Wood Group (J) Regulatory News (WG.)

21 August 2018

Half year results for the six months ended 30 June 2018

"Performance in the first half is at the upper end of our guidance range, reflecting continued momentum in trading and delivery of cost and revenue synergies. Integration is ahead of schedule and we are increasing our three year cost synergy target from at least $170m to at least $210m. Wood is delivering strong operational cashflows which underpin our deleveraging plan. We have good revenue visibility and remain confident of delivering a stronger second half. Our full year outlook is unchanged; we are seeing recovery in our core oil & gas market and good contract awards in broader industrial sectors. We remain on track to deliver growth in 2018 in line with previous guidance and market expectations."

Robin Watson, Chief Executive

Note: Total Revenue, Total EBITA & Total EBITA margin are presented on proportionally consolidated basis. Total EBITA & Total EBITA margin are stated before exceptional items.

Financial performance:

Integration & synergy delivery:

Outlook:

Notes:

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 60,000 people, with revenues of over $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. www.woodplc.com

For further information contact:

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.

Business review

Note: The commentary below on trading performance is presented based on proportionally consolidated numbers, which is the basis used by management to run the business and includes the contribution from joint ventures. Total EBITA & Total EBITA margin are stated before exceptional items.

Trading performance

Performance in the first half of 2018 reflects continued momentum in trading and delivery of cost and revenue synergies. We are seeing higher activity across our business and Total Revenue of $5.4bn is up over 13% on Proforma H1 2017. The largest contributors to revenue growth are the Asset Solutions businesses, including increased capital projects activity in power, downstream & chemicals and US shale in AS Americas and higher activity in Asia Pacific and the Middle East in AS EAAA. We are also seeing increased volumes in minerals processing, nuclear and automation & control in STS. Total EBITA margin of 4.8% reflects the benefit of cost synergy delivery, a competitive environment in oil and gas markets and the impact of fewer project close outs in H1 2018. Central costs reflect progress on cost synergies and a positive impact from movements in the underlying assumptions around inherited asbestos liabilities principally due to discount rates.

Operating profit before exceptional items is stated after non cash amortisation charges of $125m (H1 2017: $51m) which includes $65m in respect of amortisation of intangibles arising on the acquisition of AFW.

The loss for the period was impacted by cash exceptional costs of $33m. As anticipated, these include $23m of costs to deliver synergies, $4m in respect of redundancy, restructuring and charges relating to onerous leases and $6m in respect of investigation support costs. Exceptional costs also include non cash items of $68m including a further impairment in the carrying value of EthosEnergy of $41m and an additional provision of $10m in relation to the outcome of an arbitration settlement on a subcontractor dispute on the Dorad contract completed prior to the formation of EthosEnergy.

Integration & synergies

Our integration programme remains ahead of schedule in all aspects; organisational structure, governance and risk management, delivery of cost synergies and identifying and securing significant revenue synergy opportunities for the combined business.

We have delivered c$20m of cost synergies in the first half, with the majority recognised in the Asset Solutions business. We expect to deliver >$50m for the full year and an exit run rate of >$80m, with costs to deliver of c$65m. We are making excellent progress on cost synergy delivery and are upgrading our 3 year annualised costs synergy target from at least $170m to at least $210m, having identified further synergies and derisked previously identified opportunities. There is no increase in our projected costs to deliver synergies, which remains at c$200m.

The broader capability set and enhanced positioning of Wood has already delivered revenue synergies on multi-year contracts worth >$400m and we have a strong pipeline of further opportunities. Orders won include our engineering, procurement, construction and commissioning contract with Saudi Aramco and SABIC to support their integrated crude oils to chemicals complex. This combines AFW's strong downstream capabilities with Wood Group's established in-Kingdom presence. Also, through a combination of AFW's EPC capability and Wood Group's track record in operations services we secured an EPC, commissioning, start-up and operations support scope for upstream assets in Trinidad. We are also seeing a number of awards that leverage involvement in earlier stages of projects, strong in-country presence and enhanced capabilities including a maintenance scope with an IOC in Qatar. At this stage the majority of opportunities we have categorised as revenue synergies - that is, where our combined capability has been instrumental in securing the work - are in the core Oil & Gas business and we continue to see good opportunities to combine the relative strengths in EPCM and operations services in the legacy business. We have also secured our first opportunity for our automation offering in the Mining sector.

Update on Unaoil

There have been no material developments in the previously disclosed investigations in the UK and US, details of which are included in the contingent liabilities note to the Interim Financial Statements. Wood continues to cooperate with and assist the relevant authorities in relation to their respective investigations into the historical use of agents and in relation to Unaoil.

Net debt, deleveraging and cash flow

Our ability to generate strong operational cashflow is evident in the H1 results. Net debt at the end of June was $1.6bn, compared to $1.65bn at the end of December 2017 which reflects improved operational cash generation. On a proforma basis we have delivered a significantly improved working capital position compared to H1 2017. Cash conversion, calculated as cash generated from operations as a percentage of EBITDA, improved significantly to 127% (2017 proforma: (2)%) due to improved working capital management partly offset by the cash impact of exceptional costs. Our recently established receivables facility has accelerated cash of $53m as at 30 June. The facility provides working capital funding at a cost lower than our existing facilities and can be drawn for up to $200m. Excluding the impact of exceptional costs, cash conversion was 156% (H1 2017 proforma: 33%). The payment of the 2017 final dividend in May of $155m, capex, tax, and interest costs and a number of expected cash exceptional items offset the strong cash generation from operations.

Our policy of a prudent long term capital structure is unchanged and deleveraging to within our preferred range of 0.5x to 1.5x within approximately 18 months post completion remains a key priority. Net debt to EBITDA at 30 June was 2.4x We anticipate that net debt will reduce and our net debt to EBITDA ratio will improve in the second half as we grow the business, continue our focus on working capital management, retain our capital discipline and deliver further cost synergies.

We remain confident of achieving >$200m of asset disposals although progress to date has been slower than anticipated. We have recently signed an agreement to dispose of our wind farm interests in the Voreas S.r.l. wind farm joint venture for a consideration of c$27m, although weak trading performance in EthosEnergy has impacted our ability to secure a disposal of our interest in that business at an appropriate value to date. We will remain disciplined in our approach to disposals.

Interim dividend

We have declared an interim dividend of 11.3 cents per share which will be paid on 27 September 2018 to shareholders on the register on 31 August 2018. This is an increase of 2% in line with our progressive dividend policy.

Order book

Our order book, comprising secured work and estimates of activity under long term agreements, currently stands at c$10.6bn3 and approximately 40% will be delivered in 2018. This gives us good visibility over future revenues appropriate to our asset light, flexible and short cycle commercial model. We take a conservative approach to order book recognition, only recording work that is supported by signed, enforceable contracts or work releases under frame agreements, and as such we have a high conversion rate of opportunities. Reflecting our measured risk appetite, c65% of order book relates to reimbursable contracts; lump sum contracts >$100m comprise only a small proportion of the total, c10%. Our order book gives us confidence over continued trading momentum in H2 2018 with c85% of forecast revenues either delivered or secured.

Outlook

We remain confident of delivering a stronger second half due to higher activity, our typical second half bias, cost synergy delivery and the phasing of projects and market recovery. We have good visibility on H2 revenues. Our full year outlook is unchanged and we are confident of delivering FY 2018 Total EBITA in line with guidance and market expectations4.

Looking to 2019, we see good prospects and improving conditions across energy and industrial markets. In our core oil & gas market which accounts for c60% of revenue, we're encouraged by the recent relative stability in oil prices and expect to see further momentum in activity including growth in international upstream spending. We are seeing good growth indicators in power and we remain optimistic on activity in solar projects going forward. Higher commodity prices for precious metals and battery ions are driving increased activity levels in minerals processing and we continue to believe that increased US industrial investment will be supportive for the E&I business in North America. As a result, we expect 2019 to reflect higher activity levels and the delivery of increased synergies leading to further earnings growth.

Asset Solutions Americas

Markets: c65% Oil & gas, c35% Industrial/other energy

Revenue in 2018 is up 18% due to increased activity on capital projects in power, downstream & chemicals and in US shale. This is more than offsetting a reduction in operations services following the completion of commissioning work on the Hebron project in the second half of 2017. EBITA margin reflects the benefit of cost synergy delivery and improving margins in downstream & chemicals offset by continuing challenging conditions in the Gulf of Mexico. Proforma H1 2017 EBITA included the release of amounts previously provided in respect of prior year acquisitions in the legacy Wood Group business of c$13m.

Capital projects accounts for c85% of segment revenue. We have seen increased EPC activity on projects in power and in downstream & chemicals, and these are the largest contributors to capital projects revenue. Improvement in US shale is continuing, with significant growth in Permian activity. In offshore upstream we remain active on a number of greenfield projects.

Our operations solutions work accounts for c15% of segment revenue. Challenging conditions in the Gulf of Mexico and the completion of commissioning work in 2017 have resulted in weaker performance in H1 2018. In US shale, we are seeing an improvement in maintenance activity as expected. We have made good progress on revenue synergies, securing the engineering, procurement & construction, commissioning and operations scope for upstream assets in Trinidad.

We have good visibility on H2 revenues; order book is approximately $3bn with c85% of expected 2018 revenues secured.

Outlook

We expect strong earnings growth in 2018 with momentum in US shale expected to continue. We are confident of delivering stronger EBITA in the second half due to increased activity, cost synergy delivery and the phasing of contracts on power related capital projects. Full year EBITA margin is anticipated to be in the range of 5.5% to 6.0%.

Looking further ahead, we are well positioned for opportunities in US across all the major basins. We also see good opportunities in downstream, chemicals and power.

Asset Solutions Europe, Africa, Asia and Australia

Markets: c85% Oil & gas, c15% Other Industrial

First half revenue is up c16% led by growth in Operations Solutions, particularly in Asia Pacific from activity with Exxon in Australia, Papua New Guinea and Malaysia. Operations Solutions revenue from the Middle East is also up due to increased activity in Iraq with Exxon and Basra Gas Co while Capital Projects revenue is benefitting from ongoing work on the Antwerp oil refinery project. EBITA margins are down due to currency devaluation in Angola and poor performance in EthosEnergy in H1 2018 and the impact of project completions in Capital Projects in the first half of 2017, despite good trading momentum and the benefit of cost synergy delivery.

Capital Projects accounts for c40% of segment revenue. Activity remains robust on projects including PMC work in Kuwait, our engineering and project management scope on the Marjan field for Saudi Aramco and our rejuvenation project for Brunei Shell Petroleum. We are encouraged by recent wins including the Saudi Aramco/SABIC integrated crude oils to chemicals complex and the engineering, procurement and construction management scope for the TEVA biotech facility in Germany.

Operations Solutions activity accounts for c45% of segment revenue. We are seeing strong growth in the Middle East and in Asia Pacific. North Sea activity is showing moderate growth on 2017 albeit from a low base.

Turbine joint ventures accounts for c15% of revenue and performance is down on H1 2017. Relative strength in RWG is more than offset by poor trading in EthosEnergy.

Order book in AS EAAA is $4.9bn, with c90% of 2018 expected revenue secured.

Outlook

Full year performance will be down on 2017 with good underlying growth being offset by the impact of the India Oil dispute settlement of c$70m which benefitted EBITA in H2 2017. The second half of 2018 will benefit from continued momentum in Capital Projects in Asia Pacific and Europe and further ramp up in Operations Solutions activity led by the Middle East contracts and improved turbine performance. We also expect moderate growth in North Sea activity to continue into H2. Margins will benefit from the delivery of cost synergies weighted to the second half and we expect full year margin to be 5.25% to 5.75%.

Looking ahead we see good opportunities for both Capital Projects and Operations Solutions in the Middle East and Asia Pacific. We are well positioned with broader capabilities for continuing improvements in the North Sea.

Specialist Technical Solutions

Markets: c40% Oil & Gas, c30% Minerals processing, c15% Nuclear, c15% Industrial/other energy

Revenue in the first half has benefited from increased volumes in minerals processing, nuclear and subsea and in automation & control which includes a full six months contribution from CEC, acquired in May 2017. EBITA margin is down 3% due to lower margins in subsea and automation & control and the commercial close out of a mining project in H1 2017.

In minerals processing we have good visibility on work in South America and in Australia, including the Gruyere gold EPC project, and are encouraged by recent wins including the Tasiast gold mine expansion project in Mauritania. Volume in automation and control is up with the TCO project a significant contributor. Activity in nuclear is improving and subsea has grown from 2017.

Order book of $1.3bn gives us confidence over H2 revenues and beyond, with c85% of anticipated 2018 revenue secured.

Outlook

We continue to expect STS to deliver strong EBITA growth in 2018, with anticipated full year margin c9%. Activity on existing projects in mining and recent technology & consulting contract awards, such as our scope on the Duqm refinery, will contribute to revenue growth in the second half, as activity levels on the TCO project begin to level off. We expect activity levels in nuclear and subsea to remain steady in H2. Second half margins will benefit from non-synergy related cost savings initiatives and improved margins in automation & control and subsea.

Environment and Infrastructure Solutions

Markets: c95% Industrial/government, c5% Oil & Gas

Activity levels in the first half of 2018 are in line with the prior year, with increased consultancy activity in the US and Canada offsetting a reduction in capital projects following our decision not to undertake certain fixed price contracts. EBITA margin is down due to the reversal of profits previously booked on capital projects.

E&IS is seeing good activity across environmental remediation consultancy and engineering & construction project management services predominantly in North America. Full year performance will benefit from increased activity as a result of US government and industrial spending and the cost overruns on projects experienced in 2017 not repeating.

Order book is $1.3bn, giving us good visibility over revenues for the second half of 2018, with c80% of expected full year revenues secured.

Outlook

E&IS is anticipated to deliver strong earnings growth in 2018 and full year EBITA margin is expected to be c7%. Activity is anticipated to be broadly in line with the prior year with remediation consultancy activity in North America and Canada continuing to perform robustly. Seasonally higher activity in the US and Canada will deliver a significantly stronger EBITA in H2. We see good opportunities as government and industrial spending increases in the US and Canada and we are encouraged by recent contract awards for environment remediation work in the oil and gas sector.

Investment Services

A number of potentially non-core legacy activities in AFW are managed in Investment Services. This includes the activities of the UK Transmission and Distribution business and the Industrial Power and Machinery business in addition to interests in a number of infrastructure projects. Investment services generated Total Revenue of $163m in H1 2018 (proforma H1 2017: $187m) and Total EBITA of $13m (proforma H1 2017: $15m).

Financial Review

Trading performance

Trading performance is presented on a proportionally consolidated basis used by management to run the business and includes the contribution from joint ventures. Total EBITA and adjusted diluted EPS are the Group's principal profit measures and Total EBITA is stated after costs relating to asbestos. The trends between these alternative performance measures and reported measures are similar. The balance sheet and cashflow information is presented on an equity accounted basis, consistent with the Interim Financial Statements.

A reconciliation to statutory measures of revenue and operating profit from continuing operations excluding joint ventures is included in note 4 to the interim financial statements.

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

Reconciliation to operating profit

The table below reconciles 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 4 to the Interim Financial Statements.

Pro-forma Total Revenue and Total EBITA

The financial performance of the Group for June 2018 and 2017, adjusting the 2017 financial performance for the acquisition of AFW and on a pro-forma basis, is shown 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.

Amortisation

Total amortisation charge for the half year of $125.3m (June 2017: $50.7m) includes $65.0m related to the intangible assets arising from the AFW acquisition and $19.9m of amortisation relating to prior year acquisitions. Amortisation in respect of software and development costs was $40.4m (June 2017: $25.6m) and this largely relates to engineering software and ERP system development. Included in the amortisation charge for the period above is $1.1m (June 2017: $0.9m) in respect of joint ventures.

Net finance expense and debt

Net finance expense is analysed below.

Interest cover4 was 4.9 times (June 2017: 10.3 times).

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 30 June 2018, the term loan was $0.9bn and total borrowings under the facilities amounted to $1,688m with $949m undrawn. A further $137m of overdraft funding is available under the Group's other short term facilities.

Net debt to pro-forma Total EBITDA at 30 June was 2.4 times (June 2017: 1.2 times) against our covenant of 3.5 times. The Group's target is to reduce the net debt to Total EBITDA ratio to 1.5 times within approximately 18 months of the AFW acquisition.

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.

Redundancy, restructuring and integration costs of $36.6m have been incurred during the period. The total includes $13.7m of redundancy, restructuring costs and charges relating to onerous property leases and $22.9m of integration costs in relation to the acquisition of Amec Foster Wheeler.

A charge of $10.4m has been recorded in relation to a legacy contract carried out by our Gas Turbine Services business prior to the formation of EthosEnergy. An arbitration hearing was held in 2017 and the Group was informed of the outcome of the arbitration process in July 2018. The payment due to the subcontractor is more than the Group provided at 31 December 2017 and the charge to the income statement for the period reflects the additional settlement and associated legal costs.

Investigation support costs of $12.7m 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.

At 30 June 2018, 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 of $30.1m, was lower than the book value and an impairment charge of $41.4m has been booked in the income statement.

A tax charge of $8.3m has been recorded against exceptional items. A charge of $16.7m has been recorded in respect of a balance relating to the establishment of the EthosEnergy joint venture and this is partly offset by a credit of $8.4m in relation to exceptional items recorded in the period.

Taxation

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

The tax charge above includes $6.2m in relation to joint ventures (June 2017: $3.1m).

Earnings per share

Adjusted diluted EPS for the six months to 30 June 2018 was 23.2 cents per share (June 2017: 22.9 cents). The average number of fully diluted shares used in the EPS calculation for the period was 683.5m (June 2017: 384.2m).

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 June 2018 would be 18.4 cents per share (June 2017: 17.7 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.

An interim dividend of 11.3 cents per share (June 2017: 11.1 cents) has been declared which will be paid on 27 September 2018 to shareholders on the register on 31 August 2018. This represents an increase of 2%.

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.

Cash generated from operations pre-working capital increased by $59.4m to $176.3m and post-working capital increased by $272.5m to $339.4m mainly as a result of improvements in the management of working capital.

Cash conversion, calculated as cash generated from operations as a percentage of EBITDA (excluding JVs), improved to 127% (June 2017: 49%) due to improved working capital performance partly offset by the cash impact of exceptional costs, primarily related to the integration of AFW. Excluding the impact of exceptional costs cash conversion is 156%.

Payments for capex and intangible assets amounted to $57.4m (June 2017: $46.7m) 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 $6,769.6m (June 2017: $1,976.2m) of goodwill and intangible assets, $4,810.9m of which relates to the acquisition of AFW. The Group's balance sheet has changed significantly as a result of the AFW acquisition with significant increases in current assets, current liabilities and non-current liabilities.

The valuation of certain assets and liabilities acquired as part of the AFW acquisition have been re-measured within the 12 month post-acquisition period in which the acquisition accounting is finalised. The adjustments are recorded against goodwill and total $65.8m and have arisen as a result of better estimates of fair values of these assets and liabilities at the acquisition date. The December 2017 comparatives have been revised accordingly.

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 Group's Total 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. The unwinding on the discount over time is included in finance expense.

Pensions

The Group operates a number of defined benefit pension schemes in the UK and US and a number of defined contribution plans. At 30 June 2018, the defined benefit schemes had a net surplus of $399.0m. In assessing the potential liabilities, judgment is required to determine the assumptions around inflation, investment returns and member longevity. The assumptions at 30 June 2018 include an increase in the discount rate which results in lower scheme liabilities and contributes to the actuarial gain recognised in the period.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group in the second half of 2018 that could lead to a significant loss of reputation or could impact on the performance of the Group, along with our approach to managing, mitigating and monitoring these risks, remain broadly unchanged from those described in the Group's 2017 Annual Report. The key risks are in the following categories:

The mitigating factors are designed to reduce, but cannot be relied upon to eliminate, the risk areas identified. For further details on the management of risk and the principal risks and uncertainties see pages 32 to 34 of the Group's 2017 Annual Report.

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Footnotes

1. Total EBITA represents operating profit including JVs on a proportional basis of $33.8m (June 2017: $34.4m) before the deduction of amortisation of $125.3m (June 2017: $50.7m) and continuing exceptional expense of $101.1m (June 2017: $42.1m) 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 30 June 2018 and includes joint ventures.

4. Interest cover is reported Total EBITA divided by the net finance expense (excluding exceptional items). 

John Wood Group PLC

Interim Financial Statements 2018 

John Wood Group PLC

Group income statement

for the six month period to 30 June 2018

The Group has applied IFRS 15 and IFRS 9 for the first time from 1 January 2018. Under the transition methods chosen, comparative information is not restated. See notes 2 and 3.

The notes on pages 6 to 19 are an integral part of the interim financial statements.

John Wood Group PLC

Group statement of comprehensive income

for the six month period to 30 June 2018

Exchange movements on the retranslation of foreign currency net assets would only be subsequently reclassified through profit or loss in the event of the disposal of a business.

The Group has applied IFRS 15 and IFRS 9 for the first time from 1 January 2018. Under the transition methods chosen, comparative information is not restated. See notes 2 and 3.

The notes on pages 6 to 19 are an integral part of the interim financial statements.

John Wood Group PLC

Group balance sheet

as at 30 June 2018

The Group has applied IFRS 15 and IFRS 9 for the first time from 1 January 2018. Under the transition methods chosen, comparative information is not restated. See notes 2 and 3.

*Refer to note 1

The notes on pages 6 to 19 are an integral part of the interim financial statements.

John Wood Group PLC

Group statement of changes in equity

for the six month period to 30 June 2018

The figures presented in the above tables are unaudited.

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

The Group has applied IFRS 15 and IFRS 9 for the first time from 1 January 2018. Under the transition methods chosen, comparative information is not restated. See notes 2 and 3.

The notes on pages 6 to 19 are an integral part of the interim financial statements.

John Wood Group PLC

Group cash flow statement

for the six month period to 30 June 2018

Closing cash and cash equivalents includes $12.1m presented in assets held for sale on the Group balance sheet (see note 14).

The notes on pages 6 to 19 are an integral part of the interim financial statements.

John Wood Group PLC

Notes to the interim financial statements

for the six month period to 30 June 2018

1. Basis of preparation

The interim report and condensed consolidated financial statements for the six months ended 30 June 2018 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and in accordance with IAS 34 'Interim financial reporting' as adopted by the European Union. The interim report and condensed financial statements should be read in conjunction with the Group's 2017 Annual Report and Accounts which have been prepared in accordance with IFRSs as adopted by the European Union. The financial statements are also in compliance with IFRS as issued by the International Accounting Standards Board.

The interim report and condensed consolidated financial statements have been prepared on the basis of the accounting policies set out in the Group's 2017 Annual Report and Accounts and those new standards discussed below which are applicable from 1 January 2018. The interim report and condensed consolidated financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The interim condensed financial statements were approved by the Board of Directors on 20 August 2018. The results for the six months to 30 June 2018 and the comparative results for six months to 30 June 2017 are unaudited. The comparative figures for the year ended 31 December 2017 do not constitute the statutory financial statements for that year. Those financial statements have been delivered to the Registrar of Companies and include the auditor's report which was unqualified and did not contain any statement under Section 498 of the Companies Act 2006.

Going concern

The Directors have a reasonable expectation that the Group will be able to operate within the level of available facilities and cash for the foreseeable future and accordingly believe that it is appropriate to prepare the consolidated condensed financial statements on a going concern basis. In assessing the basis of preparation of the financial statements for the six months ended 30 June 2018, the Directors have considered the principles of the Financial Reporting Council's 'Guidance on Risk Management, Internal Control and Related Financial and Business Reporting 2014', namely assessing the applicability of the going concern basis, the review period and disclosures.

The Directors have undertaken a rigorous assessment of going concern and liquidity, taking into account financial forecasts. In order to satisfy themselves that they have adequate resources for the future, the Directors have reviewed the Group's existing debt levels, the committed funding and liquidity positions under debt covenants, and the Group's ability to generate cash from trading activities. The Group's principal debt facilities comprise a $886m term loan repayable in 2020, a $1.75bn revolving credit facility maturing in 2022 and $375m of US private placement debt repayable in 2021, 2024 and 2026. At 30 June 2018, the Group had headroom of $949m under these facilities and in addition had $137m of other undrawn borrowing facilities. In undertaking this review the Directors have considered the latest forecasts which provide financial projections through to the end of 2019.

Judgements and estimates

In preparing these interim condensed financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2017 except for new judgments in relation to the application of IFRS 15 and IFRS 9.

The value of the Group's retirement benefit scheme surplus has increased significantly since 31 December 2017 as a result of the increase in the discount rate used in the actuarial valuations. The Group determines the discount rate to be used in conjunction with the scheme actuaries. An increase in the discount rate reduces the defined benefit obligations. The Directors believe it is appropriate to recognise the pension scheme asset as the scheme rules give the employers the right to any surplus on the winding up of the pension schemes.

Restatement of December 2017 balance sheet

The table below reconciles the amounts on the reported balance sheet to the restated figures now included as comparatives.

The Group acquired Amec Foster Wheeler on 6 October 2017. At 31 December 2017, the Group had not fully finalised its assessment of the fair value of certain AFW assets and liabilities and the 2017 financial statements reflected the provisional assessment of the fair values at the acquisition date. During 2018, the Group has reassessed those fair values as a result of new information obtained about facts and circumstances that existed at the acquisition date, and recorded measurement period adjustments of $54.9m in provisions (see note 13) and $4.9m in trade and other payables. After completing the assessment of the valuation of the brands intangible assets, $43.2m of the $727.1m brand intangible asset recognised on acquisition of AFW has been reallocated to goodwill to better allocate the consideration paid to assets acquired. A deferred tax adjustment of $6.0m has also been recorded in relation to the recognition of intangible assets on acquisition. The December 2017 balance sheet has been restated accordingly.

The balance sheet has also been restated to present the element of provisions that is expected to be settled in less than one year within current liabilities and the assets held by the US SERP in other investments. These assets were previously presented in long term receivables.  

John Wood Group PLC

Notes to the interim financial statements

for the six month period to 30 June 2018

Functional currency

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

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

Disclosure of impact of new and future accounting standards

(a) Amended standards and interpretations

The following standards have been published and are mandatory for the Group's accounting periods beginning on or after 1 January 2018.

(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 2019, but the Group has not adopted them early:

2. Impact of application of IFRS 15

The Group has adopted IFRS 15 using the cumulative effect method from 1 January 2018. Accordingly, the information presented for 2017 has not been restated and is presented as previously reported under IAS 18, IAS 11 and related interpretations. 

The Group reviewed its revenue recognition processes from a sample of contracts in both legacy Wood Group and legacy Amec Foster Wheeler businesses. The review was completed in the first half of 2018. The main areas of focus and judgement are listed below but in summary no material changes have resulted from the adoption of the new standard.

The Group has updated its revenue recognition processes and accounting policies for these areas to ensure that it is in compliance with IFRS 15.

3. Impact of application of IFRS 9

IFRS 9 sets out the requirements for recognising and measuring financial assets and financial liabilities. The application of IFRS 9 has had no material impact on the Group's financial statements. Credit losses incurred in the three years to 31 December 2017 amounted to around 0.05% of revenue. Credit losses in the period to 30 June 2018 amounted to $1.0m, which represents 0.02% of revenue. There were no material areas of judgement in reaching this conclusion. 

John Wood Group PLC

Notes to the interim financial statements

for the six month period to 30 June 2018

4. Segmental reporting

Following the acquisition of Amec Foster Wheeler in October 2017, the Group now operates through five segments, Asset Solutions EAAA ('AS EAAA'), Asset Solutions Americas ('AS Americas'), Specialist Technical Solutions ('STS'), Environment and Infrastructure Solutions ('E&IS') and Investment Services. 

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 period included the following:

Reportable operating segments