Wood Group (J) Regulatory News (WG.)

WOOD GROUP (JOHN) PLC - Final Results for the year to 31 December 2017

PR Newswire

London, March 19

JOHN WOOD GROUP PLCGROUP FINANCIAL STATEMENTSFOR THE YEAR TO 31st DECEMBER 2017Company Registration Number SC 36219

20 March 2018

Full year results for the year ended 31 December 2017

“2017 was a year of transformational strategic development. The acquisition of Amec Foster Wheeler in October brought together two businesses and three brands to create Wood, a global leader in project, engineering and technical services delivery. We are a broader business with multi-sector, full service capability across energy and industrial markets and a stronger, more balanced offering in oil & gas. Integration is progressing ahead of schedule with initial cost synergies achieved earlier than plan. Financial performance for 2017 is in line with guidance. I am confident we have a unique platform to unlock revenue synergies and generate good longer term growth”

Robin Watson, Chief Executive

· Financial results for 2017 ahead of guidance on a reported basis and in line on a proforma basis

· Relatively resilient performance despite continued challenging conditions in core oil & gas markets

· Integration progressing at pace. Annualised cost synergies delivery of greater than $40m to date, earlier than plan. Remain confident of delivering at least $170m in three years

· Net debt of $1.65bn and 12 month proforma Net debt : EBITDA of 2.4x

· Deleveraging plan underpinned by confidence in earnings quality, synergies delivery and planned disposal of non core assets of at least $200m

· Progressive dividend retained. Proposed final dividend of 23.2c up 3%

· Proforma results in 2017 establish the base for Wood going forward and benefit from a dispute settlement in legacy AFW, partially offset by cost overruns on certain fixed price, non-oil and gas contracts

· Operating profit before exceptional items is stated after non cash amortisation charges of $141m, including $32m of amortisation of intangibles arising on the acquisition of AFW

· Loss for the period is stated after exceptional costs of $165m, including $67m in respect of the acquisition of Amec Foster Wheeler and restructuring & integration costs of $51m

· Anticipate modest EBITA growth in 2018 reflecting early stage recovery in certain oil & gas markets, good momentum in broader energy and industrial contract awards and delivery of cost synergies

Notes:

1 Proforma results are unaudited. They include 12 months of AFW’s results but exclude the results of businesses disposed; principally the AFW North Sea upstream business, the AFW North American nuclear operations and the disposed elements of GPG. It also excludes the results of other, less material disposed interests including the Aquenta consultancy, an interest in Incheon Bridge and interests in two Italian windfarms.

2 See detailed footnotes following the Financial Review. Total Revenue and Total EBITA are presented based on proportionally consolidated numbers, which is the basis used by management to run the business and includes the contribution from joint ventures. A reconciliation to statutory numbers is provided in note 1 to the accounts.

3 Company compiled publicly available consensus 2017 Reported EBITA on a proportionally consolidated basis is $345mm and AEPS is 50.5c. Consensus 2017 EBITA on a Profroma basis is $597m.

(https://www.woodplc.com/investors/analyst-consensus-and-coverage)

Wood is a global leader in the delivery of project, engineering and technical services to energy and industrial markets. We operate in more than 60 countries, employing around 55,000 people, with revenues of around $10 billion. We provide performance-driven solutions throughout the asset life-cycle, from concept to decommissioning across a broad range of industrial markets including the upstream, midstream and downstream oil & gas, power & process, environment and infrastructure, clean energy, mining, nuclear and general industrial sectors. http://www.woodplc.com/

For further information contact:

Wood

Andrew Rose – Group Head of Investor Relations 01224 532 716Ellie Dixon – Investor Relations Senior Manager 01224 851 369

BrunswickPatrick Handley 020 7404 5959Charles Pemberton

There will be an analyst and investor presentation at the Lincoln Centre, 18 Lincoln’s Inn Fields, WC2A 3ED at 09.00. Early registration is advised from 08.30.

A live webcast of the presentation will be available from https://www.woodplc.com/investors/financial-events-calendar

Replay facilities will be available later in the day.

Chair’s statement

2017 was a year of significant development for Wood Group culminating in the completion of the acquisition of Amec Foster Wheeler (“AFW”) on 6 October to create Wood, a global leader in the delivery of project, engineering and technical services to energy and industrial markets.

Wood Group has a long and successful track record of acquisition-led growth. In 2016 AFW was identified as a larger potential acquisition that could accelerate the Wood Group strategy to improve its service offering in project delivery, enhance its capability across the value chain in core oil and gas markets, and broaden and deepen end market and customer exposure.

The first quarter of 2017 presented an opportunity to acquire AFW at an appropriate valuation. The Board recognised the compelling rationale for substantial cost synergies and incremental revenue synergies in a less cyclically volatile business with a similar business model and strong operational capability. The all share offer announced on 13 March represented a 15% premium to the previous day’s closing price and received the overwhelming support of both sets of shareholders on 15 June with over 99% voting in favour. Since completion on 6 October, Robin and his combined leadership team have been focussed on integration, making good use of the lessons learned from Wood Group’s successful 2016 organisational change programme and proven track record of cost reduction.

The transaction did not divert management’s attention from operational delivery, which remained very much in focus throughout the year. The flexibility of our asset light business model has been crucial during the downturn in the oil & gas market. Wood Group’s focus on cost and managing utilisation continued throughout 2017. Capital discipline remained high on the agenda for E&P operators despite some recovery in commodity prices in the second half of the year. Going forward, Wood will have a broader exposure across energy and industrial markets and the oil and gas segment will account for around half of revenue.

Post completion, three former AFW directors joined the Board. Roy Franklin is now the Senior Independent Director and Deputy Chair and Linda Adamany and Ian McHoul serve as non-executive directors. In January, Richard Howson stepped down from the Board. These board changes ensure diversity at Board level in terms of background, experience and thought leadership.

Taking account of cashflows and earnings, the progressive Wood dividend policy is a key element of our investment case and compares favourably against peers in the global engineering and construction sector. The Board has recommended a final dividend of 23.2 cents per share, which makes a total distribution for the year of 34.3 cents, an increase of 3% on the 2016 total distribution. Former AFW shareholders will also receive the final dividend.

Looking ahead, the Board is very confident that Wood will build on the integrated growth platform of Wood Group and Amec Foster Wheeler for the long term benefit of all stakeholders.

Ian Marchant, Chair

Chief Executive Review

Creating Wood, a global leader in project, engineering and technical services delivery

The acquisition of AFW in October 2017 brought together three brands and two companies to create one leading business in project, engineering and technical services delivery. We are a business of significantly increased scale with around 55,000 people in over 60 countries providing solutions across the asset life cycle from concept to decommissioning. We have a stronger, more balanced oil & gas offering and we are a much broader business, with a multi-sector, full service capability across energy and industrial markets.

In the first few months since completion, we have completed detailed business unit reviews that have confirmed the strategic rationale for the deal, the depth of capability in AFW and the unique growth opportunities for the combined business.

The Wood operating model was in place and communicated on Day 1, greatly benefitting our stakeholders’ understanding of the combined business and enabling our integration process to begin at pace. Wood Group completed a service defined organisational change programme in 2016 that focussed on simplicity and efficiency, resulting in a structure that could accommodate future business additions. As a result, the integration of AFW requires only minor modification to our operating and reporting model. Our 2016 reorganisation was key to the delivery of cumulative overhead costs savings of over $240m by the end of 2016, during the prolonged downturn in the oil & gas sector. We are confident this experience will enable us to deliver a leaner, more competitive combined organisation and underpin the delivery of cost synergies.

Integration and the achievement of synergies has been a key objective for the whole business. We remain very confident of delivering annualised cost synergies at least $170m by the end of the third year following completion and are currently ahead of schedule. Our actions to date have been focussed on rationalisation at the top levels of management and the initial stages of property rationalisation. Key leadership was in place on Day 1 and we have subsequently announced a further two levels of organisation. We are taking a “Best of Both” approach to ensure retention of key experience and expertise in the combined business. To date we have delivered annualised cost synergies of greater than $40m. Costs to deliver synergies of c. $30m, including redundancy, restructuring and integration costs are recognised in exceptional items and are tracking in line with expectations.

Wood is better placed to serve customers than ever before, with a more comprehensive range of capabilities and the potential to deliver efficient integrated solutions with fewer customer interfaces. Customer reaction to the deal, particularly across oil & gas, has been positive. We have had some early successes on revenue synergies, including our recently announced contract with Saudi Aramco to support their integrated crude oils to chemicals complex. We have also made good progress on merging bidding pipelines and aligning tendering and project delivery governance. The strategy and development function is leading the revenue synergies programme with an initial focus on educating leaders about the broader range of Wood capabilities on offer and identifying opportunities where we have a combination of capability that addresses an identified customer need. Examples include extending our involvement in oil & gas projects from the start of the asset life cycle to the end, leveraging our operations services experience into new industry sectors served by the legacy AFW business and building on our sector agnostic service offerings across the broader customer base.

The restrictions on interaction with AFW imposed by the offer period prevented us from deepening our understanding of the well flagged opportunities and risks until the transaction closed. Following completion, David Kemp and I led comprehensive reviews into the acquired business units. These reviews are now complete. Recognising the change in risk profile in the combined business, a key element of this process was a focus on significant contracts with profit at risk. The risk profile inherited is in line with our expectations and we have identified opportunities to simplify the process around how risk is managed. We have already enhanced our governance structures, project and tender review and contracting policy as a result. We have also taken the decision not to pursue certain high risk lump sum work which was problematic in the legacy AFW business.

Deleveraging to within our preferred range of 0.5 to 1.5x net debt to EBITDA within approximately 18 months post completion is a key priority and we remain confident in the underlying quality of earnings and cash conversion in the business to achieve this target. Our target range reflects our long standing preference for a strong balance sheet foundation. The key elements of our deleveraging plan include; improved working capital management, delivering cost synergies, capital discipline and disposing of non-core businesses including the potential disposal of EthosEnergy. We anticipate proceeds from all such non-core disposals to exceed $200m in the next 18 months.

In terms of our combined safety performance, we now have almost 200 million man-hours of annual exposure. Our initial assessment is that the businesses share common areas of focus and the impact on lagging indicators is minimal. Our ‘Stand Up for Safety’ programme continues to be implemented and will be the cornerstone of the Wood safety engagement through 2018 and beyond. Our general safety performance has encouraging improvements, with total recordable case frequency (TRCF) and lost work case frequency (LWCF) down 8% and 17% respectively compared to 2016 on a proforma basis. Regrettably, there were two fatalities in the legacy AFW business in 2017, both vehicle related. Our focus on safety as our top priority is undiminished.

Details of certain investigations in the UK and US and in respect of certain litigation in the US, that have previously been disclosed, are included in the contingent liabilities and provisions note to the accounts. Wood continues to cooperate with and assist the relevant authorities including the SFO in relation to their respective investigations into the historical use of agents and in relation to Unaoil.

Financial performance in 2017

We outlined our approach to financial metrics and reporting in November ahead of the first Wood trading update in December. There is no change to our proportionally consolidated approach to running and reporting the business which includes the contribution from joint ventures. Total EBITA and Adjusted diluted EPS are retained as our principal profit measures and EBITA is stated after costs relating to asbestos litigation and claims.

Financial results for 2017 are ahead of guidance on a reported basis and in line on a proforma basis.

Reported full year actual results comprise the legacy Wood Group business and a contribution from AFW for the period from completion on 6 October 2017 to 31 December 2017.

Results are also presented on a Proforma basis to provide better insight into the continuing business and establish the base level for Wood for comparability going forward. Proforma results include 12 months of AFW’s results but exclude the results of businesses disposed; principally the AFW North Sea upstream business, the AFW North American nuclear operations and the disposed elements of GPG. They also exclude the results of other, less material disposed interests including the Aquenta consultancy, an interest in Incheon Bridge and interests in two Italian windfarms.

In the legacy Wood Group business, results reflect relatively resilient performance in a challenging oil & gas market. In AS Americas, EBITA was down on 2016. Revenues were broadly in line with 2016, but margins fell due to the completion of onshore engineering projects in 2016, only partly offset by increased activity in offshore engineering. In AS EAAA revenue was down on 2016 but with a stronger second half as expected. We continued to make good progress on overhead reduction and saw some moderation in pricing pressure, although EBITA margin reduced in part due to the positive one off impact of commercial close out on significant and legacy projects in 2016 of around $15m. In STS we saw good growth in automation revenue and robust activity in technology related work, offset by lower activity in subsea & export systems. EBITA margin reduced, in part due to the positive one off impact of commercial close out on significant and legacy projects in 2016, and lower margins in subsea.

In terms of the underlying trading in the legacy AFW business, a number of themes highlighted in their half year results have been evident in our review of the business post completion. From a financial perspective, in the second half the receipt of a dispute settlement was partly offset by delays and cost overruns on certain fixed price non-oil and gas contracts.

Operating profit before exceptional items is stated after non cash amortisation charges of $141m (2016:$104m) which includes $32m in respect of amortisation of intangibles arising on the acquisition of AFW.

The loss for the period of $30m is stated after exceptional costs of $165m net of tax. This included $67m in respect of costs relating to the acquisition of Amec Foster Wheeler, comprising advisory fees of $59m and underwriting fees in respect of new debt facilities of $8m. Also included are restructuring, redundancy & integration costs of $51m. We also made a provision for $19m in the first half in relation to an ongoing subcontractor dispute on a legacy turbines contract which was substantially completed prior to the formation of EthosEnergy. Also included in exceptional costs is a further impairment in the carrying value of EthosEnergy of $28m and other exceptional costs relating to EthosEnergy of c. $10m, mainly related to impairment of receivables.

Net Debt at the year end was $1.65bn and net debt to 12 month proforma EBITDA was 2.4x. This compares to net debt at completion of $2.0bn, which was in line with our expectations. Since completion, the disposal of the AFW UK upstream business on 27 October reduced net debt by c. $250m, although this was partly offset by expected transaction and synergy delivery costs that sit below the EBITA line. Cash conversion was 69% reflecting improved working capital performance offset in part by the cash impact of exceptional items including costs related to the AFW acquisition and integration. Cash conversion before exceptional items was 90%.

Outlook

We entered 2017 as a business engaged in the design, modification, construction and operation of facilities mainly in the upstream oil & gas sector with a clear strategy to broaden into adjacent industries. We are now well positioned as a global leader in project, engineering and technical services delivery. We are a broader business with multi-sector, full service capability across energy and industrial markets and a more balanced offering in oil & gas.

Following completion of the AFW transaction, our business unit reviews confirmed the strategic rationale for the deal, the depth of capability in AFW and the unique growth opportunities for the combined business. At this early stage we currently anticipate modest EBITA growth in 2018. This compares to 2017 proforma EBITA, which includes the one-off benefit of a dispute settlement in legacy AFW. Expected EBITA growth reflects early stage recovery in certain areas of our core oil & gas market and benefit from the delivery of cost synergies. We have also seen good momentum in contract awards more generally in broader energy and industrial markets in the second half of 2017.

Looking further ahead, we have a unique platform to unlock revenue synergies and generate good longer term growth. Our financial objectives and focus are clear; to reduce net debt to EBITDA to below 1.5x within approximately 18 months, to retain our progressive dividend policy taking into account cashflows and earnings and to deliver cost synergies by year 3 of at least $170m in line with our previous commitment.

Asset Solutions Americas

The AFW acquisition provided AS Americas with a multi-sector engineering, procurement and construction capability predominantly focused on the Power & Process industries and an enhanced capability in the Downstream & Chemicals market. The business unit retains its leading upstream oil & gas engineering activity, offshore operations services and onshore construction & maintenance offering and now has a more balanced multi sector exposure with an enhanced EPC and project management offering.

Reported results in 2017 include revenue of c$370m from the Power & Process and Downstream & Chemicals businesses of AFW in the period from completion on 6 October to 31 December, which included activity on US solar projects.

Proforma results are included to provide insight into the underlying business and include a full year contribution from the AFW activities acquired, together with the comparative figures for 2016. Performance in downstream & chemicals improved in 2017. Activity in power & process reduced following the step up in solar projects that arose in 2016 in response to the anticipated end of US solar investment incentives and activity in downstream and chemicals reduced.

Performance in the legacy Wood Group business was down on 2016. Revenues were broadly in line, but margins fell due to the completion of onshore engineering projects in 2016, only partly offset by increased activity in offshore engineering.

Activity on offshore greenfield capital projects including Husky White Rose, Peregrino, Leviathan and Mad Dog 2 partly offset reduced onshore engineering work following completion of a number of projects in 2016 including Flint Hills and the ETC Dakota access pipeline. In US shale, increased drilling activity has led to a modest improvement in demand for our construction and infrastructure activities and performance is up on 2016. Operations Services work remained relatively robust despite challenging conditions in the Gulf of Mexico and onshore markets. We saw increased activity in Newfoundland on the Hibernia Platform and on our Hebron hook up and commissioning scope which completed in the second half of 2017. We remain active on downstream and non-oil and gas projects including our maintenance scope on the Sweeny refinery in Texas for Phillips 66 and our onshore civil works and infrastructure projects with Sofidel in Ohio.

Outlook

We have retained our market share in the offshore greenfield market, although visibility on projects beyond existing work remains low and pricing remains under pressure. Activity in downstream & chemicals capital projects is expected to increase as work secured on contracts including the c$600m methanol plant YCI EPC scope ramps up from a slow start. We have good visibility on EPC projects in the power and process sectors. The improvement in shale activity is expected to continue with activity focused on the Niobrara and Permian basins where we are increasing headcount. In operations services we expect the challenging market conditions to continue into 2018. The delivery of significant cost synergies will be a key area of focus in 2018 and these are progressing ahead of plan.

Asset Solutions Europe, Africa, Asia and Australia

The AFW acquisition provided AS EAAA with a leading project engineering and delivery capability in oil & gas. The business unit retains its leading upstream operations services offering and now has a more balanced exposure across upstream and downstream, a proven track record in EPC and project management and an established high value engineering centre.

Reported results in 2017 include revenue of c$500m from the oil, gas & chemicals project engineering business of AFW in the period from completion on 6 October to 31 December, which included activity on Shah Deniz for BP, the Antwerp oil refinery for Exxon Mobil and the project management consultancy contract for the Al-Zour chemicals plant with Kuwait Oil Company.

Proforma results are included to provide insight into the underlying business and include a full year contribution from the AFW activities acquired, together with the comparative figures for 2016. Proforma performance in 2017 includes the one off settlement received by AFW, related to a dispute settlement on certain oil & gas projects. In 2016 pro-forma EBITA benefitted from significant provision releases in the legacy AFW business.

In the legacy Wood Group business unit, although revenue was down on 2016, EBITA in 2016 was supported in part by the positive one off impact of commercial close out on significant and legacy projects of around $15m. Second half performance was stronger than H1 as expected, as we continued to make good progress on overhead reduction and saw some moderation in pricing pressure,

Operations Services work was the largest contributor to revenue and earnings in 2017 and included improved performance in the Middle East and Asia Pacific. Our contract with Exxon in Iraq is progressing well and in Asia Pacific, activity levels on our Exxon contract in Papua New Guinea are increasing and we remain active on projects including our expanded scope with Melbourne Water. We also commenced work on our five year managed services scope from Hess Malaysia for their offshore facilities in the North Malay basin. In Saudi Arabia, work under the GES+ contract with Aramco was released at a slower than expected rate. In Europe, we retain a market leading position in the challenging North Sea Market where we saw a significant fall in revenue and earnings with reduced workscopes and lower volumes of minor modifications work. Our differentiated offering continues to position us well with new entrants, building on the success of our work on CATS with Antin and Ancala’s midstream assets. We also secured our first onshore downstream workscope supporting the Lindsey oil refinery for Total for 5 years. Our industrial services business performed broadly in line with the prior year. In projects and modifications, we have seen a significant reduction in modifications and upgrade work, with the most material reductions in the North Sea and Kazakhstan.

Turbine joint ventures were up on 2016, with RWG performing robustly and improved performance in EthosEnergy. The impairment of EthosEnergy in 2017 reflects the latest expectation of sales price less costs to sell, based on anticipated longer term prospects.

Outlook

Looking ahead, we see good underlying growth in AS EAAA in 2018. In Operations Services we see a positive outlook from a low base in the North Sea, a relatively robust outlook for Asia, the Middle East and Australasia and see downstream opportunities in the Middle East and mainland Europe. The delivery of significant cost synergies will be a key area of focus in 2018 and these are progressing ahead of plan. Capital projects are expected to account for c.40% of revenues. Due to the phasing of activity on secured work and the one off benefit in 2017 on certain oil and gas projects, reported performance in Capital Projects will likely be lower in 2018, although we have good visibility of work including the FEED and project management consultancy scope for Aramco on both the Marjan field and the integrated crude oils to chemicals complex.

Specialist Technical Solutions

The scale, breadth of end market exposure and technical capability within STS have been greatly enhanced by the AFW acquisition. Reported results in 2017 include revenue of c. $180m from the Mining & Minerals, Nuclear and Process Technology activities of AFW in the period from completion on 6 October to 31 December. Proforma results are included to provide insight into the underlying business and include a full year contribution from the AFW activities acquired, together with the comparative figures for 2016.

In 2017 we saw good growth in automation revenue and robust activity in technology related work, offset by lower activity in subsea & export systems in the legacy Wood Group business. EBITA margin reduced in part due to the positive one off impact of commercial close out on significant and legacy projects in 2016 and lower margins in subsea.

Growth in automation was led by increased procurement activity on the Tengiz expansion project for TCO and the contribution of CEC in Detroit acquired in May, which enhanced our industrial process & control capabilities in the automotive sector. Technology related activity including asset integrity solutions and clean energy performed relatively robustly. Activity in subsea reduced with available workscopes in the market generally limited to small projects, brownfield or early stage work.

Outlook

Benefitting from the increase in commodity prices, our consulting and project delivery work in Mining & Minerals has a positive outlook and will be our largest contributor to STS revenue in 2018 with good visibility on projects including the c. $150m Gruyere Gold EPC work in Australia. Our nuclear business is well positioned in the UK and we expect it to continue to perform robustly. In automation we are seeing early signs of improvement in some downstream and refining markets and we have strong visibility on the TCO project beyond 2018. In the subsea market, some positive sentiment is returning but with opportunities more focussed on brownfield and operations scopes.

Environment and Infrastructure Solutions

The AFW acquisition provided Wood with a leading environmental remediation consultancy and engineering & construction project management capability across a broad range of sectors including government, transport, water, mining and oil & gas.

Reported results in 2017 reflect results of AFW’s environment & infrastructure solutions business in the period from completion on 6 October to 31 December. Proforma results are included to provide insight into the underlying business.

2017 revenues in the E&IS business were in line with 2016 due to growth in government and mining sectors and good execution on pharmaceutical projects. This is offset by a reduction in oil and gas projects, particularly in North America as challenging conditions continue and the completion of a land remediation project management scope at the end of 2016. In 2016 EBITA was impacted by significant cost overruns on a fixed price, non-oil and gas, US government capital project in the Pacific. EBITA in 2017 also includes the impact of overruns on a fixed price contract with the US government but to a lesser extent. Undertaking contracts of this specific nature will not be part of our strategy going forward due to inherent cash flow challenges.

Outlook

We expect further growth in 2018. Government represents the largest sector for our E&IS business and we are well positioned to benefit from increased environmental and infrastructure investment, particularly in the US. In Europe we will also benefit from EPCM work for GlaxoSmithKline in Germany secured in the second half. Due to the multi-sector nature of our capabilities in E&IS we see strong opportunities for revenue synergies across complementary sectors in our Asset Solutions and Specialist Technical Solutions businesses.

Investment Services

A number of potentially non-core legacy activities in AFW are managed in Investment Services. This includes the activities of the Transmission and Distribution business and the Industrial Power and Machinery business in addition to interests in a number of infrastructure projects. Investment services generated proforma revenues of $374m in 2017 (2016: $508m) and EBITA of $28m (2016: $4m).

Financial Review

Trading performance

Reported full year trading performance comprises the heritage Wood Group business and the contribution from AFW for the period from completion on 6 October 2017 to 31 December 2017.

There is no change to our proportionally consolidated approach to running and reporting the business which includes the contribution from joint ventures. Total EBITA and Adjusted diluted EPS are retained as our principal profit measures and EBITA is stated after costs relating to asbestos.

A reconciliation to statutory measures of revenue and operating profit from continuing operations excluding joint ventures is included in note 1 to the financial statements.

The review of our trading performance is contained within the Chief Executive Review.

Reconciliation to operating profit

The table below sets out a reconciliation of Total EBITA to operating profit per the group income statement before exceptional items. Operating profit on a post exceptional basis by segment is included in note 1 to the financial statements.

Pro-forma Revenue and EBITA

The financial performance of the Group for 2017 and 2016 on a pro-foma basis is presented below. Pro-forma results are unaudited and are included to provide better insight into the underlying, continuing business performance and establish the base level for Wood for comparability going forward.

They include 12 months of AFW’s results but exclude the results of businesses disposed; principally the AFW North Sea upstream business, the AFW North American nuclear operations and the disposed elements of GPG. They also excludes the results of other, less material disposed interests including the Aquenta consultancy, an interest in Incheon Bridge and interests in two Italian windfarms.

Accounting for the acquisition of Amec Foster Wheeler

Wood Group acquired Amec Foster Wheeler (‘AFW’) by issuing 294.5m new shares. Total consideration amounted to $2,809.4m based on the closing share price and the US dollar exchange rate on that date. Goodwill of $3,514.5m and intangible assets of $1,343.6m were recognised on the transaction. The intangible assets include customer relationships, order backlog and brands and will be amortised over periods of between 2 and 20 years. Amortisation of $32.0m is included in the 2017 results with the annual charge for 2018 expected to be around $129m. Subsequent to completion of the acquisition, a detailed review of the acquired AFW balance sheet was carried out and a number of opening balance sheet and fair value adjustments were identified. These totalled $211m and net assets at date of acquisition have been adjusted and had the effect of increasing the amount of goodwill recognised on the acquisition.

Amortisation

Total amortisation for 2017 of $141.3m (2016: $104.3m) includes $32.0m for AFW as mentioned above and $48.0m of amortisation relating to intangible assets arising from prior year acquisitions. Amortisation in respect of software and development costs was $61.3m (2016: $54.4m) and this largely relates to engineering software and ERP system development. Included in the amortisation charge for the year above is $1.9m (2016: $2.0m) in respect of joint ventures.

Net finance expense and debt

Net finance expense is analysed below.

Interest cover4 was 7.0 times (2016: 14.1 times).

Included in the above are net finance charges of $3.4m (2016: $2.4m) in respect of joint ventures.

Finance costs of $8.5m relating to the acquisition of AFW have been treated as ‘exceptional items’ and are excluded from the above analysis.

The Group negotiated new bank facilities in order to complete the acquisition of AFW. The facilities comprised a $1bn term loan repayable in 2020 and a 5 year Revolving Credit Facility of $1.75bn repayable in 2022. At 31 December 2017 total borrowings under these facilities amounted to $1,961.1m with $692.0m undrawn. A further $143.5m of overdraft funding is available under the Group’s other short term facilities.

Net debt to pro-forma EBITDA at 31 December was 2.4 times (2016: 0.8 times) against our covenant of 3.5 times. The Group’s target is to reduce the net debt to EBITDA ratio to below 1.5 times within 18 months.

Exceptional items

Acquisition costs of $58.9m have been incurred during the year in relation to the acquisition of Amec Foster Wheeler. These costs include broker and legal fees as well as other advisor and regulatory fees. In addition, $8.5m of bank fees have been expensed in respect of the new borrowing facility required to fund the acquisition.

Redundancy, restructuring and integration costs of $51.4m have been incurred during the year. The total includes $33.1m in respect of synergy delivery costs including $19.0m of redundancy and restructuring costs and $14.1m of other integration costs. Also included is other redundancy and restructuring costs of $9.1m and costs relating to onerous property leases of $9.2m.

A charge of $19.2m has been recorded in relation to a legacy contract which was carried out by our Gas Turbine Services business prior to the formation of EthosEnergy. Arbitration hearings have been held in relation to a dispute between the Group and a former subcontractor and this amount represents our best estimate of the likely settlement including related legal costs. The outcome of the arbitration hearing is likely to be known in the first half of 2018.

Investigation support costs of $8.2m have been incurred during the period in relation to ongoing investigations into the historical use of agents and other third parties.

At 31 December 2017, the Group carried out an impairment review of its investment in the EthosEnergy joint venture. The recoverable amount of the investment, based on management’s estimate of fair value less costs of disposal, of $77.0m, is lower than the book value and an impairment charge of $28.0m has been booked in the income statement. In addition, EthosEnergy has recorded exceptional charges of $1.1m during the year relating to the closure of its power solutions business and the Group has impaired its receivables by $5.7m in relation to a balance due by EthosEnergy and booked a $3.5m charge in relation to a likely settlement of indirect taxes.

A tax credit of $19.4m has been recorded in respect of the exceptional items included in continuing operations.

Taxation

The effective tax rate on profit before tax, exceptional and discontinued items including joint ventures and discontinued operations on a proportionally consolidated basis is set out below.

The tax charge above includes $14.5m in relation to joint ventures (2016: $12.4m).

The Group has carried out an initial review of the US Tax and Jobs Act which came into force on 1 January 2018 and as a result has recorded a one-off non-cash credit of $8.5m to the income statement in 2017 as a result of the revaluation of net deferred tax liabilities. The cash impact of the reduction in the headline US federal rate to 21% is likely to be offset to some extent by greater restriction on the level of interest deduction allowed in the US also introduced by the Act. The rate reduction is expected to have a favourable on the Group’s effective tax rate going forward.

Earnings per share

Adjusted diluted EPS for the year was 53.3 cents per share (2016: 64.1 cents). The average number of fully diluted shares used in the EPS calculation for the period was 451.3m (2016: 382.9m).

Adjusted diluted EPS adds back all amortisation. If only the amortisation related to intangible assets arising on acquisition is adjusted and no adjustment is made for that relating to software and development costs, the figure for 2017 would be 42.9 cents per share (2016: 53.5 cents). 

Dividend

Taking account of cash flows and earnings, the progressive Wood dividend policy is a key element of our investment case and compares favourably against peers in the global engineering and construction sector. The Board has recommended a final dividend of 23.2 cents per share, which makes a total distribution for the year of 34.3 cents, an increase of 3%. The final dividend will be paid on 17 May 2018 to all shareholders on the register at the close of business on 20 April 2018.

Cash flow and net debt

The cash flow and net debt position below has been prepared using equity accounting for joint ventures, and as such does not proportionally consolidate the assets and liabilities of joint ventures. The gross and net debt figures including joint ventures are given below.

Cash generated from operations pre-working capital decreased by $59.5m to $266.0m and post-working capital increased by $4.9m to $250.0m as a result of improvements in working capital.

Cash conversion, calculated as cash generated from operations as a percentage of EBITDA, improved slightly to 69% (2016: 68%) due to improved working capital performance partly offset by the cash impact of exceptional costs, primarily related to the acquisition of Amec Foster Wheeler. Excluding the impact of exceptional costs cash conversion is 90%.

The cash outflow in respect of acquisitions of $1,469.3m includes $1,385.4m in relation to the acquisition of Amec Foster Wheeler, $50.5m in respect of CEC and $33.4m in respect of companies acquired in prior periods. The amount shown in respect of AFW relates to the net borrowings on its balance sheet at the date of acquisition.

Cash from divestments of $254.9m relates to the disposal of Amec Foster Wheeler’s UK upstream oil and gas business and the disposal of their North American nuclear and pulverised coal businesses.

Payments for capex and intangible assets were $79.1m (2016: $86.8m) and included software development and expenditure on ERP systems across the Group.

Summary Balance Sheet

The balance sheet below has been prepared using equity accounting for joint ventures, and as such does not proportionally consolidate the joint ventures assets and liabilities.

Non-current assets include $6,870.8m (2016: $1,894.5m) of goodwill and intangible assets, $4,859.2m of which relates to the acquisition of Amec Foster Wheeler. The Group’s balance sheet has changed significantly as a result of the acquisition with significant increases in current assets, current liabilities and non-current liabilities. Long term borrowings have increased by $1.8bn as a result of the debt acquired and the shares issued to AFW shareholders to complete the transaction have resulted in an increase in equity of $2.8bn.

Asbestos related obligations

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 1970’s or earlier. The majority of the asbestos related liabilities arise as a result of Amec’s acquisition of Foster Wheeler in 2014. The overwhelming majority of claims that have been made and are expected to be made are in the United States. The table below shows the recent claims history for former Foster Wheeler entities.

The following table summarises the total approximate US asbestos related net cash impact for indemnity and defence cost payments and collection of insurance proceeds:

The Group expects to have net cash outflows of $35.9m as a result of asbestos liability indemnity and defence payments in excess of insurance proceeds during 2018. The estimate assumes no additional settlements with insurance companies and no elections to fund additional payments. 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.

The Group’s EBITA is stated after deducting costs relating to asbestos including administration costs, movements in the liability as a result of changes in assumptions and changes in the discount rate.

Pensions

The Group operates a number of defined benefit pension schemes in the UK and US and a number of defined contribution plans. At 31 December 2017, the schemes had a net surplus of $167.7m (2016: deficit $7.0m). The movement in the year is largely due to the addition of a number of defined benefit schemes as a result of the AFW acquisition. In assessing the potential liabilities, judgment is required to determine the assumptions around inflation, investment returns and member longevity. The assumptions at 31 December 2017 showed a slight reduction in the discount rates (which results in higher scheme liabilities) and lower inflation rates (which results in lower scheme liabilities). Full details of pension assets and liabilities are provided in note 30 to the Group financial statements.

Acquisitions and divestments

In May 2017, the Group acquired 100% of the share capital of CEC Controls Inc (‘CEC’), a designer and builder of industrial and process control systems for the automotive manufacturing industry based in Detroit, USA.

On 6 October 2017, the Group acquired 100% of the share capital of Amec Foster Wheeler plc (‘AFW’) by issuing 0.75 Wood Group shares for each AFW share. The total value of the consideration was $2,809.4m. In addition, the Group acquired AFW net debt amounting to $1,385.4m. The acquisition of Amec Foster Wheeler accelerates Wood Group’s strategy to improve its service offering in project delivery, enhance its capability across the value chain in core oil and gas markets, and broaden and deepen end market and customer exposure.

On 27 October 2017, the Group disposed of Amec Foster Wheeler’s UK upstream oil and gas business for a gross consideration of $299.0m. This divestment was one of the conditions agreed with the competition authorities to enable the Group to proceed with the Amec Foster Wheeler acquisition. On 6 November 2017, the Group disposed of Amec Foster Wheeler’s North American nuclear operations for a gross consideration of $8.9m and on 1 December, the disposal of its pulverised coal business was completed for a gross consideration of $5.2m.

Footnotes

1 Total EBITA represents operating profit including JVs on a proportional basis of $54.3m (2016: $104.2m) before the deduction of amortisation of $141.3m (2016: $104.2m) and continuing exceptional expense of $176.0m (2016: $154.9m) and is provided as it is a key unit of measurement used by the Group in the management of its business.

2 Adjusted diluted earnings per share (“AEPS”) is calculated by dividing earnings before exceptional items and amortisation, net of tax, by the weighted average number of ordinary shares in issue during the period, excluding shares held by the Group's employee share ownership trusts and adjusted to assume conversion of all potentially dilutive ordinary shares.

3 Number of people includes both employees and contractors at 31 December 2017 and includes joint ventures.

4 Interest cover is reported EBITA divided by the net finance expense.

Consolidated income statementfor the year to 31 December 2017

The notes on pages 7 to 82 are an integral part of these consolidated financial statements.

Consolidated statement of comprehensive income/expensefor the year to 31 December 2017

Total comprehensive income/(expense) for the year is attributable to continuing operations.

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

The notes on pages 7 to 82 are an integral part of these consolidated financial statements.

Consolidated balance sheetas at 31 December 2017

The financial statements on pages 2 to 82 were approved by the board of directors on 19 March 2018 and signed

on its behalf by:

Robin Watson, Director David Kemp, Director

The notes on pages 7 to 82 are an integral part of these consolidated financial statements.

Consolidated statement of changes in equityfor the year to 31 December 2017

The notes on pages 7 to 82 are an integral part of these consolidated financial statements.

Consolidated cash flow statementfor the year to 31 December 2017

The notes on pages 7 to 82 are an integral part of these consolidated financial statements.

Notes to the financial statementsfor the year to 31 December 2017

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, process and utility 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 15 Justice Mill Lane, Aberdeen AB11 6EQ.

Accounting Policies

Basis of preparation

These financial statements have been prepared in accordance with IFRS and IFRIC interpretations adopted by the European Union (‘EU’) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are also in compliance with IFRS as issued by the International Accounting Standards Board. The Group financial statements have been prepared on a going concern basis under the historical cost convention as modified by the revaluation of financial assets and liabilities at fair value through the income statement.

Significant accounting policies

The Group’s significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented.

Basis of consolidation

The Group financial statements are the result of the consolidation of the financial statements of the Group’s subsidiary undertakings from the date of acquisition or up until the date of divestment as appropriate. Subsidiaries are entities over which the Group has the power to govern the financial and operating policies and generally accompanies a shareholding of more than one half of the voting rights. All Group companies apply the Group’s accounting policies and prepare financial statements to 31 December.

Joint ventures

A joint venture is a type of joint arrangement where the parties to the arrangement share rights to its net assets. Joint control is the contractually agreed sharing of control of an 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.

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. The estimates and assumptions that could result in a material adjustment to the carrying amounts of assets and liabilities are addressed below.

(a) Impairment of goodwill (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. 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 Review. Pre-tax discount rates of between 10.3% and 11.4% have been used to discount the CGU cash flows and a terminal value is applied using long term growth rates of between 2% and 3%. A sensitivity analysis has been performed allowing for possible changes to the discount rate, the long term growth rate and the short term EBITA growth rate for certain businesses. See note 8 for further details.

(b) Accounting for acquisition of Amec Foster Wheeler plc (judgement)

The Group acquired Amec Foster Wheeler on 6 October 2017 for a total consideration of $2,809.4m. The provisional acquisition accounting for the transaction is set out in note 28 to the accounts. In completing the accounting, management have been required to make judgements relating to the fair value of the assets and liabilities acquired. In particular, judgement has been used in assessing the valuation of intangible assets acquired and in valuing certain liabilities. Intangible assets of $1,343.6m have been recognised comprising customer relationships, order backlog and brands. The Group used an independent expert to assist in the valuation process. Deferred tax liabilities of $261.5m have been recognised in relation to these intangible assets. Management reviewed the Amec Foster Wheeler balance sheet at the acquisition date and recorded additional net liabilities of $211.4m. This amount comprised $104.5m of fair value adjustments relating to management’s assessment of possible claims made against Amec Foster Wheeler and other judgements made on certain contracts, $49.4m of additional tax provisions and a $57.5m adjustment required to align AFW’s revenue recognition policy on lump sum contracts with Wood Group’s policy. The accounting for the acquisition will be finalised during 2018.

 (c) Impairment of investment in EthosEnergy joint venture (estimate)

The Group’s investment in the EthosEnergy joint venture is accounted for using equity accounting. An impairment review was carried out in December 2017. Group management’s estimate of fair value less costs of disposal of $77.0m is lower than the book value and an impairment of $28.0m has been recorded in the income statement. If fair value less costs of disposal are ultimately less than $77.0m then a further impairment will be required. See note 10 for further details.

 (d) Income taxes (judgement and estimate)

The Group is subject to income taxes in numerous jurisdictions and judgement is required in determining the provision for income taxes. The Group provides for uncertain tax positions based on the best estimate of the most likely outcome in respect of the relevant issue. Where the final outcome on uncertain tax positions is different from the amounts initially recorded, the difference will have an impact on the Group’s tax charge. There is also judgement required in determining whether deferred tax assets arising on losses should be recognised. The Group recognises deferred tax assets to the extent they can be utilised against future taxable profits. See notes 5 and 19 for further details.

(e) Retirement benefit schemes (estimate)

The Group operates a number of defined benefit pension schemes which are largely closed to future accrual. The value of the Group’s retirement benefit schemes surplus/deficit is determined on an actuarial basis using a number of assumptions. Changes in these assumptions will impact the carrying value of the surplus/deficit. The Group determines the appropriate discount rate 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 rate used, consideration is given to the interest rates of high quality corporate bonds in the currency in which the benefits will be paid and that have terms to maturity similar to those of the related retirement benefit obligation. See note 30 for further details.

(f) Provisions (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, no provision is recorded but a contingent liability is disclosed in the financial statements, if material. The recording of provisions is an area which requires the exercise of management judgement relating to the nature, timing and probability of the liability and typically the Group’s balance sheet includes provisions for doubtful debts, warranty provisions, contract provisions (including onerous contracts) and pending legal issues.

As a result of the acquisition of Amec Foster Wheeler 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 1970’s and earlier. The provision for asbestos liabilities is the Group’s best estimate of the obligation required to settle claims up until 2050. See note 18 for further details.

(g) Revenue recognition on fixed price and long term contracts (estimate and judgement)

The Group has a significant number of fixed price long term contracts which are accounted for in accordance with IAS 11 and requires estimates to be made for contract costs and revenues. Contract costs and revenues are affected by a variety of uncertainties that depend on the outcome of future events. Estimates are updated regularly and significant changes are highlighted through established internal review procedures. The contract reviews focus on timing and recognition of revenue including any incentive payments and the recoverability of income from variations to the contract scope or claims. The impact of any change in accounting estimates is then reflected in the ongoing results.

Functional currency

The Group’s earnings stream is primarily US dollars and the principal functional currency is the US dollar, being the most representative currency of the Group. The Group’s financial statements are therefore prepared in US dollars.

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

Foreign currencies

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

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.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rate ruling at the balance sheet date.

The directors consider it appropriate to record sterling denominated equity share capital in the 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 received or receivable for the provision of services in the ordinary course of the Group’s activities. Revenue is recognised only when it is probable that the economic benefits associated with a transaction will flow to the Group and the amount of revenue can be measured reliably. Revenue is recognised as the services are rendered, including where they are based on contractual rates per man hour in respect of multi-year service contracts. Incentive performance revenue is recognised upon completion of agreed objectives. Revenue is stated net of sales taxes (such as VAT) and discounts.

Revenue on fixed price or lump sum contracts for services, construction contracts and fixed price long-term service agreements is recognised according to the stage of completion reached in the contract by measuring the proportion of costs incurred for work performed to total estimated costs. An estimate of the profit attributable to work completed is recognised, on a basis that the directors consider to be appropriate, once the outcome of the contract can be estimated reliably, which is when a contract is not less than 20% complete. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately. Revenue from variations is only recognised when it is probable that the customer will approve the variations and the related adjustment to contract price can be measured reliably.

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 included in contract revenue when negotiations with the customer have reached an advanced stage such that it is probable that the customer will accept the claim and the amount of the claim can be measured reliably.

Incentive payments are additional amounts payable to the contractor if specified performance standards are met or exceeded. Incentive payments are recognised when the contract is sufficiently far advanced that it is probable that the required performance standards will be met and the amount of the payment can be measured reliably.

The net amount of costs incurred to date plus recognised profits less progress billings is presented as gross amounts due from customers within trade and other receivables. Gross amounts due to customers are included in trade and other payables and represent payments on account received in excess of amounts due from customers.

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

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. Material transactions which may give rise to exceptional items include gains and losses on divestment of businesses, write downs or impairments of assets

including goodwill, restructuring costs or provisions, litigation settlements, provisions for onerous contracts and acquisition and divestment costs. See note 4 for full details of exceptional items.

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 and asbestos liabilities is included in finance expense. Interest relating to the Group’s retirement benefit schemes are also included in finance income/expense. See note 2 for further details.

Dividends

Dividends to the Group’s shareholders are recognised as a liability in the period in which the dividends are approved by shareholders. Interim dividends are recognised when paid. See note 6 for further details.

Goodwill

The Group uses the purchase method of accounting to account for acquisitions. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is carried at cost less

accumulated impairment losses. Goodwill is not amortised. Acquisition costs are expensed and included in administrative expenses in the income statement.

Intangible assets

Intangible assets are carried at cost less accumulated amortisation. Intangible assets are recognised if it is probable that there will be future economic benefits attributable to the asset, the cost of the asset can be 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 2-5 years - Brands 20 years

Property plant and equipment

Property plant and equipment (PP&E) is stated at cost less accumulated depreciation and impairment. No depreciation is charged with respect to freehold land and assets in the course of construction.

Depreciation is calculated using the straight line method over the following estimated useful lives of the assets:

Freehold and long leasehold buildings 25-50 years Short leasehold buildings period of lease Plant and equipment 3-10 years

When estimating the useful life of an asset group, the principal factors the Group takes into account are the durability of the assets, the intensity at which the assets are expected to be used and the expected rate of technological developments. Asset lives and residual values are assessed at each balance sheet date.

Impairment

The Group performs impairment reviews in respect of PP&E, 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 annual impairment reviews in respect of goodwill. An impairment loss is recognised when the recoverable amount of an asset, which is the higher of the asset’s fair value less costs to sell and its value in use, is less than its carrying amount.

For the purposes of impairment testing, goodwill is allocated to the appropriate cash generating unit (‘CGU’). The CGUs are aligned to the structure the Group uses to manage its business. Cash flows are discounted in determining the value in use.

See note 8 for further details of goodwill impairment testing and note 10 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.

Following the issue of a decision by the IFRS Interpretations Committee regarding offsetting and cash pooling arrangements, the Group presents balances that are part of a pooling arrangement 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. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The provision is determined by reference to previous experience of recoverability for receivables in each market in which the Group operates.

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost.

Deferred and contingent consideration

Where deferred or contingent consideration is payable on the acquisition of a business based on an earn out arrangement, an estimate of the amount payable is made at the date of acquisition and reviewed regularly thereafter, with any change in the estimated liability being reflected in the income statement. Where deferred consideration is payable after more than one year the estimated liability is discounted using an appropriate rate of interest. Deferred and contingent consideration is recognised at fair value.

Taxation

The tax charge represents the sum of tax currently payable and deferred tax. Tax currently payable is based on the taxable profit for the year. Taxable profit differs from the profit reported in the income statement due to items that are not taxable or deductible in any period and also due to items that are taxable or deductible in a different period. The Group’s liability for current tax is calculated using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax is provided, using the full liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The principal temporary differences arise from depreciation on PP&E, tax losses carried forward and, in relation to acquisitions, the difference between the fair values of the net assets acquired and their tax base. Tax rates enacted, or substantively enacted, at the balance sheet date are used to determine deferred tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Accounting for derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently 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 estimation

The fair value of interest rate swaps is calculated as the present value of their estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at the balance sheet date. The fair values of all derivative financial instruments are obtained from valuations provided by financial institutions.

The carrying values of trade receivables and payables approximate to their fair values.

The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

Operating leases

As lessee

Payments made under operating leases are charged to the income statement on a straight line basis over the period of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease period.

As lessor

Operating lease rental income arising from leased assets is recognised in the income statement on a straight line basis over the lease period.

Finance leases

A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the present value of the minimum lease payments. Lease payments are apportioned between finance expense and a reduction of the lease liability so as to achieve a constant rate of interest on the outstanding balance. Leased assets are depreciated over their estimated useful life.

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 schemes 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.

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 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 as a long term receivable 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

Provision is made for the estimated liability on all services under warranty, including claims already received, based on past experience. Other provisions are recognised where the Group is deemed to have a legal or constructive obligation, it is probable that a transfer of economic benefits will be required to settle the obligation, and a reliable estimate of the obligation can be made. Where amounts provided are payable after more than one year the estimated liability is discounted using an appropriate rate of interest. See note 18 for further details.

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’) and the Long Term Retention Plan (‘LTRP’). Amounts are accrued over the vesting period with the corresponding credit recorded in retained earnings.

Options are also awarded under the Group’s Long Term Plan (‘LTP’) which is the incentive scheme in place for executive directors and certain senior executives. The charge for options awarded under the LTP is based on the fair value of those options 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.

The Group has an Employee Share Plan under which employees contribute regular monthly amounts 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 three 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.

For further details of these schemes, please see note 20 and the Directors Remuneration Report.

Share capital

John Wood Group PLC has one class of ordinary shares and these are classified as equity. Dividends on ordinary shares are not recognised as a liability or charged to equity until they have been approved by shareholders.

The Group is deemed to have control of the assets, liabilities, income and costs of its employee share trusts, therefore they have been consolidated in the financial statements of the Group. Shares acquired by and disposed of by the employee share trusts are recorded at cost. The cost of shares held by the employee share trusts is deducted from equity.

Segmental reporting

The Group has determined that its operating segments are based on management reports reviewed by the Chief Operating Decision Maker (‘CODM’), the Group’s Chief Executive. The Group’s reportable segments are Asset Solutions Europe, Africa, Asia, Australia (‘ASEAAA’), Assets Solutions Americas (‘ASA’), Specialist Technical Solutions (‘STS’), Environmental and Infrastructure Solutions (‘E&IS’) and Investment Services.

Asset Solutions is focused on increasing production, improving efficiency, reducing cost and extending asset life and provides initial design, construction, operations, maintenance and decommissioning services mainly in the oil and gas sector. STS provides a range of specialist, largely technology related services focused on solving complex technological challenges across a broad range of energy and industrial sectors. E&IS provides consulting, engineering, project and construction management services to a range of sectors including government, water, transport, energy and pharmaceuticals. Investment Services manages a range of legacy or non-core businesses and investments with a view to generating value via remediation and restructuring prior to their eventual disposal.

The Chief Executive measures the operating performance of these segments using ‘EBITA’ (Earnings before interest, tax and amortisation). Operating segments are reported in a manner consistent with the internal management reports provided to the Chief Executive who is responsible for allocating resources and assessing performance of the operating segments.

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. Assets are measured at the lower of cost and fair value less costs to sell.

Research and development government credits

The Group claims research and development government credits in the UK, US and Canada. 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.

Disclosure of impact of new and future accounting standards

(a) Amended standards and interpretations

The following standards and interpretations apply for the first time to accounting periods commencing on or after 1 January 2017:

The introduction of these standards and interpretations does not have a material impact on the Group’s financial statements.

(b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

The following standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2018, but the Group has not early adopted them:

All other amendments not yet effective and not included above are not material or applicable to the Group. 

Notes to the financial statementsfor the year ended 31 December 2017

1 Segmental reporting

The Group operates through five segments, Asset Solutions EAAA, Asset Solutions Americas, Specialist Technical Solutions, Environment & Infrastructure Solutions and Investment Services. Asset Solutions EAAA and Asset Solutions Americas have been renamed and Environment & Infrastructure Solutions and Investment Services are new reportable segments following the Amec Foster Wheeler acquisition in 2017.

Under IFRS 11 ‘Joint arrangements’, the Group is required to account for joint ventures using equity accounting, however for management reporting the Group continues to use proportional consolidation, hence the inclusion of the proportional presentation in this note.

The segment information provided to the Group’s Chief Executive for the reportable operating segments for the year ended 31 December 2017 includes the following:

Notes

Reconciliation of Operating Profit to EBITA and EBITDA

Segment assets and liabilities

Unallocated assets and liabilities include income tax, deferred tax and cash and cash equivalents and borrowings where this relates to the financing of the Group’s operations.

Environment & Infrastructure Solutions and Investment Services are new reportable segments in 2017 following the Amec Foster Wheeler acquisition.

Other segment items

The figures in the tables above are prepared on an equity accounting basis and therefore exclude the share of joint ventures.

Depreciation in respect of joint ventures totals $9.7m (2016: $10.2m) and joint venture amortisation amounts to $1.9m (2016: $2.0m).

Environment & Infrastructure Solutions and Investment Services are new reportable segments in 2017 following the Amec Foster Wheeler acquisition.

Geographical segments

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

2 Finance expense/(income)

$15.5m of participation fees were paid in relation to the new bank facilities and this amount is being amortised over the facility term.

Bank fees of $8.5m relating to the acquisition of Amec Foster Wheeler have been treated as exceptional items and include $6.4m of one-off underwriting and ticking fees and $2.1m relating to the write off of capitalised fees in respect of the previous bank facilities.

Net interest expense of $3.4m (2016: $2.4m) has been deducted in arriving at the share of post-tax profit from joint ventures.

3 Profit before taxation

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.

Services provided by the Group’s auditors and associate firms

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

In addition to the above, fees totalling $5.8m are payable to Ernst & Young LLP for work done in relation to the audit of Amec Foster Wheeler and its subsidiaries.

4 Exceptional items

Acquisition costs of $58.9m have been incurred during the year in relation to the acquisition of Amec Foster Wheeler. These costs include broker and legal fees as well as other advisor and regulatory fees. In addition, $8.5m of bank fees have been expensed in respect of the new borrowing facility required to fund the acquisition (see note 2).

Redundancy, restructuring and integration costs of $51.4m have been incurred during the year. The total includes $28.1m of redundancy and restructuring costs, $14.1m of integration costs in relation to the acquisition of Amec Foster Wheeler and $9.2m of costs relating to onerous property leases.

A charge of $19.2m has been recorded in relation to a legacy contract carried out by our Gas Turbine Services business prior to the formation of EthosEnergy. Arbitration hearings have been held in relation to a dispute between the Group and a former subcontractor and this amount represents our best estimate of the likely settlement including related legal costs. The outcome of the arbitration hearing is likely to be known in the first half of 2018.

Investigation support costs of $8.2m have been incurred during the period in relation to ongoing investigations by the US Securities and Exchange Commission, the US Department of Justice and UK Serious Fraud Office. See note 32 for full details.

At 31 December 2017, the Group carried out an impairment review of its investment in the EthosEnergy joint venture. The recoverable amount of the investment, based on management’s estimate of fair value less costs of disposal of $77.0m, is lower than the book value and an impairment charge of $28.0m has been booked in the income statement (see note 10). In addition, EthosEnergy has recorded exceptional charges of $1.1m during the year relating to the closure of its power solutions business. The Group has also written off receivables of $5.7m in relation to a balance due by EthosEnergy and booked a $3.5m charge in relation to a likely settlement of indirect taxes.

The allocation of continuing exceptionals (excluding bank fees) of $176.0m by segment is as follows – EAAA $47.3m, Americas $8.4m, STS $4.0m, E&IS $4.5m, Investment Services $3.2m and Central $108.6m.

A tax credit of $19.4m has been recorded against exceptional items.

For further details of the 2016 exceptional items please refer to the 2016 Annual Report and Accounts.

5 Taxation

Tax is calculated at the rates prevailing in the respective jurisdictions in which the Group operates. The expected rate is the weighted average rate taking into account the Group’s profits in these jurisdictions. The expected rate has increased in 2017 due to the change in mix of the tax jurisdictions in which the Group operates. The tax charge for the year is higher (2016: higher) than the expected tax (credit)/charge due to the following factors:

The adjustment in respect of prior years is largely due to the release of uncertain tax provisions as the final outcome on certain issues was agreed during the year.

The one-off impact of tax reform is as a result of a reduction in the US tax rate from 1 January 2018 reducing the Group’s deferred tax liability as well as changes in loss utilisation rules in the UK allowing losses that would not otherwise have been accessible to be utilised against future profits.

Other permanent differences include adjustments for share based charges, research and development allowances, changes in unrecognised tax attributes and expenditure which is not tax deductible. Tax losses are recognised where there is reasonable certainty that they can be utilised in future years. Other permanent differences in 2017 have been impacted by a restructure of Amec Foster Wheeler’s US business and the resulting tax charge on the related intercompany transactions although this has been partly offset by the utilisation of the businesses unrecognised tax losses.

Net income tax liabilities in the Group balance sheet include $265.2m 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 tax payable in relation to divestments ($13.0m), recoverability of withholding taxes ($81.6m), and group financing ($51.4m). Where the final outcome on these issues differs to the amounts provided, the Group’s tax charge will be impacted.

Amounts are netted in the Group balance sheet where corporate tax assets and liabilities are in the same jurisdictions and to the extent there is a legal right of offset.

6 Dividends

The directors are proposing a final dividend in respect of the financial year ended 31 December 2017 of 23.2 cents per share. The final dividend will be paid on 17 May 2018 to shareholders who are on the register of members on 20 April 2018. The financial statements do not reflect the final dividend, the payment of which will result in an estimated $155.1m reduction in equity attributable to owners of the parent.

7 Earnings per share

As the Group has reported a basic loss per ordinary share, any potential ordinary shares are anti-dilutive and are excluded from the calculation of diluted loss per share. These options could potentially dilute earnings per share in future periods. As adjusted diluted earnings per share is a non-GAAP measure, the potential ordinary shares have not been excluded from this calculation.

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. The Group’s dilutive ordinary shares comprise share options granted to employees under Executive Share Option Schemes and the Long Term Retention Plan, shares and share options awarded under the Group’s Long Term Plan and shares awarded under the Group’s Employee Share Plan. Adjusted basic and adjusted diluted earnings per share are disclosed to show the results excluding the impact of exceptional items and amortisation, net of tax.

8 Goodwill and other intangible assets

As per note 28, goodwill acquired during the year comprises $3,514.5m in relation to the Amec Foster Wheeler acquisition, $38.8m in relation to CEC and $1.3m in relation to acquisitions in prior periods.

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’). The Group has five reportable segments. Goodwill is monitored by management at the level of these segments. Goodwill is allocated to CGU’s as indicated in the table below.

Value-in-use calculations have been prepared for each CGU using the cash flow projections included in the financial budgets and forecasts prepared by management and approved by the Board for 2018 and 2019. The budgets and forecasts are based on various assumptions including market outlook, resource utilisation, contract backlog, contract margins and assumed contract awards. Growth rates of between 5% and 9% per annum have been assumed for 2020 and for 2021 and 2022 cash flows have been extrapolated using a growth rate of 3% for Asset Solutions EAAA, Specialist Technical Solutions and Investment Services and 2% for Asset Solutions Americas and Environmental and Infrastructure Solutions. A terminal value is applied thereafter in order to calculate long term estimated cash flows using the same anticipated growth rates. The growth rates used do not exceed the long-term average growth rates for the regions in which the CGUs operate. The cash flows have been discounted using discount rates appropriate for each CGU, and these are reviewed annually. The pre-tax rates used for the 2017 review are as follows - 10.8% for Asset Solutions EAAA, 10.6% for Asset Solutions Americas, 11.4% for Specialist Technical Solutions 10.3% for Environmental and Infrastructure Solutions and 10.7% for Investment Services (the equivalent post-tax rates are 9.5%, 9.25%, 10.0%, 9.25% and 9.5% respectively).

The carrying value of the goodwill for each CGU is shown in the table below. No goodwill has been written off during the current or prior year.

A sensitivity analysis has been performed on the basis of a 1% reduction in the long term growth rate and a 1% increase in the discount rate in order to assess the impact of reasonable possible changes to the assumptions used in the impairment review. A 1% reduction in the long term growth rate would result in an impairment of $166.9m in Assets Solutions EAAA. A 1% increase in the discount rate would result in an impairment of $242.7m in Asset Solutions EAAA. In addition, if the short term EBITA growth rates assumed by management for Asset Solutions EAAA in 2018 and 2019 were 3% lower than projected then an impairment would result. The lower headroom in Asset Solutions EAAA is primarily due to challenging market conditions in the North Sea. The sensitivity analysis did not identify any potential impairments other than those mentioned above for Asset Solutions EAAA.

Intangible assets arising on acquisition include the valuation of customer contracts and relationships, order backlog and brands recognised on business combinations. As part of the annual impairment review, Group management has assessed whether there were any impairment triggers and none were identified.

9 Property plant and equipment

The net book value of Land and Buildings includes $53.6m (2016: $24.8m) of Long Leasehold and Freehold property and $32.9m (2016:$22.7m) of Short Leasehold property.

There were no material amounts in assets under construction at 31 December 2017.

10 Investment in joint ventures

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 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 based 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.

The Group has carried out an impairment review on the valuation of its EthosEnergy joint venture at 31 December 2017. Management’s estimate of fair value less costs of disposal is $77.0m which is lower than the book value and an impairment charge of $28.0m has been recorded in the income statement. The fair value is supported by third party market data. If fair value less costs of disposal are ultimately less than $77.0m then a further impairment will be required.

EthosEnergy has also recorded impairment losses of $1.1m (Wood Group share) relating to the closure of its power solutions business. This charge is reflected in the exceptional expense line in the table below.

EthosEnergy’s net borrowings, including parent company loans, at 31 December 2017 amounted to $92.6m.

RWG had net cash at 31 December 2017 of $9.2m.

The Group’s share of its joint venture income and expenses is shown below.

The movement in investment in joint ventures is shown below.

The joint ventures have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interest in the joint ventures.

A full list of subsidiary and joint venture entities is included in note 35.

11 Inventories

12 Trade and other receivables

The net amount of costs incurred to date plus recognised profits less progress billings on long term contracts is presented as gross amounts due from customers above.

The aggregate amount of costs incurred plus recognised profits (less recognised losses) for all long-term contracts in progress at the balance sheet date amounted to $12,403.1m.

Long term receivables include $83.8m relating to the US SERP pension arrangement referred to in note 30.

Financial assets

The restricted cash of $26.5m (2016: $26.5m) is cash that is subject to an attachment order. The Group cannot access this cash until it receives a release letter from the Courts and as a result the cash balance is presented in financial assets. Management believe it is appropriate to include the restricted cash balance in the Group’s net debt figure (see note 27).

Bank deposits of more than three months of $31.2m are short term instruments held by Amec Foster Wheeler’s insurance captive.

The Group’s trade receivables balance is shown in the table below.

Receivable days are calculated by allocating the closing trade receivables balance to current and prior period revenue. A receivable days calculation of 86 indicates that closing trade receivables represent the most recent 86 days of revenue.

A provision for the impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the original receivables.

The ageing of the provision for impairment of trade receivables is as follows:

The movement on the provision for impairment of trade receivables is as follows:

The other classes within trade and other receivables do not contain impaired assets.

Included within gross trade receivables of $1,798.1m above (2016: $785.8m) are receivables of $581.0m (2016: $160.4m) which were past due but not impaired. These relate to customers for whom there is no recent history or expectation of default. The ageing analysis of these trade receivables is as follows:

The above analysis excludes retentions relating to contracts in progress of $118.5m (2016: nil).

13 Cash and cash equivalents

Cash at bank and in hand at 31 December 2017 includes $533.4m (2016: $420.3m) that is part of the Group’s cash pooling arrangements. For internal reporting this amount is netted with short-term overdrafts and presented as a net figure on the Group’s balance sheet. However, in preparing these financial statements, the Group has grossed up both its cash and borrowings figures by this amount.

The effective interest rate on short-term deposits at 31 December 2017 was 1.62% and these deposits have an average maturity of 13 days.

At 31 December 2017, the Group held $20.6m of cash in Angolan kwanza. Due to the lack of US dollars in country the Group has experienced challenges in converting its kwanza cash balances and repatriating funds. During January 2018, the value of the kwanza was devalued by around 30% against the US dollar and further devaluation of the currency is forecast during 2018. The Group will continue to explore opportunities to repatriate this cash however the devaluation of the cash balance will have an impact on the Group’s 2018 profits.

14 Trade and other payables

Gross amounts due to customers included above represent payments on account received in excess of amounts due from customers on long term contracts.

Accruals and deferred income includes amounts due to suppliers and sub-contractors that have not yet been invoiced, unpaid wages, salaries and bonuses.

Other payables includes contract provisions, payroll related liabilities and asbestos related payables (see note 18).

Deferred and contingent consideration represents amounts payable on acquisitions made by the Group. The amount included in the table above is expected to be paid within one year from the balance sheet date.

15 Borrowings

The Group is required to issue trade finance instruments to certain customers. These include tender bonds, performance bonds, retention bonds, advance payment bonds and standby letters of credit. At 31 December 2017, the Group’s bank facilities relating to the issue of bonds, guarantees and letters of credit amounted to $1,831.3m (2016: $546.7m). At 31 December 2017, these facilities were 54% utilised (2016: 33%).

Borrowing facilities

The Group has the following undrawn borrowing facilities available at 31 December:

All undrawn borrowing facilities are floating rate facilities. The facilities expiring within one year are annual facilities subject to review at various dates during 2018. The Group entered into new banking facilities on the acquisition of Amec Foster Wheeler. Total facilities of $2.75bn comprise a 5 year $1.75bn revolving credit facility and a $1bn 3 year term loan. The Group was in compliance with its bank covenants throughout the year.

16 Other non-current liabilities

Deferred and contingent consideration represents amounts payable on acquisitions made by the Group. The amount included in the table above is expected to be paid between one and three years from the balance sheet date.

Other payables include $83.8m relating to the US SERP pension arrangement referred to in note 30 and unfavourable leases of $115.0m.

17 Financial instrumentsThe Group’s activities give rise to a variety of financial risks: market risk (including foreign exchange risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management strategy is to hedge exposures wherever practicable in order to minimise any potential adverse impact on the Group’s financial performance.

Risk management is carried out by the Group Treasury department in line with the Group’s Treasury policies. Group Treasury, together with the Group’s business units identify, evaluate and where appropriate, hedge financial risks. The Group’s Treasury policies cover specific areas, such as foreign exchange risk, interest rate risk, use of derivative financial instruments and investment of excess cash.

Where the Board considers that a material element of the Group’s profits and net assets are exposed to a country in which there is significant geo-political uncertainty a strategy is agreed to ensure that the risk is minimised.

 (a) Market risk

(i) Foreign exchange risk

The Group is exposed to foreign exchange risk arising from various currencies. The Group has subsidiary companies whose revenue and expenses are denominated in currencies other than the US dollar. Where possible, the Group's policy is to eliminate all significant currency exposures at the time of the transaction by using financial instruments such as forward currency contracts. Changes in the forward contract fair values are booked through the income statement, except where hedge accounting is used in which case the change in fair value is recorded in equity.

Hedging of foreign currency exchange risk – cash flow hedges

The notional contract amount, carrying amount and fair values of forward contracts and currency swaps designated as cash flow hedges at the balance sheet date are shown in the table below.

A net foreign exchange gain of $0.7m (2016: nil) was recognised in the hedging reserve as a result of fair value movements on forward contract and currency swaps designated as cash flow hedges.

Hedging of foreign currency exchange risk – fair value through income statement

The notional contract amount, carrying amount and fair value of all other forward contracts and currency swaps at the balance sheet date are shown in the table below.

The Group’s largest foreign exchange risk relates to movements in the sterling/US dollar exchange rate. Movements in the sterling/US dollar rate impact the translation of sterling profit earned in the UK and the translation of sterling denominated net assets. The potential impact of changes in the sterling/US dollar exchange rate is summarised in the table below. As the Group reports in US dollars a weakening of the pound has a negative impact on translation of its sterling companies’ profits and net assets.

10% has been used in these calculations as it represents a reasonable possible change in the sterling/US dollar exchange rate. The Group also has foreign exchange risk in relation a number of other currencies, such as the Australian dollar, the Canadian dollar and the Euro.

(ii) Interest rate risk

The Group finances its operations through a mixture of retained profits and debt. The Group borrows in the desired currencies at a mixture of fixed and floating rates of interest and then uses interest rate swaps to generate the desired interest profile and to manage the Group's exposure to interest rate fluctuations. At 31 December 2017, 15% (2016: 53%) of the Group's borrowings were at fixed rates after taking account of interest rate swaps. The Group is also exposed to interest rate risk on cash held on deposit. The Group’s policy is to maximise the return on cash deposits and where possible, deposit cash with a financial institution with a credit rating of ‘A’ or better.

Hedging of interest rate risk – cash flow hedges

The notional contract amount, carrying amount and fair value of interest rate swaps designated as cash flow hedges at the balance sheet date are shown in the table below.

A net foreign exchange gain of $0.6m (2016: nil) was recognised in the hedging reserve as a result of fair value movements on interest rate swaps designated as cash flow hedges.