better if we increase collaboration
across our business. I have been developing our leadership team on the
Executive committee and, together, we have considered the Group's strategy
which remains sound and positions us well for the longer term. We are
predominantly an upstream oil and gas services business and our intention is to
broaden and deepen the services we can offer in this sector.
We have also reviewed all parts of the Group from three perspectives: risk
profile, current and future financial performance and strategic fit with the
Group overall, and this has resulted in a number of actions covered below.
I have previously highlighted the need to remain a lower risk, predominantly
reimbursable business. During the year we tightened our controls around
contracts that contain lump sum or fixed-price elements, to ensure that we keep
our overall risk profile within acceptable levels. Typically, these contracts
together represent less than 10% of revenues. Specifically in the Power
Solutions business of Wood Group GTS, where we have executed large lump sum
projects, the risk profile was too high. The Dorad contract is the last
remaining contract of this scale and is approaching completion. It is
anticipated that the contract will be profitable overall, but will generate a
loss in 2013 and we will not pursue further opportunities of this size.
We looked at financial performance across the Group and recognised that in Wood
Group GTS, certain Maintenance activities with less differentiation were not
delivering an acceptable level of return. We concluded that a sale of the
underperforming parts was not in the best interest of shareholders, and
recognised that our activities in joint ventures typically deliver stronger
performance over the longer term. In October we therefore entered an agreement
to form a JV consisting of the Maintenance and Power Solutions businesses of
Wood Group GTS (excluding the Rolls Wood Group, TransCanada Turbines and Sulzer
Wood joint ventures), and Siemens' TurboCare business unit which provides
aftermarket design, repair and manufacturing services. The JV will be a
stronger, better differentiated business, providing access to certain OEM
know-how. The JV is expected to deliver annual net synergies to Wood Group of
around $15m by year three. In other areas of the Group, we have taken steps
including merging operations in Canada, reorganising our Engineering divisional
structure and addressing underperforming contracts.
Our consistent message on increasing collaboration has resulted in business
opportunities from people working more closely together. Wood Group Mustang and
Wood Group PSN jointly secured a topsides detailed engineering and procurement
scope in Canada, and we are working more closely together in the US, Australia
and elsewhere. We recently completed a corporate rebranding exercise which we
believe will improve customer awareness and understanding of the Group's
services, and better facilitate our collaborative efforts. We are increasingly
focused on deepening customer relationships at a Group level and this is
resulting in a number of potential opportunities.
In 2013, we invested $276m in acquisitions which we believe will improve our
financial performance and strategic positioning. In December we acquired
Elkhorn for a consideration of $215m, representing around 6 times proforma
EBITA. Elkhorn is a Wyoming based construction services provider which enhances
our US shale exposure and complements our construction, maintenance and
fabrication activities. We also acquired Pyeroy in July to expand the range of
services we provide into specialist coatings and fabric maintenance, and in May
we acquired Intetech, a niche provider of software and engineering consultancy
services for well integrity and corrosion management. We will continue to
pursue acquisition opportunities in 2014.
Our consideration of capital structure is informed by our assessment of
operating cash flows, investment opportunities, and the risks in our business.
We would generally expect a net debt to EBITDA range of around 0.5x to 1.5x
going forward, and to be typically below 1.0x. To the extent that the Group has
financial capacity which is surplus to the anticipated needs for acquisitions
and organic growth, we would look to return this to shareholders through share
buy backs or special dividends.
The Group continues to adopt a progressive dividend policy taking into account
its capital requirements, cash flows and earnings. Since IPO in 2002, we have
increased the dividend by an equivalent of 20% per annum compound. The
directors have recommended a final dividend of 14.9 cents per share which makes
a total distribution for the year of 22.0 cents, an increase of 29%. Reflecting
our confidence in future growth, the Board currently expects the dividend
increase in 2014 to be around 25%, and our intent would be to increase the US
dollar value of dividend per share paid from 2015 onwards by a double digit
percentage.
Outlook
I would like to thank Allister for his valuable support during 2013 and for his
extraordinary dedication and leadership over 23 years with Wood Group. During
the year, we have taken some important strategic steps and achieved good
growth. In 2014, our mix of opex and capex activities and the contribution of
completed acquisitions is expected to lead to growth overall, with growth in
Wood Group PSN offsetting a reduction in Wood Group Engineering. More details
of anticipated performance are set out in the balance of this report. Looking
further ahead, we believe our strategy remains sound and positions us well for
growth over the longer term.
Bob Keiller, CEO
Wood Group Engineering
We provide a wide range of market-leading engineering services to the upstream,
subsea & pipeline, downstream & industrial and clean energy sectors. These
include conceptual studies, engineering, project & construction management
(EPCM) and control system upgrades.
2013 2012 %
$m $m Change
Revenue 1,985.4 1,787.3 11.1%
EBITA 246.0 220.0 11.8%
EBITA margin 12.4% 12.3% 0.1pts
People3 10,700 10,200 5%
In Wood Group Engineering, revenue increased by 11% and EBITA increased by 12%,
reflecting growth in all three segments; Upstream, Subsea & Pipeline and
Downstream. EBITA margin increased slightly from 12.3% to 12.4%. Headcount
increased by 5% from 10,200 to 10,700 reflecting additions in Saudi and London,
offset by reductions in Canada and Houston.
Our Upstream business accounted for around 40% of divisional revenue. Our scope
on the significant Mafumeira Sul and Ichthys projects is substantially complete
and made a good EBITA contribution in 2013. We remain active on a number of
current offshore projects, including Hess Stampede and Anadarko Heidelberg in
the Gulf of Mexico, Husky White Rose in Eastern Canada and Ivar Aasen for SMOE
in the North Sea, although increased focus on capital budgets is evident in the
slower pace of significant new offshore awards. Performance in Western Canada
continues to be impacted by a weak upstream oil sands market and we have taken
steps to position our business appropriately.
Subsea & pipeline represented around 40% of divisional revenue. In subsea, the
US market remains strong, and in the North Sea we have seen good ongoing
brownfield activity including BP Quad 204 and Andrew, despite the impact of
some delays such as Chevron Rosebank. Australia has been a strong greenfield
market for our subsea business in recent years and we anticipate that a good
market for brownfield, infill, tie back and integrity management work will
develop in the longer term. Our onshore pipelines business continues to benefit
from healthy activity in US shale and we see further pipeline opportunities in
North America more generally.
Downstream, process & industrial saw increased activity in the US, Saudi Arabia
and Latin America and delivered an improved performance over 2012, although the
market remains competitive.
Outlook
In 2013, Wood Group Engineering delivered EBITA growth of 12%, following growth
of over 30% in 2011 and 2012. Looking ahead to 2014, we anticipate growth in
Subsea & pipeline to be more than offset by a reduction in Upstream, where we
see good prospects although not of the scale of the significant offshore
projects recently completed. Overall we see a good long term market for our
services but continue to anticipate a reduction in Engineering EBITA of around
15% in 2014.
Wood Group PSN
We provide life of field support to producing assets through brownfield
engineering and modifications, production enhancement, operations and
maintenance, training, maintenance management and abandonment services.
2013 2012 %
$m $m Change
Revenue 3,996.0 3,690.7 8.3%
EBITA 262.1 205.0 27.9%
EBITA margin 6.6% 5.6% 1.0pt
People 31,100 29,200 7%
In Wood Group PSN, strong EBITA growth of 28% includes a full year contribution
from the Duval and Mitchells acquisitions in the US completed during 2012,
although performance overall was impacted by continuing losses in Oman. EBITA
margin increased from 5.6% to 6.6% in part due to the change in geographical
mix of our business towards shale, overhead reductions and lower losses in
Oman. Headcount increased by 7% from 29,200, principally due to the impact of
the acquisitions of Pyeroy in July and Elkhorn in December.
In the Americas, which accounted for around 30% of revenue, we saw strong
growth led by our US onshore shale related business. In December, we enhanced
our US shale market exposure with the acquisition of Elkhorn, a Wyoming based
construction services provider, serving the Niobrara, Permian, Marcellus and
Utica shales. Wood Group PSN now has around 4,500 onshore personnel providing
construction, maintenance and fabrication activities across the most
significant US shale plays.
We saw growth in the North Sea, which accounted for around 40% of revenue. The
market remains strong and we secured nine contract renewals in 2013 with
customers including CNR, ConocoPhillips, Dana, Nexen, Talisman Sinopec, Total.
In December, we also won a support services contract for BG's central North Sea
assets. These awards help maintain our leading position and provide good
revenue visibility. The acquisition of Pyeroy in July further expanded our
range of services and we are starting to see the benefit from Pyeroy's
expansion with oil & gas customers.
In international markets, performance was held back by losses on our PDO
contract in Oman, despite an improvement in the underlying position. We are in
the process of agreeing a transition plan to exit, after which PDO plans to
pursue a different contracting model. We have made an exceptional provision of
$28.0m to reflect this. In other international markets, we recently signed a
new engineering and construction contract with NCPOC in Kazakhstan and secured
significant renewals in Africa. In Asia Pacific, the recently awarded contract
with ExxonMobil in Papua New Guinea will help replace successful project work
in Australia which is anticipated to complete in the first quarter of 2014.
Outlook
Wood Group PSN is well positioned to deliver good growth in 2014, led by our US
onshore shale related business which will benefit from the full year
contribution of Elkhorn. Our North Sea business has good revenue visibility
following a number of awards. In international markets, we have provided for
the impact of potential future losses on the PDO contract and see good
prospects in Africa, Asia Pacific and in the Middle East.
Wood Group GTS
We are a leading independent provider of rotating equipment services and
solutions for clients in the power and oil & gas markets. These services
include: power plant engineering, procurement and construction; facility
operations & maintenance; and repair, overhaul, optimisation and upgrades of
gas and steam turbines, pumps, compressors and other high-speed rotating
equipment.
2013 2012 %
$m $m Change
Revenue 1,082.8 1,343.3 (19.4)%
EBITA 80.8 88.6 (8.8)%
EBITA margin 7.5% 6.6% 0.9pts
People 3,500 3,400 3%
In Wood Group GTS, revenue fell 19% and EBITA fell 9%. In Maintenance,
performance was up slightly on 2012 with strength in our power plant services
business offset to some extent by performance elsewhere including the impact of
deferrals in our aero derivative activities. Power Solutions was down on 2012
but benefitted from final settlement on the completed GWF contract. We also saw
a good contribution from the completed NRG and Pasadena contracts.
The Dorad contract is anticipated to be profitable overall, but generated a
loss in 2013 due to factors including the impact of project slippage and
associated increased costs. We anticipate that the project will reach
substantial completion in the first quarter and that future change orders
should result in some profit recognition in 2014. We are the preferred
contractor on a number of smaller Power Solutions contracts, although they are
not yet in our order book.
In October we entered an agreement to form a JV consisting of the Maintenance
and Power Solutions businesses of Wood Group GTS (excluding the Rolls Wood
Group, TransCanada Turbines and Sulzer Wood joint ventures), and Siemens'
TurboCare business unit which provides aftermarket gas turbine, steam turbine
and generator design, repair and manufacturing services. The shareholding will
be split 51% Wood Group: 49% Siemens. The JV should enhance the differentiation
and future prospects of our gas turbine activities, bring together
complementary strengths, customers, geographies and provide access to certain
OEM know-how. It is expected that the JV will deliver annual net synergies to
Wood Group of around $15m by year three.
Outlook
Completion of the JV with Siemens is anticipated in the first half of 2014. On
completion, all Wood Group's predominantly opex related gas turbine activities
will be in joint ventures and will be reported within Wood Group PSN. It is the
Group's intention to retain proportional consolidation for management and
segmental reporting into 2014, and we will continue to provide good visibility
of the performance of our gas turbine activities within Wood Group PSN going
forward. Performance in those activities is expected to be broadly flat in
2014, with growth in Maintenance offset by a lower contribution from Power
Solutions, reflecting our current order book and lower risk appetite.
Financial Review
The Financial Review provides a high level summary of the key matters in the
Group Financial Statements. The Review also includes a proforma assessment of
revenue and EBITA for 2013, and an alternative presentation of financial
performance for 2013 and the balance sheet at the end of 2013 which more
closely reflect management's view of the financial position.
Financial performance
2013 2012
$m $m
Total Revenue 7,064.2 6,828.1
Continuing 6,379.7 6,118.4
Discontinued - GTS JV 684.5 702.9
Discontinued - Businesses divested in - 6.8
prior year
Total EBITA 533.0 459.1
Continuing 486.0 438.3
Discontinued - GTS JV 47.0 22.8
Discontinued - Businesses divested in - (2.0)
prior year
EBITA margin 7.5% 6.7%
Amortisation (102.1) (85.5)
Exceptional items 0.5 0.7
Total operating profit 431.4 374.3
Continuing 365.6 335.0
Discontinued - GTS JV 31.4 14.1
Discontinued - Businesses divested in 34.4 25.2
prior year
Net finance expense (18.6) (12.9)
Profit before tax 412.8 361.4
Taxation (112.3) (103.2)
Profit for the period 300.5 258.2
Basic EPS (cents) 81.4c 71.4c
Adjusted diluted EPS (cents) 98.6c 85.2c
The totals above include revenue and EBITA related to the Wood Group GTS
businesses which the Group intends to transfer to the recently announced gas
turbine JV with Siemens. As required under IFRS 5, the results of the Wood
Group GTS businesses that are being transferred into the new joint venture are
presented as discontinued activities in the consolidated income statement.
However, the Group will own 51% of the new joint venture and, although we will
not exercise control, it will remain part of the Group, therefore the Group's
results as prepared for internal management reporting purposes are presented
here.
As noted at the time that the JV was announced, it is the Group's intention to
retain proportional consolidation for management and segmental reporting into
2014, which is consistent with the approach above.
A review of the Group's trading performance is contained within the CEO's
review.
The performance of the Group on a pro forma constant currency basis is set out
below. The 2012 results have been restated to include the results of
acquisitions made in 2012 as if they had been acquired on 1 January 2012, and
also to apply the average exchange rates used to translate the 2013 results.
The 2013 results exclude the post-acquisition results of the Pyeroy, Elkhorn
and Intetech acquisitions made during 2013; EBITA of $8.8m was earned from
these acquisitions in 2013.
Unaudited 2013 2012 %
$m $m Change
Wood Group Engineering 1,981.3 1,767.4 12.1
Wood Group PSN 3,887.0 3,723.9 4.4
Wood Group GTS 1,082.8 1,338.5 (19.1)
Wood Group GTS - divested - 6.8
Pro forma total revenue 6,951.1 6,836.6 1.7
Acquisitions 113.1 (99.9)
Constant currency - 91.4
As reported 7,064.2 6,828.1
Wood Group Engineering 244.2 217.3 12.4
Wood Group PSN 255.1 223.1 14.3
Wood Group GTS 80.8 87.5 (7.7)
Wood Group GTS - divested - (2.0)
Central costs (55.9) (52.1) (7.3)
Pro forma total EBITA 524.2 473.8 10.6
Acquisitions 8.8 (21.9)
Constant currency - 7.2
As reported 533.0 459.1
The pro forma result shows underlying growth in revenue of 1.7% and in EBITA of
10.6%.
Amortisation
The amortisation charge for the year of $102.1m (2012: $85.5m) includes $57.6m
(2012: $57.1m) of amortisation relating to intangible assets arising from
acquisitions, of which $38.5m (2012: $46.0m) is in relation to the PSN
acquisition made in 2011. The total amortisation charge for 2014 is expected to
be around $111.0m of which it is anticipated around $65.0m will relate to
intangible assets arising from acquisitions.
Net finance expense
2013 2012
$m $m
Interest on debt 8.5 9.8
4.6
Other fees and charges 11.2 4.6
Total finance expense 19.7 14.4
Finance income (1.1) (1.5)
Net finance expense 18.6 12.9
Interest cover4, based on Total EBITA, was 28.7 times (2012: 35.6 times). Other
fees and charges have increased during the year due to fees incurred on the
renewal of the Group's bank facilities in February 2013 and the increased
pension charge resulting from the changes to IAS 19.
Exceptional items
2013 2012
$m $m
Lease termination income (15.1) -
Restructuring charges 15.9 14.6
Onerous contract 28.0 -
Impairment of goodwill - 1.9
Bad debt (recoveries)/write (6.0) 10.0
offs
Acquisition and JV formation 11.1 -
costs
Businesses divested in prior (34.4) (27.2)
years
Total exceptional gain before (0.5) (0.7)
tax
Tax on exceptional items (1.1) 0.1
Total exceptional gain after (1.6) (0.6)
tax
As set out in the table above, a pre-tax exceptional gain of $0.5m was
recognised in the period, $1.6m after tax.
An exceptional gain of $15.1m has been recorded in the period in respect of a
one-off compensation payment received by the Group for vacating sub-let office
space.
Restructuring charges of $15.9m have been expensed in 2013 relating to the
merging of certain businesses in Canada, the write down of assets in Wood Group
PSN's Americas business and the reorganisation of Wood Group Engineering to
reflect a change in the management structure of the business.
The Group's contract with PDO in Oman has continued to make losses in 2013,
albeit at a lower level than 2012. The parties are in the process of agreeing
a transition period to exit, after which PDO plans to pursue a different
contracting model. The Group has made an exceptional provision of $28.0m to
reflect the onerous nature of this contract, comprising an assumption of losses
during the period of run-off and an accelerated write-off of assets.
A gain of $6.0m has been recorded in respect of cash recovered against bad debt
write offs treated as exceptional charges in previous periods.
Costs of $11.1m have been incurred in the period in respect of acquisition
activity (see note 27) and costs in relation to the formation of the joint
venture with Siemens, and have been treated as exceptional.
During the period, the Group settled certain matters relating to the Well
Support disposal in 2011. As a result of the settlement and a subsequent review
of the carrying value of the related warranty provision, $34.4m was credited to
exceptional items in 2013.
In 2009, the Group made provision against assets owned and amounts receivable
under a contract to provide services in Venezuela which was terminated and
subsequently taken over by PDVSA. In January 2014, the Group finalised a
settlement agreement and received a payment of $62.5m. The net recovery, after
deduction of costs, payments to non-controlling interests and taxation is
expected to be around $40m and will be recorded as a 2014 exceptional gain.
Taxation
2013 2012
$m $m
Profit before tax 412.8 361.4
Exceptional items (0.5) (0.7)
Profit before tax and exceptional items 412.3 360.7
Total tax charge 112.3 103.2
Tax on exceptional items 1.1 (0.1)
Tax charge pre-exceptional items 113.4 103.1
Effective tax rate 27.5% 28.6%
The effective tax rate in 2013 was 27.5% (2012: 28.6%). Going forward, we
expect the effective tax rate based on proportional consolidation to remain
around 27.5% in the medium term.
Earnings per share
Adjusted diluted EPS for the year increased by 16% to 98.6 cents per share
(2012: 85.2 cents) due principally to the increase in underlying profitability.
Reconciliation of number of fully Weighted
diluted shares Average
(All figures are in million shares) 2013
Ordinary shares 373.8
Shares held by employee trusts (10.5)
Basic shares for EPS purposes 363.3
Effect of dilutive shares 10.2
Fully diluted shares for EPS purposes 373.5
Adjusted diluted EPS adds back all amortisation. If only the amortisation
related to intangible assets arising on acquisition is adjusted, then the
figure for 2013 would be 90.0 cents per share (2012: 79.7cents).
Dividend
The Group continues to adopt a progressive dividend policy taking into account
its capital requirements, cash flows and earnings. Since IPO in 2002, the Group
has increased the dividend by an equivalent of 20% per annum compound.
In line with our policy, the Board is recommending a final dividend of 14.9
cents per share, an increase of 32%, which when added to the interim dividend
of 7.1 cents per share makes a total distribution for the year of 22.0 cents
per share (2012: 17.0 cents), an increase of 29%. The dividend of 22.0 cents is
covered 4.5 times (2012 : 5.0 times) by adjusted earnings per share for the
2013 financial year. Reflecting confidence in future growth, the Board
currently expects the dividend increase in 2014 to be around 25%, and our
intent would be to increase the US dollar value of dividend per share paid from
2015 onwards by a double digit percentage.
Summary Balance Sheet
Note 1 to the Group Financial Statements contains a bridge between the balance
sheet for management reporting purposes as summarised below and the statutory
format which treats certain businesses as discontinued.
2013 2012
$m $m
Assets
Non-current assets 2,350.0 2,131.8
Current assets 2,198.0 2,029.3
Liabilities
Current liabilities (1,457.7) (1,303.4)
Net current assets 740.3 725.9
Non-current liabilities (674.0) (622.4)
Net assets 2,416.3 2,235.3
Equity attributable to owners of the 2,407.4 2,227.1
parent
Non-controlling interests 8.9 8.2
Total equity 2,416.3 2,235.3
Non-current assets are primarily made up of goodwill and intangible assets, and
property, plant and equipment.
The increase in net current assets since December 2012 is primarily due to
higher trade receivables in Wood Group Engineering and Wood Group PSN due to
increased activity and higher inventory in Wood Group GTS.
The increase in non-current liabilities in 2013 is primarily due to the
increase in long term borrowings as a result of the three acquisitions
completed during the year.
Capital efficiency
Net debt to total EBITDA at 31 December 2013 was 0.53 times (2012: 0.31 times).
The Board would generally expect net debt to EBITDA to be in a range of around
0.5 to 1.5 times going forward, and to be typically below 1.0 times. To the
extent that the Group has financial capacity which is surplus to the
anticipated needs for acquisitions and organic growth the Group would look to
return this to shareholders through share buy backs or special dividends.
The Group's pre-tax Return on average Capital Employed6 ("ROCE") increased
slightly from 19.3% to 19.4% with an increase in Wood Group PSN being offset by
reductions in Wood Group Engineering and Wood Group GTS.
The Group's ratio of average Operating Capital Employed to Revenue7 ("OCER")
worsened from 12.5% to 15.6% principally due to a combination of increased
inventory and lower revenue in Wood Group GTS and higher average receivable
days in both Wood Group Engineering and Wood Group PSN.
Cash flow and net debt
2013 2012
$m $m
Opening net debt (154.5) (3.9)
Cash generated from operations 597.9 520.6
pre-working capital
Working capital movements (continuing (22.0) (192.9)
operations)
Working capital movements (discontinued (39.5) -
operations)
Cash generated from operations 536.4 327.7
Acquisitions and deferred consideration (290.4) (188.7)
Capex and intangibles (142.0) (127.2)
Disposals 0.3 40.6
Purchase of shares by employee share (47.8) -
trusts
Tax paid (127.8) (134.7)
Interest, dividends and other (83.7) (68.3)
Increase in net debt (155.0) (150.6)
Closing net debt (309.5) (154.5)
Throughout the period the Group has maintained a level of debt as set out
below.
2013 2012
$m $m
Average net debt 258.4 140.7
Average gross debt 436.0 356.5
Closing net debt 309.5 154.5
Closing gross debt 493.0 326.8
In February 2013, the Group renewed and extended its bilateral borrowing
facilities from $800m to $950m with the maturity date being extended to
February 2018.
Cash generated from operations pre-working capital increased by $77.3m to
$597.9m and post-working capital increased by $208.7m to $536.4m. The working
capital outflow of $61.5m relates primarily to higher trade receivables as a
result of increased activity in the period along with higher inventory in GTS,
offset by higher payables.
Cash paid in relation to acquisitions totalled $275.5m (2012: $158.3m) and
deferred consideration paid in respect of prior period acquisitions amounted to
$11.8m (2012: $30.4m). Included within acquisition spend is $3.1m (2012: $nil)
relating to the purchase of non-controlling interests.
Payments for capex and intangible assets increased to $142.0m (2012: $127.2m).
We anticipate spend on capex and intangible assets to be around $140m in 2014.
The Group's employee share trusts purchased 3 million shares during the year at
a cost of $47.8m.
The reduction in tax paid in the year was due to timing of instalment payments
in certain jurisdictions and payments relating to the 2011 Well Support
disposal made in 2012.
The increase in interest, dividend and other largely relates to the increased
dividend paid in the period.
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 241 active
members and 940 deferred, pensionable deferred or pensionable members at 31
December 2013. At 31 December 2013 the scheme had a deficit of $41.2m (2012:
$55.0m) before recognition of a deferred tax asset of $9.1m (2012: $12.7m). In
assessing the potential liabilities, judgment is required to determine the
assumptions around future salary and pension increases, inflation, investment
returns and member longevity. The reduction in the deficit from 2012, although
affected by a number of factors, was due primarily to better than anticipated
investment performance in the period.
The scheme is closed to new members, and future benefits under the scheme are
currently provided on a Career Average Revalued Earnings "CARE" basis. The
Group has entered into consultation with members of the scheme with regard to a
proposal which would result in closure to future accrual from 30 June 2014. No
impact of the proposed change has been reflected in the 2013 net liability.
Full details of pension assets and liabilities are provided in note 29 to the
Group Financial Statements.
Acquisitions
During the year the Group completed the acquisitions of Intetech, which is a
niche provider of software and engineering consultancy services for well
integrity and corrosion management services; Pyeroy, a provider of specialist
coating and fabric maintenance services; and Elkhorn, a provider of
construction services for midstream oil & gas facilities in the US shale
market. The total initial consideration for these acquisitions was $275.5m, net
of cash and borrowings acquired, of which Elkhorn made up $217.4m ($215.0m
consideration plus $2.4m borrowings acquired).
Footnotes
1. Total EBITA includes continuing and discontinued operations and represents
total operating profit of $431.4m (2012: $374.3m) before exceptional income of
$0.5m (2012: $0.7m) and the deduction of amortisation of $102.1m (2012: $85.5m)
and is provided as it is a key unit of measurement used by the Group in the
management of its business. Total operating profit for the year comprises
operating profit from continuing operations of $365.6m (2012 $335.0m) and
operating profit from discontinued operations of $65.8m (2012: $39.3m)
2. Adjusted diluted earnings per share is calculated by dividing earnings
before exceptional items and amortisation, net of tax, by the weighted average
number of ordinary shares in issue during the period, excluding shares held by
the Group's employee ownership trusts and adjusted to assume conversion of all
potentially dilutive ordinary shares.
3. Number of people includes both employees and contractors at 31 December.
4. Interest cover is total EBITA divided by the net finance charge.
5. Dividend cover is AEPS divided by the total dividend per ordinary share for
the period.
6. Return on Capital Employed (ROCE) is total EBITA divided by average capital
employed.
7. Operating Capital Employed to Revenue (OCER) is the average operating
capital employed (property, plant and equipment, intangible assets (excluding
intangibles recognised on acquisition), inventories and trade and other
receivables less trade and other payables) divided by total revenue.
JOHN WOOD GROUP PLC
GROUP FINANCIAL STATEMENTS
FOR THE YEAR TO 31ST DECEMBER 2013
Company Registration Number SC 36219
As required under IFRS 5, the results of the Wood Group GTS
businesses that are being transferred into the new joint venture with Siemens
are presented as discontinued activities in the consolidated income statement.
However, the Group will own 51% of the new joint venture and although not able
to exercise control, it will remain part of the Group. Reconciliation to the
total income statement is shown in note 1 to the consolidated financial
statements.
Consolidated income statement
for the year to 31 December 2013
2013 2012 (restated)
Pre- Exceptional Pre- Exceptional
Exceptional Items Exceptional Items
Items (note 4) Total Items (note 4) Total
Note $m $m $m $m $m $m
Revenue from continuing operations 1 6,379.7 - 6,379.7 6,118.4 - 6,118.4
Cost of sales (5,351.9) - (5,351.9) (5,118.5) - (5,118.5)
Gross profit 1,027.8 - 1,027.8 999.9 - 999.9
Administrative expenses (635.3) (26.9) (662.2) (638.4) (26.5) (664.9)
Operating profit 1 392.5 (26.9) 365.6 361.5 (26.5) 335.0
Finance income 2 1.1 - 1.1 1.5 - 1.5
Finance expense 2 (19.6) - (19.6) (14.1) - (14.1)
Profit before taxation from continuing 3 374.0 (26.9) 347.1 348.9 (26.5) 322.4
operations
Taxation 5 (93.5) 0.9 (92.6) (109.8) 4.1 (105.7)
Profit for the year from continuing 280.5 (26.0) 254.5 239.1 (22.4) 216.7
operations
Profit from discontinued operations, net of 27 18.4 27.6 46.0 18.5 23.0 41.5
tax
Profit for the year 298.9 1.6 300.5 257.6 0.6 258.2
Profit attributable to:
Owners of the parent 294.3 1.6 295.9 256.4 0.6 257.0
Non-controlling interests 25 4.6 - 4.6 1.2 - 1.2
298.9 1.6 300.5 257.6 0.6 258.2
Earnings per share (expressed in cents per
share)
Basic 7 81.0 0.4 81.4 71.2 0.2 71.4
Diluted 7 78.8 0.4 79.2 68.8 0.2 69.0
As a result of the classification of the Wood Group GTS businesses
that are being transferred into a new joint venture company in 2014 as
discontinued, the 2012 income statement has been restated (see note 27).
The income statement for 2012 has also been restated to reflect a
reclassification of $83.0m from administrative expenses to cost of sales.
The notes on pages 22 to 73 are an integral part of these consolidated
financial statements.
Consolidated statement of comprehensive income
for the year to 31 December 2013
2013 2012
Note $m $m
Profit for the year 300.5 258.2
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurement gains/(losses) on retirement benefit obligations 29 16.5 (8.5)
Movement in deferred tax relating to retirement benefit obligations 5 (3.8) 2.1
Total items that will not be reclassified to profit or loss 12.7 (6.4)
Items that may be reclassified subsequently to profit or loss
Cash flow hedges 24 0.2 3.7
Exchange movements on retranslation of foreign currency net assets 24 (37.6) 41.3
Exchange movements on retranslation of non-controlling interests 25 (0.2) 0.1
Total items that may be reclassified subsequently to profit or loss (37.6) 45.1
Other comprehensive (expense)/income for the period, net of tax (24.9) 38.7
Total comprehensive income for the period 275.6 296.9
Total comprehensive income for the period is attributable to:
Owners of the parent 271.2 295.6
Non-controlling interests 25 4.4 1.3
275.6 296.9
Total comprehensive income for the period is attributable to:
Continuing operations 229.1 251.9
Discontinued operations 27 46.5 45.0
275.6 296.9
Exchange movements on the retranslation of net assets would only be
subsequently reclassified to profit or loss in the event of the disposal of a
business.
The notes on pages 22 to 73 are an integral part of these consolidated
financial statements.
As required under IFRS 5, the assets and liabilities of Wood Group
GTS that are being transferred into the new joint venture with Siemens have
been shown as assets and liabilities held for sale in the Group balance sheet.
A reconciliation from the total balance sheet showing the reclassification as
held for sale is provided in note 1 to the consolidated financial statements.
Consolidated balance sheet
as at 31 December 2013
2012
2013 (restated)
Note $m $m
Assets
Non-current assets
Goodwill and intangible assets 8 1,875.5 1,839.1
Property plant and equipment 9 221.3 198.6
Long term receivables 12 68.0 54.7
Deferred tax assets 19 27.2 39.4
2,192.0 2,131.8
Current assets
Inventories 11 101.1 439.5
Trade and other receivables 12 1,365.1 1,392.5
Income tax receivable 20.7 25.0
Assets held for sale 27 685.6 -
Cash and cash equivalents 13 183.5 172.3
2,356.0 2,029.3
Liabilities
Current liabilities
Borrowings 15 96.8 45.3
Trade and other payables 14 1,123.0 1,155.8
Liabilities held for sale 27 185.4 -
Income tax liabilities 61.3 102.3
1,466.5 1,303.4
Net current assets 889.5 725.9
Non-current liabilities
Borrowings 15 396.2 281.5
Deferred tax liabilities 19 - 9.4
Retirement benefit obligations 29 41.2 55.0
Other non-current liabilities 16 141.0 163.7
Provisions 18 86.8 112.8
665.2 622.4
Net assets 2,416.3 2,235.3
Equity attributable to owners of the parent
Share capital 21 23.6 23.5
Share premium 22 56.0 54.3
Retained earnings 23 1,856.6 1,640.7
Other reserves 24 471.2 508.6
2,407.4 2,227.1
Non-controlling interests 25 8.9 8.2
Total equity 2,416.3 2,235.3
The balance sheet at December 2012 has been restated to reflect a
reclassification of $32.2m from trade and other payables to provisions (note
18).
The financial statements on pages 17 to 73 were approved by the
board of directors on 17 February 2014.
Bob Keiller, Director Alan G Semple, Director
The notes on pages 22 to 73 are an integral part of these
consolidated financial statements.
Consolidated statement of changes in equity
for the year to 31 December 2013
Equity
Attributable Non-
Share Share Retained Other to owners of controlling Total
capital premium earnings reserves the parent interests equity
Note $m $m $m $m $m $m $m
At 1 January 2012 23.4 7.7 1,469.8 463.6 1,964.5 10.0 1,974.5
Profit for the year - - 257.0 - 257.0 1.2 258.2
Other comprehensive income:
Remeasurement losses on retirement benefit 29 - - (8.5) - (8.5) - (8.5)
liabilities
Movement in deferred tax relating to retirement 5 - - 2.1 - 2.1 - 2.1
benefit liabilities
Cash flow hedges 24 - - - 3.7 3.7 - 3.7
Exchange movements on retranslation of foreign 24/25 - - - 41.3 41.3 0.1 41.4
currency net assets
Total comprehensive income for the year - - 250.6 45.0 295.6 1.3 296.9
Transactions with owners:
Dividends paid 6/25 - - (55.2) - (55.2) (1.2) (56.4)
Transactions with non-controlling interests 25 - - - - - (1.9) (1.9)
Credit relating to share based charges 20 - - 19.6 - 19.6 - 19.6
Tax credit relating to share option schemes 5 - - 1.1 - 1.1 - 1.1
Proceeds from Group companies relating to 22 - 43.5 (43.5) - - - -
options exercised under share symmetry scheme
Shares allocated to employee share trusts 23 0.1 3.1 (3.2) - - - -
Shares disposed of by employee share trusts 23 - - 6.5 - 6.5 - 6.5
Exchange movements in respect of shares held by - - (5.0) - (5.0) - (5.0)
employee share trusts
At 31 December 2012 23.5 54.3 1,640.7 508.6 2,227.1 8.2 2,235.3
Profit for the year - - 295.9 - 295.9 4.6 300.5
Other comprehensive income:
Remeasurement gains on retirement benefit 29 - - 16.5 - 16.5 - 16.5
liabilities
Movement in deferred tax relating to retirement 5 - - (3.8) - (3.8) - (3.8)
benefit liabilities
Cash flow hedges 24 - - - 0.2 0.2 - 0.2
Exchange movements on retranslation of foreign 24/25 - - - (37.6) (37.6) (0.2) (37.8)
currency net assets
Total comprehensive income for the year - - 308.6 (37.4) 271.2 4.4 275.6
Transactions with owners:
Dividends paid 6/25 - - (67.4) - (67.4) (3.1) (70.5)
Transactions with non-controlling interests 23/25 - - (3.3) - (3.3) (0.6) (3.9)
Credit relating to share based charges 20 - - 21.0 - 21.0 - 21.0
Tax credit relating to share option schemes 5 - - 3.2 - 3.2 - 3.2
Shares allocated to employee share trusts 23 0.1 1.7 (1.8) - - - -
Shares purchased by employee share trusts 23 - - (47.8) - (47.8) - (47.8)
Shares disposed of by employee share trusts 23 - - 7.9 - 7.9 - 7.9
Exchange movements in respect of shares held by - - (4.5) - (4.5) - (4.5)
employee share trusts
At 31 December 2013 23.6 56.0 1,856.6 471.2 2,407.4 8.9 2,416.3
The notes on pages 22 to 73 are an integral part of these consolidated
financial statements.
Consolidated cash flow statement
for the year to 31 December 2013
2013 2012
Note $m $m
Cash generated from operations 26 536.4 327.2
Tax paid (127.8) (134.7)
Net cash generated from operating activities
408.6 192.5
Cash flows from investing activities
Acquisition of subsidiaries (net of cash and 27 (287.3) (188.7)
borrowings acquired)
Acquisition of non-controlling interests 25 (3.1) -
Proceeds from divestment of subsidiaries (net of
cash and borrowings disposed and divestment costs)
27 0.3 40.6
Purchase of property plant and equipment 9 (90.4) (69.4)
Proceeds from sale of property plant and equipment 2.6 0.4
Purchase of intangible assets 8 (51.6) (57.8)
Interest received 1.1 1.5
Net cash used in investing activities (428.4) (273.4)
Cash flows from financing activities
Proceeds from bank loans 26 165.4 89.0
Return of cash to shareholders - (7.7)
Purchase of shares by employee share trusts 23 (47.8) -
Proceeds from disposal of shares by employee share 23 7.9 6.5
trusts
Interest paid (18.6) (11.3)
Dividends paid to shareholders 6 (67.4) (55.2)
Dividends paid to non-controlling interests 25 (3.1) (1.2)
Net cash from financing activities 36.4 20.1
Net increase/(decrease) in cash and cash 26 16.6 (60.8)
equivalents
Effect of exchange rate changes on cash and cash 26 (5.4) 6.5
equivalents
Opening cash and cash equivalents 172.3 226.6
Closing cash and cash equivalents 13 183.5 172.3
Cash flows from discontinued operations are shown in note 27.
The notes on pages 22 to 73 are an integral part of these
consolidated financial statements.
Notes to the financial statements
for the year to 31 December 2013
General information
John Wood Group PLC, its subsidiaries and joint ventures, provide
services to the oil and gas and power generation industries worldwide. Details
of the Group's activities during the year are provided in the Strategic
Report. John Wood Group PLC is a public limited company, incorporated and
domiciled in Scotland and listed on the London Stock Exchange.
Accounting Policies
Basis of preparation
These financial statements have been prepared in accordance with
IFRS and IFRIC interpretations adopted by the European Union (`EU') and with
those parts of the Companies Act 2006 applicable to companies reporting under
IFRS. The Group financial statements have been prepared on a going concern
basis under the historical cost convention as modified by the revaluation of
financial assets and liabilities at fair value through the income statement.
Significant accounting policies
The Group's significant accounting policies adopted in the preparation of
these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Basis of consolidation
The Group financial statements are the result of the consolidation
of the financial statements of the Group's subsidiary undertakings from the
date of acquisition or up until the date of divestment as appropriate.
Subsidiaries are entities over which the Group has the power to govern the
financial and operating policies and generally accompanies a shareholding of
more than one half of the voting rights. The Group's interests in joint
ventures are accounted for using proportional consolidation. Under this method
the Group includes its share of each joint venture's income, expenses, assets,
liabilities and cash flows on a line by line basis in the consolidated
financial statements. Transactions between Group subsidiaries are eliminated
and transactions between the Group and its joint ventures are eliminated to
the extent of the Group's interest in the joint venture. All Group companies
apply the Group's accounting policies and prepare financial statements to 31
December.
At 31 December 2013, certain Wood Group GTS assets and liabilities
that are being transferred into a new joint venture with Siemens, which is
currently anticipated to take place in the first half of 2014, have been shown
as assets and liabilities held for sale in the Group balance sheet. Assets
held for sale are recorded at the lower of cost and fair value. The 2012 and
2013 trading activity for the relevant entities has been presented as profit
from discontinued activities in the Group income statement, the 2012 income
statement having been restated accordingly. See note 27 for further details.
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. These estimates are based on
management's best knowledge of the amount, event or actions and actual results
ultimately may differ from those estimates. The estimates and assumptions that
could result in a material adjustment to the carrying amounts of assets
and liabilities are addressed below.
(a) Impairment of goodwill
The Group carries out impairment reviews whenever events or changes
in circumstance indicate that the carrying value of goodwill may not be
recoverable. In addition, the Group carries out an annual impairment review.
An impairment loss is recognised when the recoverable amount of goodwill is
less than the carrying amount. The impairment tests are carried out by CGU
("Cash Generating Unit") and reflect the latest Group budgets. The budgets are
based on various assumptions relating to the Group's businesses including
assumptions relating to market outlook, resource utilisation, foreign exchange
rates, contract awards and contract margins. The outlook for the Group is
discussed in the CEO Review. Pre-tax discount rates of between 11% and 13%
have been used to discount the CGU cash flows and a sensitivity analysis has
also been performed (see note 8).
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
(b) Revenue recognition
Revenue on fixed price or 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
measuring the proportion of costs incurred for work performed to total
estimated costs. Estimating the costs to completion and therefore the total
contract costs is a key judgment in respect of the revenue recognition on
these contracts.
(c) Income taxes
The Group is subject to income taxes in numerous jurisdictions. Judgement is
required in determining the worldwide provision for income taxes. The Group
recognises liabilities for anticipated tax issues based on estimates of whether
additional taxes will be due. Where the final outcome of these matters is different
from the amounts that were initially recorded, such differences will impact the
current and deferred income tax assets and liabilities in the period in which such
determination is made.
(d) Retirement benefit liabilities
The value of the Group's retirement benefit liabilities is
determined on an actuarial basis using a number of assumptions. Changes in
these assumptions will impact the carrying value of the liability. The Group
determines the appropriate discount rate to be used in the actuarial valuation
at the end of each financial year following consultation with the retirement
benefit scheme actuary. In determining the rate used, consideration is given
to the interest rates of high quality corporate bonds in the currency in which
the benefits will be paid and that have terms to maturity similar to those of
the related retirement benefit obligation. See note 29 for further details.
(e) Provisions
The Group records provisions where it has a present obligation
(legal or constructive) as a result of a past event, it is probable that an
outflow of resources will be required to settle the obligation and a reliable
estimate of the obligation can be made. Where the outcome is less than
probable, but more than remote, no provision is recorded but a contingent
liability is disclosed in the financial statements, if material. The recording
of provisions is an area which requires the exercise of management judgement
relating to the nature, timing and probability of the liability and typically
the Group's balance sheet includes provisions for doubtful debts, inventory
and warranty provisions, contract provisions (including onerous contracts) and
pending legal issues.
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:
2013 2012
Average rate £1 = $ 1.5673 1.5845
Closing rate £1 = $ 1.6563 1.6255
Foreign currencies
Income statements of entities whose functional currency is not the
US dollar are translated into US dollars at average rates of exchange for the
period and assets and liabilities are translated into US dollars at the rates
of exchange ruling at the balance sheet date. Exchange differences arising on
translation of net assets in such entities held at the beginning of the year,
together with those differences resulting from the restatement of profits and
losses from average to year end rates, are taken to the currency translation
reserve.
In each individual entity, transactions in overseas currencies are
translated into the relevant functional currency at the exchange rates ruling
at the date of the transaction. Where more than one exchange rate is
available, the appropriate rate at which assets can be readily realised and
liabilities can be extinguished is used. Monetary
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
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 comprises the fair value of the consideration received or receivable
for the sale of goods and services in the ordinary course of the Group's
activities. 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. Revenue is stated
net of sales taxes (such as VAT) and discounts.
Revenue on fixed price or 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 measuring the proportion
of costs incurred for work performed to total estimated costs. An estimate of
the profit attributable to work completed is recognised, on a basis that the
directors consider to be appropriate, once the outcome of the contract can be
estimated reliably, which is when a contract is not less than 20% complete.
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 within trade
receivables/trade payables.
Exceptional items
Exceptional items are those significant items which are separately disclosed
by virtue of their size or incidence to
enable a full understanding of the Group's financial performance. Transactions
which may give rise to exceptional items include gains and losses on
divestment of businesses, write downs or impairments of assets including
goodwill, restructuring costs or provisions, litigation settlements,
provisions for onerous contracts and acquisition and divestment costs.
Finance expense/income
Interest income and expense is recorded in the income statement in
the period to which it relates. Arrangement fees in respect of the Group's
borrowing facilities are amortised over the period which the Group expects the
facility to be in place. Interest relating to the unwinding of the discount on
deferred and contingent consideration liabilities is included in finance
expense. Interest relating to the Group's retirement benefit scheme is also
included as finance income/expense.
Dividends
Dividends to the Group's shareholders are recognised as a liability
in the period in which the dividends are approved by shareholders. Interim
dividends are recognised when paid.
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. Goodwill is not amortised. Acquisition
costs are expensed in the income statement.
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
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
measured reliably, the asset is separately identifiable and there
is control over the use of the asset. Where the Group acquires a business,
intangible assets on acquisition 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:
Software and development costs 3-5 years
Intangible assets on acquisition 3-10 years
Property plant and equipment
Property plant and equipment (PP&E) is stated at cost less
accumulated depreciation and impairment. No depreciation is charged with
respect to freehold land and assets in the course of construction.
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. Asset lives and residual values are assessed at
each balance sheet date.
Impairment
The Group performs impairment reviews in respect of PP&E and 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. Service based businesses' 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. Product based businesses 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.
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. Bank overdrafts are
included within borrowings in current liabilities. Where the Group uses
pooling arrangements with a right of set-off, overdrafts and cash are netted
and included in the appropriate category depending on the net position of the
pool.
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
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
to the original terms of the receivables. 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 and contingent consideration
Where it is probable that deferred or contingent 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 the income statement. Changes in the estimated liability in
respect of acquisitions completed before 31 December 2009 are 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, at 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.
(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as
fair value hedges are recorded in administrative expenses in the income
statement, together with any changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk.
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in the hedging
reserve in equity. The gain or loss relating to the ineffective portion is
recognised immediately in administrative expenses (in the case of forward
contracts) or finance income/expense (in the case of interest rate swaps) 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.
(c) Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to
cash flow hedges. Any gain or loss on the hedging instrument relating to the
effective portion of the hedge is recognised in 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 administrative expenses
in the income statement when the foreign operation is disposed of.
(d) Derivatives that are not designated as hedges
Certain derivatives, whilst providing effective economic hedges are not
designated as hedges. Changes in the fair value of any derivative instruments
that are not designated for hedge accounting are recognised immediately in
administrative expenses in the income statement.
Fair value estimation
The fair value of interest rate swaps is calculated as the present value of
their estimated future cash flows. The fair value of forward foreign exchange
contracts is determined using forward foreign exchange market rates at the
balance sheet date. The fair values of all derivative financial instruments
are obtained from valuations provided by financial institutions.
The carrying values of trade receivables and payables approximate to their
fair values.
The fair value of financial liabilities is estimated by discounting the 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.
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 fair values. Pension
scheme liabilities are measured annually by an independent actuary using the
projected unit method and discounted at the current rate of return
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
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 interest income on 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. Remeasurement gains and losses are recognised in the statement
of comprehensive income in full in the period in which they occur. The defined
benefit scheme's net assets or net liabilities are recognised in full and
presented on the face of the balance sheet.
The Group's contributions to defined contribution schemes are
charged to the income statement in the period to which the contributions
relate.
Provisions
Provision is made for the estimated liability on all products and services
still under warranty, including claims already received, based on past
experience. Other provisions are recognised where the Group is deemed to have
a legal or constructive obligation, it is probable that a transfer of economic
benefits will be required to settle the obligation, and a reliable estimate of
the obligation can be made. Where amounts provided are payable after more than
one year the estimated liability is discounted using an appropriate rate of
interest.
Share based charges relating to employee share schemes
The Group has a number of employee share schemes:-
(i) Share options granted under Executive Share Option Schemes (`ESOS') are
granted at market value. A charge is booked to the income statement as an
employee benefit expense for the fair value of share options expected to be
exercised, accrued over the vesting period. The corresponding credit is taken
to retained earnings. The fair value is calculated using an option pricing
model.
(ii) Share options granted under the Long Term Retention Plan (`LTRP') are
granted at par value. The charge to the income statement for LTRP shares is
also calculated using an option pricing model and, as with ESOS grants, the
fair value of the share options expected to be exercised is accrued over the
vesting period. The corresponding credit is also taken to retained earnings.
(iii) The Group's Long Term Incentive Plan (`LTIP') for executive directors
and certain senior executives was in place from 2008 to 2012. Participants are
awarded shares or share options dependent on the achievement of performance
targets. The charge to the income statement for shares awarded under the LTIP
is based on the fair value of those shares at the grant date, spread over the
vesting period. The corresponding credit is taken to retained earnings. For
those awards that have a market related performance measure, the fair value of
the market related element is calculated using a Monte Carlo simulation model.
(iv) The Group's Long Term Cash Incentive Plan (`LTCIP') for senior management
was in place in 2011 and 2012. Participants are paid a cash bonus dependent on
the achievement of performance targets. The charge to the income statement is
based on the fair value of the awards and is linked to movements in the
Group's share price. The charge is spread over the vesting period with the
corresponding credit being recorded in liabilities.
(v) During 2013, the Group introduced the Long Term Plan (`LTP') to replace
the LTRP, LTIP and LTCIP. The LTP comprises two separate awards, an award of
share options on a similar basis to the LTRP and an award of shares or share
options on a broadly similar basis to the LTIP scheme. The charge to the
income statement for the LTP is as outlined for the LTRP and LTIP above with
the corresponding credit being recorded in retained earnings.
Proceeds received on the exercise of share options are credited to share
capital and share premium.
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
Share capital
John Wood Group PLC has one class of ordinary shares and these are classified
as equity. Dividends on ordinary shares are not recognised as a liability or
charged to equity until they have been approved by shareholders.
The Group is deemed to have control of the assets, liabilities, income and
costs of its employee share trusts, therefore they have been consolidated in
the financial statements of the Group. Shares acquired by and disposed of by
the employee share trusts are recorded at cost. The cost of shares held by the
employee share trusts is deducted from equity.
Segmental reporting
The Group has determined that its operating segments are based on
management reports reviewed by the Chief Operating Decision Maker (`CODM'),
the Group's Chief Executive. The Group's reportable segments are Wood Group
Engineering, Wood Group PSN and Wood Group GTS.
The Chief Executive measures the operating performance of these
segments using `EBITA' (Earnings before interest, tax and amortisation).
Operating segments are reported in a manner consistent with the internal
management reports provided to the Chief Executive who is responsible for
allocating resources and assessing performance of the operating segments.
Wood Group Engineering offers a wide range of engineering services
to the upstream, subsea and pipelines, downstream and industrial, and clean
energy sectors. These include conceptual studies, engineering, project and
construction management (`EPCM') and control system upgrades. Wood Group PSN
offers life of field support to producing assets through brownfield
engineering and modifications, production enhancement, operations and
management, training, maintenance management and abandonment services. Wood
Group GTS is an independent provider of rotating equipment services and
solutions for clients in the power and oil and gas markets. These services
include power plant engineering, procurement and construction; facility
operations and maintenance; and repair, overhaul, optimisation and upgrades of
gas and steam turbines, pumps, compressors and other high speed rotating
equipment.
Disclosure of impact of new and future accounting standards
(a) Amended standards and interpretations
The following revisions and amendments to standards and
interpretations are mandatory as of 1 January 2013:
- IAS 1 (amended 2012) `Financial statement presentation'
- IAS 19 (revised 2011) `Employee benefits'
- IFRS 13 (amended 2012) `Fair value measurement'
The amendments to IAS 1 relates to other comprehensive income. The
main change resulting from these amendments is a requirement for entities to
group items presented in `other comprehensive income' (OCI) on the basis of
whether they are potentially reclassifiable to profit or loss subsequently
(reclassification adjustments). The amendments do not address which items are
presented in OCI.
The revision to IAS 19 does not have a material impact on the
financial statements. The revision has been adopted in the current period and
has resulted in an increase of $2.5m in net finance expense in the income
statement (see note 29). As the impact of this revision is not material in
both the current and prior period, no restatement of the comparative
information has been made.
IFRS 13 measurement and disclosure requirements are applicable for periods
commencing from 1 January 2013. IFRS 13 does not have a material impact on the
financial statements.
Notes to the financial statements
for the year to 31 December 2013
Accounting Policies (continued)
Disclosure of impact of new and future accounting standards
(continued)
(b) Standards, amendments and interpretations to existing standards
that are not yet effective and have not been early adopted by the Group
The following relevant standards and amendments and interpretations
to existing standards have been published and are mandatory for the Group's
accounting periods beginning on or after 1 January 2014 or later periods, but
the Group has not early adopted them:
- IFRS 10 `Consolidated financial statements'
- IFRS 11 `Joint arrangements'
- IFRS 12 `Disclosure of interests in other entities'
The Group does not anticipate any material impact on the financial
statements on the adoption of IFRS 10.
The Group currently accounts for its interests in joint ventures using
proportional consolidation. IFRS 11 does not permit proportional consolidation
and therefore from 1 January 2014, for all periods presented, the Group will
account for its interests in joint ventures using equity accounting. The use
of equity accounting will have no impact on Group profit for the year or
earnings per share, but will impact the presentation of the Group's interests
in joint ventures in the income statement and in the balance sheet. The Group
will continue to prepare its management information using proportional
consolidation and this will be presented in the segmental reporting note in
future years.
The adoption of IFRS 12 may result in some additional disclosures in the
financial statements.
1 Segmental reporting
As required under IFRS 5, the results of the Wood Group GTS
businesses that are being transferred into the new joint venture with Siemens
are presented as discontinued activities. For management reporting, the Wood
Group GTS results are presented in total (i.e. the continuing and discontinued
activities are added together). We have therefore presented below the total
Group income statement analysed between the continuing and discontinued
elements.
2013 2012
Continuing Discontinued Continuing Discontinued
Total operations operations Total operations operations
$m $m $m $m $m $m
Revenue 7,064.2 6,379.7 684.5 6,828.1 6,118.4 709.7
Cost of sales (5,903.5) (5,351.9) (551.6) (5,710.0) (5,118.5) (591.5)
Gross profit 1,160.7 1,027.8 132.9 1,118.1 999.9 118.2
Administrative expenses (729.8) (635.3) (94.5) (744.5) (638.4) (106.1)
Exceptional items (note 4) 0.5 (26.9) 27.4 0.7 (26.5) 27.2
Operating profit 431.4 365.6 65.8 374.3 335.0 39.3
Finance income 1.1 1.1 - 1.5 1.5 -
Finance expense (19.7) (19.6) (0.1) (14.4) (14.1) (0.3)
Profit before taxation 412.8 347.1 65.7 361.4 322.4 39.0
Taxation (112.3) (92.6) (19.7) (103.2) (105.7) 2.5
Profit for the year 300.5 254.5 46.0 258.2 216.7 41.5
1 Segmental reporting (continued)
As required under IFRS 5, the assets and liabilities of the Wood
Group GTS businesses that are being transferred into the new joint venture
with Siemens are presented as `held for sale' in the balance sheet at 31
December 2013. A reconciliation from the balance sheet as presented for
management reporting to the reported balance sheet on page 19 is shown below.
Balance
sheet for Balance
management Held for Sheet per
reporting sale accounts
$m $m $m
Assets
Non-current assets
Goodwill and intangible assets 1,987.6 (112.1) 1,875.5
Property plant and equipment 251.3 (30.0) 221.3
Long term receivables 68.0 - 68.0
Deferred tax assets 43.1 (15.9) 27.2
2,350.0 (158.0) 2,192.0
Current assets
Inventories 457.5 (356.4) 101.1
Trade and other receivables 1,524.4 (159.3) 1,365.1
Income tax receivable 32.6 (11.9) 20.7
Assets held for sale - 685.6 685.6
Cash and cash equivalents 183.5 - 183.5
2,198.0 158.0 2,356.0
Liabilities
Current liabilities
Borrowings 96.8 - 96.8
Trade and other payables 1,249.4 (126.4) 1,123.0
Liabilities held for sale - 185.4 185.4
Income tax liabilities 111.5 (50.2) 61.3
1,457.7 8.8 1,466.5
Net current assets 740.3 149.2 889.5
Non-current liabilities
Borrowings 396.2 - 396.2
Retirement benefit obligations 41.2 - 41.2
Other non-current liabilities 144.6 (3.6) 141.0
Provisions 92.0 (5.2) 86.8
674.0 (8.8) 665.2
Net assets 2,416.3 - 2,416.3
Equity attributable to owners of the parent
Share capital 23.6 - 23.6
Share premium 56.0 - 56.0
Retained earnings 1,856.6 - 1,856.6
Other reserves 471.2 - 471.2
2,407.4 - 2,407.4
Non-controlling interests 8.9 - 8.9
Total equity 2,416.3 - 2,416.3
1 Segmental reporting (continued)
The segment information provided to the Group's Chief Executive for the
reportable operating segments for the year ended 31 December 2013 includes the
following:
Reportable Operating Segments (1)
Revenue EBITDA(2) EBITA(2) Operating profit
Year Year Year Year Year Year Year Year
ended ended ended ended ended ended ended ended
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2013 2012 2013 2012 2013 2012 2013 2012
$m $m $m $m $m $m $m $m
Wood Group Engineering 1,985.4 1,787.3 260.3 231.2 246.0 220.0 228.0 187.8
Wood Group PSN 3,996.0 3,690.7 281.5 219.9 262.1 205.0 161.9 146.1
Wood Group GTS -
continuing 398.3 640.4 38.1 68.9 33.8 65.8 33.6 55.4
Wood Group GTS - discontinued (see note 27) 684.5 709.7 57.0 31.8 47.0 20.8 31.4 12.1
Well Support - discontinued - - - - - - 34.4 27.2
Central costs (3) - - (52.0) (48.9) (55.9) (52.5) (57.9) (54.3)
Total (4) 7,064.2 6,828.1 584.9 502.9 533.0 459.1 431.4 374.3
Remove discontinued (684.5) (709.7) (57.0) (31.8) (47.0) (20.8) (65.8) (39.3)
Total continuing operations 6,379.7 6,118.4 527.9 471.1 486.0 438.3 365.6 335.0
Finance income 1.1 1.5
Finance expense (19.6) (14.1)
Profit before taxation from
continuing operations 347.1 322.4
Taxation (92.6) (105.7)
Profit for the year from
continuing operations 254.5 216.7
Profit from discontinued
operations, net of tax (5) 46.0 41.5
Profit for the year 300.5 258.2
1 Segmental reporting (continued)
Notes
1 The Group's reportable segments are Wood Group Engineering, Wood
Group PSN and Wood Group GTS.
2 Total EBITDA represents operating profit of $431.4m (2012 :
$374.3m) before depreciation of property plant and equipment of $51.9m (2012 :
$43.8m), amortisation of $102.1m (2012 : $85.5m) and net exceptional income of
$0.5m (2012 : $0.7m). 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.
3 Central costs include the costs of certain management personnel
in both the UK and the US, along with an element of Group infrastructure
costs.
4 The total row is the total of continuing and discontinued
operations.
5 Profit from discontinued operations, net of tax, represents the
profit from the Wood Group GTS businesses being transferred to the new joint
venture company with Siemens, the aero engine business divested by Wood Group
GTS during 2012 and the Well Support business divested in 2011. See note 27
for further details.
6 Revenue arising from sales between segments is not material.
1 Segmental Reporting (continued)
Segment assets and liabilities
Wood
Wood Wood Wood Group
Group Group Group GTS- GTS-
Engineering PSN continuing discontinued Unallocated Total
At 31 December 2013 $m $m $m $m $m $m
Segment assets 885.9 2,471.4 394.6 657.8 138.3 4,548.0
Segment liabilities 413.2 816.7 121.1 135.2 645.5 2,131.7
At 31 December 2012
Segment assets 807.2 2,203.9 1,034.2 - 115.8 4,161.1
Segment liabilities 360.6 693.3 271.5 - 600.4 1,925.8
Unallocated assets and liabilities includes income tax, deferred tax and cash
and cash equivalents and borrowings where this relates to the financing of the
Group's operations.
1 Segmental Reporting (continued)
Other segment items
Wood
2013 Wood Wood Wood Group
Group Group Group GTS- GTS-
Engineering PSN continuing discontinued Unallocated Total
$m $m $m $m $m $m
Capital expenditure
- Property plant and equipment 16.2 57.7 2.4 11.5 3.6 91.4
- Intangible assets 29.8 10.7 - 10.0 1.7 52.2
Non-cash expense
- Depreciation of property plant and 19.4
equipment 14.3 4.3 10.0 3.9 51.9
- Amortisation of intangible assets 32.9 58.4 0.2 8.6 2.0 102.1
- Exceptional items (non-cash element) 0.9 37.1 - 3.6 (37.0) 4.6
2012 $m $m $m $m $m $m
Capital expenditure
- Property plant and equipment 25.7 17.9 9.2 9.0 7.6 69.4
- Intangible assets 43.1 6.2 1.9 5.4 1.2 57.8
Non-cash expense
- Depreciation of property plant and 14.9
equipment 11.2 3.1 11.0 3.6 43.8
- Amortisation of intangible assets 18.4 55.8 0.8 8.7 1.8 85.5
- Exceptional items (non-cash element) 13.3 3.1 9.6 - (27.2) (1.2)
The non-cash exceptional items in Unallocated relate to the Well Support
disposal in 2011 (see note 4 for further details).
1 Segmental Reporting (continued)
Geographical segments
Segment assets Continuing revenue
2013 2012 2013 2012
$m $m $m $m
UK 1,216.6 1,066.1 1,953.9 1,747.4
US 1,667.7 1,526.2 1,561.9 1,563.1
Rest of the world 1,663.7 1,568.8 2,863.9 2,807.9
4,548.0 4,161.1 6,379.7 6,118.4
Revenue by geographical segment is based on the location of the ultimate
project.
2013 2012
$m $m
Revenue by category is as follows:
Sale of goods 15.3 8.5
Rendering of services 6,364.4 6,109.9
Revenue from continuing operations 6,379.7 6,118.4
2 Finance expense/(income)
2013 2012
$m $m
Interest payable on bank borrowings 10.1 10.9
Bank facility fees expensed 4.3 1.4
Interest relating to discounting of deferred and contingent 2.8 1.8
consideration
Interest expense - retirement benefit obligations (note 29) 2.4 -
Finance expense - continuing operations 19.6 14.1
Interest receivable on short-term deposits (1.1) (1.4)
Interest income - retirement benefit obligations (note 29) - (0.1)
Finance income (1.1) (1.5)
Finance expense - continuing operations - net 18.5 12.6
3 Profit before taxation
2013 2012
$m $m
The following items have been charged in arriving at profit
before taxation (before exceptional items) :
Employee benefits expense (note 28) 3,371.1 3,063.6
Cost of inventories recognised as an expense 85.4 75.4
Impairment of inventories 4.0 3.1
Depreciation of property plant and equipment (note 9) 51.9 43.8
Amortisation of intangible assets (note 8) 102.1 85.5
Loss on disposal of property plant and equipment 1.6 1.3
Other operating lease rentals payable:
- Plant and machinery 35.4 27.2
- Property 96.8 93.0
Foreign exchange losses 3.6 5.1
Impairment of inventories is included in cost of sales in the
income statement. Depreciation of property plant and equipment is included in
cost of sales or administrative expenses in the income statement. Amortisation
of intangible assets is included in administrative expenses in the income
statement. The information in the above table includes both continuing and
discontinued operations.
Services provided by the Group's auditors and associate firms
During the year the Group obtained the following services from its auditors
and associate firms at costs as detailed below:
2013 2012
$m $m
Fees payable to the Group's auditors and its associate firms
for - Audit of parent company and consolidated financial
statements 0.9 0.8
Audit of Group companies pursuant to legislation 1.9 1.7
Tax and other services 0.1 0.2
2.9 2.7
4 Exceptional items
2013 2012
$m $m
Exceptional items included in continuing operations
Lease termination income (15.1) -
Restructuring charges 15.9 14.6
Onerous contract 28.0 -
Impairment of goodwill (note 8) - 1.9
Bad debt (recoveries)/write offs (6.0) 10.0
Acquisition costs 4.1 -
26.9 26.5
Taxation (0.9) (4.1)
Continuing operations exceptional items, net of tax 26.0 22.4
Exceptional items included in discontinued operations
Gain on divestment - Well Support (34.4) (27.2)
JV formation costs 7.0 -
(27.4) (27.2)
Taxation (0.2) 4.2
Discontinued operations exceptional items, net of tax (27.6) (23.0)
Total exceptional credit, net of tax (1.6) (0.6)
An exceptional credit of $15.1m has been recorded in the period in
respect of a one-off compensation payment received by the Group for vacating
sub-let office space.
Restructuring charges of $15.9m have been expensed in 2013 relating
to the merging of certain Group businesses in Canada, the write down of
certain assets in Wood Group PSN's Americas business and the reorganisation of
Wood Group Engineering to reflect a change in the management structure of the
business.
$28.0m has been expensed in relation to WG PSN's contract in Oman
which has been treated as onerous as at 31 December 2013.
A credit of $6.0m has been recorded in respect of cash recovered
against bad debt write offs treated as exceptional charges in previous
periods.
Acquisition costs of $4.1m have been incurred in respect of
acquisition activity during the year (see note 27).
During 2013, the Group settled certain claims relating to the Well
Support disposal in 2011. As a result of the settlement and a subsequent
review of the carrying value of the related disposal provision, $34.4m was
credited to exceptional items in the period.
Costs of $7.0m relating to the formation of the Wood Group GTS
joint venture with Siemens have been incurred during the year and treated as
exceptional (see note 27).
A tax credit of $0.9m has been recorded in respect of the
continuing exceptional items and a tax credit of $0.2m has been recorded in
respect of the discontinued exceptional items in the period.
For further details of the 2012 exceptional items refer to the 2012
Annual Report and Accounts.
5 Taxation
2013 2012
$m $m
Current tax
- Current year 120.8 106.5
- Adjustment in respect of prior years 24.5 5.0
145.3 111.5
Deferred tax
- Current year (9.1) (15.6)
- Adjustment in respect of prior years (23.9) 7.3
(33.0) (8.3)
Total tax charge
112.3 103.2
Comprising -
Tax on continuing operations before exceptional items 93.5 109.8
Tax on exceptional items in continuing operations (0.9) (4.1)
Tax on discontinued operations before exceptional items 19.9 (6.7)
Tax on exceptional items in discontinued operations (0.2) 4.2
112.3 103.2
2013 2012
Tax charged/(credited) to equity $m $m
Deferred tax movement on retirement benefit liabilities 3.8 (2.1)
Deferred tax relating to share option schemes 10.7 8.6
Current tax relating to share option schemes (13.9) (9.7)
Total charged/(credited) to equity 0.6 (3.2)
5 Taxation (continued)
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 increased in 2013 due to the change in mix of the tax
jurisdictions in which the Group operates. The tax charge for the year is
lower (2012: higher) than the expected tax charge due to the following
factors:
2013 2012
$m $m
Profit before taxation from continuing operations 347.1 322.4
Profit before taxation from discontinued operations 65.7 39.0
Total profit before taxation 412.8 361.4
Profit before tax at expected rate of 29.75% (2012: 27.31%) 122.8 98.7
Effects of:
Adjustments in respect of prior years 0.6 12.3
(Recognition)/non-recognition of losses and other attributes (2.3) 12.0
Effect of foreign taxes 7.1 4.2
Other permanent differences (15.9) (24.0)
Total tax charge 112.3 103.2
Other permanent differences include adjustments for share based charges,
research and development allowances, changes in unrecognised tax attributes
and expenditure which is not allowable as a deduction for tax purposes.
6 Dividends
2013 2012
$m $m
Dividends on ordinary shares
Final dividend paid - year ended 31 December 2012: 11.3 cents
(2012: 9.6 cents) per share
41.4 34.6
Interim dividend paid - year ended 31 December 2013: 7.1 26.0 20.6
cents (2012: 5.7 cents) per share
67.4 55.2
The directors are proposing a final dividend in respect of the
financial year ended 31 December 2013 of 14.9 cents per share. The final
dividend will be paid on 20 May 2014 to shareholders who are on the register
of members on 11 April 2014. The financial statements do not reflect the final
dividend, the payment of which will result in an estimated $54.4m reduction in
equity attributable to owners of the parent.
7 Earnings per share
2013 2012
Earnings Earnings
attributable Earnings attributable
to owners of Number of per to owners of Number of Earnings
the parent shares share the parent shares per share
$m (millions) (cents) $m (millions) (cents)
Basic pre-exceptional 294.3 363.3 81.0 256.4 360.0 71.2
Exceptional items, net of tax 1.6 - 0.4 0.6 - 0.2
Basic 295.9 363.3 81.4 257.0 360.0 71.4
Effect of dilutive ordinary shares - 10.2 (2.2) - 12.6 (2.4)
Diluted 295.9 373.5 79.2 257.0 372.6 69.0
Exceptional items, net of tax (1.6) - (0.4) (0.6) - (0.2)
Diluted pre-exceptional items 294.3 373.5 78.8 256.4 372.6 68.8
Amortisation, net of tax 74.0 - 19.8 61.0 - 16.4
Adjusted diluted 368.3 373.5 98.6 317.4 372.6 85.2
Adjusted basic 368.3 363.3 101.4 317.4 360.0 88.2
Basic discontinued earnings per share for the year is 12.7 cents
(2012: 11.5 cents) and diluted discontinued earnings per share is 12.3 cents
(2012: 11.1 cents).
The calculation of basic earnings per share is based on the
earnings attributable to owners of the parent divided by the weighted average
number of ordinary shares in issue during the year excluding shares held by
the Group's employee share trusts. For the calculation of diluted earnings per
share, the weighted average number of ordinary shares in issue is adjusted to
assume conversion of all potentially dilutive ordinary shares. The Group's
dilutive ordinary shares comprise share options granted to employees under
Executive Share Option Schemes and the Long Term Retention Plan and shares and
share options awarded under the Group's Long Term Incentive Plan and Long Term
Plan. Adjusted basic and adjusted diluted earnings per share are disclosed to
show the results excluding the impact of exceptional items and amortisation,
net of tax.
8 Goodwill and intangible assets
Software
and Intangibles
development arising on
Goodwill costs acquisition Total
$m $m $m $m
Cost
At 1 January 2013 1,650.3 192.5 315.4 2,158.2
Exchange movements (21.3) 1.0 (10.9) (31.2)
Additions - 52.2 - 52.2
Acquisitions (note 27) 138.9 - 82.5 221.4
Disposals - (6.2) - (6.2)
Divestment of business (1.8) - - (1.8)
Reclassification from current - 0.9 - 0.9
assets
Reclassification as assets held for (135.9) (72.1) (2.2) (210.2)
sale (note 27)
At 31 December 2013 1,630.2 168.3 384.8 2,183.3
Aggregate amortisation and
impairment
56.2 108.7 154.2 319.1
At 1 January 2013
Exchange movements (0.6) 0.1 (7.7) (8.2)
Amortisation charge for the year - 44.6 57.5 102.1
Impairment (note 4) - 0.3 - 0.3
Disposals - (5.6) - (5.6)
Divestment of business (1.8) - - (1.8)
Reclassification as assets held for (49.1) (47.2) (1.8) (98.1)
sale (note 27)
At 31 December 2013 4.7 100.9 202.2 307.8
Net book value at 31 December 2013 1,625.5 67.4 182.6 1,875.5
Cost
At 1 January 2012 1,465.0 140.0 252.2 1,857.2
Exchange movements 28.6 3.6 5.6 37.8
Additions - 57.8 - 57.8
Acquisitions 156.7 - 57.6 214.3
Disposals - (8.9) - (8.9)
At 31 December 2012 1,650.3 192.5 315.4 2,158.2
Aggregate amortisation and 54.3 86.8 94.8 235.9
impairment
At 1 January 2012
Exchange movements - 2.1 2.3 4.4
Amortisation charge for the year - 28.4 57.1 85.5
Impairment 1.9 - - 1.9
Disposals - (8.6) - (8.6)
At 31 December 2012 56.2 108.7 154.2 319.1
Net book value at 31 December 2012 1,594.1 83.8 161.2 1,839.1
In accordance with IAS 36 `Impairment of assets', goodwill was
tested for impairment during the year. The impairment tests were carried out
against the Group's Cash Generating Units (`CGU'), being the key Strategic
Business Units (`SBUs') within the three operating divisions, which are
aligned with how the Group manages and monitors performance.
8 Goodwill and intangible assets (continued)
Value-in-use calculations have been prepared for each CGU using the
cash flow projections included in the financial budgets approved by management
for 2014 and 2015. Cash flows beyond this period are extrapolated using a
growth rate of 3% per annum for a further three year period. A terminal value
is applied thereafter in order to calculate long term estimated cash flows
using the same anticipated long term growth rate of 3% across all CGUs. The
growth rate used does not exceed the long-term average growth rates for the
regions in which the CGUs operate. The cash flows have been discounted using
pre-tax discount rates appropriate for each CGU.
Division Cash Generating Unit Goodwill Average
carrying pre-tax
value discount
($m) rate used
Wood Group Wood Group Mustang 339.7 13%
Engineering Wood Group Kenny 71.2
Wood Group WG PSN International (Australia and Asia Pacific) 162.0
PSN WG PSN International (Africa) 117.3
WG PSN International (Middle East and ERC) 9.6 11%
WG PSN Americas 391.0
WG PSN UK 477.7
WG PSN Global Business 44.9
Wood Group Aero Derivative 12.1
GTS Oil & Gas and Industrial Services 18.2
Power Plant Services 19.2 12%
Equipment and Project Solutions 39.8
Other Wood Group GTS 9.6
Wood Group GTS goodwill, with the exception of that relating to the
Aero Derivative CGU, is included in assets held for sale in the Group balance
sheet at 31 December 2013 (see note 27).
Details of the key assumptions underlying the cash flows are
included in critical accounting judgements and estimates in the Accounting
Policies on page 22.
The value-in-use has been compared to the carrying value for each
CGU. No goodwill has been written off during the year. $1.9m of goodwill was
impaired during 2012.
A sensitivity analysis has been performed on the basis that the
expected long-term growth rate falls to 2% and that the discount rates are 1%
higher than those above in order to assess the impact of reasonable possible
changes to the assumptions used in the impairment review. This analysis did
not identify any impairment.
Intangibles arising on acquisition include the valuation of
customer contracts and customer relationships recognised on business
combinations.
Development costs with a net book value of $22.4m (2012: $20.8m)
are internally generated intangible assets.
9 Property plant and equipment
Land and Buildings
Long
leasehold
and Short Plant and
freehold leasehold equipment Total
$m $m $m $m
Cost
At 1 January 2013 76.9 29.5 333.3 439.7
Exchange movements (0.5) (0.6) (1.6) (2.7)
Additions 2.6 2.4 86.4 91.4
Acquisitions (note 27) - - 22.2 22.2
Disposals (1.1) (4.8) (21.4) (27.3)
Divestment of businesses - - (3.7) (3.7)
Reclassification as assets held for (9.4) (5.6) (127.8) (142.8)
sale (note 27)
At 31 December 2013 68.5 20.9 287.4 376.8
Accumulated depreciation and
impairment
At 1 January 2013 24.5 14.8 201.8 241.1
Exchange movements - (0.3) (1.6) (1.9)
Charge for the year 3.0 3.3 45.6 51.9
Impairment (note 4) - - 3.3 3.3
Disposals (1.1) (3.3) (18.7) (23.1)
Divestment of business - - (3.0) (3.0)
Reclassification as assets held for (4.9) (3.8) (104.1) (112.8)
sale (note 27)
At 31 December 2013 21.5 10.7 123.3 155.5
Net book value at 31 December 2013 47.0 10.2 164.1 221.3
Cost
At 1 January 2012 55.5 30.3 280.2 366.0
Exchange movements 0.7 0.4 4.1 5.2
Additions 5.6 6.9 56.9 69.4
Acquisitions 2.2 0.2 28.1 30.5
Disposals (0.1) (3.9) (14.7) (18.7)
Divestment of business (4.8) - (7.9) (12.7)
Reclassifications 17.8 (4.4) (13.4) -
At 31 December 2012 76.9 29.5 333.3 439.7
Accumulated depreciation and
impairment
At 1 January 2012 19.3 18.3 178.4 216.0
Exchange movements 0.3 0.3 4.2 4.8
Charge for the year 3.5 3.1 37.2 43.8
Impairment - - 4.9 4.9
Disposals (0.1) (3.8) (13.1) (17.0)
Divestment of business (4.2) - (7.2) (11.4)
Reclassifications 5.7 (3.1) (2.6) -
At 31 December 2012 24.5 14.8 201.8 241.1
Net book value at 31 December 2012 52.4 14.7 131.5 198.6
There were no assets in the course of construction at 31 December 2013 (2012:nil).
10 Joint ventures
In relation to the Group's interests in joint ventures, its share of assets,
liabilities, income and expenses is shown below.
2013 2012
$m $m
Non-current assets 60.8 65.2
Current assets 324.4 312.8
Current liabilities (203.2) (192.9)
Non-current liabilities (44.2) (26.1)
Net assets 137.8 159.0
Income 658.5 532.3
Expenses (645.7) (497.5)
Profit before tax 12.8 34.8
Tax (10.9) (12.2)
Share of post-tax results from joint ventures 1.9 22.6
The profit before tax for the year is net of the onerous contract
provision referred to in note 4.
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. The name and
principal activities of the most significant joint ventures is disclosed in
note 35.
11 Inventories
2013 2012
$m $m
Materials 38.7 53.6
Work in progress 23.2 115.3
Finished goods and goods for resale 39.2 270.6
101.1 439.5
As per note 27, $356.4m of inventory has been classified as `held for sale' at
31 December 2013.
12 Trade and other receivables
2013 2012
$m $m
Trade receivables 1,125.2 1,150.1
Less: provision for impairment of trade receivables (25.4) (43.3)
Trade receivables - net 1,099.8 1,106.8
Amounts recoverable on contracts 103.1 105.9
Prepayments and accrued income 55.0 87.0
Other receivables 107.2 92.8
Trade and other receivables - current 1,365.1 1,392.5
Long term receivables 68.0 54.7
Total receivables 1,433.1 1,447.2
As per note 27, $159.3m of trade and other receivables has been classified as
`held for sale' at 31 December 2013.
The Group's trade receivables balance is analysed by division as follows:
Trade Provision Trade
receivables for receivables Receivable
- Gross impairment - Net days
31 December 2013 $m $m $m
Wood Group Engineering 378.5 (15.3) 363.2 64
Wood Group PSN 691.5 (10.1) 681.4 52
Wood Group GTS - continuing 55.2 - 55.2 24
Total Group 1,125.2 (25.4) 1,099.8 54
31 December 2012
Wood Group Engineering 299.7 (21.7) 278.0 56
Wood Group PSN 651.5 (14.0) 637.5 53
Wood Group GTS 198.9 (7.6) 191.3 19
Total Group 1,150.1 (43.3) 1,106.8 51
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 54 indicates that closing trade receivables
represent the most recent 54 days of continuing revenue. A provision for the
impairment of trade receivables is established when there is objective
evidence that the Group will not be able to collect all amounts due according
to the terms of the original receivables.
The ageing of the provision for impairment of trade receivables is
as follows:
2013 2012
$m $m
Up to 3 months 2.6 10.4
Over 3 months 22.8 32.9
25.4 43.3
12 Trade and other receivables (continued)
The movement on the provision for impairment of trade receivables by division
is as follows:
Wood Group Wood Group Wood Group
Engineering PSN GTS Total
$m $m $m $m
2013
At 1 January 21.7 14.0 7.6 43.3
Exchange movements (0.4) - - (0.4)
Net movement in provision (6.0) (3.9) (5.6) (15.5)
Reclassification as held for - - (2.0) (2.0)
sale
At 31 December 15.3 10.1 - 25.4
2012
At 1 January 27.2 15.4 8.3 50.9
Exchange movements 0.5 0.2 - 0.7
Net movement in provision (6.0) (1.8) (0.7) (8.5)
Acquisitions - 0.2 131 0.2
At 31 December 21.7 14.0 7.6 43.3
Credits to the income statement are included in administrative expenses (the
$6.0m in relation to Wood Group Engineering is included in exceptional items -
see note 4).
The other classes within trade and other receivables do not contain impaired
assets.
Included within gross trade receivables of $1,125.2m above (2012:
$1,150.1m) are receivables of $182.8m (2012: 214.3m) which were past due but
not impaired. These relate to customers for whom there is no recent history or
expectation of default. The ageing analysis of these trade receivables is as
follows:
2013 2012
$m $m
Up to 3 months overdue 141.4 158.6
Over 3 months overdue 41.4 55.7
182.8 214.3
Construction contracts
Financial information in respect of material Engineering, Procurement and
Construction (`EPC') contracts carried out by Wood Group GTS is as follows:
2013 2012
$m $m
Contract costs incurred and recognised profit for projects to 1,051.3 867.4
date
Contract revenue recognised in the year 183.9 458.1
Receivables for work done under these contracts at the 79.2 90.3
balance sheet date
13 Cash and cash equivalents
2013 2012
$m $m
Cash at bank and in hand 154.1 157.9
Short-term bank deposits 29.4 14.4
183.5 172.3
The effective interest rate on short-term deposits was 0.5% (2012:
1.6%) and these deposits have an average maturity of 44 days (2012: 31 days).
At 31 December 2013 the Group held $10.0m of cash (2012: $10.0m) in
its insurance captive subsidiary to comply with local regulatory requirements.
14 Trade and other payables
2013 2012
$m $m
Trade payables 338.0 447.4
Other tax and social security payable 66.2 83.3
Accruals and deferred income 579.0 502.4
Deferred and contingent consideration 27.6 14.1
Other payables 112.2 108.6
1,123.0 1,155.8
As per note 27, $126.4m of trade and other payables has been classified as
`held for sale' at 31 December 2013.
15 Borrowings
2013 2012
$m $m
Bank loans and overdrafts due within one year or on demand
Unsecured 96.8 45.3
Non-current bank loans
Unsecured 396.2 281.5
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.
[[TAB_STOP_RIGHT]]The effective interest rates on the Group's borrowings at the
balance sheet date were as follows:
2013 2012
% %
US Dollar 1.24 1.11
Sterling 1.50 2.36
Euro 1.24 1.45
Canadian Dollar 2.21 2.40
The carrying amounts of the Group's borrowings are denominated in the following
currencies:
2013 2012
$m $m
US Dollar 265.9 131.1
Sterling 99.0 68.4
Euro 61.3 63.1
Canadian Dollar 53.4 57.3
Other 13.4 6.9
493.0 326.8
The Group is required to issue trade finance instruments to certain
customers. These include tender bonds, performance bonds, retention bonds,
advance payment bonds and standby letters of credit. At 31 December 2013 the
Group's bank facilities relating to the issue of bonds, guarantees and letters
of credit amounted to $700.6m (2012: $702.3m). At 31 December 2013, these
facilities were 44% utilised (2012: 51%).
15 Borrowings (continued)
Borrowing facilities
The Group has the following undrawn borrowing facilities available at 31
December:
2013 2012
$m $m
Expiring within one year 82.4 101.8
Expiring between one and two years - 518.5
Expiring between two and five years 553.8 -
636.2 620.3
All undrawn borrowing facilities are floating rate facilities. The
facilities expiring within one year are annual facilities subject to review at
various dates during 2014. In February 2013, the Group increased its bilateral
facilities from $800m to $950m, with the maturity date being extended to
February 2018. The Group was in compliance with its bank covenants throughout
the year.
16 Other non-current liabilities
2013 2012
$m $m
Deferred and contingent consideration 57.6 76.5
Other payables 83.4 87.2
141.0 163.7
Deferred and contingent consideration represents amounts payable on
acquisitions made by the Group and is expected to be paid over the next five
years. As per note 27, $3.6m of other non-current liabilities has been
classified as `held for sale' at 31 December 2013.
17 Financial instruments
The Group's activities give rise to a variety of financial risks: market risk
(including foreign exchange risk and cash flow interest rate risk), credit
risk and liquidity risk. The Group's overall risk management strategy is to
hedge exposures wherever practicable in order to minimise any potential
adverse impact on the Group's financial performance.
Risk management is carried out by the Group Treasury department in
line with the Group's Treasury policies. Group Treasury, together with the
Group's business units identify, evaluate and where appropriate, hedge
financial risks. The Group's Treasury policies cover specific areas, such as
foreign exchange risk, interest rate risk, use of derivative financial
instruments and investment of excess cash.
Where the Board considers that a material element of the Group's
profits and net assets are exposed to a country in which there is significant
geo-political uncertainty a strategy is agreed to ensure that the risk is
minimised.
17 Financial instruments (continued)
(a) Market risk
(i) Foreign exchange risk
The Group is exposed to foreign exchange risk arising from various
currencies. The Group has a number of subsidiary companies whose revenue and
expenses are denominated in currencies other than the US dollar. The Group
uses strategies such as the payment of dividends to minimise the amount of net
assets exposed to foreign currency revaluation.
Some of the revenues 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 revenues 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, except
where hedge accounting is used in which case the change in fair value is
recorded in equity.
The Group carefully monitors the economic and political situation
in the countries in which it operates to ensure appropriate action is taken to
minimise any foreign currency exposure.
The Group's main foreign exchange risk relates to movements in the
sterling/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 or lower
during 2013 (2012:10%), post-tax profit for the year would have been $15.1m
higher or lower (2012: $10.6m). If the closing sterling/US dollar rate was 10%
higher or lower at 31 December 2013 (2012:10%), exchange differences in equity
would have been $59.4m (2012: $48.0m) higher or lower respectively. 10% has
been used in these calculations as it represents a reasonable possible change
in the sterling/US dollar exchange rate.
(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. At 31 December 2013, 24% (2012: 19%) 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 `A' or better, where possible. If average interest rates had been 1%
higher or lower during 2013 (2012: 1%), post-tax profit for the year would
have been $2.6m lower or higher respectively (2012: $1.9m). 1% has been used
in this calculation as it represents a reasonable possible change in interest
rates.
(iii) Price risk
The Group is not exposed to any significant price risk in relation
to its financial instruments.
17 Financial instruments (continued)
(b) Credit risk
The Group's credit risk primarily relates to its trade receivables.
The Group's operations comprise three divisions, Wood Group Engineering, Wood
Group PSN and Wood Group GTS 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.
Management review trade receivables across the Group based on
receivable days calculations to assess performance. There is significant
management focus on receivables that are overdue. A table showing trade
receivables and receivable days by division is provided in note 12. Receivable
days calculations are not provided on non-trade receivables as management do
not believe that this information is a relevant metric.
The Group also has credit risk in relation to cash held on deposit.
The Group's policy is to deposit cash at institutions with a credit rating of
`A' or better where possible. 81% of cash held on deposit at 31 December 2013
(2012: 100%) was held with such institutions.
(c) Liquidity risk
With regard to liquidity, the Group's main priority is to ensure
continuity of funding. At 31 December 2013, 84% (2012: 96%) of the Group's
borrowing facilities (excluding joint ventures) were due to mature in more
than one year. Based on the current outlook the Group has sufficient funding
in place to meet its future obligations.
In February 2013, the Group increased its bilateral facilities from
$800m to $950m, with the maturity date being extended to February 2018.
(d) Capital risk
The Group seeks to maintain an optimal capital structure. The Group
monitors its capital structure on the basis of its gearing ratio, interest
cover and when applicable, the ratio of net debt to EBITDA.
Gearing is calculated by dividing net debt by equity attributable
to owners of the parent. Gearing at 31 December 2013 was 12.9% (2012: 6.9%).
Interest cover is calculated by dividing total EBITA by net finance
expense. Interest cover for the year to 31 December 2013 was 28.7 times (2012:
35.6 times).
The ratio of net debt to total EBITDA at 31 December 2013 was 0.53
(2012: 0.31).
17 Financial instruments (continued)
The table below analyses the Group's financial liabilities 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. Drawdowns under long term
bank facilities are for periods of three months or less and are not therefore
discounted and loan interest payable is excluded from the amounts below.
Between Between
Less than 1 and 2 2 and 5 Over
1 year years years 5 years
At 31 December 2013 $m $m $m $m
Borrowings 96.8 - 396.2 -
Trade and other payables 1,056.8 - - -
Other non-current liabilities - 49.9 96.0 -
At 31 December 2012
Borrowings 45.3 281.5 - -
Trade and other payables 1,072.5 - - -
Other non-current liabilities - 62.1 107.1 -
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. Drawdowns under long-term bank
facilities are for periods of three months or less and as a result, book value
and fair value are considered to be the same.
Details of derivative financial instruments are not disclosed in
the financial statements as they are not material.
18 Provisions
Warranty Other
provisions provisions Total
$m $m $m
At 1 January 2013 47.8 65.0 112.8
Exchange movements 0.2 (0.1) 0.1
Acquisitions - 3.2 3.2
Net movement in provision (9.6) (14.5) (24.1)
Reclassified as held for sale (5.2) - (5.2)
At 31 December 2013 33.2 53.6 86.8
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 the costs in
respect of these provisions will be incurred over the next two years. The
opening balance has been adjusted by $32.2m to reflect a reclassification from
trade and other payables at 31 December 2012.
Other provisions
At 31 December 2013, other provisions of $53.6m (2012: $65.0m) have
been recognised. This amount includes provisions for future losses on onerous
contracts, a provision for non-recoverable indirect taxes and provisions
relating to the divestment of businesses. It is expected that any payment
required in respect of these provisions would be made within the next two
years. The net movement of $14.5m during the year includes the release of the
Well Support provision and the creation of the Oman onerous contract provision
as detailed in note 4.
19 Deferred tax
Deferred tax is calculated in full on temporary differences under
the liability method using the tax rate applicable to the territory in which
the asset or liability has arisen. Deferred tax in relation to UK companies is
provided at 22% (2012: 23%). The movement on the deferred tax account is shown
below:
2013 2012
$m $m
At 1 January (30.0) (54.9)
Exchange movements 1.3 (4.3)
Credit to income statement (note 5) (33.0) (8.3)
Acquisitions (note 27) 4.1 31.0
Deferred tax relating to retirement benefit liabilities 3.8 (2.1)
Deferred tax relating to share option schemes 10.7 8.6
Reclassified as held for sale 15.9 -
At 31 December (27.2) (30.0)
Deferred tax is presented in the financial statements as
follows:
Deferred tax assets (27.2) (39.4)
Deferred tax liabilities - 9.4
(27.2) (30.0)
19 Deferred tax (continued)
No deferred tax is recognised on the unremitted earnings of
overseas subsidiaries and joint ventures. As these earnings are continually
reinvested by the Group, no tax is expected to be payable on them in the
foreseeable future.
The Group has unrecognised tax losses of $105.9m (2012: $192.7m) 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 Share Short term
tax based timing
depreciation Pension charges differences Losses Total
2013 $m $m $m $m $m $m
Deferred tax assets
66.3 (9.1) (19.2) (56.1) (9.1) (27.2)
2012
Deferred tax assets
71.5 (12.7) (31.3) (64.9) (2.0) (39.4)
Deferred tax
liabilities
- - - 9.4 - 9.4
Net deferred tax
liability/(asset) 71.5 (12.7) (31.3) (55.5) (2.0) (30.0)
20 Share based charges
The Group currently has a number of share schemes that give rise to
share based charges. These are the Executive Share Option Scheme (`ESOS'), the
Long Term Retention Plan (`LTRP'), the Long Term Incentive Plan (`LTIP'), the
Long Term Cash Incentive Plan (`LTCIP') and the Long Term Plan (`LTP'). The
LTP replaced the LTRP, LTIP and LTCIP in 2013. The charge to operating profit
in 2013 for these schemes amounted to $22.4m (2012: $26.2m). $21.0m (2012:
$19.6m) of the total charge is credited to retained earnings and $1.4m (2012:
$6.6m), relating to the LTCIP, is included in liabilities as the LTCIP is a
cash settled scheme.
The assumptions made in arriving at the charge for each scheme are
detailed below:
ESOS and LTRP
Around 1,300 employees participate 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 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. The rate used ranges from 0.5% to 2.5%. A dividend yield of between
1.0% and 2.0% has been used in the calculations.
The fair value of options granted under the ESOS during the year
ranged from £2.29 to £2.52 (2012: £2.09). The fair value of options granted
under the LTRP during the year ranged from £7.56 to £7.97 (2012: £6.43 to
£7.48). The weighted average remaining contractual life of share options at 31
December 2013 is 5.9 years (2012: 5.6 years).
LTIP/LTP
The share based charge for the LTIP/LTP was calculated using a fair
value of £3.01 for the third cycle, £5.10 for the fourth cycle, £6.18 for the
fifth cycle and £7.53 for the sixth cycle (LTP). The charge for market related
performance targets has been calculated using a Monte Carlo simulation model
taking account of share price volatility against peer group companies, risk
free rate of return, dividend yield and the expected lifetime of the award.
Further details of the LTIP/LTP are provided in the Directors' Remuneration
Report.
LTCIP
The share based charge for the LTCIP was calculated using a fair
value of £6.62 (2012: £7.01). The fair value is calculated using a
Black-Scholes option pricing model using similar assumptions to those used for
ESOS and LTRP above. Payments under the LTCIP are linked to movements in the
Group's share price.
20 Share based charges (continued)
Executive Share Option Schemes
The following options to subscribe for new or existing shares were outstanding
at 31 December:
Number of ordinary Exercise
Year of shares under option price
grant 2013 2012 (per share) Exercise period
2003 - 72,500 158p 2007-2013
2004 135,000 160,000 128½p 2008-2014
2005 10,000 20,000 145p 2009-2015
2006 38,500 48,500 265¼p 2010-2016
2007 61,000 102,290 268½p 2011-2017
2008 118,989 254,346 381¾p 2012-2018
2008 8,986 29,850 354â…“p 2012-2018
2009 732,316 2,498,791 222p 2013-2019
2009 35,000 50,000 283â…”p 2013-2019
2010 2,270,374 2,556,687 377½p 2014-2020
2011 1,730,681 1,938,166 529½p 2015-2021
2012 1,710,398 1,919,865 680½p 2016-2022
2012 5,000 5,000 802p 2016-2022
2013 1,876,583 - 845â…“p 2017-2023
2013 4,000 - 812p 2017-2023
8,736,827 9,655,995
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.
1,139,791 options (2012: 687,486) were exercisable at 31 December
2013. 1,954,000 options were granted during the year, 2,130,318 options were
exercised during the year and 742,850 options lapsed during the year. The
weighted average share price for ESOS options exercised during the year was
£8.54 (2012: £7.59).
Options granted to directors under the executive share option
scheme are subject to performance criteria. No options have been granted to
executive directors since 2009. There are no performance criteria under this
scheme for options granted to employees.
Long Term Retention Plan
The following options granted under the Group's LTRP were
outstanding at 31 December:
Number of ordinary Exercise
Year of shares under option price
grant 2013 2012 (per share) Exercise period
2008 - 145,000 3â…“p 2012-2013
2009 256,500 2,201,000 3â…“p 2013-2014
2010 940,272 1,029,042 3â…“p 2014-2015
2011 67,917 75,000 3â…“p 2015-2016
2011 495,982 569,500 47p 2015-2016
2012 794,010 896,334 4 2/7p 2016-2017
2013 866,439 - 4 2/7p 2017-2018
3,421,120 4,915,876
20 Share based charges (continued)
Options are granted under the Group's LTRP at par value. The basis
of the scheme is that an overall bonus pool is calculated annually based on
performance criteria that consider the growth in the Group's adjusted earnings
per share in the prior year. There are no performance criteria attached to the
exercise of options under the LTRP. 256,500 options (2012: 145,000) were
exercisable at 31 December 2013. 913,680 LTRP options were granted during the
year, 2,104,012 LTRP options were exercised during the year and 304,424 LTRP
options lapsed during the year. The weighted average share price for LTRP
options exercised during the year was £8.45 (2012: £7.51). Further details on
the LTRP are provided in the Directors' Remuneration Report.
Long Term Incentive Plan
The Group's Long Term Incentive Plan (`LTIP') has been in place
since 2008. Under this Scheme, the executive directors and certain senior
executives are awarded shares or share options dependent upon the achievement
of performance targets established by the Remuneration Committee. The
performance measures for the LTIP are EBITA, OCER (ratio of operating capital
employed to revenue), total shareholder return and adjusted diluted earnings
per share. The LTIP awards are in the form of shares or share options and
forfeitable restricted shares or share options. 20% of any award earned over
the three year performance cycle is deferred for a further two years in the
form of forfeitable restricted shares or share options. At 31 December 2013,
2,661,359 shares or share options were potentially issuable under this scheme.
Further details of the LTIP are provided in the Directors' Remuneration
Report.
Long Term Plan
The Group's Long Term Plan (`LTP') was introduced during 2013 to
replace the LTRP, LTIP and LTCIP. Two distinct awards will be made under LTP.
Nil value share options will be awarded on the same basis as awards under LTRP
(see above). Awards to former LTIP and LTCIP participants will be made on a
broadly similar basis to LTIP with the performance measures being EBITA, total
shareholder return and adjusted diluted earnings per share. These awards are
in the form of shares or share options and forfeitable restricted shares or
share options. 20% of any award is deferred for two years in the form of
forfeitable restricted shares or share options. At 31 December 2013, 1,742,591
shares were potentially issuable under this scheme. Further details of the LTP
are provided in the Directors' Remuneration Report.
The following options granted under the Group's LTP were
outstanding at 31 December:
Number of ordinary Exercise
Year of shares under option price
grant 2013 2012 (per share) Exercise period
2013 11,500 - 0.00p 2017-2018
Options are granted under the Group's LTP at nil value. There are
no performance criteria attached to the exercise of these options. No options
were exercisable at 31 December 2013. 11,500 LTP options were granted during
the year, no options were exercised or lapsed during the year. Further details
on the LTP are provided in the Directors' Remuneration Report.
21 Share capital
Ordinary shares of 42/7 pence each
(2012: 42/7 pence)
2013 2012
Issued and fully paid shares $m shares $m
At 1 January 373,175,384 23.5 371,275,384 23.4
Allocation of new shares to employee 1,900,000 0.1 1,900,000 0.1
share trusts
At 31 December 375,075,384 23.6 373,175,384 23.5
22 Share premium
2013 2012
$m $m
At 1 January
54.3 7.7
Proceeds from Group companies relating to options exercised - 43.5
under share symmetry scheme
Allocation of new shares to employee share trusts 1.7 3.1
At 31 December 56.0 54.3
23 Retained earnings
2013 2012
$m $m
At 1 January 1,640.7 1,469.8
Profit for the year attributable to owners of the parent 295.9 257.0
Dividends paid (note 6) (67.4) (55.2)
Credit relating to share based charges (note 20) 21.0 19.6
Remeasurement gain/(loss) on retirement benefit liabilities 16.5 (8.5)
(note 29)
Movement in deferred tax relating to retirement benefit (3.8) 2.1
liabilities
Proceeds from Group companies relating to options exercised - (43.5)
under share symmetry scheme
Shares allocated to employee share trusts (1.8) (3.2)
Shares purchased by employee share trusts (47.8) -
Shares disposed of by employee share trusts 7.9 6.5
Tax credit relating to share option schemes 3.2 1.1
Transactions relating to non-controlling interests (3.3) -
Exchange movements in respect of shares held by employee (4.5) (5.0)
share trusts
At 31 December 1,856.6 1,640.7
During 2012, the parent company received $43.5m of proceeds from
Group companies relating to the exercise of employee share options under the
share symmetry scheme. This amount was credited to share premium in the parent
company and an equivalent amount deducted from retained earnings on
consolidation. Under the share symmetry scheme, subsidiary companies remit
share proceeds to the parent company in respect of employee share options
granted before the IPO in 2002.
Retained earnings are stated after deducting the investment in own
shares held by employee share trusts. Investment in own shares represents the
cost of 11,640,553 (2012: 11,599,912) of the company's ordinary shares
totalling $158.9m (2012: $112.7m). No options have been granted over shares
held by the employee share trusts (2012: nil).
23 Retained earnings (continued)
Shares acquired by the employee share trusts are purchased in the
open market using funds provided by John Wood Group PLC to meet obligations
under the Employee Share Option Schemes, LTRP, LTIP and LTP.
During 2013, 1,900,000 new shares were allocated to the employee
share trust. 3,934,000 shares were purchased during the year at a cost of
$47.8m. 4,227,436 shares were issued during the year to satisfy the exercise
of share options at a value of $7.9m. 1,565,923 shares were issued during the
year to satisfy share awards under the Long Term Incentive Plan.
Exchange adjustments of $4.5m (2012: $5.0m) 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 2013 was $132.3m (2012: $137.0m) based on the
closing share price of £6.86 (2012: £7.27). The employee share trusts have
waived their rights to receipt of dividends on ordinary shares.
Transactions with non-controlling interests include $2.5m relating
to the cost of acquiring minority shareholdings, the excess of cost ($3.1m)
over book value ($0.6m) being charged directly to equity. In addition,
included within dividends to non-controlling interests was a payment of $0.8m
in excess of the shareholders interest in the subsidiary which has also been
charged to equity.
24 Other reserves
Capital Capital Currency
reduction redemption translation Hedging
reserve reserve reserve reserve Total
$m $m $m $m $m
At 1 January 2012 88.1 439.7 (59.5) (4.7) 463.6
Exchange movements on
retranslation of foreign
currency net assets - - 41.3 - 41.3
Cash flow hedges - - - 3.7 3.7
At 31 December 2012
Exchange movements on retranslation
of foreign currency net assets 88.1 439.7 (18.2) (1.0) 508.6
- - (37.6) - (37.6)
Cash flow hedges - - - 0.2 0.2
At 31 December 2013 88.1 439.7 (55.8) (0.8) 471.2
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 movement during the year relates to
the retranslation of foreign currency net assets, including goodwill and
intangible assets recognised on acquisition. The hedging reserve relates to
the accounting for derivative financial instruments under IAS 39. Fair value
gains and losses in respect of effective cash flow hedges are recognised in
the hedging reserve.
25 Non-controlling interests
2013 2012
$m $m
At 1 January 8.2 10.0
Exchange movements (0.2) 0.1
Share of profit for the year 4.6 1.2
Dividends paid to non-controlling interests (3.1) (1.2)
Other transactions with non-controlling interests (0.6) (1.9)
At 31 December 8.9 8.2
Other transactions with non-controlling interests relate to the cost of
acquiring minority shareholdings with the excess of cost ($3.1m) over book
value ($0.6m above) being charged directly to equity (see note 23).
26 Cash generated from operations
2013 2012
$m $m
Reconciliation of operating profit to cash generated
from operations:
Operating profit from continuing operations 365.6 335.0
Operating profit from discontinued operations (note 65.8 39.3
27)
431.4 374.3
Adjustments for:
Depreciation 51.9 43.8
Loss on disposal of property plant and equipment 1.6 1.3
Amortisation of intangible assets 102.1 85.5
Share based charges 22.4 26.2
Decrease in provisions (7.6) (8.1)
Exceptional items- non cash impact 4.6 (1.2)
Changes in working capital (excluding effect of
acquisition and divestment of subsidiaries)
Increase in inventories (17.9) (43.7)
Increase in receivables (66.8) (50.1)
Increase/(decrease) in payables 23.2 (99.1)
Exchange movements (8.5) (1.7)
Cash generated from operations 536.4 327.2
Analysis of net debt
At 1 At 31
January Exchange December
2013 Cash flow movements 2013
$m $m $m $m
Cash and cash equivalents 172.3 16.6 (5.4) 183.5
Short-term borrowings (45.3) (51.5) - (96.8)
Long-term borrowings (281.5) (113.9) (0.8) (396.2)
Net debt (154.5) (148.8) (6.2) (309.5)
27 Acquisitions and divestments
Acquisitions
The assets and liabilities acquired in respect of
business combinations were as follows:
Elkhorn Other Total
$m $m $m
Property plant and equipment 15.3 6.9 22.2
Intangible assets recognised on acquisition 64.9 17.6 82.5
Trade and other receivables 58.4 35.9 94.3
Cash and cash equivalents - 19.2 19.2
Borrowings (2.4) - (2.4)
Trade and other payables (14.8) (24.3) (39.1)
Income tax liabilities - (2.3) (2.3)
Deferred tax - (4.1) (4.1)
Provisions (1.0) (2.2) (3.2)
Total identifiable net assets acquired 120.4 46.7 167.1
Goodwill 94.6 44.3 138.9
Consideration
215.0 91.0 306.0
Consideration satisfied by:
Cash 215.0 89.1 304.1
Deferred and contingent consideration - 1.9 1.9
215.0 91.0 306.0
The Group has used acquisition accounting for the purchases and, in
accordance with the Group's accounting policies, the goodwill arising on
consolidation of $138.9m has been capitalised.
During the year the Group acquired 90% of the share capital of
Intetech Limited, 95% of the share capital of Pyeroy Limited and 100% of the
share capital of Elkhorn Holdings Inc. Due to its size, the acquisition of
Elkhorn is considered material and has been presented separately in the table
above. The other acquisitions are not considered to be material on an
individual basis and therefore have been aggregated above.
The acquired companies will be in a position to access the Group's
wider client base and use the Group's resources to further grow and develop
their businesses. These factors contribute to the goodwill recognised on the
acquisitions.
Provisional fair value adjustments of $82.5m, representing the fair
value of customer contracts, have been recorded in relation to the
acquisitions made in the year. Other provisional fair value adjustments of
$3.0m have also been recorded. Trade and other receivables acquired of $94.3m
are expected to be recovered in full.
27 Acquisitions and divestments (continued)
The outflow of cash and cash equivalents in respect of acquisitions
is analysed as follows:
$m
Cash consideration 304.1
Cash acquired (19.2)
Borrowings acquired 2.4
Cash outflow 287.3
Included in the cash outflow above are deferred and contingent
consideration payments of $11.8m made during the year in respect of
acquisitions made in prior periods.
The results of the Group, as if the above acquisitions had been made at the
beginning of period, would have been as follows:
$m
Total Revenue 7,458.1
Total EBITA 571.5
From the date of acquisition to 31 December 2013, the acquisitions contributed
$113.1m to revenue and $8.8m to EBITA.
27 Acquisitions and divestments (continued)
Divestments
In October 2013, the Group entered into an agreement with Siemens
to form a joint venture company containing the maintenance and power solutions
businesses of Wood Group GTS and the Siemens `TurboCare' business unit. Wood
Group will have a 51% shareholding in the new joint venture and the
transaction is expected to be completed in the first half of 2014. Whilst Wood
Group will have a 51% interest in the net assets and the income, all
significant decision making requires unanimous consent from both parties and
therefore Wood Group do not have control, and the new company will be treated
as a joint venture.
Wood Group GTS's assets and liabilities that will be transferred
into the new joint venture company have been treated as assets and liabilities
held for sale in the Group balance sheet at 31 December 2013 and the profit of
those businesses is included in profit from discontinued operations in the
Group income statement.
Wood Group GTS's existing joint ventures, Rolls Wood Group, Trans
Canada Turbines and Sulzer Wood will not form part of the new entity. The
assets and liabilities of these companies have not been treated as assets and
liabilities held for sale and the profits of these joint venture companies are
included in profit from continuing operations.
In December 2013, the Group disposed of a small Australian business
for $0.3m. The assets of this business had been provided against in previous
periods and a small gain arose on the sale.
Details of the 2012 divestments are included in the 2012 Annual
Report and Accounts.
Analysis of results from discontinued operations
Discontinued operations comprise the Wood Group GTS business being
transferred into the new joint venture company with Siemens, the aero engine
overhaul business divested by Wood Group GTS in 2012 and the Well Support
business divested in 2011.
2013 2012
$m $m
Revenue
Cost of sales 684.5 709.7
Administrative expenses (551.6) (591.5)
Exceptional items (94.5) (106.1)
27.4 27.2
Operating profit
65.8 39.3
Finance expense
(0.1) (0.3)
Profit before tax
Taxation 65.7 39.0
(19.7) 2.5
Profit after tax
46.0 41.5
27 Acquisitions and divestments (continued)
Divestments
Analysis of assets held for sale
2013 2012
$m $m
Goodwill
Other intangible assets 86.8 -
Property, plant and equipment 25.3 -
Deferred tax asset 30.0 -
Inventories 15.9 -
Trade and other receivables 356.4 -
Income tax receivable 159.3 -
11.9 -
685.6 -
Analysis of liabilities held for sale
2013 2012
$m $m
Trade payables
Accruals and deferred income 23.8 -
Other payables 94.8 -
Income tax liabilities 7.8 -
Other non-current liabilities 50.2 -
Provisions 3.6 -
5.2 -
185.4 -
Analysis of cash flows from discontinued activities 2013 2012
$m $m
Operating cash flows 62.4 (38.9)
Investing cash flows (20.7) (14.3)
Financing cash flows (0.1) (0.3)
Total cash flows 41.6 (53.5)
28 Employees and directors
Employee benefits expense 2013 2012
$m $m
Wages and salaries 3,039.7 2,758.8
Social security costs 205.9 184.1
Pension costs - defined benefit schemes (note 29) 7.5 7.0
Pension costs - defined contribution schemes (note 29) 95.6 87.5
Share based charges 22.4 26.2
3,371.1 3,063.6
Employee benefits expense includes both continuing and discontinued
operations.
28 Employees and directors (continued)
Average monthly number of employees (including executive 2013 2012
directors)
No. No.
By geographical area:
UK 9,035 7,791
US 10,854 9,896
Rest of the World 15,585 15,792
35,474 33,479
The average number of employees includes personnel from both continuing and
discontinued operations and excludes contractors.
Key management compensation 2013 2012
$m $m
Salaries and short-term employee benefits 8.5 9.9
Amounts receivable under long-term incentive schemes 2.0 2.6
Social security costs 1.1 1.4
Post-employment benefits 0.5 0.5
Share based charges 4.1 4.6
16.2 19.0
The criteria for inclusion in the definition of `key management' has been
revised during the year to cover board members and members of the Group
`Excom' only and as a consequence the 2012 figures have been restated.
Key management compensation represents the charge to the income statement in
respect of the remuneration of the Group board and Group `Excom' members.
2013 2012
Directors $m $m
Aggregate emoluments 5.9 6.2
Aggregate amounts receivable under long-term incentive 1.4 1.6
schemes
Aggregate gains made on the exercise of share options 0.9 4.1
Share based charges 3.1 2.7
11.3 14.6
At 31 December, three directors (2012: two) had retirement benefits
accruing under a defined contribution pension plan and one director (2012:
two) had benefits accruing under the Group's defined benefit pension scheme.
Further details of director's emoluments are provided in the Directors'
Remuneration Report.
29 Retirement benefit obligations
The Group operates a defined benefit pension scheme in the UK, the
John Wood Group PLC Retirement Benefits Scheme, which is contracted out of the
State Scheme, and a number of defined contribution plans. The assets of the
defined benefits scheme are held separately from those of the Group, being
invested with independent investment companies in trustee administered funds.
Since 5 April 2007 members have accrued benefits under the scheme on a `CARE'
(Career Averaged Revalued Earnings) basis. The Group has entered into
consultation with members of the scheme with regard to a proposal which would
result in closure to future accrual from 30 June 2014. No impact of the
proposed change has been reflected in the 2013 net liability.
The most recent actuarial valuation of the scheme was carried out
at 5 April 2013 by a professionally qualified actuary. As a result of the
valuation, the Group has agreed to pay deficit reduction contributions of
$4.7m (£2.9m) per annum from 2014 until 2021. At 31 December 2013, there were
241 active members (2012: 254), 286 pensioners (2012: 270) and 654 deferred
members (2012 : 667) of the scheme.
The principal assumptions made by the actuaries at the balance
sheet date were:
2013 2012
% %
Rate of increase in pensionable salaries 5.40 5.00
Rate of increase in pensions in payment and deferred 3.40 3.00
pensions
Discount rate 4.50 4.50
Rate of retail price index inflation 3.40 3.00
Rate of consumer price index inflation 5.00 4.90
At 31 December 2013, the mortality assumption used to determine
pension liabilities is based on the most recent mortality tables which
consider UK wide mortality data relevant to the Group's pension scheme. The
mortality rates are then adjusted to allow for expected future improvements in
mortality using up to date projections. The mortality assumption can be fully
described as PCA00Â CMI_2012 (1.25%).
The amounts recognised in the balance sheet are determined as
follows:
2013 2012
$m $m
Present value of funded obligations (267.1) (246.1)
Fair value of scheme assets 225.9 191.1
Net liabilities (41.2) (55.0)
The major categories of scheme assets as a percentage of total scheme assets
are as follows:
2013 2013 2012 2012
$m % $m %
Equity securities 232.7 87.1 204.0 82.9
Corporate bonds 21.1 7.9 20.7 8.4
Gilts 9.6 3.6 20.4 8.3
Cash 3.7 1.4 1.0 0.4
267.1 100.0 246.1 100.0
29 Retirement benefit obligations (continued)
The amounts recognised in the income statement are as follows:
2013 2012
$m $m
Current service cost included within employee benefits 7.5 7.0
expense
Interest cost 10.8 10.4
Interest income on scheme assets (8.4) (10.5)
Total included within finance expense/(income) 2.4 (0.1)
The employee benefits expense is included within administrative expenses in
the income statement.
Changes in the present value of the defined benefit liability are as follows:
2013 2012
$m $m
Present value of funded obligations at 1 January 246.1 206.7
Current service cost 7.5 7.0
Interest cost 10.8 10.4
Remeasurements:
- actuarial losses arising from changes in financial 11.4 18.3
assumptions
- actuarial gains arising from changes in demographic (9.2) -
assumptions
- actuarial losses/(gains) arising from changes in 0.1 (1.3)
experience
Benefits paid (5.1) (5.3)
Exchange movements 5.5 10.3
Present value of funded obligations at 31 December 267.1 246.1
At 31 December 2013, the present value of funded obligations comprised $109.0m
relating to active members, $99.8m relating to deferred members and $58.3m
relating to pensioners.
Changes in the fair value of scheme assets are as follows:
2013 2012
$m $m
Fair value of scheme assets at 1 January 191.1 160.9
Interest income on scheme assets 8.4 10.5
Contributions 7.9 8.9
Benefits paid (5.1) (5.3)
Expenses paid (0.4) (0.4)
Remeasurement gain on scheme assets 18.8 8.5
Exchange movements 5.2 8.0
Fair value of scheme assets at 31 December 225.9 191.1
29 Retirement benefit obligations (continued)
Analysis of the movement in the balance sheet liability:
2013 2012
$m $m
At 1 January 55.0 45.8
Current service cost 7.5 7.0
Finance expense/(income) 2.4 (0.1)
Contributions (7.9) (8.9)
Expenses paid 0.4 0.4
Remeasurement (gains)/losses recognised in the year (16.5) 8.5
Exchange movements 0.3 2.3
At 31 December 41.2 55.0
The contributions expected to be paid during the financial year ending 31
December 2014 amount to $12.2m (£7.3m).
Scheme risks
The retirement benefit scheme is exposed to a number of risks, the most
significant of which are -
Volatility
The defined benefit obligation is measured with reference to
corporate bond yields and if scheme assets underperform relative to this
yield, this will create a deficit, all other things being equal. The scheme
investments are well diversified such that the failure of a single investment
would not have a material impact on the overall level of assets.
Changes in bond yields
A decrease in the corporate bond yields will increase the defined
benefit obligation. This would however be offset to some extent by a
corresponding increase in the value of the scheme's bond asset holdings.
Inflation risk
The majority of benefits in deferment and in payment are linked to
price inflation so higher actual inflation and higher assumed inflation will
increase the defined benefit obligation.
Life expectancy
The defined benefit obligation is generally made up of benefits
payable for life and so increases to members' life expectancies will increase
the defined benefit obligation all other things being equal.
Sensitivity of the retirement benefit obligation
The impact of changes to the key assumptions on the retirement
benefit obligation is shown below. The sensitivity is based on a change in an
assumption whilst holding all other assumptions constant. In practice, this is
unlikely to occur, and changes in some of the assumptions may be correlated.
When calculating the sensitivity of the defined benefit obligation to
significant actuarial assumptions the same method has been applied as when
calculating the pension obligation recognised in the Group balance sheet.
Assumption Change Impact on obligation
Discount rate 0.1% $5.3m
Rate of retail prices index inflation 0.1% $3.4m
Rate of consumer price index inflation 0.1% $1.0m
Life expectancy 1 year $6.5m
29 Retirement benefit obligations (continued)
Defined contribution plans
Pension costs for defined contribution plans are as follows:
2013 2012
$m $m
Defined contribution plans 95.6 87.5
There were no material contributions outstanding at 31 December 2013 in
respect of defined contribution plans.
30 Operating lease commitments - minimum lease payments
2013 2012
Vehicles, Vehicles,
plant and plant and
Property equipment Property equipment
$m $m $m $m
Amounts payable under non-cancellable
operating leases due:
Within one year 89.6 12.6 85.4 20.4
Later than one year and less than five 257.9 18.8 254.7 21.4
years
After five years 197.5 - 176.4 0.1
545.0 31.4 516.5 41.9
The Group leases various offices and facilities under
non-cancellable operating lease agreements. The leases have various terms,
escalation clauses and renewal rights. The Group also leases vehicles, plant
and equipment under non-cancellable operating lease agreements.
31 Contingent liabilities
At the balance sheet date the Group had cross guarantees without
limit extended to its principal bankers in respect of sums advanced to
subsidiaries.
From time to time and in the normal course of business the Group is
notified of legal claims in respect of work carried out. Management believe
that the Group is in a strong position to defend these claims. In addition,
the Group is currently cooperating with an investigation in relation to a
facility where it previously provided services. Management do not believe that
it is probable that any material liability will arise from any of these
matters.
32 Capital and other financial commitments
2013 2012
$m $m
Contracts placed for future capital expenditure not
provided in the financial statements 9.5 12.5
The capital expenditure above relates to property plant and
equipment. $0.7m of the above amount relates to commitments made by the
Group's joint venture companies.
33 Related party transactions
The following transactions were carried out with the Group's joint ventures.
These transactions comprise sales and purchases of goods and services and
funding provided in the ordinary course of business. The receivables include
loans to certain joint venture companies.
2013 2012
$m $m
Sale of goods and services to joint ventures
25.1 35.5
Purchase of goods and services from joint ventures 11.7 33.3
Receivables from joint ventures 87.0 83.1
Payables to joint ventures 9.8 20.8
Key management compensation is disclosed in note 28.
34 Subsequent events
In 2009, the Group's contract to provide water injection services
in Venezuela was terminated and subsequently taken over by PDVSA and the Group
made provision against assets owned and amounts receivable. In January 2014,
the Group finalised a settlement agreement with PDVSA and received a payment
of $62.5m. The net recovery, after deduction of costs, an amount payable to
non-controlling interests and tax is expected to be around $40m.
35 Principal subsidiaries and joint ventures
The Group's principal subsidiaries and joint ventures at 31 December 2013 are
listed below. These are the companies which have the most significant impact
on the Group's financial statements. The Group has taken advantage of section
410 of the Companies Act 2006 and not disclosed a full list of subsidiaries as
this would involve a statement of excessive length. A full list of
subsidiaries will be included in the Company's Annual Return.
Country of
incorporation
Name of subsidiary or joint or Ownership
venture registration interest % Principal activity
Wood Group Engineering
Wood Group Mustang Holdings, Inc USA 100 Conceptual studies,
engineering, project
Wood Group Kenny Corporate UK 100 and construction
Limited management and control
IMV Projects Inc Canada 100 system upgrades.
Wood Group PSN
Wood Group Engineering (North UK 100 Brownfield engineering
Sea) Limited and modifications,
Wood Group PSN, Inc USA 100 production
enhancement,
operations and
Wood Group PAC, Inc USA 100 management, training,
maintenance
Wood Group PSN Limited UK 100 management and
abandonment services.
Production Services Network (UK) UK 100
Limited
Wood Group PSN Australia Pty Australia 100
Limited
Production Services Network Russia 100
Sakhalin LLC
Production Services Network Canada 100
Canada Inc
Mitchells Oilfield Services Inc USA 100
Elkhorn Holdings Inc USA 100
Wood Group CCC Limited Cyprus 50*
Wood Group GTS
Rolls Wood Group (Repair & UK 50* Gas turbine repair and
Overhauls) overhaul
Limited
TransCanada Turbines Limited Canada 50*
Wood Group Pratt & Whitney USA 49*
Industrial Turbine Services, LLC
(a)
Wood Group Gas Turbine Services UK 100
Limited (a)
Wood Group Power Solutions, Inc USA 100 Power plant
(a) engineering,
procurement and
construction
The proportion of voting power held equates to the ownership interest, other
than for joint ventures (marked *) which are jointly controlled.
(a) These companies will be transferred to the new joint venture company with
Siemens and their assets and liabilities have been treated as held for sale at
31 December 2013 (see note 27).
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 11 April 2014 as published in the Financial Times on 12 April 2014.
Officers and advisers
Secretary and Registered Office Registrars
R M B Brown Equiniti Limited
John Wood Group PLC Aspect House
John Wood House Spencer Road
Greenwell Road Lancing
Aberdeen West Sussex
AB12 3AX BN99 6DA
Tel: 01224 851000 Tel: 0871 384 2649
Stockbrokers Independent Auditors
JPMorgan Cazenove Limited PricewaterhouseCoopers LLP
Credit Suisse Chartered Accountants and Statutory Auditors
32 Albyn Place
Aberdeen
AB10 IYL
Company Solicitors
Slaughter and May
Financial calendar
Results announced 18 February 2014
Ex-dividend date 9 April 2014
Dividend record date 11 April 2014
Annual General Meeting 14 May 2014
Dividend payment date 20 May 2014
The Group's Investor Relations website can be accessed at
www.woodgroup.com.
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