Full year results for the year ended 31 December 2013

Wood Group delivers good growth with EBITA up 16%

Financial summary

  • Total Revenue of $7,064.2m (2012: $6,828.1m) up 3%
  • Total EBITA1 of $533.0m (2012: $459.1m) up 16%
  • Profit before tax of $412.8m (2012: $361.4m) up 14%
  • Adjusted diluted EPS of 98.6 cents (2012: 85.2 cents) up 16%
  • Total dividend of 22.0 cents per share (2012: 17.0 cents) up 29%

Group highlights

  • Another year of good growth in 2013; performance in line with expectations
  • $276m invested in strategic acquisitions, including Elkhorn in US shale market
  • Enhanced differentiation in gas turbine activities through joint venture with Siemens
  • Wood Group Engineering
    • Growth in all three segments in 2013: Upstream, Subsea & Pipeline and Downstream
    • Scope on Mafumeira Sul and Ichthys substantially complete
    • Slower pace of significant offshore awards; anticipated growth in subsea & pipeline to be more than offset by reduction in Upstream in 2014
  • Wood Group PSN
    • Growth in North Sea; significant renewals maintain leading position and provide visibility
    • Strong growth in the Americas led by US onshore shale related business
    • Reduced losses in Oman; agreeing transition plan with customer to exit
    • US onshore shale to benefit from contribution of Elkhorn; well positioned to deliver good growth in 2014
  • Wood Group GTS
    • Maintenance performance up on 2012; lower contribution from Power Solutions
    • Completion of Siemens joint venture anticipated in H1 2014; all gas turbine activities reported in Wood Group PSN thereafter
    • Performance of gas turbine activities in 2014 expected to be in line with 2013

Bob Keiller, CEO commented:

“2013 represents another year of good growth for Wood Group. In my first full year as CEO, the leadership team and I have considered the Group’s strategy which remains sound and positions us well for the longer term. We are predominantly an upstream oil and gas services business and our intention is to broaden and deepen the services we can offer in this sector. We have reviewed all parts of the Group from three perspectives: risk profile, current and future financial performance and strategic fit with the Group overall, and this has resulted in a number of actions including the acquisition of Elkhorn and the joint venture with Siemens. Looking to 2014, our mix of opex and capex activities and the contribution of completed acquisitions is expected to lead to growth overall.”

Enquiries:

Wood Group

Andrew Rose 01224 851 000
Carolyn Smith

Brunswick

Patrick Handley 020 7404 5959
Nina Coad

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

A live webcast of the presentation will be available from www.woodgroup.com/investors. Replay facilities will be available later in the day.

1 See detailed footnotes.

Chairman’s Statement
Introduction

2013 has been a year of good growth and important strategic development for the Group under Bob Keiller’s leadership in his first full year as CEO, having taken over in November 2012. My appointment as Chairman at that time reflected the need for continuity amongst the senior team. Since his appointment in 2012, Bob has shown excellent leadership as he further develops the Group’s strategy and direction.

Having supported Bob through this planned period of transition I will retire from the Board at the AGM in May. I am delighted that Ian Marchant will take over as Chairman of Wood Group. Ian knows the Group well, having served as a non-executive director on the Board since 2006, latterly as senior independent director. Ian was Chief Executive of SSE plc for over 10 years, is non-executive chairman of Infinis Energy PLC and a non-executive director of Aggreko plc. His appointment represents a natural evolution in the Group’s stewardship and provides important continuity. I am confident that Ian will be an excellent leader of the Board and ensure its continued effectiveness.

Markets

Energy markets generally remained favourable during the year with analysts typically estimating an increase in E&P spend of around 10%. For 2014, analysts estimate some reduction in that growth rate reflecting a greater focus on capital budgets by our customers. The Group continues to have a good balance of opex and capex activities which should help underpin growth in the medium term.

Financial performance and dividends

In 2013, Total Revenue was up 3% and Total EBITA was up 16% to $533.0m, with EBITA margin increasing from 6.7% to 7.5%. Adjusted diluted EPS increased from 85.2 cents to 98.6 cents. We are declaring a final dividend of 14.9 cents which will bring the full year dividend to 22.0 cents, an increase of 29% on 2012.

Board changes

In September, we announced that Mike Straughen, Group Director for Wood Group Engineering intends to retire from the Board during 2014. Mike has stepped away from his Wood Group Engineering role and now oversees the Group's HSE activities and sits on the Safety & Assurance committee. The committee is chaired by Tom Botts, formerly of Shell, who was appointed as non-executive director in January 2013.

In October we entered an agreement to form a joint venture between elements of Wood Group GTS and Siemens’ TurboCare business, at which point Mark Dobler, Group Director for Wood Group GTS stepped down from the Board. Mark will transfer to the new joint venture on formation as its CEO.

Neil H. Smith retired from the Board in December. Neil was a non-executive director from 2004 and served on the Remuneration and Nomination committees during his time on the Board. His knowledge of the power generation industry greatly assisted Board discussions on the strategic development of our gas turbine activities.

I have enjoyed leading Wood Group during an exciting period of organic growth and strategic development including, most recently, the acquisition of PSN and the sale of the Group’s Well Support business. I am leaving the Group well positioned for growth in good long term markets and in the hands of a strong Board and management team. I will continue to follow the Group’s ongoing development with keen interest. Finally, I would like to thank our management and employees for their enormous and continuing contribution in making Wood Group a great company.

Allister Langlands, Chairman

CEO Review

Safety & assurance

The safety of our people, and those affected by what we do, is our top priority. Tragically we had a fatality during the year in our Pyeroy business in Wood Group PSN. We have assessed, and are acting on, the lessons learned. In 2013, we saw some improvement in our total recordable case frequency (TRCF) and our lost work case frequency (LWCF) remained relatively flat. During 2013 we established a Board-level Safety & Assurance committee to provide enhanced visibility and awareness of our performance, and we extended our Safety Leadership Programme to a wider audience.

Financial performance

2013 Group performance

2013
$m

2012
$m

%
Change

Total Revenue

7,064.2

6,828.1

3%

Total EBITA 1

533.0

459.1

16%

EBITA margin %

7.5%

6.7%

0.8pts

Profit before tax

412.8

361.4

14%

Basic EPS

81.4c

71.4c

14%

Adjusted diluted EPS2

98.6c

85.2c

16%

Total dividend

22.0c

17.0c

29%

ROCE6

19.4%

19.3%

0.1pts

Note: The analysis above includes revenue and EBITA related to the Wood Group GTS businesses which will transfer to the gas turbine joint venture with Siemens. As required by accounting standards, the results from these businesses have been included in discontinued operations in the Group Financial Statements for 2013.

2013 represents another year of good growth for the Group with Total EBITA up 16%. In Wood Group Engineering, revenue increased by 11% and EBITA increased by 12% reflecting growth in all three segments; Upstream, Subsea & Pipeline and Downstream. In Wood Group PSN, strong EBITA growth of 28% included a full year contribution from the Duval and Mitchells acquisitions in the US completed during 2012, although performance overall was impacted by continuing losses in Oman where we are now agreeing a transition plan to exit. In Wood Group GTS, revenue fell 19% and EBITA fell 9%, with Maintenance up slightly on 2012 and a lower contribution from Power Solutions. Net debt at the end of December was $310m and average net debt during the year was $258m. Net debt excludes a receipt in January in respect of a recovery in relation to a previously terminated contract in Venezuela which after costs, payments to non-controlling interests and taxation is expected to be around $40m.

Group review

Since my appointment as CEO I have focused on a number of key issues. I have delivered a consistent message to our people that our Core Values are vital for our future success and that we can be even better if we increase collaboration across our business. I have been developing our leadership team on the Executive committee and, together, we have considered the Group’s strategy which remains sound and positions us well for the longer term. We are predominantly an upstream oil and gas services business and our intention is to broaden and deepen the services we can offer in this sector.

We have also reviewed all parts of the Group from three perspectives: risk profile, current and future financial performance and strategic fit with the Group overall, and this has resulted in a number of actions covered below.

I have previously highlighted the need to remain a lower risk, predominantly reimbursable business. During the year we tightened our controls around contracts that contain lump sum or fixed-price elements, to ensure that we keep our overall risk profile within acceptable levels. Typically, these contracts together represent less than 10% of revenues. Specifically in the Power Solutions business of Wood Group GTS, where we have executed large lump sum projects, the risk profile was too high. The Dorad contract is the last remaining contract of this scale and is approaching completion. It is anticipated that the contract will be profitable overall, but will generate a loss in 2013 and we will not pursue further opportunities of this size.

We looked at financial performance across the Group and recognised that in Wood Group GTS, certain Maintenance activities with less differentiation were not delivering an acceptable level of return. We concluded that a sale of the underperforming parts was not in the best interest of shareholders, and recognised that our activities in joint ventures typically deliver stronger performance over the longer term. In October we therefore entered an agreement to form a JV consisting of the Maintenance and Power Solutions businesses of Wood Group GTS (excluding the Rolls Wood Group, TransCanada Turbines and Sulzer Wood joint ventures), and Siemens’ TurboCare business unit which provides aftermarket design, repair and manufacturing services. The JV will be a stronger, better differentiated business, providing access to certain OEM know-how. The JV is expected to deliver annual net synergies to Wood Group of around $15m by year three. In other areas of the Group, we have taken steps including merging operations in Canada, reorganising our Engineering divisional structure and addressing underperforming contracts.
Our consistent message on increasing collaboration has resulted in business opportunities from people working more closely together. Wood Group Mustang and Wood Group PSN jointly secured a topsides detailed engineering and procurement scope in Canada, and we are working more closely together in the US, Australia and elsewhere. We recently completed a corporate rebranding exercise which we believe will improve customer awareness and understanding of the Group’s services, and better facilitate our collaborative efforts. We are increasingly focused on deepening customer relationships at a Group level and this is resulting in a number of potential opportunities.
In 2013, we invested $276m in acquisitions which we believe will improve our financial performance and strategic positioning. In December we acquired Elkhorn for a consideration of $215m, representing around 6 times proforma EBITA. Elkhorn is a Wyoming based construction services provider which enhances our US shale exposure and complements our construction, maintenance and fabrication activities. We also acquired Pyeroy in July to expand the range of services we provide into specialist coatings and fabric maintenance, and in May we acquired Intetech, a niche provider of software and engineering consultancy services for well integrity and corrosion management. We will continue to pursue acquisition opportunities in 2014.
Our consideration of capital structure is informed by our assessment of operating cash flows, investment opportunities, and the risks in our business. We would generally expect a net debt to EBITDA range of around 0.5x to 1.5x going forward, and to be typically below 1.0x. To the extent that the Group has financial capacity which is surplus to the anticipated needs for acquisitions and organic growth, we would look to return this to shareholders through share buy backs or special dividends.
The Group continues to adopt a progressive dividend policy taking into account its capital requirements, cash flows and earnings. Since IPO in 2002, we have increased the dividend by an equivalent of 20% per annum compound. The directors have recommended a final dividend of 14.9 cents per share which makes a total distribution for the year of 22.0 cents, an increase of 29%. Reflecting our confidence in future growth, the Board currently expects the dividend increase in 2014 to be around 25%, and our intent would be to increase the US dollar value of dividend per share paid from 2015 onwards by a double digit percentage.

Outlook

I would like to thank Allister for his valuable support during 2013 and for his extraordinary dedication and leadership over 23 years with Wood Group. During the year, we have taken some important strategic steps and achieved good growth. In 2014, our mix of opex and capex activities and the contribution of completed acquisitions is expected to lead to growth overall, with growth in Wood Group PSN offsetting a reduction in Wood Group Engineering. More details of anticipated performance are set out in the balance of this report. Looking further ahead, we believe our strategy remains sound and positions us well for growth over the longer term.

Bob Keiller, CEO

Wood Group Engineering

We provide a wide range of market-leading engineering services to the upstream, subsea & pipeline, downstream & industrial and clean energy sectors. These include conceptual studies, engineering, project & construction management (EPCM) and control system upgrades.

 

2013
$m

2012
$m

%
Change

Revenue

1,985.4

1,787.3

11.1%

EBITA

246.0

220.0

11.8%

EBITA margin

12.4%

12.3%

0.1pts

People3

10,700

10,200

5%

In Wood Group Engineering, revenue increased by 11% and EBITA increased by 12%, reflecting growth in all three segments; Upstream, Subsea & Pipeline and Downstream. EBITA margin increased slightly from 12.3% to 12.4%. Headcount increased by 5% from 10,200 to 10,700 reflecting additions in Saudi and London, offset by reductions in Canada and Houston.

Our Upstream business accounted for around 40% of divisional revenue. Our scope on the significant Mafumeira Sul and Ichthys projects is substantially complete and made a good EBITA contribution in 2013. We remain active on a number of current offshore projects, including Hess Stampede and Anadarko Heidelberg in the Gulf of Mexico, Husky White Rose in Eastern Canada and Ivar Aasen for SMOE in the North Sea, although increased focus on capital budgets is evident in the slower pace of significant new offshore awards. Performance in Western Canada continues to be impacted by a weak upstream oil sands market and we have taken steps to position our business appropriately.

Subsea & pipeline represented around 40% of divisional revenue. In subsea, the US market remains strong, and in the North Sea we have seen good ongoing brownfield activity including BP Quad 204 and Andrew, despite the impact of some delays such as Chevron Rosebank. Australia has been a strong greenfield market for our subsea business in recent years and we anticipate that a good market for brownfield, infill, tie back and integrity management work will develop in the longer term. Our onshore pipelines business continues to benefit from healthy activity in US shale and we see further pipeline opportunities in North America more generally.

Downstream, process & industrial saw increased activity in the US, Saudi Arabia and Latin America and delivered an improved performance over 2012, although the market remains competitive. 

Outlook
In 2013, Wood Group Engineering delivered EBITA growth of 12%, following growth of over 30% in 2011 and 2012. Looking ahead to 2014, we anticipate growth in Subsea & pipeline to be more than offset by a reduction in Upstream, where we see good prospects although not of the scale of the significant offshore projects recently completed. Overall we see a good long term market for our services but continue to anticipate a reduction in Engineering EBITA of around 15% in 2014.

Wood Group PSN

We provide life of field support to producing assets through brownfield engineering and modifications, production enhancement, operations and maintenance, training, maintenance management and abandonment services.

 

2013
$m

2012
$m

%
Change

Revenue

3,996.0

3,690.7

8.3%

EBITA

262.1

205.0

27.9%

EBITA margin

6.6%

5.6%

1.0pt

People

31,100

29,200

7%

In Wood Group PSN, strong EBITA growth of 28% includes a full year contribution from the Duval and Mitchells acquisitions in the US completed during 2012, although performance overall was impacted by continuing losses in Oman. EBITA margin increased from 5.6% to 6.6% in part due to the change in geographical mix of our business towards shale, overhead reductions and lower losses in Oman. Headcount increased by 7% from 29,200, principally due to the impact of the acquisitions of Pyeroy in July and Elkhorn in December.

In the Americas, which accounted for around 30% of revenue, we saw strong growth led by our US onshore shale related business. In December, we enhanced our US shale market exposure with the acquisition of Elkhorn, a Wyoming based construction services provider, serving the Niobrara, Permian, Marcellus and Utica shales. Wood Group PSN now has around 4,500 onshore personnel providing construction, maintenance and fabrication activities across the most significant US shale plays.
We saw growth in the North Sea, which accounted for around 40% of revenue. The market remains strong and we secured nine contract renewals in 2013 with customers including CNR, ConocoPhillips, Dana, Nexen, Talisman Sinopec, Total. In December, we also won a support services contract for BG’s central North Sea assets. These awards help maintain our leading position and provide good revenue visibility. The acquisition of Pyeroy in July further expanded our range of services and we are starting to see the benefit from Pyeroy’s expansion with oil & gas customers.

In international markets, performance was held back by losses on our PDO contract in Oman, despite an improvement in the underlying position. We are in the process of agreeing a transition plan to exit, after which PDO plans to pursue a different contracting model. We have made an exceptional provision of $28.0m to reflect this. In other international markets, we recently signed a new engineering and construction contract with NCPOC in Kazakhstan and secured significant renewals in Africa. In Asia Pacific, the recently awarded contract with ExxonMobil in Papua New Guinea will help replace successful project work in Australia which is anticipated to complete in the first quarter of 2014.

Outlook
Wood Group PSN is well positioned to deliver good growth in 2014, led by our US onshore shale related business which will benefit from the full year contribution of Elkhorn. Our North Sea business has good revenue visibility following a number of awards. In international markets, we have provided for the impact of potential future losses on the PDO contract and see good prospects in Africa, Asia Pacific and in the Middle East.

Wood Group GTS
We are a leading independent provider of rotating equipment services and solutions for clients in the power and oil & gas markets. These services include: power plant engineering, procurement and construction; facility operations & maintenance; and repair, overhaul, optimisation and upgrades of gas and steam turbines, pumps, compressors and other high-speed rotating equipment.

 

2013
$m

2012
$m

%
Change

Revenue

1,082.8

1,343.3

(19.4)%

EBITA

80.8

88.6

(8.8)%

EBITA margin

7.5%

6.6%

0.9pts

People

3,500

3,400

3%

In Wood Group GTS, revenue fell 19% and EBITA fell 9%. In Maintenance, performance was up slightly on 2012 with strength in our power plant services business offset to some extent by performance elsewhere including the impact of deferrals in our aero derivative activities. Power Solutions was down on 2012 but benefitted from final settlement on the completed GWF contract. We also saw a good contribution from the completed NRG and Pasadena contracts.
The Dorad contract is anticipated to be profitable overall, but generated a loss in 2013 due to factors including the impact of project slippage and associated increased costs. We anticipate that the project will reach substantial completion in the first quarter and that future change orders should result in some profit recognition in 2014. We are the preferred contractor on a number of smaller Power Solutions contracts, although they are not yet in our order book.
In October we entered an agreement to form a JV consisting of the Maintenance and Power Solutions businesses of Wood Group GTS (excluding the Rolls Wood Group, TransCanada Turbines and Sulzer Wood joint ventures), and Siemens’ TurboCare business unit which provides aftermarket gas turbine, steam turbine and generator design, repair and manufacturing services. The shareholding will be split 51% Wood Group: 49% Siemens. The JV should enhance the differentiation and future prospects of our gas turbine activities, bring together complementary strengths, customers, geographies and provide access to certain OEM know-how. It is expected that the JV will deliver annual net synergies to Wood Group of around $15m by year three.

Outlook

Completion of the JV with Siemens is anticipated in the first half of 2014. On completion, all Wood Group’s predominantly opex related gas turbine activities will be in joint ventures and will be reported within Wood Group PSN. It is the Group’s intention to retain proportional consolidation for management and segmental reporting into 2014, and we will continue to provide good visibility of the performance of our gas turbine activities within Wood Group PSN going forward. Performance in those activities is expected to be broadly flat in 2014, with growth in Maintenance offset by a lower contribution from Power Solutions, reflecting our current order book and lower risk appetite.

Financial Review

The Financial Review provides a high level summary of the key matters in the Group Financial Statements. The Review also includes a proforma assessment of revenue and EBITA for 2013, and an alternative presentation of financial performance for 2013 and the balance sheet at the end of 2013 which more closely reflect management’s view of the financial position.

Financial performance

2013
$m

2012
$m

   

 

Total Revenue

7,064.2

6,828.1

  

Continuing

6,379.7

6,118.4

Discontinued – GTS JV

684.5

702.9

Discontinued – Businesses divested in prior year

-

6.8

   
   

Total EBITA

533.0

459.1

  

Continuing

486.0

438.3

Discontinued – GTS JV

47.0

22.8

Discontinued – Businesses divested in prior year

-

(2.0)

   

EBITA margin

7.5%

6.7%

   

Amortisation

(102.1)

(85.5)

Exceptional items

0.5

0.7

Total operating profit

431.4

374.3

Continuing

365.6

335.0

Discontinued – GTS JV

31.4

14.1

Discontinued – Businesses divested in prior year

34.4

25.2

   

Net finance expense

(18.6)

(12.9)

Profit before tax

412.8

361.4

   

Taxation

(112.3)

(103.2)

Profit for the period

300.5

258.2

 

 
 

 

Basic EPS (cents)

81.4c

71.4c

Adjusted diluted EPS (cents)

98.6c

85.2c

The totals above include revenue and EBITA related to the Wood Group GTS businesses which the Group intends to transfer to the recently announced gas turbine JV with Siemens. As required under IFRS 5, the results of the Wood Group GTS businesses that are being transferred into the new joint venture are presented as discontinued activities in the consolidated income statement. However, the Group will own 51% of the new joint venture and, although we will not exercise control, it will remain part of the Group, therefore the Group’s results as prepared for internal management reporting purposes are presented here.

As noted at the time that the JV was announced, it is the Group’s intention to retain proportional consolidation for management and segmental reporting into 2014, which is consistent with the approach above.

A review of the Group’s trading performance is contained within the CEO’s review.

The performance of the Group on a pro forma constant currency basis is set out below. The 2012 results have been restated to include the results of acquisitions made in 2012 as if they had been acquired on 1 January 2012, and also to apply the average exchange rates used to translate the 2013 results. The 2013 results exclude the post-acquisition results of the Pyeroy, Elkhorn and Intetech acquisitions made during 2013; EBITA of $8.8m was earned from these acquisitions in 2013.

Unaudited

2013
$m

2012
$m

%
Change

Wood Group Engineering

1,981.3

1,767.4

12.1

Wood Group PSN

3,887.0

3,723.9

4.4

Wood Group GTS

1,082.8

1,338.5

(19.1)

Wood Group GTS - divested

-

6.8

 

Pro forma total revenue

6,951.1

6,836.6

1.7

Acquisitions

113.1

(99.9)

 

Constant currency

-

91.4

 

As reported

7,064.2

6,828.1

 

  
 

  

Wood Group Engineering

244.2

217.3

12.4

Wood Group PSN

255.1

223.1

14.3

Wood Group GTS

80.8

87.5

(7.7)

Wood Group GTS - divested

-

(2.0)

 

Central costs

(55.9)

(52.1)

(7.3)

Pro forma total EBITA

524.2

473.8

10.6

Acquisitions

8.8

(21.9)

 

Constant currency

-

7.2

 

As reported

533.0

459.1

 

The pro forma result shows underlying growth in revenue of 1.7% and in EBITA of 10.6%.

Amortisation

The amortisation charge for the year of $102.1m (2012: $85.5m) includes $57.6m (2012: $57.1m) of amortisation relating to intangible assets arising from acquisitions, of which $38.5m (2012: $46.0m) is in relation to the PSN acquisition made in 2011. The total amortisation charge for 2014 is expected to be around $111.0m of which it is anticipated around $65.0m will relate to intangible assets arising from acquisitions.

Net finance expense

2013
$m

2012
$m

   
   

Interest on debt

8.5

9.8

 

 
 

4.6

Other fees and charges

11.2

4.6

 

 

Total finance expense

19.7

14.4

 

 

Finance income

(1.1)

(1.5)

 

 

Net finance expense

18.6

12.9

Interest cover4, based on Total EBITA, was 28.7 times (2012: 35.6 times). Other fees and charges have increased during the year due to fees incurred on the renewal of the Group’s bank facilities in February 2013 and the increased pension charge resulting from the changes to IAS 19.

Exceptional items

2013
$m

2012
$m

   
   

Lease termination income

(15.1)

-

Restructuring charges

15.9

14.6

 

 

Onerous contract

28.0

-

Impairment of goodwill

-

1.9

Bad debt (recoveries)/write offs

(6.0)

10.0

 

 

Acquisition and JV formation costs

11.1

-

Businesses divested in prior years

(34.4)

(27.2)

Total exceptional gain before tax

(0.5)

(0.7)

Tax on exceptional items

(1.1)

0.1

Total exceptional gain after tax

(1.6)

(0.6)

   

As set out in the table above, a pre-tax exceptional gain of $0.5m was recognised in the period, $1.6m after tax.

An exceptional gain of $15.1m has been recorded in the period in respect of a one-off compensation payment received by the Group for vacating sub-let office space.

Restructuring charges of $15.9m have been expensed in 2013 relating to the merging of certain businesses in Canada, the write down of assets in Wood Group PSN’s Americas business and the reorganisation of Wood Group Engineering to reflect a change in the management structure of the business.

The Group’s contract with PDO in Oman has continued to make losses in 2013, albeit at a lower level than 2012.  The parties are in the process of agreeing a transition period to exit, after which PDO plans to pursue a different contracting model. The Group has made an exceptional provision of $28.0m to reflect the onerous nature of this contract, comprising an assumption of losses during the period of run-off and an accelerated write-off of assets.

A gain of $6.0m has been recorded in respect of cash recovered against bad debt write offs treated as exceptional charges in previous periods.

Costs of $11.1m have been incurred in the period in respect of acquisition activity (see note 27) and costs in relation to the formation of the joint venture with Siemens, and have been treated as exceptional.

During the period, the Group settled certain matters relating to the Well Support disposal in 2011. As a result of the settlement and a subsequent review of the carrying value of the related warranty provision, $34.4m was credited to exceptional items in 2013.

In 2009, the Group made provision against assets owned and amounts receivable under a contract to provide services in Venezuela which was terminated and subsequently taken over by PDVSA. In January 2014, the Group finalised a settlement agreement and received a payment of $62.5m.  The net recovery, after deduction of costs, payments to non-controlling interests and taxation is expected to be around $40m and will be recorded as a 2014 exceptional gain.

Taxation

2013
$m

2012
$m

Profit before tax

412.8

361.4

Exceptional items

(0.5)

(0.7)

Profit before tax and exceptional items

412.3

360.7

 

 

Total tax charge

112.3

103.2

Tax on exceptional items

1.1

(0.1)

 

Tax charge pre-exceptional items

113.4

103.1

 

Effective tax rate

27.5%

28.6%

The effective tax rate in 2013 was 27.5% (2012: 28.6%). Going forward, we expect the effective tax rate based on proportional consolidation to remain around 27.5% in the medium term.

Earnings per share

Adjusted diluted EPS for the year increased by 16% to 98.6 cents per share (2012: 85.2 cents) due principally to the increase in underlying profitability.

   

Reconciliation of number of fully diluted shares
(All figures are in million shares)

Weighted Average
2013

Ordinary shares

373.8

Shares held by employee trusts

(10.5)

Basic shares for EPS purposes

363.3

Effect of dilutive shares

10.2

Fully diluted shares for EPS purposes

373.5

Adjusted diluted EPS adds back all amortisation. If only the amortisation related to intangible assets arising on acquisition is adjusted, then the figure for 2013 would be 90.0 cents per share (2012: 79.7cents).

Dividend

The Group continues to adopt a progressive dividend policy taking into account its capital requirements, cash flows and earnings. Since IPO in 2002, the Group has increased the dividend by an equivalent of 20% per annum compound.

In line with our policy, the Board is recommending a final dividend of 14.9 cents per share, an increase of 32%, which when added to the interim dividend of 7.1 cents per share makes a total distribution for the year of 22.0 cents per share (2012: 17.0 cents), an increase of 29%. The dividend of 22.0 cents is covered 4.5 times (2012 : 5.0 times) by adjusted earnings per share for the 2013 financial year.   Reflecting confidence in future growth, the Board currently expects the dividend increase in 2014 to be around 25%, and our intent would be to increase the US dollar value of dividend per share paid from 2015 onwards by a double digit percentage.

Summary Balance Sheet

Note 1 to the Group Financial Statements contains a bridge between the balance sheet for management reporting purposes as summarised below and the statutory format which treats certain businesses as discontinued.

 

2013
$m

2012
$m

Assets

  

Non-current assets

2,350.0

2,131.8

Current assets

2,198.0

2,029.3

Liabilities

 

Current liabilities

(1,457.7)

(1,303.4)

Net current assets

740.3

725.9

Non-current liabilities

(674.0)

(622.4)

Net assets

2,416.3

2,235.3

Equity attributable to owners of the parent

2,407.4

2,227.1

Non-controlling interests

8.9

8.2

Total equity

2,416.3

2,235.3

Non-current assets are primarily made up of goodwill and intangible assets, and property, plant and equipment.

The increase in net current assets since December 2012 is primarily due to higher trade receivables in Wood Group Engineering and Wood Group PSN due to increased activity and higher inventory in Wood Group GTS.

The increase in non-current liabilities in 2013 is primarily due to the increase in long term borrowings as a result of the three acquisitions completed during the year.

Capital efficiency

Net debt to total EBITDA at 31 December 2013 was 0.53 times (2012: 0.31 times). The Board would generally expect net debt to EBITDA to be in a range of around 0.5 to 1.5 times going forward, and to be typically below 1.0 times.  To the extent that the Group has financial capacity which is surplus to the anticipated needs for acquisitions and organic growth the Group would look to return this to shareholders through share buy backs or special dividends.

The Group’s pre-tax Return on average Capital Employed6 (“ROCE”) increased slightly from 19.3% to 19.4% with an increase in Wood Group PSN being offset by reductions in Wood Group Engineering and Wood Group GTS.

The Group’s ratio of average Operating Capital Employed to Revenue7 (“OCER”) worsened from 12.5% to 15.6% principally due to a combination of increased inventory and lower revenue in Wood Group GTS and higher average receivable days in both Wood Group Engineering and Wood Group PSN.

Cash flow and net debt

2013
$m

2012
$m

Opening net debt

(154.5)

(3.9)

Cash generated from operations pre-working capital

597.9

520.6

Working capital movements (continuing operations)

(22.0)

(192.9)

Working capital movements (discontinued operations)

(39.5)

-

Cash generated from operations

536.4

327.7

 

 

Acquisitions and deferred consideration

Capex and intangibles

(290.4)

(142.0)

(188.7)

(127.2)

 

 

Disposals

0.3

40.6

Purchase of shares by employee share trusts

(47.8)

-

Tax paid

(127.8)

(134.7)

 

 

Interest, dividends and other

(83.7)

(68.3)

 

 
 

 
 

 

Increase in net debt

(155.0)

(150.6)

 

 

Closing net debt

(309.5)

(154.5)

Throughout the period the Group has maintained a level of debt as set out below.

2013
$m

2012
$m

   

Average net debt
Average gross debt
Closing net debt
Closing gross debt

258.4
436.0
309.5
493.0

140.7
356.5
154.5
326.8

 

 

In February 2013, the Group renewed and extended its bilateral borrowing facilities from $800m to $950m with the maturity date being extended to February 2018.

Cash generated from operations pre-working capital increased by $77.3m to $597.9m and post-working capital increased by $208.7m to $536.4m. The working capital outflow of $61.5m relates primarily to higher trade receivables as a result of increased activity in the period along with higher inventory in GTS, offset by higher payables.

Cash paid in relation to acquisitions totalled $275.5m (2012: $158.3m) and deferred consideration paid in respect of prior period acquisitions amounted to $11.8m (2012: $30.4m). Included within acquisition spend is $3.1m (2012: $nil) relating to the purchase of non-controlling interests.

Payments for capex and intangible assets increased to $142.0m (2012: $127.2m). We anticipate spend on capex and intangible assets to be around $140m in 2014.

The Group’s employee share trusts purchased 3 million shares during the year at a cost of $47.8m.

The reduction in tax paid in the year was due to timing of instalment payments in certain jurisdictions and payments relating to the 2011 Well Support disposal made in 2012.

The increase in interest, dividend and other largely relates to the increased dividend paid in the period.

Pensions

The majority of the Group’s pension arrangements are on a defined contribution basis. The Group operates one UK defined benefit scheme which had 241 active members and 940 deferred, pensionable deferred or pensionable members at 31 December 2013. At 31 December 2013 the scheme had a deficit of $41.2m (2012: $55.0m) before recognition of a deferred tax asset of $9.1m (2012: $12.7m). In assessing the potential liabilities, judgment is required to determine the assumptions around future salary and pension increases, inflation, investment returns and member longevity. The reduction in the deficit from 2012, although affected by a number of factors, was due primarily to better than anticipated investment performance in the period.

The scheme is closed to new members, and future benefits under the scheme are currently provided on a Career Average Revalued Earnings “CARE” basis. The Group has entered into consultation with members of the scheme with regard to a proposal which would result in closure to future accrual from 30 June 2014. No impact of the proposed change has been reflected in the 2013 net liability.

Full details of pension assets and liabilities are provided in note 29 to the Group Financial Statements.

Acquisitions

During the year the Group completed the acquisitions of Intetech, which is a niche provider of software and engineering consultancy services for well integrity and corrosion management services; Pyeroy, a provider of specialist coating and fabric maintenance services; and Elkhorn, a provider of construction services for midstream oil & gas facilities in the US shale market. The total initial consideration for these acquisitions was $275.5m, net of cash and borrowings acquired, of which Elkhorn made up $217.4m ($215.0m consideration plus $2.4m borrowings acquired).

Footnotes
1. Total EBITA includes continuing and discontinued operations and represents total operating profit of $431.4m (2012: $374.3m) before exceptional income of $0.5m (2012: $0.7m) and the deduction of amortisation of $102.1m (2012: $85.5m) and is provided as it is a key unit of measurement used by the Group in the management of its business. Total operating profit for the year comprises operating profit from continuing operations of $365.6m (2012 $335.0m) and operating profit from discontinued operations of $65.8m (2012: $39.3m)
2. Adjusted diluted earnings per share is calculated by dividing earnings before exceptional items and amortisation, net of tax, by the weighted average number of ordinary shares in issue during the period, excluding shares held by the Group's employee ownership trusts and adjusted to assume conversion of all potentially dilutive ordinary shares.
3. Number of people includes both employees and contractors at 31 December.
4. Interest cover is total EBITA divided by the net finance charge.
5. Dividend cover is AEPS divided by the total dividend per ordinary share for the period.
6. Return on Capital Employed (ROCE) is total EBITA divided by average capital employed. 7. Operating Capital Employed to Revenue (OCER) is the average operating capital employed (property, plant and equipment, intangible assets (excluding intangibles recognised on acquisition), inventories and trade and other receivables less trade and other payables) divided by total revenue.