REG - Petrofac Limited - Final Results Part 2 <PFC.L> - Part 3
<pre>- Part 3: For the preceeding part double click [ID:nRSH2058Ib]
include confirmation during the year of the
applicability of a lower tax rate in relation to the group's projects in Oman. The lower rate applies to the profits earned
in earlier years; the effect has been recognised as an adjustment in respect of prior years in the tax reconciliation. Also
a higher proportion of Engineering & Construction segmental profits have been earned in lower tax rate jurisdictions. The
Energy Developments business unit has claimed the tax allowances available to it during 2009 and in particular Ring Fence
Expenditure Supplement which is available for a limited number of accounting periods for company's carrying on a ring fence
trade within the UK Continental Shelf.
For the year ended 31 December 2008 the Company obtained Jersey exempt company status and was therefore exempt from Jersey
income tax on non-Jersey source income and bank interest (by concession). From 1 January 2009 the Jersey exempt company
status regime has been abolished and under the new regime the Company will be charged to tax in Jersey at the rate of 0%.
No material impact to the income tax expense is expected to arise as a result of this change.
c. Deferred income tax
Deferred income tax relates to the following:
Consolidated Balance Sheet Consolidated Income Statement
2009 2008 2009 2008
US$'000 US$'000 US$'000 US$'000
Deferred income tax liabilities
Fair value adjustment on acquisitions 2,599 3,610 (139) (800)
Accelerated depreciation 27,515 23,065 15,472 19,778
Other temporary differences 12,078 11,521 (1,441) (18,094)
Gross deferred income tax liabilities 42,192 38,196
Deferred income tax assets
Losses available for offset 18,413 33,165 (11,130) (28,747)
Decelerated depreciation for tax purposes 7,596 5,893 9,409 (3,932)
Share scheme 18,636 2,799 (1,142) (3,024)
Other temporary differences 5,081 4,587 3,949 (4,418)
Gross deferred income tax assets 49,726 46,444
Deferred income tax (credit)/charge 14,978 (39,237)
(4,418)
Gross deferred income tax assets
49,726
46,444
Deferred income tax (credit)/charge
14,978
(39,237)
6 INCOME TAX (continued)
d. Unrecognised tax losses
Deferred income tax assets are recognised for tax loss carry-forwards and tax credits to the extent that the realisation of
the related tax benefit through the future taxable profits is probable. The group did not recognise deferred income tax
assets of US$15,452,000 (2008: US$20,732,000).
2009 2008
US$'000 US$'000
Expiration dates for tax losses
No earlier than 2022 11,451 11,906
No expiration date 3,360 6,534
14,811 18,440
Tax credits (no expiration date) 641 2,292
15,452 20,732
641
2,292
15,452
20,732
7 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary
shareholders by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary shareholders, after
adjusting for any dilutive effect, by the weighted average number of ordinary shares outstanding during the year, adjusted
for the effects of ordinary shares granted under the employee share award schemes which are held in trust.
The following reflects the income and share data used in calculating basic and diluted earnings per share:
2009 2008
US$'000 US$'000
Net profit attributable to ordinary shareholders for basic and diluted earnings per share 353,603 264,989
353,603
264,989
2009 2008
Number Number
'000 '000
Weighted average number of ordinary shares for basic earnings per share 337,473 339,585
Effect of diluted potential ordinary shares granted under share-based payment schemes 5,187 4,072
Adjusted weighted average number of ordinary shares for diluted earnings per share 342,660 343,657
4,072
Adjusted weighted average number of ordinary shares for diluted earnings per share
342,660
343,657
8 DIVIDENDS PAID AND PROPOSED
2009 2008
US$'000 US$'000
Declared and paid during the year
Equity dividends on ordinary shares:
Final dividend for 2007: 11.50 cents per share - 39,164
Interim dividend 2008: 7.50 cents per share - 25,536
Final dividend for 2008: 17.90 cents per share 60,332 -
Interim dividend 2009: 10.70 cents per share 36,197 -
96,529 64,700
2009 2008
US$'000 US$'000
Proposed for approval at AGM
(not recognised as a liability as at 31 December)
Equity dividends on ordinary shares
Final dividend for 2009: 25.10 cents per share (2008: 17.90 cents per share) 86,729 61,831
(not recognised as a liability as at 31 December)
Equity dividends on ordinary shares
Final dividend for 2009: 25.10 cents per share (2008: 17.90 cents per share)
86,729
61,831
9 PROPERTY, PLANT AND EQUIPMENT
Land,
buildings Office
and furniture Assets
Oil & gas Oil & gas leasehold Plant and and under
assets facilities improvements equipment Vehicles equipment construction Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January 2008 135,515 125,371 21,247 22,556 4,443 53,420 31,064 393,616
Additions 189,214 - 35,018 2,935 2,516 25,859 - 255,542
Acquisition of subsidiaries - - 190 - - 534 - 724
Transfer from capital work in progress - - 31,064 - - - (31,064) -
Disposals - - (723) (683) (318) (875) - (2,599)
Exchange difference (45,626) - (3,708) (2,573) (67) (9,891) - (61,865)
At 1 January 2009 279,103 125,371 83,088 22,235 6,574 69,047 - 585,418
Additions 276,798 32,612 32,632 4,273 4,907 17,663 6,514 375,399
Disposals - - (1,474) (4,631) (789) (3,366) - (10,260)
Exchange difference - - 1,296 1,103 204 3,745 165 6,513
At 31 December 2009 555,901 157,983 115,542 22,980 10,896 87,089 6,679 957,070
Depreciation
At 1 January 2008 (8,874) (73,660) (4,060) (15,049) (3,467) (32,269) - (137,379)
Charge for the year (7,748) (13,366) (5,346) (2,598) (1,052) (15,246) - (45,356)
Disposals - - 544 20 237 726 - 1,527
Exchange difference 435 - 879 1,115 47 6,378 - 8,854
At 1 January 2009 (16,187) (87,026) (7,983) (16,512) (4,235) (40,411) - (172,354)
Charge for the year (60,984) (15,254) (14,998) (3,571) (2,254) (14,843) - (111,904)
Disposals - - 1,330 4,516 740 3,150 - 9,736
Exchange difference - - (379) (1,051) (37) (3,085) - (4,552)
At 31 December 2009 (77,171) (102,280) (22,030) (16,618) (5,786) (55,189) - (279,074)
Net carrying amount:
At 31 December 2009 478,730 55,703 93,512 6,362 5,110 31,900 6,679 677,996
At 31 December 2008 262,916 38,345 75,105 5,723 2,339 28,636 - 413,064
(2,254)
(14,843)
-
(111,904)
Disposals
-
-
1,330
4,516
740
3,150
-
9,736
Exchange difference
-
-
(379)
(1,051)
(37)
(3,085)
-
(4,552)
At 31 December 2009
(77,171)
(102,280)
(22,030)
(16,618)
(5,786)
(55,189)
-
(279,074)
Net carrying amount:
At 31 December 2009
478,730
55,703
93,512
6,362
5,110
31,900
6,679
677,996
At 31 December 2008
262,916
38,345
75,105
5,723
2,339
28,636
-
413,064
No interest has been capitalised within oil & gas facilities during the year (2008: nil) and the accumulated capitalised
interest, net of depreciation at 31 December 2009, was US$931,000 (2008: US$1,430,000).
Additions to oil & gas assets in the year mainly comprise development expenses capitalised on the group's interest in the
Don area assets of US$274,114,000 (2008: US$167,265,000).
9 PROPERTY, PLANT AND EQUIPMENT (continued)
Included in oil & gas assets are US$50,726,000 (2008: US$2,879,000) of capitalised decommissioning costs net of
depreciation provided on the PM304 asset in Malaysia, the Chergui asset in Tunisia and the Don area assets in the United
Kingdom.
Of the total charge for depreciation in the income statement, US$104,997,000 (2008: US$39,143,000) is included in cost of
sales and US$6,907,000 (2008: US$6,213,000) in selling, general and administration expenses.
Capital work in progress comprises of expenditures incurred in relation to the group ERP project.
10 BUSINESS COMBINATIONS
Acquisitions in 2008
Eclipse Petroleum Technology Limited
On 25 July 2008, the group acquired a 100% interest in the share capital of Eclipse Petroleum Technology Limited (Eclipse),
a specialist production engineering company. The consideration for the acquisition inclusive of transaction costs of
Sterling 195,000 (equivalent US$388,000), was Sterling 8,150,000 (equivalent US$16,200,000). The consideration of Sterling
7,955,000 (equivalent US$15,812,000), excluding transaction costs, comprised of Sterling 6,000,000 (equivalent
US$11,927,000) in cash, Sterling 1,000,000 (equivalent US$1,988,000) to be satisfied with 158,177 ordinary shares vesting
in two years' time and the balance being the discounted value of deferred consideration amounting to Sterling 955,000
(equivalent US$1,897,000) payable based on the estimated future profitability of Eclipse. The deferred consideration in no
event will exceed an additional amount of Sterling 9,000,000 (equivalent US$17,892,000).
The fair value of net assets acquired was US$3,960,000, which included fair value of intangible assets recognised on
acquisition of US$2,179,000. These intangible assets recognised on acquisition comprise a proprietary software system which
is being amortised over its remaining economic useful life of six years on a straight-line basis.
During the year, income of US$152,000 (2008: US$275,000 charge) for the unwinding of interest has been reflected in the
income statement reflecting the catch-up impact of the change in the estimated deferred consideration payable during 2009.
The deferred consideration was re-assessed at year end in the light of latest financial projections for the business and
the current carried amount was reduced by Sterling 1,025,000 (equivalent US$1,712,000) with a corresponding decrease in the
carried goodwill.
The residual goodwill of Sterling 5,133,000 (equivalent US$8,327,000) (2008: Sterling 6,158,000, equivalent US$8,995,000)
comprises the fair value of expected future synergies and business opportunities arising from the integration of the
business in to the group.
Caltec Limited
On 29 August 2008, the group acquired a 100% interest in the share capital of Caltec Limited (Caltec), a specialist
production technology company, for a consideration of Sterling 26,776,000 (equivalent US$48,956,000), including transaction
costs of Sterling 596,000 (equivalent US$1,093,000). The consideration of Sterling 26,180,000 (equivalent US$47,863,000),
excluding transaction costs, comprised of Sterling 15,699,000 (equivalent US$28,641,000) in cash as initial consideration
and working capital adjustments and the balance being the discounted value of deferred consideration of Sterling 10,481,000
(equivalent US$19,222,000) payable based on the expected achievement of future performance targets set for the company. The
deferred consideration in no event will exceed an additional amount of Sterling 15,000,000 (equivalent US$27,510,000).
The fair value of net assets acquired was US$8,843,000, which included fair value of intangible assets recognised on
acquisition of US$9,830,000. These intangible assets recognised on acquisition represent patented technology which is being
amortised over its remaining economic useful life of ten years on a straight-line basis.
During the year, a charge of US$752,000 (2008: US$248,000) for the unwinding of interest has been reflected in the income
statement.
During the year, 97,530 (Sterling 1,000,000 equivalent US$1,614,000) Petrofac shares were issued in settlement of
additional deferred consideration payable on the original acquisition.
10 BUSINESS COMBINATIONS (continued)
Acquisitions in 2008 (continued)
Caltec Limited (continued)
The deferred consideration was re-assessed at year end in the light of latest financial projections for the business and
the current carried amount was reduced by Sterling 1,754,000 (equivalent US$2,929,000) with a corresponding decrease in the
carried goodwill.
The residual goodwill of Sterling 20,072,000 (equivalent US$32,563,000) (2008: Sterling 21,826,000, equivalent
US$31,881,000) comprises the fair value of expected future synergies and business opportunities arising from the
integration of the business in to the group.
11 GOODWILL
A summary of the movements in goodwill is presented below:
2009 2008
US$'000 US$'000
At 1 January 97,534 71,743
Acquisitions during the year (note 10) - 52,353
Reassessment of deferred consideration payable (note 10 & 26) (8,992) -
Exchange difference 9,380 (26,562)
At 31 December 97,922 97,534
9,380
(26,562)
At 31 December
97,922
97,534
The decrease in goodwill is as a result of the reassessment of deferred consideration payable on SPD Group Limited of
US$4,351,000, Eclipse Petroleum Technology Limited of US$1,712,000 and Caltec Limited of US$2,929,000.
Goodwill acquired through business combinations has been allocated to four groups of cash-generating units, which are
operating segments, for impairment testing as follows:
· Offshore Engineering & Operations
· Production Solutions
· Training
· Energy Developments
These represent the lowest level within the group at which the goodwill is monitored for internal management purposes.
Offshore Engineering & Operations, Production Solutions and Training cash-generating units
The recoverable amounts for the Offshore Engineering & Operations, Production Solutions and Training units have been
determined based on value in use calculations, using discounted pre-tax cash flow projections. Management has adopted a ten
year projection period to assess each unit's value in use as it is confident based on past experience of the accuracy of
long-term cash flow forecasts that these projections are reliable. The cash flow projections are based on financial budgets
approved by senior management covering a five year period, extrapolated for a further five years at a growth rate of 5% for
Offshore Engineering & Operations and Training cash-generating units and 2.5% per annum for Production Solutions
cash-generating unit since it includes newly acquired businesses (note 10) where there is less historic track record of
achieving financial projections. Management considers these long-term growth rates to be conservative relative to both the
economic outlook for the units in their respective markets within the oil & gas industry and the growth rates experienced
in the recent past by each unit.
Energy Developments cash-generating unit
The recoverable amount of the Energy Developments unit is also determined on a value in use calculation using discounted
pre-tax cash flow projections based on financial budgets and economic assumptions for the unit approved by senior
management and covering a five year period, as referred to in IAS 36.
11 GOODWILL (continued)
Carrying amount of goodwill allocated to each group of cash-generating units
2009 2008
US$'000 US$'000
Offshore Engineering & Operations unit 22,975 20,433
Production Solutions unit 52,496 56,653
Training unit 20,234 18,231
Energy Developments unit 2,217 2,217
97,922 97,534
2,217
2,217
97,922
97,534
Key assumptions used in value in use calculations
The calculation of value in use for the Offshore Engineering & Operations, Production Solutions and Training units is most
sensitive to the following assumptions:
Market share: the assumption relating to market share for the Offshore Engineering & Operations unit is based on the unit
re-securing those existing customer contracts in the UK which are due to expire during the projection period; for the
Training unit, the key assumptions relate to management's assessment of maintaining the unit's market share in the UK and
developing further the business in international markets.
Growth rate: estimates are based on management's assessment of market share having regard to macro-economic factors and the
growth rates experienced in the recent past by each unit. A growth rate of 5% per annum has been applied for Offshore
Engineering & Operations and Training cash-generating units for the remaining five years of the ten year projection period
and 2.5% per annum for Production Solutions cash-generating unit since it includes newly acquired businesses (note 10)
where there is less historic track record of achieving financial projections.
Net profit margins:estimates are based on management's assumption of achieving a level of performance at least in line with
the recent past performance of each of the units.
Discount rate: management has used a pre-tax discount rate of 14.5% per annum for Offshore Engineering & Operations (2008:
16.1%), Production Solutions (2008: 16.1%) and Training (2008: 15.1%) cash-generating units which are derived from the
estimated weighted average cost of capital of the group. This discount rate has been calculated using an estimated risk
free rate of return adjusted for the group's estimated equity market risk premium and the group's cost of debt.
The calculation of value in use for the Energy Developments unit is most sensitive to the following assumptions:
Discount rate: management has used an estimate of the pre-tax weighted average cost of capital of the group plus a risk
premium to reflect the particular risk characteristics of each individual investment. The discount rate used for 2009 was
10.5% for each asset (2008: 11.4%).
Oil & gas prices:management has used an oil price assumption of US$70 (2008: US$55) per barrel and a gas price of US$8.30
(2008: US$6.40) per mcf for the impairment testing of its individual oil & gas investments.
Reserve volumes and production profiles: management has used its internally developed economic models of reserves and
production as a basis of calculating value in use.
Sensitivity to changes in assumptions
With regard to the assessment of value in use of the cash generating units, management believes that no reasonably possible
change in any of the above key assumptions would cause the carrying value of the relevant unit to exceed its recoverable
amount, after giving due consideration to the macro-economic outlook for the oil & gas industry and the commercial
arrangements with customers underpinning the cash flow forecasts for each of the units.
12 INTANGIBLE ASSETS
2009 2008
US$'000 US$'000
Intangible oil & gas assets
Cost:
At 1 January 43,137 15,927
Additions 29,230 37,036
Asset written off - (9,826)
Disposal (18,479) -
At 31 December 53,888 43,137
Accumulated impairment:
At 1 January (13,686) (8,686)
Impairment (4,793) (5,000)
Disposal 18,479 -
At 31 December - (13,686)
Net book value of intangible oil & gas assets at 31 December 53,888 29,451
Other intangible assets
Cost:
At 1 January 13,892 3,930
Additions on acquisition (note 10) - 12,009
Acquired intangible assets (note 10) - 414
Additions 10,375 -
Exchange difference 1,209 (2,461)
At 31 December 25,476 13,892
Accumulated amortisation:
At 1 January (4,990) (2,161)
Amortisation (1,083) (2,829)
Exchange difference (184) -
At 31 December (6,257) (4,990)
Net book value of other intangible assets at 31 December 19,219 8,902
Total intangible assets 73,107 38,353
Amortisation
(1,083)
(2,829)
Exchange difference
(184)
-
At 31 December
(6,257)
(4,990)
Net book value of other intangible assets at 31 December
19,219
8,902
Total intangible assets
73,107
38,353
Intangible oil & gas assets
Oil & gas asset (part of the Energy Development segment) additions above comprise of US$29,230,000 (2008: US$24,658,000) of
capitalised expenditure on near field appraisal wells in the group's 30% interest in Block PM304, offshore Malaysia.
During the year a further impairment provision of US$4,793,000 (2008: US$5,000,000) was made against the group's interest
in Permit NT/P68 in Australia. The group's interests in the project were transferred to a third party for US$ nil
consideration.
There were investing cash outflows relating to capitalised intangible oil & gas assets of US$29,230,000 (2008:
US$37,036,000) in the current period arising from pre-development activities. As at 31 December 2009 there were cash and
deposits of US$ nil (2008: US$495,000) and trade and other payables of US$ nil (2008: US$508,000) arising from
pre-development activities in the current period.
12 INTANGIBLE ASSETS (continued)
Other intangible assets
Additions to other intangible assets of US$10,375,000 comprise of US$7,980,000 paid on account of intellectual property
rights to LNG technology and capitalisation of further development costs of a proprietary well engineering software system
of US$2,395,000. Other intangible assets comprising customer contracts, proprietory software, LNG intellectual property
and patent technology are being amortised over their remaining estimated economic useful life of three, six, eight and ten
years respectively on a straight-line basis and the related amortisation charges included in selling, general and
administrative expenses (note 4e).
13 INTEREST IN JOINT VENTURES
In the normal course of business, the group establishes jointly controlled entities and operations for the execution of
certain of its operations and contracts. A list of these joint ventures is disclosed in note 33. The group's share of
assets, liabilities, revenues and expenses relating to jointly controlled entities and operations is as follows:
2009 2008
US$'000 US$'000
Revenue 31,573 28,878
Cost of sales (28,293) (21,481)
Gross profit 3,280 7,397
Selling, general and administration expenses (16,374) (1,200)
Other income/(expense), net 47 -
Finance income, net 5 87
(Loss)/profit before income tax (13,042) 6,284
Income tax (268) (523)
Net (loss)/profit (13,310) 5,761
Current assets 61,677 38,295
Non-current assets 4,830 3,644
Total assets 66,507 41,939
Current liabilities 64,619 2,446
Non-current liabilities 3,686 -
Total liabilities 68,305 2,446
Net (liabilities)/assets (1,798) 39,493
Current liabilities
64,619
2,446
Non-current liabilities
3,686
-
Total liabilities
68,305
2,446
Net (liabilities)/assets
(1,798)
39,493
14 AVAILABLE-FOR-SALE FINANCIAL ASSETS
2009 2008
US$'000 US$'000
Shares - listed - 133
Units in a mutual fund 539 433
539 566
433
539
566
Available-for-sale financial assets consist of units in a mutual fund and therefore have no fixed maturity date or coupon
rate.
During the year, the listed shares were sold for US$95,000 realising a US$38,000 loss on disposal. In 2008 an impairment
provision of US$355,000 was made against the above listed shares held as an available-for-sale financial asset on the basis
of a fall in the market value of these shares was considered to be significant.
15 OTHER FINANCIAL ASSETS
2009 2008
US$'000 US$'000
Other financial assets - non-current
Fair value of derivative instruments (note 31) 9,655 7,227
Restricted cash 2,880 1,899
12,535 9,126
Other financial assets - current
Fair value of derivative instruments (note 31) 22,306 5,631
Interest receivable 845 1,047
Restricted cash 7,431 2,736
Other 375 295
30,957 9,709
2,736
Other
375
295
30,957
9,709
Restricted cash comprises deposits with financial institutions securing various guarantees and performance bonds associated
with the group's trading activities and cash in escrow against reimbursed long-term employee benefits charged to a customer
and for the acquisition of a company (note 32). This cash will be released on the maturity of these guarantees and
performance bonds and on the transfer/cessation of employment of the relevant employee for which the long-term benefit is
held in escrow.
16 INVENTORIES
2009 2008
US$'000 US$'000
Crude oil 5,272 1,669
Processed hydrocarbons 31 805
Stores and spares 2,943 744
Raw materials 1,552 859
9,798 4,077
1,552
859
9,798
4,077
Included in the income statement are costs of inventories expensed of US$37,306,000 (2008: US$22,404,000).
17 WORK IN PROGRESS AND BILLINGS IN EXCESS OF COST AND ESTIMATED EARNINGS
2009 2008
US$'000 US$'000
Cost and estimated earnings 3,918,368 3,782,100
Less: billings (3,584,670) (3,529,405)
Work in progress 333,698 252,695
Billings 3,406,412 1,509,548
Less: cost and estimated earnings (2,945,268) (1,224,021)
Billings in excess of cost and estimated earnings 461,144 285,527
Total cost and estimated earnings 6,863,636 5,006,121
Total billings 6,991,082 5,038,953
6,863,636
5,006,121
Total billings
6,991,082
5,038,953
18 TRADE AND OTHER RECEIVABLES
2009 2008
US$'000 US$'000
Trade receivables 614,837 608,023
Retentions receivable 8,772 2,241
Advances 139,550 31,977
Prepayments and deposits 35,143 24,849
Other receivables 80,368 33,841
878,670 700,931
Other receivables
80,368
33,841
878,670
700,931
Trade receivables are non-interest bearing and are generally on 30 to 60 days' terms. Trade receivables are reported net of
provision for impairment. The movements in the provision for impairment against trade receivables totalling US$614,837,000
(2008: US$608,023,000) are as follows:
2009 2008
Specific General Specific General
Impairment impairment Total impairment impairment Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 3,698 1,296 4,994 4,086 1,216 5,302
Charge for the year 6,309 1,320 7,629 1,361 482 1,843
Amounts written off (343) (198) (541) - (333) (333)
Unused amounts reversed (4,798) (661) (5,459) (1,530) (15) (1,545)
Exchange difference 9 (3) 6 (219) (54) (273)
At 31 December 4,875 1,754 6,629 3,698 1,296 4,994
(5,459)
(1,530)
(15)
(1,545)
Exchange difference
9
(3)
6
(219)
(54)
(273)
At 31 December
4,875
1,754
6,629
3,698
1,296
4,994
At 31 December, the analysis of trade receivables is as follows:
Neither past Number of days past due
due nor
impaired < 30 31-60 61-90 91-120 121-360 > 360
days days days days days days Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Unimpaired 434,159 116,197 28,835 13,365 3,431 5,977 2,138 604,102
Impaired - 3,177 2,148 386 2,510 6,220 2,923 17,364
434,159 119,374 30,983 13,751 5,941 12,197 5,061 621,466
Less: impairment provision - (585) (243) (332) (305) (3,421) (1,743) (6,629)
Net trade receivables 2009 434,159 118,789 30,740 13,419 5,636 8,776 3,318 614,837
Unimpaired 325,844 197,790 45,106 11,012 10,460 12,714 1,319 604,245
Impaired - 734 86 618 666 3,032 3,636 8,772
325,844 198,524 45,192 11,630 11,126 15,746 4,955 613,017
Less: impairment provision - (190) (85) (194) (249) (1,640) (2,636) (4,994)
Net trade receivables 2008 325,844 198,334 45,107 11,436 10,877 14,106 2,319 608,023
604,245
Impaired
-
734
86
618
666
3,032
3,636
8,772
325,844
198,524
45,192
11,630
11,126
15,746
4,955
613,017
Less: impairment provision
-
(190)
(85)
(194)
(249)
(1,640)
(2,636)
(4,994)
Net trade receivables 2008
325,844
198,334
45,107
11,436
10,877
14,106
2,319
608,023
The credit quality of trade receivables that are neither past due nor impaired is assessed by management with reference to
externally prepared customer credit reports and the historic payment track records of the counterparties.
Advances represent payments made to certain of the group's sub-contractors for projects in progress, on which the related
work had not been performed at the balance sheet date. The significant increase in advances during 2009 relates to some
major new contract awards in the Engineering & Construction business.
Included in other receivables are US$46,697,000 (2008: US$ nil) recoverable from venture partners on the Don assets being
their share of accrued expenses.
All trade and other receivables are expected to be settled in cash.
Certain trade and other receivables will be settled in cash using currencies other than the reporting currency of the
group, and will be largely paid in Sterling and Kuwaiti Dinars.
19 CASH AND SHORT-TERM DEPOSITS
2009 2008
US$'000 US$'000
Cash at bank and in hand 203,105 107,461
Short-term deposits 1,214,258 586,954
Total cash and bank balances 1,417,363 694,415
586,954
Total cash and bank balances
1,417,363
694,415
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying
periods of between one day and three months depending on the immediate cash requirements of the group, and earn interest at
respective short-term deposit rates. The fair value of cash and bank balances is US$1,417,363,000 (2008: US$694,415,000).
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
2009 2008
US$'000 US$'000
Cash at bank and in hand 203,105 107,461
Short-term deposits 1,214,258 586,954
Bank overdrafts (note 24) (26,619) (45,256)
1,390,744 649,159
(45,256)
1,390,744
649,159
20 SHARE CAPITAL
The share capital of the Company as at 31 December was as follows:
2009 2008
US$'000 US$'000
Authorised
750,000,000 ordinary shares of US$0.025 each
(2008: 750,000,000 ordinary shares of US$0.025 each) 18,750 18,750
Issued and fully paid
345,532,388 ordinary shares of US$0.025 each
(2008: 345,434,858 ordinary shares of US$0.025 each) 8,638 8,636
(2008: 345,434,858 ordinary shares of US$0.025 each)
8,638
8,636
The movement in the number of issued and fully paid ordinary shares is as follows:
Number
Ordinary shares:
Ordinary shares of US$0.025 each at 1 January 2008 345,434,858
Movement during the year -
Ordinary shares of US$0.025 each at 1 January 2009 345,434,858
Issued during the year as further deferred consideration payable for the acquisition of a subsidiary (note 10) 97,530
Ordinary shares of US$0.025 each at 31 December 2009 345,532,388
97,530
Ordinary shares of US$0.025 each at 31 December 2009
345,532,388
The share capital comprises only one class of ordinary shares. The ordinary shares carry a voting right and the right to a
dividend.
21 TREASURY SHARES
For the purpose of making awards under its employee share schemes, the Company acquires its own shares which are held by
the Petrofac Employee Benefit Trust. All these shares have been classified in the balance sheet as treasury shares within
equity.
The movements in total treasury shares are shown below:
2009 2008
Number US$'000 Number US$'000
At 1 January 9,540,306 69,333 4,052,024 29,842
Acquired during the year - - 5,854,194 42,500
Vested during the year (2,329,341) (13,048) (365,912) (3,009)
At 31 December 7,210,965 56,285 9,540,306 69,333
(365,912)
(3,009)
At 31 December
7,210,965
56,285
9,540,306
69,333
As at 31 December 2009 5,504,819 (2008: 5,504,819) of the above shares were held by Lehman Brothers in a client custody
account which is now being managed by their appointed administrator. The Company anticipates that the Administrators will
release these assets in the near future under a signed Claim Resolution Agreement approved by the creditors.
Included in the above treasury shares are 274,938 (2008: 274,938) shares held in relation to the acquisition of SPD Group
Limited in 2007.
Shares vested during the year include dividend shares of 76,931 (2008: 3,096) with a cost of US$431,000 (2008: US$25,000).
22 SHARE-BASED PAYMENT PLANS
Performance Share Plan (PSP)
Under the Performance Share Plan of the Company, share awards are granted to executive Directors and a restricted number of
other senior executives of the group. The shares cliff vest at the end of three years subject to continued employment and
the achievement of certain pre-defined non-market and market based performance conditions. The non-market based condition
governing the vesting of 50% of the total award, is subject to achieving between 15% and 25% earning per share (EPS) growth
targets over a three year period. The fair values of the equity-settled award relating to the EPS part of the scheme are
estimated based on the quoted closing market price per Company share at the date of grant with an assumed vesting rate per
annum built into the calculation (subsequently trued up at year end based on the actual leaver rate during the period from
award date to year end) over the three year vesting period of the plan. The fair value and assumed vesting rates of the EPS
part of the scheme are shown below:
Fair value per share Assumed vesting rate
2009 awards 545p 100.0%
2008 awards 522p 91.3%
2007 awards 415p 94.9%
2006 awards 353p 91.7%
415p
94.9%
2006 awards
353p
91.7%
The remaining 50% market performance based part of these awards is dependent on the total shareholder return (TSR) of the
group compared to an index composed of selected relevant companies. The fair value of the shares vesting under this portion
of the award is determined by an independent valuer using a Monte Carlo simulation model taking into account the terms and
conditions of the plan rules and using the following assumptions at the date of grant:
22 SHARE-BASED PAYMENT PLANS (continued)
Performance Share Plan (PSP) (continued)
2009 awards 2008 awards 2007 awards 2006 awards
Expected share price volatility (based on median of comparator group's three year volatilities) 49.0% 32.0% 29.0% 28.0%
Share price correlation with comparator group 36.0% 22.0% 17.0% 10.0%
Risk-free interest rate 2.10% 3.79% 5.20% 4.60%
Expected life of share award 3 years 3 years 3 years 3 years
Fair value of TSR portion 456p 287p 245p 234p
4.60%
Expected life of share award
3 years
3 years
3 years
3 years
Fair value of TSR portion
456p
287p
245p
234p
The following shows the movement in the number of shares held under the PSP scheme outstanding but not exercisable:
2009 2008
Number Number
Outstanding at 1 January 1,298,809 864,181
Granted during the year 576,780 456,240
Vested during the year (418,153) -
Forfeited during the year (24,756) (21,612)
Outstanding at 31 December 1,432,680 1,298,809
(24,756)
(21,612)
Outstanding at 31 December
1,432,680
1,298,809
The number of awards still outstanding but not exercisable at 31 December 2009 is made up of 576,780 in respect of 2009
awards (2008: nil), 431,843 in respect of 2008 awards (2008: 451,178), 424,057 in respect of 2007 awards (2008: 436,603)
and nil for 2006 (2008: 411,028).
The charge recognised in the current year amounted to US$2,727,000 (2008: US$2,258,000).
Deferred Bonus Share Plan (DBSP)
Executive Directors and selected employees were originally eligible to participate in this scheme although the Remuneration
Committee decided during 2007 that executive Directors should no longer continue to participate. Participants may be
invited to elect or in some cases, be required, to receive a proportion of any bonus in ordinary shares of the Company
("Invested Awards"). Following such an award, the Company will generally grant the participant an additional award of a
number of shares bearing a specified ratio to the number of his or her invested shares ("Matching Shares").
The 2006 share awards vest on the third anniversary of the grant date provided that the participant did not leave the
group's employment, subject to a limited number of exceptions. However, a change in the rules of the DBSP scheme was
approved by shareholders at the Annual General Meeting of the Company on 11 May 2007 such that the 2007 share awards and
for any awards made thereafter, the invested and matching shares would, unless the Remuneration Committee of the Board of
Directors determined otherwise, vest 33.33% on the first anniversary of the date of grant, a further 33.33% on the second
anniversary of the date of grant and the final 33.34% of the award on the third anniversary of the date of grant.
At the year end the values of the bonuses settled by shares cannot be determined until all employees have confirmed the
voluntary portion of their bonus they wish to be settled by shares rather than cash and until the Remuneration Committee
has approved the mandatory portion of the employee bonuses to be settled in shares. Once the voluntary and mandatory
portions of the bonus to be settled in shares are determined, the final bonus liability to be settled in shares is
transferred to the reserve for share-based payments. The costs relating to the matching shares are recognised over the
relevant vesting period and the fair values of the equity-settled matching shares granted to employees are based on the
quoted closing market price at the date of grant adjusted for the trued up percentage vesting rate of the plan. The details
of the fair values and assumed vesting rates of the DBSP scheme are below:
22 SHARE-BASED PAYMENT PLANS (continued)
Deferred Bonus Share Plan (DBSP) (continued)
Fair value per share Assumed vesting rate
2009 awards 545p 98.2%
2008 awards 522p 92.9%
2007 awards 415p 90.7%
2006 awards 353p 85.5%
415p
90.7%
2006 awards
353p
85.5%
The following shows the movement in the number of shares held under the DBSP scheme outstanding but not exercisable:
2009 2008
Number* Number*
Outstanding at 1 January 3,755,383 2,558,711
Granted during the year 2,773,020 1,777,080
Vested during the year (1,743,372) (385,700)
Forfeited during the year (90,840) (194,708)
Outstanding at 31 December 4,694,191 3,755,383
(90,840)
(194,708)
Outstanding at 31 December
4,694,191
3,755,383
* Includes invested and matching shares.
The number of awards still outstanding but not exercisable at 31 December 2009 is made up of 2,696,752 in respect of 2009
awards (2008: nil), 1,237,786 in respect of 2008 awards (2008: 1,688,558), 759,653 in respect of 2007 awards (2008:
1,084,602) and nil for 2006 awards (2008: 982,223).
The charge recognised in the 2009 income statement in relation to matching share awards amounted to US$8,064,000 (2008:
US$5,665,000).
Share Incentive Plan (SIP)
All UK employees, including UK resident Directors, are eligible to participate in the scheme. Employees may invest up to
Sterling 1,500 per tax year of gross salary (or, if lower, 10% of salary) to purchase ordinary shares in the Company. There
is no holding period for these shares.
Restricted Share Plan (RSP)
Under the Restricted Share Plan scheme, employees are granted shares in the Company over a discretionary vesting period
which may or may not be, at the direction of the Remuneration Committee of the Board of Directors, subject to the
satisfaction of performance conditions. At present there are no performance conditions applying to this scheme nor is
there currently any intention to introduce them in the future. The fair values of the awards granted under the plan at
various grant dates during the year are based on the quoted market price at the date of grant adjusted for an assumed
vesting rate over the relevant vesting period. For details of the fair values and assumed vesting rate of the RSP scheme,
see below:
Weighted average fair value per share Assumed vesting rate
2009 awards 430p 100.0%
2008 awards 478p 91.1%
2007 awards 456p 94.4%
2006 awards 278p 96.3%
456p
94.4%
2006 awards
278p
96.3%
22 SHARE-BASED PAYMENT PLANS (continued)
Restricted Share Plan (RSP) (continued)
The following shows the movement in the number of shares held under the RSP scheme outstanding but not exercisable:
2009 2008
Number Number
Outstanding at 1 January 1,184,711 394,216
Granted during the year 86,432 811,399
Vested during the year (167,053) (5,180)
Forfeited during the year (21,629) (15,724)
Outstanding at 31 December 1,082,461 1,184,711
(21,629)
(15,724)
Outstanding at 31 December
1,082,461
1,184,711
The number of awards still outstanding but not exercisable at 31 December 2009 is made up of 86,432 in respect of 2009
awards (2008: nil), 786,826 in respect of 2008 awards (2008: 795,675), 209,203 in respect of 2007 awards (2008: 234,387)
and nil for 2006 awards (2008: 154,649).
During the year the Company recognised a charge of US$2,472,000 (2008: US$1,525,000) in relation to the above.
The group has recognised a total charge of US$13,263,000 (2008: US$9,448,000) in the income statement during the year
relating to the above employee share-based schemes (see note 4f) which has been transferred to the reserve for share-based
payments along with US$10,942,000 of the bonus liability accrued for the year ended 31 December 2008 which has been settled
in shares granted during the year (2008: US$9,602,000).
For further details on the above employee share-based payment schemes refer to pages 70 to 73 of the Directors'
Remuneration Report.
23
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