Financial statements - Wood

Strategic report

Governance

Financial statements

Group financial statements

The audited financial statements of Wood for the year ended 31 December 2018

Independent auditors' report

78

Consolidated income statement

86

Consolidated statement of

87

comprehensive income/expense

Consolidated balance sheet

88

Consolidated statement of

89

changes in equity

Consolidated cash flow statement

90

Notes to the financial statements

91

Company financial statements

Company balance sheet

160

Statement of changes in equity

161

Notes to the Company financial

162

statements

Five year summary

171

Information for shareholders

172

Financial statements

John Wood Group PLC Annual Report and Accounts 2018

77

Financial statements

Independent auditors' report

to the members of John Wood Group PLC

1. Our opinion is unmodified

We have audited the financial statements of John Wood Group PLC ("the Company") for the year ended 31 December 2018 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income / expense, the Consolidated balance sheet, the Consolidated statement of changes in equity, the Consolidated cash flow statement, the Company balance sheet, the Company statement of changes in equity, and the related notes, including the accounting policies of pages 91 to 98 and 162 to 163.

In our opinion: ? the financial statements give a true and fair view of the state

of the Group's and of the parent Company's affairs as at 31 December 2018 and of the Group's loss for the year then ended;

? the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union;

? the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and

? the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee.

We were first appointed as auditor by the shareholders on 11 May 2018. The financial year ended 31 December 2018 is our first year as auditor. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.

Overview Materiality: group financial statements as a whole Coverage Key audit matters Event driven Recurring risks

Event driven Parent Company recurring risk

$50m 0.5% of revenue

79% of group revenue

The impact of uncertainties due to the UK exiting the European Union on our audit

Revenue recognition on fixed price contracts

Goodwill impairment

Litigation, investigations and contingent liabilities

Uncertain tax positions

US asbestos related claims provision

Gross defined benefit pension liability

Amec Foster Wheeler Plc acquisition measurement period adjustments

Recoverability of Parent Company's investment in subsidiaries

78

John Wood Group PLC Annual Report and Accounts 2018

Strategic report

Governance

Financial statements

2. Key audit matters: including our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

The impact of uncertainties due to the UK exiting the European Union on our audit

Refer to page 39 (principal risks), and page 42 (viability statement).

The risk

Our response

Unprecedented levels of uncertainty:

We developed a standardised firm-wide approach to

All audits assess and challenge the reasonableness of estimates, in particular as described in goodwill impairment below, and related disclosures and

the consideration of the uncertainties arising from Brexit in planning and performing our audits. Our procedures included:

the appropriateness of the going concern basis of

? Our Brexit knowledge: We considered the directors'

preparation of the financial statements. All of these

assessment of Brexit-related sources of risk for the

depend on assessments of the future economic

Group's business and financial resources compared

environment and the group's future prospects and

with our own understanding of the risks. We

performance.

considered the directors' plans to take action to

In addition, we are required to consider the other

mitigate the risks.

information presented in the Annual Report including ? Sensitivity analysis: When addressing goodwill

the principal risks disclosure and the viability statement impairment and other areas that depend on

and to consider the directors' statement that the

forecasts, we compared the directors' analysis to

annual report and financial statements taken as

our assessment of the full range of reasonably

a whole is fair, balanced and understandable and

possible scenarios resulting from Brexit uncertainty

provides the information necessary for shareholders to and, where forecast cash flows are required to be

assess the Group's position and performance, business discounted, considered adjustments to discount

model and strategy.

rates for the level of remaining uncertainty.

Brexit is one of the most significant economic events for the UK and at the date of this report its effects are subject to unprecedented levels of uncertainty of outcomes, with the full range of possible effects unknown.

? Assessing transparency: As well as assessing individual disclosures as part of our procedures on goodwill impairment we considered all of the Brexit related disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks.

Revenue recognition on fixed price contracts

(Revenue from lump sum contracts ? $3,252.8 million)

Refer to page 57 (Audit Committee Report), page 93 (accounting policy) and page 101 (financial disclosures).

Subjective estimate:

Long-term, fixed price contracts can include both complex technical and commercial requirements and last for a number of years.

At each balance sheet date, estimates and assumptions involving a high degree of estimation uncertainty are required to:

? estimate the forecast costs to complete the contract, as revenue is recognised with reference to the percentage of costs incurred relative to total forecast costs on the contract;

? incorporate an allowance for technical and commercial risks or customer claims or contract penalties; and

? estimate the likelihood of the approval of contract variations for additional compensation.

The effect of these matters is that, as part of our risk assessment, we determined that revenue from fixed price contracts has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. The financial statements (note 2) disclose the sensitivity estimated by the Group.

Our results ? As reported under goodwill impairment, we found

the resulting estimates and related disclosures of goodwill impairment and disclosures in relation to going concern to be acceptable. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

Our procedures included:

? Personnel interviews: we obtained an understanding of the performance and status of a sample of contracts through discussion with operational and finance contract project teams to ensure all relevant information was included in cost forecasts.

? Test of detail: for a sample of contracts, we analysed correspondence with customers around variations and claims to challenge the estimates of claims and variations included in the forecast.

? Test of detail: inspected a sample of contracts for key financial clauses and correspondence with customers. We compared these to assumptions in the forecasts and challenged variances.

? Test of detail: for a sample of contracts analysed the revenue and cost forecasts on contracts including allowances tested and challenged the estimates within the forecasts by considering the forecast value of the amount of work still to be delivered and against programme run rates, and any contingency held.

Our results ? We considered the amount of revenue on fixed

price contracts to be acceptable.

John Wood Group PLC Annual Report and Accounts 2018

79

Financial statements | Independent auditors' report

Goodwill impairment

(Goodwill - $5,398.5 million)

Refer to page 57 (Audit Committee Report), page 92 (accounting policy) and pages 109-110 (financial disclosures).

The risk

Forecast-based valuation:

The Group estimates recoverable amounts based on value in use which requires significant estimation in forecasting future cash flows and determining discount rates.

There was only limited headroom in the goodwill impairment tests for the Asset Solutions EAAA and the Environment & Infrastructure Solutions Cash Generating Units making their impairment risk very sensitive to changes in key assumptions.

The effect of these matters is that, as part of our risk assessment, we determined that the value in use of goodwill has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (note 9) disclose the sensitivity estimated by the Group.

Our response

Our procedures included:

? Assessing methodology: we assessed whether the principles and integrity of the cash flow model is in accordance with relevant accounting standards.

? Sensitivity analysis: we performed our own sensitivity analysis including a reasonably possible reduction in forecast cash flows and an alternative discount rate assumption to assess level of sensitivity to these.

? Our sector experience: we considered the most sensitive assumptions in determining the cash flows and growth assumptions applied with reference to the accuracy of historical forecasts and wider macro-environment conditions.

? Our valuation expertise: we challenged the assumptions used by the Group in the calculation of the discount rates, including comparisons with external data sources and by involving our own valuation specialist to assist us in assessing the discount rate assumptions applied.

? Benchmarking assumptions: we compared the Group's assumptions to externally derived data in relation to key inputs such as discount rates.

? Assessing transparency: we assessed whether the Group's disclosures about the sensitivity of the outcome of the impairment assessment to a reasonably possible change in the discount rate and cash flows reflected the risks inherent in the valuation of goodwill.

Litigation, investigations and contingent liabilities

(Certain amounts forming part of project related provisions ? $301.9 million)

Refer to page 57 (Audit Committee Report), page 93 (accounting policy) and pages 122, 125 and 143 (financial disclosures).

Our results ? As a result of our work, we found the Group's

resulting estimate of the recoverable amount of goodwill to be acceptable.

Dispute outcome:

Our procedures included:

A number of significant claims are being litigated where the potential exposure could be high. We consider those with a with potential exposure greater than $25 million to be the most significant. The outcome of any such litigations is uncertain and any position taken by management involves significant judgements and estimates.

The Group has made a number of disclosures to the US Securities and Exchange Commission (SEC), the US Department of Justice (DoJ), the UK Serious Fraud Office (SFO), the Crown Office and Procurator Fiscal Service (COPFS) in Scotland and the Brazilian Federal Prosecution Service and Office of the Comptroller General, and other regulators in relation to historic business practices and agreements with commercial intermediaries including Unaoil and possible bribery and corruption related offences.

The effect of these matters is that, as part of our risk assessment, we determined that the provisions and contingent liabilities for litigations and investigations has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (notes 19 and 33) disclose the range estimated by the Group.

? Enquiry of lawyers: on all significant legal cases and investigations, where available, we assessed correspondence with the Group's external lawyers in order to corroborate our understanding of these matters, accompanied by discussions with external counsel in relation to investigations.

? Personnel interviews: on all significant matters subject to litigation / adversarial proceedings, we discussed the status of those matters with internal counsel and considered the documentation available to support the assessment as to whether the matter should be provided for or disclosed as a contingent liability.

? Assessing provisions: where provisions were required we considered the documentation available, evaluated the assumptions used in determining the likely economic outflow and assessed the basis of management's estimate.

? Our compliance expertise: we used our own forensic specialists to analyse correspondence with regulators to assess the status of investigations in relation to historic business practices and agreements with commercial intermediaries including Unaoil and possible bribery and corruption related offences.

? Assessing transparency: we assessed whether the Group's disclosures detailing significant legal proceedings and investigations adequately disclose the potential liabilities of the Group.

Our results ? From the evidence obtained, we considered

the level of provisioning and contingent liability disclosures for litigations and investigations to be acceptable.

80 John Wood Group PLC Annual Report and Accounts 2018

Strategic report

Governance

Financial statements

The risk

Our response

Uncertain tax positions

Subjective estimate:

Our procedures included:

($176.9 million)

Refer to page 57 (Audit Committee Report), page 92 (accounting policy) and page 106 (financial disclosures).

The Group operates in a number of territories worldwide with complex local and international tax legislation. There are significant uncertainties in the estimates of provisions due to potential exposures arising from past tax planning arrangements and tax audits. Tax provisioning for uncertain tax positions is judgmental and requires estimates to be made in relation to existing and potential tax matters.

The effect of these matters is that, as part of our risk assessment, we determined that provision for uncertain tax positions has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. The financial statements (note 6) disclose the range estimated by the Group.

? Our tax expertise: we used our own tax specialists from the UK and overseas to perform an assessment of the Group's tax positions through the review of correspondence with the relevant tax authorities and discussions with the Group. We challenged the assumptions applied using our own expectations based on our knowledge of the Group and considered relevant judgements passed by authorities.

? Assessing transparency: we assessed the adequacy of the Group's disclosure in respect of tax and uncertain tax positions.

Our results ? We considered the level of provisioning for

uncertain tax positions to be acceptable.

US asbestos related claims provision

($453.4 million)

Refer to page 57 (Audit Committee Report), page 93 (accounting policy) and pages 122-124 (financial disclosures).

Subjective estimate:

The amount of the US asbestos related litigation provision depends on a number of estimates, including the forecast number of open and future claims, the average cost per claim, the number of claims that result in no settlement and the discount rate applied to the forecast.

There is a considerable amount of judgement required in setting the above assumptions and a small change in the assumptions and estimates may have a significant impact on the US asbestos related claims provision.

The effect of these matters is that, as part of our risk assessment, we determined that estimate of the US asbestos related claims provision has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (note 19) disclose the sensitivity estimated by the Group.

Our procedures included:

? Our actuarial expertise: we used our own US actuarial specialists to challenge key assumptions and estimates used in the calculation of the US asbestos related claims provision. The key assumptions and estimates we tested included the forecast number of open and future claims, the average cost per claim, the number of claims that result in no settlement and the discount rate.

? Benchmarking assumptions: we performed a comparison of key assumptions against our own benchmark ranges which are derived from externally-available data.

? Methodology choice: we used our own US actuarial specialists to assess the appropriateness and selection of the model used in the valuation.

? Test of detail: we evaluated the assumption for the average costs per claim against the recent history of claims settled.

? Assessing valuer's credentials: we assessed the directors' external valuer's competence and independence.

? Assessing transparency: we considered the adequacy of the Group's disclosure in respect of the US asbestos related claims provision and the assumptions used, which are set out in note 19 to the financial statements.

Our results ? We found the US asbestos related claims provision

recognised to be acceptable.

John Wood Group PLC Annual Report and Accounts 2018

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