Full year results for the year ended 31 Dec 2023

Wood Group (John) PLC
26 March 2024
 

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Full year results for the year ended 31 December 2023

26 March 2024

This announcement contains inside information

 

Strong growth in first year of new strategy; upgrading outlook

 



Notes

FY23

(unaudited)

$m

FY22

$m*

Movement

%

At constant currency %

HEADLINE RESULTS


1,2,3

 

 

 

 

Revenue

Continuing


5,901

5,469

7.9%

8.7%

Adjusted EBITDA

Continuing

4

423

388

8.8%

10.9%

   Adjusted EBITDA margin

Continuing

5

7.2%

7.1%

0.1ppts

0.1ppts

Adjusted EBIT

Continuing

6

185

177

4.4%

 

   Adjusted EBIT margin

Continuing

7

3.1%

3.2%

(0.1)ppts

 

Adjusted diluted EPS

Continuing

8

2.3c

(3.1)c

n/a

 

Adjusted operating cash flow

Total group

9

194

(66)

n/a

 

Free cash flow

Total group

10

(265)

(704)

n/a

 

Net debt including leases

Total group


1,094

736

49%

 

Net debt excluding leases

Total group


694

393

77%

 

Net debt / adjusted EBITDA

Continuing

11

2.1x

1.3x

n/a

 

Order book

Continuing

12

6,269

6,017

4.2%

4.8%

Headcount

Continuing

13

35,335

35,573

(0.1)%

 


 




 

 

STATUTORY RESULTS

 




 

 

Operating profit / (loss)

Continuing


38

(565)

n/a

 

Loss for the period

Total group


(105)

(352)

n/a

 

Basic EPS

Total group


(16.1)c

(52.4)c

n/a

 

Cash flow from operating activities

Total group


48

(361)

n/a

 

*FY22 results have been re-presented to include Built Environment Saudi Arabia. Built Environment Consulting (sold in 2022) is treated as a discontinued operation and its results are included within the "Total group" measures. Continuing results exclude its results. See notes on page 4.

 

Ken Gilmartin, CEO, said:

"We made significant progress in this first year of our three-year growth strategy. We delivered strong revenue and adjusted EBITDA growth, and we significantly improved operating cash flow.

 

"We continue to see clear business momentum, with a higher order book, double-digit growth in our pipeline and positive pricing trends in both pipeline and order book. It is encouraging that the fastest growing parts of Wood are the higher-margin Consulting business, and our sustainable solutions across all areas.

 

"To build on this early success and further enhance our strategic delivery, we have launched a simplification programme to drive efficiency and support further margin expansion. We are therefore upgrading our outlook, with 2024 guidance now towards the top end of our medium-term targets and 2025 expected to exceed those targets. Ultimately, our priority remains sustainable cash generation and we expect to deliver significant free cash flow from 2025."

 

Strategic progress and strong growth in the first year of our strategy

·      Delivered results in line with expectations

Revenue growth across all business units

Strong adjusted EBITDA growth, in line with guidance

·      Continued momentum

Fastest growth in Consulting and across sustainable solutions

Order book up 4% to $6.3 billion, up 7% like-for-like14

Double-digit growth in our factored sales pipeline

Improving pricing trends across pipeline, order book and in margin performance in 2023

Adjusted operating cash flow improved to $194 million, up $260 million on last year

·      Growing our sustainable solutions business to $1.3 billion15

Sustainable solutions revenue up 15% and represented 22% of Group revenue

43% of factored sales pipeline now in sustainable solutions

 

Simplification to enhance strategic delivery

·      Focus on driving higher margins through continued growth, evolving our business mix with faster growth in Consulting, improved pricing and taking action on cost

·      Simplification programme to drive efficiency

Targeting annualised savings of around $60 million from 2025

Initial focus on central costs, with benefit within FY24 expected to be around $10 million

Will improve both EBITDA and EBIT margins, and future cash generation

Cash costs to complete of c.$70 million over next 12 months, exceptional P&L charge in FY24

·      Aligning our portfolio with our strategy

Sale process for EthosEnergy progressing well, smaller disposals expected to follow

 

Upgraded 2024 outlook

·      Adjusted EBITDA growth towards the top end of mid to high single digit target (before disposals)

Margin expansion driven by topline growth, evolving business mix and improved pricing, plus the c.$10 million in-year benefits of our simplification programme

Performance will be weighted to the second half, reflecting the typical seasonality of our business and the phasing of the in-year benefit of the simplification programme

·      Cash performance to continue to improve

Operating cash growing at a faster rate than adjusted EBITDA will help deliver positive free cash flow before exceptional cash flows

Exceptional cash flows are expected to be around $120 million and will be weighted to the first half. They now include c.$50 million related to the delivery of the simplification programme

Net debt at December 2024 expected to be lower than December 2023 after the expected proceeds from planned disposals

 

Upgraded medium-term outlook

·      The simplification programme is expected to add to our growth potential, leading to EBITDA growth in 2025 above our medium-term target

·      We will continue to expand our EBITDA margin and that benefit will translate into our EBIT margins and support a significant increase in our earnings per share over the medium term

·      We are on-track to deliver significant free cash flow in 2025, as previously guided

·      From 2025, our sustainable free cash flow generation, combined with proceeds from disposals, will provide increased flexibility in our capital allocation policy

 

 

FY23 financial highlights

·      Revenue of $5.9 billion was up 8% (+9% at constant currency) with growth in all business units, including a c.$200 million increase in pass-through revenue

·      Adjusted EBITDA of $423 million was up 9% on last year (+11% at constant currency) with good growth across all business units

·      Adjusted EBITDA margin of 7.2%, up 0.1ppts on last year, reflecting business mix and improved pricing partly offset by the increased pass-through revenue and opex investments

·      Adjusted EBIT up 4% to $185 million with EBITDA growth partly offset by higher lease depreciation and software amortisation

·      Adjusted diluted EPS of 2.3c was an improvement on last year's (3.1)c, reflecting the higher adjusted EBIT and lower finance costs

·      Adjusted operating cash flow of $194 million was significantly improved on last year, up $260 million

·      Free cash flow of $(265) million reflects the improved operating cash flow offset by capex, interest and tax paid, plus cash exceptionals broadly in line with our guidance at $145 million

·      Net debt (excluding leases) at 31 December 2023 was $694 million, higher than at 31 December 2022 ($393 million) given the free cash outflow and the payment of $65 million of tax on the sale of Built Environment Consulting

 

FY23 statutory results

·      Operating profit of $38 million compares to an operating loss in the prior year

·      Exceptional items of $77 million include a $45 million charge relating to a receivables write-down and an arbitration claim in the now closed Power and Industrials EPC business. Also includes $29 million of charges related to our asbestos liability. Full details on pages 16-17

·      Loss for the period of $105 million reflects operating profit more than offset by finance costs and tax

·      Basic EPS of (16.1)c reflects the loss for the period

·      Cash flow from operating activities of $48 million, a significant improvement on the outflow in 2022

 

CFO succession

Arvind Balan will join Wood as Chief Financial Officer (CFO) on 15 April 2024, replacing David Kemp who will retire from the Board on 14 April 2024. David will remain with Wood for a period of time to ensure a smooth transition.

 

Presentation

A presentation with Ken Gilmartin (CEO) and David Kemp (CFO) will be held at 9:00am today in London, UK. This event will also be webcast at https://edge.media-server.com/mmc/p/ngex5be8.

 

The webcast and transcript will be available after the event at www.woodplc.com/investors.

 

For further information:

 

Simon McGough, President, Investor Relations

+44 (0)7850 978 741

Vikas Gujadhur, Senior Manager, Investor Relations

+44 (0)7855 987 399

Alex Le May / Ariadna Peretz, FTI Consulting

+44 (0)20 3727 1340

 

The person responsible for arranging the release of this announcement on behalf of Wood is Martin McIntyre, Company Secretary.

 

Future events

·      9 May 2024 - Q1 trading update and Annual General Meeting

·      11 July 2024 - HY24 trading update

·      20 August 2024 - HY24 results

·      7 November 2024 - Q3 trading update

 

 

NOTES

Adjustments between statutory and underlying information

The Group uses various alternative performance measures (APMs) to enable users to better understand the performance of the Group. The Directors believe the APMs provide a consistent measure of business performance year-to-year and they are used by management to measure operating performance and for forecasting and decision-making. The Group believes they are used by investors in analysing business performance. These APMs are not defined by IFRS and there is a level of judgement involved in identifying the adjustments required to calculate them. As the APMs used are not defined under IFRS, they may not be comparable to similar measures used by other companies. They are not a substitute for measures defined under IFRS.

Note 1: FY22 results are re-presented to include the results of Built Environment Consulting Saudi Arabia, which was previously classified as held for sale. For FY22, this business contributed $27 million of revenue and $3 million of adjusted EBITDA.

Note 2: Percentage growth rates are calculated on actuals and not the rounded figures shown throughout this statement. Growth rates shown at constant currency are calculated by comparing unaudited FY23 to FY22 restated at FY23 currency rates.

Note 3: Built Environment Consulting (sold in September 2022) is treated as a discontinued operation and its results are included within the "Total group" measures. Continuing results exclude its results.

Note 4: A reconciliation of adjusted EBITDA to operating profit is shown in note 1 to the financial statements.

Note 5: Adjusted EBITDA margin is adjusted EBITDA shown as a percentage of revenue. This measure is used by management to measure the performance of business, and is one of our medium-term targets.

Note 6: Adjusted EBIT shows the Group's adjusted EBITDA after depreciation and amortisation. This measure excludes amortisation of acquired intangibles and is therefore aligned with our measure of adjusted EPS. A reconciliation of adjusted EBIT to operating profit/loss is shown in the Financial Review on page 13.

Note 7: Adjusted EBIT margin is adjusted EBIT shown as a percentage of revenue. This measure is used by management to measure the performance of business.

Note 8: A reconciliation of adjusted diluted EPS to basic EPS is shown in note 9 of the financial statements.

Note 9: Adjusted operating cash flow refers to adjusted cash generated from operations excluding leases, as shown on page 20 of the Financial Review. This is a metric used by management to monitor business performance throughout the year.

Note 10: Free cash flow is defined as all cash flows before acquisitions, disposals and dividends. It includes all mandatory payments the Group makes such as interest and tax, and all exceptional cash flows. It excludes the impacts of IFRS 16 (Leases) accounting and FX. A reconciliation of free cash flow to our statutory cash flow statement is shown on page 26. Free cash flow is a key measure of delivering value to our shareholders.

Note 11: Net debt / adjusted EBITDA ratio (covenant basis) is calculated on the existing basis prior to the adoption of IFRS 16 in 2019 and is based on net debt excluding leases. It includes a series of covenant adjustments to both net debt and EBITDA. The calculation is shown in the Financial Review on page 24. This measure is a key metric used in our debt covenants.

Note 12: Order book comprises revenue that is supported by a signed contract or written purchase order for work secured under a single contract award or frame agreements. Multi-year agreements are recognised according to anticipated activity supported by purchase orders, customer plans or management estimates. Where contracts have optional extension periods, only the confirmed term is included. Order book disclosure is aligned with the IFRS definition of revenue and does not include Wood's proportional share of joint venture order book. Order book is presented as an indicator of the visibility of future revenue.

Note 13: Headcount is a measure of total employees working for Wood, including Wood employees and contractors. This measure excludes employees in our joint ventures.

Note 14: Excluding the Gulf of Mexico labour operations business sold in March 2023. Order book at constant currency.

Note 15: Sustainable solutions consist of activities related to: renewable energy, hydrogen, carbon capture & storage, electrification and electricity transmission & distribution, LNG, waste to energy, sustainable fuels & feedstocks and recycling, processing of energy transition minerals, life sciences, and decarbonisation in oil & gas, refining & chemicals, minerals processing and other industrial processes. In the case of mixed scopes that include a decarbonisation element, for our pipeline disclosure we include the proportion of the opportunity that is related to those decarbonisation elements. For our revenue disclosure, we only include revenue if directly within sustainable solutions, with mixed scopes only included if 75% or more of the scope relates to decarbonisation.

 

CEO STATEMENT

We made significant progress in the first year of our three-year profitable growth strategy. The focus in year one was to return to growth and deliver results in line with our guidance. We achieved strong growth in adjusted EBITDA and improved our margin, both of which exceeded our expectations at the start of the year.

 

Strong growth in the first year of our growth strategy

Revenue growth across all businesses

Group revenue of $5.9 billion was broadly in line with our guidance, up 8% on last year (up 9% at constant currency) with growth across all of our business units, led by Consulting. This growth shows the demand that is in our markets for the consulting and engineering services we provide. Around a third of our revenue growth reflected increased pass-through activity, for which we earn little or no margin.

 

Strong adjusted EBITDA growth

Our adjusted EBITDA of $423 million was up 9% on last year, and up 11% at constant currency, reflecting the strong revenue growth combined with an improved margin of 7.2%. This margin performance reflects an improved business mix, as we shift our business model more and more towards consulting and engineering services, and improved pricing across our business. The margin performance included the increased opex investments we made to drive future growth, and the dilutive impact of the increased pass-through revenue.

 

Our adjusted EBIT was up 4% on last year at $185 million, reflecting the growth in EBITDA offset by higher lease depreciation and software amortisation. Our adjusted diluted EPS was 2.3 cents, an improvement on (3.1)c in 2022, reflecting the higher adjusted EBIT and lower finance costs. Despite an improvement in the year, our adjusted tax rate remains high and this is covered in detail in the Financial Review on page 19.

 

Statutory results

Operating profit in the year was $38 million compared to an operating loss of $565 million in 2022, which was impacted by goodwill and intangible impairments of $542 million.

 

Operating profit included $77 million of exceptional items. These included $5 million of costs related to the unsolicited bids from Apollo Global Management, which were booked in the first half of the year, and the movement in our asbestos liability. Also included is a $45 million charge in relation to the Power and Industrials EPC business which we closed in 2022. The charge includes a receivable write down booked in the first half as well as a provision taken in the second half of the year relating to an arbitration claim against Wood. Further details are included in the Financial Review on pages 16-17.

 

The loss for the period was $105 million, mainly reflecting the low level of statutory operating profit offset by finance costs and tax. Our basic earnings per share was (16.1) cents (FY22: (52.4) cents).

 

Cash performance reflects our turnaround journey

As expected, we saw a significant improvement in our adjusted operating cash flow to $194 million. This year-on-year improvement of $260 million was driven by higher adjusted EBITDA and a much-improved working capital performance.

 

Our free cash outflow of $265 million includes $145 million of outflows related to exceptional cash items.

 

Looking ahead, we continue to expect to grow operating cash at a rate above the growth in EBITDA while also reducing the exceptional cash outflows. Operating cash generation will be further strengthened by the actions we are taking on cost and portfolio, and we expect to generate significant free cash flow from 2025.

 

 

Business momentum

We continue to see good momentum across our business. Our order book of $6.3 billion was up 7% on a like-for-like basis while we saw double-digit growth in our factored sales pipeline. Our headcount grew by 1% excluding the Gulf of Mexico business.

 

Encouragingly, we continue to see improvements in pricing. The price of work in both our pipeline and order book improved throughout 2023 and better pricing was a key driver of margin expansion in the year.

 

Delivering on our profitable growth strategy in 2023

We set out our profitable growth strategy in November 2022 and we are delivering on each of the three pillars: inspired culture, performance excellence, and profitable growth.

 

1) Delivering an inspired culture

An inspired culture is about creating a great place to work. During 2023 we put a real focus on culture and improving employee engagement. We were pleased to see a vastly improved employee net promoter score in our mid-year survey and a lower level of employee turnover in professional roles across the Group. Improving leadership diversity is a key part of our inspired culture pillar, with a target of 40% female representation amongst our senior leaders by 2030. We have now reached 35%, an improvement on 32% at December 2022.

 

2) Delivering performance excellence

Performance excellence is about being results-focused and delivering across all of the business. Our order book growth highlights the work done across all business units to win new work while maintaining the bidding discipline crucial to our strategy. Encouragingly, we have also delivered improvements in pricing across the business. We are pleased to have grown our sustainable solutions business again, now to around $1.3 billion of revenue, and representing 43% of our pipeline. Our Global Execution Centre is a critical part of delivering performance excellence for our clients and we now have over 2,000 employees working in our centre in India.

 

3) Delivering profitable growth

Delivering profitable growth is about building a higher-grade business. We grew adjusted EBITDA by 9% in the year despite higher pass-through activity and the opex investments we made for growth. This shows the pricing benefits starting to come through along with improved operational delivery. Delivering profitable growth will lead to significant cash flow generation over time. In 2023 we delivered a substantial improvement in our operating cash flow as we continued our cash recovery journey.

 

We have the right business model in place

We are now a services-led business with the majority of our contracts cost reimbursable (c.80% of revenue) and the remainder mostly fixed price services (c.20% of revenue). This contract mix represents our risk-appetite following our strategic move away from LSTK activity.

 

Our markets are attractive

The energy and materials markets offer significant growth opportunities for Wood. We are focused on:

·      Large markets with solid growth - Oil & Gas and Chemicals

·      Small markets today with substantial growth potential - Hydrogen and Carbon Capture

·      Large markets where we can significantly grow our share - Minerals and Life Sciences

 

Together, these six focus markets offer an addressable market of c.$240 billion in 2026. We expect to outperform market growth through continued market leadership, winning share and a shift in our business mix over time.

 

Winning work across our markets

During 2023, we continued to win work across all of our markets, helped by client demands for solutions that address energy security, energy transition and sustainable materials.

 

 

Significant contract wins across Energy in the year included:

·      New global framework agreement with Shell

·      Detailed engineering design for Woodside's Trion project in the Gulf of Mexico

·      New strategic partnership with Harbour Energy, with contracts worth around $330 million

·      c.$250 million contract extension in Southeast Asia for operations and brownfield engineering services

 

Significant contract wins in the year in Materials included:

·      Collaboration agreement with OMV for the licensing of its ReOil® plastic recycling technology

·      $50 million capital project delivery partner contract from GSK in the USA

·      FEED and EPCm for Europe's largest high purity manganese processing facility

 

Our pipeline continues to grow across both energy and materials, and shows the diversification of the future Group, with 34% of the pipeline in materials and 64% in energy.

 

Growing our Consulting business

Our higher-margin Consulting business saw the strongest growth across the business in 2023, following a reorganisation at the start of the year and increased opex investments to drive growth. Consulting operates across all of our end markets, addressing client challenges across energy, materials and industrial digitalisation and decarbonisation. In 2023, Consulting had sustainable solutions revenue of c.$225 million, helped by our solutions across hydrogen and carbon capture which together saw nearly 1,000 pieces of work awarded in 2023.

 

Growing our sustainable business

Wood is an enabler of net zero, providing solutions across decarbonisation, energy transition and materials for a net zero world. We generated around $1.3 billion of sustainable solutions revenue in 2023, up 15% on last year. Sustainable solutions now represent 22% of revenue and 43% of our factored sales pipeline.

 

In addition to the excellent progress we are making on growing our sustainable solutions business, we continue to deliver against our ESG strategy. We reduced our scope 1 & 2 carbon emissions by 71%, ahead of our 2030 target of a 40% reduction from our 2019 baseline, and we continued to progress leadership diversity. Our progress across ESG was once again reflected in our MSCI AA rating, awarded for the ninth consecutive year, and the maintenance of our top quartile ranking against peers.

 

Simplification to enhance our strategic delivery

To build on the progress made in the first year of our three-year strategy, we have launched a simplification programme to enhance our strategic delivery and support margin expansion.

 

Driving margin expansion

We will drive higher margins, both EBITDA and EBIT, through:

·      Continued growth - continuing to deliver scale benefits as we grow

·      Evolution of our business mix - continued shift to services-led model and higher growth in Consulting

·      Improved pricing - reflecting the selectivity of work and the significant demand for our expertise

·      Taking action on cost - simplification programme to create a leaner and more efficient Wood

 

Simplification programme

We have set out a simplification programme to help us deliver higher margins while remaining focused on business growth. This programme will:

·      Right-size our central functions - by putting greater ownership and accountability for functional activities into the business units, and reducing the number of central function roles

·      Simplify the way we work - by reducing complexity in our functional structure, processes and procedures, and expanding our shared services model

·      Deliver IT savings - building on the cost savings announced previously

·      Reduce property costs - cost savings announced previously that will reduce our property portfolio

 

This programme is expected to generate annualised savings of around $60 million from 2025, with a benefit in FY24 of around $10 million. The costs to achieve this programme are expected to be around $70 million with an exceptional item to be recognised in our first half results. The cash impact is expected to be around $50 million in FY24, weighted to the first half, and around $20 million in FY25.

 

Aligning our portfolio with our strategy

We continue to evaluate our portfolio and identified certain businesses deemed non-core to our strategic growth and priorities. The largest of which is EthosEnergy, a joint venture within Investment Services. We announced in January 2024 that we had started the sales process for EthosEnergy and have made good progress to date. We are also actively exploring options for a number of other small businesses in our portfolio.

 

Upgraded 2024 outlook

Adjusted EBITDA is expected to grow towards the top end of our mid to high single digit medium term target, before the impact of disposals. Our adjusted EBITDA margin is expected to expand in 2024, driven by topline growth, an evolving business mix and improved pricing, plus the c.$10 million in-year benefits of our simplification programme.

 

Performance in 2024 will be weighted to the second half, reflecting the typical seasonality of our business and the phasing of the in-year benefit of the simplification programme.

 

Our cash performance is expected to continue to improve with operating cash growing at a faster rate than adjusted EBITDA. This will help deliver positive free cash flow before exceptional cash flows. These exceptional cash flows are expected to be around $120 million and will be weighted to the first half. They now include c.$50 million related to the delivery of the simplification programme.

 

Net debt at December 2024 is expected to be lower than December 2023 after the expected proceeds from planned disposals.

 

Upgraded medium-term outlook

The simplification programme is expected to add to our growth potential, leading to adjusted EBITDA growth in 2025 above our medium-term target. We will continue to expand our adjusted EBITDA margin and that benefit will translate into our EBIT margins and support a significant increase in our earnings per share over the medium term.

 

We are on-track to deliver significant free cash flow in 2025, as previously guided. Our sustainable free cash flow generation from 2025, combined with proceeds from disposals, will provide increased flexibility in our capital allocation policy.

 

Executive Management Team changes

Marla Storm joined Wood in January 2024 as Chief Human Resources Officer (CHRO), replacing Lesley Birse who has retired. Michael Rasmuson joined Wood in January 2024 as Group General Counsel, replacing Martin McIntyre, who will remain as Company Secretary until a successor for this role is appointed. Arvind Balan will join as CFO in April 2024, replacing David Kemp who will retire. Marla and Michael are based in Texas, USA, and Arvind will be based in London, UK.

 

 

BUSINESS REVIEWS

CONSULTING

Our Consulting business provides technical consulting, digital consulting, and energy asset development. It also provides decarbonisation and digital solutions that open opportunities across our other business units.

 

Financial review


FY23

(unaudited)

$m

FY221
$m

Movement

%

At constant currency %

Revenue

739

652

13.3%

13.5%

Adjusted EBITDA2

80

76

4.4%

5.9%

Adjusted EBITDA margin

10.8%

11.7%

(0.9)ppts

(0.8)ppts

Adjusted EBIT

59

50

20.1%

 

Adjusted EBIT margin

8.0%

7.6%

0.4ppts

 

Order book

529

476

11.1%

11.2%

Headcount

4,055

3,941

2.9%

 

1. Re-presented to include the Built Environment Consulting Saudi Arabia business, see note on page 4.

2. Adjusted EBITDA includes $nil from JVs (FY22: $nil). Revenue does not include any contribution from JVs.

 

Revenue of $739 million was 13% higher than last year, with strong growth across both technical consulting and digital consulting in both our energy and materials markets.

 

Adjusted EBITDA of $80 million was 4% higher than last year and 6% higher on a constant currency basis, reflecting the revenue growth offset by a lower margin. The lower adjusted EBITDA margin of 10.8% partly reflects the exit of high-margin work in Russia in 2022, as well as the opex investments we made to secure future growth.

 

The order book at 31 December 2023 was $529 million, up 11% on last year.

 

Operational review

Consulting completed an internal restructure at the start of 2023 and made significant opex investments to better align with the growth trends across technical consulting, digital consulting and decarbonisation.

 

Across our markets, Consulting saw double-digit growth across both energy and materials and 47% growth in sustainable solutions, helped by demand for our renewables and decarbonisation consulting solutions.

 

Key awards in the period across Consulting included:

·      Feasibility study in Europe looking at converting natural gas pipelines for hydrogen transportation

·      Supporting Chevron Renewable Energy Group's Biorefinery

·      Pre-FEED work on SGN's high pressure hydrogen pipelines

 

Sustainable solutions revenue was c.$225 million, up 47% and represented around 30% of Consulting revenue.

 

Outlook for 2024

Following the opex investments made in 2023, we expect Consulting to have the strongest EBITDA growth in the Group, supported by good revenue growth and an expansion in margin, weighted to the second half as performance and pricing benefits ramp up.

 

PROJECTS

Our Projects business mainly provides complex engineering design and project management across energy and materials markets including oil and gas, chemicals, metals and minerals and life sciences.

 

Financial review


FY23

(unaudited)

$m

FY22
$m

Movement

%

At constant currency %

Revenue1

2,424

2,211

9.6%

10.2%

Adjusted EBITDA2

177

169

5.0%

5.0%

Adjusted EBITDA margin

7.3%

7.6%

(0.3)ppts

(0.4)ppts

Adjusted EBIT

87

80

8.0%

 

Adjusted EBIT margin

3.6%

3.6%

-ppts

 

Order book

2,026

2,081

(2.6)%

(2.6)%

Headcount

13,549

13,918

(2.7)%

 

1. Pass-through revenue, which generates only a small or nil margin, was around $460 million (FY22: c.$290 million).

2. Adjusted EBITDA includes $3.4 million from JVs (FY22: $3.9 million). Revenue does not include any contribution from JVs.

 

Revenue of $2,424 million was 10% higher than last year. The business saw strong growth across oil and gas and chemicals offsetting the run-down of our LSTK and large-scale EPC activities and lower revenue in minerals. Over half of the revenue growth came from the increase in pass-through revenue.

 

Adjusted EBITDA of $177 million was 5% higher than last year. This reflected the revenue increase combined with a lower margin of 7.3%. The lower margin includes the impact of higher pass-through revenue, for which we receive nil or a small margin, and increased opex investments made in the year.

 

The order book at 31 December 2023 was $2,026 million, down 3% on last year reflecting our shift away from LSTK and largescale EPC, and lower orders in our minerals business.

 

Operational review

The strategic move away from LSTK and largescale EPC is now complete and is reflected in the lower headcount. We continue to grow our services-led business model across energy and materials.

 

Business growth was balanced across both energy and materials market. Key awards in the period included:

·      Collaboration agreement with OMV for the licensing of its ReOil® plastic recycling technology

·      FEEDs for ADNOC's and QatarEnergy's gas facilities in the Middle East

·      Detailed engineering design for Woodside's Trion project in the Gulf of Mexico

·      Significant life sciences engineering contract in the USA with GSK worth c.$50 million

·      Brownfield engineering contract to help produce active pharmaceutical ingredients in Europe

·      Supporting one of the world's largest offshore clean power projects in Germany

 

Sustainable solutions revenue was c.$730 million, up 10% and represented c.30% of Projects revenue despite a reduction in loss-making LSTK activity in renewables.

 

Outlook for 2024

We expect moderate revenue and EBITDA growth, weighted to the second half given the phasing of new orders and our continued shift away from LSTK and largescale EPC work. Our adjusted EBITDA margin is expected to expand as the year progresses.

 

OPERATIONS

Our Operations business manages and optimises our customers' assets including decarbonisation, maintenance, modifications, brownfield engineering, and asset management through to decommissioning.

 

Financial review


FY23

(unaudited)

$m

FY22
$m

Movement

%

At constant currency %

Revenue1,2

2,482

2,407

3.1%

4.4%

Adjusted EBITDA3

165

148

11.9%

16.1%

Adjusted EBITDA margin

6.7%

6.1%

0.6ppts

0.7ppts

Adjusted EBIT

108

100

8.2%

 

Adjusted EBIT margin

4.3%

4.1%

0.2ppts

 

Order book

3,605

3,295

9.4%

10.6%

Headcount

15,561

15,787

(1.4)%

 

1. Pass-through revenue, which generates only a small or nil margin, was around $550 million (FY22: c.$500 million)

2. Includes the results of the Gulf of Mexico labour operations business that was sold in March 2023. In FY23, this business contributed 

$21 million of revenue (FY22: $99 million) and $1 million of adjusted EBITDA (FY22: $5 million).

3. Adjusted EBITDA includes $13.0 million from JVs (FY22: $15.2 million). Revenue does not include any contribution from JVs.

 

Revenue of $2,482 million was 3% higher than last year, and 4% higher at constant currency. This reflects continued increases in activity levels in oil and gas across Europe, the Middle East and Asia-Pacific. Revenue growth also includes an increased level of pass-through revenue and the impact of the sale of the Gulf of Mexico labour operations business in the period.

 

Adjusted EBITDA of $165 million was 12% higher than last year, and 16% higher at constant currency, reflecting the revenue growth and an increased margin of 6.7%. This margin increase, despite higher pass-through revenue, mainly reflects improved overall contract performance and some improved pricing.

 

The order book at 31 December 2023 was $3,605 million, 9% higher than last year and reflects the expected strong final quarter for bookings. Excluding the Gulf of Mexico offshore labour operations business, the order book was up 15% at constant currency.

 

Operational review

Operations continued to benefit from higher activity levels across geographies. Key awards in 2023 included:

·      New strategic partnership with Harbour Energy for its UK North Sea operations, with associated contracts for five years (with five one-year extensions) worth around $330 million

·      c.$250 million contract extension in SE Asia for operations and brownfield engineering services

·      Brownfield modifications for bp's Murlach development in the North Sea

·      Brownfield EPCm contract with Woodside in Australia

·      Two-year operations contract extension with Equinor in the Mariner field in the North Sea

 

Sustainable solutions revenue was c.$260 million, up 15% and representing around 11% of Operations revenue.

 

Outlook for 2024

We expect moderate revenue and EBITDA growth throughout the year.

 

INVESTMENT SERVICES

Our Investment Services business unit manages a number of legacy activities and includes our Turbines joint ventures. The most notable areas are activities in industrial power and heavy civil engineering.

 

Financial review


FY23

(unaudited)

$m

FY22
$m

Movement

%

At constant currency %

Revenue

255

199

28.4%

27.8%

Adjusted EBITDA1

77

69

11.2%

11.5%

Adjusted EBITDA margin

30.2%

34.9%

(4.7)ppts

(4.4)ppts

Adjusted EBIT

48

47

1.7%

 

Adjusted EBIT margin

18.6%

23.5%

(4.9)ppts

 

Order book

109

164

(33.6)%

(34.0)%

Headcount

518

426

21.6%

 

1. Includes results from our two Turbines joint ventures. Adjusted EBITDA from these JVs was $65 million in FY23 and $48 million in FY22. Revenue does not include any contribution from JVs.

 

Revenue of $255 million was 28% higher than last year. This growth primarily reflects strong activity growth in our heavy civils business and the transfer of a facilities business into Investment Services in 2023 from Projects.

 

Adjusted EBITDA of $77 million mostly represents the share of results from our Turbines joint ventures of 

$65 million, up significantly on last year with a strong performance across both EthosEnergy and RWG. Excluding these Turbine JVs, adjusted EBITDA was down significantly.

 

The order book at 31 December 2023 was $109 million, down 34% on last year.

 

Outlook for 2024

We expect the contribution from Investment Services to be broadly flat in 2024, with the performance of our Turbine JVs weighted to the second half as is typical in these businesses.

 

CENTRAL COSTS


FY23

(unaudited)

$m

FY22
$m

Movement

%

At constant currency %

Adjusted EBITDA

(76)

(74)

(3.7)%

(2.8)%

Adjusted EBIT

(117)

(99)

(17.7)%

 

 

Central costs, not allocated to business units, increased slightly to $76 million, with cost reductions mostly offsetting inflationary pressures.

 

Outlook for 2024

We expect to see a reduction in central costs of around $10 million from the benefits of our simplification programme.

 

FINANCIAL REVIEW

Trading performance

Trading performance is presented on the basis used by management to run the business with adjusted EBITDA and adjusted EBIT including the contribution from joint ventures. Revenue does not include any contribution from joint ventures. A reconciliation of adjusted EBITDA and adjusted EBIT to operating profit is included below. A calculation of adjusted diluted EPS is shown on page 19.


2023

(unaudited)

$m

2022

(re-presented)

$m

Continuing operations



Revenue

5,900.7

5,469.3

Adjusted EBITDA1

422.7

388.2

Adjusted EBITDA margin %

7.2%

7.1%

Depreciation (PPE)

(26.2)

(29.3)

Depreciation on right of use asset (IFRS 16)

(103.1)

(90.5)

Impairment of joint venture investments and property, plant and equipment

(1.8)

(2.4)

Amortisation - software and system development

(106.6)

(89.0)

Adjusted EBIT

185.0

177.0

Adjusted EBIT margin %

3.1%

3.2%

Amortisation - intangible assets from acquisitions

(54.5)

(64.4)

Tax and interest charges on joint ventures

(16.3)

(14.3)

Exceptional items

(76.7)

(121.2)

Impairment of goodwill and intangible assets

-

(542.3)

Operating profit/(loss)

37.5

(565.2)

Net finance expense

(81.5)

(109.8)

Interest charge on lease liability

(18.7)

(16.4)

Loss before taxation from continuing operations

(62.7)

(691.4)

Tax charge on continuing operations

(65.0)

(10.9)

Loss for the period from continuing operations

(127.7)

(702.3)

Profit from discontinued operations, net of tax

22.5

350.6

Loss for the period

(105.2)

(351.7)

Non-controlling interest

(5.5)

(4.6)

Loss attributable to owners of parent

(110.7)

(356.3)

Number of shares (basic)

685.9

680.4

Basic loss per share

 

 (cents)

(16.1)

(52.4)

 

In the table above depreciation and amortisation include the contribution from joint ventures.

Built Environment Consulting (sold in September 2022) is classified as a discontinued operation and its results are included within "Total Group" measures. Continuing operations excludes its results. The comparative information has been re-presented due to the reclassification of Built Environment Consulting Saudi Arabia from discontinued into continuing operations. This relates to the sale of a subsidiary, previously classified as held for sale, which did not complete during 2023 and will now be retained by the Group. The revenue of this business for the year ended 31 December 2022 was $27.1 million and Adjusted EBITDA was $3.1 million. 

Revenue was up 8% on 2022 to $5,900.7 million with good growth across all business units. Adjusted EBITDA increased by $34.5 million to $422.7 million primarily due to the higher revenue and helped by a slightly higher margin of 7.2% as operational performance and improved pricing offset investments in operating costs.

Adjusted EBIT increased by $8.0 million with higher adjusted EBITDA partly offset by higher depreciation of right of use assets and a higher software amortisation charge reflecting the increased software spend across the Group in recent years.

Operating profit of $37.5 million (2022: loss $565.2 million) has improved mainly due to lower exceptional items of $76.7 million (2022: $121.2 million) and no impairment charge (2022: $542.3 million) being recognised on goodwill and intangible assets. The $22.5 million profit from discontinued operations, net of tax includes the final proceeds from the Built Environment Consulting business following agreement of the completion balance sheet between the Group and WSP. The increase in the tax charge to $65.0 million (2022: $10.9 million) is primarily driven by actuarial movements in the UK pension scheme.

The review of our trading performance is contained within the Chief Executive Review on pages 5 to 12.

Reconciliation of Adjusted EBIT to Adjusted diluted EPS


2023

(unaudited)

$m

2022

(re-presented)

$m

Adjusted EBIT

185.0

177.0

Tax and interest charges on joint ventures

(16.3)

(14.3)

Adjusted net finance expense

(70.4)

(103.9)

Interest charge on lease liability

(18.7)

(16.4)

Adjusted profit before tax

79.6

42.4

Adjusted tax charge

(58.3)

(59.2)

Adjusted (loss)/profit from discontinued operations, net of tax

(10.2)

60.2

Adjusted profit for the period

11.1

43.4

Non-controlling interest

(5.5)

(4.6)

Adjusted earnings

5.6

38.8

Number of shares (m) - diluted

685.9

680.4

Adjusted diluted EPS (cents)2

0.8

5.7

Adjusted diluted EPS (cents) continuing operations2

2.3

(3.1)

See notes on page 24

 

Reconciliation to GAAP measures


2023

(unaudited)

$m

 2022

(re-presented)

$m

Loss before tax from continuing operations

(62.7)

(691.4)

Impairment of goodwill and intangible assets

-

542.3

Exceptional items

76.7

121.2

Exceptional items - net finance expense

11.1

5.9

Amortisation - intangible assets from acquisitions

54.5

64.4

Adjusted profit before tax

79.6

42.4

 



Tax charge

65.0

10.9

Tax in relation to acquisition amortisation

3.7

11.9

Tax on exceptional items

(10.4)

36.4

Adjusted tax charge

58.3

59.2

 



      

Profit from discontinued operations, net of tax

22.5

350.6

Discontinued operations, gain on disposal

(37.7)

(297.1)

Discontinued items, exceptional items

5.0

6.7

Adjusted (loss)/profit from discontinued operations, net of tax

(10.2)

60.2

The reconciliation from adjusted EBIT of $185.0 million (2022: $177.0 million) to adjusted earnings of $5.6 million (2022: $38.8 million) has been provided to show a clear reconciliation to adjusted diluted EPS, which is a key performance measure of the Group. The reconciliation to GAAP measures highlights that the adjusted measures remove exceptional items, the exceptional items on discontinued operations and the associated tax charges on the basis that these are disclosed separately due to their size and nature to enable a full understanding of the Group's performance. Please refer to commentary on exceptional items and associated tax charges on pages 16 to 18. Amortisation on intangible assets from acquisitions and the associated tax credit has been excluded to allow a more useful comparison to Wood's peer group.

Amortisation, depreciation and other impairments for continuing operations

Total amortisation for 2023 was $161.1 million (2022: $153.4 million), all of which relates to the continuing Group. The total amortisation charge includes $54.5 million of amortisation of intangibles recognised on the acquisition of Amec Foster Wheeler ("AFW") (2022: $63.5 million). Amortisation in respect of software and development costs was $106.6 million (2022: $89.0 million) and this largely relates to engineering software and ERP system development. Included in the amortisation charge for the year is $1.4 million (2022: $1.5 million) in respect of joint ventures.  

 

The total depreciation charge in 2023 amounted to $129.3 million (2022: $119.8 million) and includes depreciation on right of use assets of $103.1 million (2022: $90.5 million). Included in the depreciation charge for the year is $13.1 million (2022: $12.3 million) in respect of joint ventures.

Net finance expense and debt


2023

(unaudited)

$m

 

2022

$m

Interest on bank borrowings

59.4

47.2

Interest on US Private Placement debt

16.6

40.3

Discounting relating to asbestos, deferred consideration and other liabilities

12.3

6.8

Other interest, fees and charges

12.6

22.4

Total finance expense excluding joint ventures and interest charge on lease liability

100.9

116.7

Finance income relating to defined benefit pension schemes

(18.3)

(2.4)

Other finance income

(1.1)

(4.5)

Net finance expense

81.5

109.8

Interest charge on lease liability

18.7

16.4

Net finance charges in respect of joint ventures

6.5

4.4

Net finance expense including joint ventures, continuing Group

106.7

130.6

 

Interest on bank borrowings of $59.4 million (2022: $47.2 million) primarily relates to interest charged on borrowings under the $1.2 billion Revolving Credit Facility ('RCF') which matures in October 2026 and the United Kingdom Export Facility ('UKEF') term loan which was repaid in December 2023 and replaced with a $200.0 million term loan facility maturing in October 2026. Despite the reduction in average net debt during the period, there was a $12.2 million increase in interest on bank borrowings. The increase in the interest expense is primarily driven by higher interest rates in 2023 compared with 2022.  The higher interest rate is primarily driven by higher base rates throughout 2023 partially offset by the impact of a lower margin in 2023, caused by the reduction in the net debt to adjusted EBITDA covenant from December 2022.

 

The interest charge on US Private Placement debt decreased by $23.7 million to $16.6 million primarily due to the total repayment of around $450 million to the USPP noteholders during the second half of 2022, being the early settlement of notes following the disposal of the Built Environment Consulting business. The Group had $352.5 million (2022: $352.0 million) of unsecured loan notes outstanding at 31 December 2023, maturing between 2024 and 2031 with around 75% due in 2025 or later.

 

Other interest, fees and charges amount to $12.6 million (2022: $22.4 million) and principally relates to the interest on other facilities of $8.4 million, including the receivables factoring facilities and amortisation of bank facility costs of $4.2 million (2022: $10.5 million). The reduction of $9.8 million in other interest, fees and charges is primarily due to lower bank facility costs due to one off, non-cash charges incurred in 2022 as a result of the partial early repayments of the UKEF and USPP facilities.

 

In total, the Group had undrawn facilities of $902.1 million as at 31 December 2023, of which $843.1 million related to the revolving credit facility.

 

The Group recognised interest costs in relation to lease liabilities of $18.7 million (2022: $16.4 million) which relates to the unwinding of discount on the lease liability.

 

Included within the discounting balance of $12.3 million (2022: $6.8 million) is the unwinding of discount on the asbestos provision of $11.1 million (2022: $5.9 million).  

 

Net debt excluding leases to adjusted EBITDA (excluding the impact of IFRS 16) at 31 December was 2.08 times on a covenant basis (2022: 1.3 times) against our covenants of 3.5 times. This is calculated pre IFRS 16 as our covenants are calculated on a frozen GAAP basis, see note 4 on page 24.

 

Interest cover (see note 5 on page 25) was 4.0 times on a covenant basis (2022: 4.2 times) against our covenant of 3.5 times. 

 

Exceptional items


2023

(unaudited)

 $m

2022

$m

Exceptional items included in continuing operations



Power and Industrial EPC losses

45.1

25.0

Impairment of goodwill and intangible assets

-

542.3

Apollo related costs

4.8

-

Redundancy, restructuring and integration costs

-

30.1

Investigation support costs and provisions

(2.6)

(4.2)

Enterprise settlement

-

35.6

Asbestos yield curve and costs

29.4

21.5

Russia exit costs and charges

-

13.2

Exceptional items included in continuing operations, before interest and tax

76.7

663.5

Unwinding of discount on asbestos provision

11.1

5.9

Tax (credit)/charge in relation to exceptional items

(0.2)

5.2

Release of uncertain tax provision

(7.4)

-

Derecognition/(recognition) of deferred tax assets due to UK pension actuarial movements

18.0

(41.6)

Exceptional items included in continuing operations, net of interest and tax

98.2

633.0

 

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. 

 

Power and Industrial EPC losses

The Group made a strategic decision in 2021 to exit certain business segments within the Power and Industrials sub business group. Following that decision, we ceased to operate in the large-scale EPC or lump sum turnkey business segment.  

 

The costs of exiting that business and any subsequent costs related to the wind down of contracts in that business, to the extent they are material in size, have been treated as exceptional on the basis that they relate to a segment in which the Group no longer operates. 

 

In the first half of 2023 the Group recorded a non-cash exceptional charge of $20.4 million relating to a write down of receivable balances arising from activity in the Power and Industrial EPC business. The Group had expected to recover these balances, but these have since been disputed. 

 

In the second half of 2023, a former client raised an arbitration claim against the Group in respect of alleged damages and costs arising from a legacy Power and Industrial contract.  Following evaluation of the claim, the Group has recognised a provision of $23.0 million with a charge to exceptional items, representing our assessment of probable outflows arising from the matter. 

 

During the year additional costs relating to the discontinued business of $1.7 million were recorded as an exceptional charge. This follows previous write downs made during 2022 of $25.0 million, including a revenue reversal of $8.0 million which represents the impact of a reduction in total value of the contract and is in relation to revenue recognised in prior years.

 

Apollo related costs

 

The Group incurred $4.8 million in relation to legal and advisor costs arising from Apollo's preliminary approach to potentially acquire the ordinary share capital of the Group, which did not ultimately lead to an offer.

 

Investigation support costs and provisions

 

The regulatory investigations were all closed out during 2021 and the agreed settlements were materially in line with the provision made in 2020.  The $2.6m credit relates to the release of provisions made for additional legal and other costs which were ultimately not needed. 

 

Asbestos

 

All asbestos costs have been treated as exceptional on the basis that movements in the provision are non-trading and can be large and driven by market conditions which are out with the Group's control. Excluding these charges from the trading results improves the understandability of the underlying trading performance of the Group. 

 

The charge before interest and tax of $29.4 million (2022: $21.5 million) in 2023 comprises a $34.2 million charge (2022: $52.8 million) based on an updated actuarial review reflecting the best estimate for recent claims experience and $5.4 million (2022: $4.3 million) of costs in relation to managing the claims. These are offset by a credit of $10.0m which relates to the collection of insurance proceeds from an insolvent insurer and a yield curve credit of $0.2 million (2022: $35.6 million).  The lower yield curve credit recognised in 2023 is principally due to the 27 year blended curve rate of 3.64% not being materially different to the 30 year flat rate of 3.97% in 2022.

 

Interest costs of $11.1 million which relate to the unwinding of discount on the asbestos provision over time are shown as exceptional (2022: $5.9 million).

 

Redundancy, restructuring and integration costs

 

No costs were incurred in 2023. In the prior year, $30.1m was incurred in relation to redundancy and restructuring activities. 

 

Enterprise settlement

In the prior year, the Enterprise claim was concluded, with the amount settled being in excess of the amount provided for. The charge in the prior year was classed as an exceptional both by its nature (historic litigation settlement) and by size.

 

Tax

An exceptional tax charge of $10.4 million (2022: $36.4 million credit) has been recorded during the period. It consists of a $0.2 million tax credit on exceptional items (2022: $5.2 million charge), a $7.4 million credit in relation to the release of an uncertain tax provision created through exceptional items on the disposal of the Well Support business in 2011, offset by an exceptional charge of $18.0 million (2022: $41.6 million credit) recognised due to the actuarial loss in relation to the UK defined benefit pension scheme. As deferred tax liabilities support the recognition of deferred tax assets, the reduction of $18.0 million of deferred tax assets has been charged through exceptional items based on its size.

 

Taxation

The effective tax rate on profit before tax, exceptional items and amortisation and including Wood's share of joint venture profit on a proportionally consolidated basis is set out below, together with a reconciliation to the tax charge in the income statement.

 


2023

(unaudited)

$m

 2022

(re-presented)

$m

Loss from continuing operations before tax

(62.7)

(691.4)

(Loss)/profit from discontinued operations, net of tax and before exceptional items

(10.2)

60.2

Tax charge in relation to joint ventures

9.8

9.9

Amortisation (note 10)

159.7

151.9

Exceptional items (continuing operations)

87.8

669.4

Tax charge in relation to discontinued operations

-

7.9

Profit before tax, exceptional items and amortisation

184.4

207.9




Effective tax rate on continuing operations (excluding tax on exceptional items and amortisation)

35.63%

36.84%

Tax charge (excluding tax on exceptional items and amortisation)

65.7

76.6

Tax charge in relation to joint ventures

(9.8)

(9.9)

Tax (credit)/charge in relation to exceptional items (continuing operations)

(7.6)

5.2

Derecognition/(recognition) of deferred tax assets due to UK pension actuarial movements

18.0

(41.6)

Tax credit in relation to amortisation

(1.3)

(11.5)

Tax charge on discontinued operations

-

(7.9)

Tax charge from continuing operations per the income statement

65.0

10.9

 

The effective tax rate reflects the rate of tax applicable in the jurisdictions in which the Group operates and is adjusted for permanent differences between accounting and taxable profit and the recognition of deferred tax assets. Key adjustments impacting on the rate in 2023 are withholding taxes suffered on which full double tax relief is not available, deferred tax not recognised primarily in relation to interest expenses not deductible in the current year, less the release of uncertain tax provisions reflecting the positive outcomes in relation to specific risks.

 

In addition to the effective tax rate, the total tax charge in the income statement reflects the impact of exceptional items and amortisation which by their nature tend to be expenses that are more likely to be not deductible than those incurred in ongoing trading profits. The income statement tax charge excludes tax in relation to joint ventures. The increase in the tax charge in 2023 is largely a result of the exceptional tax charge of $18.0 million (2022: $41.6 million credit) on deferred tax assets as a result of actuarial movements on the UK pension scheme.

Adjusted tax charge

As noted on page 14 our adjusted tax charge was $58.3 million (2022: $59.2 million), representing an adjusted effective tax rate of 73%.  This was lower than the adjusted rate of 140% in 2022, principally due to the significant reduction in net finance costs in the year.  Our adjusted tax rate remained relatively high however, representing a range of factors including the geographical mix of profits and losses across the Group, restrictions on the deductibility of interest, withholding taxes on income in certain jurisdictions and limits on the recognition of deferred tax assets in the UK and US due to losses in these countries.  

 

Earnings per share

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 adjusted diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares, only when there is a profit per share. Adjusted diluted earnings per share is disclosed to show the results excluding the impact of exceptional items and amortisation related to acquisitions, net of tax.

 

For the year ended 31 December 2023, the Group reported a basic loss (2022: loss) per ordinary share, therefore the effect of dilutive ordinary shares are excluded (2022: excluded) in the calculation of diluted earnings per share. Where profits have been made when disaggregating discontinued and continuing operations, the calculation of diluted earnings per share was performed on the same basis as the whole Group.

 


 

2023 (unaudited)

 


2022



 

Continuing

operations

$m

Discontinued operations

 $m

Total

$m

Continuing operations

(re-presented)

$m

Discontinued operations

(re-presented)

$m

Total

 (re-presented)

$m


 

 

 

 



(Losses)/earnings attributable to equity

shareholders (basic pre-exceptional)

(35.0)

(10.2)

(45.2)

(73.9)

60.2

(13.7)

Exceptional items, net of tax

(98.2)

32.7

(65.5)

(633.0)

290.4

(342.6)

(Losses)/earnings attributable

to equity shareholders (basic)

(133.2)

22.5

(110.7)

(706.9)

350.6

(356.3)

Number of shares (basic)

685.9

685.9

685.9

680.4

680.4

680.4

Number of shares (diluted)

685.9

685.9

685.9

680.4

680.4

680.4

Basic (losses)/earnings per share (cents)

(19.4)

3.3

(16.1)

(103.9)

51.5

(52.4)

Diluted (losses)/earnings per share (cents)

(19.4)

3.3

(16.1)

(103.9)

51.5

(52.4)


 

 

 




 

(Losses)/earnings attributable

to equity shareholders (diluted)

(133.2)

22.5

(110.7)

(706.9)

350.6

(356.3)

Exceptional items, net of tax

98.2

(32.7)

65.5

633.0

(290.4)

342.6

Amortisation of intangibles on acquisition,

net of tax

50.8

-

50.8

52.5

-

52.5

Earnings/(losses) attributable

to equity shareholders (adjusted diluted)

15.8

(10.2)

5.6

(21.4)

60.2

38.8

Earnings/(losses) attributable

to equity shareholders (adjusted basic)

15.8

(10.2)

5.6

(21.4)

60.2

38.8

Number of shares (diluted)

685.9

685.9

685.9

680.4

680.4

680.4

Number of shares (basic)

685.9

685.9

685.9

680.4

680.4

680.4

Adjusted diluted (cents)

2.3

(1.5)

0.8

(3.1)

8.8

5.7

Adjusted basic (cents)

2.3

(1.5)

0.8

(3.1)

8.8

5.7


Basic loss per share for the year was 16.1 cents (2022: 52.4 cents). The reduction in loss per share is driven by lower exceptional items, net of tax in the continuing Group. The adjusted earnings per share was 0.8 cents (2022: 5.7 cents). The decline in the year mainly reflects the absence of Built Environment Consulting. This measure excludes exceptional items, amortisation of acquired intangibles and all related tax charges and credits. A reconciliation of adjusted EBIT to adjusted EPS is shown on page 14.

 

Capital allocation

We look to manage our target leverage over the medium term within a range of around 0.5 to 1.5 times net debt (excluding leases) to adjusted EBITDA (pre-IFRS 16). Beyond this, we consider how best to create value for our shareholders from dividends, share buybacks or attractive acquisitions.

Cash flow and net debt

The cash flow for the year is set out below and includes both continuing and discontinued operations:

 


Excluding leases

2023

(unaudited)

 

$m

Impact of Leases

2023

(unaudited)

 

$m

Total

2023

 

(unaudited)

 

$m

Excluding leases

2022

 

 

 

$m

Impact of Leases

2022

 

 

$m

Total

2022

 

 

 

$m

Adjusted EBITDA

301.4

111.1

412.5

337.0

121.0

458.0

Less JV EBITDA

(66.4)

(7.2)

(73.6)

(50.8)

(7.7)

(58.5)

JV Dividends

15.6

-

15.6

30.1

-

30.1

Adjusted decrease in provisions (note 6)

(22.1)

-

(22.1)

(43.7)

-

(43.7)

Other

18.7

(1.7)

17.0

28.1

-

28.1

Cash flow generated from operations pre working capital

 

247.2

 

102.2

 

349.4

 

300.7

 

113.3

 

414.0

Adjusted increase in receivables (note 6)

(67.7)

-

(67.7)

(97.5)

-

(97.5)

Adjusted increase/(decrease) in payables (note 6)

12.7

-

12.7

(267.6)

-

(267.6)

Decrease/(increase) in inventory

1.5

-

1.5

(1.6)

-

(1.6)

Adjusted working capital movements

(53.5)

-

(53.5)

(366.7)

-

(366.7)

Adjusted cash generated /(outflow) from operations (note 6)

193.7

102.2

295.9

(66.0)

113.3

47.3

Purchase of property, plant and equipment

(18.8)

-

(18.8)

(27.6)

-

(27.6)

Proceeds from sale of property, plant and equipment

8.2

-

8.2

7.1

-

7.1

Purchase of intangible assets

(126.4)

-

(126.4)

(109.2)

-

(109.2)

Interest received

1.1

-

1.1

4.5

-

4.5

Interest paid

(81.7)

-

(81.7)

(98.1)

-

(98.1)

Tax paid

(97.7)

-

(97.7)

(81.9)

-

(81.9)

Non-cash movement in leases

-

(160.9)

(160.9)

-

(41.7)

(41.7)

Other

1.4

-

1.4

(14.2)

(6.3)

(20.5)

Free cash flow (excluding exceptionals)

(120.2)

(58.7)

(178.9)

 

(385.4)

65.3

(320.1)

Cash exceptionals

(145.0)

11.1

 

(133.9)

(318.8)

14.6

(304.2)

Free cash flow

(265.2)

(47.6)

(312.8)

(704.2)

79.9

(624.3)

FX movements on cash and debt facilities

 

(12.6)

 

(10.3)

 

(22.9)

 

(25.4)

 

27.0

 

1.6

Divestments

(22.5)

-

(22.5)

1,729.4

-

1,729.4

(Increase)/decrease in net debt

(300.3)

(57.9)

(358.2)

999.8

106.9

1,106.7








Opening net debt

(393.2)

(342.9)

(736.1)

(1,393.0)

(449.8)

(1,842.8)

Closing net debt

(693.5)

(400.8)

(1,094.3)

(393.2)

(342.9)

(736.1)








Closing net debt at 31 December 2023 including leases was $1,094.3 million (2022: $736.1 million). Included within closing net debt is the IFRS 16 lease liability which is the net present value of the lease payments that are not paid at the commencement date of the lease and subsequently increased by the interest cost and reduced by the lease payment made. The lease liability as at 31 December 2023 was $400.8 million (2022: $342.9 million), with the increase primarily relating to a new office campus in Reading, UK that replaced a previous location. All covenants on the debt facilities are measured on a pre-IFRS 16 basis.

 

Closing net debt excluding leases as at 31 December 2023 was $693.5 million (2022: $393.2 million). The monthly average net debt excluding leases in 2023 was $846.4 million (2022: $1,489.1 million). The cash balance and undrawn portion of the Group's committed banking facilities can fluctuate throughout the year. Around the covenant remeasurement dates of 30 June and 31 December the Group's net debt excluding leases is typically lower than the monthly averages due mainly to a strong focus on collection of receipts from customers.

 

Cash generated from operations pre-working capital reduced by $64.6 million to $349.4 million from $414.0 million in the year to December 2023 reflecting increased EBITDA from continuing operations more than offset by EBITDA from the business sold in 2022. It includes a decrease in provisions of $22.1 million which is mainly explained by utilisations of the provision in the year. New provisions created through EBITDA were largely offset by releases to EBITDA. The releases in 2023 are driven by the Group concluding on a number of historic project related and insurance provisions which are no longer considered necessary following resolution of the disputes or the underlying risk. New provisions primarily relate to insurance and various individually immaterial project provisions. The other movement of $17.0 million (2022: $28.1 million) is principally comprised of non-cash movements through EBITDA including share-based charges of $19.6 million (2022: $20.7 million), FX movements of $3.1 million (2022: $8.1 million) and non-cash gains on disposal of the Gulf of Mexico assets, right of use assets and property, plant and equipment of $2.0 million, $1.7 million and $2.6 million respectively.

 

There was a working capital outflow of $53.5 million (2022: $366.7 million). The outflow in receivables of $67.7 million was driven by an increase to revenue in 2023 and higher closing days sales outstanding ("DSO") leading to higher trade receivables and gross amounts due from customers. The trade and other payables balance is broadly consistent with 2022, resulting in a working capital inflow in the year due to payables of $12.7 million.

 

The Group has receivables financing facilities totalling $200.0 million. The amount utilised at 31 December 2023 was $198.2 million (2022: $200.0 million). The facilities are non-recourse to the Group and are not included in our net debt. 

 

Cash exceptionals including lease movements reduced by $170.3 million to $133.9 million as the Group continues to reduce its exposure to legacy contracts. Payments made during 2023 mainly relate to the settlement of known legal claims and asbestos payments. These include the historic SFO investigation payments of $38 million which were provided for in 2020 and net asbestos payments of around $40 million. The remaining cash exceptionals mainly relates to the legacy Aegis contract of $27 million and other legacy contracts of $12 million.

 

The other reduction in net debt of $1.4 million (2022: increase of $20.5 million) is principally comprised of the movements in accrued bank interest and prepaid debt facility costs which are included within net debt.

 

The free cash outflow of $312.8 million (2022: $624.3 million) was lower than in 2022, largely due to the $170.3 million improvement in cash exceptionals and improved working capital performance of $313.2 million. This was offset mainly by an increase in the non-cash movement in leases totalling $160.9 million (2022: $41.7 million) driven by significant lease renewals in the year, an increase of $17.2 million related to the purchase of intangible assets, including software and investment in ERP improvements throughout the Group and an increase in tax paid of $15.8 million following conclusion of a number of uncertain tax provisions.

 

A net cash outflow from divestments of $22.5 million includes final proceeds from the disposal of the Built Environment Consulting ($27.1 million) and proceeds from the sale of the Gulf of Mexico business ($17.5 million). These are offset by taxes paid on the Built Environment Consulting disposal of $65.0 million and professional costs incurred on the disposal of Built Environment Consulting of $2.1 million.

 

Operating cash conversion, before capital expenditure, calculated as cash generated from operations as a percentage of adjusted EBITDA (less JV EBITDA) increased to 87.3% (2022: 11.8%) primarily due improved working capital performance.

Summary balance sheet

 

 


2023

(unaudited)

2022

$m

$m

Goodwill and intangible assets

4,319.0

4,309.1

Right of use assets

355.9

276.0

Other non-current assets

913.9

918.0

Trade and other receivables

1,554.4

1,545.0

Net held for sale assets and liabilities (excluding cash)

-

0.4

Trade and other payables

(1,706.7)

(1,687.6)

Net debt excluding leases

(693.5)

(393.2)

Lease liabilities

(400.8)

(342.9)

Asbestos related litigation

(306.5)

(311.4)

Provisions

(135.3)

(148.3)

Other net liabilities

(258.5)

(435.6)

Net assets

3,641.9

3,729.5




Net current liabilities

(207.0)

(235.0)

 

At 31 December 2023, the Group had net current liabilities of $207.0 million (2022: $235.0 million).

 

Goodwill and intangible assets amount to $4,319.0 million (2022: $4,309.1 million) and principally comprises of goodwill and intangibles relating to acquisitions. The increase of $9.9 million comprises of software additions of $131.0 million and FX movements of $53.6 million offset by amortisation charges of $159.7 million and $15.0 million of goodwill disposed following sale of Gulf of Mexico assets.

 

Right of use assets and lease liabilities amount to $355.9 million (2022: $276.0 million) and $400.8 million (2022: $342.9 million) respectively.  The increase in both the right of use asset and lease liability primarily relates to a new office campus in Reading, UK contributing to around $68 million and $64 million respectively.

 

Trade and other receivables increased to $1,554.4 million reflecting the increased revenues compared with 2022 and a higher DSO. Trade and other payables increased to $1,706.7 million also reflecting the increasing activity levels and follows the normalisation of the balance as at December 2022.

 

Largely as a result of the acquisition of AFW, the Group is subject to claims by individuals who allege that they have suffered personal injury from exposure to asbestos primarily in connection with equipment allegedly manufactured by certain subsidiaries during the 1970s or earlier. The overwhelming majority of claims that have been made and are expected to be made are in the USA. The asbestos related litigation provision amounts to $306.5 million (2022: $311.4 million).

 

The net asbestos liability at 31 December 2023 amounted to $328.1 million (2022: $335.4 million) and comprised $306.5 million in provisions (2022: $311.4 million) and $50.4 million in trade and other payables (2022: $59.5 million) less $23.2 million in long term receivables (2022: $24.4 million) and $5.6 million in trade and other receivables (2022: $11.1 million).

The Group expects to have net cash outflows of approximately $35 million as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2024. The Group has worked with its independent asbestos valuation experts to estimate the amount of asbestos related indemnity and defence costs at each year end based on a forecast to 2050.

 

Other provisions as at December 2023 were $135.3 million (2022: $148.3 million) and comprise project related provisions of $42.2 million (2022: $63.3 million), insurance provisions of $40.7 million (2022: $46.2 million), property provisions of $27.4 million (2022: $26.0 million) and litigation related provisions of $25.0 million (2022: $12.8 million).

 

Full details of provisions are provided in notes 21 and 22 to the condensed financial statements.

 

Pensions

The Group operates a number of defined benefit pension schemes in the UK and US, alongside a number of defined contribution plans. At 31 December 2023, the UK defined benefit pension plan had a surplus of $391.9 million (2022: $432.4 million) and other schemes had deficits totalling $80.1 million (2022: $73.2 million).

The Group's largest pension scheme, the UK Pension Plan, has total scheme assets of $2,822.5 million (2022: $2,690.1 million) and pension scheme obligations of $2,430.6 million (2022: $2,257.7 million) and is therefore 116% (2022: 119%) funded on an IAS 19 basis. There was an increase in scheme liabilities arising from a lower discount rate used in the actuarial assumptions, which is partially offset by an increase in scheme assets. 

In assessing the potential liabilities, judgement is required to determine the assumptions for inflation, discount rate and member longevity. The assumptions at 31 December 2023 showed a small reduction in the discount rate which results in higher scheme liabilities resulting in an overall decrease to the surplus compared to December 2022. Full details of pension assets and liabilities are provided in note 33 to the condensed financial statements.

The UK defined benefit pension plan was estimated to have a surplus on a Technical Provisions basis at the last triennial valuation date which was 31 March 2023 subject to finalisation of the valuation during 2024. The Group is currently working closely with the Trustee to agree on a preferred direction regarding the future of the plan. Options being assessed include moving to a buy-in insured basis and eventual buy-out with a third party as soon as is reasonably practical, or to continue to run the WPP for a limited number of years to potentially generate further surplus. Any surplus could benefit both the Group and pension members, ensuring that appropriate safeguards for both the funding position and members' interests are taken into account at all times.

 

Contingent liabilities

Details of the Group's contingent liabilities are set out in note 34 to the condensed financial statements.

Divestments

The final proceeds from the disposal of the Built Environmental Consulting business were agreed during 2023 upon agreement of the completion balance sheet between the Group and WSP. This has resulted in an additional gain of $31.0 million, comprising largely of $27.1 million of cash proceeds and the release of completion accruals being recognised in discontinued operations.

 

Notes

1.    A reconciliation of operating profit/(loss) to adjusted EBITDA is presented in table below and is a key unit of measurement used by the Group in the management of its business.


 2023

2022


(unaudited)

(re-presented)


$m

$m

Operating profit/(loss) per income statement

37.5

(565.2)

Share of joint venture finance expense and tax (note 13)

16.3

14.3

Exceptional items (note 5)

76.7

663.5

Amortisation (including joint ventures)

161.1

153.4

Depreciation (including joint ventures)

26.2

29.3

Depreciation of right of use assets

103.1

90.5

Impairment of joint venture investments and PP&E

1.8

2.4

Adjusted EBITDA (continuing operations)

422.7

388.2

 

 


Discontinued operation

 


Operating (loss)/profit (discontinued)

(15.2)

63.1

Exceptional items (note 7)

5.0

6.7

Adjusted EBITDA (discontinued operation)

(10.2)

69.8

Total Group Adjusted EBITDA

412.5

458.0

 

2.    Adjusted diluted earnings per share (AEPS) is calculated by dividing earnings attributable to owners before exceptional items and amortisation relating to acquisitions, net of tax, by the weighted average number of ordinary shares in issue during the period, excluding shares held by the Group's employee share ownership trusts and is adjusted to assume conversion of all potentially dilutive ordinary shares. AEPS on continuing operations excludes the adjusted loss from discontinued operations, net of tax of $10.2 million (2022: profit of $60.2 million).  In 2023, AEPS was not adjusted to assume conversion of all potentially dilutive ordinary shares because the unadjusted result is a loss.

3.    Number of people includes both employees and contractors at 31 December 2023.

4.    Net debt to adjusted EBITDA cover on a covenant basis is presented in the table below:

 

 

2023

(unaudited)

2022

 

$m

$m

Net debt excluding lease liabilities (reported basis) (note 31)

693.5

393.2

Covenant adjustments

17.7

16.2

Net debt (covenant basis)

711.2

409.4

Adjusted EBITDA (covenant basis)

341.2

315.1

Net debt to Adjusted EBITDA (covenant basis) - times

2.08

1.3

 

Adjusted EBITDA (covenant basis) is on a rolling 12 month period and excludes adjusted EBITDA from the discontinued operation and the impact of applying IFRS 16. The funding agreements require that covenants are calculated by applying IAS 17 rather than IFRS 16. The covenant adjustment to net debt relates to finance leases which would be on the balance sheet if applying IAS 17. Note: the covenant basis shown above refers to the measure as calculated for our RCF. The measure used for our USPP senior loan notes is not materially different from the covenant measure shown above.

 

5.    Interest cover on a covenant basis is presented in the table below:

 

 

2023

(unaudited)

2022

 

$m

$m

Net finance expense

81.5

109.8

Covenant adjustments

(1.2)

(4.8)

Non-recurring net finance expense

(1.9)

(37.5)

Net finance expense (covenant basis)

78.4

67.5

Adjusted EBITA (covenant basis)

315.0

285.9

Interest cover (covenant basis) - times

4.0

4.2

The difference between adjusted EBITDA (covenant basis) and adjusted EBITA (covenant basis) is $26.2 million (2022: $29.2 million) and is mainly explained by 12-month rolling pre-IFRS 16 depreciation charges of $26.2 million (2022: $29.3 million).

 

6.    Reconciliation to GAAP measures between consolidated cash flow statement and cash flow and net debt reconciliation

 

2023

(unaudited)

2022

 

$m

$m

Decrease in provisions

(91.0)

(123.1)

Prior year cash exceptionals

68.9

79.4

Adjusted movement in provisions

(22.1)

(43.7)

 

 


Increase in receivables

(77.5)

(97.5)

Carrying value of business disposed (operating activity)

9.8

-

Adjusted increase in receivables

(67.7)

(97.5)

 

 


Decrease in payables

(54.4)

(398.9)

Prior year cash exceptionals

67.1

131.3

Adjusted increase/(decrease) in payables

12.7

(267.6)

 

 


Tax paid

(97.7)

(103.9)

Tax paid on disposal of business

-

22.0

Adjusted tax paid

(97.7)

(81.9)


 


Disposal of businesses (net of cash disposed and tax paid)

(22.5)

1,751.4

Tax paid on disposal of business

-

(22.0)

Divestments

(22.5)

1,729.4

 

Proceeds from disposal of investment in joint ventures

15.9

-

Proceeds on disposal of business (operating activity)

(15.9)

-

Adjusted disposal of investment in joint ventures

-

-

 

 

Adjusted cash generated from operations

295.9

47.3

Cash exceptionals

(133.9)

(304.2)

Proceeds on disposal of business (operating activity)

(15.9)

-

Cash generated from/(used in) operations

146.1

(256.9)

Proceeds on disposal of business (operating activity)

15.9

-

Purchase of property, plant and equipment

(18.8)

(27.6)

Proceeds from sale of property, plant and equipment

8.2

7.1

Purchase of intangible assets

(126.4)

(109.2)

Interest received

1.1

4.5

Interest paid

(81.7)

(98.1)

 Tax paid

(97.7)

(81.9)

Non-cash movement in leases

(160.9)

(41.7)

Other

1.4

(20.5)

Free cash flow

(312.8)

(624.3)

 

Decreases in provisions, receivables and payables, cash generated from operations and tax paid have been adjusted to show exceptional items separately to present significant items separately from the rest of the cash flow either by virtue of size or nature and reflects how the Group evaluates cash performance of the business.

Prior year cash exceptionals is defined as cash payments made in the current period in respect of amounts provided for in prior periods.

The proceeds on disposal of business represents the sale of a joint venture contained within Investment Services. Management consider this as part of Investment Services trading activity and therefore is included within adjusted cash generated from operations. 

 

 

 

Consolidated income statement

for the year to 31 December 2023


 

2023 (unaudited)

2022 (re-presented*)


Note

Pre-exceptional items

$m

Exceptional items

$m

Total

$m

Pre-exceptional
items

$m

Exceptional
items

$m

Total

$m

Continuing operations








Revenue

1,2,5

5,900.7

                          -

5,900.7

5,469.3

(8.0)

5,461.3

Cost of sales

5

(5,191.1)

(24.7)

(5,215.8)

(4,800.6)

(17.0)

(4,817.6)



 

 

 




Gross profit


709.6

(24.7)

684.9

668.7

(25.0)

643.7

Administrative expenses

5

(614.4)

(31.6)

(646.0)

(600.8)

(96.2)

(697.0)

Impairment loss on trade receivables and contract assets


(23.8)

(20.4)

(44.2)

-

-

-

Impairment of goodwill and intangible assets

5

-

-

-

-

(542.3)

(542.3)

Share of post-tax profit from joint ventures

13

42.8

-

42.8

30.4

-

30.4



 

 

 




Operating profit/(loss)


114.2

(76.7)

37.5

98.3

(663.5)

(565.2)



 

 

 




Finance income

3

19.4

-

19.4

6.9

-

6.9

Finance expense

3,5

(108.5)

(11.1)

(119.6)

(127.2)

(5.9)

(133.1)

Profit/(loss) before taxation from continuing operations

4,5

25.1

(87.8)

(62.7)

(22.0)

(669.4)

(691.4)



 

 

 




Taxation

5,6

(54.6)

(10.4)

(65.0)

(47.3)

36.4

(10.9)



 

 

 




Loss for the year from continuing operations


(29.5)

(98.2)

(127.7)

(69.3)

(633.0)

(702.3)

Discontinued operation


 

 

 




(Loss)/profit from discontinued operations, net of tax

7

(10.2)

32.7

22.5

60.2

290.4

350.6

Loss for the year


(39.7)

(65.5)

(105.2)

(9.1)

(342.6)

(351.7)

 

(Loss)/profit attributable to:


 

 

 




Owners of the parent


(45.2)

(65.5)

(110.7)

(13.7)

(342.6)

(356.3)

Non-controlling interests

30

5.5

-

5.5

4.6

-

4.6



(39.7)

(65.5)

(105.2)

(9.1)

(342.6)

(351.7)

Earnings per share (expressed in cents per share)


 

 

 




Basic

9

 

 

(16.1)



(52.4)

Diluted

9

 

 

(16.1)



(52.4)

Earnings per share - continuing operations (expressed in cents per share)


 

 

 




Basic

9

 

 

(19.4)



(103.9)

Diluted

9

 

 

(19.4)



(103.9)



* The comparative information has been re-presented in line with the requirements of IFRS 5, paragraph 36, due to the reclassification of Built Environment Consulting Saudi Arabia from discontinued into continuing operations following a decision not to dispose of that business (note 7).

 

 

Consolidated statement of comprehensive income/expense

for the year to 31 December 2023


Note

2023

(unaudited)

$m

2022

*restated

$m

 

Loss for the year

 

 

 

(105.2)

 

(351.7)



 


Other comprehensive (expense)/income from continuing operations


 




 


Items that will not be reclassified to profit or loss


 


Re-measurement (losses)/gains on retirement benefit obligations

33

(82.2)

168.0

Movement in deferred tax relating to retirement benefit obligations

6

18.0

(41.6)

Total items that will not be reclassified to profit or loss


(64.2)

126.4

 


 


Items that may be reclassified subsequently to profit or loss


 


Cash flow hedges

29

3.8

5.1

Tax on derivative financial instruments

6

(0.4)

(1.7)

Exchange movements on retranslation of foreign operations

29

58.2

(165.1)

Total items that may be reclassified subsequently to profit or loss


61.6

(161.7)



 


Other comprehensive expense from continuing operations for the year, net of tax


(2.6)

(35.3)



 


Other comprehensive (expense)/income from discontinued operations


 




 


Re-measurement gains on retirement benefit schemes

33

-

2.9

Net exchange movements on disposal of foreign currency operations*


-

54.5

Exchange movements on retranslation of foreign operations

29

-

(57.9)



 


Other comprehensive expense from discontinued operations for the year, net of tax


-

(0.5)



 


Total comprehensive expense for the year


(107.8)

(387.5)



 


Total comprehensive expense for the year is attributable to:


 


Owners of the parent


(113.3)

(392.1)

Non-controlling interests


5.5

4.6



 




(107.8)

(387.5)


Exchange movements on the retranslation of foreign operations could be subsequently reclassified to profit or loss in the event of the disposal of a business.

* Based on the requirements of IAS 1 Presentation of Financial Statements, the net exchange movements on disposal of foreign currency operations of $54.5m should have been deducted from the statement of comprehensive income and expense for the year ending 31 December 2022, and the prior year comparative has been adjusted to reflect this.   This matter came to the attention of the directors following the Financial Reporting Council's Corporate Reporting Review Team ("FRC") enquiry.  The reclassification adjustment had no impact on loss for the year, cash flows or any of the balance sheet captions in the current or prior period.

 

 

Consolidated balance sheet

as at 31 December 2023


Note

 

2023

(unaudited)

$m

2022

$m

Assets




Non-current assets




Goodwill and other intangible assets

10

4,319.0

4,309.1

Property plant and equipment

11

65.3

82.4

Right of use assets

12

355.9

276.0

Investment in joint ventures

13

178.1

156.5

Other investments

13

51.3

56.0

Long term receivables

15

184.2

129.5

Retirement benefit scheme surplus

33

391.9

432.4

Deferred tax assets

23

43.1

61.2



5,588.8

5,503.1

Current assets




Inventories

14

16.3

11.1

Trade and other receivables

15

1,554.4

1,545.0

Financial assets

15

9.2

10.8

Income tax receivable


57.9

40.7

Assets held for sale


-

21.0

Cash and cash equivalents

16

434.0

536.7



2,071.8

2,165.3

Total assets


7,660.6

7,668.4

 




Liabilities




Current liabilities




Borrowings

18

315.3

345.9

Trade and other payables

17

1,706.7

1,687.6

Income tax liabilities


115.8

218.1

Lease liabilities

12

83.4

83.2

Provisions

22

57.6

44.9

Liabilities held for sale


-

20.6



2,278.8

2,400.3

Net current liabilities


(207.0)

(235.0)





Non-current liabilities




Borrowings

18

812.2

584.0

Deferred tax liabilities

23

76.6

100.1

Retirement benefit scheme deficit

33

80.1

73.2

Lease liabilities

12

317.4

259.7

Other non-current liabilities

19

69.4

106.8

Asbestos related litigation

21

306.5

311.4

Provisions

22

77.7

103.4



1,739.9

1,538.6

Total liabilities


4,018.7

3,938.9

Net assets


3,641.9

3,729.5

 

Equity attributable to owners of the parent




Share capital

25

41.3

41.3

Share premium

26

63.9

63.9

Retained earnings

27

1,312.9

1,224.4

Merger reserve

28

2,298.8

2,540.8

Other reserves

29

(80.4)

(142.4)

Total equity attributable to owners of the parent


3,636.5

3,728.0

Non-controlling interests

30

5.4

1.5

Total equity


3,641.9

3,729.5

 

 

 

Consolidated statement of changes in equity

for the year to 31 December 2023

 

 

 

 

*restated

 

 

 

 

Note

 

 

Share

capital

$m

 

 

Share

premium

$m

 

 

Retained

earnings

$m

 

 

Merger reserve

$m

 

 

Other

reserves

$m

Equity attributable to owners of the parent

$m

 

Non-

controlling

interests

$m

 

 

Total

equity

$m

At 1 January 2022


41.3

63.9

1,415.0

2,540.8

21.0

4,082.0

3.3

4,085.3











(Loss)/Profit for the year


-

-

(356.3)

-

-

(356.3)

4.6

(351.7)

Other comprehensive income/(expense):










Re-measurement gains on retirement benefit schemes

33

-

-

168.0

-

-

168.0

-

168.0

Re-measurement gains on retirement benefit schemes (discontinued)

33

 

-

 

-

 

2.9

 

-

 

-

 

2.9

 

-

 

2.9

Movement in deferred tax relating to retirement benefit schemes

6

 

-

 

-

 

(41.6)

 

-

 

-

 

(41.6)

 

-

 

(41.6)

Cash flow hedges

29

-

-

-

-

5.1

5.1

-

5.1

Tax on derivative financial instruments

6

-

-

(1.7)

-

-

(1.7)

-

(1.7)

Net exchange movements on retranslation of foreign operations

29

 

-

 

-

 

-

 

-

 

(165.1)

 

(165.1)

 

-

 

(165.1)

Net exchange movements on disposal of foreign currency operations*

29

-

-

-

-

54.5

54.5

-

54.5

Net exchange movements on retranslation of foreign operations (discontinued)

29

 

-

 

-

 

-

 

-

 

(57.9)

 

(57.9)

 

-

 

(57.9)

Total comprehensive (expense)/income for the year*


-

-

(228.7)

-

(163.4)

(392.1)

4.6

(387.5)

Transactions with owners:










Dividends paid

8,30

-

-

-

-

-

-

(1.1)

(1.1)

Credit relating to share based charges

24

-

-

20.7

-

-

20.7

-

20.7

Deferred tax impact of rate change in equity

6

-

-

(0.8)

-

-

(0.8)

-

(0.8)

Other tax movements in equity

6

-

-

(1.3)

-

-

(1.3)

-

(1.3)

Exchange movements in respect of shares held by employee share trusts

27

 

-

 

-

 

12.5

 

-

 

-

 

12.5

 

-

 

12.5

Purchase of company shares by Employee Share Trust for the Share Incentive Plan (SIP)

27

 

-

 

-

 

1.7

 

-

 

-

 

1.7

 

-

 

1.7

Transactions with non-controlling interests

30

-

-

5.3

-

-

5.3

(5.3)

-

At 31 December 2022


41.3

63.9

1,224.4

2,540.8

(142.4)

3,728.0

1.5

3,729.5

 










 

* Based on the requirements of IAS 1 Presentation of Financial Statements, the net exchange movements on disposal of foreign currency operations of $54.5m should have been deducted from the statement of comprehensive income and expense for the year ending 31 December 2022.  Within the Consolidated statement of changes in equity, the $54.5m was previously presented as a transaction with owners and so has been reclassified to total comprehensive income and expense.   This matter came to the attention of the directors following the Financial Reporting Council's Corporate Reporting Review Team ("FRC") enquiry.  The reclassification adjustment had no impact on loss for the year, cash flows or any of the balance sheet captions in the current or prior period.

 

 

 

 

 

(unaudited)

 

 

 

 

Note

 

 

Share

capital

$m

 

 

Share

premium

$m

 

 

Retained

earnings

$m

 

 

Merger reserve

$m

 

 

Other

reserves

$m

Equity attributable to owners of the parent

$m

 

Non-

controlling

interests

$m

 

 

Total

equity

$m

At 1 January 2023


41.3

63.9

1,224.4

2,540.8

(142.4)

3,728.0

1.5

3,729.5











(Loss)/Profit for the year


-

-

(110.7)

-

-

(110.7)

5.5

(105.2)

Other comprehensive income/(expense):










Re-measurement losses on retirement benefit schemes

33

 

-

 

-

 

(82.2)

 

-

 

-

 

(82.2)

 

-

 

(82.2)

Movement in deferred tax relating to retirement benefit schemes

6

 

-

 

-

 

18.0

 

-

 

-

 

18.0

 

-

 

18.0

Cash flow hedges

29

-

-

-

-

3.8

3.8

-

3.8

Tax on derivative financial instruments

6

-

-

(0.4)

-

-

(0.4)

-

(0.4)

Net exchange movements on retranslation of foreign operations

29

 

-

 

-

 

-

 

-

 

58.2

 

58.2

 

-

 

58.2

Total comprehensive (expense)/income for the year


-

-

(175.3)

-

62.0

(113.3)

5.5

(107.8)

Transactions with owners:










Dividends paid

8,30

-

-

-

-

-

-

(1.6)

(1.6)

Credit relating to share based charges

24

-

-

19.6

-

-

19.6

-

19.6

Deferred tax impact of rate change in equity

6

-

-

0.7

-

-

0.7

-

0.7

Other tax movements in equity

6

-

-

(0.1)

-

-

(0.1)

-

(0.1)

Purchase of company shares by Employee Share Trust for the Share Incentive Plan (SIP)

 

27

 

-

 

-

 

1.6

 

-

 

-

 

1.6

 

-

 

1.6

Transfer from merger reserve to retained earnings

28

-

-

242.0

(242.0)

-

-

-

-

At 31 December 2023


41.3

63.9

1,312.9

2,298.8

(80.4)

3,636.5

5.4

3,641.9










 

During 2023, John Wood Group Holdings Limited paid $242.0m to John Wood Group PLC in a partial settlement of the promissory note, which was put in place during 2019. The repayment represented qualifying consideration and as a result the Company transferred an equivalent portion of the merger reserve to retained earnings.                                                    

Other reserves include the capital redemption reserve, capital reduction reserve, currency translation reserve and the hedging reserve.

 

 

Consolidated cash flow statement

for the year to 31 December 2023

 


Note

         2023

(unaudited)

$m

2022

$m

Reconciliation of loss to cash generated from operations:




Loss for the period


(105.2)

(351.7)





Adjustments:




Depreciation

11

21.0

25.2

Depreciation on right of use assets

12

95.2

82.3

Gain on disposal of leases


(1.7)

-

Gain on disposal of property plant and equipment

4

(2.6)

(1.6)

Impairment of goodwill and intangible assets

10

-

542.3

Impairment of property, plant and equipment

11

1.8

0.4

Impairment of joint ventures

13

-

2.0

Gain on disposal of investment in joint ventures

13

(6.2)

-

Amortisation of intangible assets

10

159.7

151.9

Share of post-tax profit from joint ventures

13

(42.8)

(30.4)

Gain on disposal of business


(33.0)

(514.5)

Net finance costs

3

100.2

127.9

Share based charges

24

19.6

20.7

Decrease in provisions and employee benefits


(91.0)

(123.1)

Dividends from joint ventures

13

15.6

30.1

Other exceptional items - non-cash impact

1

84.5

35.3

Tax charge

6

58.3

236.2





Changes in working capital (excluding effect of acquisition and divestment of subsidiaries)




Decrease/(increase)in inventories


1.5

(1.6)

Increase in receivables


(77.5)

(97.5)

Decrease in payables


(54.4)

(398.9)





Exchange movements


3.1

8.1









Cash generated from / (used in) operations


146.1

(256.9)

Tax paid


(97.7)

(103.9)





Net cash generated from / (used in) operating activities


48.4

(360.8)





Cash flows from investing activities




Disposal of businesses (net of cash disposed and tax paid)


(22.5)

1,751.4

Proceeds from disposal of investment in joint ventures

13

15.9

-

Purchase of property plant and equipment

11

(18.8)

(27.6)

Proceeds from sale of property plant and equipment


8.2

7.1

Purchase of intangible assets

10

(126.4)

(109.2)

Interest received

3

1.1

4.5





Net cash (used in) / generated from investing activities


(142.5)

1,626.2





 

Cash flows from financing activities




Repayment of short-term borrowings

31

(133.5)

(35.0)

Proceeds from short-term borrowings

31

-

88.0

Proceeds from long term borrowings

31

515.0

-

Repayment of long-term borrowings

31

(200.0)

(1,039.1)

Payment of lease liabilities

31

(113.3)

(121.6)

Proceeds from SIP shares

27

1.6

1.7

Interest paid


(81.7)

(98.1)

Dividends paid to non-controlling interests

30

(1.6)

(1.1)





Net cash used in financing activities


(13.5)

(1,205.2)





Net (decrease) / increase in cash and cash equivalents

31

(107.6)

60.2





Effect of exchange rate changes on cash and cash equivalents

31

4.9

(26.5)





Opening cash and cash equivalents


536.7

503.0





Closing cash and cash equivalents

16

434.0

536.7


Cash at bank and in hand at 31 December 2023 includes $127.7m (2022: $328.4m) that is part of the Group's cash pooling arrangements. For internal reporting and for the purposes of the calculation of interest by the bank, this amount is netted with short-term overdrafts. However, in preparing these financial statements, the Group is required to gross up both its cash and short-term borrowings figures by this amount. Movement in short-term overdrafts are presented as part of the cash flows from financing activities as the overdraft facilities form part of the Group's financing.

The proceeds from long-term borrowings of $515.0m reflects the increased utilisation of the long-term revolving credit facility and the new $200.0m term loan which was issued in December 2023.  The new term loan of $200.0m led to the early repayment of the UKEF loan.

Payment of lease liabilities includes the cash payments for the principal portion of lease payments of $94.6m (2022: $103.7m) and for the interest portion of $18.7m (2022: $17.9m).  The classification of interest paid within financing activities is in line with the Group accounting policy.

The Group has elected to present a cash flow statement that includes an analysis of all cash flows in total, including both continuing and discontinued operations. Amounts related to the discontinued operation by operating, investing and financing activities are disclosed in note 7.

Included in the disposal of businesses are proceeds received of $27.1m relating to the sale of Built Environment Consulting and $17.5m on the Gulf of Mexico asset sale, offset by $65.0m of tax paid and $2.1m professional fees.

 

 

General information

John Wood Group PLC, its subsidiaries and joint ventures, ('the Group') delivers comprehensive services to support its customers across the complete lifecycle of their assets, from concept to decommissioning, across a range of energy and materials markets. 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 the United Kingdom and listed on the London Stock Exchange. Copies of the Group financial statements are available from the Company's registered office at Sir Ian Wood House, Hareness Road, Altens Industrial Estate, Aberdeen AB12 3LE.

The financial information in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2023 or 2022 but is derived from those accounts. Statutory accounts for 2022 have been delivered to the registrar of companies, and those for 2023 will be delivered in due course.

 The auditor had reported on the Company's statutory accounts for the year ended 31 December 2022 accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 The Company's statutory accounts for the year ended 31 December 2023 will be finalised on the basis of the financial information provided by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

Accounting Policies

Basis of preparation

These financial statements have been prepared in accordance with UK-adopted international accounting standards. The condensed 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. The financial statements are presented in US dollars and all values are rounded to the nearest $0.1m, unless otherwise stated.

Going concern

The directors have undertaken a rigorous assessment of going concern and liquidity over a period of at least 12 months from the date of approval of these financial statements (the going concern period), which includes financial forecasts up to the end of 2025 to reflect severe, but plausible scenarios.  The directors have considered as part of this assessment the impact of the events that happened post balance sheet date and up to the date of issue of these financial statements.

To satisfy themselves that the Group has adequate resources for the going concern assessment period, the directors have reviewed the Group's existing debt levels, the forecast compliance with debt covenants, and the Group's ability to generate cash from trading activities. As of 31 December 2023, the Group's principal debt facilities comprise a $1,200.0m revolving credit facility maturing in October 2026; a $200.0m term loan which matures in October 2026 and $352.5m of US private placement debt repayable in various tranches between July 2024 and July 2031, with around 75% due after the end of 2025.  The weighted average maturity of the Group's debt profile has been extended as a result of a new term loan being put in place which replaced an existing facility of the same value and that was due to mature in September 2024.  At 31 December 2023, the Group had headroom of $843.1m under its principal debt facilities and a further $59.8m of other undrawn borrowing facilities. The Group also expects to have sufficient levels of headroom in the severe but plausible downside scenarios modelled.

At 31 December 2023, the Group had net current liabilities of $207.0m (2022: $235.0m).

The directors have considered a range of scenarios on the Group's future financial performance and cash flows. These scenarios reflect our outlook for the energy and materials end markets.  Energy includes oil and gas and the Group forecast growth in this area is underpinned by increased focus on energy security and decarbonisation of operations.  During 2023, for example, the Group secured a new long-term strategic partnership around the management of UK North Sea Operations and deployed the Group's expertise in decarbonisation, digitalisation and asset life extension to enhance an international energy company's global portfolio of assets.  Materials includes minerals, chemicals and life sciences which are underpinned by growing populations and global net zero ambitions.  The order book gives significant coverage over 2024 and 2025 revenues.  Further, the order book is 86% reimbursable which reflects the lower risk profile of the Group's forecast cash flows over the going concern period.

The directors have also considered severe, but plausible, downside scenarios which reflect material reductions in 2024 and 2025 revenue of 7% and 5% respectively and reductions of 1% in gross margin percentage from the base, board approved, scenario.  The directors believe that the additional reductions represent a severe, but plausible, downside case.  This could result from a worsening economic climate which could lead to unexpected deferrals or cancellations of contracts by our clients.  In each of the scenarios modelled, the financial covenants were passed with significant facility headroom remaining available. The interest cover covenant has increased levels of headroom after adjusting for the non-recurring interest related to facilities repaid and cancelled within the 12-month period up to 31 December 2023. The directors included the impact of the removal of the receivables financing facilities (which are not committed) of $200m in the base scenario and the impact of additional adverse movements in working capital as additional, more severe, downside scenarios.   The Group still had sufficient headroom to meet its liabilities as they fall due with these additional sensitivities.

Consequently, the directors are confident that the Group and company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

 

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.

Critical accounting judgements 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 and judgements are based on management's best knowledge of the amount, event or actions and actual results ultimately may differ from those estimates. Group management believe that the estimates and assumptions listed below have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities.

                 (a)           Revenue recognition on fixed price and long-term contracts (estimate)

The Group has a large number of fixed price long-term contracts which are accounted for in accordance with IFRS 15 and require estimates to be made for contract revenue.  Fixed price contracts revenue from continuing operations amounted to $1,195.3m in 2023 (2022: $1,179.8m), and is comprised of several hundred individually immaterial contracts which are ongoing at any one point in time and these often span reporting periods and include small short duration consultancy contracts.  They are all at varying stages of completion and carry their own unique risks.  Hence, with the exception of the Aegis contract, which is described further in note 2, it is impracticable to provide any meaningful disclosure on the key sensitivities that would impact on revenue recognition, such as those outlined below.

Uncertainties include the estimation of:

Forecast costs to complete the contract

At the end of the reporting period the Group is required to estimate costs to complete on fixed price contracts based on the work to be performed after the reporting date, which may span more than one reporting period.  This involves an objective evaluation of project progress against the delivery schedule, evaluation of the work to be performed and the associated costs to fully deliver the contract to the customer and contingencies.  These factors are affected by a variety of uncertainties that depend on the outcome of future events, and so often need to be revised as events unfold, and therefore it is not practically possible to present these sensitivities which will be different across a large number of individually immaterial contracts.  The estimates from these contracts, in aggregate, could nevertheless have a possible material impact on revenue, cost of sales, gross amounts due to customers and gross amounts due from customers.

Recognition of revenue from variation orders ("VOs")

As contracts progress management may deem that the company is entitled to VOs increasing the contract price under the existing contracts (variable considerations).  In some instances, changes to the scope or requirements of a project equate to changing the contract in a way that entitles the Company to additional consideration (contract modifications).

 

Where VOs are linked to variable consideration management estimate the value of revenue to be recognised such that it is considered highly probable that a significant reversal in the amount of cumulative revenue recognised to date will not occur when the uncertainty associated with the VO is subsequently resolved.  This assessment is reconsidered at each reporting date.  The assessment is based on discussions with the customer and a range of factors, including contractual entitlement, prior experience of the customer and of similar contracts with other customers.

 

Where VOs are linked to contract modifications, management recognise associated revenue when such modifications are approved and when the company has an enforceable right to payment.  In cases where the price has not been agreed, management estimate the value of revenue to be recognised such that it is considered highly probable that a significant reversal in the amount of cumulative revenue recognised to date will not occur when the final price for the contract modification has been agreed.  The Group has governance processes in place, whereby unapproved variation orders in excess of $5m require approval by senior management.  As at the year end, there were two unapproved variation orders totalling $17m which were approved under this process. Revenue recognised in 2023 and 2022 associated with unapproved variation orders was immaterial.

 

On the Aegis contract, management deem that the Company is entitled to variable consideration under the existing contractual arrangements.  Only the proportion of this deemed entitlement that is assessed as highly probable is recognised as part of the revenue calculation.  The assessment of the proportion of the deemed entitlement to VOs that is considered to be highly probable is a judgement made by management in consultation with internal and external experts.  The amount of the accumulated recognised VOs in relation to the Aegis contract is material. 

 

Liquidated damages ("LDs")

LDs are designated damages (negative variable considerations) that are paid by the defaulting party in the event that certain contractual requirements are not met.  Management make an assessment of the value of LDs to be provided at the reporting date such that it is considered highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the LDs is subsequently resolved.  This initial assessment is reconsidered at each reporting date.  The assessment is based on a best estimate of the monetary amount of LDs payable which involves a number of management assumptions and judgements including discussions with the customer, contractual entitlement, prior experience of the customer, prior experience of similar contracts with other customers and other forms of documentary evidence.  Other than the Aegis contract, there were no other individually material contractual liquidated damages as at the year ended 31 December 2023.  On Aegis, given the delay in achieving completion, there is potential under the contract for LDs to be material, although we believe that we have strong arguments for extension of time and dispute how the damages are being applied.  As at 31 December 2023 management has assessed the extent to which LDs are likely to apply and these have been deducted from cumulative revenue recognised.  Refer to note 2 for further details of this contract.

Estimates are updated regularly, and significant changes are highlighted through established internal review procedures. The contract reviews focus on the timing and recognition of revenue including income from incentive payments, scope variations and claims.

See note 2 for further details.

(b)            Impairment of goodwill (estimate)

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.  Management expectations are formed in line with performance to date and experience, as well as available external market data. 

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 and forecasts as approved by the Board.  The budgets and forecasts are based on various assumptions relating to the Group's businesses including assumptions relating to market outlook, resource utilisation, contract awards and contract margins.  The outlook for the Group is discussed in the Chief Executive's Review.  The discount rate, revenue CAGR and long term growth rates are critical assumptions. Pre-tax discount rates of between 10.8% and 12.3% have been used to discount the CGU cash flows and a terminal value is applied using long term growth rates of 2.4%.  The revenue CAGR assumption ranges from 8.3% to 13.4%.  A sensitivity analysis has been performed allowing for possible changes to the key assumptions used in the impairment model.

See note 10 for further details.

                (c)            Provisions and contingent liabilities (judgement and estimate)

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, or a reliable estimate cannot be made, 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 contract provisions and provisions for pending legal issues.

As a result of the acquisition of Amec Foster Wheeler ("AFW") in 2017, the Group has acquired a significant asbestos related liability. Some of AFW's legacy US and UK subsidiaries are defendants in asbestos related lawsuits and there are out of court informal claims pending in both jurisdictions. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to the use of asbestos in connection with work allegedly performed by subsidiary companies in the 1970s and earlier. The provision for asbestos liabilities is the Group's best estimate of the obligation required to settle claims up until 2050. Group policy is to record annual changes to the underlying gross estimates where they move by more than 5%.

The critical assumptions applied in determining the asbestos provision include: indemnity settlement amount, forecasted number of new claims, estimated defence costs and the discount rate.  The Group uses a blended yield curve rate to discount its asbestos liabilities. This rate is matched to the expected duration of the liabilities and the rate used at the end of December 2023 is 3.64%.

The Group's subsidiaries have been effective in managing the asbestos litigation, in part, because the Group has access to historical project documents and other business records going back more than 50 years, allowing it to defend itself by determining if the claimants were present at the location of the alleged asbestos exposure and, if so, the timing and extent of their presence.

The Group has recorded a $29.4m exceptional charge with respect to the asbestos liability in the period and is principally as a result of an updated actuarial review which updated the best estimate for recent claims experience and latest projections. Further details of the asbestos liabilities are provided in note 21 including a sensitivity analysis showing the impact of changes to the key assumptions.

                (d)            Retirement benefit schemes (estimate)

The value of the Group's retirement benefit schemes' surplus/deficit is determined on an actuarial basis using several assumptions. Changes in these assumptions will impact the carrying value of the surplus/deficit. A sensitivity analysis showing the impact of changes to these assumptions is provided in note 33. The principal assumptions that impact the carrying value are the discount rate, the inflation rate and life expectancy.  The Group determines the appropriate assumptions to be used in the actuarial valuations at the end of each financial year following consultation with the retirement benefit schemes' actuaries.  In determining the discount rate, 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.  The inflation rate is derived from the yield curve used in deriving the discount rate and adjusted by an agreed risk premium. Assumptions regarding future mortality are based on published statistics and the latest available mortality tables. The Group, in conjunction with the schemes' actuaries, continues to monitor the impact of the Covid-19 pandemic on mortality data. The tax rate applied to the surplus of the UK scheme is 25%, on the basis that there is no expectation that the manner of any future recovery would be in the form of a refund, which would be taxed at 35%.  Following the Authorised Surplus Payments Charge (Variation of Rate) Order 2024, the tax rate of 35% will be reduced to 25% from 6 April 2024.   As at the balance sheet date, there are no plans to request a refund and other avenues are being explored to use the surplus.  The technical surplus is not as large as the IAS 19 surplus and so there is a lower limit to what could be accessed in any event.

The majority of pension scheme assets have quoted prices in active markets. Scheme assets are revalued at least once per annum to reflect their fair value. Fair value is based on market price information. If this is not available, the most recent transaction price, revenue or earnings-based valuations using unobservable inputs may be used for level 3 investments in the fair value hierarchy. 

Further details of the assumptions and measurements outlined can be seen in note 33.

Basis of consolidation

The condensed 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 controlled by the Group. The Group 'controls' an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All Group companies apply the Group's accounting policies and prepare financial statements to 31 December. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated.

 

Joint ventures and joint operations

A joint venture is a type of joint arrangement where the parties to the arrangement share rights to its net assets.  A joint arrangement is an arrangement of which two or more parties have joint control.  Joint control is the contractually agreed arrangement which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in determining joint control are similar to those necessary to determine control over subsidiaries.

The Group's interests in joint ventures are accounted for using equity accounting.  Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the joint venture from the acquisition date. The results of the joint ventures are included in the consolidated financial statements from the date the joint control commences until the date that it ceases. The Group includes its share of joint venture profit on the line 'Share of post-tax profit from joint ventures' in the Group income statement and its share of joint venture net assets in the 'investment in joint ventures' line in the Group balance sheet. 

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. The Group accounts for joint operations by recognising the appropriate proportional share of revenue, expenses, assets and liabilities.

Presentational currency

The Group's earnings stream is primarily US dollars and the Group therefore uses the US dollar as its presentational currency.

The following exchange rates have been used in the preparation of these financial statements:


2023

2022




Average rate £1 = $

1.2425

1.2324

Closing rate £1 = $

1.2749

1.2029

Foreign currencies

In each individual entity, transactions in foreign currencies are translated into the relevant functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet date. Any exchange differences are taken to the income statement.

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. 

The assets and liabilities of foreign operations, including 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 with any exchange differences taken to the currency translation reserve.

 

Foreign currency differences are recognised in Other Comprehensive Income ("OCI") and accumulated in the translation reserve, except to the extent that the translation difference is allocated to Non-Controlling Interests ("NCI").

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to the foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.  If the Group disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI.  When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.  The directors consider it appropriate to record sterling denominated equity share capital in the financial statements 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 specified in a contract with a customer and is stated net of sales taxes (such as VAT) and discounts. The Group recognises revenue when it transfers control over a good or service to a customer.

With regard to cost reimbursable projects and fixed price contracts, further detail is provided below about the nature and timing of the satisfaction of performance obligations in contracts with customers, including payment terms and the related revenue recognition policies.

Cost reimbursable projects

Revenue is recognised over time as the services are provided based on contractual rates per man hour in respect of multi-year service contracts. The amount of variable revenue related to the achievement of key performance indicators (KPIs) is estimated at the start of the contract, but any revenue recognised is constrained to the extent that it is highly probable there will not be a significant reversal in future periods.

Fixed price contacts

Revenue on fixed price contracts for services, construction contracts and fixed price long-term service agreements is recognised over time according to the stage of completion reached in the contract by measuring the proportion of costs incurred for work performed to total estimated costs.  Margin is only recognised when the outcome of the contract can be measured reliably.

Contract modifications are generally not distinct from those in the original contract due to the significant integration service provided in the context of the contract and are priced according to the same standalone selling prices of the original contract.  Therefore, modifications are accounted for as a modification of the existing contract and performance obligations with a cumulative catch-up adjustment recognised within revenue. 

Management assess the value of revenue to be recognised in respect of variation orders based on the considerations described in the critical accounting judgements and estimates section above in the paragraph regarding recognition of revenue from variation orders ("VOs").  

A claim is an amount that the contractor seeks to collect from the customer as reimbursement for costs whose inclusion in the contract price is disputed, and may arise from, for example, delays caused by the customer, errors in specification or design and disputed variations in contract work. Claims are also usually variable considerations and are included in contract revenue only to the extent that it is highly probable that a significant reversal of revenue will not occur. Appropriate legal advice is taken in advance of any material revenue being recognised in respect of claims.

The related contract costs are recognised in the income statement when incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately.

The Group's payment terms state that all invoices are generally payable within 30 days.

Details of the services provided by the Group are provided under the 'Segmental Reporting' heading.

 

Contract balances

A contract asset includes gross amounts due from customers, which reflects work completed for the client which has not yet been billed at the reporting date.  Gross amounts due from customers reflects revenue recognised on the contract according to the stage of completion, less any progress payments received, and amounts are transferred to trade receivables when the right to consideration becomes unconditional.  Contract assets are adjusted for any expected credit loss allowance considering the probability of default by the counterparty.

 

Contract liabilities include gross amounts due to customers and primarily relate to advance consideration received from customers, for which revenue is recognised over time.

 

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 material exceptional items include gains and losses on divestment of businesses; write downs or impairments of assets including goodwill; restructuring and redundancy costs or provisions; litigation or regulatory settlements; asbestos related income or charges; tax provisions or payments; provisions for onerous contracts and acquisition and divestment costs. The tax impact on these transactions is shown separately in the exceptional items note to the financial statements (note 5).

Restructuring and redundancy costs or provisions will include those costs associated with major Board approved programmes which will deliver longer term benefits to the Group. If this involves closure of a material office, discrete operating unit or service line the exceptional cost will include redundancy and severance of impacted employees, onerous contract provisions, the write off any unrecoverable net assets and any reversals in future periods. Provisions for restructuring will be recognised in line with the policy on Provisions below.

Finance expense/income

Interest income and expense is recorded in the income statement in the period to which it relates. Arrangement fees and expenses in respect of the Group's debt facilities are amortised over the period which the Group expects the facility to be in place.  Interest relating to the unwinding of discount on deferred and contingent consideration, IFRS 16 lease liabilities and asbestos liabilities is included in finance expense.  Interest expense and interest income on scheme assets relating to the Group's retirement benefit schemes are also included in finance income/expense. See note 3 for further details.

Interest income or expense is recognised using the effective interest method.  The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

-       The gross carrying amount of the financial asset; or

-       The amortised cost of the financial liability.

 

Dividends payable

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. See note 8 for further details.

 

Business combinations

The Group accounts for business combinations using the acquisition method of accounting when control is transferred to the Group. The consideration transferred is measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Intangible assets arising on business combinations are tested for impairment when indicators of impairment exist. Acquisition costs are expensed and included in administrative expenses in the income statement.  

Goodwill

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.

 

Intangible assets

Intangible assets are carried at cost less accumulated amortisation.  Intangible assets are recognised if it is probable that there will be future economic benefits attributable to the asset, the cost of the asset can be measured reliably, the asset is separately identifiable and there is control over the use of the asset.  Where the Group acquires a business, intangible assets on acquisition are identified and evaluated to determine the carrying value on the acquisition balance sheet.  Intangible assets are amortised over their estimated useful lives on a straight-line basis, as follows:

Software

3-5 years

Development costs and licenses

3-5 years

Intangible assets on acquisition


-               Customer contracts and relationships

5-13 years

-               Order backlog

-               Brands

2-5 years

16 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 buildings

25‑50 years

Leasehold improvements

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.

Refer to the Leases policy for the Group's policy with respect to the right of use assets.

Impairment

The Group performs impairment reviews in respect of PP&E, investment in joint ventures and intangible assets whenever events or changes in circumstance indicate that the carrying amount may not be recoverable.  In addition, the Group carries out impairment reviews in respect of goodwill, at least annually.  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. 

Impairment losses are recognised in profit or loss.  They are allocated to first reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis.

For the purposes of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units ("CGUs").   Goodwill arising from a business combination is allocated to the appropriate CGU or groups of CGUs that are expected to benefit from the synergies of the combination.  The CGUs are aligned to the structure the Group uses to manage its business. Cash flows are discounted in determining the value in use.

 

See note 10 for further details of goodwill impairment testing and note 13 for details of impairment of investment in joint ventures.

Cash and cash equivalents

Cash and cash equivalents include cash in hand and other short-term bank deposits with original maturities of three months or less.  Bank overdrafts are included within borrowings in current liabilities. The Group presents balances that are part of a pooling arrangement with no right of offset on a gross basis in both cash and short-term borrowings.

 

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. Trade receivables are typically classified as Held to Collect.

 

The Group recognises loss allowances for Expected Credit Losses ('ECLs') on trade receivables and gross amounts due from customers, measured at an amount equal to lifetime ECLs.  ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).  ECLs are discounted at the effective interest rate of the financial asset.

 

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.   Evidence that a financial asset is credit-impaired includes a customer being in significant financial difficulty or a breach of contract such as a default.  The gross carrying amount of a financial asset is written off when the Group has no reasonable expectation of

recovering a financial asset in its entirety or a portion thereof. For individual customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery.

 

The Group has non-recourse financing arrangements in which funds are received in relation to trade receivable balances before the due date for payment. Trade receivables are derecognised on receipt of the payment from the bank. See note 15 for further details.

Asbestos related receivables

Asbestos related receivables represents management's best estimate of insurance recoveries relating to liabilities for pending and estimated future asbestos claims. They are only recognised when it is virtually certain that the claim will be paid. Asbestos related assets under executed settlement agreements with insurers due in the next 12 months are recorded within Trade and other receivables and beyond 12 months are recorded within Long term receivables.  The Group's asbestos related assets have been discounted using an appropriate rate of interest.

 

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 using the effective interest method.

Taxation

Tax provisions are based on management's interpretation of country specific tax law and the likelihood of settlement. This involves a significant amount of judgement as tax legislation can be complex and open to different interpretation.  Management uses in-house tax experts, professional firms and previous experience when assessing tax risks.  When actual liabilities differ from the provisions, adjustments are made which can have a material impact on the Group's tax charge for the year. 

 

Deferred tax asset recognition is based on two factors. Firstly, deferred tax liabilities in the same jurisdiction as assets that are legally capable of being offset and the timing of the reversal of the asset and liability would enable the deduction from the asset to be utilised against the taxable income from the liability. Secondly, forecast profits support the recognition of deferred tax assets not otherwise supported by deferred tax liabilities. Management uses in-house tax experts to determine the forecast period to support recognition, this is considered by jurisdiction or entity dependent on the tax laws of the jurisdiction. If actual results differ from the forecasts the impact of not being able to utilise the expected amount of deferred tax assets can have a material impact on the Group's tax charge for the year.

 

See note 6 and 23 for details.

 

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.

 

Tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or equity, in which case it is recognised in other comprehensive income or equity as appropriate.

 

A current tax provision is recognised when the Group has a present obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.  In line with IFRIC 23, depending on the circumstances, the provision is either the single most likely outcome, or a probability weighted average of all potential outcomes.  The provision incorporates tax and penalties where appropriate.  Separate provisions for interest are also recorded.  Interest in respect of the tax provisions is not included in the tax charge, but disclosed within profit before tax.

 

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 substantively enacted, at the balance sheet date are used to determine deferred tax.

 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 

 

Tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and it is intended that they will be settled on a net basis.

 

The Group has applied the exception in the Amendments to IAS 12 issued in May 2023 and has neither recognised nor disclosed information about deferred tax assets or liabilities relating to Pillar Two income taxes.

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 re-measured at fair value.  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 the 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.

 

Fair value measurement

'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

When one is available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable outputs and minimise the use of unobservable outputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

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 verified by comparison to 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. 

Leases

At inception of a contract, the Group assesses whether a contract is, or contains, a lease.  A contract is, or contains, a lease if the contract conveys the right to control or use an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an asset, the Group uses the definition of a lease in IFRS 16.

The Group recognises a right of use asset and a lease liability at the lease commencement date.  The right of use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. 

The Group leases real estate, including land, buildings and warehouses, machinery/equipment, vehicles and IT equipment. The right of use assets generate cash flows as part of the cash generating units disclosed in note 10. The majority of the lease liability relates to real estate with leases generally entered into for fixed periods of up to five years, unless of strategic importance to the Group. Some leases have extension options as described below. Lease terms are negotiated on an individual basis and contain a wide range of terms and conditions.  The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets are not used as security for borrowing purposes. 

The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term.  The right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Group's incremental borrowing rate ("IBR") and is subsequently increased by the interest cost on the lease liability and reduced by repayments.  It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the assessment of whether an extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the Group's IBR is used. The IBR is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and conditions.

The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that includes renewal options.  The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which may affect the amount of lease liabilities and right of use assets recognised.

 

The Group applies the practical expedient for short-term leases in which a lessee is permitted to make an accounting policy election not to recognise lease assets and lease liabilities for leases with a term of 12 months or less and do not include an option to purchase the underlying asset. Lease costs of short-term leases are recognised on a straight-line basis over the term of the lease term and disclosed within the consolidated financial statements. The Group believes short-term lease commitments are not materially different than the short-term lease cost for the period.

 

Retirement benefit scheme surplus/deficit

The Group operates a number of defined benefit and defined contribution pension schemes. The surplus or deficit recognised in respect of the defined benefit schemes represents the difference between the present value of the defined benefit obligations and the fair value of the scheme assets.  The assets of these schemes are held in separate trustee administered funds. The schemes are largely closed to future accrual.

 

The defined benefit schemes' 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 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 schemes 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 netted and included in finance income/expense. Re-measurement gains and losses are recognised in the statement of comprehensive income in full in the period in which they occur. The defined benefit schemes surplus or deficit is recognised in full and presented on the face of the Group balance sheet.

Group management consider it appropriate to recognise the IAS 19 surplus in the Wood Pension Plan as the rules governing the scheme provide an unconditional right to a refund assuming the gradual settlement of the scheme's liabilities over time until there are no members left, as per IFRIC 14.11 (b). On a winding up scenario, any surplus would be returned to the Group. 

The Group's contributions to defined contribution schemes are charged to the income statement in the period to which the contributions relate.

The Group operates a Supplemental Executive Retirement Plan (SERP) pension arrangement in the US for certain employees. Contributions are paid into a separate investment vehicle and invested in a portfolio of US funds that are recognised by the Group in other investments with a corresponding liability in other non-current liabilities.  Investments are carried at fair value. The fair value of listed equity investments

and mutual funds is based on quoted market prices and so the fair value measurement can be categorised in Level 1 of the fair value hierarchy.

 

Provisions

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.

The Group has taken internal and external advice in considering known and reasonably likely legal claims made by or against the Group. It carefully assesses the likelihood of success of a claim or action. Appropriate provisions are made for legal claims or actions against the Group on the basis of likely outcome, but no provisions are made for those which, in the view of the directors, are less than probable or for which no amount can be reliably measured.

See note 22 for further details.

Where the outcome is less than probable, but more than remote or a reliable estimate cannot be made, no provision is recorded but a contingent liability is disclosed in the financial statements, if material.

Share based charges relating to employee share schemes

The Group has recorded share based charges in relation to a number of employee share schemes.

Charges are recorded in the income statement as an employee benefit expense for the fair value of share options (as at the grant date) expected to be exercised under the Executive Share Option Schemes ('ESOS'). Amounts are accrued over the vesting period with the corresponding credit recorded in retained earnings.

Awards are allocated under the Group's Long Term Plan ('LTP') or the new Discretionary Share Plan ("DSP") which are the incentive plans in place for executive directors and certain senior executives. The charge for awards granted under the LTP/DSP are based on the fair value of those awards at the grant date, spread over the vesting period.  The corresponding credit is recorded in retained earnings.  For awards that have a market related performance measure, the fair value of the market related element is calculated using a Monte Carlo simulation model.

Employees may also be granted non-performance awards either in the form of conditional share awards or share options. These awards typically have a three year vesting period.

The Group has an Employee Share Plan ("ESP") under which employees contribute regular monthly amounts of up to a maximum of 10% of their gross salary which are used to purchase shares over a one year period. At the end of the year the participating employees are awarded one free share for every two shares purchased providing they remain in employment for a further year. A charge is calculated for the award of free shares and accrued over the vesting period with the corresponding credit taken to retained earnings. 

Under the plan the Group also has a UK Share Incentive Plan ("SIP"), which is recognised by HM Revenue and Customs, employees contribute regular monthly amounts of up to £150 per month to purchase shares.  The participating employees are awarded one free share for every two purchased, provided that they hold the purchased shares for 3 years and remain in employment.

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.

 

Merger reserve

Where an acquisition qualifies for merger relief under Section 612 of the Companies Act 2006, the premium arising on the issue of shares to fund the acquisition is credited to a merger reserve. See note 28 for further information.

Discontinued operations

The Group classified its Built Environment Consulting business as a discontinued operation for the reporting period ending 31 December 2022. A discontinued operation is a component of the Group's business, the operations and cash flows of which can be clearly distinguished from the rest of the Group and which:

-       represents a separate major line of business or geographic area of operations;

-       is part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations; or

-       is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets criteria to be classified as held for sale. When an operation is classified as a discontinued operation, the comparative income statement and statement of comprehensive income are presented as if the operation had been discontinued from the start of the comparative period. Classification as held for sale was from 1 January 2022 and in September 2022, the sale of this business was completed. Details are outlined in note 7.

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.  Our financial reporting segments reflect our current operating model which consists of Projects, Operations, Consulting and Investment Services ("IVS"). Projects is focused on providing front-end engineering services, procurement and project management. Our Operations segment focuses on improving operational efficiency by providing maintenance, modification and operation services. Consulting is a multi-sector specialist technical consultancy division providing innovative thinking needed to maximise value at every stage of the asset life cycle. Investment Services manages a range of legacy or non-core businesses and investments with a view to generating value via remediation and restructuring.

The comparative information has been re-presented due to the reclassification of Built Environment Consulting Saudi Arabia from discontinued into continuing operations. This relates to the sale of a subsidiary, previously classified as held for sale, which did not complete during 2023 and will now be retained by the Group.

The Chief Executive measures the operating performance of these segments using 'Adjusted EBITDA' (Earnings before interest, tax, depreciation 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.

Assets and liabilities held for sale

Disposal groups are classified as assets and liabilities held for sale if it is highly probable that they will be recovered primarily through sale rather than continuing use. Disposal groups are measured at the lower of carrying value and fair value less costs to sell and their assets and liabilities are presented separately from other assets and liabilities on the balance sheet.

Research and development government credits

The Group claims research and development government credits predominantly in the UK, US, Canada and Australia. These credits are similar in nature to grants and are offset against the related expenditure category in the income statement. The credits are recognised when there is reasonable assurance that they will be received, which in some cases can be some time after the original expense is incurred.

Government grants

The Group recognises a government grant when it has reasonable assurance that it will comply with the relevant conditions and that the grant will be received.  This may be a judgemental matter, particularly when governments are introducing new programmes that may require new legislation, or for which there is little established practice for assessing whether the conditions to receive a grant are met.  If the conditions are met, then the Group recognises government grants as a credit in profit or loss in line with its recognition of the expenses that the grants are intended to compensate.

The disclosure of impact of new and future accounting standards

Standards issued but not yet effective

The Group is required to comply with the requirements of IFRS 17 Insurance Contracts for reporting periods beginning on or after 1 January 2023. The new accounting standard sets out the requirements that the Group should apply in reporting information about insurance contracts it issues and reinsurance contracts it holds.  The Group has undertaken an assessment of its insurance contracts including those held under its captive insurance company, Garlan Insurance Limited.  The impact of the accounting standard does not have any material impact on the condensed financial statements.

The Group has early adopted the amendments to IAS 1 - Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants which are required to be effective from 1 January 2024. The impact of the amendments does not have any material impact on the condensed financial statements. 

Amendments to other existing standards do not have a material impact on the financial statements.

 

1          Segmental reporting

During the year, the Group monitored activity and performance through four operating segments; Projects, Operations, Consulting and Investment Services ('IVS') plus the legacy Built Environment Consulting segment (divested in September 2022).

Under IFRS 11 'Joint arrangements', the Group is required to account for joint ventures using equity accounting. Adjusted EBITDA as shown in the table below includes our share of joint venture profits and excludes exceptional items, which is consistent with the way management review the performance of the business units. Joint venture results are reported on an equity accounting basis and therefore revenue figures exclude joint venture revenue.

The segment information provided to the Group's Chief Executive for the reportable operating segments for the year ended 31 December 2023 includes the following:

Reportable operating segments

Revenue (3)

Adjusted EBITDA(1)

Operating profit/(loss)


2023

(unaudited)
$m


2022
$m


2023

(unaudited)
$m


2022
$m

2023

(unaudited)
$m


2022
$m

Projects

2,424.2

2,211.2

177.2

168.7

11.2

(125.3)

Operations

2,482.2

2,406.9

165.2

147.6

88.0

(344.3)

Consulting (re-presented) (4)

739.1

652.4

79.5

76.2

50.4

(3.1)

Built Environment Consulting (discontinued) (4)

-

854.0

(10.2)

69.8

(15.2)

63.1

Investment Services

255.2

198.8

77.1

69.3

23.0

46.2

Central costs (2)

-

-

(76.3)

(73.6)

(135.1)

(138.7)

Total Group

5,900.7

6,323.3

412.5

458.0

22.3

(502.1)

Elimination of discontinued operation (4)

-

(854.0)

10.2

(69.8)

15.2

(63.1)

Total (continuing operations)

5,900.7

5,469.3

422.7

388.2

37.5

(565.2)

Finance income





19.4

6.9

Finance expense





(119.6)

(133.1)

Loss before taxation from continuing operations





(62.7)

(691.4)

Taxation





(65.0)

(10.9)

Loss for the year from continuing operations





(127.7)

(702.3)

Profit from discontinued operation, net of tax





22.5

350.6

Loss for the year





(105.2)

(351.7)

 

Notes

1. A reconciliation of operating profit/(loss) to Adjusted EBITDA is provided in the table below. Adjusted EBITDA is provided as it is a unit of measurement used by the Group in the management of its business.  Adjusted EBITDA is stated before exceptional items (see note 5).

 

2.      Central includes the costs of certain Group management personnel, along with an element of Group infrastructure costs.

 

3.      Revenue arising from sales between segments is not material, and does not include the impact of the exceptional item disclosed on the face of the income statement of $nil (2022: $8.0m) which is in respect of the Projects operating segment.

4.      The comparative periods have been re-presented due to a reclassification of a business operation from discontinued into continuing operations for the year ended 31 December 2023 (see note 7). The revenue of this business for the period to 31 December 2022 was $27.1m and Adjusted EBITDA was $3.1m.

 

 

Reconciliation of Alternative Performance Measures


 2023

(unaudited)

2022

(re-presented)


$m

$m

Operating profit/(loss) per income statement

37.5

(565.2)

Share of joint venture finance expense and tax (note 13)

16.3

14.3

Exceptional items (note 5)

76.7

663.5

Amortisation (including joint ventures)

161.1

153.4

Depreciation (including joint ventures)

26.2

29.3

Depreciation of right of use assets (including joint ventures)

103.1

90.5

Impairment of joint venture investments and PP&E

1.8

2.4

Adjusted EBITDA (continuing operations)

422.7

388.2

 

 


Discontinued operation

 


Operating (loss)/profit (discontinued)

(15.2)

63.1

Exceptional items

5.0

6.7

Adjusted EBITDA (discontinued operation)

(10.2)

69.8

Total Group Adjusted EBITDA

412.5

458.0

 

Upon classification as a discontinued operation and held for sale on 1 January 2022, the Built Environment Consulting disposal group was not depreciated or amortised in line with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.   

Analysis of joint venture profits by segment

Adjusted EBITDA

Operating profit



2023

(unaudited)
$m


2022
$m


2023

(unaudited)
$m


2022
$m

Projects

3.4

3.9

3.1

3.5

Operations

13.0

15.2

11.3

13.0

Investment Services

57.2

39.4

44.7

28.2


 


 


Total

73.6

58.5

59.1

44.7

 

The main joint ventures contributing to Adjusted EBITDA and Operating Profit within the Investment Services segment are EthosEnergy and RWG.  The results of these joint ventures are disclosed further in note 13.

Other segment items

At 31 December 2023 (unaudited)

Projects
$m

Operations

$m

Consulting

$m

Built Environment Consulting

$m

Investment

 Services

$m

Unallocated

$m

Total

 $m

Capital expenditure

 

 

 

 

 

 

 

PP&E

6.5

6.0

2.5

-

4.3

1.2

20.5

Intangible assets

47.2

55.6

20.4

-

1.9

5.9

131.0

Non-cash expense

 

 

 

 

 

 

 

Depreciation

6.9

6.0

1.3

-

2.4

4.4

21.0

Depreciation of right of use assets

33.3

25.0

8.6

-

15.2

13.1

95.2

Amortisation

81.7

41.1

19.2

-

-

17.7

159.7

Exceptional items (non-cash element)

43.4

-

-

5.0

-

36.1

84.5

















 

At 31 December 2022

Projects 
$m

Operations

$m

Consulting

$m

Built Environment Consulting

$m

Investment

 Services

$m

Unallocated

$m

Total

 $m

Capital expenditure

 

 

 

 

 

 

 

PP&E

7.3

11.6

1.3

3.1

3.2

1.1

27.6

Intangible assets

43.3

49.5

18.2

0.2

-

4.7

115.9

Non-cash expense








Depreciation

8.7

10.3

1.0

-

1.1

4.1

25.2

Depreciation of right of use assets

34.4

17.5

8.3

-

10.6

11.5

82.3

Amortisation

77.7

36.7

27.5

-

-

10.0

151.9

Impairment of intangible assets

113.3

396.3

32.7

-

-

-

542.3

Exceptional items (non-cash element)

14.3

-

1.8

-

-

19.2

35.3

 

The figures in the tables above exclude the share of joint ventures.

Depreciation in respect of joint ventures totals $5.2m (2022: $4.1m), depreciation in respect of joint venture right of use assets totals $7.9m (2022: $8.2m) and joint venture amortisation amounts to $1.4m (2022: $1.5m).

Non-cash exceptionals of $84.5m (2022: $35.3m) primarily comprises $43.4m relating to the Power and Industrial EPC charges, $38.4m of asbestos charges and the disposal of the built environment business has led to a R&D tax credit being determined to be unrecoverable in the foreseeable future, and a non-cash charge of $5.0m has been recognised in addition to the charge previously recognised in 2022, following the filing of the relevant 2022 tax returns. Further detail of these charges is outlined in notes 5 and 7.

 

 

Non-current assets

 

Revenue

(Continuing operations)

Geographical segments

2023

(unaudited)
$m

2022
$m

2023

(unaudited)

$m

2022

$m

United States of America

2,037.7

2,082.2

1,402.1

1,423.5

United Kingdom

949.4

803.4

792.7

731.5

Canada

439.6

436.8

379.6

383.2

Australia

147.9

150.3

330.1

331.9

Singapore

93.6

96.6

301.1

109.0

Norway

103.0

103.2

283.2

342.3

Brunei

8.8

10.2

255.6

232.9

Saudi Arabia

101.7

102.6

245.7

214.6

Iraq

0.8

0.4

235.1

197.5

South Africa

4.1

2.0

151.7

102.8

Papua New Guinea

-

-

153.2

125.9

Rest of the world

1,083.0

1,092.3

1,370.6

1,274.2






Total

4,969.6

4,880.0

5,900.7

5,469.3

 

Non-current assets includes goodwill and other intangible assets, property plant and equipment, right of use assets, investment in joint ventures and other investments. Revenue in the table above analyses total revenue and in 2022 does not reflect the $8.0m exceptional item as disclosed on the Income Statement.


 

2          Revenue

Revenue by geographical segment is based on the location of the ultimate project. Revenue is attributable to the provision of services.

In the following table, revenue is disaggregated by primary geographical market and major service line. The tables provided below analyses total revenue excluding our share of joint venture revenue.

Primary geographical market

Projects

2023

(unaudited)

$m

Projects

2022

(re-presented)

$m

 

 

 

 

Operations

2023

(unaudited)

$m

Operations

2022

$m

Consulting

2023

(unaudited)

$m

Consulting

2022

(re-presented)

$m

IVS

2023

(unaudited)

$m

IVS

2022

$m

 

 

 

 

Total

2023

(unaudited)

$m

 

 

 

Total

2022

(re-presented) $m

USA

535.5

593.7

387.9

457.5

274.0

233.3

204.7

139.0

1,402.1

1,423.5

Europe

407.4

379.1

843.2

820.4

202.0

188.2

8.0

27.5

1,460.6

1,415.2

Rest of the world

1,481.3

1,238.4

1,251.1

1,129.0

263.1

230.9

42.5

32.3

3,038.0

2,630.6

Revenue

2,424.2

2,211.2

2,482.2

2,406.9

739.1

652.4

255.2

198.8

5,900.7

5,469.3


 


 


 


 




Major service lines

 


 


 


 


 


Energy

 


 


 


 


 


Oil & Gas

902.9

694.7

2,095.2

1,989.7

357.1

316.6

18.3

18.7

3,373.5

3,019.7

Power, Renewables, Hydrogen and Carbon Capture

144.2

157.5

112.6

122.1

151.3

85.5

55.5

44.0

463.6

409.1

Materials

 


 


 


 


 


Refining & Chemicals

881.9

801.3

237.4

224.9

96.8

62.5

-

-

1,216.1

1,088.7

Minerals Processing and Life Sciences

357.0

417.4

18.6

19.5

28.5

43.9

-

-

404.1

480.8

Other

 


 


 


 


 


Built Environment

9.7

5.4

14.2

44.2

2.1

37.3

166.2

136.1

192.2

223.0

Industrial Processes and other

128.5

134.9

4.2

6.5

103.3

106.6

15.2

-

251.2

248.0

Revenue

2,424.2

2,211.2

2,482.2

2,406.9

739.1

652.4

255.2

198.8

5,900.7

5,469.3

Sustainable solutions

727.8

664.2

263.6

228.7

226.9

154.8

55.6

62.7

1,273.9

1,110.4

 

The comparative periods have been re-presented due to a reclassification of a business operation from discontinued into continuing operations for the year ended 31 December 2023 (see note 7). The revenue of this business for the period to 31 December 2022 was $27.1m.


 

The Group's revenue is largely derived from the provision of services over time. 

Sustainable solutions consist of activities related to renewable energy, hydrogen, carbon capture & storage, electrification and electricity transmission & distribution, LNG, waste to energy, sustainable fuels & feedstocks and recycling, processing of energy transition minerals, life sciences, decarbonisation in oil & gas, refining & chemicals, minerals processing and other industrial processes.  In the case of mixed scopes including a decarbonisation element, these are only included in sustainable solutions if 75% or more of the scope relates to that element, in which case the total revenue is recorded in sustainable solutions.  Sustainable solutions with respect to the discontinued operation have not been captured.

Revenue from continuing operations in 2023 included $4,705.4m (80%) (2022: $4,289.5m, 78%) from reimbursable contracts and $1,195.3m (20%) (2022: $1,179.8m, 22%) from fixed price contracts. The calculation of revenue from lump sum contracts is based on estimates and the amount recognised could increase or decrease.


Continuing operations

Discontinued operations

Total


2023

(Unaudited)

$m

2022

(re-presented)

$m

2023

(Unaudited)

$m

2022

(re-presented)

$m

2023

(Unaudited)

$m

2022

$m

Total revenue

5,900.7

5,469.3

-

854.0

5,900.7

6,323.3

 

Total revenue in 2022 does not reflect the $8.0m exceptional item as disclosed on the Income Statement. This exceptional item related to the Projects business unit.

Contract balances

The following table provides a summary of receivables, contract assets and liabilities arising from the Group's contracts with customers.


2023

(unaudited)
$m

2022
$m

Trade receivables

729.5

679.6

Non-current contract assets

153.7

97.0

Gross amounts due from customers

522.9

556.9

Gross amounts due to customers

(99.0)

(113.0)


1,307.1

1,220.5

 

The contract balances include amounts the Group has invoiced to customers (trade receivables) as well as amounts where the Group has the right to receive consideration for work completed which has not been billed at the reporting date (gross amounts due from customers). Gross amounts due from customers are transferred to trade receivables when the rights become unconditional which usually occurs when the customer is invoiced. Gross amounts due to customers primarily relates to advance consideration received from customers, for which revenue is recognised over time.

Non-current contract assets of $153.7m (2022: $97.0m) includes $81.2m (2022: $72.9m) of gross amounts due from customers and $15.5m (2022: $1.4m) of trade receivables in relation to the Aegis contract as at 31 December 2023.  See further details on this contract below.  The increase in the non-current contract assets is mainly as a result of reclassifications from current to non-current and the Aegis contract completion in the year. The Group has classified certain receivable balances, including Aegis as non-current due to the element of uncertainty surrounding the timing of the receipt of these balances. Provisions held in relation to the Aegis contract are not material.

Trade receivables and gross amounts due from customers are included within the 'Trade and other receivables' heading in the Group balance sheet.  Gross amounts due to customers are included within the 'Trade and other payables' heading in the Group balance sheet.

Revenue recognised in 2023 which was included in gross amounts due to customers at the beginning of the year of $127.0m represents amounts included within contract liabilities, including $20.6m previously disclosed within held for sale liabilities at 1 January 2023.  Revenue recognised from performance obligations satisfied in previous periods of $6.6m represents revenue recognised in 2023 for performance obligations which were considered operationally complete at 31 December 2022.

 

 

Aegis Poland

This legacy AFW project involved the construction of various buildings to house the Aegis Ashore anti-missile defence facility for the United States Army Corps of Engineers ("USACE").  Wood's construction scope is now complete and the facilities were formally handed over to USACE in July 2023. The corresponding warranty period for facilities will end at various points through July 2024.    There has been no change in management's assessment of the loss at completion which remains at $222m. The full amount of this loss has been recognised to date.   The Group's assessment of the ultimate loss includes change orders which have not been approved by the customer.   As at 31 December 2023, $186m of certified claims had been submitted to our client, and we continue to progress further claims which could be material.  The revenue recognised is estimated based on the amount that is deemed to be highly probable to be recovered. That estimation is made considering the risks and likelihood of recovery of change orders. The Group's assessment of liquidated damages also involves an expectation of relief from possible obligations linked to delays on the contract. These liquidated damages and relief assumptions are estimates prepared in conjunction with the change orders estimates noted above.  Disclosure of the value of liquidated damages included in the loss at completion is not disclosed as the directors believe that this would be seriously prejudicial while commercial settlement negotiations are ongoing.    The range of possible outcomes in respect to the change orders that are highly likely to be recoverable and the liquidated damages for which a relief will be obtained is material. The Group has classified the receivable balances as non-current, due to the element of uncertainty surrounding the timing of the receipt of these balances. The ultimate loss also includes the Group's assessment of the total legal costs necessary to achieve recovery of the amounts believed to be recoverable and defend our position on liquidated damages. At this point in time this is an estimate based on a weighted average of several possible outcomes and the actual costs could be materially higher or lower depending on actual route to settlement. If the amounts agreed are different to the assumptions made, then the ultimate loss could be materially different. In reaching its assessment of this loss, management have made certain estimates and assumptions relating to the date of completion and recovery of costs from USACE. If the actual outcome differs from these estimates and assumptions, the ultimate loss will be different.

 

Transaction price allocated to the remaining performance obligations

The transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) as at 31 December 2023 was as follows:

$m (unaudited)

Year 1

Year 2

Total

Revenue

3,497.3

2,140.2

5,637.5

 

The Group has not adopted the practical expedients permitted by IFRS 15, therefore all contracts which have an original expected duration of one year or less have been included in the table above. The estimate of the transaction price represents contractually agreed backlog and does not include any amounts of variable consideration which are constrained. The Group continues to move into a reimbursable contract model, moving away from turnkey lump sum contracts which are inherently riskier. 86% of future performance obligations relate to reimbursable contracts and the remainder to fixed price.

 

 

3          Finance expense/(income)

               

2023

(unaudited)
$m


2022

$m




Interest payable on senior loan notes

16.6

40.3

Interest payable on borrowings

59.4

47.2

Amortisation of bank facility fees

4.2

10.5

Unwinding of discount on other liabilities

1.2

0.9

Lease interest (note 12)

18.7

16.4

Other interest expense

8.4

 

11.9

 




Finance expense - continuing operations (pre-exceptional items)

108.5

127.2




Unwinding of discount on asbestos provision (note 5)

11.1

5.9







Finance expense - total

119.6

133.1




Interest receivable

(1.1)

(4.5)

Interest income - retirement benefit obligations (note 33)

(18.3)

(2.4)




Finance income

(19.4)

(6.9)




Finance expense - total - net

100.2

126.2

 

Net interest expense of $6.5m (2022: $4.4m) has been deducted in arriving at the share of post-tax profit from joint ventures.

The unwinding of discount on the asbestos provision is $11.1m (2022: $5.9m) and includes the unwinding of discount on long-term asbestos receivables (note 21).  This is presented within exceptional items in line with the Group's accounting policies.

4          Profit before taxation


2023

(unaudited)
$m


2022

$m




The following items have been charged/(credited) in arriving at profit before taxation:



Employee benefits expense (note 32)

2,714.8

3,130.0

Amortisation of intangible assets (note 10)

159.7

151.9

Depreciation of property plant and equipment (note 11)

21.0

25.2

Depreciation of right of use assets (note 12)

95.2

82.3

Gain on disposal of property plant and equipment

(2.6)

(1.6)

Impairment of intangible assets

-

542.3

Foreign exchange losses

1.0

4.2

 

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.

An impairment charge of $542.3m was recorded in the prior year against intangible assets and related to goodwill, brands and customer relationships.

 

Services provided by the Group's auditors and associate firms

During the year the Group obtained the following services from its auditors, KPMG and associate firms at costs as detailed below:


2023

(unaudited)

$m

 

2022

$m

Fees payable to the Group's auditors and its associate firms for



Audit of parent company and consolidated financial statements

7.5

8.7

Audit of financial statements of subsidiaries of the Company

2.7

2.4

Total statutory audit fees

10.2

11.1


 


Fees payable to the Group's auditor for the audit of non-statutory financial statements

-

0.6

Audit related assurance services

0.5

0.5

Other assurance services

-

1.4

Tax and other services

-

-


 



10.7

13.6


 


The fees of $8.7m disclosed for 'Audit of parent company and consolidated financial statements' in 2022 include $1.8m relating to audit work performed in respect of the 2021 consolidated financial statements.

Fees payable to the Group's auditor for the audit of non-statutory financial statements in 2022 relate to the audit of carve-out financial statements of Built Environment Consulting.

Other assurance services in 2022 are Reporting Accountant services performed by KPMG in relation to the Built Environment Consulting disposal.

5  Exceptional items


2023

(unaudited)

$m

 

2022

$m

Exceptional items included in continuing operations



Power and Industrial EPC losses

45.1

25.0

Impairment of goodwill and intangible assets (note 10)

-

542.3

Apollo related costs

4.8

-

Redundancy, restructuring and integration costs

-

30.1

Investigation support costs and provisions

(2.6)

(4.2)

Enterprise settlement

-

35.6

Asbestos yield curve, costs and charges

29.4

21.5

Russia exit costs and charges

-

13.2


 


Exceptional items included in continuing operations, before interest and tax

76.7

663.5

Unwinding of discount on asbestos provision

11.1

5.9

Tax (credit)/charge in relation to exceptional items

(0.2)

5.2

Release of uncertain tax provision

(7.4)

-

Derecognition/(recognition) of deferred tax assets due to UK pension actuarial movements

18.0

(41.6)


 


Exceptional items included in continuing operations, net of interest and tax

98.2

633.0

 

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. 

 

Power and Industrial EPC losses

The Group made a strategic decision in 2021 to exit certain business segments within the Power and Industrials sub business group.   Following that decision, we ceased to operate in the large-scale EPC or lump sum turnkey business segment.  

 

The costs of exiting that business and any subsequent costs related to the wind down of contracts in that business, to the extent they are material in size, have been treated as exceptional on the basis that they relate to a segment in which the Group no longer operates.

  

In the first half of 2023 the Group recorded a non-cash exceptional charge of $20.4m relating to a write down of receivable balances arising from activity in the Power and Industrial EPC business.   The Group had expected to recover these balances, but these have since been disputed.   

 

In the second half of 2023, a former client raised an arbitration claim against the Group in respect of alleged damages and costs arising from a legacy Power and Industrial contract.  Following evaluation of the claim, the Group has recognised a provision of $23.0m with a charge to exceptional items, representing our assessment of probable outflows arising from the matter. 

 

During the year additional costs relating to the discontinued business of $1.7m were recorded as an exceptional charge. This follows previous write downs made during 2022 of $25.0m, including a revenue reversal of $8.0m which represents the impact of a reduction in total value of the contract and is in relation to revenue recognised in prior years.

 

Apollo related costs

The Group incurred $4.8m in relation to legal and advisor costs arising from Apollo's preliminary approach to potentially acquire the ordinary share capital of the Group, which did not ultimately lead to an offer.

 

Investigation support costs and provisions

 

The regulatory investigations were all closed out during 2021 and the agreed settlements were materially in line with the provision made in 2020.  The $2.6m credit relates to the release of provisions made for additional legal and other costs which were ultimately not needed.

 

Asbestos

 

All asbestos costs have been treated as exceptional on the basis that movements in the provision are non-trading and can be large and driven by market conditions which are out with the Group's control. Excluding these amounts from the trading results improves the understandability of the underlying trading performance of the Group.

 

The $29.4m charge (2022: $21.5m) principally comprises a $34.2m charge (2022: $52.8m) in the period that was a result of an updated actuarial review which updated the best estimate for recent claims experience and $5.4m (2022: $4.3m) of costs in relation to managing the claims. These are offset by a credit of $10.0m which relates to the collection of insurance proceeds from an insolvent insurer and a yield curve credit of $0.2m (2022: $35.6m).  The lower yield curve credit recognised in 2023 is principally due to the 27 year blended yield curve rate of 3.64% not being materially different to the 30 year flat rate of 3.97% in 2022.

 

$11.1m of interest costs which relate to the unwinding of discount on the asbestos provision are also shown as exceptional (2022: $5.9m).

 

Redundancy, restructuring and integration costs

No costs were incurred in 2023. In the prior year, $30.1m was incurred in relation to redundancy and restructuring activities.

 

Enterprise settlement

In the prior year, the Enterprise claim was concluded, with the amount settled being in excess of the amount provided for. The charge in the prior year was classed as an exceptional both by its nature (historic litigation settlement) and by size.

 

Tax

An exceptional tax charge of $10.4m (2022: $36.4m credit) has been recorded during the period. It consists of a tax credit of $0.2m on exceptional items (2022: $5.2m charge), a $7.4m credit in relation to the release of an uncertain tax provision created through exceptional items on the disposal of the Well Support business in 2011, offset by an exceptional charge of $18.0m (2022: $41.6m credit) recognised due to the actuarial loss in relation to the UK defined benefit pension scheme. As deferred tax liabilities support the recognition of deferred tax assets, the reduction of $18.0m of deferred tax assets have been recognised through exceptional items based on its size.

 

 

6          Taxation


2023

(unaudited)
$m


2022

$m

Current tax



Current year

86.1

188.5

Adjustment in respect of prior years

(38.3)

(14.8)





47.8

173.7




Deferred tax



Origination and reversal of temporary differences

17.0

62.7

Adjustment in respect of prior years

(6.5)

(0.2)





10.5

62.5




Total tax charge

58.3

236.2




Comprising



Tax on continuing operations before exceptional items

54.6

47.3

Tax (credit)/charge in relation to exceptional items (note 5)

(7.6)

5.2

Derecognition/(recognition) of deferred tax assets due to UK pension actuarial movements (note 5)

18.0

(41.6)

Tax on discontinued operations

(6.7)

225.3




Total tax charge

58.3

236.2

 

Tax (credited)/charged to other comprehensive income/expense

2023

(unaudited)
$m

 

2022

$m




Deferred tax movement on retirement benefit liabilities

(18.0)

41.6

Tax on derivative financial instruments

0.4

1.7




Total (credited)/charged to other comprehensive income/expense

(17.6)

43.3

               

Tax (credited)/charged to equity

2023
$m

2022

$m




Deferred tax impact of rate change

(0.7)

0.8

Other

0.1

1.3




Total (credited)/charged to equity

(0.6)

2.1

 

Tax payments differ from the current tax charge primarily due to the time lag between tax charge and payments in most jurisdictions and movements in uncertain tax provisions differing from the timing of any related payments.

 

Reconciliation of applicable tax charge at statutory rates to tax charge

2023

(unaudited)

$m

2022 (re-presented)
$m

Loss before taxation from continuing operations

(62.7)

(691.4)

Loss/(profit) before taxation from discontinued operations (note 7)

(15.2)

61.4

Gain on sale of discontinued operation (note 7)

31.0

514.5

Less: Share of post-tax profit from joint ventures (note 13)

(42.8)

(30.4)

 



Loss before taxation from total operations (excluding profits from joint ventures)

(89.7)

(145.9)


 


Applicable tax charge at statutory rates

(1.4)

36.5


 


Effects of:

 


Non-deductible expenses

18.7

8.2

Non-taxable income

-

(1.0)

Non-deductible expenses - exceptional

4.1

332.8

Non-taxable income - exceptional

(9.9)

(0.3)

Deferred tax recognition:

 


  Recognition of deferred tax assets not previously recognised

(5.5)

(4.3)

  Utilisation of tax assets not previously recognised

(3.4)

(12.4)

  Current year deferred tax assets not recognised

62.0

37.7

  Write off of previously recognised deferred tax assets

2.2

5.2

  Derecognition/(recognition) due to UK pension actuarial movements

18.0

(41.6)

  Utilisation of unrecognised deferred tax assets due to the Built Environment Consulting disposal

-

(145.5)

Irrecoverable withholding tax

14.3

20.4

US Base Erosion and Anti-abuse Tax

-

6.7

CFC charges

5.7

2.3

Uncertain tax provisions

(0.4)

7.5

Uncertain tax provisions - exceptional

0.6

-

Uncertain tax provisions prior year adjustments

(10.6)

(26.7)

Uncertain tax provisions prior year adjustments - Exceptional

(7.4)

1.5

Prior year adjustments

(14.4)

7.7

Prior year adjustments - exceptional

(11.2)

2.5

Impact of change in rates on deferred tax

(3.1)

(1.0)


 


Total tax charge

58.3

236.2

 

 

Comprising

 


Tax charge on continuing operations

65.0

10.9

Tax (credit)/charge on discontinued operations

(6.7)

225.3


 


Total tax charge

58.3

236.2

 

The weighted average of statutory tax rates is 1.5% in 2023 (2022: (25.0%)). The low tax rate reflects an overall loss, however profits in jurisdictions with higher tax rates outweigh those at lower tax rates such that there is a small net tax amount at the Group weighted average tax level.

 

 

 

The adjustments in respect of prior years largely relate to the release of uncertain tax positions as the final outcome on certain issues was agreed with tax authorities during the year or the statute of limitations for audit by the tax authorities expiring without challenge, and amendments in respect of the US following more detailed analysis as part of the tax return work. The most significant uncertain tax position release elements relate to the release of legacy Well Support business related provisions of $7.4m within exceptional items and final assessments received without a penalty which had previously been provided for of $7.0m. US related prior year adjustments are a credit of $15.9m and relate to technical areas of the tax return around the availability of losses due to change of ownership rules, the apportionment of profits between states factoring in the Built Environment disposal and a full analysis of the level of Base Erosion and Anti-Abuse tax payable.

During the year, the UK defined benefit pension fund asset on the Wood Pension Plan decreased due to actuarial losses of $82.8m, resulting in the associated deferred tax liability decreasing, with a credit shown in Other Comprehensive Income. The deferred tax liability supports the recognition of deferred tax assets, and as a result $18.0m (2022: $41.6m additional recognition) has been recognised and a corresponding debit recognised in the profit and loss account. Consistent with the prior year, this has been recognised as an exceptional item.  

 

Net income tax liabilities in the Group balance sheet include $87.1m (2022: $108.0m) relating to uncertain tax positions where management has had to exercise judgement in determining the most likely outcome in respect of the relevant issue. The larger amounts relate to recoverability of withholding taxes ($38.0m, 2022: $36.4m), group financing ($25.7m, 2022: $25.2m) and transfer pricing and tax residence ($9.4m, 2022: $9.6m). Where the final outcome on these issues differs to the amounts provided, the Group's tax charge will be impacted.

 

Of the uncertain tax positions, $80.4m are currently under audit by tax authorities and the provision reflects the maximum potential liability reflecting the outcome of the audits being either no liability or the full risk being challenged. The outcome of the audits will determine if there is a credit to taxation in 2024. The remaining $6.7m comprises uncertain tax positions not yet under audit, none of which are individually material. Of the $6.7m, $0.9m will become statute barred for tax authority audit during 2024 if the tax authorities do not commence an audit.

Factors affecting the tax charge in future years

There are a number of factors that may affect the Group's future tax charge including the resolution of open issues with the tax authorities, corporate acquisitions and disposals, the use of brought forward losses and changes in tax legislation and rates. The following outlines key factors that may impact on future tax charges.

 

On 8 October 2021, 136 countries signed up to the OECDs Inclusive Framework (Pillar II). This includes an agreement for a minimum level of tax of 15% which applies to the Group from 1 January 2024. Based on the 2023 results and an analysis of the jurisdictions to which a Pillar II charge may apply, the anticipated range of the additional charge is between $1m and $4m depending on the outcome of technical uncertainties on which guidance has yet to be provided by the OECD. The Jurisdictions Pillar II will have the greatest impact in relation to are the UAE and the captive insurance company incorporated in Guernsey but UK tax resident.

 

During 2022, the actuarial loss in relation to the UK pension fund has resulted in a derecognition of deferred tax assets as less can now be supported by the deferred tax liability related to the pensions asset. Whilst the movement in the deferred tax liability is taken to Other Comprehensive Income, the additional recognition of assets is taken to the Income Statement. The future tax charge will therefore be impacted by movements in the pension asset valuation with actuarial gains increasing deferred tax asset recognition and actuarial losses decreasing recognition. The deferred tax liability in relation to the UK pension fund at 31 December 2023 is $100.8m.

 

The UK Government announced in its budget on 3 March 2021, a rise in the rate of Corporation Tax from 19% to 25% from 1 April 2023. The increase is reflected in deferred tax in the accounts, however there is no impact as deferred tax assets are only recognised to the extent there are deferred tax liabilities in the UK. We anticipate the tax charge and cash tax payable is likely to increase from the 2024 year end onwards as a result of the rate rise to full calendar years from then on.

 

Tax Policy

The Group is committed to complying with all relevant tax laws, rules, regulations and reporting and disclosure requirements wherever it operates. All tax planning undertaken is consistent with the Group's overall strategy and approach to risk. The Group aims to use incentives and reliefs to minimise the tax cost of conducting business but will not use them for purposes which are knowingly contradictory to the intent of the legislation. A full copy of the Group's tax strategy can be found on the Group's website at www.woodplc.com

 

 

7          Discontinued operation

In September 2022, the Group announced it had completed an agreement to sell the Built Environment Consulting business, which is included within the Built Environment Consulting operating segment. The Built Environment Consulting business was classified as a discontinued operation from 1 January 2022, at which point the conditions under IFRS 5 were met. The Group income statement and statement of comprehensive income were re-presented to show the discontinued operation separately from continuing operations.

 

As per the terms of the agreement, the Group had a residual element of the transaction classified as held for sale in the 2022 Annual Report. The sale of the remaining underlying subsidiary, residing in Saudi Arabia, did not complete during 2023 and will now be retained by the Group. The results in the comparative periods arising from discontinued operations have been re-presented in the table below, with the performance of this subsidiary now showing within the Group income statement as part of continuing operations. This restatement is in accordance with the requirements of IFRS 5 paragraph 36. The revenue and profit before tax associated with this subsidiary in 2022 was $27.1m and $3.1m respectively.

(i)            Results of discontinued operation

 

 

Note

2023

(unaudited)

$m

2022

(re-presented)

$m

 




External revenue

 

-

854.0

Cost of sales

 

(10.2)

(735.8)

Gross (loss)/profit

 

(10.2)

118.2


 

 


Administrative expenses

 

-

(48.4)

Exceptional items - administrative expenses

 

(5.0)

(6.7)

Operating (loss)/profit

 

(15.2)

63.1

 

 

 


Finance expense

 

-

(1.7)

(Loss)/profit before tax

 

(15.2)

61.4

 

 

 


Taxation

 

-

(7.9)

 

Results from operating activities, net of tax

 

 

(15.2)

 

53.5

 

 

 


Gain on sale of discontinued operation

 

31.0

514.5

Income tax on gain on sale of discontinued operation (exceptional)

 

6.7

(217.4)


 

 


Profit from discontinued operation, net of tax

 

22.5

350.6

Earnings per share (cents)

 

 

 

Basic

9

3.3

51.5

Diluted

9

3.3

51.5

 

The profit from the discontinued operation, net of tax of $22.5m (2022: $350.6m) is attributable entirely to the owners of the Company. Cost of sales of $10.2m relates to contract costs incurred in respect of the Built Environment Consulting business prior to its sale that were not known at the time of the disposal and should have been accrued in that business in the prior year. As the adjustment is not material the prior year comparatives have not been restated and the charge included in 2023.

The final proceeds from the disposal of the Built Environmental Consulting business were agreed during 2023 upon agreement of the completion balance sheet between the Group and WSP. This has resulted in an additional gain of $31.0m, comprising $27.1m of cash proceeds and the release of completion accruals, being recognised in discontinued operations.

 

The disposal of the built environment business has led to a R&D tax credit being determined to be unrecoverable in the foreseeable future, and a charge of $5.0m has been recognised in addition to the charge previously recognised in 2022, following the filing of the relevant 2022 tax returns.

(ii)           Cash flows from / (used in) discontinued operation

 

 

Note

2023

(unaudited)

$m

 

2022

$m

 




Net cash used in operating activities

 

-

(6.0)

Net cash (used in)/ generated from investing activities

 

(40.0)

1,748.4

 

Net cash flows for the period

 

 

(40.0)

 

1,742.4

 

8          Dividends

No decision has been taken to resume the dividend and this will be kept under review by the directors. Any decision to resume payment of a dividend will consider the Group's future profitability and cash requirements.

 

9          Earnings per share


2023 (unaudited)

2022


(Losses)/earnings attributable to

owners of the

 parent

$m

Number of shares

m

Earnings/(losses) per share

Cents

(Losses)/earnings attributable to owners of the parent

$m

Number of shares

m

Earnings/(losses) per share

cents








Basic pre-exceptional

(45.2)

685.9

(6.6)

(13.7)

680.4

(2.0)

Exceptional items, net of tax

(65.5)

-

(9.5)

(342.6)

-

(50.4)


 

 

 




Basic

(110.7)

685.9

(16.1)

(356.3)

680.4

(52.4)

Effect of dilutive ordinary shares

-

-

-

-

-

-


 

 

 




Diluted

(110.7)

685.9

(16.1)

(356.3)

680.4

(52.4)


 

 

 




Adjusted diluted earnings per share calculation

 

 

 





 

 

 




Basic

(110.7)

685.9

(16.1)

(356.3)

680.4

(52.4)

Exceptional items, net of tax

65.5

-

9.5

342.6

-

50.4

Amortisation related to acquisitions, net of tax

50.8

-

7.4

52.5

-

7.7


 

 

 




Adjusted diluted

5.6

685.9

0.8

38.8

680.4

5.7


 

 

 




Adjusted basic

5.6

685.9

0.8

38.8

680.4

5.7

 

 

i)              (Losses)/earnings attributable to equity shareholders


2023 (unaudited)

2022

 


 

Continuing

operations

$m

 

Discontinued operations

 $m

 

 

Total

$m

Continuing operations

(re-presented)

$m

Discontinued operations

(re-presented)

$m

 

Total

(re-presented)

 

$m


 

 

 

 



(Losses)/earnings attributable to equity

shareholders (basic pre-exceptional)

(35.0)

(10.2)

(45.2)

(73.9)

60.2

(13.7)

Exceptional items, net of tax

(98.2)

32.7

(65.5)

(633.0)

290.4

(342.6)

(Losses)/earnings attributable

to equity shareholders

(133.2)

22.5

(110.7)

(706.9)

350.6

(356.3)

Number of shares (basic)

685.9

685.9

685.9

680.4

680.4

680.4

Number of shares (diluted)

685.9

685.9

685.9

680.4

680.4

680.4

Basic earnings per share (cents)

(19.4)

3.3

(16.1)

(103.9)

51.5

(52.4)

Diluted earnings per share (cents)

(19.4)

3.3

(16.1)

(103.9)

51.5

(52.4)

 

 


2023 (unaudited)

2022


 

Continuing

operations

$m

 

Discontinued operations

 $m

 

 

Total

$m

Continuing operations

(re-presented)

$m

Discontinued operations

(re-presented)

$m

 

Total

(re-presented)

$m

(Losses)/earnings attributable to equity shareholders

(133.2)

22.5

(110.7)

(706.9)

350.6

(356.3)

Exceptional items, net of tax

98.2

(32.7)

65.5

633.0

(290.4)

342.6

Amortisation of intangibles on acquisition,

net of tax

50.8

-

50.8

52.5

-

52.5

(Losses)/earnings attributable

to equity shareholders (adjusted diluted)

15.8

(10.2)

5.6

(21.4)

60.2

38.8

(Losses)/earnings attributable

to equity shareholders (adjusted basic)

15.8

(10.2)

5.6

(21.4)

60.2

38.8

Number of shares (diluted)

685.9

685.9

685.9

680.4

680.4

680.4

Number of shares (basic)

685.9

685.9

685.9

680.4

680.4

680.4

Adjusted diluted (cents)

2.3

(1.5)

0.8

(3.1)

8.8

5.7

Adjusted basic (cents)

2.3

(1.5)

0.8

(3.1)

8.8

5.7

 

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 dilutive potential ordinary shares, only when there is a profit per share. The Group's dilutive ordinary shares comprise share options granted to employees under Executive Share Option Schemes, shares and share options awarded under the Group's Long-Term Plan and shares awarded under the Group's Employee Share Plan and Share Incentive Plan. Adjusted basic and adjusted diluted earnings per share are disclosed to show the results excluding the impact of exceptional items and amortisation related to acquisitions, net of tax. 

For the year ended 31 December 2023, the Group reported a basic loss (2022: loss) per ordinary share, therefore the effect of dilutive ordinary shares are excluded (2022: excluded) in the calculation of diluted earnings per share. Where profits have been made when disaggregating discontinued and continuing operations, the calculation of diluted earnings per share was performed on the same basis as the whole Group. Had the result been a profit, an additional 22.0m of dilutive potential shares would have been used in the calculation of diluted EPS metrics, which would have reduced the adjusted diluted EPS by 0.01 cents

 

 

10  Goodwill and other intangible assets

 

 

(unaudited)

 

Goodwill
$m

Software and development
costs

$m

Customer contracts and relationships

$m

Order backlog

$m

Brands

$m

Total

$m

Cost







At 1 January 2023

4,277.4

343.2

656.1

157.0

479.4

5,913.1

Exchange movements

49.4

24.1

4.8

1.2

5.4

84.9

Additions

-

131.0

-

-

-

131.0

Disposals

-

(2.1)

-

-

-

(2.1)

Businesses divested

(15.0)

-

-

-

-

(15.0)








At 31 December 2023

4,311.8

496.2

660.9

158.2

484.8

6,111.9


 

 

 

 

 

 

Amortisation and impairment

 

 

 

 

 

 

At 1 January 2023

488.8

239.4

547.7

157.0

171.1

1,604.0

Exchange movements

6.5

19.0

2.8

1.2

1.8

31.3

Amortisation charge

-

105.2

26.3

-

28.2

159.7

Disposals

-

(2.1)

-

-

-

(2.1)








At 31 December 2023

495.3

361.5

576.8

158.2

201.1

1,792.9








Net book value at 31 December 2023

3,816.5

134.7

84.1

-

283.7

4,319.0








Cost







At 1 January 2022

5,226.2

288.8

815.7

183.9

661.0

7,175.6

Exchange movements

(173.2)

(40.3)

(21.8)

(2.8)

(13.3)

(251.4)

Additions

-

115.9

-

-

-

115.9

Disposals

-

(3.4)

-

-

-

(3.4)

Businesses divested

(775.6)

(17.8)

(137.8)

(24.1)

(168.3)

(1,123.6)








At 31 December 2022

4,277.4

343.2

656.1

157.0

479.4

5,913.1

 







Amortisation and impairment







At 1 January 2022

0.8

205.7

581.2

171.7

140.9

1,100.3

Exchange movements

(5.2)

(33.4)

(15.8)

(2.5)

(3.0)

(59.9)

Amortisation charge

-

87.5

28.4

11.9

24.1

151.9

Impairment

493.2

-

4.2

-

44.9

542.3

Disposals

-

(3.4)

-

-

-

(3.4)

Businesses divested

-

(17.0)

(50.3)

(24.1)

(35.8)

(127.2)








At 31 December 2022

488.8

239.4

547.7

157.0

171.1

1,604.0

 







Net book value at 31 December 2022

3,788.6

103.8

108.4

-

308.3

4,309.1

 

General

In accordance with IAS 36 'Impairment of assets', goodwill was tested for impairment during the year. The impairment tests were carried out by Cash Generating Unit ('CGU') as at 31 December 2023 (the "test date").  The Group has five CGUs and Goodwill is monitored by management at CGU level.  The allocation of Goodwill by CGU as at the test date is shown in the table below.

The carrying value of the goodwill for each CGU as at the test date is shown in the table below.

Cash Generating Unit

Goodwill carrying value

2023 Test date

(unaudited)

 $m

Goodwill carrying value

2022 Test date

 

 $m

Projects

2,195.7

2,280.8

Operations

1,231.2

1,594.8

Consulting

356.4

372.4

Kelchner

16.9

16.9

Swaggart

16.3

16.3

 

Basis for determining recoverable amount

The recoverable amount was determined by preparing value-in-use calculations prepared for each CGU using the cash flow projections included in the financial forecasts prepared by management and approved by the Board for the period 2024 through to 2028.  Management have updated the forecasts which were underpinned by the new strategy announced in November 2022 based on an updated assessment of market outlook; growth in market share; resource utilisation; contract backlog; contract margins; assumed contract awards based on the current pipeline; and actual performance in 2023.  The key market drivers, within energy, include energy security driven by the ongoing conflict in Ukraine and supporting energy transition in our focus markets.  Our materials growth drivers are also underpinned by transition to net zero, as well as increased consumer demand driven by population growth and higher standards of living.

The projected growth in the CGUs is underpinned by the Group's strategy to fully capitalise on the engineering capabilities of each of the CGUs to help our clients move to net zero through energy transition and decarbonisation. In addition to applying decarbonization capabilities within each CGU across each of the growth markets, digitization is another key driver which is expected to draw demand for the digital tools, products and capabilities offered by the Consulting CGU.  During 2023 each of the CGUs have had significant contract wins in energy transition and decarbonisation and are therefore well placed to benefit from significant levels of investment required by our clients to achieve net zero.  The Group have also considered that there are risks associated with energy transition, including energy transition and industrial decarbonisation markets not generating sufficient revenues to meet targets, which may also impact the Group's ability to attract or retain the appropriately skilled workforce which could prevent the Group from competing for work in this space.  However, offsetting this risk is the large near-term addressable market focused on energy security within oil and gas along with the desire of those clients to pursue net-zero and decarbonization efforts. These projects are supporting the energy security agenda as major economies aim to reduce their dependency on Russian oil and gas, whilst also ensuring affordable energy for consumers.

Critical assumptions

The revenue CAGR for each of the CGUs ranges from 8.3% to 13.4% (2022: 4.8% to 14.2%). The Projects revenue CAGR includes growth from its Middle East region, process and chemicals sector and minerals and processing sectors. Projects is expected to leverage from its existing engineering capabilities and client relationships to grow its market share in the minerals sectors, whilst population growth is expected to underpin growth in the process and chemicals sector.  The Projects Middle East business is underpinned by the Group's deep history in that region.  If this growth does not materialise, there is a risk of an impairment in the Projects CGU.  

The Operations revenue CAGR includes growth from the oil and gas sector in Europe and the Middle East and is underpinned by a global focus on energy security and supporting the energy transition.  Operations have secured a number of contract awards with large, multinational energy companies during 2023, and this is reflected in a higher orderbook as at 31 December 2023 compared with 31 December 2022.  Reasonably possible changes in the critical assumptions used in the Operations impairment test did not result in an impairment. 

The terminal growth rates assumed from 2028 do not exceed the long-term average historical growth rates for the regions and sectors in which the CGUs operate.  The Group is well placed to benefit from the significant long term growth opportunities from Energy Transition, which has been considered in determining long term growth rates.  Management reviewed independent forecasts which set out the long-term investment required in order to achieve net zero.  This long-term annual growth was then applied to each of the CGUs based on current activity levels.  Accordingly, the long-term growth rates assumed in the model are 2.4% for Operations (2022:  2.4%); 2.4% for Projects (2022: 2.4%); and 2.4% (2022: 2.4%) for Consulting. 

The cash flows have been discounted using discount rates appropriate for each CGU, and these rates are reviewed for each impairment review performed.  The discount rate is a critical assumption in the impairment test and the significant volatility in financial markets has led to an increase in the discount rate. The Group have considered the additional specific risks related to each business such as country risk and forecasting risk.  The Group have considered the ongoing conflict in Israel on its operations in the Middle East as part of its assessment of country risk premium.  The pre-tax rates used for the 2023 review are tabulated as follows and were derived from the Group WACC calculation with specific adjustments for CGU specific risks including country risk premiums.  

The discount rates tabulated below reflect the view that the cash flows have been risk adjusted in 2023, whereas risk adjustments were reflected in the discount rate in 2022.  The 2023 pre-tax discount rates, with risk reflected in the discount rate would have been 13.1% for Projects, 13.7% for Operations, 12.3% for Consulting, 12.9% for Kelchner and 13.1% for Swaggart.

Cash Generating Unit

Pre-tax discount rate

2023

(unaudited)

%

Pre-tax discount rate

2022

 

%

Post-tax discount rate

2023

(unaudited)

%

Post-tax discount rate

2022

 

%

Projects

12.0

13.2

10.3

11.0

Operations

12.3

12.9

10.5

10.5

Consulting

12.0

12.2

10.3

9.9

Kelchner

10.8

12.4

9.4

10.4

Swaggart

11.0

12.8

9.4

10.4

 

Sensitivity analysis

In order to reduce headroom to $nil in 2023, the post-tax discount rate would need to increase to:

Cash Generating Unit (unaudited)

%

Projects

10.7

Operations

13.0

Consulting

16.8

Kelchner

20.0

Swaggart

17.4

 

The headroom for Projects was $112m based on the assumptions described above.   The key assumptions used in the impairment model for the CGU include discount rate, long term growth rate and revenue growth.  There are reasonably possible changes in assumptions that would result in an impairment for Projects.  If the post-tax discount rate was 1.0% higher for Projects, the impairment would be $171m.  A 1.2% reduction in revenue CAGR over the forecast period would reduce headroom to $nil and a 0.5% reduction in the long-term growth rate would also reduce headroom to $nil.    

Reasonably possible changes in the assumptions used in the impairment tests in the other CGUs did not result in an impairment.

Group test

The carrying values of the corporate assets that were not allocated to the above cash generating units above were $111.8m (2022: $73.2m) and were tested for impairment at the group level, taking into account the estimates and assumptions discussed above in respect of the Group's cash generating units.  The Group post tax discount rate was 9.6% (pre-tax 11.2%) and a terminal growth rate of 2.4% was applied to the forecast consolidated cash flows of the Group, including the unallocated central costs.  The recoverable amount of the Group at the test date was $4,767m.  The Group post-tax discount rate would need to be 0.5% higher to reduce the headroom to $nil. 

Intangibles

Customer relationships relate mainly to the acquisition of Amec Foster Wheeler in 2017 and are being amortised over periods of 5 to 13 years. Order backlog relates entirely to the acquisition of AFW and was being amortised over periods of 2 to 5 years and has fully amortised. Brands recognised relate entirely to the acquisition of AFW and the remaining carrying value is being amortised over a period of 11 years.

Software and development costs includes internally generated assets with a net book value of $47.5m at 31 December 2023 (2022: $36.9m). $18.7m (2022: $19.9m) of internally generated intangibles is included in additions in the year.

The software disposals relate to the write off of fully depreciated assets that are no longer in use.

 

11  Property plant and equipment

(unaudited)

Land and Buildings
$m

Plant and equipment
$m

Total
$m

Cost




At 1 January 2023

51.6

79.3

130.9

Exchange movements

1.9

4.1

6.0

Additions

2.7

17.8

20.5

Disposals

(17.4)

(25.7)

(43.1)

Reclassifications

-

(14.8)

(14.8)


 

 

 

At 31 December 2023

38.8

60.7

99.5


 

 

 

Accumulated depreciation and impairment

 

 

 

At 1 January 2023

28.5

20.0

48.5

Exchange movements

0.9

3.3

4.2

Charge for the year

5.1

15.9

21.0

Disposals

(12.1)

(25.4)

(37.5)

Impairment

1.1

0.7

1.8

Reclassifications

-

(3.8)

(3.8)


 

 

 

At 31 December 2023

23.5

10.7

34.2


 

 

 

Net book value at 31 December 2023

15.3

50.0

65.3


 

 

 

Cost




At 1 January 2022

86.7

115.7

202.4

Exchange movements

(5.3)

(10.9)

(16.2)

Additions

1.5

26.1

27.6

Disposals

(11.0)

(21.7)

(32.7)

Businesses divested (note 7)

(22.1)

(28.1)

(50.2)

Reclassifications

1.8

(1.8)

-





At 31 December 2022

51.6

79.3

130.9





Accumulated depreciation and impairment




At 1 January 2022

50.5

49.7

100.2

Exchange movements

(3.5)

(11.4)

(14.9)

Charge for the year

5.5

19.7

25.2

Disposals

(7.5)

(19.4)

(26.9)

Businesses divested (note 7)

(18.3)

(17.2)

(35.5)

Reclassifications

1.8

(1.8)

-

Impairment

-

0.4

0.4





At 31 December 2022

28.5

20.0

48.5

 




Net book value at 31 December 2022

23.1

59.3

82.4

 

The net book value of Land and Buildings includes $7.9m (2022: $14.0m) of Long Leasehold and Freehold property and $7.4m (2022: $9.1m) of Short Leasehold property. There were no material amounts in assets under construction at 31 December 2023.

During the year there were finance lease assets with a net book value of $11.5m transferred from Plant and Equipment to Right of Use Assets.

 

 

12  Leases

Right of use assets (unaudited)

Land and Buildings
$m

Plant and equipment
$m

Total
$m

Net book value




At 1 January 2023

249.5

26.5

276.0

Exchange movements

10.3

0.8

11.1

Additions

121.2

35.0

156.2

Disposals

(2.8)

(0.9)

(3.7)

Reclassifications

-

11.5

11.5

Depreciation of right of use assets

(61.4)

(33.8)

(95.2)

At 31 December 2023

316.8

39.1

355.9


 

 

 

 

Lease liabilities (unaudited)

 

 

 

At 1 January 2023



342.9

Exchange movements



10.3

Additions



147.6

Disposals



(5.4)

Interest expense related to lease liabilities



18.7

Repayment of lease liabilities



(113.3)

At 31 December 2023

 

 

400.8

 

 

Right of use assets




Net book value




At 1 January 2022

316.6

39.5

356.1

Exchange movements

(17.5)

(2.1)

(19.6)

Additions

67.8

27.0

94.8

Disposals

(1.5)

-

(1.5)

Businesses divested (note 7)

(53.7)

(17.8)

(71.5)

Depreciation of right of use assets

(62.2)

(20.1)

(82.3)

At 31 December 2022

249.5

26.5

276.0

 

 

Lease liabilities

 

 

 

At 1 January 2022



449.8

Exchange movements



(27.0)

Additions



91.9

Disposals



(5.4)

Businesses divested (note 7)



(62.7)

Interest expense related to lease liabilities



17.9

Repayment of lease liabilities



(121.6)

At 31 December 2022

 

 

342.9

 

Included in the above, the Group has finance leases liabilities totalling $17.7m (2022: $16.2m) in addition to the IFRS 16 lease liabilities in respect of leases previously classified as operating leases under IAS 17. 

 

 

A maturity analysis of the Group's total lease liability is shown below:

 




2023

(unaudited)

 

2022




$m

$m

Current lease liability



83.4

83.2

Non-current lease liability



317.4

259.7




 


Total lease liability

 

 

400.8

342.9

 

The following table shows the breakdown of lease expense between amounts charged to operating profit and amounts charged to finance costs.

 




$m

$m

Depreciation charge for right of use assets

 

 

Property

61.4

62.2

Plant and equipment

33.8

20.1

Charged to operating profit

95.2

82.3

Interest expense related to lease liabilities

18.7

17.9

Charge to profit/(loss) before taxation for leases

113.9

100.2

 

13  Investment in joint ventures and other investments

The Group operates a number of joint ventures companies, the most significant of which are its turbine JV's, EthosEnergy Group Limited and RWG (Repair & Overhauls) Limited.  The Group considers these to be joint arrangements on the basis that two or more parties have joint control, which is defined as the contractually agreed sharing of control and exists only when decisions about the relevant activities of the joint arrangement require the unanimous consent of the parties sharing control. The Group has a 51% shareholding in EthosEnergy, a provider of rotating equipment services and solutions to the power, oil and gas and industrial markets. EthosEnergy is domiciled and headquartered in Aberdeen, Scotland. The Group has a 50% shareholding in RWG, a provider of repair and overhaul services to the oil and gas, power generation and marine propulsion industries. RWG is based in Aberdeen, Scotland.

The assets, liabilities, income and expenses of the EthosEnergy and RWG are shown below. The financial information below has been extracted from the management accounts for these entities.

 

 


EthosEnergy (100%)

RWG (100%)


2023

(unaudited)
$m


2022

$m

      2023

(unaudited)
$m

    
2022

$m

Non-current assets

145.7

137.9

58.7

57.9

Current assets

534.7

520.7

160.8

141.4

Current liabilities

(353.8)

(347.7)

(78.5)

(74.6)

Non-current liabilities

(65.7)

(78.7)

(2.7)

(7.7)


 


 


Net assets

260.9

232.2

138.3

117.0


 


 


Wood Group share

133.1

118.4

69.2

58.5

Accumulated impairments and other adjustments

(65.9)

(65.9)

-

-


 


 


Wood Group investment

67.2

52.5

69.2

58.5


 


 


Revenue

861.0

824.8

253.4

234.3

Cost of sales

(726.2)

(721.5)

(181.6)

(169.8)

Administrative expenses

(86.9)

(80.5)

(31.1)

(31.2)

Exceptional items

-

-

-

-


 


 


Operating profit

47.9

22.8

40.7

33.3

Finance expense

(11.7)

(7.5)

(1.0)

(0.8)


 


 


Profit before tax

36.2

15.3

39.7

32.5

Tax</